-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, UcS5KiBQO05bYWZYLXR2p5pG346WSR3bWxmacFHZ/A5sF1Sk26YPkYLa3GOHWDhx diIMBXY/FBDQK/CkTkDp/g== 0000912057-94-003244.txt : 19940929 0000912057-94-003244.hdr.sgml : 19940929 ACCESSION NUMBER: 0000912057-94-003244 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19940928 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONE CONTAINER CORP CENTRAL INDEX KEY: 0000094610 STANDARD INDUSTRIAL CLASSIFICATION: 2631 IRS NUMBER: 362041256 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-54769 FILM NUMBER: 94550525 BUSINESS ADDRESS: STREET 1: 150 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3123466600 MAIL ADDRESS: STREET 1: 18TH FL, CORPORATE ACCOUNTING STREET 2: 150 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60601 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1994 REGISTRATION NO. 33-54769 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ STONE CONTAINER CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 2621 36-2041256 (State or Other Jurisdiction (Primary Standard (I.R.S. Employer of Incorporation or Industrial Identification No.) Organization) Classification Code Number)
150 North Michigan Avenue Chicago, Illinois 60601 312-346-6600 (Address including zip code, and telephone number including area code, of Registrant's principal executive offices) ------------------------ Arnold F. Brookstone Executive Vice President-Chief Financial and Planning Officer Stone Container Corporation 150 North Michigan Avenue Chicago, Illinois 60601 312-346-6600 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: Richard G. Clemens Barry M. Fox Leslie T. Lederer Sidley & Austin Cleary, Gottlieb, Steen & Stone Container Corporation One First National Hamilton 150 North Michigan Avenue Plaza One Liberty Plaza Chicago, Illinois 60601 Chicago, Illinois New York, New York 10006 60603
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box./ / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STONE CONTAINER CORPORATION CROSS REFERENCE SHEET
ITEM NO. - --------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus........................... Facing Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus.................. Available Information; Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges... Outside Front Cover Page of Prospectus; Prospectus Summary; The Company; Risk Factors; Selected Financial Data 4. Use of Proceeds....................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price....... Outside Front Cover Page of Prospectus; Underwriting 6. Dilution.............................. Not Applicable 7. Selling Security Holders.............. Not Applicable 8. Plan of Distribution.................. Outside Front Cover Page of Prospectus; Prospectus Summary; Underwriting 9. Description of Securities to be Registered........................... Outside Front Cover Page of Prospectus; Capitalization; Description of Notes, The Collateral Under the First Mortgage Note Indenture 10. Interests of Named Experts and Counsel.............................. Experts; Legal Matters 11. Information with Respect to the Registrant........................... Outside Front Cover Page of Prospectus; Prospectus Summary; Summary Financial Data; The Company; Risk Factors; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Properties; Management; Security Ownership By Certain Beneficial Owners and Management; Credit Agreement; Description of Notes, The Collateral Under the First Mortgage Note Indenture; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.......................... Not Applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION DATED SEPTEMBER 28, 1994 $700,000,000 [LOGO] STONE CONTAINER CORPORATION $500,000,000 % FIRST MORTGAGE NOTES DUE 2002 $200,000,000 % SENIOR NOTES DUE 2004 Interest on the % First Mortgage Notes due , 2002 (the "First Mortgage Notes") is payable semi-annually on and of each year, commencing , 1995. Interest on the % Senior Notes due , 2004 (the "Senior Notes") is payable semi-annually on and of each year, commencing , 1995. The First Mortgage Notes and the Senior Notes are collectively referred to herein as the "Notes." The First Mortgage Notes may not be redeemed by Stone Container Corporation (the "Company") prior to , 1999 and are redeemable thereafter at the redemption prices set forth herein. The Senior Notes may not be redeemed by the Company prior to , 1999 and are redeemable thereafter at the redemption prices set forth herein. The Notes do not provide for any sinking fund. Upon a Change of Control (as defined), and upon the satisfaction of certain conditions, the Company will be required to offer to repurchase the outstanding Notes at a price equal to 101% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to the date of repurchase. See "Description of Notes -- Change of Control." The First Mortgage Notes will be senior secured obligations of the Company and the Senior Notes will be senior unsecured obligations of the Company. The First Mortgage Notes will be secured by a first ranking lien on four of the Company's containerboard mills. The Notes will rank PARI PASSU in right of payment with each other and all other Senior Indebtedness (as defined) of the Company. The Notes will be senior in right of payment to all Subordinated Indebtedness (as defined) of the Company. See "Description of Notes -- Ranking." The net proceeds to the Company from the issuance and sale of the Notes offered hereby (the "Offering") will be used to repay indebtedness and for general corporate purposes. See "Use of Proceeds." The issuance and sale of the Notes in the Offering will occur concurrently with certain related transactions and the closing by the Company of a new senior secured credit agreement (the "Credit Agreement"), each of which is conditioned upon the successful completion of the other. The Credit Agreement is comprised of a $400 million term loan and a $450 million revolving credit facility. The revolving credit facility borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing, and approximately $ million which the Company will borrow at closing. Borrowings under the Credit Agreement will constitute Senior Indebtedness and will be secured by a significant portion of the assets of the Company. See "Credit Agreement." Application will be made to list the First Mortgage Notes and the Senior Notes on the New York Stock Exchange. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THIS OFFERING. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT COMPANY(1)(2) Per First Mortgage Note.......................................................... % % % Total............................................................................ $ $ $ Per Senior Note.................................................................. % % % Total............................................................................ $ $ $ - ---------------------------------------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from date of issuance. (2) Before deduction of expenses of the Offering payable by the Company estimated at $ .
The First Mortgage Notes and the Senior Notes are offered subject to receipt and acceptance by the Underwriters, to prior sale and to the Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the First Mortgage Notes and the Senior Notes will be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through the facilities of The Depository Trust Company, on or about , 1994. SALOMON BROTHERS INC BT SECURITIES CORPORATION MORGAN STANLEY & CO. INCORPORATED KIDDER, PEABODY P CO. INCORPORATED BEAR, STEARNS & CO. INC. The date of this Prospectus is , 1994. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE FIRST MORTGAGE NOTES AND/ OR THE SENIOR NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN UNDER THE CAPTION "RISK FACTORS." CERTAIN CAPITALIZED TERMS USED HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE TERM "COMPANY" INCLUDES STONE CONTAINER CORPORATION, ITS SUBSIDIARIES AND ITS AFFILIATES, EXCEPT AS THE CONTEXT OTHERWISE MAY REQUIRE. THE COMPANY The Company is a major international pulp and paper company engaged principally in the production and sale of paper, packaging products, and market pulp. The Company believes that it is the world's largest producer of unbleached containerboard and kraft paper and the world's largest converter of those products into corrugated containers and paper sacks and bags. The Company also believes that it is one of the world's largest paper companies in terms of annual tonnage, having produced approximately 7.5 million total tons of paper and pulp in each of 1993 and 1992. The Company produced approximately 4.9 million and 5.0 million tons of unbleached containerboard and kraft paper in 1993 and 1992, respectively, which accounted for approximately 66% of its total tonnage produced for both 1993 and 1992. The Company had net sales of approximately $5.1 billion and $5.5 billion in 1993 and 1992, respectively. The Company owns or has an interest in 135 manufacturing facilities in the United States, 26 in Canada, 15 in Germany, six in France, two in Belgium and one in each of the United Kingdom and the Netherlands. The facilities include 23 mills. The Company also maintains sales offices in the United States, Canada, the United Kingdom, Germany, Belgium, France, Mexico, China and Japan, has a forestry operation in Costa Rica and has a joint venture relationship in Venezuela. PAPERBOARD AND PAPER PACKAGING The Company believes that its integrated unbleached paperboard and paper packaging system is the largest in the world with 16 mills and 136 converting plants located throughout the United States and Canada and in Europe. The major products in this business are containerboard and corrugated containers, which are primarily sold to a broad range of manufacturers of consumable and durable goods; kraft paper and paper bags and sacks, which are primarily sold to supermarket chains, retailers of consumer products and, in the case of multiwall shipping sacks, to the agricultural, chemical and cement industries; and boxboard and folding cartons, which are sold to manufacturers of consumable goods and other box manufacturers. The unbleached packaging business of the Company has an annual capacity of approximately 5.3 million tons and is more than 80% integrated. In 1993, total sales for the paperboard and paper packaging business of the Company were approximately $3.8 billion, or approximately 75% of total consolidated sales. WHITE PAPER AND PULP The Company believes that, together with its 75% owned consolidated subsidiary, Stone-Consolidated Corporation ("Stone-Consolidated"), it is the largest producer of uncoated groundwood paper in North America and the fourth largest producer of newsprint in North America. Stone-Consolidated, a Canadian corporation, owns all of the Canadian and United Kingdom newsprint and uncoated groundwood paper assets of the Company. Stone-Consolidated owns three newsprint mills (two in Canada and one in the United Kingdom) and two uncoated groundwood paper mills in Canada. The newsprint production of the Company's linerboard and newsprint mill in Snowflake, Arizona is marketed by Stone-Consolidated on a commission basis. The Company and Stone-Consolidated have the capacity to produce 1.4 million tons of newsprint and 500,000 tons of uncoated groundwood paper annually. Newsprint is marketed to newspaper publishers and commercial printers. Uncoated groundwood paper is sold for use primarily in newspaper inserts, retail store advertising fliers, magazines, telephone directories and as computer paper. The Company believes it is a major market producer in the production of market pulp in North America. The Company owns and operates five market pulp mills in North America, including the Castlegar, British Columbia mill in which the Company has a 25% interest (the "Celgar mill"). These mills 3 have the capacity to produce 1.5 million tons of market pulp annually. The geographic diversity of the Company's mills enables the Company to offer its customers a product mix of bleached northern and southern hardwood and bleached northern softwood pulp. Market pulp is sold to manufacturers of paper products, including fine papers, photographic papers, tissue and newsprint. In 1993, total sales for the white paper and pulp business of the Company (which includes Stone-Consolidated sales) were approximately $965 million, or approximately 19% of total consolidated sales. PRODUCT PRICING AND INDUSTRY TRENDS The markets for products sold by the Company are highly competitive and are also sensitive to changes in industry capacity and cyclical changes in the economy, both of which can significantly impact selling prices and thereby the Company's profitability. From 1990 through the third quarter of 1993, the Company experienced substantial declines in the pricing of most of its products. Market conditions have improved since October 1993, which have allowed the Company to increase prices for most of its products. While prices for most of the Company's products are approaching the historical high prices achieved during the peak of the last industry cycle, the Company's production costs (including labor, fiber and energy), as well as its interest expense, have also significantly increased since the last pricing peak in the industry, increasing pressure on the Company's net margins for its products. The Company's containerboard and corrugated container product lines, which represent a substantial portion of the Company's net sales, generally experienced declining product prices from 1990 through the third quarter of 1993. Since October 1, 1993, the Company has increased the price of linerboard in the fourth quarter of 1993 and the first quarter and third quarter of 1994 by $25 per ton, $30 per ton and $40 per ton, respectively. Prices for corrugating medium also increased by $25 per ton, $40 per ton and $50 per ton in the corresponding periods. In addition, in the first half of 1994, the Company implemented corrugated container price increases and began implementing on July 25, 1994, a 9.5% price increase for corrugated containers. Historically, suppliers, including the Company, have taken up to 90 days to pass increased linerboard and corrugating medium prices through to corrugated container customers. The Company converts more than 80% of its linerboard and corrugating medium products into corrugated containers, making the achievement of price increases for corrugated containers essential for the Company to realize substantial financial benefit from linerboard and corrugating medium price increases. On August 5, 1994, the Company announced to its customers an additional price increase of $40 per ton for linerboard and $50 per ton for corrugating medium effective for the fourth quarter of 1994. While there can be no assurance that these price increases will be implemented or that prices will continue to increase or even be maintained at present levels, the Company believes that the supply/ demand characteristics for linerboard, corrugating medium and corrugated containers have improved which could allow for further price increases for these product lines. According to industry publications, immediately preceding the price increase effective October 1, 1993, the reported transaction price for 42 lb. kraft linerboard, the base grade of linerboard, was $300 per ton and as of August 1, 1994, the reported transaction price for this base grade was $385-$395 per ton. According to industry publications, the reported transaction price for corrugating medium immediately preceding October 1, 1993 was $280 per ton and $375-$385 per ton as of August 1, 1994. The Company has also implemented price increases in kraft paper and kraft paper converted products. The Company increased prices for retail bags and sacks by 8% on each of April 1, May 1, and July 1, 1994 and announced and began implementing a further price increase of 10% effective September 1, 1994. In addition, the Company has announced and began implementing on August 1, 1994 a $50 per ton (approximately 8.6%) price increase for kraft paper. Pricing for market pulp has improved substantially in 1994. The Company has increased prices for various grades of market pulp by up to $260 per metric tonne since November 1993. According to industry publications, the reported transaction price for southern bleached hardwood kraft ("SBHK") was $370 per metric tonne as of the third quarter of 1993 and $500-570 per metric tonne as of the second 4 quarter of 1994. On July 1, 1994 the Company implemented a further price increase of $70 per metric tonne (approximately 12.2%). The Company has announced a further price increase of $70 per metric tonne to be implemented in the fourth quarter. After further declines in the first quarter of 1994, pricing for newsprint has also recently improved. The Company increased newsprint prices in the second quarter of 1994 by $48 per metric tonne in the eastern markets of North America and $41 per metric tonne in the western markets of North America and $41 per metric tonne in the eastern markets of North America and $48 per metric tonne in the western markets of North America in the third quarter of 1994. According to industry publications, the reported transaction price for newsprint in the eastern markets of North America was $411 per metric tonne as of March 1, 1993 and $470 per metric tonne as of August 1, 1994. To date, uncoated groundwood papers have not achieved significant price increases. However, a further price increase of approximately $48 per metric tonne has been announced for the fourth quarter of 1994. Although supply/demand balances appear favorable for most of the Company's products, there can be no assurance that announced price increases will be achieved or that prices can be maintained at present levels. The price of recycled fiber, one of the principal raw materials in the manufacture of certain of the Company's products, has increased substantially in 1994. The historically cyclical markets for wood fiber and recycled fiber are highly competitive, and as the demand for the Company's products rises, the demand for and cost of fiber, particularly recycled fiber, may further increase. See "Risk Factors -- Cyclicality and Pricing; Fiber Supply and Pricing." FINANCIAL STRATEGY In 1993, the Company adopted a financial plan designed to increase the Company's liquidity and improve its financial flexibility, by prepaying the near term scheduled amortizations under its bank credit agreements (the "1989 Credit Agreement"). The financial plan was implemented in response to continuing net losses resulting from depressed sales prices for the Company's products and the Company's highly leveraged capital structure and related interest expense associated with indebtedness incurred to finance the acquisition of Consolidated-Bathurst Inc. (a Canadian corporation, renamed Stone Container (Canada) Inc. ("Stone Canada")). In 1993, as part of the financial plan, the Company satisfied its remaining 1993 and 1994 scheduled amortization obligations under the 1989 Credit Agreement and repaid outstanding borrowings (a portion of which could subsequently be reborrowed) under the revolving credit facility portion of the 1989 Credit Agreement with the proceeds from (i) the sale of $400 million aggregate principal amount of additional Company indebtedness, (ii) the public offering in Canada of approximately 25% of the common stock (Cdn. $231 million) of Stone-Consolidated and the contemporaneous sale by Stone-Consolidated of Cdn. $231 million principal amount of convertible subordinated debentures in Canada and $225 million principal amount of senior secured notes in the U.S., and (iii) the sale of approximately $125 million of assets. In February 1994, the Company sold $710 million principal amount of 9 7/8% Senior Notes due 2001 and approximately 19 million shares of its common stock for gross proceeds of approximately $289 million from the sale of such common stock (the "February 1994 Offerings"). The Company used the $962 million of net proceeds from the February 1994 Offerings to (i) prepay scheduled amortizations under the 1989 Credit Agreement for all of 1995 and a portion of 1996 and 1997, (ii) fully redeem the principal amount of the Company's 13 5/8% Subordinated Notes due 1995, and (iii) repay outstanding borrowings under the revolving credit facility portion of the 1989 Credit Agreement, a portion of which remained available for reborrowing thereunder. The Company, as part of its financial plan, is evaluating certain alternatives for the disposition and monetization of its non-core assets including the U.S. wood products business. As an initial step in achieving this objective, the Company on September 27, 1994, announced the closure of three facilities of the wood products business in the Pacific Northwest. The operations of the closed facilities will be consolidated with other wood product operations of the Company in the Northwest, while the Company 5 will dispose of excess assets including inventory as soon as practicable in an orderly liquidation. The impact of such closure and sale of assets on the Company's 3rd Quarter results has not yet been fully determined but is not expected to have a material effect on the Company. The Company is continuing to pursue its financial strategy of increasing the Company's liquidity and improving its financial flexibility. Concurrently with the closing of this Offering, the Company will (i) repay all of the outstanding indebtedness and commitments under and terminate the 1989 Credit Agreement, (ii) enter into the Credit Agreement and (iii) repay the outstanding borrowings under the credit agreement of Stone Savannah River Pulp & Paper Corporation ("Savannah River") and, on or prior to December 30, 1994, redeem the outstanding senior subordinated notes and Series A preferred stock of Savannah River, each of which (other than the redemptions) is conditioned upon the successful completion of the other transactions (collectively, the "Related Transactions"). The Credit Agreement will consist of a $400 million secured term loan and a $450 million secured revolving credit facility. The revolving credit facility borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing, and approximately $ million which the Company will borrow at closing. Savannah River is currently a 93% owned subsidiary of the Company. On or prior to the closing of the Offering, the Company will (i) repay all of the indebtedness outstanding under and terminate Savannah River's bank credit agreement (the "Savannah River Credit Agreement"), (ii) give notice of redemption to, and deposit the redemption price with, the trustee of the $130 million principal amount of Savannah River's 14 1/8% Senior Subordinated Notes due 2000 (the "Savannah River Notes"), which shall be redeemed on or prior to December 30, 1994, and (iii) purchase the 72,346 outstanding shares of common stock of Savannah River not owned by the Company pursuant to a merger of a wholly owned subsidiary of the Company and Savannah River. On or before December 30, 1994, the Company will also cause the 425,243 outstanding shares of Series A Cumulative Redeemable Exchangeable Preferred Stock of Savannah River (the "Savannah River Preferred") not owned by the Company to be redeemed. The completion of this Offering, together with the Related Transactions, will extend the scheduled amortization obligations and final maturities of more than $1 billion of the Company's indebtedness, improve the Company's liquidity by replacing its current $166 million revolving credit facility commitments with $450 million of revolving credit commitments (of which borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing, and approximately $ million of borrowings thereunder which will be borrowed at closing) and improve the Company's financial flexibility through entering into the Credit Agreement. The Company will incur a charge for the write-off of previously unamortized debt issuance costs, related to the debt being repaid (approximately $45 million, net of income tax benefit) upon the completion of the Offering and Related Transactions. This non-cash charge will be recorded as an extraordinary loss from the early extinguishment of debt in the Company's Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit). 6 The sources and uses of funds in connection with the Offering and the Related Transactions are estimated to be as follows:
(IN MILLIONS) Sources: $ First Mortgage Notes......................................................... Senior Notes................................................................. Credit Agreement Term Loan.................................................................. Revolving Credit Facility(1)............................................... Other(2)..................................................................... ------------- Total:......................................................................... $ ------------- ------------- Uses: Repayment of 1989 Credit Agreement borrowings................................ $ Repayment of Savannah River Credit Agreement borrowings...................... Redemption of Savannah River Notes........................................... Redemption of Savannah River Preferred....................................... Repurchase of Savannah River Common Stock.................................... General corporate purposes(3)................................................ ------------- Total:......................................................................... $ ------------- ------------- - ------------------------ (1) Commitment of $450 million (of which borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing and approximately $ million of borrowings thereunder which will be borrowed at closing). (2) Cash escrow relating to letters of credit released due to the repayment of the 1989 Credit Agreement. (3) Includes payment of fees and expenses relating to the Credit Agreement, which are estimated to total $29 million and expenses relating to the Offering (other than the Underwriters' discount) estimated to total $2 million.
7 THE OFFERING OF NOTES Securities Offered................ $500 million principal amount of % First Mortgage Notes due 2002 (the "First Mortgage Notes"). $200 million principal amount of % Senior Notes due 2004 (the "Senior Notes") (the Senior Notes and the First Mortgage Notes being collectively referred to as the "Notes"). The First Mortgage Notes will be issued pursuant to an indenture dated as of , 1994 (the "First Mortgage Note Indenture") between the Company and Norwest Bank Minnesota, N.A., as trustee (the "First Mortgage Note Trustee"), and the Senior Notes will be issued pursuant to an indenture dated as of , 1994 (the "Senior Note Indenture") between the Company and The Bank of New York, as trustee (the "Senior Note Trustee"). The First Mortgage Note Indenture and the Senior Note Indenture will be substantially identical, except for provisions, including certain covenants, with respect to the Collateral (as defined) securing the First Mortgage Notes, and are collectively referred to herein as the "Indentures." Interest Payment Dates............ Interest on the First Mortgage Notes will be payable semi-annually on and , commencing , 1995. Interest on the Senior Notes will be payable semi-annually on and , commencing , 1995. Optional Redemption............... The First Mortgage Notes are redeemable at the option of the Company, in whole or from time to time in part, on and after , 1999, at the redemption prices set forth herein, together with accrued and unpaid interest. See "Description of Notes -- Optional Redemption." The Senior Notes are redeemable at the option of the Company, in whole or from time to time in part, on and after , 1999, at the redemption prices set forth herein, together with accrued and unpaid interest. See "Description of Notes -- Optional Redemption." Change of Control................. Upon the occurrence of a Change of Control (as defined) the Company is required to offer to repurchase each holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. If such repurchase would constitute an event of default under Specified Bank Debt (as defined), then, prior to making such repurchase offer, the Company is required to (i) repay in full in cash such Specified Bank Debt or (ii) obtain the requisite consent of lenders of such Specified Bank Debt to permit the repurchase of Notes without giving rise to an event of default under such Specified Bank Debt. Such Change of Control provisions in and of themselves may not afford holders of the Notes protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect such holders if such transaction is not the type
8 of transaction included within the definition of Change of Control. A transaction involving specified Stone family members or their affiliates will result in a Change of Control only if it is the type of transaction specified by such definition. See "Description of Notes -- Change of Control." There can be no assurance that the Company would have sufficient funds to pay the required purchase price for all Notes tendered by the holders thereof in the event of a Change of Control. Neither the Board of Directors of the Company nor the respective trustees under the Indentures relating to the Notes may waive the Change of Control provisions. Ranking........................... The Notes will rank PARI PASSU in right of payment with all existing and future Senior Indebtedness (as defined) of the Company and senior in right of payment and in rights upon liquidation to all existing and future Subordinated Indebtedness (as defined) of the Company. Obligations of the Company's subsidiaries, however, will represent prior claims with respect to the assets and earnings of such subsidiaries. Borrowings under the Credit Agreement will constitute Senior Indebtedness and will be secured by a significant portion of the Company's assets. The First Mortgage Notes will be secured by certain other assets of the Company as described herein. See "Description of Notes -- Ranking." Limitation on Future Liens........ FIRST MORTGAGE NOTES AND SENIOR NOTES. If the Company or any Subsidiary (as defined) shall create or permit the existence of any Lien (as defined) other than Permitted Liens (as defined) upon any of its respective assets as security for (i) any Indebtedness (as defined) or other obligation of the Company that ranks PARI PASSU with the Notes or any Indebtedness or other obligation of a Subsidiary of the Company, the Company will secure or will cause such Subsidiary to guarantee and secure the outstanding Notes equally and ratably with such Indebtedness or other obligation or (ii) any Subordinated Indebtedness (as defined), the Company will secure the outstanding Notes prior to such Subordinated Indebtedness; PROVIDED, HOWEVER, that the foregoing shall not apply to certain specified Liens, including Liens to secure any Indebtedness under the Credit Agreement which Indebtedness will be secured by Liens on a significant portion of the assets of the Company and Liens in favor of the First Mortgage Notes described herein. FIRST MORTGAGE NOTES. Under the terms of the First Mortgage Note Indenture, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, (i) incur or suffer to exist any Lien upon any of the Collateral other than Permitted Collateral Liens (as defined), (ii) take any action or omit to take any action with respect to the Collateral that might or would have the result of adversely affecting, impairing or failing to maintain without interruption the security interests in the Collateral under the First Mortgage Note Indenture or the Security Documents (as defined), or (iii) grant any interest whatsoever (other than
9 Permitted Collateral Liens) in any of the Collateral to any other Person (other than the Company or the First Mortgage Note Trustee) or suffer to exist any such interest. Limitation on Future Guaranties... The Company will not guarantee the Indebtedness of any Subsidiary and will not permit any Subsidiary or Seminole Kraft Corporation ("Seminole") to guarantee (i) any Indebtedness of the Company that ranks PARI PASSU with the Notes, (ii) any Indebtedness of a Subsidiary of the Company or (iii) any Subordinated Indebtedness; PROVIDED, HOWEVER, that the foregoing shall not apply to certain specified guaranties, including guaranties in a principal amount up to the principal amount outstanding or committed under the 1989 Credit Agreement as of November 1, 1991, plus $250 million, less the proceeds from the sale of Indebtedness under the 1991 Indenture (as defined) issued from time to time that are applied to repay Indebtedness under the Credit Agreements (as defined) as refinanced or extended from time to time (which would include Indebtedness under the new Credit Agreement). For further information on ranking, limitations on Liens and limitations on guaranties, see "Description of Notes -- Certain Covenants -- Limitation on Future Liens and Guaranties." For further information on the collateral securing the borrowings under the Credit Agreement, see "Credit Agreement -- Security." Collateral Asset Disposition...... FIRST MORTGAGE NOTES. Pursuant to the First Mortgage Note Indenture, within 360 days following the consummation of a Collateral Asset Disposition (as defined) or the receipt of proceeds from a Collateral Loss Event (as defined), the Company will apply the net proceeds therefrom (i) to an investment in specified replacement Collateral; (ii) in the case of a Collateral Loss Event, to Restore (as defined) the relevant Collateral and/or (iii) subject to the receipt of certain minimum proceeds, to make an offer to repurchase First Mortgage Notes at 100% of the principal amount thereof plus accrued interest thereon to the date of purchase. See "Description of Notes -- Additional First Mortgage Note Covenants -- Limitation on Collateral As- set Dispositions." Certain Other Covenants........... Each of the Indentures, among other things, (i) proscribes the use of certain proceeds of certain Asset Dispositions (as defined) by the Company or its Restricted Subsidiaries (as defined), (ii) restricts the ability of the Company and its Subsidiaries, subject to certain exceptions, to pay dividends or make distributions with respect to shares of the Company's Capital Stock (as defined) or acquire or retire Capital Stock of the Company, (iii) subject to certain significant exceptions, restricts the ability of the Company and its Restricted Subsidiaries to create, incur or guarantee Indebtedness and (iv) requires the Company to make certain offers to repurchase Debt Securities (as defined) in the event that the Company's Subordinated Capital Base (as defined) is less than a specified level. See "Description of Notes -- Certain Covenants."
10 Use of Proceeds................... The net proceeds of this Offering, together with borrowings under the Credit Agreement, will be used to (i) repay all of the outstanding indebtedness under and terminate the 1989 Credit Agreement, (ii) repay all of the outstanding indebtedness under and terminate the Savannah River Credit Agreement and redeem the Savannah River Notes, (iii) purchase the 72,346 outstanding shares of Savannah River common stock not owned by the Company and (iv) redeem or otherwise acquire the 425,243 outstanding shares of Savannah River Preferred not owned by the Company. See "Use of Proceeds."
COLLATERAL FOR THE FIRST MORTGAGE NOTES The First Mortgage Notes will be initially secured by a first ranking lien on four mills owned by the Company described below.
NUMBER OF ANNUAL PRODUCTION PAPER MILL LOCATION CAPACITY IN 1993 MACHINES TYPE OF MILL - ---------------------------------------------------------------- -------- ---------- ------------ (IN THOUSANDS) Missoula, Montana....................................... 702.9 654.3 3 Linerboard Ontonagon, Michigan..................................... 262.8 248.4 2 Medium Uncasville, Connecticut................................. 165.1 158.5 1 Medium York, Pennsylvania...................................... 110.2 110.0 2 Medium
See "The Collateral Under the First Mortgage Note Indenture." 11 SUMMARY FINANCIAL DATA The following summary Statement of Operations and Balance Sheet Data for the five years ended December 31, 1993 has been derived from, and should be read in conjunction with, the related audited consolidated financial statements and accompanying notes of the Company. The audit report relating to the Company's 1993 consolidated financial statements contains an explanatory paragraph referring to certain liquidity matters discussed in Notes 11 and 18 to the Company's 1993 consolidated financial statements included elsewhere in this Prospectus. The selected financial data for the six months ended June 30, 1994 and June 30, 1993 have been derived from the unaudited consolidated financial statements for the quarters ended June 30, 1994 and 1993 included elsewhere in this Prospectus. The summary financial data do not purport to be indicative of the Company's future results of operations or financial position.
SIX MONTHS YEAR ENDED ENDED JUNE 30, DECEMBER 31, ---------------------------- ---------------------------------------------------------------------------- 1994 1993 1993 1992(A) 1991 1990 1989(B) ------------ ------------ ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) STATEMENT OF OPERATIONS DATA: Net sales..... $ 2,645,150 $ 2,573,909 $ 5,059,579 $ 5,520,655 $ 5,384,291 $ 5,755,858 $ 5,329,716 Cost of products sold......... 2,183,989 2,120,535 4,223,444 4,473,746 4,287,212(c) 4,421,930 3,893,842 Selling, general and administrative expenses..... 270,462 267,325 512,174 543,519 522,780 495,499 474,438 Depreciation and amortization... 177,749 175,907 346,811 329,234(c) 273,534(c) 257,041 237,047 Income (loss) before interest expense, income taxes, minority interest, extraordinary loss and cumulative effects of accounting changes...... 32,504 6,746 (36,598) 162,107 385,113 615,736 826,542 Interest expense...... 224,259 204,055 426,726 386,122 397,357 421,667 344,693 Income (loss) before income taxes, minority interest, extraordinary loss and cumulative effects of accounting changes...... (191,755) (197,309) (463,324) (224,015) (12,244) 194,069 481,849 Extraordinary loss from early extinguishment of debt (net of income tax benefit)..... (16,782) -- -- -- -- -- -- Cumulative effect of change in accounting for post- employment benefits (net of income tax benefit)..... (14,189) -- -- -- -- -- -- Cumulative effect of change in accounting for post- retirement benefits (net of income tax benefit)..... -- (39,544) (39,544) -- -- -- -- Cumulative effect of change in accounting for income taxes........ -- -- -- (99,527) -- -- -- Net income (loss)....... (160,648) (173,780) (358,729) (269,437) (49,149) 95,420 285,828 Income (loss) per common share before extraordi- nary loss and cumulative effects of accounting changes...... (1.55) (1.94) (4.59) (2.49)(d) (.78)(d) 1.56(d) 4.67(d) Net income (loss) per common share........ (1.92) (2.50) (5.15) (3.89)(d) (.78)(d) 1.56(d) 4.67(d) Ratio of earnings to fixed charges...... (e) (e) (e) (e) (e) 1.2 2.0 Dividends paid per common share (d).... -- -- -- $ 0.35 $ 0.71 $ 0.71 $ 0.70 Average common shares outstanding... 85,960 71,150 71,163 70,987(d) 63,207(d) 61,257(d) 61,223(d) BALANCE SHEET DATA (AT END OF PERIOD): Working capital...... $ 823,904 $ 121,626 $ 809,504 $ 756,964 $ 770,457 $ 439,502 $ 614,433 Property, plant and equipment -- net.......... 3,281,898 3,499,603 3,386,395 3,703,248 3,520,178 3,364,005 2,977,860 Goodwill...... 875,855 945,859 910,534 983,499 1,126,100 1,160,516 1,089,817 Total assets....... 6,688,380 6,829,103 6,836,661 7,026,973 6,902,852 6,689,989 6,253,708 Long-term debt......... 4,094,238(f) 3,586,569(f) 4,268,277(f) 4,104,982(f) 4,046,379(f) 3,680,513(f) 3,536,911(f) Stockholders' equity....... 691,990 896,274 607,019 1,102,691 1,537,543 1,460,487 1,347,624 OTHER DATA: Net cash provided by (used in) operating activities... $ (98,251) $ (1,990) $ (212,685) $ 85,557 $ 210,498 $ 451,579(c) $ 315,196(c) Capital expenditures... 66,258(g) 63,497(g) 149,739(g) 281,446(g) 430,131(g) 551,986(g) 501,723(g) Paperboard, paper and market pulp: Produced (thousand tons)...... 3,892 3,698 7,475 7,517 7,365 7,447 6,772 Converted (thousand tons)...... 2,185 2,169 4,354 4,373 4,228 4,241 3,930 Corrugated shipments (billion sq. ft.)......... 26.2 26.2 52.48 51.67 49.18 47.16 41.56 - ---------------------------------------- (a) Restated to reflect the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" retroactive to January 1, 1992. (b) The Company acquired Stone Canada in 1989. (c) Adjusted to conform with the current financial statement presentation. (d) Amounts per common share and average common shares outstanding have been adjusted to reflect a 2% Common Stock dividend issued September 15, 1992. (e) The Company's earnings for the six months ended June 30, 1994 and 1993 and the years ended December 31, 1993, 1992 and 1991 were insufficient to cover fixed charges by $193.1 million and $203.2 million and $466.5 million, $270.1 million and $94.6 million, respectively. (f) Includes approximately $657.0 million and $551.8 million as of June 30, 1994 and 1993, respectively, and $672.6 million, $574.8 million, $573.3 million, $471.2 million and $267.2 million as of December 31, 1993, 1992, 1991, 1990 and 1989, respectively, of long-term debt of certain consolidated subsidiaries that is non-recourse to the parent. (g) Includes approximately $5.0 million and $7.3 million for the six months ended June 30, 1994 and 1993, respectively, and $14.6 million, $79.1 million, $219.8 million, $245.2 million and $36.8 million for 1993, 1992, 1991, 1990 and 1989, respectively, of expenditures financed through project financings.
12 RISK FACTORS BEFORE INVESTING, PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW AND THE OTHER INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. SIGNIFICANT LEVERAGE AND DEBT SERVICE REQUIREMENTS Since July 1993, the Company has issued more than $1.1 billion of debt securities, the proceeds from which were used to refinance indebtedness, including the repayment of revolving credit facilities (which were subsequently reborrowed), and to fund working capital needs due to continued losses. Therefore, the Company remains significantly leveraged and will continue to be significantly leveraged after completion of the Offering and the Related Transactions. The Company's long-term debt to total capitalization ratio was 75.3% at June 30, 1994. On a pro forma basis, after giving effect to (i) the Offering and the use of the estimated net proceeds therefrom, together with borrowings under the Credit Agreement and (ii) the consummation of the Related Transactions, such ratio at June 30, 1994 would have been approximately 78.4%. Capitalization, for purposes of this ratio, includes long-term debt, deferred income taxes, redeemable preferred stock, minority interests and stockholders' equity. Giving effect to the Offering and the Related Transactions, the amounts of long-term debt (excluding capitalized lease obligations) outstanding at June 30, 1994 maturing through 2000 and thereafter are as follows:
THE COMPANY NON-RECOURSE EXCLUDING CONSOLIDATED INDEBTEDNESS OF SEMINOLE AND (IN MILLIONS) TOTAL CERTAIN SUBSIDIARIES(1) STONE-CONSOLIDATED ---------------------- ------------ -------------------------- ------------------- Remainder of 1994................................... $ 19.8 $ 13.1 $ 6.7 1995................................................ 274.1(2) 21.8 252.3(2) 1996................................................ 47.5 27.7 19.8 1997................................................ 254.6 22.6 232.0 1998................................................ 485.5 20.5 465.0 1999................................................ 471.6(3) 21.6 450.0(3) 2000................................................ 716.1 255.2 460.9 Thereafter.......................................... 2,157.3 167.2 1,990.1 - ------------------------------ (1) Includes indebtedness of Seminole and Stone-Consolidated. See "-- Credit Agreement Restrictions." (2) The 1995 maturities currently include approximately $232.0 million outstanding under Stone Financial Corporation's and Stone Fin II Receivables Corporation's revolving credit facilities at June 30, 1994, which the Company intends to refinance. The Company is currently planning a transaction to refinance these two existing receivables programs contemplated to approximate up to $300 million of receivables financing, which would be scheduled to mature in 1999. The proposed refinancing is subject to execution of definitive documentation and the public offering of notes by a newly created financial corporation to provide funding for such receivables financing, and there can be no assurance that such transactions will be consummated. (3) The revolving credit facility under the Credit Agreement will mature in May, 1999 and the letter of credit relating to certain industrial revenue bonds in Florence County, South Carolina (the "Florence Letter of Credit"), currently in the amount of approximately $61 million, will expire in May, 1999. This amount does not account for any borrowings which may be outstanding under the revolving credit facility of the Credit Agreement as of its expiration.
In order to meet its amortization obligations for 1996 and subsequent years (assuming successful refinancing of the two existing receivables programs), the Company will be required to raise sufficient funds from operations and/or other sources and/or refinance or restructure maturing indebtedness. No assurance can be given that the Company will be successful in doing so. In addition to these amortization obligations, the Company will continue to incur substantial ongoing interest expense relating to its indebtedness. The Company's income before interest expense, income taxes, extraordinary loss and cumulative effects of accounting changes was insufficient to cover interest expense for the six months ended June 30, 1994 and June 30, 1993 by $189.7 million and $198.9 million respectively, and for the years ended December 31, 1993 and 1992 by $466.9 million and $229.3 million, respectively, and will be insufficient for the year 1994. The Company's net interest expense will increase as a result of this Offering and the Related Transactions, as the estimated net proceeds of the Offering and borrowings under the Credit Agreement will be used in part to (i) repay all of 13 the outstanding borrowings under the 1989 Credit Agreement and the Savannah River Credit Agreement, which borrowings currently bear interest at lower rates than expected interest rates for the Notes, and (ii) purchase the shares of common stock of Savannah River not owned by the Company and redeem the shares of Savannah River Preferred not owned by the Company. See "Use of Proceeds." Furthermore, even though the Company has repaid amounts borrowed under its 1989 Credit Agreement, borrowings under the Credit Agreement will still bear interest calculated based upon a floating rate of interest, and the Company's cost of borrowing under the Credit Agreement will fluctuate as these underlying base rates of interest change. See "Credit Agreement." The Company will incur a charge for the write-off of previously unamortized debt issuance costs, related to the debt being repaid (approximately $45 million, net of income tax benefit) upon the completion of the Offering and Related Transactions. This non-cash charge will be recorded as an extraordinary loss from the early extinguishment of debt in the Company's Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit). The Company will continue to require access to significant funds, whether from operating cash flows, revolving credit facilities or other sources of liquidity, such as additional asset sales, to meet its debt service requirements in the future. Moreover, the restrictive terms of certain indebtedness of Seminole and Stone-Consolidated (which owns all of the Canadian and United Kingdom newsprint and uncoated groundwood assets of the Company) will not permit Seminole or Stone-Consolidated to provide funds to the Company (whether by dividend, loan or otherwise) including from cash generated from operations, if any, to fund the Company's obligations, including its payment obligations with respect to the Notes, until certain financial covenants contained in such debt instruments of these companies have been met. Such financial covenants have not been satisfied to date and are not likely to be satisfied in 1994. There can be no assurances that such financial covenants will be met in the future. CYCLICALITY AND PRICING; FIBER SUPPLY AND PRICING The markets for paper, packaging products and market pulp sold by the Company are highly competitive, and are sensitive to changes in industry capacity and cyclical changes in the economy, both of which can significantly impact selling prices and thereby the Company's profitability. From 1990 through the third quarter of 1993, the Company experienced substantial declines in the pricing of most of its products. Market conditions have improved since October 1993, which have allowed the Company to increase prices for most of its products. While prices for most of the Company's products are approaching the historical high prices achieved during the peak of the last industry cycle, the Company's production costs (including labor, fiber and energy), as well as its interest expense, have also significantly increased since the last pricing peak in the industry, increasing pressure on the Company's net margins for its products. In addition, since the Company is more than 80% integrated in the production of corrugated containers, price increases for corrugated containers, which typically occur up to 90 days after linerboard and corrugated medium price increases and accordingly have not to date fully reflected the price increases for linerboard and corrugating medium, are essential for the Company to obtain substantial financial benefits from price increases in the Company's linerboard and corrugated medium product lines. Although supply/demand balances appear favorable for most of the Company's products, there can be no assurance that announced price increases will be achieved, that linerboard and corrugating medium price increases will be fully passed through to corrugated container customers or that prices can be maintained at present levels. Wood fiber and recycled fiber, the principal raw materials in the manufacture of the Company's products, are purchased in highly competitive, price sensitive markets. These raw materials have historically exhibited price and demand cyclicality. In addition, the supply and price of wood fiber, in particular, is dependent upon a variety of factors over which the Company has no control, including 14 environmental and conservation regulations, natural disasters, such as forest fires and hurricanes, and weather. In addition, recent increased demand for the Company's products has resulted in greater demand for raw materials which has recently translated into higher raw material prices. The Company purchases or cuts a variety of species of timber from which the Company utilizes wood fiber depending upon the product being manufactured and each mill's geographic location. Despite this diversification, wood fiber prices have increased substantially in 1994. A decrease in the supply of wood fiber, particularly in the Pacific Northwest and the southeastern United States due to environmental considerations, has caused, and will likely continue to cause, higher wood fiber costs in those regions. In addition, the increase in demand for products manufactured in whole or in part from recycled fiber has caused a shortage of recycled fiber, particularly old corrugated containers ("OCC") used in the manufacture of premium priced recycled containerboard and related products. The Company's paperboard and paper packaging products use a large volume of recycled fiber. In 1993, the Company processed approximately 1.9 million tons of recycled fiber. The Company used approximately 1.25 million tons of OCC in its products in 1993. The Company believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to $110 per ton as of September 1, 1994. While the Company has not experienced any significant difficulty in obtaining wood fiber and recycled fiber in economic proximity to its mills, there can be no assurances that this will continue to be the case for any or all of its mills. In addition, there can be no assurance that all or any part of increased fiber costs can be passed along to consumers of the Company's products directly or in a timely manner. RECENT LOSSES; NET CASH USED IN OPERATING ACTIVITIES Due to industry conditions during the past few years and due principally to depressed product prices and significant interest costs attributable to the Company's highly leveraged capital structure, the Company incurred net losses in each of the last three years and for the first half of 1994 and expects to incur a net loss for the 1994 fiscal year. The net loss for the second quarter of 1994 was $50.8 million, or $.58 per common share, compared to the net loss of $71.6 million, or $1.03 per common share, for the second quarter of 1993. For the first six months of 1994, the loss was $129.7 million, or $1.55 per common share, before the extraordinary loss on the early extinguishment of debt and the cumulative effect of a change in accounting for post-employment benefits ("SFAS 112"). Including the extraordinary loss and the cumulative effect of SFAS 112, the Company reported a net loss of $160.7 million, or $1.92 per common share, for the first six months of 1994. For the first six months of 1993, the Company's loss was $134.3 million, or $1.94 per common share, before the cumulative effect of a change in accounting for post-retirement benefits other than pensions (SFAS 106). The adoption of SFAS 106, effective January 1, 1993, resulted in a one-time non-cash cumulative charge of $39.5 million net of income taxes, or $.56 per common share, resulting in a net loss of $173.8 million, or $2.50 per common share, for the first six months of 1993. The second-quarter and first-half losses were increased by significantly higher costs of recycled fiber for the Company's North American paper mills. Costs of OCC, the primary source of recycled fiber for containerboard, were approximately $20 million higher in the second quarter 1994 compared to the second quarter 1993, and approximately $18 million higher in the second quarter 1994 compared to the first quarter 1994. Income from operations for the second quarter 1994 includes a gain from an involuntary conversion relating to a digester rupture at the Company's Panama City, Florida, pulp and paperboard mill. This $22 million pre-tax gain reflects the expected net proceeds from the property damage claim in excess of the carrying value of the assets destroyed or damaged. The operations of the Panama City mill were shut down until August 19 and September 8, 1994, when the mill started up its pulp and linerboard operations, respectively. For the year 1993, the Company incurred a loss (before the cumulative effect of an accounting change) of $319.2 million, or $4.59 per common share, and (after the cumulative effect of such change) a 15 net loss of $358.7 million or $5.15 per common share. For the year 1992, the loss (before the cumulative effect of an accounting change), was $169.9 million, or $2.49 per common share and (after the cumulative effect of such change) a net loss of $269.4 million or $3.89 per common share. The Company's continued net losses have significantly impaired its liquidity and available sources of liquidity. Net cash used in operating activities totalled $98.3 million for the six months ended June 30, 1994 compared with $2.0 million for the same period in 1993 and totalled $213 million for the year ended December 31, 1993, while net cash provided by operating activities totalled $86 million for the year ended December 31, 1992. See "Selected Consolidated Financial Data." Notwithstanding the improvements in the Company's liquidity and financial flexibility which will result from the Offering and the execution and delivery of the new Credit Agreement, unless the Company achieves and maintains increased selling prices beyond current levels, the Company will continue to incur net losses and will not generate sufficient cash flows to meet fully the Company's debt service requirements in the future. Without such price increases, the Company may exhaust all or substantially all of its cash resources and borrowing availability under the existing revolving credit facilities. In such event, the Company would be required to pursue other alternatives to improve liquidity, including further cost reductions, additional sales of assets, the deferral of certain capital expenditures, obtaining additional sources of funds or liquidity and/or pursuing the possible restructuring of its indebtedness. There can be no assurance that such measures, if required, would generate the liquidity required by the Company to operate its business and service its indebtedness. Beginning in 1996 (assuming successful refinancing of the two existing receivables programs) and continuing thereafter, the Company will be required to make significant amortization payments on its existing indebtedness which will require the Company to raise sufficient funds from operations and/or other sources and/or refinance or restructure maturing indebtedness. No assurance can be given that the Company will be successful in doing so. CREDIT AGREEMENT RESTRICTIONS All indebtedness under the Credit Agreement will be secured by a significant portion of the assets of the Company. The Credit Agreement is expected to contain covenants that include, among other things, requirements to maintain certain financial tests and ratios (including an indebtedness ratio and a minimum interest coverage ratio) and certain restrictions and limitations, including those on capital expenditures, changes in control, payment of dividends, sales of assets, lease payments, investments, additional indebtedness, liens, repurchases or prepayment of certain indebtedness, guarantees of indebtedness, mergers and purchases of stock and assets. The Credit Agreement is also expected to contain cross default provisions to the indebtedness of $10 million or more of the Company and certain subsidiaries, as well as cross-acceleration provisions to the non-recourse debt of $10 million or more of Stone-Consolidated, Seminole and Stone Venepal (Celgar) Pulp Inc. ("SVCP"), through which the Company indirectly owns a 25% interest in the Celgar mill. Additionally, the term loan portion of the Credit Agreement will provide for mandatory prepayments from sales of certain assets (other than the Collateral and the collateral pledged under the Credit Agreement ("Bank Collateral")), certain debt financings and excess cash flows. All mandatory and voluntary prepayments will be allocated against the term loan amortizations in inverse order of maturity. Amortization amounts under the term loan will be 0.5% of principal amount on each April 1 and October 1 for the period from April 1, 1995 through April 1, 1999, 47.5% on October 1, 1999 and 48.0% on April 1, 2000. In addition, mandatory prepayments from sales of Bank Collateral (unless substitute collateral has been provided) will be allocated pro rata between the term loan (in inverse order of maturities) and the revolving credit facility, and, to the extent applied to repay the revolving credit facility, will permanently reduce loan commitments thereunder. The Credit Agreement limits, except in certain specific circumstances, any further investments by the Company in Stone-Consolidated, Seminole and SVCP. As of June 30, 1994, Seminole had $153.1 million in outstanding indebtedness (including $115.1 million in secured indebtedness owed to lenders under its credit agreement) and is significantly leveraged. Pursuant to an output purchase agreement entered into in 1986 with Seminole, the Company is obligated to purchase and Seminole is 16 obligated to sell all of Seminole's linerboard production. Seminole produces 100% recycled linerboard and is dependent upon an adequate supply of recycled fiber, in particular OCC. Under the agreement, the Company paid fixed prices for linerboard, which generally exceeded market prices, until June 3, 1994. Thereafter, the Company is only obligated to pay market prices for the remainder of the agreement. Because market prices for linerboard are currently less than the fixed prices previously in effect under the output purchase agreement and due to recent significant increases in the cost of recycled fiber, it is anticipated that Seminole will not comply with certain financial covenants at September 30, 1994. Seminole's lenders under its credit agreement have agreed to grant waivers and amendments with respect to such covenants for periods up to and including June 30, 1995. Furthermore, in the event that management determines that it is probable that Seminole will not be able to comply with any covenant contained in the Seminole credit agreement within twelve months after the waiver of a violation of such covenant, then the debt under the Seminole credit agreement would be reclassified as short-term debt under the provisions of Emerging Issues Task Forces Issue No. 86-30 "Classification of Obligations When a Violation is Waived By the Creditor." There can be no assurance that Seminole will not require additional waivers in the future. Depending upon the level of market prices and the cost and supply of OCC, Seminole may need to undertake additional measures to meet its debt service requirements and its financial covenants including obtaining additional sources of funds or liquidity, postponing or restructuring of debt service payments or refinancing the indebtedness. In the event that such measures are required and not successful, and such indebtedness is accelerated by the respective lenders to Seminole, the lenders to the Company under the Credit Agreement and various other of its debt instruments would be entitled to accelerate the indebtedness owed by the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition and Liquidity." There can be no assurance that the Company will be able to achieve and maintain compliance with the prescribed financial ratio tests or other requirements of the Credit Agreement. Failure to achieve or maintain compliance with such financial ratio tests or other requirements under the Credit Agreement, in the absence of a waiver or amendment, would result in an event of default and could lead to the acceleration of the obligations under the Credit Agreement. While the Company has successfully sought and received waivers and amendments under its 1989 Credit Agreement on various occasions, if waivers or amendments are requested by the Company under the Credit Agreement, there can be no assurance that the new lenders under the Credit Agreement will grant requests if required by the Company. The failure to obtain any waivers or amendments from the lenders under the Credit Agreement could reduce the Company's flexibility to respond to adverse industry conditions and could have a material adverse effect on the Company. See "Credit Agreement -- Covenants." ENVIRONMENTAL MATTERS The Company's operations are subject to extensive environmental regulation by federal, state and local authorities in the United States and regulatory authorities with jurisdiction over its foreign operations. The Company has in the past made significant capital expenditures to comply with water, air and solid and hazardous waste regulations and expects to make significant expenditures in the future. Capital expenditures for environmental control equipment and facilities were approximately $29.7 million in 1993 and the Company anticipates that 1994 and 1995 environmental capital expenditures will approximate $78 million and $114 million, respectively (not including any expenditures required under the proposed "cluster rules" described below). Included in these amounts are capital expenditures for Stone-Consolidated which were approximately $6.7 million in 1993 and are anticipated to approximate $43 million in 1994 and $82 million in 1995. Although capital expenditures for environmental control equipment and facilities and compliance costs in future years will depend on legislative and technological developments which cannot be predicted at this time, the Company anticipates that these costs will increase when final "cluster rules" are adopted and as further environmental regulations are imposed on the Company. In December 1993, the U.S. Environmental Protection Agency (the "EPA") issued a proposed rule affecting the pulp and paper industry. These proposed regulations, informally known as the "cluster 17 rules," would make more stringent requirements for discharge of wastewaters under the Clean Water Act and would impose new requirements on air omissions under the Clean Air Act. Pulp and paper manufacturers (including the Company) have submitted extensive comments to the EPA on the proposed regulations in support of the position that requirements under the proposed regulations are unnecessarily complex, burdensome and environmentally unjustified. The EPA has indicated that it may reopen the comment period on the proposed regulations to allow review and comment on new data that the industry will submit to the agency on the industry's air toxic emissions. It cannot be predicted at this time whether the EPA will modify the requirements in the final regulations which are scheduled to be issued in 1996, with compliance required within three years from such date. The Company is considering and evaluating the potential impact of the rules, as proposed, on its operations and capital expenditures over the next several years. Preliminary estimates indicate that the Company could be required to make capital expenditures of $350-$450 million during the period of 1996 through 1998 in order to meet the requirements of the rules, as proposed. In addition, annual operating expenses would increase by as much as $20 million beginning in 1998. The ultimate financial impact of the regulations cannot be accurately estimated at this time but will be affected by several factors, including the actual requirements imposed under the final rule, advancements in control process technologies, possible reconfiguration of mills and inflation. In addition, the Company is from time to time subject to litigation and governmental proceedings regarding environmental matters in which injunctive and/or monetary relief is sought. The Company has been named as a potentially responsible party ("PRP") at a number of sites which are the subject of remedial activity under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") or comparable state laws. Although the Company is subject to joint and several liability imposed under Superfund, at most of the multi-PRP sites there are organized groups of PRPs and costs are being shared among PRPs. Future environmental regulations, including the final "cluster rules," may have an unpredictable adverse effect on the Company's operations and earnings, but they are not expected to adversely affect the Company's competitive position. For further information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity -- Environmental Issues." RANKING The First Mortgage Notes will be senior secured obligations of the Company and the Senior Notes will be senior unsecured obligations of the Company. The First Mortgage Notes and the Senior Notes will rank PARI PASSU in right of payment with each other and with all existing and future Senior Indebtedness of the Company, including the indebtedness under the Credit Agreement and the Company's $240 million principal amount of 11 7/8% Senior Notes due 1998, $150 million principal amount of 12 5/8% Senior Notes due 1998 and $710 million principal amount of 9 7/8% Senior Notes due 2001. The payment of the principal of, interest on and any other amounts due on Subordinated Indebtedness will be subordinated in right of payment to the prior payment in full of the Notes. As of June 30, 1994, the total amount of outstanding Senior Indebtedness was approximately $2.3 billion (which amount does not reflect the effects of the Offering or the Related Transactions). Obligations of the Company's subsidiaries will represent prior claims with respect to assets and earnings of such subsidiaries. Thus, the Notes will be structurally subordinated to all current and future indebtedness of the Company's subsidiaries, including trade payables. A significant portion of the Company's assets will secure borrowings outstanding under the Credit Agreement. See "Credit Agreement -- Security." The First Mortgage Notes are also secured obligations of the Company. See "Description of Notes -- Additional First Mortgage Note Indenture Definitions -- Collateral." In the event of the Company's insolvency or liquidation, the claims of the lenders under the Credit Agreement would have to be satisfied out of the Bank Collateral securing borrowings under the Credit Agreement before any such assets would be available to pay claims of holders of the Notes. Similarly, the holders of First Mortgage Notes would have to be satisfied out of the Collateral under the First Mortgage Note Indenture and Security Documents (as defined) before any such assets would be 18 available to pay claims of holders of the Senior Notes. If the lenders under the Credit Agreement and/or the First Mortgage Note Trustee under the First Mortgage Note Indenture and the Security Documents should foreclose on their respective collateral, no assurance can be given that there will be sufficient assets available in the Company to pay amounts due on the First Mortgage Notes or the Senior Notes, respectively. See "Description of Notes -- Ranking." Pursuant to the Company's receivables financing programs (excluding Stone-Consolidated's program), at June 30, 1994, approximately $232 million was outstanding under Stone Financial Corporation's and Stone Fin II Receivables Corporation's revolving credit facilities. The Company is currently planning a transaction to refinance these two existing receivables programs contemplated to approximate $300 million of receivables financing which would be scheduled to mature in 1999. The proposed refinancing is subject to execution of definitive documentation and the public offering of notes by a newly created financial corporation to provide funding for such receivables financing, and there can be no assurance that it will be consummated. FIRST MORTGAGE NOTE HOLDERS MAY RECEIVE LESS THAN THEIR INVESTMENT UPON LIQUIDATION No assurance can be given that the proceeds of a sale of the Collateral securing the First Mortgage Notes would be sufficient to repay all of the First Mortgage Notes upon acceleration. The aggregate appraised value as of September 1, 1994 of the four mills pledged as collateral securing the First Mortgage Notes (the "Collateral Mills") as estimated by American Appraisal Associates, Inc. (the "Consultant") is $695,000,000. The amount that might be realized from the sale of the Collateral Mills may be materially less than its appraised value. The appraisal is only the Consultant's estimate or opinion of the value of the Collateral Mills and cannot be relied upon as a precise measure of its value or worth or as an assurance that a buyer willing and able to buy the Collateral Mills existed at the date of such appraisal or will exist at the time of sale of the Collateral Mills. The Collateral Mills are valued in the appraisal on the assumption that the assets comprising them would, upon sale, remain at their present locations as part of the current operations. Currently, the products manufactured at the Collateral Mills are utilized by the Company in the production of corrugated containers at other facilities of the Company which will be pledged to secure the indebtedness under the Credit Agreement. The amount that the First Mortgage Note Trustee could obtain in connection with the liquidation of the Collateral Mills could be less than would be obtained for the Collateral Mills if they were sold together with facilities of the Company which currently use their production. In addition, the appraisal reflects the Consultant's estimate or opinion of the value of the Collateral Mills as of the date of the appraisal and assumes that a sale would not be made under distress conditions. Accordingly, the actual amount realized from a sale of the Collateral Mills could be significantly reduced by adverse changes in market conditions, the condition of the Collateral Mills or other factors affecting the resale value of the Collateral Mills between the date of the appraisal and the estimates, as the case may be, and such sale or if such sale took place under distress conditions. See "The Collateral Under the First Mortgage Note Indenture - -- Appraisal." Moreover, the value of the Collateral Mills, and the First Mortgage Note Trustee's ability to foreclose upon and sell the Collateral Mills, could be affected by environmental conditions existing at any of the Collateral Mills, as well as capital expenditures required to comply with existing and future environmental regulations. See "-- Environmental Matters" and "The Collateral Under the First Mortgage Note Indenture -- Environmental Considerations." If the net proceeds received from the sale of the Collateral Mills (after payment of any expenses of the sale and repayment of indebtedness secured by Permitted Collateral Liens (see "Description of the Notes -- Additional First Mortgage Note Indenture Definitions -- Permitted Collateral Liens") or other liens on the Collateral Mills which might, in either case, have priority under applicable law to the lien on the Collateral Mills in favor of the First Mortgage Note Trustee) were insufficient to pay all amounts due on the First Mortgage Notes, then holders of the First Mortgage Notes would (to the extent of such insufficiency) only have an unsecured claim against any remaining unencumbered assets of the Company (subject, in the case of subsidiaries of the Company, to the claims of holders of indebtedness of each subsidiary). As a result, there is a risk that holders of the First Mortgage Notes will receive less than 19 their investment upon any liquidation of the Company. Furthermore, the ability of the First Mortgage Note Trustee to cause the Collateral Mills to be sold will be delayed if the Company is the subject of any bankruptcy or receivership proceedings. See "The Collateral under the First Mortgage Note Indenture -- Bankruptcy Considerations." FUTURE ACCESS TO THE CAPITAL MARKETS Giving effect to the Offering, the Company will have sold debt securities on a number of occasions since July 1993 for total proceeds of approximately $1.8 billion and in February 1994 sold equity securities for total proceeds of approximately $290 million. The recent issuance of a substantial amount of securities may make it difficult, at least in the near future, for the Company to access the capital markets for further financings and therefore may limit the Company's sources for future liquidity. LIMITED MARKET FOR NOTES The Company will apply to list both the First Mortgage Notes and the Senior Notes on the New York Stock Exchange. Nonetheless, it is likely that the First Mortgage Notes and the Senior Notes will each have a limited trading market. Certain of the Underwriters have indicated an intention initially to make a market in the First Mortgage Notes and/or the Senior Notes as permitted by applicable laws and regulations. No Underwriter, however, is obligated to make a market in the First Mortgage Notes and/or the Senior Notes and any such market making could be discontinued at any time at the sole discretion of such Underwriter. 20 COMPANY PROFILE The following is the current profile of the Company's products, markets, industry position, manufacturing facilities and 1993 production and shipment figures:
MANUFACTURING 1993 PRODUCTION & MARKETS INDUSTRY POSITION FACILITIES SHIPMENTS ----------------- ----------------- ----------------- ----------------- PAPERBOARD AND CONTAINERBOARD A broad range of Industry leader Production at 16 4.388 million PAPER PACKAGING AND CORRUGATED manufacturers of mills short tons of CONTAINERS consumable and containerboard durable goods and Converting at 111 produced other plants manufacturers of 52.5 billion corrugated square feet of containers. corrugated containers shipped KRAFT PAPER AND Supermarket Industry leader Production at 5 500 thousand BAGS AND SACKS chains and other mills short tons of retailers of kraft paper consumable Converting at 18 produced products. plants Industrial and 613 thousand consumer bags short tons of sold to the food, paper bags and agricultural, sacks shipped chemical and cement industries, among others. BOXBOARD, FOLDING Manufacturers of A major position Production at 2 81 thousand short CARTONS AND OTHER consumable goods, in Europe; a mills tons of boxboard especially food, nominal position and other beverage and in North America paperboard tobacco products, produced and other box Converting at 10 manufacturers. plants 92 thousand short tons of folding cartons and partitions shipped WHITE PAPER AND NEWSPRINT Newspaper A major position Production at 5 1.312 million PULP publishers and mills short tons commercial produced printers. UNCOATED Producers of A major position Production at 2 461 thousand GROUNDWOOD PAPER advertising mills short tons materials, produced magazines, telephone directories and computer papers. MARKET PULP Manufacturers of A major position Production at 6 733 thousand paper products, mills short tons including fine produced papers, photographic papers, tissue and newsprint. WOOD PRODUCTS LUMBER, PLYWOOD Construction and A moderate Production at 17 581 million board AND VENEER furniture position in North mills feet of lumber industries. America produced 425 million square feet of plywood and veneer produced
21 USE OF PROCEEDS The net proceeds to the Company from the Offering, together with borrowings under the Credit Agreement, will be used to (i) repay all of the outstanding indebtedness under and terminate the 1989 Credit Agreement, (ii) repay all of the outstanding indebtedness under and terminate the Savannah River Credit Agreement and redeem the Savannah River Notes, (iii) purchase the 72,346 outstanding shares of Savannah River common stock not owned by the Company, (iv) redeem the 425,243 outstanding shares of Savannah River Preferred not owned by the Company, and (v) for general corporate purposes. Such net proceeds are estimated to aggregate $ million. The sources and uses of funds in connection with the Offering and the Related Transactions are estimated to be as follows:
(IN MILLIONS) Sources: First Mortgage Notes......................................................... $ Senior Notes................................................................. Credit Agreement Term Loan.................................................................. Revolving Credit Facility(1)............................................... Other(2)..................................................................... ------------- Total:......................................................................... $ ------------- ------------- Uses: Repayment of 1989 Credit Agreement borrowings................................ $ Repayment of Savannah River Credit Agreement borrowings...................... Redemption of Savannah River Notes........................................... Redemption of Savannah River Preferred....................................... Repurchase of Savannah River Common Stock.................................... General corporate purposes(3)................................................ ------------- Total:......................................................................... $ ------------- ------------- - ------------------------ (1) Commitment of $450 million (of which borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing, and approximately $ million of borrowings thereunder which will be borrowed at closing). (2) Cash escrow relating to letters of credit released due to the repayment of the 1989 Credit Agreement. (3) Includes payment of fees and expenses relating to the Credit Agreement, which are estimated to total $29 million and expenses relating to the Offering (other than the Underwriters' discount) estimated to total $2 million.
The 1989 Credit Agreement, which will be fully repaid with the proceeds from the Offering and borrowings under the Credit Agreement, consists of two term loan facilities, an additional term loan (the "Additional Term Loan") and two revolving credit facilities. The final scheduled amortization payment with respect to the term loan facilities and the Additional Term Loan are each due March 1, 1997 and each of the revolving credit facilities matures on March 1, 1997. The term loans (other than the Additional Term Loan) and the revolving credit facilities under the 1989 Credit Agreement had weighted average interest rates for the first six months of 1994 of 9.3% and 6.7%, respectively, and for the year ended December 31, 1993 of 8.3% and 5.7%, respectively. The weighted average interest rate on the Additional Term Loan was 6.8% for the first six months of 1994 and 6.3% for the year ended December 31, 1993. The Savannah River Credit Agreement consists of a term loan (of which $249.5 million was outstanding as of June 30, 1994) and a revolving credit facility (of which no amount was outstanding as of June 30, 1994). The term loan requires monthly amortization payments, and all outstanding loan amounts under the Savannah River Credit Agreement are due on December 1, 1998. The weighted average interest rate on the outstanding borrowings under the Savannah River Credit Agreement were 7.0% and 8.4% for the first six months of 1994 and for the year ended December 31, 1993, respectively. The Savannah River Notes bear interest at 14 1/8% and mature December 15, 2000. 22 CAPITALIZATION The following table sets forth a summary of the short-term debt and capitalization of the Company, on a consolidated basis at June 30, 1994, and as adjusted to give effect to the Offering and the application of the estimated net proceeds therefrom, and the Related Transactions.
JUNE 30, 1994 ------------------------------------ AS ADJUSTED FOR THE OFFERING AND THE ACTUAL RELATED TRANSACTIONS ------------ --------------------- (DOLLARS IN THOUSANDS) Short-term debt: Current maturities of senior and subordinated long-term debt............... $ 18,057 $ 22,057(a) Current maturities of debt of consolidated subsidiaries (non-recourse to parent).................................................. 271,320 21,781(b) ------------ ----------- Total short-term debt.................................................. $ 289,377 $ 43,838 ------------ ----------- ------------ ----------- Long-term debt: Senior debt: 1989 Credit Agreement (other than revolving credit facilities)............. $ 650,509 $ -- (c) Credit Agreement (other than revolving credit facilities).................. -- 400,000 Revolving credit facilities................................................ 20,212 20,559(d)(e) 12 5/8% Senior Notes due July 15, 1998..................................... 150,000 150,000 11 7/8% Senior Notes due December 1, 1998.................................. 238,984 238,984 9 7/8% Senior Notes due February 1, 2001................................... 710,000 710,000 % First Mortgage Notes due 2002.......................................... -- 500,000 % Senior Notes due 2004.................................................. -- 200,000 4% - 11 5/8% fixed rate debt and other variable rate debt (including capitalized lease obligations)............................................ 293,970 293,970 Obligations under accounts receivable securitization programs.............. 232,000 232,000 Less: Current maturities..................................................... (18,057) (22,057)(a) ------------ ----------- Total senior long-term debt................................................ 2,277,618 2,723,456 ------------ ----------- Subordinated debt: 10 3/4% Senior Subordinated Notes due June 15, 1997........................ 150,000 150,000 11% Senior Subordinated Notes due August 15, 1999.......................... 125,000 125,000 11 1/2% Senior Subordinated Notes due September 1, 1999.................... 230,000 230,000 10 3/4% Senior Subordinated Debentures due April 1, 2002................... 199,146 199,146 8 7/8% Convertible Senior Subordinated Notes due July 15, 2000............. 248,558 248,558 12 1/8% Subordinated Debentures due September 15, 2001(f).................. 91,902 91,902 6 3/4% Convertible Subordinated Debentures due February 15, 2007........... 115,000 115,000 Less: Current maturities..................................................... 0 0 ------------ ----------- Total subordinated long-term debt.......................................... 1,159,606 1,159,606 ------------ ----------- Debt of consolidated subsidiaries (non-recourse to parent)................... 928,334 549,724(g) Less: Current maturities..................................................... (271,320) (21,781)(b) ------------ ----------- Total long-term debt of consolidated subsidiaries (non-recourse to parent)................................................................... 657,014 527,943 ------------ ----------- Total long-term debt....................................................... 4,094,238 4,411,005 ------------ ----------- Redeemable preferred stock of consolidated affiliate......................... 42,314 -- (h) ------------ ----------- Stockholders' equity: $1.75 Series E Cumulative Convertible Exchangeable Preferred Stock (4,600,000 shares, $25 per share liquidation preference).................. 114,983 114,983 Common Stock............................................................... 853,035 849,035(i) Accumulated deficit........................................................ (72,753) (120,933)(j) Foreign currency translation adjustment.................................... (197,385) (197,385) Unamortized expense of restricted stock plan............................... (5,890) (5,890) ------------ ----------- Total stockholders' equity............................................. 691,990 639,810 ------------ ----------- Total capitalization................................................... 4,828,542 5,050,815 ------------ ----------- Total short-term debt and capitalization............................... $ 5,117,919 $ 5,094,653 ------------ ----------- ------------ ----------- - -------------------------- (a) Reflects an additional $4.0 million associated with borrowings due under the Credit Agreement. (b) Reflects the repayment of $249.5 million of borrowings under the Savannah River Credit Agreement. (c) Reflects the repayment of $650.5 million of term loan borrowings under the 1989 Credit Agreement.
23 (d) Reflects the repayment of outstanding borrowings of $20.2 million under the revolving credit facility of the 1989 Credit Agreement. (e) Reflects initial borrowings of $20.6 million under the revolving credit facility under the Credit Agreement. These borrowings are net of $34.1 million of cash escrow released due to the repayment of the 1989 Credit Agreement and $7.7 million of Savannah River's cash balance at June 30, 1994. (f) Obligations of Stone-Southwest, Inc., a wholly owned subsidiary of the Company. (g) Reflects the repayment of $249.5 million of borrowings under the Savannah River Credit Agreement as described in Note (b) and the $129.1 million repayment of the Savannah River Notes. (h) Reflects the redemption of the Savannah River Preferred not owned by the Company, which will occur on or before December 30, 1994. (i) Reflects a charge to common stock of $4.0 million associated with the redemption of the Savannah River Preferred not owned by the Company, which will occur on or before December 30, 1994. (j) Reflects an extraordinary loss from the early extinguishment of debt of $48.1 million, net of income tax benefit, pertaining to the write-off of unamortized deferred debt issuance costs related to the debt being repaid in Notes (b), (c), (d) and (g), and costs associated with the redemption of the Savannah River Notes.
24 SELECTED CONSOLIDATED FINANCIAL DATA The following selected Statement of Operations and Balance Sheet Data for the five years ended December 31, 1993 has been derived from, and should be read in conjunction with, the related audited consolidated financial statements and accompanying notes of the Company. The audit report relating to the Company's 1993 consolidated financial statements contains an explanatory paragraph referring to certain liquidity matters discussed in Notes 11 and 18 to the Company's 1993 consolidated financial statements included elsewhere in this Prospectus. The selected financial data for the six months ended June 30, 1994 and June 30, 1993 have been derived from the unaudited consolidated financial statements for the quarters ended June 30, 1994 and 1993 included elsewhere in this Prospectus. The summary financial data do not purport to be indicative of the Company's future results of operations or financial position.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------------------- ---------------------------------------------------------------------------- 1994 1993 1993 1992(A) 1991 1990 1989(B) ------------ ------------ ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) STATEMENT OF OPERATIONS DATA: Net sales..... $ 2,645,150 $ 2,573,909 $ 5,059,579 $ 5,520,655 $ 5,384,291 $ 5,755,858 $ 5,329,716 Cost of products sold......... 2,183,989 2,120,535 4,223,444 4,473,746 4,287,212(c) 4,421,930 3,893,842 Selling, general and administrative expenses..... 270,462 267,325 512,174 543,519 522,780 495,499 474,438 Depreciation and amortization... 177,749 175,907 346,811 329,234(c) 273,534(c) 257,041 237,047 Income (loss) before interest expense, income taxes, minority interest, extraordinary loss and cumulative effects of accounting changes...... 32,504 6,746 (36,598) 162,107 385,113 615,736 826,542 Interest expense...... 224,259 204,055 426,726 386,122 397,357 421,667 344,693 Income (loss) before income taxes, minority interest, extraordinary loss and cumulative effects of accounting changes...... (191,755) (197,309) (463,324) (224,015) (12,244) 194,069 481,849 Extraordinary loss from early extinguishment of debt (net of income tax benefit)..... (16,782) -- -- -- -- -- -- Cumulative effect of change in accounting for postemployment benefits (net of income tax benefit)..... (14,189) -- -- -- -- -- -- Cumulative effect of change in accounting for post-retirement benefits (net of income tax benefit)..... -- (39,544) (39,544) -- -- -- -- Cumulative effect of change in accounting for income taxes........ -- -- -- (99,527) -- -- -- Net income (loss)....... (160,648) (173,780) (358,729) (269,437) (49,149) 95,420 285,828 Income (loss) per common share before extraordinary loss and cumulative effects of accounting changes...... (1.55) (1.94) (4.59) (2.49)(d) (.78)(d) 1.56(d) 4.67(d) Net income (loss) per common share........ (1.92) (2.50) (5.15) (3.89)(d) (.78)(d) 1.56(d) 4.67(d) Ratio of earnings to fixed charges...... (e) (e) (e) (e) (e) 1.2 2.0 Dividends paid per common share (d).... -- -- -- $ 0.35 $ 0.71 $ 0.71 $ 0.70 Average common shares outstanding.. 85,960 71,150 71,163 70,987(d) 63,207(d) 61,257(d) 61,223(d) BALANCE SHEET DATA (AT END OF PERIOD): Working capital...... $ 823,904 $ 121,626 $ 809,504 $ 756,964 $ 770,457 $ 439,502 $ 614,433 Property, plant and equipment -- net.......... 3,281,898 3,499,603 3,386,395 3,703,248 3,520,178 3,364,005 2,977,860 Goodwill...... 875,855 945,859 910,534 983,499 1,126,100 1,160,516 1,089,817 Total assets....... 6,688,380 6,829,103 6,836,661 7,026,973 6,902,852 6,689,989 6,253,708 Long-term debt......... 4,094,238(f) 3,586,569(f) 4,268,277(f) 4,104,982(f) 4,046,379(f) 3,680,513(f) 3,536,911(f) Stockholders' equity....... 691,990 896,274 607,019 1,102,691 1,537,543 1,460,487 1,347,624 OTHER DATA: Net cash provided by (used in) operating activities... $ (98,251) $ (1,990) $ (212,685) $ 85,557 $ 210,498 $ 451,579(c) $ 315,196(c) Capital expenditures... 66,258(g) 63,497(g) 149,739(g) 281,446(g) 430,131(g) 551,986(g) 501,723(g) Paperboard, paper and market pulp: Produced (thousand tons)...... 3,892 3,698 7,475 7,517 7,365 7,447 6,772 Converted (thousand tons)...... 2,185 2,169 4,354 4,373 4,228 4,241 3,930 Corrugated shipments (billion sq. ft.)......... 26.2 26.2 52.48 51.67 49.18 47.16 41.56 - ---------------------------------- (a) Restated to reflect the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" retroactive to January 1, 1992. (b) The Company acquired Stone Canada in 1989. (c) Adjusted to conform with the current financial statement presentation. (d) Amounts per common share and average common shares outstanding have been adjusted to reflect a 2% Common Stock dividend issued September 15, 1992. (e) The Company's earnings for the six months ended June 30, 1994 and 1993 and the years ended December 31, 1993, 1992 and 1991 were insufficient to cover fixed charges by $193.1 million and $203.2 million and $466.5 million, $270.1 million and $94.6 million, respectively. (f) Includes approximately $657.0 million and $551.8 million as of June 30, 1994 and 1993, respectively, and $672.6 million, $574.8 million, $573.3 million, $471.2 million and $267.2 million as of December 31, 1993, 1992, 1991 and 1990 and 1989, respectively, of long-term debt of certain consolidated subsidiaries that is non-recourse to the parent. (g) Includes approximately $5.0 million and $7.3 million for the six months ended June 30, 1994 and 1993, respectively, and $14.6 million, $79.1 million, $219.8 million, $245.2 million and $36.8 million for 1993, 1992, 1991, 1990 and 1989, respectively, of expenditures financed through project financings.
25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto included elsewhere in this Prospectus. GENERAL The Company's major products are containerboard and corrugated containers, newsprint and market pulp. The markets for these products are highly competitive and sensitive to changes in industry capacity and cyclical changes in the economy, both of which can significantly impact selling prices and the Company's profitability. From 1990 through the third quarter of 1993, the Company experienced substantial declines in the pricing of most of its products. Market conditions have improved since October 1993, which has allowed the Company to increase prices for most of its products. While prices for the Company's products are approaching the historical high prices achieved during the peak of the last industry cycle, the Company's production costs (including labor, fiber and energy), as well as its interest expense, have also significantly increased since the last pricing peak in the industry, increasing pressure on the Company's net margins for its products. In recent years, price changes have had a greater impact on the Company's sales and profitability than changes in sales volume. The Company believes that near term market conditions may permit the Company to realize further improved product pricing for most of its product lines. However, there is no assurance any such price increases will be achieved or that current prices can be maintained. See "Financial Condition and Liquidity - -- Outlook." Due to industry conditions during the past few years and due principally to depressed product prices and significant interest costs attributable to its highly leveraged capital structure, the Company incurred net losses in each of the last three years and for the first half of 1994 and expects to incur a net loss for the 1994 fiscal year. Such net losses have significantly impaired the Company's liquidity and available sources of liquidity and will continue to adversely affect the Company. Unless the Company achieves and maintains increased selling prices beyond current levels, the Company will continue to incur net losses and will not generate sufficient cash flows to meet fully the Company's debt service requirements in the future. See "Financial Condition and Liquidity" for further details. 26 RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1994 COMPARED WITH THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1993
THREE MONTHS ENDED JUNE 30, --------------------------------------------- 1994 1993 --------------------- --------------------- PERCENT PERCENT OF OF (DOLLARS IN MILLIONS) AMOUNT NET SALES AMOUNT NET SALES --------- --------- --------- --------- Net sales....................................................................... $ 1,354.3 100.0% $ 1,267.6 100.0% Cost of products sold........................................................... 1,116.9 82.5 1,050.3 82.9 Selling, general and administrative expenses.................................... 136.9 10.1 131.3 10.4 Depreciation and amortization................................................... 88.5 6.5 88.8 7.0 Equity loss from affiliates..................................................... 1.5 .1 1.7 .1 Other net operating (income) expense............................................ (28.5) (2.1) 2.3 .1 --------- --------- --------- --------- Income (loss) from operations................................................... 39.0 2.9 (6.8) (.5) Interest expense................................................................ (110.7) (8.2) (101.8) (8.0) Other, net...................................................................... 1.0 .1 .3 -- --------- --------- --------- --------- Loss before income taxes, minority interest, extraordinary loss and cumulative effects of accounting changes.................................................. (70.7) (5.2) (108.3) (8.5) Credit for income taxes......................................................... (20.0) (1.4) (37.7) (3.0) Minority interest............................................................... (.1) -- (1.0) (.1) --------- --------- --------- --------- Loss before extraordinary loss and cumulative effects of accounting changes..... (50.8) (3.8) (71.6) (5.6) Extraordinary loss from early extinguishment of debt............................ -- -- -- -- Cumulative effect of change in accounting for postemployment benefits........... -- -- -- -- Cumulative effect of change in accounting for postretirement benefits........... -- -- -- -- --------- --------- --------- --------- Net loss........................................................................ $ (50.8) (3.8) $ (71.6) (5.6) --------- --------- --------- --------- --------- --------- --------- --------- SIX MONTHS ENDED JUNE 30, --------------------------------------------- 1994 1993 --------------------- --------------------- PERCENT PERCENT OF OF (DOLLARS IN MILLIONS) AMOUNT NET SALES AMOUNT NET SALES --------- --------- --------- --------- Net sales....................................................................... $ 2,645.1 100.0% $ 2,573.9 100.0% Cost of products sold........................................................... 2,184.0 82.6 2,120.5 82.5 Selling, general and administrative expenses.................................... 270.5 10.2 267.3 10.4 Depreciation and amortization................................................... 177.7 6.7 175.9 6.8 Equity loss from affiliates..................................................... 5.7 .2 3.6 .1 Other net operating (income) expense............................................ (33.4) (1.2) 2.9 .1 --------- --------- --------- --------- Income from operations.......................................................... 40.6 1.5 3.7 .1 Interest expense................................................................ (224.3) (8.5) (204.1) (7.9) Other, net...................................................................... (8.1) (.3) 3.1 .1 --------- --------- --------- --------- Loss before income taxes, minority interest, extraordinary loss and cumulative effects of accounting changes.................................................. (191.8) (7.3) (197.3) (7.7) Credit for income taxes......................................................... (60.0) (2.3) (64.6) (2.5) Minority interest............................................................... 2.1 .1 (1.6) -- --------- --------- --------- --------- Loss before extraordinary loss and cumulative effects of accounting changes..... (129.7) (4.9) (134.3) (5.2) Extraordinary loss from early extinguishment of debt (net of $9.8 income tax benefit)....................................................................... (16.8) (.7) -- -- Cumulative effect of change in accounting for postemployment benefits (net of $9.5 income tax benefit)....................................................... (14.2) (.5) -- -- Cumulative effect of change in accounting for postretirement benefits (net of $23.3 income tax benefit)...................................................... -- -- (39.5) (1.5) --------- --------- --------- --------- Net loss........................................................................ $ (160.7) (6.1) $ (173.8) (6.7) --------- --------- --------- --------- --------- --------- --------- ---------
27 The net loss for the second quarter of 1994 was $50.8 million or $.58 per share of common stock, compared to a net loss of $71.6 million or $1.03 per share of common stock for the second quarter of 1993. For the six months ended June 30, 1994, the loss before the extraordinary loss from the early extinguishment of debt and the cumulative effect of a change in the accounting for postemployment benefits ("SFAS 112"), was $129.7 million, or $1.55 per share of common stock. The Company recorded in the 1994 first quarter an extraordinary loss from the early extinguishment of debt of $16.8 million, net of income tax benefit, or $.20 per share of common stock and a one-time, non-cash cumulative effect charge of $14.2 million, net of income tax benefit, or $.17 per share of common stock from the adoption of SFAS 112, resulting in a net loss for the six months ended June 30, 1994 of $160.7 million, or $1.92 per share of common stock. For the six months ended June 30, 1993, the loss before the cumulative effect of a change in the accounting for postretirement benefits other than pensions ("SFAS 106") was $134.3 million, or $1.94 per share of common stock. The adoption of SFAS 106 resulted in a one-time, non-cash cumulative effect charge of $39.5 million, net of income tax benefit, or $.56 per share of common stock, resulting in a net loss of $173.8 million or $2.50 per share of common stock. Income from operations increased $45.8 million and $36.9 million for the three months and six months ended June 30, 1994, respectively, over the comparable prior year periods. These increases primarily reflect improved product pricing, particularly for market pulp, and a $22 million pretax involuntary conversion gain associated with a digester rupture at the Company's Panama City, Florida pulp and paperboard mill which more than offset an increase in recycled fiber costs of approximately $20 million and $24 million for the three and six months ended June 30, 1994. Substantially offsetting the improvement in operating earnings for these periods, however, were higher interest expense and a decrease in the credit for income taxes. Additionally, the first half of 1994 reflected a $10.7 million increase in foreign currency transaction losses which further offset the improved operating earnings for the six months ended June 30, 1994 over the first half of 1993. PAPERBOARD AND PAPER PACKAGING: Net sales for the three and six months ended June 30, 1994 for the paperboard and paper packaging segment increased 3.4% and 0.7%, respectively, over the comparable prior year periods. Net sales for 1993 included sales for the Company's European folding carton operations, which in the early part of 1993 were merged into a joint venture and, accordingly, are now accounted for under the equity method of accounting. Sales from these operations were approximately $16 million and $60 million for the second quarter and first six months of 1993. Excluding the effect of the folding carton operations, sales for the second quarter and first six months of 1994 increased 5.1% and 3.9%, respectively, from the prior year periods reflecting increased sales of paperboard, corrugated containers and paper bags and sacks. The sales increases for paperboard and paper bags and sacks reflect higher sales volumes which more than offset lower average selling prices. The sales increases for corrugated containers reflect higher average selling prices, particularly during the 1994 second quarter, and increased sales volume. Kraft paper sales were virtually unchanged from the prior year periods. Shipments of corrugated containers, including the Company's proportional share of the shipments by its foreign affiliates, were 13.3 billion square feet for both the second quarter of 1994 and 1993. For the first six months of 1994 and 1993, the Company shipped 26.2 billion square feet of corrugated containers. The 1993 shipments include 49% of the shipments by its previously owned non-consolidated affiliate Empaques de Carton Titan, S.A. ("Titan"). The Company sold its 49% equity interest in Titan in December 1993. Excluding shipments from Titan, the Company's shipments of corrugated containers for the second quarter and first six months of 1994 increased 472 million square feet, or 3.7% and 954 million square feet, or 3.8%, respectively, over the comparable 1993 periods. Shipments of paper bags and sacks were 163 thousand tons and 322 thousand tons for the three and six month periods ended June 30, 1994, respectively, compared with 144 thousand tons and 303 thousand tons shipped during the comparable 1993 periods. 28 Production of containerboard and kraft paper for the three and six month periods ended June 30, 1994, including 100% of the production at Seminole and Savannah River, was 1.29 million tons and 2.58 million tons, respectively, compared to 1.21 million tons and 2.41 million tons produced during the comparable prior year periods. Excluding the proportional share of the 1993 production of Titan, production of containerboard and kraft paper for the three and six month periods ended June 30, 1994, increased 100 thousand tons or 8.4% and 198 thousand tons, or 8.3%, respectively compared to the prior year periods. Operating income for the paperboard and paper packaging segment increased 2.1% for the three months ended June 30, 1994 and decreased 7.7% for the six months ended June 30, 1994, as compared to the corresponding 1993 periods. Operating income for the second quarter and first half of 1994 include a pretax gain of approximately $11.0 million which represents the segment's portion of the previously mentioned involuntary conversion gain relating to a digester rupture at the Company's Panama City, Florida pulp and paperboard mill. Excluding this gain, operating income for the second quarter and first half of 1994 would have decreased approximately 19% and 17%, respectively. These decreases were mainly attributable to reduced operating margins primarily resulting from low average selling prices for the Company's paperboard and paper packaging products and higher recycled fiber costs. WHITE PAPER AND PULP: Net sales for the second quarter and first half of 1994 for the white paper and pulp segment increased 15.5% and 8.9%, respectively, compared to the prior year periods, primarily due to a significant increase in market pulp sales. Increased sales of newsprint, particularly during the second quarter of 1994 also contributed to the sales increases for this segment. The sales increases for market pulp mainly resulted from significantly higher average selling prices, particularly during the second quarter of 1994. Additionally, while 1994 second quarter market pulp sales volume was virtually unchanged from that of the corresponding prior year period, the significant volume increase for the first quarter of 1994 contributed to the increased market pulp sales for the first half of 1994 over the comparable 1993 period. The sales increases for newsprint for the second quarter and first half of 1994 over the comparable 1993 periods primarily resulted from increased sales volume. Production of newsprint, market pulp and groundwood paper for the three and six month periods ended June 30, 1994, including 100% of the production at Stone-Consolidated Corporation, the Company's 75% owned Canadian subsidiary, and 25% of the production at the Company's Celgar mill in British Columbia, was 600 thousand tons and 1.27 million tons, respectively, compared with 607 thousand tons and 1.25 million tons produced during the comparable prior year periods. Operating losses for the second quarter and first half of 1994 for the white paper and pulp segment decreased 81.6% and 46.7%, respectively, from the previous year periods. These decreases are mainly attributable to improved operating margins primarily resulting from the higher average selling prices for market pulp and a pre-tax gain of approximately $11 million which represents the segment's portion of the previously mentioned involuntary conversion gain relating to a digester rupture at the Company's Panama City, Florida pulp and paperboard mill. OTHER: Net sales for the second quarter and first half of 1994 for the other segment increased over the comparable 1993 periods primarily as a result of increased sales volume and higher average selling prices for the Company's Canadian lumber and wood products. The increase in operating income for the second quarter and first half of 1994 over the 1993 periods mainly reflect a gain from the sale of certain non-core assets. Shortages of timber available to be harvested due to environmental concerns in the Pacific Northwest continue to keep raw material costs high for this segment. 29 Comparative Results of Operations
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 1993 1992 1991 ------------------------ ------------------------ ------------------------ PERCENT PERCENT PERCENT OF NET OF NET OF NET AMOUNT SALES AMOUNT SALES AMOUNT SALES ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN MILLIONS) Net sales............................................ $ 5,060 100.0% $ 5,521 100.0% $ 5,384 100.0% Cost of products sold................................ 4,223 83.5 4,474 81.0 4,287 79.6 Selling, general and administrative expenses......... 512 10.1 544 9.9 523 9.7 Depreciation and amortization........................ 347 6.9 329 6.0 273 5.1 Equity (income) loss from affiliates................. 12 .2 5 .1 (1) Other net operating (income) expense................. 5 .1 13 .2 (63) (1.2) ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) from operations........................ (39) (.8) 156 2.8 365 6.8 Interest expense..................................... (427) (8.4) (386) (6.9) (397) (7.4) Other, net........................................... (1) -- 1 -- 14 .3 ----------- ----------- ----------- ----------- ----------- ----------- Loss before income taxes and cumulative effects of accounting changes.................................. (467) (9.2) (229) (4.1) (18) (.3) Provision (credit) for income taxes.................. (148) (2.9) (59) (1.0) 31 .6 ----------- ----------- ----------- ----------- ----------- ----------- Loss before cumulative effects of accounting changes............................................. (319) (6.3) (170) (3.1) (49) (.9) Cumulative effect of change in accounting for postretirement benefits............................. (40) (.8) -- -- -- -- Cumulative effect of change in accounting for income taxes............................................... -- -- (99) (1.8) -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net loss............................................. $ (359) (7.1) $ (269) (4.9) $ (49) (.9) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED DECEMBER 31, 1993 COMPARED WITH YEAR ENDED DECEMBER 31, 1992 Net sales for 1993 were $5.1 billion, a decrease of 8.4% from 1992 net sales of $5.5 billion. Net sales decreased as a result of both reduced sales volume and lower average selling prices for most of the Company's products. In 1993, the Company incurred a loss before the cumulative effect of a change in the accounting for postretirement benefits other than pensions of $319 million, or $4.59 per common share. The Company adopted SFAS 106 effective January 1, 1993, and recorded a one-time, non-cash cumulative effect charge of $39.5 million net of income taxes or $.56 per common share, resulting in a net loss of $359 million or $5.15 per common share. In 1992, the Company incurred a loss before the cumulative effect of a change in the accounting for income taxes of $170 million, or $2.49 per common share. The adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), effective January 1, 1992, required a one-time, non-cash cumulative effect charge of $99.5 million, or $1.40 per common share, resulting in a net loss of $269 million or $3.89 per common share. The increase in the loss before the cumulative effects of accounting changes primarily resulted from lower average selling prices for most of the Company's products. The 1993 results included a $35.4 million pretax gain from the sale of the Company's 49% equity interest in Titan and the favorable effect of a reduction in an accrual relating to a change in the Company's vacation pay policy. The earnings impact of these non-recurring items was partially offset by the writedown of the carrying values of certain Company assets. The 1993 results also reflect both an increase in interest expense, primarily associated with a reduction in capitalized interest caused by completion of capital projects, and foreign currency transaction losses of $11.8 million. The 1992 results included foreign currency transaction losses of $15.0 million and an $8.8 million pretax charge relating to the writedown of investments. The Company recorded an income tax benefit of $147.7 million in 1993 as compared with an income tax benefit of $59.4 million in 1992. The increase in the income tax benefit primarily reflects the tax effect associated with the increased pretax loss for 1993 over 1992. Additionally, deferred income taxes were provided for the retroactive increase in the U.S. federal income tax rate, which was more than offset by the effects of an enacted decrease in German and Canadian income tax rates. The Company's effective income tax rates for both years reflect the impact of non-deductible depreciation and amortization. 30 Segment Data
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------- 1993 1992 ------------------------- ------------------------- INCOME (LOSS) INCOME (LOSS) BEFORE INCOME BEFORE INCOME TAXES AND TAXES AND 1991 CUMULATIVE CUMULATIVE ------------------------- EFFECT OF AN EFFECT OF AN INCOME (LOSS) ACCOUNTING ACCOUNTING BEFORE INCOME NET SALES CHANGE NET SALES CHANGE NET SALES TAXES --------- ------------- --------- ------------- --------- ------------- (IN MILLIONS) Paperboard and paper packaging.......... $3,810 $ 206 $4,186 $ 322 $4,038 $ 356 White paper and pulp............... 965 (194) 1,078 (87) 1,116 84 Other............... 331 37 303 12 275 (6) Intersegment........ (46) -- (46) -- (45) -- --------- ------ --------- ------ --------- ------ 5,060 49 5,521 247 5,384 434 Interest expense.... (427) (386) (398) Foreign currency transaction gains (losses)........... (12) (15) 5 General corporate and miscellaneous (net).............. (77) (75) (59) --------- ------ --------- ------ --------- ------ Total........... $5,060 $(467) $5,521 $(229) $5,384 $ (18) --------- ------ --------- ------ --------- ------ --------- ------ --------- ------ --------- ------
Segment and Product Line Sales Data
NET SALES PERCENTAGE CHANGE ---------------------- ------------------------------------- YEAR ENDED DECEMBER 1993 VS 1992 1992 VS 1991 31, ----------------- ----------------- ---------------------- SALES SALES SALES SALES 1993 1992 1991 REVENUE VOLUME REVENUE VOLUME ------ ------ ------ ------- ------- ------- ------- (DOLLARS IN MILLIONS) Paperboard and paper packaging: Corrugated containers....... $2,155 $2,234 $2,094 (3.5)% 1.4% 6.7% 4.1% Paperboard and kraft paper...... 901 1,032 996 (12.7) (5.1) 3.6 1.3 Paper bags and sacks............ 579 634 677 (8.7) (11.0) (6.4) (6.3) Folding cartons... 60 178 166 (66.3) nm 7.2 .1 Other............. 115 108 105 6.5 nm 2.9 nm ------ ------ ------ Total paperboard and paper packaging.... 3,810 4,186 4,038 (9.0) nm 3.7 nm ------ ------ ------ White paper and pulp: Newsprint......... 527 538 660 (2.0) .8 (18.5) (2.5) Market pulp....... 187 312 229 (40.0) (8.4) 36.2 30.3 Groundwood paper............ 243 219 227 11.0 19.4 (3.5) 9.8 Other............. 8 9 -- (11.1) nm nm nm ------ ------ ------ Total white paper and pulp......... 965 1,078 1,116 (10.5) nm (3.4) nm ------ ------ ------ Other............... 331 303 275 9.2 nm 10.2 nm Intersegment........ (46) (46) (45) -- nm 2.2 nm ------ ------ ------ Total net sales........ $5,060 $5,521 $5,384 (8.4) nm 2.5 nm ------ ------ ------ ------ ------ ------ - ------------------------------ nm = not meaningful
PAPERBOARD AND PAPER PACKAGING: The 1993 net sales for the paperboard and paper packaging segment decreased 9.0% compared to 1992. This decrease was due in part to the exclusion of sales for the Company's European folding carton operations which in the early part of 1993 were merged into a joint venture and accordingly are now accounted for under the equity method of accounting. Sales from these operations were approximately $178 million in 1992. Sales for 1993 were approximately $60 million prior to the merger in May 1993. Excluding the effect of the folding carton operations, 1993 net sales for the paperboard and paper packaging segment decreased 6.4%. 31 Net sales of corrugated containers decreased 3.5% from 1992 primarily due to lower average selling prices in 1993 which more than offset a slight increase in sales volume. Net sales of paperboard decreased 11.9% from 1992 as a result of significantly lower average selling prices and declines in sales volume. Net sales of kraft paper decreased 28.0% from 1992, primarily due to reduced sales volume. Net sales for paper bags and sacks decreased from 1992 primarily due to lower sales volume and a decrease in average selling prices for retail paper bags which more than offset a modest increase in average selling prices for industrial paper bags. Operating income for the paperboard and paper packaging segment for 1993 decreased 35.9% from 1992 due to significantly lower operating margins, primarily resulting from the lower average selling prices for corrugated containers and containerboard. Operating income for this segment includes the previously mentioned $35.4 million pretax gain from the sale of Titan and a favorable effect of a reduction in an accrual resulting from a change in the Company's vacation policy. The earnings impact from these non-recurring items was partially offset by the writedowns of the carrying values of certain Company assets. WHITE PAPER AND PULP: The 1993 net sales for the white paper and pulp segment decreased 10.5%, as a significant sales decline for market pulp more than offset a sales increase for uncoated groundwood paper. The sales decline for market pulp was primarily attributable to significantly lower average selling prices which deteriorated further in 1993 from the low average selling prices of 1992. Reduced sales volume in 1993 also contributed to the lower market pulp sales. Newsprint sales declined slightly in 1993 compared to 1992, primarily as a result of unfavorable foreign exchange translation effects attributable to the stronger U.S. dollar, which more than offset the benefits of higher average selling prices and a slight volume increase. Net sales for groundwood paper increased 11%, primarily as a result of significant volume increases which more than offset the effects of slightly lower average selling prices. The operating loss for the white paper and pulp segment for 1993 increased significantly over 1992 due to reduced operating margins primarily resulting from the significantly lower average selling prices for market pulp. Slightly lower average selling prices for groundwood paper also contributed to the reduced earnings, although to a much lesser extent. While average selling prices for newsprint in 1993 improved over the depressed levels of 1992 (although such prices declined in the fourth quarter of 1993 and in the first quarter of 1994), and certain cost reductions have been implemented, the margins associated with such improvements have only partially offset the effects of the lower average selling prices for market pulp and groundwood paper. OTHER: Net sales and operating income for the other segment increased over 1992 mainly due to improved demand and a reduced supply of timber available to the U.S. building industry. This resulted in increased sales volume and the realization of higher average selling prices for certain of the Company's lumber and wood products. However, shortages of timber available to be harvested due to environmental concerns in the Pacific Northwest continue to keep raw material costs high. YEAR ENDED DECEMBER 31, 1992 COMPARED WITH YEAR ENDED DECEMBER 31, 1991 Net sales for 1992 were $5.5 billion, an increase of 2.5% over 1991 net sales of $5.4 billion. Net sales rose primarily as a result of increased sales volume, most of which was offset by reduced average selling prices for certain of the Company's products. In 1992, the Company incurred a loss before the cumulative effect of a change in accounting for income taxes of $170 million, or $2.49 per common share, compared to a loss of $49 million, or $.78 per common share in 1991. The Company adopted SFAS 109, effective January 1, 1992, and recorded a one-time, non-cash cumulative effect charge of $99.5 million or $1.40 per common share. All per share amounts have been adjusted to reflect a 2% common stock dividend issued September 15, 1992. The increase in the loss before the cumulative effect of a change in 32 accounting for income taxes primarily resulted from lower average selling prices for newsprint and groundwood paper in 1992 as compared with 1991. Additionally, continued low average selling prices for the majority of the Company's other products contributed to the net loss for 1992. The 1992 results include foreign currency transaction losses of $15.0 million and an $8.8 million pretax charge relating to the writedown of investments. The 1991 results included non-recurring pretax gains of $59.3 million and foreign currency transaction gains of $4.9 million. The Company recorded an income tax benefit of $59.4 million in 1992 as compared with a $31.1 million income tax expense in 1991. This change primarily reflects the tax effect associated with the increased pretax loss for 1992 over 1991. The Company's effective income tax rates for both years reflect the impact of non-deductible depreciation and amortization, together with taxes payable by certain foreign subsidiaries at rates in excess of the U.S. statutory rate. PAPERBOARD AND PAPER PACKAGING: The 1992 net sales for the paperboard and paper packaging segment increased 3.7% as sales increases for corrugated containers, paperboard and folding cartons more than offset sales declines for kraft paper and paper bags and sacks. Net sales of corrugated containers increased 6.7% over 1991, primarily as a result of increased sales volume. Additionally, slightly higher average selling prices in 1992 contributed to this increase. However, such selling prices continued to remain at unsatisfactory levels. Net sales of paperboard increased over 1991 mainly as a result of modestly higher average selling prices. Such 1992 average paperboard selling prices were still, however, at unsatisfactory levels. Slight volume increases also contributed to the improved paperboard sales for 1992. Net sales of kraft paper decreased 9.3% from 1991, primarily due to reduced sales volume. Net sales of paper bags and sacks decreased from 1991 primarily due to lower sales volume and a decrease in average selling prices for retail paper bags. Operating income for the paperboard and paper packaging segment for 1992 decreased 9.5%, primarily as a result of the inclusion, in 1991, of a non-recurring pretax gain of $17.5 million from an involuntary conversion relating to a boiler explosion at the Company's Missoula, Montana linerboard mill. Excluding this 1991 non-recurring item, 1992 operating income for this segment would have decreased by 4.8%. This decrease is mainly attributable to reduced operating margins resulting from continued low average selling prices for the Company's paperboard and paper packaging products. WHITE PAPER AND PULP: The 1992 net sales for the white paper and pulp segment decreased 3.4%, as significant sales decreases for newsprint more than offset a significant sales increase for market pulp. The significant decrease in newsprint sales resulted primarily from lower average selling prices. Additionally, reduced volume associated with market-related downtime contributed to the lower sales of newsprint. Net sales for groundwood paper decreased slightly as lower average selling prices more than offset volume increases for this product. The increase in 1992 market pulp sales mainly resulted from volume increases associated with sales generated from the Savannah River mill, which commenced market pulp operations in the fourth quarter of 1991. Furthermore, while market pulp selling prices declined significantly in the fourth quarter of 1992, the Company realized modestly higher average selling prices for this product in 1992, as compared with the even more depressed average selling prices of 1991. Operating income for the white paper and pulp segment for 1992 decreased significantly from 1991, primarily due to reduced operating margins resulting from the significantly lower average selling prices for newsprint and groundwood paper. The 1991 results included a non-recurring pretax gain of $41.8 million resulting from the settlement and termination of a Canadian supply contract. OTHER: Net sales and operating income for the other segment increased over 1991 mainly due to improved demand and a tighter supply of timber available to the U.S. building industry. This resulted in increased 33 sales volume and the realization of higher average selling prices for certain of the Company's lumber and wood products. However, shortages of timber due to environmental concerns in the Pacific Northwest continued to keep raw material costs high. FINANCIAL CONDITION AND LIQUIDITY The Company's working capital ratio was 1.9 to 1 at June 30, 1994 and at December 31, 1993 and 1.8 to 1 at December 31, 1992. The Company's long-term debt to total capitalization ratio was 75.3% at June 30, 1994, 75.9% at December 31, 1993 and 69.2% at December 31, 1992. Capitalization, for purposes of this ratio, includes long-term debt (which includes debt of certain consolidated affiliates which is non-recourse to the Company), deferred income taxes, redeemable preferred stock, minority interest and stockholders' equity. The Company's primary capital requirements consist of debt service and capital expenditures, including capital investment for compliance with certain environmental legislation requirements and ongoing maintenance expenditures and improvements. After giving effect to the Offering and the Related Transactions, the Company will continue to be highly leveraged. Other than the 1995 maturities of Stone Financial Corporation and Stone Fin II Receivables Corporation (which the Company currently plans to refinance), there will be no significant debt amortization obligations until June 1997. However, the Company will continue to incur substantial ongoing interest expense. The Company spent $149.7 million on capital expenditures in 1993 and expects to spend approximately $190 million in 1994. The Company intends to repay its outstanding indebtedness under and terminate the 1989 Credit Agreement with the net proceeds of this Offering and borrowings under the Credit Agreement. The Credit Agreement will consist of a $400 million term loan and a $450 million revolving credit facility. The revolving credit facility borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing, and less approximately $ million which the Company will borrow at closing. All indebtedness under the Credit Agreement will be secured by a significant portion of the assets of the Company. The Credit Agreement is expected to contain covenants that include, among other things, requirements to maintain certain financial tests and ratios (including an indebtedness ratio and a minimum interest coverage ratio) and certain restrictions and limitations, including those on capital expenditures, changes in control, payment of dividends, sales of assets, lease payments, investments, additional borrowings, liens, repurchases or prepayment of certain indebtedness, guarantees of indebtedness, mergers and purchases of stock and assets. The Credit Agreement is also expected to contain cross-default provisions to the indebtedness of $10 million or more of the Company and certain subsidiaries, as well as cross-acceleration provisions to the non-recourse debt of $10 million or more of Stone-Consolidated, Seminole and SVCP. Additionally, the term loan portion of the Credit Agreement will provide for mandatory prepayments from sales of certain assets (other than the Collateral and the Bank Collateral pledged under the Credit Agreement), certain debt financings and excess cash flows. All mandatory and voluntary prepayments will be allocated against the term loan amortizations in inverse order of maturity. Amortization amounts under the term loan will be 0.5% of principal amount on each April 1 and October 1 for the period from April 1, 1995 through April 1, 1999, 47.5% on October 1, 1999 and 48.0% on April 1, 2000. In addition, mandatory prepayments from sales of Bank Collateral (unless substitute collateral has been provided) will be allocated pro rata between the term loan and the revolving credit facility, and, to the extent applied to repay the revolving credit facility, will permanently reduce loan commitments thereunder. The Credit Agreement limits, except in certain specific circumstances, any further investments by the Company in Stone-Consolidated, Seminole and SVCP. As of June 30, 1994, Seminole had $153.1 million in outstanding indebtedness (including $115.1 million in secured indebtedness owed to bank lenders) and is significantly leveraged. Pursuant to an output purchase agreement entered into in 1986 with Seminole, the Company is obligated to purchase and Seminole is obligated to sell all of Seminole's linerboard production. Seminole produces 100% recycled linerboard and is dependent upon an adequate supply of recycled fiber, in particular OCC. Under the agreement, the Company paid fixed prices for linerboard, which generally exceeded market prices, until June 3, 1994. Thereafter, the 34 Company is only obligated to pay market prices for the remainder of the agreement. Because market prices for linerboard are currently less than the fixed prices previously in effect under the output purchase agreement and due to recent significant increases in the cost of recycled fiber, it is anticipated that Seminole will not comply with certain financial covenants at September 30, 1994. Seminole's lenders under its credit agreement have agreed to grant waivers and amendments with respect to such covenants for periods up to and including June 30, 1995. There can be no assurance that the lenders will grant such waivers or that Seminole will not require additional waivers in the future. Furthermore, in the event that management determines that it is probable that Seminole will not be able to comply with any covenant contained in the Seminole credit agreement within twelve months after the waiver of a violation of such covenant, then the debt under the Seminole credit agreement would be reclassified as short-term debt under the provisions of Emerging Issues Task Forces Issue No. 86-30 "Classification of Obligations When a Violation is Waived By the Creditor." Depending upon the level of market prices and the cost and supply of OCC, Seminole may need to undertake additional measures to meet its debt service requirements (including covenants), including obtaining additional sources of funds or liquidity, postponing or restructuring of debt service payments or refinancing the indebtedness. In the event that such measures are required and not successful, and such indebtedness is accelerated by the respective lenders to Seminole, the lenders to the Company under the Credit Agreement and various other of its debt instruments would be entitled to accelerate the indebtedness owed by the Company. There can be no assurance that the Company will be able to achieve and maintain compliance with the prescribed financial ratio tests or other requirements of the Credit Agreement. Failure to achieve or maintain compliance with such financial ratio tests or other requirements under the Credit Agreement, in the absence of a waiver or amendment, would result in an event of default and could lead to the acceleration of the obligations under the Credit Agreement. While the Company has successfully sought and received waivers and amendments under its 1989 Credit Agreement on various occasions, if waivers or amendments are requested by the Company under the Credit Agreement, there can be no assurance that the new lenders under the Credit Agreement will grant such requests. The failure to obtain any such waivers or amendments would reduce the Company's flexibility to respond to adverse industry conditions and could have a material adverse effect on the Company. See "Credit Agreement -- Covenants." OUTLOOK: Due to industry conditions during the past few years and due principally to depressed product prices and significant interest costs attributable to the Company's highly leveraged capital structure, the Company incurred net losses in each of the last three years and for the first half of 1994 and expects to incur a net loss for the 1994 fiscal year. Such net losses have significantly impaired the Company's liquidity and available sources of liquidity and will continue to adversely affect the Company. Unless the Company achieves and maintains price increases with respect to paperboard and paper packaging products and significant sustained price increases for white paper and pulp products, the Company will continue to incur net losses and will not generate sufficient cash flows to meet fully the Company's debt service requirements in the future. The Company's containerboard and corrugated container product lines, which represent a substantial portion of the Company's net sales, generally experienced declining product prices from 1990 through the third quarter of 1993. Since October 1, 1993, the Company has increased the price of linerboard in the fourth quarter of 1993 and the first quarter and third quarter of 1994 by $25 per ton, $30 per ton and $40 per ton, respectively. Prices for corrugating medium also increased by $25 per ton, $40 per ton and $50 per ton in the corresponding periods. In addition, in the first half of 1994, the Company implemented corrugated container price increases and began implementing on July 25, 1994 a 9.5% price increase for corrugated containers. Historically, suppliers, including the Company, have taken up to 90 days to pass increased linerboard and corrugating medium prices through to corrugated container customers. The Company converts more than 80% of its linerboard and corrugating medium production into corrugated containers, making the achievement of price increases for corrugated 35 containers essential for the Company to realize substantial financial benefit from linerboard and corrugating medium price increases. On August 5, 1994, the Company announced to its customers an additional price increase of $40 per ton for linerboard and $50 per ton for corrugating medium effective for the fourth quarter of 1994. While there can be no assurance that prices will continue to increase or even be maintained at present levels, the Company believes that the supply/demand characteristics for linerboard, corrugating medium and corrugated containers have improved which could allow for further price increases for these product lines. According to industry publications, immediately preceding the price increase effective October 1, 1993, the reported transaction price for 42 lb. kraft linerboard, the base grade of linerboard, was $300 per ton and as of August 1, 1994, the reported transaction price for this base grade was $385-$395 per ton. According to industry publications, the reported transaction price for corrugating medium immediately preceding October 1, 1993 was $280 per ton and $375-$385 per ton as of August 1, 1994. The Company has also implemented price increase in kraft paper and kraft converted products. The Company increased prices for retail bags and sacks by 8% on each of April 1, May 1 and July 1, 1994 and announced and began implementing a further price increase of 10% effective September 1, 1994. In addition, the Company has announced and began implementing on August 1, 1994 a $50 per ton (approximately 8.6%) price increase for kraft paper. Pricing conditions for market pulp, newsprint and uncoated groundwood paper have been volatile in recent years. Additions to industry-wide capacity and declines in demand for such products during the past three years led to supply/demand imbalances that have contributed to depressed prices for these products. In 1994, however, pricing for market pulp has improved substantially. The Company has increased prices for various grades of market pulp by up to $260 per metric tonne since November 1993. According to industry publications, the reported transaction price for SBHK was $370 per metric tonne as of the third quarter of 1993 and $500-570 per metric tonne as of the second quarter of 1994. On July 1, 1994, the Company implemented a further price increase of $70 per metric tonne (approximately 12.2%). The Company has announced a further price increase of $70 per metric tonne to be implemented in the fourth quarter. After further declines in the first quarter of 1994, pricing for newsprint has also recently improved. The Company increased newsprint prices in the second quarter of 1994 by $48 per metric tonne in the eastern markets of North America and $41 per metric tonne in the western markets in North America and $41 per metric ton in the eastern markets of North America and $48 per metric tonne in the western markets of North America in the third quarter of 1994. According to industry publications, the reported transaction price for newsprint in the eastern markets of North America was $411 per metric tonne as of March 1, 1993 and $470 per metric tonne as of August 1, 1994. The benefit to the Company's cash flows from such partial price recovery in newsprint is limited, however, because Stone-Consolidated owns all of the Canadian and United Kingdom newsprint and uncoated groundwood assets of the Company and the restrictive terms of Stone-Consolidated's indebtedness will not permit Stone-Consolidated to provide funds to the Company (whether by dividend, loan or otherwise) including from cash generated from operations, if any, until certain financial covenants have been satisfied. Such financial covenants have not been satisfied to date and are not likely to be satisfied in 1994. There can be no assurances that such financial covenants will be met in the future. To date, uncoated groundwood papers have not achieved significant price increases. However, a further price increase of approximately $48 per metric tonne has been announced for the fourth quarter of 1994. While other producers have announced similar price increases for market pulp and newsprint, there can be no assurance that such price increases will be achieved as scheduled. Although supply/demand balances appear favorable for most of the Company's products, there can be no assurance that the above price increases will be achieved or that prices can be maintained at the present levels. Wood fiber and recycled fiber, the principal raw materials in the manufacture of the Company's products, are purchased in highly competitive, price sensitive markets. These raw materials have historically exhibited price and demand cyclicality. In addition, the supply and price of wood fiber, in 36 particular, is dependent upon a variety of factors over which the Company has no control, including environmental and conservation regulations, natural disasters, such as forest fires and hurricanes, and weather. In addition, recent increased demand for the Company's products has resulted in greater demand for raw materials which has recently translated into higher raw material prices. The Company purchases or cuts a variety of species of timber from which the Company utilizes wood fiber depending upon the product being manufactured and each mill's geographic location. Despite this diversification, wood fiber prices have increased substantially in 1994. A decrease in the supply of wood fiber, particularly in the Pacific Northwest and the southeastern United States due to environmental considerations, has caused, and will likely continue to cause, higher wood fiber costs in those regions. In addition, the increase in demand for products manufactured in whole or in part from recycled fiber has caused a shortage of recycled fiber, particularly OCC used in the manufacture of premium priced recycled containerboard and related products. The Company's paperboard and paper packaging products use a large volume of recycled fiber. In 1993, the Company processed approximately 1.9 million tons of recycled fiber. The Company used approximately 1.25 million tons of OCC in its products in 1993. The Company believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to $110 per ton as of September 1, 1994. While the Company has not experienced any significant difficulty in obtaining wood fiber and recycled fiber in economic proximity to its mills, there can be no assurances that this will continue to be the case for any or all of its mills. In addition, there can be no assurance that all or any part of increased fiber costs can be passed along to consumers of the Company's products directly or in a timely manner. Notwithstanding the improvements in the Company's liquidity and financial flexibility which will result from the Offering and the execution and delivery of the Credit Agreement, unless the Company achieves and maintains increased selling prices beyond current levels, the Company will continue to incur net losses and will not generate sufficient cash flows to meet fully the Company's debt service requirements in the future. Without such price increases, the Company may exhaust all or substantially all of its cash resources and borrowing availability under the existing revolving credit facilities. In such event, the Company would be required to pursue other alternatives to improve liquidity, including further cost reductions, additional sales of assets, the deferral of certain capital expenditures, obtaining additional sources of funds and/or pursuing the possible restructuring of its indebtedness. There can be no assurance that such measures, if required, would generate the liquidity required by the Company to operate its business and service its indebtedness. As currently scheduled, beginning in 1996 (assuming successful refinancing of the two existing receivables programs) and continuing thereafter, the Company will be required to make significant amortization payments on its existing indebtedness which would require the Company to raise sufficient funds from operations and/or other sources and/or refinance or restructure maturing indebtedness. No assurance can be given that the Company will be successful in doing so. The Company will incur a charge for the write-off of previously unamortized debt issuance costs, related to the debt being repaid, (approximately $45 million, net of income tax benefit) upon completion of the Offering and Related Transactions. This non-cash charge will be recorded as an extraordinary loss from the early extinguishment of debt in the Company's Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit). 37 CASH FLOWS FROM OPERATIONS: The following table shows, for the first six months of 1993 and 1994 and for the last three years, the net cash provided by (used in) operating activities:
YEAR SIX MONTHS ENDED ENDED DECEMBER JUNE 30, 31, ---------------- ------- 1994 1993 1993 1992 1991 ------ ------ ------- ------- ------ (IN MILLIONS) Net loss...................... $ (161) $ (174) $ (359) $ (269) $ (49) Extraordinary loss from early extinguishment of debt...... 17 -- -- -- -- Cumulative effect of change in postemployment benefits..... 14 -- -- -- -- Cumulative effect of change in accounting for postretirement benefits..... -- 39 39 -- -- Cumulative effect of change in accounting for income taxes....................... -- -- -- 99 -- Depreciation and amortization................ 178 176 347 329 274 Deferred taxes................ (64) (60) (134) (67) 22 Payment on settlement of interest rate swaps......... -- -- (33) -- -- Decrease (increase) in accounts and notes receivable -- net........... (81) (3) 45 (67) 33 Decrease (increase) in inventories................. 57 3 29 11 (60) Decrease (increase) in other current assets.............. (37) (9) (9) 9 (75) Increase (decrease) in accounts payable and other current liabilities......... 21 26 (60) (35) 59 Other......................... (42) -- (78)(a) 76(b) 7 ------ ------ ------- ------- ------ Net cash provided by (used in) operating activities........ $ (98) $ (2) $ (213) $ 86 $ 211 ------ ------ ------- ------- ------ ------ ------ ------- ------- ------ - ------------------------ (a) Includes debt issuance costs of $84 million and an adjustment to remove the effect of a $35 million gain from the sale of the Company's 49% equity interest in Titan, partially offset by adjustments to remove the effects of amortization of deferred debt issuance costs and a non-cash charge of $19 million pertaining to the writedown of certain decommissioned assets. (b) Includes $54 million of cash received from the sale of an energy contract in October 1992.
The results of operations for the first six months of 1994 and 1993 and the years 1991 through 1993 have had a significant adverse impact on the Company's cash flow. Borrowings in the first six months of 1994 and 1993 and the years 1991, 1992 and 1993 have increased to meet cash flow needs. During 1993 and in the first six months of 1994, the Company entered into various financing and investing activities designed to provide liquidity and enhance financial flexibility. See "Financing activities" and "Investing activities." The decrease in cash flows for the first six months of 1994 compared to the first six months of 1993 resulted primarily from an increase in debt issuance cost payments and the effects of increases in accounts and notes receivable and other current assets. These decreases were partially offset by the favorable effect of a significant reduction in inventories and a modest decrease in the loss (before the extraordinary loss and the non-cash, cumulative effects of accounting changes) for the first six months of 1994 compared to the prior year period. The 1993 decrease in accounts and notes receivable reflects the timing of receivable collections, lower average selling prices for a majority of the Company's products and the writedown of certain 38 receivables to net realizable value. The increase in accounts and notes receivable for 1992 reflect an increase in sales volume for certain of the Company's products during the latter part of 1992 over 1991 and the timing of receivable collections resulting from the continued slow recovery of the economy. Inventories decreased in 1993 due primarily to a reduction in certain paperstock and newsprint levels, partially attributable to market related downtime. The decrease in inventories for 1992 resulted mainly from reductions in certain paperstock levels due to increased sales volume during the latter part of 1992 and market-related downtime. The 1992 decrease in other current assets resulted mainly from the collection of $43 million of cash related to the 1991 settlement and termination of a Canadian supply contract. The decreases in accounts payable and other current liabilities for 1993 and 1992 were due primarily to the timing of payments. FINANCING ACTIVITIES: On February 10, 1994, under the Company's $1 billion shelf registration, the Company sold $710 million principal amount of 9 7/8% Senior Notes due February 1, 2001 and 16.5 million shares of common stock for an additional $251.6 million at $15.25 per common share in the February 1994 Offerings, which included the exercise by the underwriters of their option to sell an additional 2.47 million shares of common stock for an additional $37.7 million, also at $15.25 per common share. The net proceeds from the February 1994 Offerings of approximately $962 million were used to (i) prepay approximately $652 million of 1995, 1996 and 1997 required amortization under the Company's 1989 Credit Agreement, including the ratable amortization payment under the revolving credit facilities which had the effect of reducing the total commitments thereunder to approximately $168 million; (ii) redeem the Company's 13 5/8% Subordinated Notes due 1995 at a price equal to par, approximately $98 million principal amount, plus accrued interest to the redemption date; (iii) repay approximately $136 million of the outstanding borrowings under the Company's revolving credit facilities without reducing the commitments thereunder; and (iv) provide liquidity in the form of cash. The following summarizes the Company's significant financing activities in 1993: - During 1993, outstanding borrowings under the Company's revolving credit facilities increased approximately $6.8 million. The net increase takes into account the financial transactions discussed below and those transactions discussed in the "Investing activities" section following. Borrowings and payments made on debt as presented in the Statement of Cash Flows does not take into account certain repayments and subsequent reborrowings under the revolving credit facilities which occurred as a result of these transactions. - In December 1993, Stone-Consolidated acquired the newsprint and uncoated groundwood papers business of Stone Canada and sold $346.5 million of units in an initial public offering comprised of both common stock and convertible subordinated debentures (the "Units Offering"). Each unit was priced at $2,100 and consisted of 100 shares of common stock at $10.50 per share and $1,050 principal amount of convertible subordinated debentures. The convertible subordinated debentures mature December 31, 2003, bear interest at an annual rate of 8% and are convertible beginning June 30, 1994, into 6.211 shares of common stock for each Canadian $100 principal amount, representing a conversion price of $12.08 per share. Concurrently with the initial public offering, Stone-Consolidated sold $225 million of senior secured notes in a public offering in the United States. The senior secured notes mature December 15, 2000 and bear interest at an annual rate of 10.25%. As a result of the Units Offering, 16.5 million shares of common stock, representing 25.4% of the total shares outstanding of Stone-Consolidated, were sold to the public, resulting in the recording in the Company's Consolidated Balance Sheet of a minority interest liability of $236.7 million. The Company used approximately $373 million of the net proceeds from the sale of the Stone-Consolidated securities for repayment of commitments under its 1989 Credit Agreement and the remainder for general corporate purposes. As a result of the Units Offering, the Company recorded a charge of $74.4 million to common stock related to the excess carrying value per common share over the offering price per common share associated with the shares issued. 39 - In December 1993, the Company sold two of its short-line railroads in a transaction in which the Company has guaranteed to contract minimum railroad services which will provide freight revenues to the railroads over a 10 year period. The transaction has been accounted for as a financing and accordingly, had no impact on the Company's 1993 net loss. The Company received proceeds of approximately $28 million, of which approximately $19 million was used to repay commitments under the 1989 Credit Agreement. - In the fourth quarter of 1993, the Company sold, prior to their expiration date, certain of the U.S. dollar denominated interest rate and cross currency swaps associated with the 1989 Credit Agreement borrowings of Stone-Canada. The net proceeds totaled approximately $34.9 million, the substantial portion of which was used to repay borrowings under the revolving credit facilities of the 1989 Credit Agreement. The sale of the swaps resulted in a deferred loss which will be amortized over the remaining life of the underlying obligation. - In July 1993, the Company sold $150 million principal amount of 12 5/8% Senior Notes due July 15, 1998 and, in a private transaction, sold $250 million principal amount of 8 7/8% Convertible Senior Subordinated Notes due July 15, 2000. The Company filed a shelf registration statement declared effective August 13, 1993 registering the 8 7/8% Convertible Senior Subordinated Notes for resale by the holders thereof. The net proceeds of approximately $386 million received from the sales of these notes were used by the Company to repay borrowings without reducing commitments under the revolving credit facilities of its 1989 Credit Agreement, thereby restoring borrowing availability thereunder. INVESTING ACTIVITIES: Capital expenditures for the six months ended June 30, 1994 totalled approximately $66.2 million. The following summarizes the Company's significant 1993 investing activities: - The Company sold its 49% equity interest in Titan. The net proceeds were used to repay commitments under the 1989 Credit Agreement and for repayment of borrowings under its revolving credit facilities without reducing commitments thereunder. - During 1993, the Company increased its ownership in the common stock of Savannah River from 90.2% to 92.8% through the purchase of an additional 6,152 common shares and through the receipt of Series D Preferred Stock as a dividend in kind on Savannah River's Series B Preferred Stock and the election of its right to convert the Series D Preferred Stock into 198,438 common shares. - On May 6, 1993, the Company's wholly owned German subsidiary, Europa Carton A.G., ("Europa Carton"), completed a joint venture with Financiere Carton Papier ("FCP"), a French company, to merge the folding carton operations of Europa Carton with those of FCP ("FCP Group"). Under the joint venture, FCP Group is owned equally by Europa Carton and the shareholders of FCP immediately prior to the merger. The Company's investment in this joint venture is being accounted for under the equity method of accounting. - Capital expenditures for 1993 totaled approximately $150 million (including capitalized interest of approximately $9 million), of which approximately $15 million was funded from existing project financings. The Company's capital expenditures for 1994 are budgeted at approximately $190 million. ENVIRONMENTAL ISSUES: The Company's operations are subject to extensive environmental regulation by federal, state and local authorities in the United States and regulatory authorities with jurisdiction over its foreign operations. The Company has in the past made significant capital expenditures to comply with water, air and solid and hazardous waste regulations and expects to make significant expenditures in the future. Capital expenditures for environmental control equipment and facilities were approximately $29.7 million in 1993 and the Company anticipates that 1994 and 1995 environmental capital expenditures will approximate $78 million and $114 million, respectively (not including any expenditures required under the proposed "cluster rules" described below). Included in these amounts are capital expenditures for 40 Stone-Consolidated which were approximately $6.7 million in 1993 and are anticipated to approximate $43 million in 1994 and $82 million in 1995. Although capital expenditures for environmental control equipment and facilities and compliance costs in future years will depend on legislative and technological developments which cannot be predicted at this time, the Company anticipates that these costs will increase when final "cluster rules" are adopted and as other environmental regulations become more stringent. Environmental control expenditures include projects which, in addition to meeting environmental concerns, yield certain benefits to the Company in the form of increased capacity and production cost savings. In addition to capital expenditures for environmental control equipment and facilities, other expenditures incurred to maintain environmental regulatory compliance (including any remediation) represent ongoing costs to the Company. In addition, the Company is from time to time subject to litigation and governmental proceedings regarding environmental matters in which injunctive and/or monetary relief is sought. In December 1993, the EPA issued a proposed rule affecting the pulp and paper industry. These proposed regulations, informally known as the "cluster rules," would make more stringent requirements for discharge of wastewaters under the Clean Water Act and would impose new requirements on air omissions under the Clean Air Act. Pulp and paper manufacturers (including the Company) have submitted extensive comments to the EPA on the proposed regulations in support of the position that requirements under the proposed regulations are unnecessarily complex, burdensome and environmentally unjustified. The EPA has indicated that it may reopen the comment period on the proposed regulations to allow review and comment on new data that the industry will submit to the agency on the industry's air toxics emissions. It can not be predicted at this time whether the EPA will modify the requirements in the final regulations which are scheduled to be issued in 1996, with compliance required within three years from such date. The Company is considering and evaluating the potential impact of the rules, as proposed, on its operations and capital expenditures over the next several years. Preliminary estimates indicate that the Company could be required to make capital expenditures of $350-$450 million during the period of 1996 through 1998 in order to meet the requirements of the rules, as proposed. In addition, annual operating expenses would increase by as much as $20 million beginning in 1998. The ultimate financial impact of the regulations cannot be accurately estimated at this time but will be affected by several factors, including the actual requirements imposed under the final rule, advancements in control process technologies, possible reconfiguration of mills and inflation. In addition, the Company is from time to time subject to litigation and governmental proceedings regarding environmental matters in which injunctive and/or monetary relief is sought. The Company has been named as a PRP at a number of sites which are the subject of remedial activity under CERCLA or comparable state laws. Although the Company is subject to joint and several liability imposed under Superfund, at most of the multi-PRP sites there are organized groups of PRPs and costs are being shared among PRPs. Future environmental regulations, including the final "cluster rules," may have an unpredictable adverse effect on the Company's operations and earnings, but they are not expected to adversely affect the Company's competitive position. ACCOUNTING STANDARDS CHANGES In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for the estimated costs of providing certain benefits to former or inactive employees and the employees' beneficiaries and dependents after employment but before retirement. Upon adoption of SFAS 112, the Company recorded its catch-up obligation (approximately $24 million) by recognizing a one-time, non-cash charge of $14.2 million, net of income tax benefit, as a cumulative effect of an accounting change in its 1994 first quarter Statement of Operations and Retained Earnings (Accumulated Deficit). 41 BUSINESS GENERAL The Company is a major international pulp and paper company engaged principally in the production and sale of paper, packaging products, and market pulp. The Company believes that it is the world's largest producer of unbleached containerboard and kraft paper and the world's largest converter of those products into corrugated containers and paper bags and sacks. The Company also believes that it is one of the world's largest paper companies in terms of annual tonnage, having produced approximately 7.5 million total tons of paper and pulp in each of 1993 and 1992. The Company produced approximately 4.9 million and 5.0 million tons of unbleached containerboard and kraft paper in 1993 and 1992, respectively, which accounted for approximately 66% of its total tonnage produced for both 1993 and 1992. The Company had net sales of approximately $5.1 billion and $5.5 billion in 1993 and 1992, respectively. The Company owns or has an interest in 135 manufacturing facilities in the United States, 26 in Canada, 15 in Germany, six in France, two in Belgium and one in each of the United Kingdom and the Netherlands. The facilities include 23 mills. The Company also maintains sales offices in the United States, Canada, the United Kingdom, Germany, Belgium, France, Mexico, China and Japan, has a forestry operation in Costa Rica and has a joint venture relationship in Venezuela. The Company is incorporated in Delaware and its Common Stock is listed on the New York Stock Exchange. The Company's executive offices are located at 150 North Michigan Avenue, Chicago, Illinois 60601; telephone number (312) 346-6600. PRODUCT PRICING AND INDUSTRY TRENDS The markets for products sold by the Company are highly competitive and are also sensitive to changes in industry capacity and cyclical changes in the economy, both of which can significantly impact selling prices and thereby the Company's profitability. From 1990 through the third quarter of 1993, the Company experienced substantial declines in the pricing of most of its products. Market conditions have improved since October 1993, which have allowed the Company to increase prices for most of its products. While prices for most of the Company's products are approaching the historical high prices which were achieved during the peak of the last industry cycle, the Company's production costs (including labor, fiber and energy), as well as its interest expense, have also significantly increased since the last pricing peak in the industry, increasing pressure on the Company's net margins for its products. The Company's containerboard and corrugated container product lines, which represent a substantial portion of the Company's net sales, generally experienced declining product prices from 1990 through the third quarter of 1993. Since October 1, 1993, the Company has increased the price of linerboard in the fourth quarter of 1993 and the first quarter and third quarter of 1994 by $25 per ton, $30 per ton and $40 per ton, respectively. Prices for corrugating medium also increased by $25 per ton, $40 per ton and $50 per ton in the corresponding periods. In addition, in the first half of 1994, the Company implemented corrugated container price increases and began implementing on July 25, 1994 a 9.5% price increase for corrugated containers effective July 25, 1994. Historically, suppliers, including the Company, have taken up to 90 days to pass increased linerboard and corrugating medium prices through to corrugated container customers. The Company converts more than 80% of its linerboard and corrugating medium products into corrugated containers, making the achievement of price increases for corrugated containers essential for the Company to realize substantial financial benefit from linerboard and corrugating medium price increases. On August 5, 1994, the Company announced to its customers an additional price increase of $40 per ton for linerboard and $50 per ton for corrugating medium effective for the fourth quarter of 1994. While there can be no assurance that price increases will be implemented or that prices will continue to increase or even be maintained at present levels, the Company believes that the supply/demand characteristics for linerboard, corrugating medium and corrugated containers have improved which could allow for further price increases for these product lines. 42 According to industry publications, immediately preceding the price increase effective October 1, 1993, the reported transaction price for 42 lb. kraft linerboard, the base grade of linerboard, was $300 per ton and as of August 1, 1994, the reported transaction price for this base grade was $385-395 per ton. According to industry publications, the reported price for corrugating medium immediately preceding October 1, 1993 was $280 per ton and $375-$385 per ton as of August 1, 1994. The Company has also implemented price increases in kraft paper and kraft paper converted products. The Company increased prices for retail bags and sacks by 8% on each of April 1, May 1 and July 1, 1994 and announced and began implementing a further price increase of 10% effective September 1, 1994. In addition, the Company has announced and began implementing on August 1, 1994 a $50 per ton (approximately 8.6%) price increase for kraft paper. Pricing for market pulp has also improved substantially in 1994. The Company has increased prices for various grades of market pulp by up to $260 per metric tonne since November 1993. According to industry publications, the reported transaction price for SBHK was $370 per metric tonne as of the third quarter of 1993 and $500-570 per metric tonne as of the second quarter of 1994. On July 1, 1994, the Company implemented a further price increase of $70 per metric tonne (approximately 12.2%). The Company has announced a further price increase of $70 per metric tonne to be implemented in the fourth quarter. After further declines in the first quarter of 1994, pricing for newsprint has also recently improved. The Company increased newsprint prices in the second quarter of 1994 by $48 per metric tonne in the eastern markets of North America and $41 per metric tonne in the western markets of North America and of $41 per metric tonne in the eastern markets of North America and $48 per metric tonne in the western markets of North America in the third quarter of 1994. According to industry publications, the reported transaction price for newsprint in the eastern markets of North America was $411 per metric tonne as of March 1, 1993 and $470 per metric tonne as of August 1, 1994. To date, uncoated groundwood papers have not achieved significant price increases. However, a further price increase of approximately $48 per metric tonne has been announced for the fourth quarter of 1994. Although supply/demand balances appear favorable for most of the Company's products, there can be no assurance that announced price increases will be achieved or that prices can be maintained at present levels. Wood fiber and recycled fiber, the principal raw materials in the manufacture of the Company's products, are purchased in highly competitive, price sensitive markets. These raw materials have historically exhibited price and demand cyclicality. In addition, the supply and price of wood fiber, in particular, is dependent upon a variety of factors over which the Company has no control, including environmental and conservation regulations, natural disasters, such as forest fires and hurricanes, and weather. In addition, recent increased demand for the Company's products has resulted in greater demand for raw materials which has recently translated into higher raw material prices. The Company purchases or cuts a variety of species of timber from which the Company utilizes wood fiber depending upon the product being manufactured and each mill's geographic location. Despite this diversification, wood fiber prices have increased substantially in 1994. A decrease in the supply of wood fiber, particularly in the Pacific Northwest and the southeastern United States due to environmental considerations, has caused, and will likely continue to cause, higher wood fiber costs in those regions. In addition, the increase in demand for products manufactured in whole or in part from recycled fiber has caused a shortage of recycled fiber, particularly OCC used in the manufacture of premium priced recycled containerboard and related products. The Company's paperboard and paper packaging products use a large volume of recycled fiber. In 1993, the Company processed approximately 1.9 million tons of recycled fiber. The Company used approximately 1.25 million tons of OCC in its products in 1993. The Company believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to $110 per ton as of September 1, 1994. While the Company has not experienced any significant difficulty in obtaining wood fiber and recycled fiber in economic proximity to its mills, there can be no 43 assurances that this will continue to be the case for any or all of its mills. In addition, there can be no assurance that all or any part of increased fiber costs can be passed along to consumers of the Company's products directly or in a timely manner. FINANCIAL STRATEGY In 1993, the Company adopted a financial plan designed to increase the Company's liquidity and improve its financial flexibility by prepaying the near term scheduled amortizations under the 1989 Credit Agreement. The financial plan was implemented in response to continuing net losses resulting from depressed sales prices for the Company's products and the Company's highly leveraged capital structure and related interest expense associated with indebtedness incurred to finance the acquisition of Stone Canada. In 1993, as part of the financial plan, the Company satisfied its remaining 1993 and 1994 scheduled amortization obligations under the 1989 Credit Agreement and repaid outstanding borrowings (a portion of which could subsequently be reborrowed) under the revolving credit facility portion of the 1989 Credit Agreement with the proceeds from (i) the sale of $400 million aggregate principal amount of additional Company indebtedness, (ii) the public offering in Canada of approximately 25% of the common stock (Cdn. $231 million) of Stone-Consolidated and the contemporaneous sale by Stone-Consolidated of Cdn. $231 million principal amount of convertible subordinated debentures in Canada and $225 million principal amount of senior secured notes in the U.S., and (iii) the sale of approximately $125 million of assets. In February 1994, the Company sold $710 million principal amount of 9 7/8% Senior Notes due 2001 and approximately 19 million shares of its common stock for gross proceeds of approximately $289 million from the sale of such common stock in the February 1994 Offerings. The Company used the $962 million of net proceeds from the February 1994 Offerings to (i) prepay scheduled amortizations under the 1989 Credit Agreement for all of 1995 and a portion of 1996 and 1997, (ii) fully redeem the principal amount of the Company's 13 5/8% Subordinated Notes due 1995, and (iii) repay outstanding borrowings under the revolving credit facility portion of the 1989 Credit Agreement, a portion of which remained available for reborrowing thereunder. The Company, as part of its financial plan, is evaluating certain alternatives for the disposition and monetization of its non-core assets including the U.S. wood products business. As an initial step in achieving this objective, the Company on September 27, 1994, announced the closure of three facilities of the wood products business in the Pacific Northwest. The operations of the closed facilities will be consolidated with other wood product operations of the Company in the Northwest, while the Company will dispose of excess assets including inventory as soon as practicable in an orderly liquidation. The impact of such closure and sale of assets on the Company's 3rd Quarter results has not yet been fully determined but is not expected to have a material effect on the Company. The Company is continuing to pursue its financial strategy of increasing the Company's liquidity and improving its financial flexibility. Concurrently with the closing of this Offering, the Company will (i) repay all of the outstanding indebtedness and commitments under and terminate the 1989 Credit Agreement, (ii) enter into the Credit Agreement and (iii) repay the outstanding borrowings under the Savannah River Credit Agreement and, on or prior to December 30, 1994, redeem the outstanding Savannah River Notes and the Savannah River Preferred, each of which (other than the redemptions) is conditioned upon the successful completion of the other transactions (collectively, the "Related Transactions"). The Credit Agreement will consist of a $400 million secured term loan and a $450 million revolving credit facility. The revolving credit facility borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing and less approximately $ million which the Company will borrow at closing. On or prior to the closing of the Offering, the Company will (i) repay indebtedness outstanding under and terminate the Savannah River Credit Agreement, (ii) give notice of redemption to, and deposit the redemption price with, the trustee of the $130 million principal amount of Savannah River Notes, which shall be redeemed on or prior to December 30, 1994, and (iii) purchase the 72,346 outstanding shares of common stock of Savannah River not owned by the Company pursuant to a merger of a wholly owned subsidiary of the Company and Savannah River and (iv) on or before December 30, 1994, the Company will also cause the 425,243 outstanding shares of Savannah River Preferred not owned by the Company to be redeemed. The 44 completion of this Offering, together with the Related Transactions, will extend the scheduled amortization obligations and final maturities of more than $1 billion of the Company's indebtedness, improve the Company's liquidity by replacing its current $166 million revolving credit facility commitments with $450 million of revolving credit commitments (of which borrowing availability will be reduced by any letter of credit commitments, of which approximately $61 million will be outstanding at closing, and less approximately $ million of borrowings thereunder which will be borrowed at closing) and improve the Company's financial flexibility through entering into the Credit Agreement. The Company will incur a charge for the write-off of previously unamortized debt issuance costs, related to the debt being repaid (approximately $45 million, net of income tax benefit) upon the completion of the Offering and Related Transactions. This non-cash charge will be recorded as an extraordinary loss from the early extinguishment of debt in the Company's Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit). OPERATIONS The following table presents actual annual mill production capacity of the Company at December 31, 1993 and at December 31, 1992:
PAPERBOARD AND PAPER WHITE PAPER PACKAGING AND PULP TOTAL -------------- -------------- -------------- 1993 1992 1993 1992 1993 1992 ------ ------ ------ ------ ------ ------ (IN THOUSANDS OF SHORT TONS)(A) United States.............................................. 4,583 4,572 853 847 5,436 5,419 Canada..................................................... 429 436 2,176 1,783 2,605 2,219 Europe..................................................... 314 310 307 306 621 616 Other...................................................... -- 58 -- -- -- 58 ------ ------ ------ ------ ------ ------ 5,326 5,376 3,336 2,936 8,662 8,312 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ - ------------------------ (a) Includes 25% of production capacity of the Celgar mill, 49% of the Titan mill at December 31, 1992 and 100% of Seminole and Savannah River mills and 100% of Stone-Consolidated.
PAPERBOARD AND PAPER PACKAGING The Company believes that its integrated unbleached paperboard and paper packaging business is the largest in the world with 16 mills and 136 converting plants located throughout the United States and Canada and in Europe. The major products in this business are containerboard and corrugated containers, which are primarily sold to a broad range of manufacturers of consumable and durable goods; kraft paper and paper bags and sacks, which are primarily sold to supermarket chains, retailers of consumer products and, in the case of multiwall shipping sacks, to the agricultural, chemical and cement industries; and boxboard and folding cartons, which are sold to manufacturers of consumable goods and other box manufacturers. The unbleached packaging business of the Company has an annual capacity of approximately 5.3 million tons and is more than 80% integrated. In 1993, total sales for the paperboard and paper packaging business of the Company were approximately $3.8 billion, or approximately 75% of total consolidated sales. The paperboard and packaging business requires a large volume of recycled fiber for its paperboard and paper packaging business. In 1993, the Company processed 1.25 million tons of recycled fiber. Recycled fiber is obtained from a variety of sources through Paper Recycling International L.P. ("PRI"), a fifty percent-owned joint venture. PRI is paid a fee by the Company for procuring recycled fiber. See "Fiber Supply." CONTAINERBOARD AND CORRUGATED SHIPPING CONTAINERS. The Company believes it is the world's largest producer of containerboard, of which more than 80% is converted by the Company into corrugated shipping containers. The Company's total sales of corrugated shipping containers in 1993 were $2.2 billion. 45 The Company's mills produce containerboard, including unbleached kraft linerboard, recycled linerboard, medium and paper. Containerboard tons produced and converted for the last three years were:
1993 1992 1991 -------- -------- -------- (SHORT TONS IN THOUSANDS) Containerboard Production................................................. 4,388.1 4,424.4 4,330.9 Converted.................................................. 3,709.5 3,649.5 3,488.1
Containerboard is produced at the Company's mills located in Snowflake, Arizona; Jacksonville, Florida; Panama City, Florida; Port Wentworth, Georgia; Hoya, Germany; Hodge, Louisiana; Missoula, Montana; New Richmond (Chaleurs), Quebec; Florence, South Carolina and Hopewell, Virginia. Corrugating medium is produced at the Company's mills located in Uncasville, Connecticut; Hoya, Germany; Viersen, Germany; Hodge, Louisiana; Ontonagon, Michigan; Bathurst, New Brunswick; Coshocton, Ohio and York, Pennsylvania. The Jacksonville, Florida linerboard mill is owned by Seminole, a 99% owned subsidiary of the Company. Seminole is not expected to be permitted to provide funds to the Company from its cash generated from operations, if any, because of restrictions in the terms of certain of Seminole's debt instruments. The Company's containerboard and corrugated container operations are more than 80% integrated and the Company believes this integration enhances its ability to respond quickly and efficiently to customers and to fill orders on short lead times. The Company believes it is the largest producer of corrugated shipping containers in the U.S., with more than 100 board converting operations. Corrugated shipping containers, manufactured from containerboard in converting plants, are used to ship such diverse products as home appliances, electric motors, small machinery, grocery products, produce, books, tobacco and furniture, and for many other applications. The Company stresses the value-added aspects of its corrugated containers, such as labeling and multi-color graphics, to differentiate its products and respond to customer requirements. The Company's container plants serve local customers and large national accounts and are located in the United States, Belgium, Canada, France and Germany, generally in or near large metropolitan areas. Corrugated shipping containers sales volume for 1993, 1992 and 1991 were 52.5, 51.7, and 49.2 billion square feet respectively. KRAFT PAPER AND BAGS AND SACKS. The Company also has a highly integrated kraft paper and converted product operation and is a net buyer of kraft paper from third parties. The Company operates 20 kraft and paper converting facilities, which shipped approximately 613 thousand tons and 689 thousand tons of paper bags and sacks nationwide in 1993 and 1992, respectively. The Company believes it is among the largest producers of grocery bags and sacks. Kraft paper volume produced and converted for the last three years was:
1993 1992 1991 ----- ----- ----- (TONS IN THOUSANDS) Kraft Paper Production....................................................... 499.8 563.2 534.8 Converted........................................................ 644.7 723.9 739.7
The Company produces kraft paper and recycled paper for conversion into bags and sacks at its mills in Snowflake, Arizona; Hodge, Louisiana; Florence, South Carolina; and the Seminole mill in Jacksonville, Florida. Grocery bags and sacks are sold primarily to supermarket chains and merchandise bags are sold to retailers of consumer products. Multiwall shipping sacks, considered a premium product, are sold to the agricultural, chemical and cement industries, among other industries. The Company's total sales of bags and sacks in 1993 were $579.3 million. Sales volumes for bags and sacks for 1993, 1992 and 1991 were 612.9, 688.6, and 734.6 thousand tons respectively. 46 WHITE PAPER AND PULP: The Company believes that, together with its 75% owned (60.1% on a fully diluted basis) consolidated subsidiary, Stone-Consolidated, it is the largest producer of uncoated groundwood paper in North America and the fourth largest producer of newsprint in North America. Stone-Consolidated, a Canadian corporation and a consolidated subsidiary of the Company, owns all of the Canadian and United Kingdom newsprint and uncoated groundwood paper assets of the Company. The restrictive terms of Stone-Consolidated's indebtedness at this time are unlikely to permit Stone-Consolidated to provide funds to the Company from its excess cash flow, if any. Stone-Consolidated owns three newsprint mills (two in Canada and one in the United Kingdom) and two uncoated groundwood paper mills in Canada. The Company owns a newsprint mill in Snowflake, Arizona, the production of which is marketed by Stone-Consolidated on a commission basis. The Company and Stone-Consolidated have the capacity to produce 1.4 million tons of newsprint and 500,000 tons of uncoated groundwood paper annually. Newsprint is marketed to newspaper publishers and commercial printers. Uncoated groundwood paper is sold for use primarily in newspaper inserts, retail store advertising fliers, magazines, telephone directories and as computer paper. The Company believes it has a major market position in North America in the production of market pulp. The Company owns and operates five market pulp mills in North America, including the Celgar mill in Castlegar, British Columbia in which the Company has a 25% interest. These mills have the capacity to produce 1.5 million tons of market pulp annually and produced 733.2 thousand tons in 1993 (including 25% of the production at the Celgar mill). The geographic diversity of the Company's mills enables the Company to offer its customers a product mix of bleached northern hardwood and bleached southern softwood pulp. Market pulp is sold to manufacturer of paper products, including fine papers, photographic papers, tissue and newsprint. In 1993, total sales for the white paper and pulp business of the Company (which includes Stone-Consolidated sales) were approximately $965 million, or approximately 19% of total consolidated sales. NEWSPRINT. Stone-Consolidated owns and operates two fully integrated newsprint mills located in Shawinigan (Belgo mill) and Ville de La Baie (Port Alfred mill), Quebec and a third newsprint mill located in Ellesmere Port (Bridgewater mill), United Kingdom. The Company owns and operates a fully integrated newsprint mill in Snowflake, Arizona. Smaller quantities of newsprint are also produced on other machines located at the Grand-Mere (Laurentide) and Trois-Rivieres (Wayagamack) mills. In 1993, the Company produced approximately 1.3 million tons of newsprint. The Company's revenues from the sale of newsprint in 1993 (including 100% of Stone-Consolidated) were approximately $526.9 million. Newsprint is primarily purchased by newspaper publishers and commercial printers. The newsprint produced by the Company contain a significant percentage of recycled fibre from deinked pulp using flotation de-inking technology ("FDI") technology. Management believes that the ability to produce newsprint with recycled content has become an important competitive factor. Management anticipates that the demand for newsprint with recycled content will continue to grow as a result of further legislative activity and customer preferences, although at a slower rate than in recent years. While an increasing number of producers are gaining the ability to supply newsprint with recycled content, management believes its deinking facilities and the relative proximity of the mills to reliable sources of waste paper from urban centers will give the Company a competitive advantage with customers who demand newsprint with recycled content, although there can be no assurances that the Company will be able to maintain such a competitive advantage. UNCOATED GROUNDWOOD PAPERS. The Company's principal uncoated groundwood paper production facilities include five paper machines located at the Grand-Mere (Laurentide) and Trois-Rivieres (Wayagamack), Quebec mills; smaller quantities of uncoated groundwood papers are also produced on other machines located at the Ellesmere Port (Bridgewater) and Shawinigan (Belgo) mills. The Company produced approximately 461.0 thousand tons of uncoated groundwood papers in 1993. All uncoated groundwood production facilities are owned by Stone-Consolidated. The Company's net capacity increased in both 1991 and 1992 as a result of the introduction and ramping up of a new paper machine 47 at the Laurentide mill. The Company had revenues from the sale of uncoated groundwood papers of approximately $243.3 million in 1993. The Company's operating margins on the sale of uncoated groundwood papers are significantly higher than for newsprint. In 1993, the Company produced approximately 461,000 tons of uncoated groundwood papers. Uncoated groundwood papers are manufactured using production processes similar to those used for newsprint but are generally of higher quality and command higher prices and higher operating margins. The principal grades of uncoated groundwood papers manufactured and sold by the Company are directory papers, rotogravure and offset papers used in newspaper inserts, retail store advertising fliers, Sunday magazines and other periodicals, bulky book papers used for mass circulation paperback novels and form papers for use in the manufacture of computer printout and other business forms. During 1993, the Company's production of uncoated groundwood papers consisted of 69% rotogravure and offset papers, 21% directory papers, 8% bulky book papers and 2% forms papers. Major customers for rotogravure and offset papers include major retailers, publishers of Sunday magazines and other periodicals and major commercial printers. Major customers for directory papers include telephone companies and independent publishers of telephone directories and large commercial printers. MARKET PULP. The Company owns and operates five market pulp mills in North America including mill operations in Panama City, Florida; Port Wentworth, Georgia; Bathurst, New Brunswick; Portage-du-Fort, Quebec and Trois-Rivieres, Quebec and at its 25% owned operation in Castlegar, British Columbia. Total sales of market pulp (including 25% of the Celgar mill) approximated $187.3 million in 1993. The Company has invested substantial sums to increase the production capacity of market pulp. In 1992, the addition of market pulp capacity was completed at the Company's Port Wentworth mill. The cost of the project was approximately $425 million. In addition, the Celgar mill was completely rebuilt and approximately doubled in capacity at a cost of approximately Cdn.$693 million. FIBER SUPPLY: Wood fiber, particularly from wood chips, and waste paper constitute the basic raw materials for linerboard, corrugating medium, unbleached kraft paper, newsprint, uncoated groundwood paper and market pulp. Wood fiber resources are available within economic proximity of the mills and the Company has not experienced any significant difficulty in obtaining such resources, although environmental concerns in the Pacific Northwest (including the designation of the spotted owl as a threatened species) have reduced the supply of wood in that region. Consistent with its strategy to obtain long-term wood fiber sources without the costs associated with land ownership, the Company sold approximately 329 thousand acres of timberland during the years 1988 through 1992. This acreage had been owned by Southwest Forest Industries, Inc., now named Stone Southwest, Inc., which was acquired by the Company in 1987. At December 31, 1993, the Company had approximately 11 thousand and 339 thousand acres of private fee timberland in the United States and Canada, respectively. The Company assists certain landowners in the southeastern United States in managing approximately 2.0 million acres of timberland. Recycled fiber, one of the Company's principal raw material components along with wood fiber, must be purchased in a price sensitive market. The Company believes that the demand for recycled fiber will increase and expects that the cost of purchasing recycled fiber will also increase as a result of increased demand and market conditions. As a result of the recognition of greater recycled fiber utilization in the United States, the Company and WMX Technologies, Inc. (formerly Waste Management Corporation) have formed PRI, which assists the Company in the procurement of waste fiber. MARKETS AND COMPETITION The major markets in which the Company sells its principal products are highly competitive. Its products compete with similar products manufactured by others and, in some instances, with products manufactured from other materials. Areas of competition include price, innovation, quality and service. 48 The Company's products and the raw materials needed to manufacture those products have historically exhibited price and demand cyclicality. Cyclical economic factors such as growth in the economy generally, interest rates, unemployment levels and fluctuations in currency exchange rates have had a significant impact on prices and sales of the Company's products. The availability and cost of wood fiber, including wood chips, and waste paper may be subject to substantial variation, depending upon economic, political and conservation considerations. The Company's business is not dependent upon a single customer or upon a small number of major customers. The loss of any one customer would not have a material adverse effect on the Company. Backlogs are not a significant factor in the industry in which the Company operates; most orders placed with the Company are for delivery within 60 days or less. The Company owns patents, licenses, trademarks and tradenames on products. The loss of any patent, license, trademark and tradename would not have a material adverse effect on the Company's operations. EMPLOYEES As of December 31, 1993, the Company had approximately 29,000 employees, of whom approximately 21,100 were employees of U.S. operations and the remainder were employees of foreign operations. Of those in the United States, approximately 12,300 are union employees. LEGAL PROCEEDINGS On October 27, 1992, the Florida Department of Environmental Regulation ("DER") filed a civil complaint in the Fourteenth Judicial Circuit Court of Bay County, Florida against the Company seeking injunctive relief, an unspecified amount of fines and civil penalties, and other relief based on alleged groundwater contamination at the Company's Panama City, Florida pulp and paper mill site. In addition, the complaint alleges operation of a solid waste facility without a permit and discrepancies in hazardous waste shipping manifests. Because of uncertainties in the interpretation and application for DER's rules, it is premature to assess the Company's potential liability, if any, in the event of an adverse ruling. At the parties' request, the case has been placed in abeyance pending the conclusion of a related administrative proceeding petitioned by the Company following DER's proposal to deny the Company a permit renewal to continue operating its wastewater pretreatment facility at the mill site. The administrative proceeding has been referred to a hearing officer for an administrative hearing on the consolidated issues of compliance with a prior consent order, denial of the permit renewal, completion of a contamination assessment and denial of a sodium exemption. As of July 19, 1994, the hearing officer had postponed the administrative hearing pending settlement negotiations between the parties. The Company intends to vigorously assert its entitlement to the permit renewal and to defend against the groundwater contamination and unpermitted facility allegations. In November 1990, the EPA announced its decision to list two bodies of water in Arizona, Dry Lake and Twin Lakes, as "waters of the United States" impacted by toxic pollutant discharges under Section 304(l) of the federal Clean Water Act. These bodies of water have been used by the Company's Snowflake, Arizona pulp and paper mill for the evaporation of its process wastewater. The EPA is preparing a draft consent decree to resolve the alleged past unpermitted discharges which will include the EPA's proposal that the Company pay civil penalties in the amount of $900,000. The Company has vigorously disputed the application of the Clean Water Act to these two privately owned evaporation ponds. The Company has begun implementation of a plan to use its wastewater to irrigate a biomass plantation and discontinue using Dry Lake to evaporate wastewater. It is premature to predict the amount of penalties that will eventually be assessed. By letter dated January 4, 1994, the Company received a notice of violation from the Water Management Division of the EPA, Region 9 alleging violations of discharge limits and monitoring 49 requirements of the applicable NPDES permit at the Company's Flagstaff, Arizona sawmill during the period from January 1990 through December 1992. The Company and the EPA have reached a settlement in principle under which the Company will pay penalties of $98,000. On April 20, 1994, Carolina Power & Light ("CP&L") commenced proceedings against the Company before the Federal Energy Regulatory Commission ("FERC") (the "FERC Proceeding") and in the United States District Court for the Eastern District of North Carolina (the "Federal Court Action"). Both proceedings relate to the Company's electric cogeneration facility located at its Florence, South Carolina plant (the "Facility") and the Company's Electric Power Purchase Agreement (the "Agreement") with CP&L. Prior to the filing of the proceedings, the Company and CP&L had been in discussions relating to a transaction involving the Facility and the Agreement. In the FERC Proceeding, CP&L alleges that the Facility lost its qualifying facility ("QF") certification under the Public Utility Regulatory Policy Act of 1978 on August 13, 1991, when the Agreement pursuant to which CP&L purchases electricity generated by the Facility was amended to reflect the Company's election under the Agreement to switch to a "buy-all/sell-all mode of operation." As a result, CP&L alleges the Company became a "public utility" on August 13, 1991 subject to FERC regulation under the Federal Power Act. CP&L has also requested FERC to determine the "just and reasonable rate" for sales of electric energy and capacity from the Facility since August 13, 1991 and to order the Company to refund any amounts paid in excess of that rate, plus interest and penalties. In its answer filed with the FERC on June 2, 1994, the Company stated that its power sales to CP&L fully complied with the FERC's regulations. The Company also requested the FERC to waive compliance with any applicable FERC regulations in the event that the FERC should determine, contrary to the Company's position, that the Company has not complied with the FERC's regulations in any respect. CP&L has also filed several other pleadings to which the Company has responded. If the FERC were to determine that the Company had become a "public utility," the Company's issuance of securities and incurrence of debt after the date that it became a "public utility" could be subject to the jurisdiction and approval of the FERC unless the FERC granted a waiver. In the absence of such a waiver, certain other activities and contracts of the Company after such date could also be subject to additional federal and state regulatory requirements, and defaults might be created under certain existing agreements. Based on past administrative practice of the FERC in granting waivers of certain other regulations, the Company believes that it is likely that such a waiver would be granted by the FERC in the event that such a waiver became necessary. However, the FERC Proceeding is in its preliminary stages and no assurance can be provided as to the timing of the FERC's decision or the outcome. In the Federal Court Action, CP&L has requested declaratory judgments that sales of electric energy and capacity under the Agreement since August 13, 1991 are subject to a just and reasonable rate to be determined by FERC and that the Agreement has been terminated as a result of the Company's failure to maintain the Facility's QF status and the invalidity of the Agreement's rate provisions. CP&L has also sought damages for breach of contract and for purchases in excess of the just and reasonable rate to be determined by FERC. On June 9, 1994, the Company moved to dismiss CP&L's Federal Court Action on the principal grounds that any proceedings in the United States District Court are premature unless and until the FERC Proceeding is finally resolved. The Company intends to contest these actions vigorously. Due to the pendency of the litigation, a planned transaction involving a favorable energy contract related to the Facility and the Agreement did not occur. On April 13, 1994, a digester vessel ruptured at the Company's pulp and paperboard mill in Panama City, Florida resulting in the deaths of three employees and injuries to other employees and causing extensive damage to certain of the facility's assets. The occurrence has been investigated by the Occupational Safety and Health Administration ("OSHA"). On August 4, 1994, OSHA held a closing conference with the Company to discuss OSHA's preliminary findings. Even though the findings have not been finalized, OSHA has disclosed that certain "apparent" violations of OSHA standards have been found. The category of each apparent violation has not yet been determined. The Company has not yet 50 fully reviewed the apparent violations. The Company believes it will not receive the final determination of any violations until mid-September. Upon final review of such final determinations, the Company will decide whether to contest OSHA's claims. In addition, on August 29, 1994, OSHA informed the Company that it was being cited for violations connected with the start-up of operations at the Panama City mill. These violations are not related to the expected final determinations mentioned above. The Company intends to vigorously defend the imposition of penalties relating to these violations. On July 14, 1994, the European Commission ("EC") imposed fines on a group of 19 manufacturers of carton-board, a product used to manufacture folding cartons, in the aggregate amount of $164.8 million. The Company's German subsidiary, Europa Carton AG, ("Europa Carton"), was fined $2.5 million. The fines were a result of alleged price fixing activities by these manufacturers. At this time, the Company believes that Europa Carton did not participate in the alleged price fixing scheme and the Company is considering an appeal of its fine and is awaiting formal notification from the EC of its reason for imposing the fine on Europa Carton. While Europa Carton is a member of the association implicated by the EC and did implement price increases which were generally implemented by members of the association, Europa Carton is not a large manufacturer of this product and is not represented on the council of the association. The Company is involved in contractual disputes, administrative and legal proceedings and investigations of various types. Although any litigation, proceeding or investigation has an element of uncertainty, the Company believes that the outcome of any proceeding, lawsuit or claim which is pending or threatened, or all of them combined, would not have a material adverse effect on its consolidated financial position or results of operations. For additional information relating to the Company see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations," "-- Investing Activities" and "-- Environmental Issues" and the Notes to the Consolidated Financial Statements, "Note 2 -- Subsequent Events," pages F-22 - F-23, "Note 3 -- Acquisitions/Mergers/Dispositions," page F-23, "Note 4 -- Public Offering of Subsidiary Stock," page F-24, "Note 16 -- Related Party Transactions," pages F-45 - F-46 and "Note 19 -- Segment Information," pages F-49 - F-52. 51 PROPERTIES The Company, including its subsidiaries and affiliates, maintains manufacturing facilities and sales offices throughout North America, continental Europe and the United Kingdom, as well as sales offices in Japan and China. A listing of such worldwide facilities as of December 31, 1993 is provided on pages 52-53 of this Prospectus. The approximate annual production capacity of the Company's mills is summarized in the following table:
PAPERBOARD AND PAPER WHITE PAPER PACKAGING AND PULP TOTAL ------------ ------------ ------------ DECEMBER 31, ---------------------------------------- 1993 1992 1993 1992 1993 1992 ----- ----- ----- ----- ----- ----- (IN THOUSANDS OF SHORT TONS) United States (1).......................................... 4,583 4,572 853 847 5,436 5,419 Canada (2)(3).............................................. 429 436 2,176 1,783 2,605 2,219 Europe (3)................................................. 314 310 307 306 621 616 Other (4).................................................. -- 58 -- -- -- 58 ----- ----- ----- ----- ----- ----- 5,326 5,376 3,336 2,936 8,662 8,312 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - ------------------------ (1) Includes 100% of Seminole and Savannah River mills. (2) Includes 25% of the Celgar mill. (3) Includes 100% of Stone-Consolidated. (4) Includes 49% of the Titan mill at December 31, 1992.
All mills and converting facilities are owned, or partially owned through investments in other companies, by the Company, except for 45 converting plants in the United States, which are leased. The Company owns certain properties that have been mortgaged or otherwise encumbered. These properties include 12 paper mills, 9 bag plants and 45 corrugated container plants, including those subject to a leasehold mortgage. The Company's properties and facilities are properly equipped with machinery suitable for their use. Such facilities and related equipment are well maintained and adequate for the Company's current operations. For additional information relating to the Company's properties for the year ended December 31, 1993 see the Notes to the Consolidated Financial Statements, "Note 3 -- Acquisitions/Mergers/Dispositions," page F-23, "Note 4 -- Public Offering of Subsidiary Stock," page F-24, "Note 10 -- Long-term Debt," pages F-32 - F-40 and "Note 13 -- Long-term Leases," pages F-41 - F-42. 52 WORLDWIDE FACILITIES UNITED STATES ALABAMA Birmingham- ARIZONA EagarV Glendale- Phoenixt SnowflakeZ SnowflakeZ THE APACHE RAILWAY COMPANY ARKANSAS Jacksonvillet (LITTLE ROCK) Little Rock- Rogers- CALIFORNIA City of Industry- (LOS ANGELES) Fullerton- Los Angelest Salinas- San Jose- Santa Fe Springs-- COLORADO Denver- South ForkV CONNECTICUT Portland- Torrington- UncasvilleZ FLORIDA Cantonmentt (PENSACOLA) GracevilleV JacksonvilleZ Panama CityZ Yuleet Orlando- PACKAGING SYSTEMS Jacksonville- PREPRINT GEORGIA Atlanta--- Port WentworthZ AtlantaZ TECHNOLOGY AND ENGINEERING CENTER ILLINOIS Bedford Park- (CHICAGO) Bloomington- Cameo- (CHICAGO) Danville- *Herrin- Joliet- Naperville- (CHICAGO) North Chicago- Plainfieldt Quincyt *Ziont Burr RidgeZ TECHNOLOGY AND ENGINEERING CENTER Oakbrook- MARKETING AND TECHNICAL CENTER INDIANA Columbus- Indianapolis- Mishawaka- South Bend- IOWA Des Moines-t Keokuk- Sioux City- KANSAS Kansas City- KENTUCKY Louisville-t LOUISIANA Arcadiat HodgetZ New Orleans- MARYLAND Savaget (BALTIMORE) MASSACHUSETTS Mansfield- Westfield- MICHIGAN Detroit- Grand Rapidst OntonagonZ Melvindale- (DETROIT) MINNESOTA Minneapolis- Rochester- St. Cloud- St. Paul- Minneapolis- PREPRINT MISSISSIPPI Jackson- Tupelo-- MISSOURI Blue Springs- Kansas Cityt Liberty- (KANSAS CITY) Springfield- St. Joseph- St. Louis- MONTANA MissoulaZ NEBRASKA Omaha- NEW JERSEY Elizabetht Teterboro- NEW MEXICO ReserveV NEW YORK Buffalo- NORTH CAROLINA Charlotte- Lexington- Raleigh- NORTH DAKOTA Fargo- OHIO Cincinnati- CoshoctonZ Jefferson- Mansfield- Marietta- New Philadelphiat OKLAHOMA Oklahoma City- Sand Springs- (TULSA) OREGON Grants PassV MedfordV White CityV PENNSYLVANIA Philadelphia-- Williamsport- YorkZ SOUTH CAROLINA Columbia-V FlorenceZ Fountain Inn- OrangeburgV SOUTH DAKOTA Sioux Falls- TENNESSEE Chattanooga- Collierville- (MEMPHIS) Nashville- 53 WORLDWIDE FACILITIES TEXAS Dallas- El Paso--. Grand Prairie- (DALLAS) Houston- Temple- Tyler- UTAH Salt Lake Cityt Salt Lake Cityt BAG PACKAGING SYSTEMS VIRGINIA HopewellZ Martinsville- Richmond--t WEST VIRGINIA Wellsburgt WISCONSIN Beloit- Germantown- (MILWAUKEE) Nennah- CANADA ALBERTA *Calgary- *Edmonton- BRITISH COLUMBIA *CastlegarZ *New Westminster- MANITOBA *Winnipeg- NEW BRUNSWICK BathurstZV *Saint John- NOVA SCOTIA *Dartmouth- ONTARIO *Etobicoke- *Guelph- *Pembroke- *Rexdale- *Whitby- QUEBEC ChibougamauV Grand-MereZ La BaieZ Portage-du-FortZ RobervalV Saint-FulgenceV *Saint-Laurent- ShawiniganZ Trois-RivieresZ *Ville Monte-Royal- RESEARCH CENTER SASKATCHEWAN *Regina- GERMANY *Augsburg. *Bremen. Dusseldorf- *Frankfurt. Germersheim- Hamburg- *Heppenheim. HoyaZ Julich- Lauenburg- Lubbecke- Neuburg- Platting- ViersenZ Waren- HAMBURG INSTITUTE FOR PACKAGE AND CORPORATE DESIGN UNITED KINGDOM Ellesmere PortZ NETHERLANDS *Sneek. BELGIUM Ghlin- Grand-Bigard- FRANCE *Bordeaux. *Cholet. Molieres-Sur-Ceze- Nimes- *Soissons. *Strasbourg. COSTA RICA Palmar NorteV San JoseV ADMINISTRATIVE OFFICE VENEZUELA *Puerto OrdazV ADMINISTRATIVE OFFICE CORPORATE HEADQUARTERS Chicago, Illinois FAR EAST OFFICES Beijing, China Tokyo, Japan STONE CONTAINER JAPAN COMPANY, LTD. - Corrugated Container Z Paperboard/Paper/Pulp t Bag V Forest Products . Folding Carton *affiliates
54 MANAGEMENT INFORMATION AS TO DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the directors of the Company and their beneficial ownership of Common Stock as of March 1, 1994.
NUMBER OF SHARES OF YEAR FIRST COMMON STOCK ELECTED A BENEFICIALLY PERCENT OF COMMON NAME PRINCIPAL OCCUPATION DIRECTOR OWNED(C) STOCK OUTSTANDING - --------------------------- -------------------------------------------- ----------- ------------ ----------------- Richard A. Giesen*++ Chairman of the Board & Chief Executive 1974 12,717 (a) Officer of Continere Corporation James J. Glasser++ Chairman of the Board, President and Chief 1986 10,200 (a) Executive Officer of GATX Corporation George D. Kennedy+# Chairman of the Board of Mallinckrodt Group 1989 1,020 (a) Inc. formerly IMCERA Group Inc. Howard C. Miller, Jr.*+ Consultant 1981 2,066 (a) John D. Nichols+# Chairman of the Board and Chief Executive 1989 2,040 (a) Officer of Illinois Tool Works Inc. Jerry K. Pearlman*+++ Chairman of the Board and Chief Executive 1984 3,672 (a) Officer of Zenith Electronics Corporation Richard J. Raskin Attorney 1983 575,448 (a)(b) Alan Stone* Senior Vice President 1969 1,062,143 1.2 %(b) Avery J. Stone President of IDC Management 1969 906,415 1.0 %(b) Ira N. Stone Senior Vice President 1969 1,004,296 1.1 %(b) James H. Stone* President of Stone Management Corporation 1969 563,377 (a)(b) Roger W. Stone* Chairman of the Board, President and Chief 1969 1,715,127 1.9 %(b) Executive Officer - ------------------------ * Member of the Executive Committee + Member of the Audit Committee ++ Member of the Compensation Committee # Member of the Nominating Committee (a) Does not exceed one percent (1%) of the outstanding stock. (b) There is included in the stock beneficially owned in the foregoing table, Common Stock owned by spouses and associates, except those associates separately listed in the table, beneficial ownership of which is disclaimed. See footnote (b) under "Security Ownership by Certain Beneficial Owners and Management -- Security Ownership by Management". (c) Each person has sole voting and investment power with respect to the shares listed.
55 The following information indicates the principal occupation and employment for the directors and executive officers for the last five years, unless otherwise indicated. DIRECTORS: RICHARD A. GIESEN, born October 7, 1929, is Chairman of the Board and Chief Executive Officer of Continere Corporation, a packaging distribution company. Mr. Giesen is a director of GATX Corporation and Continere Corporation. JAMES J. GLASSER, born June 5, 1934, is Chairman of the Board, President and Chief Executive Officer of GATX Corporation, a leasing and financial services company. Mr. Glasser is a director of General American Transportation Corporation, GATX Leasing Corporation, The B.F. Goodrich Company, Harris Bankcorp, Inc., Harris Trust & Savings Bank, and Bank of Montreal. GEORGE D. KENNEDY, born May 30, 1926, is Chairman of the Board of Mallinckrodt Group Inc. formerly IMCERA Group Inc., a diversified health care company. Mr. Kennedy is a director of Illinois Tool Works Inc., Kemper Corporation, Kemper National Insurance Co., Brunswick Corporation, American National Can Corporation, Scottsman Industries, Inc., and Medical Care America, Inc. HOWARD C. MILLER, JR., born September 2, 1926, is a consultant in private practice, consulting in general business matters. Mr. Miller is a director of Automobile Protection Corporation. JOHN D. NICHOLS, born September 20, 1930, is Chairman of the Board and Chief Executive Officer of Illinois Tool Works Inc., a diversified manufacturing company. Mr. Nichols is a director of Philip Morris Companies, Inc., Household International, Inc. and Rockwell International Corporation. JERRY K. PEARLMAN, born March 27, 1939, is Chairman of the Board and Chief Executive Officer of Zenith Electronics Corporation, a manufacturer of consumer electronics and cable television products. Mr. Pearlman is a director of First Chicago Corporation and The First National Bank of Chicago. RICHARD J. RASKIN, born April 4, 1945, is an attorney in private practice with the law firm of Richard J. Raskin, Attorney at Law. See Footnote (b) under "Security Ownership by Certain Beneficial Owners and Management -- Security Ownership by Management". ALAN STONE, born February 5, 1928, Senior Vice President, Purchasing; is responsible for corporate purchasing. See Footnote (b) under "Security Ownership by Certain Beneficial Owners and Management -- Security Ownership by Management". AVERY J. STONE, born November 7, 1932, is President of IDC Management Co., a management and investment company. See Footnote (b) under "Security Ownership by Certain Beneficial Owners and Management -- Security Ownership by Management". IRA N. STONE, born February 4, 1932, Senior Vice President since 1991, is responsible for Corporate Marketing, Communication and Public Affairs. See Footnote (b) under "Security Ownership by Certain Beneficial Owners and Management -- Security Ownership by Management". JAMES H. STONE, born March 4, 1939, is President of Stone Management Corporation, a management consulting firm (not affiliated with the Company). Mr. Stone is a director of Fullerton Metals Company. See Footnote (b) under "Security Ownership by Certain Beneficial Owners and Management -- Security Ownership by Management". ROGER W. STONE, born February 16, 1935, is Chairman of the Board, President and Chief Executive Officer. Mr. Stone is a director of First Chicago Corporation, The First National Bank of Chicago, Continere Corporation, McDonald's Corporation, Morton International, Inc., Stone-Consolidated Corporation, and Option Care, Inc. See Footnote (b) under "Security Ownership by Certain Beneficial Owners and Management -- Security Ownership by Management". 56 OTHER EXECUTIVE OFFICERS: ARNOLD F. BROOKSTONE, born April 8, 1930, Executive Vice President, Chief Financial and Planning Officer since 1991. Previously, Mr. Brookstone was Senior Vice President, Chief Financial and Planning Officer. Mr. Brookstone is a director of Stone-Consolidated Corporation, Continere Corporation, Donnelly Corporation, MFRI, Inc., and Rembrandt Funds. JAMES DOUGHAN, born November 9, 1933, President and Chief Executive Officer of Stone-Consolidated Corporation since 1993. Previously, Mr. Doughan was Executive Vice President, Containerboard and Paper and Pulp Marketing and Sales. Mr. Doughan is a director of Stone-Consolidated Corporation. MORTY ROSENKRANZ, born February 21, 1928, Executive Vice President, Administration since 1993. Previously, Mr. Rosenkranz was Executive Vice President North American Integrated Packaging. JOHN D. BENCE, born June 18, 1932, Senior Vice President, European Packaging Operations, joined the Company in December 1988 and was elected Vice President in March 1989 and Senior Vice President in January 1991. THOMAS W. CADDEN, SR., born September 4, 1933, Senior Vice President and General Manager Industrial and Retail Packaging since 1993. Previously, Mr. Cadden was Senior Vice President and General Manager of the Corrugated Container Division. THOMAS P. CUTILLETTA, born July 5, 1943, Senior Vice President and Corporate Controller, is the Company's Chief Accounting Officer. Mr. Cutilletta was elected Senior Vice President in January 1991. HAROLD E. GREGG, born May 17, 1929, Senior Vice President since 1993 working on special projects for the Chairman of the Board. Previously Mr. Gregg was Senior Vice President Marketing and Corporate Sales. GERALD M. FREEMAN, born April 18, 1937, Senior Vice President and General Manager, Forest Products Division since 1987, is responsible for the operations of that division. JAMES B. HEIDER, born July 27, 1943, Senior Vice President and General Manager, Containerboard and Paper Division since December, 1988. MATTHEW S. KAPLAN, born March 13, 1957, Senior Vice President and General Manager, Corrugated Container Division, since June, 1993. Previously, Mr. Kaplan was Vice President and General Manager, Retail Bag Division. Mr. Kaplan is the son-in-law of Roger W. Stone. WILLIAM J. KLAISLE, born September 13, 1941, Vice President Corporate Development since April 1993. Previously, Mr. Klaisle was Vice President, Corporate Marketing and Communications. LESLIE T. LEDERER, born July 20, 1948, Vice President, Secretary and Counsel since 1987. MICHAEL B. WHEELER, born February 15, 1945, Vice President since 1984 and Treasurer and Assistant Secretary since 1981. MEETINGS AND COMMITTEES OF DIRECTORS The Audit Committee of the Board meets, as necessary, to receive and review the results of the audits of the Company's books and records performed by the independent auditors, to review matters relating to internal auditing, accounting policies, procedures and adjustments, and to participate in the selection of independent auditors for the following year. The Compensation Committee of the Board meets, as necessary, to review the Company's programs for the development of management personnel and to consider recommendations and proposals to be made to the Board on directors' fees and management compensation. The Nominating Committee of the Board meets, as necessary, to seek out, review the qualifications of, and propose to the Board, nominees for election as directors. The Company's By-Laws provide, in general, that any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting of stockholders at which directors are to be elected 57 only if written notice of such stockholder's intent to make such nomination has been received by the Secretary of the Company not less than 60 nor more than 90 days prior to such meeting. The By-Laws further specify the requirements of such notice. The Executive Committee of the Board exercises the power and authority of the Board of Directors as may be necessary during intervals between meetings of the Board of Directors, subject to such limitations as are provided by law, the Company's By-Laws or resolutions of the Board of Directors. Non-employee directors receive an annual retainer of $25,000 for their services plus $1,000 per meeting for attendance at Board and Board Committee meetings. In addition, the Chairman of the Audit Committee and the Chairman of the Compensation Committee receive an additional $3,000 per year retainer. Under the Company's unfunded deferred director fee plans, a director may elect to defer payment of his director's fees so that payment would be made in ten equal annual installments commencing in the year following the director's retirement from the Board of Directors plus earnings on the deferred amounts. In addition, it is the policy of the Company to appoint a director with ten or more years service as a director to be a consultant to the Company for a period of five years after retirement from the Board, at an annual fee based upon the director's retainer in effect at the date of retirement. CERTAIN TRANSACTIONS During 1984, the Company loaned to Mr. James Doughan, President & Chief Executive Officer of Stone-Consolidated the amount of $347,250 in connection with Mr. Doughan's relocation to Chicago upon his assuming his duties with the Company. Mr. Doughan subsequently repaid a portion of such loan; the outstanding balance as of March 1, 1994 was $275,000. During 1988, the Company made a loan to Mr. James B. Heider, Senior Vice President and General Manager, Containerboard and Paper Division, in the amount of $320,000 in connection with his move to Chicago. Mr. Heider has subsequently repaid a portion of such loan; the outstanding balance as of March 1, 1994 was $250,000. Such loans bear no interest and are repayable on demand by the Company. The interest rate imputed on such loans was 4.98% during 1993. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Roger W. Stone, Chairman of the Board, President and Chief Executive Officer of the Company, serves as a director of Continere Corporation, whose Chairman and Chief Executive Officer, Richard A. Giesen, serves on the Compensation Committee of the Company. 58 SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS As of February 14, 1994, the following persons were known to the Company to own beneficially more than 5% of the outstanding Common Stock of the Company:
NUMBER OF SHARES OF COMMON STOCK PERCENT OF COMMON NAME AND ADDRESS BENEFICIALLY OWNED(1) STOCK OUTSTANDING - ------------------------------------------------------------------ ----------------------- --------------------- FMR Corp.......................................................... 10,184,373(2) 11.58% 82 Devonshire Street Boston, MA 02109-3614 Sanford C. Bernstein & Co., Inc................................... 6,337,584 7.2 % 767 Fifth Avenue New York, NY 10153 Reliance Financial Services Corp.................................. 4,761,904(3) 5.4 % Park Avenue Plaza 55 East 52nd Street New York, NY 10055 - ------------------------ (1) Information with respect to beneficial ownership is based upon information furnished by each owner. (2) Includes (i) 5,350,817 shares resulting from the assumed conversion of $61,802,000 principal amount of the Company's 8 7/8% Convertible Senior Subordinated Notes due 2000, (ii) 7,949 shares resulting from the assumed conversion of shares of the Company's $1.75 Series E Cumulative Convertible Exchangeable Preferred Stock and (iii) 60,694 shares resulting from the assumed conversion of $2,060,000 principal amount of the Company's 6.75% Convertible Subordinated Debentures. (3) All 4,761,904 shares are based upon the assumed conversion of the Company's 8 7/8% Convertible Senior Subordinated Notes due 2000.
SECURITY OWNERSHIP BY MANAGEMENT As of March 1, 1994, each of the executive officers named in the Summary Compensation Table below, individually, and all directors and executive officers as a group, beneficially owned the following shares of Common Stock of the Company:
NUMBER OF SHARES OF COMMON STOCK PERCENT OF BENEFICIALLY COMMON STOCK NAME OWNED OUTSTANDING - ----------------------------------- --------------- ------------- Arnold F. Brookstone............... 112,400 (a) James Doughan...................... 49,296 (a) James B. Heider.................... 44,795 (a) Morty Rosenkranz................... 68,168 (a) Roger W. Stone..................... 1,715,127 1.9%(b) All directors and executive officers as a group............... 11,203,767 12.4%(b) - ------------------------ (a) Does not exceed one percent (1%) of the outstanding stock. (b) The shares of Common Stock owned by all directors and executive officers as a group include those of Jerome H. Stone and Marvin N. Stone, each of whom is a Founding Director and as such is, pursuant to the Company's By-Laws, entitled to attend and participate at meetings of directors but has no vote. Jerome H. Stone, Marvin N. Stone and Norman H. Stone (deceased) are brothers. Alan Stone and Ira N. Stone are sons of Norman H. Stone. Avery J. Stone and Roger W. Stone are sons of Marvin N. Stone. James H. Stone is the son and Richard J. Raskin is the son-in-law of Jerome H.
59 Stone. Matthew S. Kaplan is the son-in-law of Roger W. Stone. The members of the Stone family own an aggregate (but not as a group) of approximately 13,000,000 shares of Common Stock (approximately 15% of the outstanding shares).
EXECUTIVE COMPENSATION The following table sets forth the compensation paid to, as well as the value of stock awards earned by, the Company's Chief Executive Officer and the Company's four other most highly compensated executive officers during the past three fiscal years. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION -------------------------------------- --------------------------------- RESTRICTED STOCK LONG-TERM INCENTIVE NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1)(2) PLAN PAYOUTS(3) - ----------------------------------------- --------- ----------- --------- ---------------- -------------------- Roger W. Stone .......................... 1993 $ 730,000 -- $ 395,604 -0- Chairman, President 1992 730,000 -- 389,360 172,150 Chief Executive Officer 1991 730,000 -- 381,547 177,000 Morty Rosenkranz ........................ 1993 410,000 -- 156,545 -0- Executive Vice President 1992 391,250 -- 154,836 65,340 1991 363,250 -- 150,121 69,000 James Doughan ........................... 1993 373,000 -- 131,000 -0- Executive Vice President 1992 358,000 -- 118,856 65,340 1991 341,750 -- 114,276 69,000 Arnold F. Brookstone .................... 1993 310,000 -- 113,004 -0- Executive Vice President 1992 295,000 -- 104,295 61,270 1991 280,250 -- 99,774 69,000 James B. Heider ......................... 1993 275,000 -- 87,770 -0- Senior Vice President 1992 253,250 -- 87,210 25,300 1991 225,500 -- 76,751 29,850 - ------------------------ (1) Stock awards made under the Long-Term Incentive Plan do not vest until the fifth anniversary of the award. (2) Dividends on shares of restricted stock are paid at the same time and at the same rate as dividends on all other shares of the Company's Common Stock. The aggregate number as of December 31, 1993 and value as of the date of the grant of each named executive's restricted stock holdings are as follows: Mr. Stone, 119,081 shares, $2,332,807.25; Mr. Rosenkranz, 36,550 shares, $729,229.00; Mr. Doughan, 29,120 shares $598,140.25; Mr. Brookstone, 24,671 shares, $510,369.75; Mr. Heider, 20,458 shares, $370,071.50. (3) Cash payouts under the Long-Term Incentive Plan reflected in this column are on account of awards made and earned over the preceding five year period.
60 LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR The following table sets forth the long-term incentive plan performance unit awards made to each of the named executives in 1993.
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER OTHER PERIOD NON-STOCK PRICE BASED PLANS(1) UNTIL ----------------------------------- NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM NAME UNITS PAYOUT ($) ($) ($) - ------------------------------------------------- ----------- --------------- ----------- --------- ----------- Roger W. Stone................................... 3956 5 years 197,800 395,600 593,400 Morty Rosenkranz................................. 1566 5 years 78,300 156,600 234,900 James Doughan.................................... 1197 5 years 59,850 119,700 179,550 Arnold F. Brookstone............................. 1048 5 years 52,400 104,800 157,200 James B. Heider.................................. 878 5 years 43,900 87,800 131,700 - ------------------------ (1) Cash payout under the Company's Long-Term Incentive Plan.
In addition to the restricted stock awards reflected in the Summary Compensation Table, the Company's Long-Term Incentive Plan provides for incentive awards to each named executive officer, in the form of performance units, based upon the long-term performance of the Company. Such awards may be earned upon the expiration of the five year period after the date of award to the extent that the Company has achieved the designated performance goals for such five-year performance cycle. Awards are granted each year based upon each participant's level of responsibility and average salary mid-point level projected as of the end of each five year performance cycle with awards ranging from 40% to 100% of such salary mid-point. Performance unit awards are payable in cash, if earned, upon the completion of each five year performance cycle. The targeted performance goal for each performance cycle is realization by the Company of a designated average corporate return on beginning equity. Cash payments (from 0% to 150% of the performance unit award) are then determined by the degree to which the Company attains or exceeds the targeted goal, ranging from a minimum of 88% to a maximum of 133% of such goal. No cash payments will be made if the Company does not achieve at least 88% of such goal. For example, the cash payment, if any, to be paid to a participant under the plan will be in an amount equal to (i) 100% of the value of the performance unit at the time of its award if the Company attains the targeted goal at the end of the performance cycle; (ii) 150% of such value if the Company attains 133% of such targeted goal; (iii) 50% of such value if the Company attains 88% of such targeted goal, or (iv) nothing, if the Company does not attain 88% of its targeted goal. SALARIED EMPLOYEES RETIREMENT PLAN: The Stone Container Corporation Salaried Employees Retirement Plan provides for the payment of a monthly pension to retiring salaried employees equal to the larger of (a) 1.67% of his or her average monthly compensation based on the highest 60 consecutive months compensation (within the last 180 months) for each year of service to a maximum of 30 years service, reduced by 3/4 of 1% of the employee's covered compensation under social security or (b) 1% of such average monthly compensation (not greater than $900) for each year of service. This benefit is then reduced, if applicable, by the monthly retirement income that could be provided on an actuarial equivalent basis from the employee's participation in certain previously sponsored retirement plans of the Company. Employees become vested for retirement income benefits after completion of 5 years of service or, if earlier, upon reaching age 65. The payment or accrual in respect of any specified person is not and cannot readily be separately or individually calculated by the actuaries for this defined benefit plan. Upon the recommendation of the independent actuaries, the Company did not make a cash contribution to the Plan for the year 1993. The following table shows the estimated annual benefits payable upon retirement to persons in specified remuneration and years-of-service classifications. 61 PENSION PLAN TABLE ILLUSTRATIVE PROJECTED ANNUAL RETIREMENT BENEFIT FOR SELECTED REMUNERATION AND YEARS OF SERVICE CLASSIFICATIONS (A)
YEARS OF SERVICE AT RETIREMENT --------------------------------------------------------------- REMUNERATION (B) 15 20 25 30 35 - ---------------------------- ----------- ----------- ----------- ----------- ----------- $ 100,000................... $ 25,050 33,400 41,750 50,100 50,100 150,000................... 37,575 50,100 62,625 75,150 75,150 200,000................... 50,100 66,800 83,500 100,200 100,200 250,000................... 62,625 83,500 104,375 125,250 125,250 300,000................... 75,150 100,200 125,250 150,300 150,300 400,000................... 100,200 133,600 167,000 200,400 200,400 600,000................... 150,300 200,400 250,500 300,600 300,600 800,000................... 200,400 267,200 334,000 400,800 400,800 1,000,000.................. 250,500 334,000 417,500 501,000 501,000 - ------------------------ (a) Benefit shown would be reduced by 3/4 of 1% of the retiree's covered compensation under social security while employed by the Company, as defined in the Plan, and would be limited to the extent required by the provisions of the Internal Revenue Code of 1986. Under federal law, an employee's benefits under a qualified pension plan such as the Stone Container Corporation Salaried Employees Retirement Plan are limited to certain maximum amounts. The Company maintains the Stone Container Corporation Excess Benefit Plan, which supplements the benefits of any participant in the qualified pension plan by direct payment of a lump sum or by an annuity, on an unfunded basis, of the amount by which any participant's benefits under the pension plan are limited by law. The table illustrates the amount of annual pension without regard to such limitations for an employee retiring in 1994 calculated on a single life annuity basis. (b) In estimating the annual benefit it is assumed that the five year average monthly compensation is equal to 1993 earnings.
The base compensation covered by the Plan includes salary and any bonus earned. Since no bonuses were paid to the individuals named in the summary compensation table for the years 1991, 1992 and 1993, the base compensation covered by the Plan for those years is equal to the amounts set forth in the Salary column of that table. The years of service as of January 1, 1994 for such individuals are: 37.4 for Mr. Stone, 29.9 for Mr. Rosenkranz, 9.9 for Mr. Doughan, 28.7 for Mr. Brookstone and 13.2 for Mr. Heider. Mr. James Doughan, Executive Vice President of the Company, has entered into an agreement with the Company whereby the Company has agreed to pay Mr. Doughan a supplemental retirement benefit commencing when Mr. Doughan attains age 65. The supplemental retirement benefit is computed by taking the difference between $12,500 per month and the amount Mr. Doughan will receive from the Stone Container Corporation Salaried Employees Retirement Plan and, if applicable, the Stone Container Corporation Excess Benefit Plan at age 65. Such supplemental monthly benefit will be payable to Mr. Doughan only in the event Mr. Doughan is either an employee of the Company at age 65 or becomes disabled while employed. In the event Mr. Doughan dies either while an employee of Stone or after commencement of such supplemental monthly benefit, his surviving spouse will receive 50% of such supplemental monthly benefit for the remainder of her life. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN CONTROL ARRANGEMENTS The Board of Directors has authorized management to execute continuity contracts for corporate and divisional officers (other than Roger W. Stone) who, with certain exceptions, have been employed by the Company for at least five years, providing for continuation of salary, bonus (based upon the average bonus for the last three calendar years) and certain fringe benefits, in the event of involuntary termination of employment after a change in control, as defined in such continuity contracts, of the Company. 62 Payments under these contracts would continue until the earliest of three years from the date of such officer's involuntary termination, age 70, death, disability or an offer of comparable employment. The Company has entered into such contracts with each of the individuals named in the Summary Compensation Table other than Mr. Stone. The amount of such payments to be received by the individuals named in the Summary Compensation Table is dependent upon whether such individual obtains employment elsewhere. Any amounts received by such individual from other employment will offset the payment made pursuant to these contracts. The Company entered into consulting agreements in 1974 with each of Messrs. Jerome H. Stone, Marvin N. Stone and Norman H. Stone (deceased), under which each serves or was to serve as a consultant to the Company for a fee of $80,000 per annum during his lifetime and, should he die leaving a widow, $40,000 per annum to such widow during her lifetime. Mr. Norman H. Stone died during 1985 and his widow receives the specified payments. The consulting fees are in addition to the retirement benefits previously noted. 63 CREDIT AGREEMENT Concurrently with the closing of this Offering, it is contemplated that the Company will repay the outstanding indebtedness under and terminate its existing 1989 Credit Agreement and enter into the Credit Agreement. The Credit Agreement will consist of a $400 million senior secured term loan and a $450 million senior secured revolving credit facility. The revolving credit facility borrowing availability will be reduced by any letter of credit commitments, and approximately $ million which the Company will borrow at closing. Availability under the revolving credit facility will also be reduced by the approximately $61 million outstanding letters of credit (the "Florence Letter of Credit") securing the variable rate demand industrial revenue bonds issued by Florence County, South Carolina relating to the Company's linerboard mill located in Florence County. Up to $50 million of the revolving credit facility will be available as a letter of credit sub-facility (other than the Florence Letter of Credit). Any letters of credit issued under the sub-facility will reduce borrowing availability under the revolving credit facility. In addition, Bankers Trust Company will provide a swingline sub-facility under which the Company may make borrowings of up to $25 million. Swingline loans will reduce availability under the revolving credit facility on a dollar-for-dollar basis. The Credit Agreement is expected generally to include terms, conditions, representations and warranties, covenants, indemnities and events of default and other provisions which are customary in such agreements. The following is a summary of certain of the principal terms expected to be included in the Credit Agreement. The terms and conditions of the Credit Agreement are subject to negotiation, commitments from a lending group, the execution of definitive documentation and closing (which is conditional upon the successful closing of this Offering and the Related Transactions). MATURITIES AND MANDATORY PREPAYMENTS The term loan under the Credit Agreement will mature on April 1, 2000. Amounts outstanding under the term loan will amortize on a semi-annual basis (April 1 and October 1) based upon the applicable percentage of the initial principal amount of the term loan. Amortization amounts will be .5% of principal amount for the period from April 1, 1995 through April 1, 1999, 47.5% on October 1, 1999 and 48.0% on April 1, 2000. The revolving credit facility will mature on May 15, 1999 and the Florence Letter of Credit will also expire May 15, 1999. Mandatory prepayments will be required under the term loan portion of the Credit Agreement as follows: (i) 50% (subject to performance-related step downs to 25%) of Excess Cash Flow (as defined in the Credit Agreement) (excluding the first $50 million of Excess Cash Flow in each fiscal year); (ii) 100% of the net proceeds of (a) the issuance or incurrence of additional indebtedness (excluding certain specified refinancings and $200 million (the "Debt Basket") of other debt), and (b) certain non-ordinary course asset sales (excluding $200 million (the "Asset Basket") of proceeds from such sales (other than sales of Collateral or collateral under the Credit Agreement pledged to the lenders under the Credit Agreement (the "Bank Collateral")), in each case for which substitute collateral is not provided). All mandatory prepayments (except mandatory redemptions related to sales of Bank Collateral) will be allocated entirely against the term loan amortizations in inverse order of maturity. In addition, mandatory prepayments from sales of Bank Collateral (unless substitute collateral has been provided) will be allocated pro rata between the term loan (and applied in inverse order of maturity) and the revolving credit facility, and, in the case of the revolving credit facility, will result in a corresponding permanent commitment reduction. At the Company's request, the holders of loans under the term loan, voting individually, may waive their individual right to any mandatory prepayment (and, if lenders representing a majority of the outstanding principal of the term loan waive such prepayment, then all holders will have been deemed to waive prepayment), in which case the amounts otherwise payable to such holders (or all of them) may be retained by the Company. The cash flow in excess of the required mandatory repayment, the net proceeds from the Debt Basket, the net proceeds from the Asset Basket, and waived prepayment obligations may be used for (i) general corporate purposes, (ii) capital expenditures, acquisitions or 64 investments in excess of annual limitations (without reducing permitted basket amounts (except that Debt Basket amounts may not be used for this purpose)) and (iii) prepayment of publicly issued debt securities ("Permitted Uses"). The Company will also be permitted to voluntarily reduce the unutilized portion of the revolving credit facility and voluntarily prepay the term loan, with voluntary term loan prepayments to be applied against amortizations in inverse order of maturity. INTEREST RATES The Credit Agreement permits the Company to choose among various interest rate options for the revolving credit facility and the term loan and to specify the interest rate period to which the interest rate options are to apply, subject to certain parameters. The applicable interest rates will be: (i) under the revolving credit facility (a) the higher of Bankers Trust Company's prime rate and the Federal Funds Effective Rate plus 1/2 of 1% (the alternative base rate ("ABR")) plus 1 5/8% per annum or (b) the London Interbank Offered Rate ("LIBOR"), as adjusted ("Adjusted LIBOR"), plus 2 5/8% per annum; (ii) under the swingline loan, ABR plus 1 5/8% per annum and (iii) under the term loan, ABR plus 2 1/8% per annum or Adjusted LIBOR plus 3 1/8% per annum. Upon achievement of specified indebtedness ratios and cash flow coverage ratios or other performance related tests, the interest rate margins for the revolving credit facility (including the swingline sub-facility) will be reduced. Additionally, the Company pays a 1/2% commitment fee on the unused portions of the revolving credit facilities but without giving effect to reductions in availability for swingline loans, letters of credit outstanding or for the Florence Letter of Credit. The Company will pay a fee on the outstanding letters of credit issued under the revolving credit facility at a rate equal to the greater of (i) the spread over Adjusted LIBOR applicable to the revolving credit facility MINUS 1/2% and (ii) 1%. SECURITY All indebtedness under the Credit Agreement will be secured by a significant portion of the assets of the Company. Loans and letters of credit (other than the Florence Letter of Credit) under the Credit Agreement will be secured by a mortgage on the following mills and box plants owned or leased by the Company or its subsidiaries, as well as liens on the machinery, equipment and inventory located at each mill or box plant:
PAPER MILLS: BOX PLANTS: - --------------------------------- ---------------------------- Snowflake, Arizona 48 Owned Box Plants Panama City, Florida 34 Leased Box Plants(1) Port Wentworth, Georgia Florence, South Carolina Hopewell, Virginia Hodge, Louisiana Coshocton, Ohio - ------------------------ (1) Subject to receipt of requisite landlord consents.
COVENANTS The Credit Agreement is expected to contain covenants that include, among other things, requirements to maintain certain financial tests and ratios (including an indebtedness ratio and a minimum interest coverage ratio) and certain restrictions and limitations, including those on capital expenditures, changes in control, payment of dividends, sales of assets, lease payments, investments (including investments in Stone-Consolidated, Seminole and SVCP), additional borrowings, liens, repurchases or prepayment of certain indebtedness, guarantees of indebtedness, mergers and purchases of stock and assets. 65 INDEBTEDNESS RATIO The Company will be required to have an indebtedness ratio (ratio of total consolidated indebtedness to consolidated net worth plus total consolidated indebtedness, as such terms are defined in the Credit Agreement) not exceeding the following amounts as of the end of each fiscal quarter ending on a date as indicated below:
FISCAL QUARTER RATIO - --------------------------------------------------------------- --------- December 31, 1994 through March 31, 1996....................... .85 to 1 June 30, 1996 through September 30, 1996....................... .80 to 1 December 31, 1996 through September 30, 1997................... .77 to 1 December 31, 1997 through September 30, 1998................... .72 to 1 December 31, 1998 through September 30, 1999................... .67 to 1 December 31, 1999 and thereafter............................... .62 to 1
At June 30, 1994, the Company's actual indebtedness ratio (as defined) was 81.0%. INTEREST COVERAGE RATIO The Company will be required to have an interest coverage ratio (ratio of earnings before interest, taxes, depreciation and amortization to interest expense) of at least the following ratios at the end of each fiscal quarter, calculated for the most recent four fiscal quarters (or if four fiscal quarters have not been completed since the date thereof, then the number of fiscal quarters that have been completed since the date thereof) as indicated below:
DATE RATIO - ------------------------------------------------------------- ----------- December 31, 1994............................................ 1.00 to 1 March 31, 1995............................................... 1.15 to 1 June 30, 1995................................................ 1.25 to 1 September 30, 1995........................................... 1.35 to 1 December 31, 1995............................................ 1.50 to 1 March 31, 1996............................................... 1.65 to 1 June 30, 1996................................................ 1.75 to 1 September 30, 1996........................................... 1.85 to 1 December 31, 1996............................................ 2.00 to 1 March 31, 1997............................................... 2.25 to 1 June 30, 1997................................................ 2.25 to 1 September 30, 1997 and thereafter............................ 2.50 to 1
For the three months ended June 30, 1994, the Company's actual interest coverage ratio was .78 to 1. RESTRICTIONS ON INVESTMENTS IN SUBSIDIARIES AND GUARANTEES; CROSS-DEFAULTS The Credit Agreement contains restrictions on investments in Stone-Consolidated, Seminole and SVCP. The Company is also not permitted to guarantee the indebtedness of Stone-Consolidated, Seminole or SVCP and there are restrictions on other guarantees. There are also restrictions on transactions with affiliates which are not wholly owned subsidiaries. Any event of default or default with respect to the Company's or a Subsidiary's (as defined in the Credit Agreement) indebtedness for money borrowed having an aggregate principal amount of $10 million or more constitutes an event of default under the Credit Agreements. Any acceleration of any indebtedness having an aggregate principal amount of $10 million or more of Stone-Consolidated, SVCP or Seminole also constitutes an event of default under the Credit Agreement. RESTRICTIONS ON DIVIDENDS The Credit Agreement provides that the Company's dividend payments, distributions or purchases of any class of capital stock of the Company and its subsidiaries cannot exceed the sum of (A) an amount equal to (i) 75% of the consolidated net income (as defined by the Credit Agreement) of the 66 Company from October 1, 1994 to the date of payment of such dividends, minus (ii) 100% of the consolidated net loss (as defined by the Credit Agreement) of the Company from October 1, 1994 to the date of payment of such dividend plus (iii) 100% of any net cash proceeds from sales of common stock or certain preferred stock of the Company from the closing date to the date of payment of such dividends, minus (iv) the total of certain permitted investments and permitted capital expenditures, which the Company will be permitted to make in lieu of dividends the Company would be permitted to pay pursuant to this dividend formula. Consolidated Net Income will not include the charge to earnings related to the Offering or the Related Transactions or to charges to earnings for unamortized fees relating to the early extinguishment of debt. In addition, the Credit Agreement permits the Company to pay dividends on its preferred stock outstanding on the date of the Credit Agreement to the extent permitted by the Company's senior subordinated indenture dated as of March 15, 1992. RESTRICTIONS ON INCURRENCE OF INDEBTEDNESS The Credit Agreement restricts the incurrence of additional indebtedness, subject to certain exceptions (including the refinancing of existing indebtedness). The Credit Agreement permits the Company to undertake accounts receivable securitization financings of up to $500 million as well as the incurrence of the Debt Basket amounts. 67 DESCRIPTION OF NOTES The Senior Notes will be issued under an Indenture dated as of , 1994 (the "Senior Note Indenture"), between the Company and The Bank of New York, as trustee (the "Senior Note Trustee"). The First Mortgage Notes will be issued under an Indenture dated as of , 1994 (the "First Mortgage Note Indenture") to be entered into by the Company and Norwest Bank Minnesota, National Association, as trustee (the "First Mortgage Note Trustee"). The Senior Notes and First Mortgage Notes are collectively referred to herein as the "Notes," the Senior Note Indenture and the First Mortgage Note Indenture are referred to herein individually as an "Indenture" and, collectively, as the "Indentures" and the Senior Note Trustee and the First Mortgage Note Trustee are referred to herein individually as the "Trustee" and, collectively, as the "Trustees." The following summaries of certain provisions of the First Mortgage Notes and the Senior Notes and the First Mortgage Note Indenture and the Senior Note Indenture do not purport to be complete and are subject to, and are qualified in their entirety by express reference to, all the provisions of the First Mortgage Note Indenture and the Senior Note Indenture, including the definitions therein of certain terms. A copy of each of the First Mortgage Note Indenture and the Senior Note Indenture is filed as an exhibit to the Registration Statement of which this Prospectus is a part. Certain capitalized terms herein are defined in the applicable Indenture. GENERAL The Senior Note Indenture limits the aggregate principal amount of Senior Notes which may be issued thereunder to $200 million. The First Mortgage Note Indenture limits the principal amount of First Mortgage Notes issuable thereunder to $500 million. The Senior Notes will be unsecured obligations of the Company. The First Mortgage Notes will be secured by the Collateral. See "-- Additional First Mortgage Note Indenture Definitions -- Collateral." The principal of, and any premium or interest on, the Notes will be payable, and the Notes will be exchangeable and transfers thereof will be registrable, at the respective Place of Payment set forth in the applicable Indenture, provided that, at the option of the Company, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the Register relating to such Notes. The Notes will be issued in United States dollars in fully registered form, without coupons, in denominations of $1,000 or any integral multiple thereof. No service charge will be made for any transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. With respect to any Deficiency Offer, First Mortgage Note Offer, Change of Control Offer, Asset Disposition Offer or optional redemption of the Notes, the Company shall comply with the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, as applicable. RANKING The Notes will rank PARI PASSU in right of payment with all existing and future Senior Indebtedness (as defined) of the Company and senior in right of payment and rights upon liquidation to all existing and future Subordinated Indebtedness of the Company. After giving effect to the Offering and the Related Transactions, the total outstanding Senior Indebtedness of the Company is expected to be approximately $ . A significant portion of the Company's assets will secure borrowings outstanding under the Credit Agreement. See "Credit Agreement -- Security." Likewise, the First Mortgage Notes are secured obligations of the Company. In the event of the Company's insolvency or liquidation, the claims of the lenders under the Credit Agreement would have to be satisfied out of the collateral securing the Credit Agreement before any such assets would be available to pay claims of holders of the Notes. Similarly, 68 the holders of First Mortgage Notes would have to be satisfied out of the Collateral under the First Mortgage Note Indenture before any such assets would be available to pay claims of holders of the Senior Notes. If the lenders under the Credit Agreement and/or the First Mortgage Note Trustee under the First Mortgage Note Indenture should foreclose on their respective collateral, no assurance can be given that there will be sufficient assets available in the Company to pay amounts due on the First Mortgage Notes or the Senior Notes, respectively. The Notes are obligations exclusively of the Company. Because certain of the operations of the Company are currently conducted by subsidiaries (primarily Stone Canada and its subsidiaries, including Stone-Consolidated, and Seminole), the Company's cash flow and consequent ability to service debt, including the Notes, are dependent, in part, upon the earnings of its subsidiaries and the distribution of those earnings or upon loans or other payments of funds by those subsidiaries to the Company. The subsidiaries of the Company are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amount due pursuant to the Notes or to make any funds available therefor, whether by dividends, loans or other payments. In addition, the payment of dividends and the making of loans and advances to the Company by its subsidiaries may be subject to statutory or contractual restrictions (as well as potential foreign tax withholding under certain circumstances), are contingent upon the earnings of those subsidiaries and are subject to various business considerations. See "Risk Factors -- Credit Agreement Restrictions." Any right of the Company to receive assets of any of its subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the Notes to participate in the distribution of or proceeds from those assets) will be structurally subordinated to the claims of such subsidiary's creditors (including trade creditors and holders of debt issued by such subsidiary), except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. PARTICULAR TERMS OF THE FIRST MORTGAGE NOTES The First Mortgage Notes will mature on , 2002.The First Mortgage Notes are not redeemable at the option of the Company prior to , 1999. Thereafter, the First Mortgage Notes may be redeemed at the option of the Company, in whole or in part from time to time, on not less than 30 days, nor more than 45 days, prior notice, mailed by first class mail to the First Mortgage Note holders' last addresses as they shall appear in the Register, at the following prices (expressed as percentages of the principal amount of the First Mortgage Notes), if redeemed during the twelve months beginning of the year indicated below, in each case together with interest accrued to the Redemption Date:
REDEMPTION YEAR PRICE - -------------------------------------------------------------------------------- ------------- 1999............................................................................ % 2000............................................................................ % 2001 and thereafter............................................................. %
Selection of First Mortgage Notes for redemption will be made by the First Mortgage Note Trustee, upon notice, substantially pro rata. The First Mortgage Note Indenture provides that, if any First Mortgage Note is to be redeemed in part only, the notice which relates to the redemption of such First Mortgage Note shall state the portion of the principal amount to be redeemed, and shall state that on or after the Redemption Date, upon surrender of such First Mortgage Note, a new First Mortgage Note or First Mortgage Notes in principal amount equal to the unredeemed portion thereof will be issued. The First Mortgage Notes will bear interest at the rate per annum shown on the cover page of this Prospectus from the date of original issuance of the First Mortgage Notes. Interest on the First Mortgage 69 Notes will be payable semi-annually on and of each year, commencing , 1995, to the Holders in whose names the First Mortgage Notes are registered at the close of business on the preceding and respectively. In the event that the Company is required but unable to make a Deficiency Offer, the Reset Rate on the First Mortgage Notes will be the greater of (x) the initial Interest Rate and (y) the sum of (A) basis points and (B) the higher of the Year Treasury Rate and the Year Treasury Rate and shall further increase by an additional 50 basis points on each succeeding Interest Payment Date, PROVIDED, HOWEVER that in no such event shall the interest rate at any time exceed the Initial Interest Rate by more than 200 basis points. ADDITIONAL FIRST MORTGAGE NOTE COVENANTS LIMITATION ON LIENS ON COLLATERAL. Under the terms of the First Mortgage Note Indenture, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, (a) incur or suffer to exist any Lien upon any of the Collateral other than Permitted Collateral Liens, (b) take any action or omit to take any action with respect to the Collateral that would have or could be reasonably expected to have the result of adversely affecting, impairing or failing to maintain without interruption the security interests in the Collateral under the First Mortgage Note Indenture or the Security Documents, or (c) grant any interest whatsoever (other than Permitted Collateral Liens) in any of the Collateral to any Person (other than the Company or the First Mortgage Note Trustee) or suffer to exist any such interest. The Company may not enter into a sale-leaseback transaction involving any Collateral. LIMITATION ON COLLATERAL ASSET DISPOSITIONS. Under the terms of the First Mortgage Note Indenture, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, consummate or permit a Collateral Asset Disposition unless: (a) the Company receives consideration in respect of and concurrently with such Collateral Asset Disposition at least equal to the fair market value of the relevant Collateral; (b) with respect to each such Collateral Asset Disposition, the Company delivers an Officer's Certificate to the First Mortgage Note Trustee dated no more than 30 days prior to the date of consummation of the relevant Collateral Asset Disposition, certifying that (i) such disposition complies with clause (a) above, (ii) the fair market value of the Collateral being sold was determined in good faith by the Board of Directors of the Company, including a majority of the Independent Directors (whose determination was based on the opinion of a qualified Independent Appraiser or Independent Financial Adviser prepared contemporaneously with such Collateral Asset Disposition and which opinion will be evidenced by an opinion letter of the Independent Appraiser or Independent Financial Adviser and attached to the Officer's Certificate), as evidenced by copies of the resolutions of the Board of Directors of the Company, indicating the requisite approval by the Independent Directors and the Board of Directors (which shall also indicate that the relevant Collateral Asset Disposition is being made for an appropriate business purpose which is not the redemption of the First Mortgage Notes), adopted in respect of and concurrently with such Collateral Asset Disposition and (iii) in the case of a release of less than all of a Collateral Property, the release of the relevant portion of such Collateral Property will not interfere with or materially and adversely affect the value of the remaining portion of such Collateral Property, the maintenance and operation of such remaining portion or the First Mortgage Note Trustee's uninterrupted valid first ranking Lien (subject to Permitted Collateral Liens) on such remaining portion (accompanied by a binding commitment of a title insurer to issue an endorsement to the title insurance policy previously issued in respect of such Collateral Property confirming that, after such release, the First Mortgage Note Trustee's first ranking Lien on such remaining portion will remain unimpaired and uninterrupted (subject only to Permitted Collateral Liens existing on the date of the First Mortgage Note Indenture or obtaining priority through operation of law)); (c) at least 90% of such consideration is in cash or Cash Equivalents; (d) the Net Proceeds therefrom shall be paid directly by the purchaser thereof to the First Mortgage Note Trustee and deposited into the Cash Collateral Account pending application in accordance with clause (g) below and the Company takes such actions, at its sole expense, as shall be required to ensure that the First Mortgage Note Trustee has from such date a first ranking Lien thereon (subject to Permitted Collateral Liens) pursuant to the First Mortgage Note Indenture and the Security Documents; (e) concurrently with the relevant Collateral Asset Disposition, the Company takes 70 such actions, at its sole expense, as shall be required to ensure that the First Mortgage Note Trustee has from such date a first ranking Lien (subject to Permitted Collateral Liens) on any portion of such consideration which is not in the form of cash or Cash Equivalents ("Non-Cash Consideration"), and, upon receipt thereof, of property received in the future in exchange for all or any part of such Non-Cash Consideration, pursuant to the terms of the First Mortgage Note Indenture and the Security Documents; (f) the Company takes such other actions, at its sole expense, as shall be required to permit the First Mortgage Note Trustee to release the Collateral being sold from the Lien of the First Mortgage Note Indenture and the Security Documents; and (g) the Company, within six months from the date of consummation of a Collateral Asset Disposition, applies all of the Net Proceeds therefrom for the following purposes, individually or in combination, (i) to purchase or otherwise invest in Replacement Collateral (in accordance with the third paragraph of this covenant) or (ii) to make a First Mortgage Note Offer; PROVIDED that, (1) in the event that the Company enters into a binding commitment to purchase or otherwise invest in Replacement Collateral pursuant to the foregoing clause (g)(i) within such six month period, the Company will have eighteen months from the date of consummation of such Collateral Asset Disposition to consummate such purchase or investment, which shall be completed with due diligence and (2) in connection with a Collateral Asset Disposition involving all (but not less than all) of the Collateral Property located in York, Pennsylvania (as more specifically described in the relevant Security Document), the Company may, concurrently with such Collateral Asset Disposition, make subject to the Lien of the First Mortgage Note Indenture as Replacement Collateral any other assets of the Company satisfying the definition of "Replacement Collateral" in accordance with the third paragraph of this covenant below in lieu of the assets purchased with the Net Proceeds of such Collateral Asset Disposition. The Company will not and will not permit any of its Restricted Subsidiaries, directly or indirectly, to enter into a Sale-leaseback transaction involving the Collateral. Under the terms of the First Mortgage Note Indenture, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, suffer or permit a Collateral Loss Event unless: (a) the Net Proceeds therefrom are paid directly by the party providing such Net Proceeds to the First Mortgage Note Trustee and deposited in the Cash Collateral Account, (b) the Company takes such actions, at its sole expense, as shall be required to ensure that the First Mortgage Note Trustee has from the date of such deposit a first ranking Lien (subject to Permitted Collateral Liens) on such Net Proceeds in the Cash Collateral Account pursuant to the terms of the First Mortgage Note Indenture and the Security Documents and (c) the Company, within six months of receipt of the Net Proceeds therefrom, applies all the Net Proceeds received therefrom for the following purposes, individually or in combination: (i) to purchase or otherwise invest in Replacement Collateral; (ii) to Restore the relevant Collateral; or (iii) to make a First Mortgage Note Offer; PROVIDED that, in the event that the Company enters into a binding commitment to purchase or otherwise invest in Replacement Collateral pursuant to the foregoing clause (c)(i) or to Restore the relevant Collateral pursuant to the foregoing clause (c)(ii) within six months of receipt of such Net Proceeds from a Collateral Loss Event, the Company will have eighteen months from the date of such receipt to consummate or complete such purchase, investment or Restoration, which shall be carried out with due diligence. In connection with any Restoration, the Company shall follow the procedures set forth in the First Mortgage Note Indenture. Under the terms of the First Mortgage Note Indenture, in the event that the Company (a) elects pursuant to clause (g)(i) of the first paragraph of this covenant or clause (c)(i) of the second paragraph of this covenant to apply any portion of the Net Proceeds from a Collateral Asset Disposition or Collateral Loss Event, respectively, to purchase or otherwise invest in Replacement Collateral, (b) pursuant to the last paragraph of this covenant is deemed to purchase or otherwise invest in Replacement Collateral or (c) pursuant to clause (2) of the first paragraph of this covenant elects to provide other assets of the Company as Replacement Collateral for the Collateral Property located in York, Pennsylvania following the sale thereof (1) the Company shall deliver an Officers' Certificate to the First Mortgage Note Trustee dated no more than 30 days prior to the date of consummation of the relevant purchase of or investment in Replacement Collateral (in the case of (a)), or of the relevant Collateral Asset Disposition (in the case of (c)) or dated the date of withdrawal (in the case of (b)), certifying that (i) in the case of clause (a), the purchase price for or the amount of the investment in the relevant Replacement Collateral does not 71 exceed the fair market value of such Replacement Collateral, (ii) in the case of clause (b), the Company is required to use the relevant portion of such Net Proceeds to fund an "Asset Disposition Offer" under the 1991 Indenture in accordance with the last paragraph of this covenant and has complied with the last paragraph of this covenant in connection therewith or (iii), in the case of (c), the fair market value of such Replacement Collateral is not less than $31 million as determined in good faith by the Board of Directors of the Company, including a majority of the Independent Directors (whose determination in the case of clauses (i) and (iii) was based on the opinion of a qualified Independent Appraiser or Independent Financial Adviser prepared contemporaneously with the consummation of such purchase of or investment in the relevant Replacement Collateral and which opinion will be evidenced by an opinion letter of the Independent Appraiser or Independent Financial Adviser attached to the Officers' Certificate), as evidenced by copies of the resolutions of the Board of Directors, indicating the requisite approval of the Independent Directors, adopted in respect of and concurrently with the purchase of or investment in such Replacement Collateral; and (2) the Company shall take such actions, at its sole expense, as shall be required to permit the First Mortgage Note Trustee to release such Net Proceeds (or proceeds required to be applied to the prepayment of Indebtedness under the 1991 Indenture, as described in the last paragraph of this covenant) from the Lien of the First Mortgage Note Indenture and the Security Documents and to ensure that the First Mortgage Note Trustee has, from the date of such purchase or investment, a first ranking Lien (subject to Permitted Collateral Liens) on such Replacement Collateral pursuant to the terms of the First Mortgage Note Indenture and the Security Documents. Furthermore, the First Mortgage Note Trustee shall have received, concurrently with the grant to it of the Lien in respect of any Replacement Collateral constituting real property or equipment, the documents set forth in the First Mortgage Note Indenture relating to such Replacement Collateral substantially in the form delivered to the First Mortgage Note Trustee on the date of the First Mortgage Note Indenture in respect of the original Collateral Properties. Notwithstanding the foregoing, under the terms of the First Mortgage Note Indenture the Company may defer a First Mortgage Note Offer until such time as the Excess Proceeds exceed $15 million (30 days from which time the Company must make a First Mortgage Note Offer), PROVIDED that (a) the Company provides written notice to the First Mortgage Note Trustee of such deferred application of Excess Proceeds, (b) all Excess Proceeds are deposited and remain on deposit in the Cash Collateral Account pending a First Mortgage Note Offer and (c) any First Mortgage Note Offer shall include all Excess Proceeds on deposit in the Cash Collateral Account on the date of such First Mortgage Note Offer, regardless of whether the Excess Proceeds exceed $15 million at such time. All amounts remaining after the completion of any First Mortgage Note Offer shall remain in the Cash Collateral Account subject to the Lien of the First Mortgage Note Indenture. The Company may use such amounts to purchase or otherwise invest in Replacement Collateral securing the First Mortgage Notes on the basis described in the previous paragraph at any time and from time to time. Under the terms of the First Mortgage Note Indenture, within 30 days of any decision by the Company to make a First Mortgage Note Offer or of the date upon which the Excess Proceeds exceed $15 million, the Company, or the First Mortgage Note Trustee at the Company's request, will mail or cause to be mailed to all Holders of First Mortgage Notes a notice of the First Mortgage Note Offer and of the Holders' rights resulting therefrom. Such notice will contain all instructions and materials necessary to enable Holders of First Mortgage Notes to tender their First Mortgage Notes to the Company. On the First Mortgage Note Offer Payment Date, the Company shall (i) accept for payment First Mortgage Notes or portions thereof tendered pursuant to the First Mortgage Note Offer in an aggregate principal amount equal to the First Mortgage Note Offer Amount or such lesser amount of First Mortgage Notes as shall have been tendered, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all First Mortgage Notes or portions thereof so accepted, and (iii) deliver or cause to be delivered to the Trustee First Mortgage Notes so accepted together with an Officer's Certificate stating the First Mortgage Notes or portions thereof accepted by the Company. If the aggregate principal amount of First Mortgage Notes surrendered exceeds the aggregate principal amount of First Mortgage Notes subject to the First Mortgage Note Offer, as indicated in the notice required by this covenant, the 72 Trustee shall select the First Mortgage Notes to be purchased on a PRO RATA basis to the nearest one thousand dollars ($1,000) of principal amount. The Paying Agent shall promptly mail or deliver to Holders of First Mortgage Notes so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders a new First Mortgage Note equal in principal amount to any unpurchased portion of the First Mortgage Note surrendered. The Company will publicly announce the results of the First Mortgage Note Offer. If, pursuant to the 1991 Indenture, the Company is required to make an "Asset Disposition Offer" (as defined thereunder) using proceeds from a Collateral Asset Disposition, the Company may use such proceeds as are on deposit in the Cash Collateral Account to fund the purchase of Indebtedness under the 1991 Indenture tendered pursuant to such offer; PROVIDED that the Company shall have subjected to the Lien of the First Mortgage Note Indenture and the Security Documents cash in an amount equal to such proceeds as Replacement Collateral pursuant to the third paragraph of this covenant in lieu of the cash released from the Cash Collateral Account, the amount so released being deemed to be the amount invested in or used to purchase Replacement Collateral for the purpose of such clause and such release and substitution being deemed to constitute a purchase of such Replacement Collateral. In the event that the Company is required to make an Asset Disposition Offer under the 1991 Indenture using proceeds from a Collateral Asset Disposition (including to the extent that proceeds from a Collateral Asset Disposition remain in the Cash Collateral Account after completion of a First Mortgage Note Offer) and the Company does not have sufficient additional funds to make such Asset Disposition Offer, an event of default may occur under the 1991 Indenture and, if so, events of default may occur under other indebtedness of the Company. If such an event of default occurs and indebtedness of $25 million or more is accelerated as a result thereof, such acceleration (if not rescinded or waived within applicable cure periods) would constitute an event of default under the Indentures. CERTAIN OTHER COVENANTS WITH RESPECT TO THE COLLATERAL. The First Mortgage Note Indenture also contains certain covenants of the Company to protect the Collateral, including, for example, covenants to maintain title to the Collateral, execute supplemental documents as required to perfect and protect the Liens without interruption, refrain from impairing the Collateral or any Liens thereon, notify the First Mortgage Note Trustee with respect to leases related to any of the Collateral Properties, pay all taxes and assessments, ensure compliance in all material respects with Environmental Laws, maintain insurance coverage on the Collateral, maintain all material licenses and permits required to own and operate the Collateral Properties and preserve the Liens created under the First Mortgage Note Indenture and the Security Documents. PARTICULAR TERMS OF THE SENIOR NOTES The Senior Notes will mature on , 2004. The Senior Notes are not redeemable at the option of the Company prior to , 1999. Thereafter, the Senior Notes may be redeemed at the option of the Company, in whole or in part from time to time on not less than 30 days, nor more than 45 days, prior notice, mailed by first class mail to the Senior Note holders' last addresses as they shall appear in the note register, at the following prices (expressed as percentages of the principal amount of the Senior Notes), if redeemed during the twelve months beginning of the year indicated below, in each case together with interest accrued to the Redemption Date:
REDEMPTION YEAR PRICE - -------------------------------------------------------------------------------- ------------- 1999............................................................................ % 2000............................................................................ % 2001............................................................................ % 2002............................................................................ % 2003 and thereafter............................................................. %
73 Selection of Senior Notes for redemption will be made by the Senior Note Trustee, upon notice, substantially pro rata, by lot, or by any other method that the Senior Note Trustee considers fair and appropriate. The Senior Note indenture provides that, if any Senior Note is to be redeemed in part only, the notice which relates to the redemption of such Senior Note shall state the portion of the principal amount to be redeemed, and shall state that on or after the Redemption Date, upon surrender of such Senior Note, a new Senior Note or Senior Notes in principal amount equal to the unredeemed portion thereof will be issued. The Senior Notes will bear interest at the rate per annum shown on the cover page of this Prospectus from the date of original issuance of the Senior Notes. Interest on the Senior Notes will be payable semi-annually on and of each year, commencing , 1995, to the Holders in whose names the Notes are registered at the close of business on the preceding and respectively. In the event that the Company is required but unable to make a Deficiency Offer, the Reset Rate on the Senior Notes will be the greater of (x) the Initial Interest Rate and (y) the sum of (A) basis points and (B) the higher of the Year Treasury Rate and the Year Treasury Rate and shall further increase by an additional 50 basis points on each succeeding Interest Payment Date, PROVIDED, HOWEVER that in no such event shall the interest rate at any time exceed the Initial Interest Rate by more than 200 basis points. COMMON TERMS OF THE FIRST MORTGAGE NOTES AND THE SENIOR NOTES THE TERMS AND PROVISIONS OF THE INDENTURES ARE SUBSTANTIALLY IDENTICAL, EXCEPT THAT THE FIRST MORTGAGE NOTE INDENTURE CONTAINS ADDITIONAL TERMS AND PROVISIONS RELATING TO THE COLLATERAL SECURING THE FIRST MORTGAGE NOTES AS DESCRIBED IN "-- ADDITIONAL FIRST MORTGAGE NOTE COVENANTS" AND "-- ADDITIONAL FIRST MORTGAGE NOTE INDENTURE DEFINITIONS." SET FORTH BELOW IS A DESCRIPTION OF THE COMMON TERMS OF THE NOTES. IN THIS SECTION, THE TERM "INDENTURE" REFERS TO THE FIRST MORTGAGE NOTE INDENTURE OR THE SENIOR NOTE INDENTURE, AS THE CASE MAY BE, AND THE TERM "NOTES" REFERS TO THE FIRST MORTGAGE NOTES OR THE SENIOR NOTES, AS APPLICABLE. In addition to the Senior Notes offered hereby, the Company has also issued $150 million principal amount of its 12 5/8% Senior Notes due July 15, 1998, $240 million principal amount of its 11 7/8% Senior Notes due December 1, 1998 and $710 million principal amount of its 9 7/8% Senior Notes due February 1, 2001 under its Indenture dated November 1, 1991, as amended and supplemented (the "1991 Indenture"), between the Company and The Bank of New York, as trustee. CERTAIN COVENANTS MAINTENANCE OF SUBORDINATED CAPITAL BASE The Indenture provides that, subject to the exception described in the fourth following paragraph, in the event that the Company's Subordinated Capital Base is less than $1 billion (the "Minimum Subordinated Capital Base") as at the end of each of any two consecutive fiscal quarters (the last day of the second such fiscal quarter, a "Deficiency Date"), then, with respect to the Notes, the Company shall, no later than 60 days after the Deficiency Date (105 days if a Deficiency Date is also the end of the Company's fiscal year), make an offer to all Holders of Notes to purchase (a "Deficiency Offer") 10% of the principal amount of Notes originally issued, or such lesser amount as may be Outstanding at the time such Deficiency Offer is made (the "Deficiency Offer Amount"), at a purchase price equal to 100% of principal amount, plus accrued and unpaid interest to the Deficiency Payment Date (as defined below). Thereafter, semiannually the Company shall make like Deficiency Offers for the then applicable Deficiency Offer Amount of Notes until the Company's Subordinated Capital Base as at the end of any subsequent fiscal quarter shall be equal to or greater than the Minimum Subordinated Capital Base. Notwithstanding the foregoing, after any specified Deficiency Date, the last day of any subsequent fiscal quarter shall not constitute a Deficiency Date (giving rise to an additional obligation under the first 74 sentence of this paragraph) unless the Company's Subordinated Capital Base was equal to or greater than the Minimum Subordinated Capital Base as at the end of a fiscal quarter that followed such specified Deficiency Date and preceded such subsequent quarter. Within 60 days (105 days if the Deficiency Date is also the end of the Company's fiscal year) following a Deficiency Date, the Company shall mail a notice to each Holder of Notes in respect of the Deficiency Offer (which notice shall contain all instructions and materials necessary to enable such Holders to tender Notes). Notes tendered pursuant to a Deficiency Offer will be accepted for payment, in amounts as set forth below, on the date which shall be 20 Business Days from the date such notice is mailed or, if acceptance for payment and payment is not then lawful, on the earliest subsequent Business Day on which acceptance for payment and payment is then lawful (a "Deficiency Payment Date"). On a Deficiency Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Deficiency Offer in an aggregate principal amount equal to the Deficiency Offer Amount or such lesser principal amount of such Notes as shall have been tendered, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all such Notes or portions thereof so accepted, and (iii) deliver, or cause to be delivered, to the Trustee Notes or portions thereof so accepted together with an Officer's Certificate stating the Notes or portions thereof accepted by the Company. If the aggregate principal amount of such Notes tendered exceeds the Deficiency Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis to the nearest $1,000 of principal amount. The Paying Agent shall promptly mail or make available for delivery to Holders of Notes so accepted payment in amounts equal to the purchase prices therefor, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders new Notes equal in principal amounts to, any unpurchased portion of Notes surrendered. The Company will publicly announce the results of the Deficiency Offer. Notwithstanding the foregoing, in the event that (1) the making of a Deficiency Offer by the Company or (2) the purchase of Notes by the Company in respect of a Deficiency Offer would constitute a default (with the giving of notice, the passage of time or both) with respect to any Specified Bank Debt at the time outstanding, then, in lieu of the making of a Deficiency Offer in the circumstances set forth above, (i) the interest rate on the Notes shall be reset as of the first day of the second fiscal quarter following the Deficiency Date (the "Reset Date") to a rate per annum (the "Reset Rate") specified above under the headings "Description of Notes -- Particular Terms of the Senior Notes" and "Description of Notes -- Particular Terms of the First Mortgage Notes," respectively, (ii) on the first Interest Payment Date following the Reset Date, the interest rate on the Notes as reset on the Reset Date, shall increase by 50 basis points, and (iii) the interest rate on the Notes shall further increase by an additional 50 basis points on each succeeding Interest Payment Date; PROVIDED, HOWEVER, that in no event shall the interest rate on the Notes at any time exceed the initial interest rate as set forth on the face of such Note (with respect to each such Note, the "Initial Interest Rate") by more than 200 basis points. If the Company's Subordinated Capital Base falls below $1 billion, it is probable that the Company would also be in default under certain covenants expected to be contained in the Credit Agreement. Once the interest rate on the Notes has been reset as set forth above, if the Company's Subordinated Capital Base is equal to or greater than the Minimum Subordinated Capital Base as of the last day of any fiscal quarter subsequent to the Deficiency Date, interest on the Notes shall return to the Initial Interest Rate effective as of the first day of the second following fiscal quarter; PROVIDED, HOWEVER, that the interest rate on the Notes shall again be adjusted as set forth above if the Company's Subordinated Capital Base shall thereafter be less than the Minimum Subordinated Capital Base as at the last day of each of any two consecutive subsequent fiscal quarters and if the making of a Deficiency Offer or the purchase of Notes by the Company in respect of a Deficiency Offer would, at such time, constitute a default (with the giving of notice, passage of time or both) with respect to any Specified Bank Debt at the time outstanding. 75 The Company shall notify the Trustee of the Reset Rate not later than two Business Days after the Reset Date in the circumstances set forth in the second preceding paragraph. Not later than five Business Days after the Trustee has received such notice from the Company, the Trustee shall mail to each Holder of Notes such notice setting forth the Reset Rate. The Company shall notify the Trustee and the Holders of Notes promptly when the interest rate on the Notes returns to the Initial Interest Rate as set forth above. LIMITATION ON FUTURE INCURRENCE OF INDEBTEDNESS The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, incur, create, assume, guarantee or in any other manner become directly or indirectly liable with respect to or responsible for the payment of any Indebtedness except: (1) Permitted Indebtedness; and (2) Indebtedness of the Company if at the time thereof and after giving effect thereto the Consolidated Interest Coverage Ratio of the Company, on a pro forma basis for the four most recent full quarters, taken as a whole (giving effect to (i) such Indebtedness and (ii) the effect on the Consolidated Cash Flow Available for Fixed Charges of the Company for the then four most recent full fiscal quarters, taken as a whole, as a result of any acquisition of a Person acquired by the Company or any Restricted Subsidiary with the proceeds of such Indebtedness), would be greater than 1.75 to 1. Without limiting the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, guarantee, or in any other manner become directly or indirectly liable with respect to or responsible for the payment of, Indebtedness of any Unrestricted Subsidiary in an amount greater than, for all guaranties and undertakings of responsibility by the Company and its Restricted Subsidiaries, 20% of the aggregate amount of Indebtedness of such Unrestricted Subsidiary. RESTRICTIONS ON DIVIDENDS The Indenture provides that the Company will not, and will not permit any Subsidiary of the Company to, directly or indirectly, (1) declare or pay any dividend or make any distribution, in cash or otherwise, in respect of any shares of Capital Stock of the Company or to the holders of Capital Stock of the Company as such (other than dividends or distributions payable in shares of Capital Stock of the Company (other than Redeemable Stock)) or (2) purchase, redeem or otherwise acquire or retire for value any of the Capital Stock of the Company or options, warrants or other rights to acquire any such Capital Stock, other than acquisitions of Capital Stock or such options, warrants or other rights by any Subsidiary of the Company from the Company (any such transaction included in clause (1) or (2), a "Restricted Payment") if (i) at the time of such Restricted Payment and after giving effect thereto, (a) an Event of Default shall have occurred and be continuing or (b) the Consolidated Net Worth of the Company shall be less than $750 million; or if (ii) after giving effect to such Restricted Payment, the aggregate amount expended subsequent to November 1, 1991, for all such Restricted Payments (the amount of any Restricted Payment, if other than cash, to be the fair market value of such payment as determined by the Board of Directors of the Company, whose reasonable determination shall be conclusive and evidenced by a Board Resolution) exceeds the algebraic sum of (w) a number calculated as follows: (A) if the aggregate Consolidated Net Income of the Company earned on a cumulative basis during the period subsequent to September 30, 1991 through the end of the last fiscal quarter that is prior to the declaration of any such dividend or distribution or the giving of notice of such purchase, redemption or other acquisition or retirement and for which such financial information is then available, is a positive number, then 100% of such positive number, and (B) if the aggregate Consolidated Net Income of the Company earned on a cumulative basis during the period subsequent to September 30, 1991 through the end of the last fiscal quarter that is prior to the declaration of any such dividend or distribution or the giving of notice of such purchase, redemption or other acquisition or retirement and for which such financial information is then available, is a negative number, then 100% of such negative number, (x) the aggregate net cash proceeds received by the Company from the issuance and sale, other than to a Subsidiary of the Company, subsequent to November 1, 1991, of Capital Stock (including Capital Stock issued upon the conversion of, or in exchange for, securities other than Capital Stock and options, warrants or other rights to acquire Capital Stock, but excluding Redeemable Stock), (y) the aggregate net cash proceeds originally received by the Company from the issuance and sale, other than 76 to a Subsidiary of the Company, of Indebtedness of the Company that is converted into Capital Stock of the Company subsequent to November 1, 1991, and (z) $300 million; PROVIDED, HOWEVER, that the retirement of any shares of the Company's Capital Stock by exchange for, or out of the proceeds of the substantially concurrent sale of, other shares of Capital Stock of the Company other than Redeemable Stock shall not constitute a Restricted Payment. If all of the conditions to the declaration of a dividend or distribution that are described above are satisfied at the time such dividend or distribution is declared, then such dividend or distribution may be paid or made within sixty days after such declaration even if the payment of such dividend, the making of such distribution or the declaration thereof would not have been permitted at any time after such declaration. LIMITATION ON FUTURE LIENS AND GUARANTIES Pursuant to the terms of the Indenture, if the Company or any Subsidiary of the Company shall create, incur, assume or suffer to exist any Lien, upon any of the assets of the Company or a Subsidiary of the Company other than upon the Collateral (whether such assets are owned at November 1, 1991 or thereafter acquired) as security for (1) any Indebtedness or other obligation (whether unconditional or contingent) of the Company that ranks PARI PASSU with the Notes or any Indebtedness or other obligation (whether unconditional or contingent) of a Subsidiary of the Company, the Company will secure or will cause such Subsidiary to guarantee and secure the Outstanding Notes equally and ratably with (or, at the option of the Company, prior to) such Indebtedness or other obligation, so long as such Indebtedness or other obligation shall be so secured, or (2) any Subordinated Indebtedness, the Company will secure the Outstanding Notes prior to such Subordinated Indebtedness, so long as such Subordinated Indebtedness shall be so secured; PROVIDED, HOWEVER, that this covenant does not apply in the case of Permitted Liens or Liens granted by any Unrestricted Subsidiary to secure Indebtedness or other obligations of itself or of any Person other than the Company and its Restricted Subsidiaries. In addition, pursuant to the terms of the Indenture, the Company will not guarantee the Indebtedness of any Subsidiary of the Company and will not permit any such Subsidiary or Seminole to guarantee (i) any Indebtedness of the Company that ranks PARI PASSU with the Notes, (ii) any Indebtedness of a Subsidiary of the Company or (iii) any Subordinated Indebtedness; PROVIDED, HOWEVER, that this paragraph does not apply to (1) any guaranty by a Subsidiary if such Subsidiary also guarantees the Notes on a PARI PASSU basis with respect to guaranties of Indebtedness described in clauses (i) and (ii) and on a senior basis with respect to guaranties of Indebtedness described in clause (iii); (2) any guaranty existing on November 1, 1991 or any extension or renewal of such guaranty to the extent such extension or renewal is for the same or a lesser amount; (3) any guaranty which constitutes Indebtedness permitted by clause (v) or (vi) of the definition of Permitted Indebtedness granted by a Person permitted to incur such Indebtedness; (4) any guaranty by the Company of Indebtedness of a Restricted Subsidiary, PROVIDED that (A) incurrence of such Indebtedness of the Restricted Subsidiary is not prohibited by the Indenture and (B) (x) such guaranty constitutes Indebtedness of the Company incurred as Permitted Indebtedness pursuant to clause (vii) or (viii) of the definition of Permitted Indebtedness (it being understood that, for purposes of determining Permitted Indebtedness, any such guaranty shall be deemed to constitute Indebtedness separate from, and, in addition to, Indebtedness of a Restricted Subsidiary which is so guaranteed) or (y) immediately prior to and (on a pro forma basis) after granting such guaranty, the Company would be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) under the restrictions described in "Limitation on Future Incurrence of Indebtedness" above; (5) any guaranty by an Unrestricted Subsidiary of Indebtedness or other obligations of any Person other than the Company and its Restricted Subsidiaries; (6) any guaranty by the Company or any Subsidiary or Seminole of Indebtedness or other obligations constituting Indebtedness permitted by clause (i)(a) of the definition of Permitted Indebtedness in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility, but without duplication with respect to commitments for loans the use of proceeds of which is restricted to repayment of other Indebtedness under the Credit Agreements) as of November 1, 1991, PLUS $250 million and LESS the proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time that are applied to repay Indebtedness under the Credit 77 Agreements); (7) any guaranty by the Company of Indebtedness of any Restricted Subsidiary outstanding on November 1, 1991 which is not subordinated to any Indebtedness of such Restricted Subsidiary, and any renewal extension or refinancing of such Indebtedness permitted by the Indenture; (8) any guaranty by the Company of Indebtedness of any Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof, PROVIDED that the incurrence of such Indebtedness of such Restricted Subsidiary is not prohibited by the Indenture; (9) any guaranty by a Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof of the Indebtedness of any of its Subsidiaries that is a Restricted Subsidiary and that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof, PROVIDED that incurrence of such Indebtedness of such Restricted Subsidiary is not prohibited by the Indenture; (10) any guaranty by the Company or a Subsidiary of the Company of Indebtedness or other obligations in a principal amount not exceeding $250,000; (11) any guaranty in the form of an endorsement of negotiable instruments for deposit or collection and similar transactions; (12) any guaranty arising under or in connection with performance bonds, indemnity bonds, surety bonds or commercial letters of credit not exceeding $25 million in aggregate principal amount from time to time outstanding; (13) any guaranty by a Subsidiary of the Company of Indebtedness or other obligations of another Subsidiary in effect at the time of such guarantor becoming a Subsidiary and not created in contemplation thereof; or (14) any guaranty by the Company or a Restricted Subsidiary of any Interest Swap Obligation, Currency Agreement or Commodities Agreement relating to Indebtedness that is guaranteed pursuant to another clause of this paragraph. LIMITATION ON ASSET DISPOSITIONS The Indenture provides that (i) the Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Disposition at least equal to the fair market value for the assets sold or otherwise disposed of (which shall be determined in good faith (x) in the case of dispositions of assets having a fair market value of $10 million or more, by the Board of Directors of the Company, whose reasonable determination shall be conclusive and evidenced by a Board Resolution, or (y) in the case of dispositions of assets having a fair market value of less than $10 million but not less than $5 million, an Officer of the Company, whose reasonable determination shall be conclusive and evidenced by a certificate of such Officer) and (ii) the Company will apply the aggregate net proceeds in excess of $300 million received by the Company or any Restricted Subsidiary from all Asset Dispositions occurring subsequent to November 1, 1991 (but excluding for purposes of this clause (ii), whether before or after the receipt of net proceeds in excess of $300 million, (1) the net proceeds of any Asset Disposition or series of related Asset Dispositions where the net proceeds are less than $5 million and (2) the first $25 million of net proceeds in each fiscal year without taking into account any amount excluded pursuant to (1)) as follows: (a) to the payment or prepayment of any Senior Indebtedness within six months of such Asset Disposition, or (b) to investment in the business of the Company and its Restricted Subsidiaries (including, without limitation, by acquiring equity, other than Redeemable Stock, of the transferee of such Asset Disposition) within six months of such Asset Disposition or, if such investment is with respect to a project to be completed within a period greater than six months from such Asset Disposition, then within the period of time necessary to complete such project; PROVIDED, HOWEVER, that (x) in the case of applications contemplated by clause (b), the Board of Directors has, within such six-month period, adopted in good faith a resolution committing such excess proceeds to such investment, (y) except as provided in the next sentence, none of such excess proceeds shall be used to make any Restricted Payment or any payment in respect of Subordinated Indebtedness and (z) to the extent not applied in accordance with clauses (a) or (b) above, or if after being so applied there remain excess net proceeds in an amount greater than $10 million, the Company shall make a pro rata offer to all Holders to purchase Notes at 100% of principal amount, plus accrued and unpaid interest to the Asset Disposition Payment Date (as defined below), up to an aggregate principal amount equal to such excess net proceeds (the "Asset Disposition Offer Amount"). If after being applied in accordance with clauses (a), (b) and (z) above there remain excess net proceeds, the Company will apply such excess net proceeds to the general corporate purposes of the Company or any Subsidiary of the Company. 78 Notwithstanding the foregoing, to the extent the Company or any of its Restricted Subsidiaries receives securities or other non-cash property or assets as proceeds of an Asset Disposition (other than equity in the transferee not constituting Redeemable Stock), the Company shall not be required to make any application required by the preceding paragraph until it receives cash proceeds from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property, EXCEPT that if and to the extent the sum of all cash proceeds plus the fair market value of equity (other than Redeemable Stock) in the transferee of such Asset Disposition received at the time of such Asset Disposition is less than 70% of the fair market value of the total proceeds of such Asset Disposition (with such fair market value determined and evidenced in the same manner as stated in clause (i) of the preceding paragraph), the amount of such deficiency (the "Deficiency Amount") shall be applied as required by the preceding paragraph as if received at the time of the Asset Disposition. Any amounts deferred pursuant to the preceding sentence shall be applied in accordance with the preceding paragraph when cash proceeds are thereafter received from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property; PROVIDED, HOWEVER, that the Company shall not be required to apply with respect to any equity interest in a transferee an amount exceeding the fair market value attributable to such equity interest at the time of the Asset Disposition; and PROVIDED, FURTHER, that if a Deficiency Amount was applied pursuant to the exception contained in the preceding sentence, then once the cumulative amount of applications made pursuant to the preceding paragraph and this paragraph (including any Deficiency Amounts) equals 100% of the fair market value of the total proceeds of the Asset Disposition at the time of such Asset Disposition, cash proceeds thereafter received from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property shall not be required to be applied in accordance with the preceding paragraph except to the extent such cash proceeds exceed the Deficiency Amount. An offer to purchase Notes required to be made pursuant to this covenant is an "Asset Disposition Offer" and the date on which the purchase of Notes relating to any such Asset Disposition Offer is to be made is an "Asset Disposition Payment Date." Notice of an Asset Disposition Offer shall be mailed on behalf of the Company by the Trustee to all Holders of Notes at their last registered addresses not less than 30 days nor more than 60 days before the Asset Disposition Payment Date, which shall be a date not more than 210 days after the Asset Disposition giving rise to such Asset Disposition Offer. The Asset Disposition Offer shall remain open from the time of the mailing of such notice until not more than five Business Days before the Asset Disposition Payment Date. On the Asset Disposition Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Asset Disposition Offer in an aggregate principal amount equal to the Asset Disposition Offer Amount or such lesser amount of Notes as shall have been tendered, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted, and (iii) deliver or cause to be delivered to the Trustee, Notes so accepted together with an Officer's Certificate stating the Notes or portions thereof accepted by the Company. If the aggregate principal amount of Notes tendered exceeds the Asset Disposition Offer Amount, the Company shall select the Notes to be purchased on a PRO RATA basis to the nearest $1,000 of principal amount. The Paying Agent shall promptly mail or deliver to Holders of Notes so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered. The Company will publicly announce the results of the Asset Disposition Offer. The Company shall not make an "Asset Disposition Offer" (as defined) required under the 1991 Indenture in connection with a disposition of assets other than the Collateral unless the Company shall have made an Asset Disposition Offer in respect of the First Mortgage Notes and Senior Notes (and certain other Senior Indebtedness in accordance with the following sentence) on a PRO RATA basis (in an aggregate amount equal to the amount to be offered pursuant to the Asset Disposition Offer under the 79 1991 Indenture), the closing date of which is prior to six months after the asset disposition triggering the obligations of the Company under the 1991 Indenture. Notwithstanding the previous sentence, if on or after the date of the Indenture, the Company issues any Senior Indebtedness (including the Senior Notes or the First Mortgage Notes, as the case may be) containing a requirement that an offer be made to repurchase such Senior Indebtedness under the same circumstances and in the same manner (including the prescribed time periods hereof) provided herein, then (i) the Company may apply the Asset Disposition Offer Amount (before any adjustment pursuant to this sentence) to the pro rata purchase of First Mortgage Notes and Senior Notes tendered under the Indentures and the Senior Indebtedness tendered thereunder and (ii) the Asset Disposition Offer Amount available to repurchase the First Mortgage Notes or the Senior Notes, as the case may be, shall be reduced by the amount applied to the purchase of such Senior Indebtedness; PROVIDED that this sentence shall only apply to (i) Senior Indebtedness issued on or after the Issue Date that explicitly permits the pro rata purchase of First Mortgage Notes and Senior Notes as described in the Indenture and refers to the "Limitation on Asset Dispositions" covenant and any Indebtedness outstanding at the Issue Date that is amended to explicitly permit the PRO RATA purchase of First Mortgage Notes and Senior Notes as described therein and refers to the "Limitation on Asset Dispositions" covenant and (ii) asset dispositions not involving Collateral. In the event that the First Mortgage Notes are refinanced through a public or private offering of Indebtedness constituting debt securities and the amount of such refinancing Indebtedness is no greater than the principal amount of the First Mortgage Notes Outstanding as of the date of such refinancing, the Company need not comply with the first paragraph of this covenant in respect of an Asset Disposition involving the collateral securing such Indebtedness (other than collateral granted in respect of such Indebtedness pursuant to a negative pledge or similar provision contained in the indenture or similar instrument relating to such Indebtedness) to the extent that such compliance would constitute a default under such indenture or similar instrument. RESTRICTIONS ON MERGERS AND CONSOLIDATIONS AND SALES OF ASSETS The Indenture provides that the Company shall not consolidate with, or merge with or into any other corporation (whether or not the Company shall be the surviving corporation), or sell, assign, transfer or lease all or substantially all of its properties and assets as an entirety or substantially as an entirety to any Person or group of affiliated Persons, in one transaction or a series of related transactions, unless: (1) either the Company shall be the continuing Person or the Person (if other than the Company) formed by such consolidation or with which or into which the Company is merged or the Person (or group of affiliated Persons) to which all or substantially all the properties and assets of the Company are sold, assigned, transferred or leased is a corporation (or constitute corporations) organized under the laws of the United States of America or any State thereof or the District of Columbia and expressly assumes, by an indenture supplemental to the Indenture, all the obligations of the Company under the Notes, the Indenture and, in the case of the First Mortgage Notes, the Security Documents, including the First Mortgage Note Trustee's uninterrupted Lien (subject to Permitted Collateral Liens) in respect of the Collateral; (2) immediately before and after giving effect to such transaction or series of related transactions, no Event of Default, and no Default, shall have occurred and be continuing; (3) immediately after giving effect to such transaction or series of related transactions, on a pro forma basis, but prior to any purchase accounting adjustments resulting from the transaction or series of related transactions, the Consolidated Net Worth of the Company (or of the surviving, consolidated or transferee entity if the Company is not continuing, treating such entity as the Company for purposes of determining Consolidated Net Worth) shall be at least equal to the Consolidated Net Worth of the Company immediately before such transaction; (4) immediately after giving effect to such transaction or series of related transactions, the Company (or the surviving, consolidated or transferee entity if the Company is not continuing, but treating such entity as the Company for purposes of making such determination) would be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) immediately prior to such transaction or series of related transactions, under the covenant contained in the Indenture restricting the incurrence of Indebtedness; PROVIDED, HOWEVER, that this clause (4) shall be 80 inapplicable if (a) such transaction or series of related transactions, would result in the occurrence of a Change of Control or (b) immediately prior to giving effect to such transaction or series of related transactions, the Company would not be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) under such covenant, and immediately after giving effect to such transaction or series of related transactions, on a pro forma basis, but prior to any purchase accounting adjustments resulting from the transaction or series of related transactions, the Consolidated Interest Coverage Ratio of the Company (or the surviving, consolidated or transferee entity if the Company is not continuing, treating such entity as the Company for purposes of determining the Consolidated Interest Coverage Ratio) shall be at least equal to the Consolidated Interest Coverage Ratio of the Company immediately before such transaction or series of related transactions; and (5) the Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture comply with the Indenture and that all conditions precedent to the consummation of the transaction or series of related transactions under the Indenture have been met. Notwithstanding the foregoing, if clause (4) of the preceding sentence is inapplicable by reason of clause (b) of the proviso thereto, and at the date three months after the consummation of such transaction or series of related transactions, the rating ascribed to the Notes by Standard and Poor's Corporation or Moody's Investors Service, Inc. shall be lower than the rating ascribed to the Notes prior to the public announcement of such transaction, then the Company shall make an offer for the Notes at the same price and following the same procedures and obligations as required with respect to a Change of Control (as if such date three months after the giving effect to such transaction were the "Change of Control Date"). See "-- Limitation on Future Incurrence of Indebtedness" above and "-- Change of Control" below. If, upon any consolidation or merger, or upon any sale, assignment, transfer or lease, as provided in the preceding paragraph, any material property of the Company or any Restricted Subsidiary or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, owned immediately prior thereto, would thereupon become subject to any Lien securing any indebtedness for borrowed money of, or guaranteed by, such other corporation or Person (other than any Permitted Lien), the Company, prior to such consolidation, merger, sale, assignment, transfer or lease, will, by an indenture supplemental to the Indenture, secure the due and punctual payment of the principal of, and premium, if any, and interest on the Notes then Outstanding (together with, if the Company shall so determine, any other indebtedness of, or guaranteed by, the Company or any Restricted Subsidiary and then existing or thereafter created) equally and ratably with (or, at the option of the Company, prior to) the Indebtedness secured by such Lien. CHANGE OF CONTROL Upon the occurrence of a Change of Control (the "Change of Control Date") and subject to the requirements of the next succeeding sentence, each Holder shall have the right to require that the Company repurchase such Holder's Notes in whole or in part pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount of such Notes plus accrued and unpaid interest, if any, to the date of such repurchase. If such repurchase would constitute an event of default under Specified Bank Debt, then, prior to giving the notice to Holders provided below, the Indenture requires the Company to (1) repay in full in cash such Specified Bank Debt or (2) obtain the requisite consent of holders of such Specified Bank Debt to permit the repurchase of Notes without giving rise to an event of default under such Specified Bank Debt. After giving effect to the Offerings and the Related Transactions, approximately $ million of Specified Bank Debt is expected to be outstanding. Promptly upon satisfaction of either one of the obligations, if then applicable, described above, Company shall mail a notice to each Holder of Notes and the Trustee in respect of the Change of Control Offer (which notice shall contain all instructions and materials necessary to enable such Holders to tender Notes). All Notes tendered will be accepted for payment on a date (the "Change of Control 81 Payment Date") which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, but in any event prior to the date on which any Subordinated Indebtedness is paid pursuant to the terms of a provision similar to the Change of Control Offer covenant. On the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee Notes so accepted, together with an Officer's Certificate stating the aggregate principal amount of the Notes or portions thereof so accepted by the Company. The Paying Agent shall promptly mail or deliver to the Holder of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or make available for delivery to such Holder a new Note and equal in principal amount to any unpurchased portion of the Note surrendered. The Company will publicly announce the results of the Change of Control Offer. Whether a Change of Control has occurred depends entirely on the accumulation of common stock of the Company and on certain changes in the composition of the Company's Board of Directors. As a result, the Company can enter into certain highly leveraged transactions, including certain recapitalizations, mergers or stock repurchases, that would not result in the application of the Change of Control provisions. Because the definitions of "Change of Control" and "Acquiring Person" exclude the Company, any Subsidiary of the Company and certain members of the Stone family, certain transactions in which such entities and persons participate as beneficial owners of Common Stock (including, among others, a leveraged buyout or recapitalization) would not constitute a Change of Control. RANKING OF NOTES The payment of the principal of, interest on and any other amounts due on Subordinated Indebtedness will be subordinated in right of payment to the prior payment in full of the Senior Notes and the First Mortgage Notes. The Senior Notes and the First Mortgage Notes are senior to the Company's $150 million principal amount of 10 3/4% Senior Subordinated Notes due June 15, 1997, $125 million principal amount of 11% Senior Subordinated Notes due August 15, 1999, $230 million principal amount of 11 1/2% Senior Subordinated Notes due September 1, 1999, $200 million principal amount of 10 3/4% Senior Subordinated Debentures due April 1, 2002, $250 million principal amount of 8 7/8% Convertible Senior Subordinated Notes due July 15, 2000 and $115 million principal amount of 6 3/4% Convertible Subordinated Debentures due February 15, 2007. EVENTS OF DEFAULT AND NOTICE THEREOF The following are Events of Default under the Indenture: (1) failure to pay interest on any Note when due, continued for 30 days; (2) failure to pay the principal of (or premium, if any, on) any Note when due and payable at Maturity, upon redemption, upon repurchase pursuant to a Deficiency Offer as described under "Maintenance of Subordinated Capital Base" above, pursuant to an Asset Disposition Offer described under "Limitation on Asset Dispositions," First Mortgage Note Offer as described under "Particular Terms of the First Mortgage Notes -- Limitation on Collateral Asset Dispositions" or a Change in Control Offer as described under "Change of Control Offer" above or otherwise; (3) failure to observe or perform any other covenant, warranty or agreement contained in the Notes or in the Indenture continued for a period of 60 days after notice has been given to the Company by the Trustee or Holders of at least 25% in aggregate principal amount of the Outstanding Notes; (4) failure to pay at final maturity, or acceleration of, Indebtedness of the Company having an aggregate principal amount of not less than $25 million (or, if less, the least amount contained in any similar provision of an instrument governing any outstanding Subordinated Indebtedness of the Company, but in no event less than $10 million), unless cured within 15 days after notice has been given to the Company by the Trustee or Holders of at least 25% in aggregate principal amount of the Outstanding Notes; (5) the entering against the Company of one or more judgments or decrees involving an aggregate liability of $25 million or more unless vacated, discharged, satisfied or stayed within 30 days of the entering of such judgments or decrees; (6) certain events of bankruptcy, insolvency or reorganization relating to the Company; (7) in the case of the First Mortgage Note Indenture, the failure to observe or perform any covenant or agreement under the 82 "Limitation on Collateral Asset Dispositions" covenant and continuance of such failure for 30 days; and (8) in the case of the First Mortgage Note Indenture, (i) a default in performance or breach of any covenant or agreement contained in any Security Document which is not cured within 30 days after notice has been given to the Company by the First Mortgage Note Trustee or Holders of at least 25% of the principal amount of Outstanding First Mortgage Notes, (ii) for any reason, other than the satisfaction in full and discharge of all obligations secured thereby, to the extent permitted by the First Mortgage Note Indenture or any Security Document, any Security Document ceases to be in full force and effect, any Lien intended to be created thereby ceases to be or is not a valid and perfected Lien having the ranking or priority contemplated thereby or any Person (other than the Trustee and the Holders or the Company) obtains any interest in the Collateral or any part thereof, except for Permitted Collateral Liens and continuance of such condition for 30 days, or (iii) the Company asserts in writing that any Security Document has ceased to be or is not in full force and effect, in contravention of the First Mortgage Note Indenture. The Indenture provides that the Trustee shall, within 30 days after the occurrence of any Default or Event of Default give the Holders of Notes notice of all uncured Defaults or Events of Default known to it (the term "Default" to include the events specified above without grace or notice); PROVIDED, HOWEVER, that, except in the case of an Event of Default or a Default in payment on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or directors or responsible officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Notes. If an Event of Default (other than due to event of bankruptcy, insolvency or reorganization) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Notes by notice in writing to the Company (and to the Trustee if given by the Holders of at least 25% in aggregate amount of Notes), may declare the unpaid principal of and accrued interest to the date of acceleration on all the Outstanding Notes to be due and payable immediately and, upon any such declaration, the Notes shall become immediately due and payable. If an Event of Default occurs due to bankruptcy, insolvency or reorganization, all unpaid principal (without premium) of and accrued interest on the Outstanding Notes IPSO FACTO becomes immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Notes. Any such declaration with respect to Notes may be annulled and past Events of Default and Defaults (except, unless theretofore cured, an Event of Default or a Default, in payment of principal of or interest on the Notes) may be waived by the Holders of at least two-thirds of the principal amount of the Outstanding Notes upon the conditions provided in the Indenture. The Indenture provides that the Company will periodically file statements with the Trustee regarding compliance by the Company with certain of the covenants thereof and specifying any Event of Default or Defaults in performing such covenants of which the signers may have knowledge. MODIFICATION OF INDENTURES; WAIVER The Indenture may be modified by the Company and the Trustee without the consent of any Holders with respect to certain matters, including (i) to cure any ambiguity, defect or inconsistency or to correct or supplement any provision which may be inconsistent with any other provision of the Indenture and (ii) to make any change that does not materially adversely affect the interests of any Holder of Notes. In addition, under the Indenture, certain rights and obligations of the Company and the rights of Holders of the Notes may be modified by the Company and the Trustee with the written consent of the Holders of at least two-thirds of the principal amount of the Outstanding Notes; but no extension of the maturity of any Notes, reduction in the interest rate or extension of the time for payment of interest, change in the optional redemption or repurchase provisions in a manner adverse to any Holder of Notes, other 83 modification in the terms of payment of the principal of or interest on any Notes or reduction of the percentage required for modification, will be effective against any Holder of any Outstanding Note without his consent. The Holders of at least two-thirds in principal amount of the Outstanding Notes may on behalf of the Holders of all Notes waive compliance by the Company with certain restrictive covenants of the Indenture. The Holders of at least two-thirds in principal amount of the Outstanding Notes may on behalf of the Holders of all Notes waive any past Event of Default or Default under the Indenture, except an Event of Default or a Default in the payment of the principal of or premium, if any, or any interest on any Note or in respect of a provision which under the Indenture cannot be modified or amended without the consent of the Holder of each Outstanding Note. SATISFACTION AND DISCHARGE OF INDENTURES; DEFEASANCE The Company may terminate its substantive obligations in respect of the Notes by delivering all Outstanding Notes to the Trustee for cancellation and paying all sums payable by it on account of principal of and interest on all Notes. The Company may terminate its substantive obligations in respect of the Notes (except for its obligations to pay the principal of (and premium, if any, on) and the interest on the Notes) by (i) depositing with the Trustee under the terms of an irrevocable trust agreement, money or United States Government Obligations sufficient to pay all remaining indebtedness on the Notes, (ii) delivering to the Trustee either an Opinion of Counsel or a ruling directed to the Trustee from the Internal Revenue Service to the effect that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and termination of obligations, and (iii) complying with certain other requirements set forth in the Indenture. In addition, the Company may terminate all of its substantive obligations in respect of the Notes (including its obligations to pay the principal of (and premium, if any, on) and interest on the Notes) by (i) depositing with the Trustee under the terms of an irrevocable trust agreement, money or United States Government Obligations sufficient to pay all remaining indebtedness on the Notes, (ii) delivering to the Trustee either a ruling directed to the Trustee from the Internal Revenue Service to the effect that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and termination of obligations or an Opinion of Counsel, based upon such a ruling or a change in the applicable federal tax law since the date of the Indenture, to such effect, and (iii) complying with certain other requirements set forth in the Indenture. THE TRUSTEES The Bank of New York will be the Trustee under the Senior Note Indenture. The Company maintains normal commercial banking relations with The Bank of New York, which may also be a lender under the Credit Agreement and which is the trustee under other indentures of the Company. Norwest Bank Minnesota, National Association will be the Trustee under the First Mortgage Notes Indenture. Norwest Bank Minnesota is the trustee under other indentures of the Company. CERTAIN DEFINITIONS For purposes of the Indenture, certain defined terms have the following meanings: "ACQUIRING PERSON" means any Person or group (as defined in Section 13(d)(3) of the Exchange Act) who or which, together with all affiliates and associates (as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner of shares of common stock of the Company having more than 50% of the total number of votes that may be cast for the election of directors of the Company; PROVIDED, HOWEVER, that an Acquiring Person shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or any Subsidiary of the Company or any entity holding common stock of the Company for or pursuant to the terms of any such plan, (iv) any descendant of Joseph Stone or the spouse of any such descendant, the estate of any such descendant or the spouse of any such descendant, any trust or other arrangement for the benefit of any such descendant or the spouse of any such descendant or any charitable organization established by any such descendant or the spouse of any such descendant (collectively, the "Stone Family"), or (v) any 84 group which includes any member or members of the Stone Family and a majority of the common stock of the Company held by such group is beneficially owned by such member or members. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of common stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to more than 50% or more of the common stock of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall become the beneficial owner of more than 50% or more of the common stock of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the beneficial owner of any additional shares of common stock of the Company, then such Person shall be deemed to be an "Acquiring Person." "ASSET DISPOSITION" means any sale, transfer, sale-leaseback or other disposition of (i) shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares) or (ii) property or assets of the Company or any Restricted Subsidiary (other than a sale, transfer, sale-leaseback or other disposition of Receivables and other assets or property described in clause (vi) of the definition of Permitted Liens pursuant to a Receivables sale constituting Indebtedness pursuant to clause (ii) of the definition thereof); PROVIDED, HOWEVER, that an Asset Disposition shall not include any sale, transfer or other disposition (a) of Collateral, (b) by a Restricted Subsidiary to the Company or to another Restricted Subsidiary or by the Company to a Restricted Subsidiary, (c) of defaulted Receivables for collection or (d) in the ordinary course of business, but shall include any sale, transfer, sale-leaseback or other disposition by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary of the shares, property or assets referred to in clauses (i) and (ii). The designation by the Company of a Subsidiary of the Company as an "Unrestricted Subsidiary" shall constitute an Asset Disposition of such Subsidiary's property and assets net of its liabilities, unless the transfer of property and assets to such Subsidiary has previously constituted an Asset Disposition. "CAPITALIZED LEASE OBLIGATION" means, in respect of any Person, an obligation to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles. "CHANGE OF CONTROL" means any event by which (i) an Acquiring Person has become such or (ii) Continuing Directors cease to comprise a majority of the members of the Board of Directors of the Company. "CONSOLIDATED AMORTIZATION EXPENSE" means, for any period, the amortization expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means, for any period, (a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) Consolidated Income Tax Expense, (iv) Consolidated Depreciation Expense, (v) Consolidated Amortization Expense and (vi) other non-cash items reducing Consolidated Net Income, MINUS (b) non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in accordance with GAAP. "CONSOLIDATED DEPRECIATION EXPENSE" means, for any period, the depreciation expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED FREE CASH FLOW" means, for any period, (a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Depreciation Expense and (iii) Consolidated Amortization Expense, MINUS (b) the sum of (i) Restricted Payments (as defined under the subsection entitled "Dividend Restrictions" above) during such period, (ii) net reduction during such period in Indebtedness of the Company and its Restricted Subsidiaries (other than as a result of Asset Dispositions, Collateral 85 Asset Dispositions or Collateral Loss Events) and (iii) the excess (but not the deficit) of capital expenditures of the Company and its Restricted Subsidiaries for such period not financed pursuant to clause (vi) of the definition of Permitted Indebtedness over Consolidated Depreciation Expense. "CONSOLIDATED INCOME TAX EXPENSE" means, for any period, the aggregate of the income tax expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED INTEREST COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated Cash Flow Available for Fixed Charges to (ii) Consolidated Interest Expense. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest expense (including the interest component of all Capitalized Lease Obligations and the earned discount or yield with respect to a Receivables sale constituting Indebtedness) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that, with respect to revolving credit, revolving Receivables purchases or other similar arrangements, the interest expense in respect thereof for any period shall be, the pro forma interest expense attributable to all amounts committed during such period under such revolving credit, revolving Receivables purchases or other similar arrangements, whether or not such amounts were actually outstanding during such period, in accordance with the terms thereof, in each case on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Company and its Restricted Subsidiaries on a consolidated basis for such period taken as a single accounting period, determined in accordance with GAAP; PROVIDED, HOWEVER, that: (a) there shall be excluded therefrom (i) the net income (or loss) of any Person (other than the Company) which is not a Restricted Subsidiary, except to the extent of the amount of dividends or other distributions actually paid in cash or tangible property or tangible assets (such property or assets to be valued at their fair market value net of any obligations secured thereby) to the Company or any of its Restricted Subsidiaries by such Person during such period, (ii) EXCEPT to the extent includible pursuant to the foregoing clause (i), the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or that Person's property or assets are acquired by the Company or any of its Restricted Subsidiaries, (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary (other than restrictions contained in the instruments relating to the 12 1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest) and (iv) the excess (but not the deficit), if any, of (x) any gain which must be treated as an extraordinary item under GAAP or any gain realized upon the sale or other disposition of any asset that is not sold in the ordinary course of business or of any Capital Stock of a Restricted Subsidiary over (y) any loss which must be treated as an extraordinary item under GAAP or any loss realized upon the sale or other disposition of any asset that is not sold in the ordinary course of business or of any Capital Stock of a Restricted Subsidiary; and (b) there shall be included therein the amount of cash realized by the Company or any of its Restricted Subsidiaries during such period on account of dividends or other distributions theretofore paid in other than cash or tangible property or tangible assets by a Person which is not a Restricted Subsidiary. "CONSOLIDATED NET WORTH" means the amount which at any date of determination, in conformity with GAAP consistently applied, would be set forth under the caption "stockholders' equity" (or any like caption) on the consolidated balance sheet of the Company and its Restricted Subsidiaries, exclusive of amounts attributable to Redeemable Stock (at such time as no Indebtedness is outstanding under the 1991 Indenture, excluding the effects of foreign currency translation adjustments). If the Company has changed one or more of the accounting principles used in the preparation of its financial statements because of a change mandated by the Financial Accounting Standards Board or its successor, then 86 Consolidated Net Worth shall mean the Consolidated Net Worth the Company would have had if the Company had continued to use those generally accepted accounting principles employed on November 1, 1991. "CONTINENTAL GUARANTY" means the Guaranty dated as of October 7, 1983 between The Continental Group, Inc. and the Company, as amended from time to time. "CONTINUING DIRECTOR" means any member of the Board of Directors, while such person is a member of such Board of Directors, who is not an Acquiring Person, or an Affiliate or associate of an Acquiring Person or a representative of an Acquiring Person or of any such Affiliate or associate and who (a) was a member of the Board of Directors prior to November 1, 1991, or (b) subsequently became or becomes a member of such Board of Directors and whose nomination for election or election to such Board of Directors was or is recommended or approved by resolution of a majority of the Continuing Directors or who was or is included as a nominee in a proxy statement of the Company distributed when a majority of such Board of Directors consists of Continuing Directors. "CREDIT AGREEMENTS" means (i) the credit agreement, dated as of March 1, 1989, by and among the Company, the financial institutions signatory thereto, Bankers Trust Company, as agent for such financial institutions, and Citibank, N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for such financial institutions, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time, (ii) the credit agreement, dated as of March 1, 1989, by and among Stone Canada, the financial institutions signatory thereto, and Bankers Trust Company, as agent for such financial institutions, and Citibank, N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for such financial institutions, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time and (iii) the revolving credit agreement, dated as of March 1, 1989, by and among Stone Canada, the financial institutions signatory thereto, BT Bank of Canada, as administrative agent, The Bank of Nova Scotia, as payment agent, and Bankers Trust Company, as collateral agent, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time. "GAAP" means generally accepted accounting principles, as in effect as of November 1, 1991 in the United States of America, set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as is approved by a significant segment of the accounting profession. "INDEBTEDNESS" means (without duplication), with respect to any Person, (i) any obligation of such Person to pay the principal of, premium, if any, interest on, penalties, reimbursement or indemnification amounts, fees, expenses or other amounts relating to any indebtedness, and any other liability, contingent or otherwise, of such Person (A) for borrowed money or the deferred purchase price of property or services (excluding trade payables and payables, indebtedness, obligations and other liabilities of the Company to any Restricted Subsidiary or of any Restricted Subsidiary to the Company or to any other Restricted Subsidiary), whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof; (B) for any letter of credit for the account of such Person supporting other obligations of such Person described in this definition; or (C) for the payment of money relating to a Capitalized Lease Obligation; (ii) the unrecovered investment of a purchaser (other than the Company or any of its Restricted Subsidiaries) of such Person's Receivables pursuant to a Receivables purchase facility or otherwise (whether or not characterized as a sale of such Receivables or a secured loan, but excluding any disposition of Receivables in connection with a disposition of fixed assets or a business of such Person and any disposition of defaulted Receivables for collection), together with any obligation of such Person to pay any discount, interest, fees, indemnification amounts, penalties, recourse on account of the uncollectability of Receivables, expenses or other amounts in connection therewith; (iii) any obligation of another Person (other than a Restricted Subsidiary of such Person) of the kind described in 87 the preceding clause (i) or (ii), which the Person has guaranteed or which is otherwise its legal liability; (iv) any obligation of another Person (other than a Restricted Subsidiary of such Person) of the kind described in the preceding clause (i) or (ii) secured by a Lien to which the property or assets of such Person are subject, whether or not the obligation secured thereby shall have been assumed by or shall otherwise be such Person's legal liability; and (v) any renewals, extensions or refundings of any of the foregoing described in any of the preceding clauses (i), (ii), (iii) and (iv). The "amount" or "principal amount" of Indebtedness of any Person at any date, as used herein, shall be the outstanding principal amount at such date of all unconditional Indebtedness, the maximum principal amount of any contingent Indebtedness or the unrecovered purchaser's investment in a sale of Receivables, in each case at such date and without taking into account any premium, interest, penalties, reimbursement or indemnification amounts, fees, expenses or other amounts (other than principal or unrecovered purchaser's investment) in respect thereof; PROVIDED, HOWEVER, that (y) with respect to Indebtedness described in clause (iv) above, the amount of Indebtedness shall be the lesser of (a) the amount of the Indebtedness of such other Person that is secured by the property or assets of such Person and (b) the fair market value of the property or assets securing such Indebtedness, and (z) with respect to revolving credit, revolving Receivables purchases or other similar arrangements, the amount of Indebtedness thereunder shall be the amounts of such commitments as of the date of determination. "INSURANCE PROCEEDS" means any payment, proceeds or other amounts received at any time by the Company or any of its Restricted Subsidiaries under any insurance policy as compensation in respect of a Casualty, PROVIDED that proceeds received by the Company from business interruption insurance shall not constitute Insurance Proceeds. "ISSUE DATE" means October , 1994. "LIEN" means any mortgage, pledge, security interest, adverse claim (as defined in Section 8.302(2) of the New York Uniform Commercial Code), encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code 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). "NEW CREDIT AGREEMENT" means the credit agreement, dated as of October , 1994, by and among the Company, the financial institutions signatory thereto and Bankers Trust Company, as agent for such financial institutions, as amended, modified, refinanced or extended from time to time. "ORDINARY COURSE OF BUSINESS LIENS" means, with respect to any Person, (i) Liens for taxes, assessments, governmental charges, levies or claims not yet delinquent or being contested in good faith; (ii) statutory Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business (including the construction of facilities) or deposits to obtain the release of such Liens; (iii) Liens in connection with workers' compensation, unemployment insurance and other similar legislation; (iv) zoning restrictions, licenses, easements, rights-of-way and other similar charges or encumbrances or restrictions not interfering in any material respect with the business of such Person or any of its Subsidiaries; (v) Liens securing such Person's obligations with respect to commercial letters of credit; (vi) Liens to secure public or statutory obligations of such Person; (vii) judgment and attachment Liens against such Person not giving rise to a Default under the Notes or Liens created by or existing from any litigation or legal proceeding against such Person which is currently being contested in good faith by such Person in appropriate proceedings; 88 (viii) leases or subleases granted to other Persons or existing on property acquired by such Persons; (ix) Liens encumbering property or assets of such Person under construction arising from progress or partial payments; (x) Liens encumbering customary initial deposits and margin accounts and other Liens securing obligations arising out of Interest Swap Obligations, Currency Agreements and Commodities Agreements, in each case of the type typically securing such obligations; PROVIDED, HOWEVER, that if such Interest Swap Obligations, Currency Agreements and Commodities Agreements relate to Indebtedness not incurred in violation of the Indenture, such Lien may also cover the property and assets securing the Indebtedness to which such Interest Swap Obligations, Currency Agreements and Commodities Agreements relate; (xi) Liens encumbering deposits made to secure obligations arising from public, statutory, regulatory, contractual or warranty requirements or obligations of such Person or its Subsidiaries (not constituting Indebtedness); (xii) Liens arising from filing UCC financing statements regarding leases or consignments; (xiii) purchase money Liens securing payables (not constituting Indebtedness) arising from the purchase by such Person or any of its Affiliates of any equipment or goods in the ordinary course of business; (xiv) Liens arising out of consignment or similar arrangement for the sale of goods entered into by such Person or any of its Subsidiaries in the ordinary course of business; (xv) Liens in the ordinary course of business granted by such Person to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, or progress payments, performance and return-of-money bonds and other similar obligations (not constituting Indebtedness); (xvi) Liens in favor of collecting banks constituting a right of set-off, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary on deposit with or in the possession of such bank; and (xvii) Liens in favor of customs and revenue authorities. "PERMITTED EXISTING INDEBTEDNESS OF AN ACQUIRED PERSON" means Indebtedness of any Person (which may be assumed or guaranteed by, or may otherwise become the legal liability of, the Company or any Restricted Subsidiary with or into which such Person is merged or consolidated) existing at the time such Person becomes a Restricted Subsidiary, or is merged with or into or consolidated with the Company or one of its Restricted Subsidiaries, so long as such Indebtedness was not created in anticipation of or as a result of such Person becoming a Restricted Subsidiary or of such merger or consolidation, and any Indebtedness to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, such Indebtedness (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that the proceeds of such Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Indebtedness. "PERMITTED INDEBTEDNESS" means (i)(a) any Indebtedness in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility thereunder) as of November 1, 1991 PLUS $250 million, and LESS the sum of (x) the proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time that is applied to repay Indebtedness under the Credit Agreements and (y) the proceeds from the sale of the First Mortgage Notes and the Senior Notes; (b) any Indebtedness in a principal amount not exceeding 80% of the aggregate face amount of Receivables of the Company and its Restricted Subsidiaries (measured as of 89 the latest date as of which information regarding Receivables is available) and constituting Indebtedness described in clause (ii) of the definition of Indebtedness or outstanding pursuant to any other revolving credit facility; (c) any Indebtedness under the 1991 Indenture issued prior to the date hereof, the proceeds of which have been used to repay Indebtedness under the Credit Agreements within five business days after such issuance (and any subsequent Indebtedness the proceeds of which are used to refinance such Indebtedness) and (d) the First Mortgage Notes and the Senior Notes (and any subsequent Indebtedness the proceeds of which are used to refinance such Indebtedness); PROVIDED, HOWEVER, that: (1) the aggregate principal amount permitted to be outstanding under clause (a) shall be reduced by the aggregate amount of any repayments or prepayments of any Senior Indebtedness (other than the First Mortgage Notes, the Senior Notes and Indebtedness issued under the 1991 Indenture) out of the proceeds of Asset Dispositions as described in and required by "Limitation on Asset Dispositions" above after November 1, 1991, and, thereafter, shall be increased if, at the end of the fourth consecutive complete fiscal quarter after the initial reduction pursuant to this clause (1) or at any anniversary of the end of such fourth fiscal quarter, the Consolidated Free Cash Flow of the Company for the preceding four quarters has been zero or greater, in which event the amount of the increase shall be the amount by which the consolidated capital expenditures of the Company and its Restricted Subsidiaries not financed by Indebtedness referred to in clause (vi) of this definition during such four-quarter period exceeds Consolidated Depreciation Expense for such period (provided any such increase shall be made only to the extent all such reductions occurring prior to the four fiscal quarters for which such calculation of Consolidated Free Cash Flow has been made exceed all prior increases pursuant to this clause (1)); (2) (A) the aggregate amount permitted to be incurred under clause (a) shall be reduced by the principal amount outstanding under the New Credit Agreement on the Issue Date net of subsequent reductions thereof, and (B) the aggregate amount permitted to be incurred under clause (b) shall be reduced by the principal amounts outstanding under each of the Pledge and Administration Agreement, dated as of August 15, 1991, between Stone Financial Corporation and Castlewood Funding Corporation (the "Castlewood Agreement") and the Pledge and Administrative Agreement, dated as of August 18, 1992, between Stone Fin II Receivables Corporation and South Shore Funding Corporation on the Issue Date net of subsequent reductions thereof; (3) the Permitted Indebtedness contemplated by this clause (i) may be incurred by the Company and, in the case of Permitted Indebtedness constituting Indebtedness under clause (ii) of the definition of Indebtedness, by the Company or any Restricted Subsidiary; and (4) any Restricted Subsidiary in the Stone Canada Group may incur, assume or guarantee any Indebtedness under clauses (i)(a) and (i)(b) above under any revolving credit facilities of Restricted Subsidiaries in the Stone Canada Group entered into pursuant to this clause (i), for which the aggregate amount committed thereunder does not exceed an amount not exceeding $200 million, to finance the working capital of Restricted Subsidiaries in the Stone Canada Group; (ii) Permitted Subordinated Indebtedness; (iii) Permitted Refinancing Indebtedness; (iv) Permitted Stone Canada Indebtedness; (v) Permitted Existing Indebtedness of an Acquired Person; (vi) Indebtedness incurred for the purpose of acquiring Capital Stock of another Person, or assets comprising a business or line of business or intangible assets or acquiring, constructing or improving fixed assets, in each case related primarily to, or used in connection with, the paper or forest products businesses and which (a) constitutes all or a portion of (but not more than) the purchase price of such Capital Stock or assets (such purchase price including any Indebtedness assumed or repaid in connection with such purchase) or the cost of construction or improvement of such assets (together with any transaction costs relating to such purchase, construction or improvement), (b) is incurred prior to, at the 90 time of or within 270 days after the acquisition, construction or improvement of such assets for the purpose of financing the purchase price of such Capital Stock or assets or the cost of construction or improvement thereof (together with any transaction costs relating to such purchase, construction or improvement) and (c) is the direct or guaranteed obligation of any of (1) the Company, (2) a Restricted Subsidiary formed for the purpose of acquiring such Capital Stock or assets (and having no material assets other than assets to be used for such acquisition), (3) any Person comprised within the acquired assets or (4) in the case of the construction or improvement of fixed assets, the Restricted Subsidiary which will own such assets, or any extension, renewal or refinancing of such Indebtedness; PROVIDED, HOWEVER, that the amount so extended, renewed or refinanced shall not exceed the principal amount outstanding on the date of such extension, renewal or refinancing, PLUS costs incurred in connection with any such extension, renewal or refinancing (it being understood that any fixed assets included within capital expenditures which increased Indebtedness permitted under clause (i) of the definition of Permitted Indebtedness pursuant to clause (1) to the proviso to such clause may not be financed pursuant to this clause (vi)); (vii) Indebtedness in an aggregate principal amount not to exceed $300 million at any one time outstanding; PROVIDED, HOWEVER, that no Restricted Subsidiary may incur Indebtedness under this clause (vii) to the extent that after the incurrence of such Indebtedness the sum (without duplication) of (x) all Indebtedness of Restricted Subsidiaries incurred under this clause (vii), PLUS (y) Indebtedness and other obligations then secured pursuant to clause (xii) of the definition of Permitted Liens, PLUS (z) the amount of Indebtedness that was not incurred pursuant to clause (i)(b) of this definition and is secured pursuant to clause (vi) of the definition of Permitted Liens shall exceed $300 million; (viii) Indebtedness of the Company in an aggregate principal amount not to exceed $250 million at any one time outstanding; (ix) any Interest Swap Obligation, Currency Agreement or Commodities Agreement relating to Indebtedness that was not incurred in violation of the terms of the Indenture; and (x) Indebtedness to finance an increase in the working capital of any Person or Persons that (a) are organized under the laws of a jurisdiction other than the United States or any subdivision thereof and (b) became Restricted Subsidiaries after November 1, 1991; PROVIDED, HOWEVER, that Indebtedness pursuant to this clause (x) is the obligation of the Company or such Person or Persons. "PERMITTED LIENS" means, with respect to any Person, (i) Ordinary Course of Business Liens; (ii) Liens upon property or assets acquired or constructed by such Person or any Affiliate after November 1, 1991 or constituting improvements after November 1, 1991 to property or assets; PROVIDED, HOWEVER, that (a) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance or refinance, the purchase price (such purpose price including any Indebtedness assumed or repaid in connection with such purchase) or cost of construction of the property or assets subject thereto or of such improvement, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such purchase price or cost (together with any transaction costs relating to such purchase, construction or improvement), (c) such Lien does not extend to or cover any other property or assets other than such property, assets, improvement and any other improvements thereon (or, in the case of any construction or improvement, any substantially unimproved real property on which the property is constructed or the improvement is located) and (d) the occurrence of such Indebtedness is permitted by clause (vi) of the definition of Permitted Indebtedness; (iii) Liens securing obligations with respect to letters of credit (other than commercial letters of credit) to the extent the obligations supported by such letters of credit may be secured without violating the limitation on liens described under "Limitation on Future Liens and Guaranties;" 91 (iv) Liens covering property subject to any Capitalized Lease Obligation or other lease which was not entered into in violation of the Indenture securing the interest of the lessor or other Person under such Capitalized Lease Obligation or other lease; (v) Liens securing obligations to a trustee pursuant to the compensation and indemnity provisions of any indenture (including the Indenture) and Liens securing obligations to a trustee or agent with respect to collateral for any Indebtedness; (vi) Liens created in connection with a disposition of Receivables (whether or not characterized as a sale of such Receivables or a secured loan) not prohibited by the Indenture on (a) such Receivables, (b) collateral securing such Receivables, (c) goods or services, the sale, lease or furnishing of which gave rise to such Receivables, (d) books and records relating to such Receivables, (e) agreements or arrangements supporting or securing such Receivables and (f) incidental property and assets relating to any of the foregoing; PROVIDED, HOWEVER, that the aggregate amount at any time of Indebtedness that is secured pursuant to this clause (vi) and was not incurred pursuant to clause (i)(b) of the definition of Permitted Indebtedness, shall at no time exceed (x) $300 million LESS (y) the sum of Indebtedness and other obligations then secured pursuant to clause (xii) of this definition PLUS the then outstanding principal amount of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the definition of Permitted Indebtedness (and not secured pursuant to this clause (vi) or such clause (xii)); (vii) Liens upon property or assets of the Company created in substitution and exchange for a Permitted Lien upon other property or assets of the Company or any of its Subsidiaries and Liens upon property or assets of any Subsidiaries of the Company created in substitution and exchange for a Permitted Lien upon other property or assets of any Subsidiaries of the Company; PROVIDED, HOWEVER, that (a) such Permitted Lien is released contemporaneously with the creation of the Lien in substitution therefor, (b) the fair market value of the property or assets with respect to the Lien so released is substantially the same as the fair market value of the property or assets subject to the Lien created in substitution therefor and (c) no Lien may be placed on property or assets of the Company or a Restricted Subsidiary in substitution and exchange for a Lien upon property or assets of an Unrestricted Subsidiary; (viii) Liens upon property or assets of a Subsidiary of a Person securing Indebtedness of such Person or of such Subsidiary, which Liens are created in substitution and exchange for an outstanding pledge by such Person of a majority of the Capital Stock of such Subsidiary for the purpose of securing such Indebtedness (or a guaranty in respect thereof); PROVIDED, HOWEVER, that if the property and assets of such Subsidiary to be subjected to such Liens have a fair market value in excess of $25 million, such Subsidiary shall have guaranteed the obligations of the Company in respect of the Notes and, if requested by the Trustee, such Subsidiary shall have waived all its rights of subrogation and reimbursement from the Company in connection with such guaranty; (ix) Liens upon any property or assets (a) existing at the time of acquisition thereof by the Company or any Subsidiary, (b) of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company or existing at the time of a sale or transfer of any such property or assets of such Person to the Company or any Subsidiary of the Company or (c) of a Person existing at the time such Person becomes a Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens shall not have been created in contemplation of such sale, merger, consolidation, transfer or acquisition; (x) Liens existing at November 1, 1991; (xi) (a) Liens upon any property or assets of the Company and its Restricted Subsidiaries securing Indebtedness under the Credit Agreements in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility, but without duplication with respect to commitments for loans the use of proceeds of which is restricted to repayment of other Indebtedness under the Credit Agreements) as of November 1, 1991 LESS (y) the proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time that are or have been 92 applied to repay Indebtedness under the Credit Agreements and PLUS (z) $250 million and (b) Liens securing Indebtedness permitted by clause (i) of the definition of Permitted Indebtedness upon property or assets that as of November 1, 1991 secured the Credit Agreements or the Castlewood Agreement; (xii) Liens securing Indebtedness or other obligations of the Company and its Restricted Subsidiaries not to exceed an aggregate principal amount of $350 million LESS, at any time, the sum of (y) the then outstanding principal amount of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the definition of Permitted Indebtedness (and not secured pursuant to this clause (xii) or clause (vi) of this definition) PLUS (z) the amount of Indebtedness secured pursuant to clause (vi) of this definition and not incurred pursuant to clause (i)(b) of the definition of Permitted Indebtedness; (xiii) Liens upon property or assets of a Subsidiary securing Indebtedness or other obligations owing to the Company; (xiv) Liens on proceeds of any property or assets subject to a Lien permitted by the other clauses of this definition; (xv) any equal and ratable Lien that is granted pursuant to the Continental Guaranty and that relates to a Lien that otherwise constitutes a Permitted Lien; (xvi) Liens on property or assets used to defease Indebtedness that was not incurred in violation of the Indenture; (xvii) Liens on property or assets of any Restricted Subsidiary organized under the laws of a jurisdiction other than the United States or any subdivision thereof securing Indebtedness of such Restricted Subsidiary outstanding as of November 1, 1991 (or any extension, renewal or refinancing thereof); (xviii) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing clauses (i) through (xviii) (covering the same property and assets as such Lien); and (xix) Permitted Collateral Liens; PROVIDED, HOWEVER, that no Lien described in any of the foregoing clauses other than clause (xi)(a) shall encumber the rights of the Company with respect to Indebtedness, obligations and other liabilities owed to the Company by any Restricted Subsidiary or to any Restricted Subsidiary by the Company or another Restricted Subsidiary. "PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of (i) the Company to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, Indebtedness of the Company or any Restricted Subsidiary (or any extension, renewal or refinancing thereof) outstanding at the time of incurrence of such subsequent Indebtedness, or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance, (ii) a Restricted Subsidiary to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, Indebtedness of such Restricted Subsidiary (or any extension, renewal or refinancing thereof) outstanding at the time of incurrence of such subsequent Indebtedness, or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance, or (iii) the Company or a Restricted Subsidiary to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, any then outstanding industrial revenue or development bonds that were outstanding at November 1, 1991 (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with such exchange, refinancing or defeasance; PROVIDED, HOWEVER, that, in the case of (i) (ii) or (iii), the proceeds of such Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Indebtedness; and PROVIDED, FURTHER, that the only Indebtedness which may be subject to exchange, refinancing, redemption or defeasance pursuant to clause (i), (ii) or (iii) of this definition shall be Indebtedness outstanding as of November 1, 1991 (other than Indebtedness under the Credit Agreements, Subordinated Indebtedness and Indebtedness under lines of credit) or any extension, renewal or refinancing thereof, and 93 Indebtedness that was incurred after November 1, 1991 and before the Issue Date (other than solely as Permitted Indebtedness under the 1991 Indenture) or is incurred after the Issue Date (other than solely as Permitted Indebtedness). "PERMITTED STONE CANADA INDEBTEDNESS" means Indebtedness of the Company or a Restricted Subsidiary in the Stone Canada Group outstanding pursuant to lines of credit in an aggregate principal amount not to exceed U.S. $100 million (of which not more than Cdn. $60 million may be owed by Restricted Subsidiaries in the Stone Canada Group) at any one time outstanding or pursuant to any extension, renewal or refinancing of such outstanding amount PLUS any costs incurred in connection with any such extension, renewal or refinancing; PROVIDED, HOWEVER, that the aggregate principal amount permitted to be incurred under this definition shall be reduced by the principal amount under lines of credit outstanding on the Issue Date net of subsequent repayments or reductions thereof. "PERMITTED SUBORDINATED INDEBTEDNESS" means (i) Subordinated Indebtedness of the Company to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, then outstanding Subordinated Indebtedness of the Company that was outstanding at November 1, 1991 (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that (a) such Subordinated Indebtedness does not have a shorter weighted average life than that then remaining for, or a maturity earlier than that of, the Indebtedness so exchanged, refinanced, redeemed or defeased, EXCEPT that in the case of any exchange, such Subordinated Indebtedness may have a maturity that is earlier (but not more than six months earlier) than that of the Indebtedness so exchanged, PROVIDED that the Subordinated Indebtedness shall have the same or a longer weighted average life than that then remaining for the Indebtedness so exchanged and (b) in the case of refinancings, redemptions or defeasances, the proceeds of such Subordinated Indebtedness shall be used to so refinance, redeem, or defease the Indebtedness within 12 months of the incurrence of such subsequent Subordinated Indebtedness; and (ii) Indebtedness of the Company in an aggregate principal amount not to exceed $250 million at any one time outstanding, so long as such Indebtedness (a) constitutes Subordinated Indebtedness and (b) does not have (A) a weighted average life that is shorter than that then remaining for the (x) the Company's 9 7/8% Senior Notes due 2000 then outstanding or (y) the First Mortgage Notes or the Senior Notes, as the case may be, then Outstanding or (B) a maturity that is earlier than the latest maturity of (x) the Company's 9 7/8% Senior Notes due 2000 then outstanding or (y) the First Mortgage Notes or the Senior Notes, as the case may be, then Outstanding. "RECEIVABLES" means receivables, chattel paper, instruments, documents or intangibles evidencing or relating to the right to payment of money. "REDEEMABLE STOCK" means, with respect to any Person, any Capital Stock that by its terms or otherwise is required to be redeemed or purchased by such Person or any of its Subsidiaries prior to 30 days after the maturity date of the Notes then Outstanding, or is redeemable or subject to mandatory purchase or similar put rights at the option of the Holder thereof at any time prior to 30 days after the latest maturity date of the First Mortgage Notes or the Senior Notes, as the case may be, of any series then Outstanding, or any security which is convertible or exchangeable into a security which has such provisions. "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "SENIOR INDEBTEDNESS" means the principal of, interest on and other amounts due on (i) Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred, assumed or guaranteed by the Company, on or prior to the Issue Date in compliance with the 1991 Indenture and thereafter, in compliance with the "Limitation on Future Incurrence of Indebtedness" covenant (including, without limitation, the Senior Notes and the First Mortgage Notes), (ii) obligations of the Company related to the termination of Interest Swap Obligations, Currency Agreements or Commodities Agreements pertaining to Indebtedness described under clause (i) above and (iii) principal of or interest on the Notes. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness 94 shall not include: (a) Subordinated Indebtedness, (b) Indebtedness of or amounts owed by the Company for compensation to employees, for goods or materials purchased in the ordinary course of business or for services or (c) Indebtedness of the Company to a Subsidiary of the Company. "SPECIFIED BANK DEBT" means (i) all Indebtedness and other monetary obligations owing under the New Credit Agreement or any credit facilities with the banks signatory to the New Credit Agreement (or with banks affiliated with such banks), so long as such facilities are related to the New Credit Agreement; and (ii) Indebtedness owing as of the date of the Indenture or thereafter to banks or other financial institutions under credit facilities which may in the future refinance, refund, replace, supplement or succeed (regardless of any gaps in time) the New Credit Agreement or the facilities referenced in clause (i) hereof (including extensions and restructurings and the inclusion of additional or different or substitute lenders), so long as (a) the aggregate principal amount outstanding (including available amounts under committed revolving credit or similar working capital facilities, letter of credit facilities and other commitments to provide credit) of such Indebtedness is at least equal to the principal of all publicly issued Senior Indebtedness (including, without limitation, the First Mortgage Notes, the Senior Notes and Indebtedness under the 1991 Indenture) then Outstanding (it being understood that Indebtedness described in clause (i) above and issues of Indebtedness having a principal amount lower than set forth in clause (b) below shall not be included in this amount), (b) Indebtedness outstanding under each particular credit facility has a principal amount outstanding (including available amounts under committed revolving credit or similar working capital facilities, letter of credit facilities and other commitments to provide credit) of at least $25 million and (c) such Indebtedness constitutes Senior Indebtedness. "STONE CANADA GROUP" means Stone Canada and its Restricted Subsidiaries existing as of the date of the Indenture. "SUBORDINATED CAPITAL BASE" means the sum of (i) the Consolidated Net Worth and (ii) to the extent not included in clause (i) above, the amounts (without duplication) relating to (a) the principal amount of Subordinated Indebtedness incurred after November 1, 1991 which is unsecured and which does not have at the time of incurrence of such Subordinated Indebtedness a weighted average life that is shorter than the weighted average life remaining for the then outstanding Indebtedness under the 1991 Indenture issued prior to the Issue Date, or if less than $500,000,000, in the case of the First Mortgage Notes, or $200,000,000, in the case of the Senior Notes of such Indebtedness is outstanding, the First Mortgage Notes or the Senior Notes, as the case may be, or a maturity that is earlier than the latest maturity of any of the then outstanding Indebtedness under the 1991 Indenture, or if less than $500,000,000, in the case of the First Mortgage Notes or $200,000,000, in the case of the Senior Notes of such Indebtedness is outstanding, the First Mortgage Notes or the Senior Notes, as the case may be, (b) redeemable stock of the Company that does not constitute Redeemable Stock and (c) the principal amount of the 12 1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest, Inc. and the 11 1/2% Senior Subordinated Notes due September 1, 1999 of the Company or any Subordinated Indebtedness exchanged for, or the net proceeds of which are used to refinance, redeem or defease, such 11 1/2% Senior Subordinated Notes due September 1, 1999 (or, at such time as no Indebtedness is outstanding under the 1991 Indenture, such 12 1/8% Subordinated Debentures due September 15, 2001) pursuant to clause (ii) of the definition of "Permitted Indebtedness," that, in the case of clauses (a), (b) and (c), as at the date of determination, in conformity with GAAP consistently applied, would be set forth on the consolidated balance sheet of the Company and its Restricted Subsidiaries. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company (whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed by the Company) which, pursuant to the terms of the instrument creating or evidencing the same, is subordinate to the Notes in right of payment or in rights upon liquidation. "SUBSIDIARY" means, with respect to any Person, (i) any corporation of which at least a majority in interest of the outstanding Capital Stock having by the terms thereof voting power under ordinary circumstances to elect directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the 95 happening of any contingency, is at the time, directly or indirectly, owned or controlled by such Person, or by one or more corporations a majority in interest of such stock of which is similarly owned or controlled, or by such Person and one or more other corporations a majority in interest of such stock of which is similarly owned or controlled or (ii) any other Person (other than a corporation) in which such Person, directly or indirectly, at the date of determination thereof, has at least a majority equity ownership interest; PROVIDED, HOWEVER, that, with respect to the Company, for purposes of the Indenture (other than the covenant referred to in the second paragraph of "Limitation on Future Liens and Guaranties" above), "Subsidiary" shall not include Seminole. "UNRESTRICTED SUBSIDIARY" means a Subsidiary of the Company which has been designated as an "Unrestricted Subsidiary" for purposes of the Indenture by the Company and (a) at least 20% of whose common stock is held by one or more Persons (other than the Company and its Affiliates) which acquired such common stock in a BONA FIDE transaction for fair value and (b) at least 10% of whose total capitalization at the time of designation is in the form of common stock or at least 15% of the fair market value of whose assets at such time shall have been contributed by such Persons. An Unrestricted Subsidiary may be designated to be a Restricted Subsidiary only if, at the time of such designation, all Indebtedness and Liens of such Subsidiary could be incurred under the Indenture. As of the date of the Indenture, the Company's Unrestricted Subsidiaries are Stone-Consolidated Corporation and its Subsidiaries. ADDITIONAL FIRST MORTGAGE NOTE INDENTURE DEFINITIONS "CASH COLLATERAL ACCOUNT" means one or more accounts forming part of the Collateral in the sole dominion and control of the First Mortgage Note Trustee into which certain funds are required to be deposited by or on behalf of the Company under the terms of the First Mortgage Note Indenture and the Security Documents. "COLLATERAL" means the Collateral Properties (and all additions and improvements thereto and replacements thereof), Replacement Collateral, the Cash Collateral Account and all other property that from time to time secures the First Mortgage Notes pursuant to the First Mortgage Note Indenture and the Security Documents. "COLLATERAL ASSET DISPOSITION" means any direct or indirect, voluntary or involuntary sale, conveyance, lease, sale-leaseback, transfer or other disposition, including, without limitation, by means of a merger, consolidation or similar transaction (each, a "Disposition"), or a series of related Dispositions by the Company or any of its Restricted Subsidiaries involving the Collateral (including, without limitation, a sale of, or receipt by the Company of cash or Cash Equivalents in connection with the repayment, exchange, redemption or retirement of, or an extraordinary dividend or return of capital on, any Non-Cash Consideration), other than (a) the sale of machinery, equipment, furniture, apparatus, tools or implements or other similar property that may be defective or may have become worn out or obsolete or no longer used or useful in the operation of the Collateral Properties, the aggregate fair market value of which does not exceed U.S. $5 million in any year; (b) the sale of equipment that has been replaced by equipment of substantially equal value in an alteration or improvement made at one of the Collateral Properties; (c) the use by the First Mortgage Note Trustee of amounts on deposit in the Cash Collateral Account in accordance with the "Limitation on Asset Dispositions" or "Limitation on Collateral Asset Dispositions" covenants; and (d) a Disposition permitted pursuant to the "Restrictions on Mergers and Consolidations and Sales of Assets" covenants. A Collateral Asset Disposition shall not include a Condemnation (as defined) or Casualty (as defined) involving any Collateral. "COLLATERAL LOSS EVENT" means a Condemnation or Casualty involving an actual or constructive total loss or agreed or compromised actual or constructive total loss of all or substantially all of any Collateral Property. "COLLATERAL PROPERTIES" means the mills owned by the Company at Uncasville, Connecticut, Ontonagon, Michigan, Missoula, Montana and York, Pennsylvania, as more specifically described in the Security Documents, and all mills, plants and related property constituting Replacement Collateral. 96 "EXCESS PROCEEDS" means, on any date, the aggregate amount of Net Proceeds from Collateral Asset Dispositions and Collateral Loss Events consummated or occurring after the Issue Date that have not been previously (a) used to purchase or invest in Replacement Collateral or Restore Collateral in accordance with the "Limitation on Collateral Asset Dispositions" covenant or (b) included as part of a First Mortgage Note Offer, provided that no such Net Proceeds will constitute Excess Proceeds until the later of six months from the date of consummation of the relevant Collateral Asset Disposition or receipt of the Net Proceeds from the relevant Collateral Loss Event and the expiration of any longer period during which such Net Proceeds may be used to purchase or invest in Replacement Collateral or Restore Collateral to the extent permitted by the "Limitation on Collateral Asset Dispositions" covenant. "INDEPENDENT APPRAISER" means an appraisal firm that is nationally recognized in the United States that (i) does not have any direct financial interest in the Company or any of its Subsidiaries, the First Mortgage Note Trustee or in any Affiliate of any of them, and (ii) is not connected with the Company or any of its Subsidiaries, the First Mortgage Note Trustee or any such Affiliate as an employee, associate or Affiliate. "INDEPENDENT DIRECTOR"means, in respect of any transaction involving the Company, a director of the Company who is in fact independent of the transaction other than (a) a director who is a party to such transaction, or (b) a director who is an officer, employee, associate or Affiliate (or is related to any of them by blood or marriage unless such director is, in fact, independent of such relation) of a party to such transaction or who is an officer, employee, director or associate of an Affiliate of the Company (other than the Company and its Subsidiaries), or (c) a director who is an officer, employee or associate of the Company or any of its Subsidiaries. "INDEPENDENT FINANCIAL ADVISER" means an investment banking firm that is nationally recognized in the United States that (i) does not have any direct financial interest in the Company, any Subsidiary of the Company or the First Mortgage Note Trustee or in any Affiliate of any of them, and (ii) is not connected with the Company, a Subsidiary of the Company or the First Mortgage Note Trustee or any such Affiliate as an employee, associate or Affiliate. "NET PROCEEDS" means those proceeds received by the Company or any of its Restricted Subsidiaries in connection with a Collateral Asset Disposition or Collateral Loss Event consisting of (a) the sum of cash and Cash Equivalents therefrom (including any amounts of Insurance Proceeds, Condemnation Proceeds or other proceeds (other than proceeds from business interruption insurance) received in connection therewith but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the relevant property), MINUS (b) all accounting, legal, title, recording and tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be accrued as a liability under generally accepted accounting principles in effect at the date of the relevant Collateral Asset Disposition or Collateral Loss Event, directly as a consequence of such Collateral Asset Disposition or Collateral Loss Event and net of all payments made on any Indebtedness which is secured by a Permitted Collateral Lien on the Collateral Property subject to such Collateral Asset Disposition or Collateral Loss Event, which must be paid in accordance with the terms of such Permitted Collateral Lien or under applicable law. "PERMITTED COLLATERAL LIENS" means: (i) Liens securing the First Mortgage Notes arising under the First Mortgage Note Indenture or any Security Document; (ii) Liens on a Collateral Property for taxes or governmental assessments, charges, levies or claims not yet delinquent or for which a bond has been posted in an amount equal to the contested amount (including potential interest and penalties thereon) not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof; (iii) statutory Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business of ownership and operation of a 97 Collateral Property relating to obligations either (a) not yet delinquent or (b) being contested in good faith by appropriate proceedings and to which appropriate reserves or other provisions have been made in advance in accordance with GAAP in each case, not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof; (iv) Liens on a Collateral Property in connection with workers' compensation, unemployment insurance and other similar legislation, surety or appeal bonds, performance bonds or other obligations of a like nature (in each case not constituting Indebtedness) arising in the ordinary course of business with respect to the ownership and operation of such Collateral Property not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof; (v) zoning restrictions, licenses, easements, servitudes, rights-of-way, title defects, covenants running with the land and other similar charges or encumbrances or restrictions affecting a Collateral Property not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof; and (vi) assignments, leases or subleases at a Collateral Property not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof. "REPLACEMENT COLLATERAL" means, at any relevant date in connection with a Collateral Asset Disposition, Collateral Loss Event, or in certain circumstances described in the First Mortgage Note Indenture where Restoration is not required, Condemnation, assets located in North America to be used in the pulp and paper business as conducted by the Company at such date other than the Collateral, which on such date, (a) constitute similar assets to Collateral disposed of or destroyed (and do not constitute Capital Stock of any Person (except for Non-Cash Consideration to the extent permitted by the "Limitation on Collateral Asset Dispositions" covenant)), (b) are acquired by the Company at a purchase price which does not exceed the fair market value of such Replacement Collateral (as determined, in the case of each of (a) and (b), in good faith by a majority of the Board of Directors, including a majority of the Independent Directors, on the basis of the written opinion of a qualified Independent Appraiser or Independent Financial Adviser prepared contemporaneously with such purchase) and made available to the First Mortgage Note Trustee, (c) are free and clear of all Liens other than Permitted Collateral Liens and (d) satisfy the requirements of the "Limitation on Collateral Asset Dispositions" covenant. "RESTORATION" or "RESTORE" means the physical repair, restoration or rebuilding of all or any portion of the Collateral following any Casualty or Condemnation. THE COLLATERAL UNDER THE FIRST MORTGAGE NOTE INDENTURE THE COLLATERAL The First Mortgage Notes will initially be secured by a first ranking lien on the Company's mills located in Uncasville, Connecticut, in Ontonagon, Michigan (the "Ontonagon Mill"), in Missoula, Montana, and in York, Pennsylvania (collectively, the "Collateral Mills"). The following table sets forth certain information with respect to the Collateral Mills:
NUMBER OF PAPER MILL LOCATION MACHINES TYPE OF MILL - ----------------------------------------------- ANNUAL CAPACITY PRODUCTION ----------------- ------------- TONS IN 1993 TONS --------------- --------------- (IN THOUSANDS) (IN THOUSANDS) Missoula, Montana 702.9 654.3 3 Linerboard Ontonagon, Michigan 262.8 248.4 2 Medium Uncasville, Connecticut 165.1 158.5 1 Medium York, Pennsylvania 110.2 110.0 2 Medium
The products manufactured at the Collateral Mills are utilized by the Company in its corrugated container facilities; such corrugated container facilities will be pledged to secure the indebtedness under the Credit Agreement. 98 APPRAISAL The Company engaged American Appraisal Associates, Inc. (the "Consultant"), an independent valuation consulting firm specializing in the technology, economics and strategies of the pulp and paper industry, to provide an estimate of the fair market value of the Collateral Mills. The fair market value of the Collateral Mills was estimated for the purpose of the appraisal based upon the assumption that the assets comprising the Collateral Mills would be used in an ongoing business and valued on a continued use basis. When fair market value is established on the premise of continued use, it is assumed that the buyer and the seller would be contemplating retention of the Collateral Mills at their present locations as part of the current operations. An estimate of fair market value arrived at on the premise of continued use does not represent the amount that might be realized from piecemeal disposition of the Collateral Mills in the marketplace or from an alternative use of the properties. The Consultant's opinion of the fair market value of the designated assets of the Collateral Mills as of September 1, 1994, under the premise of continued use, is reasonably represented by an amount of $695 million. For purposes of the analysis, the Consultant appraised the designated assets as part of an operating entity. Balance sheets, financial statistics, and operating results furnished to the Consultant were accepted without verification, were examined, and were assumed to properly represent business operations and conditions. Given the trends indicated, it was concluded by the Consultant that prospective profits, on a consolidated basis, were adequate to justify ownership and arm's-length exchange of the Collateral Mills between a willing buyer and a willing seller at the appraised fair market value. In the Consultant's review, provisions were made for the value of assets not included in the appraisal and for sufficient net working capital. The appraisal methods employed by the Consultant included the cost, income, and market techniques. The cost approach was the primary method for valuing the underlying tangible assets of the Collateral Mills, while the income and market methods were applied to analyze the economics and prospective earning power of the Collateral Mills. The Consultant notes in the appraisal that forecasts of pulp and paper production economics, asset values, replacement costs, and economic performance involve many significant variables that are subject to uncertainty, performance and actions of competitive products and companies, and judgement. Therefore, the Consultant notes that no representation can be or is made as to the accuracy or attainability of the estimates contained in the appraisal. The appraisal was prepared in accordance with the Uniform Standards of Professional Appraisal Practice, as promulgated by the Appraisal Foundation. The Consultant has stated in the appraisal that the realization of the multiple assumptions underlying the appraisal, the agreed upon parameters, and the Company's stated purpose, incorporated in the conclusions arrived at in the appraisal are fundamental to the reliability of the conclusions set forth. No assurance can be given that any assumption will, in fact, be so realized or that a number of material assumptions that could have had a negative impact on the conclusions reached in the appraisal have been considered by the Consultant or that the Consultant's estimation of the impact or any negative assumption otherwise so considered have been properly evaluated. Any such failure of an assumption so to materialize or be accurately or adequately reflected in the appraisal could be of a nature or degree that will materially and negatively impact the actual value, if any, realized by the First Mortgage Note Trustee upon a foreclosure or other disposition of the Collateral Mills. An appraisal is an estimate or opinion of value as of the date stated and cannot be relied upon as a precise measure of value or worth. The amount that might be realized from the sale of portion of the Collateral Mills may be less that its portion of the appraised value, and such difference may be material. The Consultant did not solicit any offers or inquiries with respect to the Collateral Mills from potential purchasers, and, therefore, the appraisal should not be read to suggest that a buyer was, in fact, available, or if one were available, that it would be willing or able to pay the appraised value. In addition, 99 the number of qualified buyers may be limited by regulatory, legal, financial and other considerations. Accordingly, no assurance can be given as to the value that could be obtained from the sale of the Collateral Mills. Additionally, whatever the value of the Collateral Mills may be under the conditions assumed in the appraisal, a sale under distress conditions would likely result in a substantially lower price. (See "Risk Factors -- First Mortgage Note Holders May Receive Less Than Their Investment Upon Liquidation.") See Annex A for a summary valuation report prepared by the Consultant. The foregoing description of the appraisal is qualified in its entirety by reference to such summary valuation report. SECURITY DOCUMENTS Each Collateral Mill will be pledged to the First Mortgage Note Trustee for the benefit of the Holders pursuant to a mortgage and a security agreement securing the full amount payable with respect to the Notes. Each mortgage together with the related security agreement will include all fee and leasehold interests in the real property, fixtures, plant, machinery and equipment constituting the Collateral Mill, and all proceeds thereof and additions, improvements, alterations, replacements and repairs thereto, whether now owned or hereafter acquired by the Company. Certain equipment used at the mills constituting Collateral is pledged to third party lenders pursuant to equipment leases. The Collateral also includes permits necessary to operate the Collateral Mills to the extent assignable under applicable law. The security interest granted to the First Mortgage Note Trustee in the Collateral will be a first ranking security interest, subject to Permitted Collateral Liens that, in the Company's judgment, do not materially and adversely affect the normal operations or value of the Collateral Mills. Upon issuance of the Notes, the First Mortgage Note Trustee will receive a mortgagee's title insurance policy insuring each mortgage as a first ranking mortgage lien on the relevant Collateral Mill, subject to standard exceptions and Permitted Collateral Liens. The aggregate amount of the title insurance in respect of the four Collateral Mills will equal 110% of their total appraised value. BANKRUPTCY CONSIDERATIONS The right of the First Mortgage Note Trustee under the First Mortgage Note Indenture to repossess and dispose of the Collateral upon the occurrence of an Event of Default (as defined herein in "Description of the Notes -- Certain Definitions") under the First Mortgage Note Indenture is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy case were to be commenced by or against the Company prior to the First Mortgage Note Trustee's having repossessed and disposed of the Collateral. Under the federal bankruptcy laws, secured creditors, such as the First Mortgage Note Trustee, are prohibited from foreclosing upon, realizing upon or repossessing security from a debtor in a bankruptcy case, or from disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, the federal bankruptcy laws permit the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the Collateral and may include cash payments or the granting of additional security, if and at such times as the court in its discretion determines (after request by the creditor), for any diminution in the value of the creditor's interest in Collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the First Mortgage Notes could be delayed following commencement of a bankruptcy case, whether or when the First Mortgage Note Trustee could repossess or dispose of the Collateral or whether or to what extent holders of the First Mortgage Notes would be compensated for any diminution in value of the Collateral through the requirement of "adequate protection." Furthermore, in the event that the bankruptcy court determines that the value of the Collateral is not sufficient to repay all amounts due on the First Mortgage Notes, the 100 holders of the First Mortgage Notes would hold undersecured claims. Applicable federal bankruptcy laws do not permit the payment and/or accrual of interest, costs and attorney's fees for "undersecured claims" during the pendency of a debtor's bankruptcy case. In addition, if prior to or at the time of any bankruptcy case being commenced by or against the Company, the value of the Collateral is less than the total amount remaining to be paid on the First Mortgage Notes, the issue of whether payments on the First Mortgage Notes within ninety days (or one year with respect to payments to "insiders" as defined under the federal bankruptcy laws) of the commencement of such bankruptcy case are preferential and may be recaptured may arise under the federal bankruptcy laws. To the extent that such issue arises, there may be defenses applicable to the recapture of potentially preferential payments under the federal bankruptcy laws, including INTER ALIA, that such payments were made in the ordinary course of business or financial affairs of the Company according to ordinary business terms. A portion of the Ontonagon Mill (used for wastewater treatment) is leased rather than owned by the Company. Although the law is not settled on this issue, under the federal bankruptcy laws, a failure by the Company to assume such lease in the case of a bankruptcy of the Company could have the effect of extinguishing the First Mortgage Note Trustee's Lien in respect of such leasehold interest. ENVIRONMENTAL CONSIDERATIONS The Collateral Properties are subject to extensive and increasingly stringent environmental regulations. Although management believes that the Collateral Properties are in substantial compliance with these regulations, the failure of these mills to remain in compliance therewith or the presence of hazardous substances at the Collateral Properties could adversely affect the value of the mills. Furthermore, certain of the Collateral Properties will require significant capital expenditures to remain in compliance with existing and future environmental regulations. See "Risk Factors -- Environmental Regulations and Significant Environmental Expenditures." Under the federal laws of the United States and many state laws, contamination of a property may give rise to a lien on the property to assure the payment of the costs of clean-up. In Connecticut and Michigan, under certain circumstances, such a lien may have priority over all existing liens (a "superlien") including those of existing mortgages. In addition, a lender may be exposed to unforeseen environmental liabilities when taking a security interest in real property. Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws, a lender may be liable in certain circumstances, as an "owner" or "operator", for environmental clean-up costs on a mortgaged property. Although CERCLA excludes from liability "a person who, without participating in the management of a . . . facility, holds indicia of ownership primarily to protect his security interest", court decisions have indicated that a lender may be subject to CERCLA liability if it forecloses on or otherwise takes title to the property or if it becomes involved in the borrower's operations to a degree that indicates capacity to influence hazardous waste activities. Decisions interpreting the meaning of "participating in management" have ranged from the decision in the U.S. Court of Appeals for the Eleventh Circuit in UNITED STATES V. FLEET FACTORS which suggested that a lender with enough control over a borrower's financial affairs to have the capacity to influence the borrower's hazardous waste decisions could be held liable under CERCLA, to a subsequent decision by the U.S. Court of Appeals for the Ninth Circuit in IN RE BERGSOE METAL CORP. which held that a secured lender had no liability absent "some actual management of the facility" by the lender. Under the First Mortgage Note Indenture, the First Mortgage Note Trustee, prior to taking certain actions, may request that holders provide an indemnification against its costs, expenses under CERCLA or similar laws, and liabilities. It is possible that cleanup costs under CERCLA or similar laws could become a liability of the First Mortgage Note Trustee and cause a loss to any holder of First Mortgage Notes that provided an indemnification. In addition, such holders may act directly rather than through the First Mortgage Note Trustee, in specified circumstances, in order to pursue a remedy under the Indenture. If holders exercise that right, they could be deemed to be lenders who are subject to the risks discussed above. 101 POSSESSION, USE, RELEASE AND SUBSTITUTION OF COLLATERAL Unless an Event of Default shall have occurred and be continuing under the First Mortgage Note Indenture, the Company will have the right to remain in possession and retain exclusive control of the Collateral (other than any of the Collateral on deposit in the Cash Collateral account and other than as set forth in the Security Documents), to freely operate the Collateral Properties and to collect, invest and dispose of any income thereon, subject to certain covenants in the First Mortgage Note Indenture. All amounts on deposit in the Cash Collateral Account will be invested in U.S. Government Obligations maturing within 30 days from the date of acquisition thereof, or such longer period (not exceeding one year) if the funds are set aside for Restoration in the event of a Casualty or Condemnation. So long as no Event of Default shall have occurred and be continuing, the Company and its Restricted Subsidiaries may make a Collateral Asset Disposition upon the satisfaction of certain procedures set forth in the First Mortgage Note Indenture, and the First Mortgage Note Trustee will release the Lien under the Security Documents with respect to the relevant Collateral. See "Limitation on Collateral Asset Dispositions." Proceeds of insurance relating to the destruction of all of the Collateral or an award relating to a taking of all or any part of the Collateral by eminent domain or other seizure or forfeiture (in excess of $2.5 million so long as no Event of Default has occurred and is continuing) will be deposited and held in the Cash Collateral Account for the benefit of the Holders of the First Mortgage Notes. The Company may withdraw such proceeds or award from the Cash Collateral Account (other than proceeds or an award relating to the destruction of all or substantially all of one or more of the Collateral Properties) to reimburse the Company for expenditures made, or to pay costs incurred, to Restore the Collateral destroyed or taken, subject to compliance with certain conditions set forth in the First Mortgage Indenture, including delivery to the First Mortgage Note Trustee of Opinions of Counsel that the First Mortgage Note Trustee has a perfected Lien under the Security Documents on such repairs, rebuildings and replacements. A taking, seizure, forfeiture or casualty involving an actual or constructive total loss of one or more of the Collateral Properties will be treated under the Indenture as a Collateral Loss Event and any proceeds or award relating thereto will be applied in accordance with the "Limitation on Collateral Asset Dispositions" covenant. The First Mortgage Note Indenture contains certain legal requirements relating to the release of the Lien on all or any part of the Collateral in connection with a Collateral Asset Disposition or Collateral Loss Event. See "Limitation on Collateral Asset Dispositions." Furthermore, all releases of Collateral are required to comply with the certification requirements of the Trust Indenture Act. In connection with the acquisition of any Replacement Collateral pursuant to the "Limitation on Collateral Asset Dispositions" covenant, the Company is required to comply with the requirements set forth under such covenant. The Company shall have the right to sell worn out or obsolete equipment and machinery of up to $5 million per year and sell equipment to the extent it is replaced with equipment of substantially equal value in an alteration or improvement of a Collateral Property without complying with the "Limitation on Collateral Asset Dispositions" covenant. 102 UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement") among the Company and Salomon Brothers Inc, BT Securities Corporation, Morgan Stanley & Co. Incorporated, Kidder, Peabody & Co. Incorporated and Bear, Stearns & Co. Inc. (the "Underwriters"), the Company has agreed to sell to the Underwriters, and the Underwriters have severally agreed to purchase, the respective principal amounts of the First Mortgage Notes and Senior Notes set forth opposite their names below. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the Notes if any are purchased.
PRINCIPAL AMOUNT ---------------------------------------------------- FIRST MORTGAGE UNDERWRITER NOTES SENIOR NOTES TOTAL - -------------------------------------------------- ---------------- ---------------- ---------------- Salomon Brothers Inc.............................. $ $ $ BT Securities Corporation......................... Morgan Stanley & Co. Incorporated................. Kidder, Peabody & Co. Incorporated................ Bear, Stearns & Co. Inc........................... ---------------- ---------------- ---------------- Total......................................... $ 500,000,000 $ 200,000,000 $ 700,000,000 ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
The Underwriters have advised the Company that they propose initially to offer the First Mortgage Notes and Senior Notes directly to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession of 0. % and 0. %, respectively, of the principal amount of the First Mortgage Notes and Senior Notes. The Underwriters may allow and such dealers may reallow a concession not in excess of 0. % and 0. %, respectively, of the principal amount of the First Mortgage Notes and Senior Notes on sales to certain other dealers. After the initial offering, the public offering prices and concessions to dealers may be changed. The Company has agreed to indemnify the Underwriters against certain civil liabilities, including certain liabilities under the Securities Act of 1933, as amended (the "Act"). The Notes are new issues of securities with no established trading market. The Company has been advised by certain of the Underwriters that they intend to make a market in the First Mortgage Notes and/ or Senior Notes, but none of such Underwriters is obligated to do so and may discontinue such market making at any time without notice. No assurance can be given as to the development or liquidity of any trading market for the First Mortgage Notes and/or Senior Notes. The Company has agreed that, for a period of thirty days from the date of the issuance of the Notes, without the consent of Salomon Brothers Inc, acting on behalf of the Underwriters, neither the Company nor any subsidiary of the Company (except in limited circumstances) will (i) file with the Securities and Exchange Commission (the "Commission") or publicly announce its intent to file any registration statement under the Act or pre-effective amendment to any registration statement under the Act relating to debt securities (other than industrial development bonds and the Stone Financial Corporation offering) or (ii) enter into any agreement for or consummate the sale of, or publicly announce its intent to sell, any debt securities (other than the Notes, the industrial development bonds and the Stone Financial Corporation offering). Certain of the Underwriters from time to time perform investment banking and other financial advisory services for the Company for which they receive customary compensation. Bankers Trust Company ("Bankers Trust"), an affiliate of BT Securities Corporation, is the agent and a lender under the 1989 Credit Agreement and is expected to be the agent and a lender under the Credit Agreement. In its capacity as lender under the 1989 Credit Agreement, Bankers Trust will receive its pro rata share of the net proceeds of the sale of the Notes hereunder used to repay indebtedness under the 1989 Credit Agreement. See "Use of Proceeds." Bankers Trust is also the indenture trustee for the Company's 11 1/2% Senior Subordinated Notes due September 1, 1999. 103 An affiliate of Kidder, Peabody & Co. Incorporated is a lender under the 1989 Credit Agreement and will receive its pro rata share of the net sale proceeds from the sale of the Notes hereunder used to repay indebtedness under the 1989 Credit Agreement. Another affiliate of Kidder, Peabody & Co. Incorporated is a lender to Stone-Consolidated pursuant to a revolving credit facility. EXPERTS The financial statements as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 included in this Prospectus have been so included in reliance on the report (which contains an explanatory paragraph referring to certain liquidity matters discussed in Notes 11 and 18 to the Company's financial statements) of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The information contained in this Prospectus under "The Collateral Under the First Mortgage Notes -- Appraisal" and the summary valuation report in Annex A hereto have been included on the authority of American Appraisal Associates, Inc. as an expert regarding the valuation matters contained therein. LEGAL MATTERS The validity of the Notes offered hereby will be passed upon for the Company by Leslie T. Lederer, Vice President, Secretary and Counsel of the Company (who owns 13,256 shares of Common Stock) and by Sidley & Austin, Chicago, Illinois. Certain legal matters will be passed upon for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor, Seven World Trade Center, New York, New York 10048. Copies of such materials may be obtained from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, such reports, proxy statements and other information can be inspected at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which exchange the Common Stock of the Company is listed. The Company has filed with the Commission in Washington, D.C. a Registration Statement on Form S-1 under the Act with respect to the Securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, as permitted by the rules and regulations of the Commission. For further information pertaining to the Company and the Securities offered hereby, reference is made to the Registration Statement and the exhibits thereto, which may be examined without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained from the Public Reference Branch of the Commission upon payment at prescribed rates. The Company will provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of such person made to the Company, a copy of any and all of the documents referred to above which have been or may be incorporated in this Prospectus by reference, other than exhibits to such documents unless such exhibits are specifically incorporated by reference therein. Requests for such copies should be directed to: Investor Relations Department, Stone Container Corporation, 150 North Michigan Avenue, Chicago, Illinois 60601; telephone number (312) 346-6600. 104 [LOGO] ANNEX A SEPTEMBER 23, 1994 STONE CONTAINER CORPORATION CHICAGO, ILLINOIS We completed an appraisal of certain property exhibited to us as that of STONE CONTAINER CORPORATION ("Stone"), located in (1) Missoula, Montana, (2) Ontonagon, Michigan, (3) York, Pennsylvania and (4) Uncasville, Connecticut and submitted our findings in a report dated September 23, 1994. This letter summarizes the appraisal report. By reference herein, all terms, conditions, definitions, and limitations contained in the appraisal report shall apply equally to this summary letter. Our appraisal expressed an opinion, as of September 1, 1994, of the fair market value of the property on the premise of continued use. It was understood that our opinion would provide a basis for effecting financing arrangements. Fair Market Value is defined as the estimated amount at which a property might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts, with equity to both. When fair market value is established on the premise of continued use, it is assumed that the buyer and the seller would be contemplating retention of the property at its present location as part of the current operations. An estimate of fair market value arrived at on the premise of continued use does not represent the amount that might be realized from piecemeal disposition of the property in the marketplace or from an alternative use of the property. The premise of continued use is generally appropriate when: - The property is fulfilling an economic demand for the service it provides or which it houses. - The property has a significant remaining useful live expectancy. - There are responsible ownership and competent management. - Diversion of the property to an alternative use would not be economically feasible or legally permitted. - Continuation of the existing use by present or similar users is practical. - Due consideration is given to the property's functional utility for its present use. - Due consideration is given to the property's economic utility. In our investigation, we appraised the designated assets as part of an operating entity. Balance sheets, financial statistics, and operating results furnished to us were accepted without verification, were examined, and were assumed to properly represent business operations and conditions. Given the trends indicated, it was concluded that prospective profits from appraised business operations, on a consolidated basis, were adequate to justify ownership and arm's-length exchange of the designated assets between a willing buyer and a willing seller at the appraised fair market value. In the review, provisions were made for the value of assets not included in the appraisal and for sufficient net-working capital. The property appraised comprises the tangible assets of the linerboard and corrugating medium paperboard mill operations of Stone located at Missoula, Montana; Ontonagon, Michigan; York, Pennsylvania; and Uncasville, Connecticut. A-1 No consideration was given to the impact of any environmental concerns which are associated with the subject property. Our appraisers are not qualified as experts in the detection of hazardous substances. Quantification of the cost to remedy environmentally related problems would have to be identified by experts in that field. Our investigation dealt with real estate comprising land, buildings, and improvements; machinery and equipment; office furniture and equipment; mobile equipment; and licensed vehicles. Excluded from the investigation were supplies, materials on hand, inventories, company records, and any current or intangible assets that might exist. For the real estate, except for the ground lease described in the mortgage with respect to the mill located in Ontonagon, Michigan in which Stone has a valid leasehold interest, we appraised the fee simple interest which is defined as an absolute fee, free of limitations to any particular class of heirs or restrictions, but subject to the limitations of eminent domain, escheat, police power and taxation. Before arriving at an opinion of value, we personally inspected the designated property and studied market conditions. For the real estate, we considered: - Location, size, and utility of the land - Size, condition, and utility of the improvements compared with new facilities - Highest and best use of the land and of the property as improved - Cost of replacement new of the improvements and that cost less depreciation arising from all causes - Sales and asking prices of vacant sites to the vicinity and general area For the personal property, we considered: - The estimated cost to acquire new or construct, or acquire used if comparable property was available - A deduction for depreciation, or loss of value, arising from condition, utility, age, wear and tear, and obsolescence - For the cost of comparable used property, used property selling prices and a positive or a negative adjustment to the market price to reflect the difference in condition and utility between the item being appraised and its normal comparative - Dealers' prices for machinery and equipment in operative condition, plus allowances for freight and installation Accordingly, based on the promise of continued use, it is our opinion that, as of September 1, 1994, the Fair Market Value of the designated assets is reasonably represented in the amount of SIX HUNDRED NINETY-FIVE MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS (U.S. $695,500,000), distributed as follows: Land................................................. $ 5,700,000 Building & Land Improvements......................... 136,970,000 Machinery and Equipment.............................. 550,330,000 Office Furniture and Equipment....................... 675,000 Licensed Vehicles and Aircraft....................... 1,825,000 ------------- Grand Total...................................... $ 695,500,000 ------------- -------------
A-2 The above fair market value does not represent the amount that might be realized from the assets' piecemeal disposition in the open market or from their use for an alternative purpose. We did not investigate the title to or any liabilities against the property appraised. Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ William K. Domoe -------------------- A-3 INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM: PAGE - ----------------------------------------------------------------------------------------------------------- --------- Financial Statements -- Three Months and Six Months Ended June 30, 1994 and June 30, 1993 (unaudited): Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit)........................ F-2 Consolidated Balance Sheets.............................................................................. F-3 Consolidated Statements of Cash Flows.................................................................... F-4 Notes to the Consolidated Financial Statements........................................................... F-5 Financial Statements -- Years Ended December 31, 1993, December 31, 1992 and December 31, 1991: Report of Independent Accountants........................................................................ F-15 Consolidated Statements of Operations.................................................................... F-16 Consolidated Balance Sheets.............................................................................. F-17 Consolidated Statements of Cash Flows.................................................................... F-18 Consolidated Statements of Stockholders' Equity.......................................................... F-19 Notes to the Consolidated Financial Statements........................................................... F-20 Pro Forma Condensed Consolidated Statement of Operations Six Months Ended June 30, 1994 (unaudited)................................................................ F-55 Pro Forma Condensed Consolidated Statement of Operations Year Ended December 31, 1993 (unaudited).................................................................. F-56 Pro Forma Condensed Consolidated Balance Sheet June 30, 1994 (unaudited)................................................................................. F-58
F-1 STONE CONTAINER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- (IN MILLIONS, EXCEPT PER SHARE) 1994 1993 1994 1993 - ---------------------------------------------------------------- ---------- ---------- ---------- ---------- Net sales....................................................... $ 1,354.3 $ 1,267.6 $ 2,645.1 $ 2,573.9 Operating costs and expenses: Cost of products sold........................................... 1,116.9 1,050.3 2,184.0 2,120.5 Selling, general and administrative expenses.................... 136.9 131.3 270.5 267.3 Depreciation and amortization................................... 88.5 88.8 177.7 175.9 Equity loss from affiliates..................................... 1.5 1.7 5.7 3.6 Other net operating (income) expense............................ (28.5) 2.3 (33.4) 2.9 ---------- ---------- ---------- ---------- 1,315.3 1,274.4 2,604.5 2,570.2 ---------- ---------- ---------- ---------- Income (loss) from operations................................... 39.0 (6.8) 40.6 3.7 Interest expense................................................ (110.7) (101.8) (224.3) (204.1) Other, net...................................................... 1.0 .3 (8.1) 3.1 ---------- ---------- ---------- ---------- Loss before income taxes, minority interest, extraordinary loss and cumulative effects of accounting changes................... (70.7) (108.3) (191.8) (197.3) Credit for income taxes......................................... (20.0) (37.7) (60.0) (64.6) Minority interest............................................... (.1) (1.0) 2.1 (1.6) ---------- ---------- ---------- ---------- Loss before extraordinary loss and cumulative effects of accounting changes............................................. (50.8) (71.6) (129.7) (134.3) Extraordinary loss from early extinguishment of debt (net of $9.8 income tax benefit)....................................... -- -- (16.8) -- Cumulative effect of change in accounting for postemployment benefits (net of $9.5 income tax benefit)...................... -- -- (14.2) Cumulative effect of change in accounting for postretirement benefits (net of $23.3 income tax benefit)..................... -- -- -- (39.5) ---------- ---------- ---------- ---------- Net loss........................................................ (50.8) (71.6) (160.7) (173.8) Preferred stock dividends....................................... (2.0) (2.0) (4.0) (4.0) ---------- ---------- ---------- ---------- Net loss applicable to common shares............................ (52.8) (73.6) (164.7) (177.8) ---------- ---------- ---------- ---------- Retained earnings (accumulated deficit), beginning of period.... (17.3) 391.8 101.6 496.0 Net loss........................................................ (50.8) (71.6) (160.7) (173.8) Cash dividends on preferred stock............................... (8.0) (2.0) (8.0) (4.0) Unrealized gain (loss) on marketable equity security (net of income tax benefit)............................................ 3.3 -- (5.7) -- ---------- ---------- ---------- ---------- Retained earnings (accumulated deficit), end of period.......... $ (72.8) $ 318.2 $ (72.8) $ 318.2 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Per share of common stock: Loss before extraordinary loss and cumulative effects of accounting changes........................................... $ (.58) $ (1.03) $ (1.55) $ (1.94) Extraordinary loss from early extinguishment of debt.......... -- -- (.20) -- Cumulative effect of change in accounting for postemployment benefits..................................................... -- -- (.17) Cumulative effect of change in accounting for postretirement benefits -- -- -- (.56) ---------- ---------- ---------- ---------- Net loss........................................................ $ (.58) $ (1.03) $ (1.92) $ (2.50) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash dividends.................................................. -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Common shares and common share equivalents outstanding (weighted average, in millions).......................................... 90.4 71.2 86.0 71.2 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- - -------------------------- Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements. F-2 STONE CONTAINER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30, DECEMBER 31, 1994* 1993 ---------- -------------- (IN MILLIONS) Current assets: Cash and cash equivalents........................................................... $ 150.1 $ 247.4 Accounts and notes receivable (less allowances of $20.2 and $19.3).................. 709.3 622.3 Inventories......................................................................... 656.5 719.4 Other............................................................................... 246.0 164.1 ---------- -------------- Total current assets.......................................................... 1,761.9 1,753.2 ---------- -------------- Property, plant and equipment....................................................... 5,251.9 5,240.7 Accumulated depreciation and amortization........................................... (1,970.0) (1,854.3) ---------- -------------- Property, plant and equipment -- net.......................................... 3,281.9 3,386.4 Timberlands......................................................................... 88.9 83.9 Goodwill............................................................................ 875.9 910.5 Other............................................................................... 679.8 702.7 ---------- -------------- Total assets.................................................................. $ 6,688.4 $ 6,836.7 ---------- -------------- ---------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of senior and subordinated long-term debt........................ $ 18.1 $ 22.6 Current maturities of non-recourse debt of consolidated affiliates.................. 271.3 290.5 Accounts payable.................................................................... 288.8 297.1 Income taxes........................................................................ 46.0 47.6 Accrued and other current liabilities............................................... 313.9 285.7 ---------- -------------- Total current liabilities..................................................... 938.1 943.5 ---------- -------------- Senior long-term debt............................................................... 2,277.6 2,338.0 Subordinated debt................................................................... 1,159.6 1,257.8 Non-recourse debt of consolidated affiliates........................................ 657.0 672.6 Other long-term liabilities......................................................... 315.6 270.3 Deferred taxes...................................................................... 382.9 470.6 Redeemable preferred stock of consolidated affiliate................................ 42.3 42.3 Minority interest................................................................... 223.3 234.5 Commitments and contingencies....................................................... Stockholders' equity: Series E preferred stock............................................................ 115.0 115.0 Common stock (90.4 and 71.2 shares outstanding)..................................... 853.1 574.3 Retained earnings (accumulated deficit)............................................. (72.8) 101.6 Foreign currency translation adjustment............................................. (197.4) (179.0) Unamortized expense of restricted stock plan........................................ (5.9) (4.8) ---------- -------------- Total stockholders' equity.................................................... 692.0 607.1 ---------- -------------- Total liabilities and stockholders' equity.................................... $ 6,688.4 $ 6,836.7 ---------- -------------- ---------- -------------- - ------------------------ * Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements. F-3 STONE CONTAINER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1994 1993 1994 1993 --------- --------- --------- --------- (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................................................. $ (50.8) $ (71.6) $ (160.7) $ (173.8) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary loss from early extinguishment of debt............... -- -- 16.8 -- Cumulative effect of change in accounting for postemployment benefits.......................................................... -- -- 14.2 -- Cumulative effect of change in accounting for postretirement benefits.......................................................... -- -- -- 39.5 Depreciation and amortization...................................... 88.5 88.8 177.7 175.9 Deferred taxes..................................................... (21.0) (30.7) (64.2) (59.6) Foreign currency transaction losses................................ .7 3.7 15.9 5.2 Other -- net....................................................... (31.8) (13.5) (57.7) (5.6) Changes in current assets and liabilities -- net of adjustments for dispositions: Decrease (increase) in accounts and notes receivable -- net...... (19.1) 37.6 (81.4) (2.7) Decrease in inventories.......................................... 41.1 2.8 56.8 2.5 Decrease (increase) in other current assets...................... (18.0) 8.8 (36.8) (9.4) Increase in accounts payable and other current liabilities....... 26.3 6.9 21.1 26.0 --------- --------- --------- --------- Net cash provided by (used in) operating activities.................. 15.9 32.8 (98.3) (2.0) --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings........................................................... 30.2 39.5 751.4 133.6 Payments made on debt................................................ (19.8) (37.9) (916.9) (49.5) Payments by consolidated affiliates on non-recourse debt............. (11.6) (10.7) (30.8) (10.7) Proceeds from issuance of common stock, net.......................... -- -- 276.3 -- Refund (funding) of letter of credit................................. 1.7 -- (20.6) -- Cash dividends....................................................... (8.0) (2.0) (8.0) (4.0) --------- --------- --------- --------- Net cash provided by (used in) financing activities.................. (7.5) (11.1) 51.4 69.4 --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures................................................. (48.5) (34.1) (66.2) (63.5) Proceeds from sales of assets........................................ 12.4 1.2 19.9 3.2 Other -- net......................................................... (4.9) (16.3) (6.2) (27.7) --------- --------- --------- --------- Net cash used in investing activities................................ (41.0) (49.2) (52.5) (88.0) --------- --------- --------- --------- Effect of exchange rate changes on cash.............................. 3.6 (.5) 2.1 (.5) --------- --------- --------- --------- Net decrease in cash and cash equivalents............................ (29.0) (28.0) (97.3) (21.1) Cash and cash equivalents, beginning of period....................... 179.1 65.8 247.4 58.9 --------- --------- --------- --------- Cash and cash equivalents, end of period............................. $ 150.1 $ 37.8 $ 150.1 $ 37.8 --------- --------- --------- --------- --------- --------- --------- --------- - ------------------------ See Note 12 regarding non-cash investing and financing activities and supplemental cash flow information. Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements. F-4 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION Pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for Form 10-Q, the financial statements, footnote disclosures and other information normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed. These financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in Stone Container Corporation's (the "Company's") consolidated financial statements for the year ended December 31, 1993 included herein. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position as of June 30, 1994 and the results of operations and cash flows for the three and six month periods ended June 30, 1994 and 1993. NOTE 2: RESTATEMENTS Certain prior year amounts in the Company's Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) and Consolidated Statements of Cash Flows have been restated to conform with the current year presentation. NOTE 3: ADOPTION OF NEW ACCOUNTING STANDARDS Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for the estimated costs of providing certain benefits to former or inactive employees and the employees' beneficiaries and dependents after employment but before retirement. Upon adoption of SFAS 112, the Company recorded its catch-up obligation (approximately $24 million) by recognizing a one-time, non-cash charge of $14.2 million, net of income tax benefit, as a cumulative effect of an accounting change in its 1994 first quarter Consolidated Statement of Operations and Retained Earnings (Accumulated Deficit). In accordance with the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), the Company, at June 30, 1994 recorded a $5.7 million charge directly to stockholders' equity to reflect an unrealized loss on an investment in an equity security, net of income tax benefit. The aggregate fair value and carrying value of the investment in the equity security at June 30, 1994 was approximately $12 million and $20 million (exclusive of the unrealized loss), respectively. NOTE 4: SUBSEQUENT EVENT The Company originally filed on July 27, 1994 and subsequently amended on August 4, 1994, a registration statement with the SEC registering $550 million principal amount of First Mortgage Notes and $150 million principal amount of Senior Notes (the "Offering"). If the Offering is completed, the Company would (i) enter into a new credit agreement (the "Credit Agreement") consisting of a $400 million senior secured term loan and a $450 million senior secured revolving credit facility commitment (with the borrowing availability thereunder being reduced by letter of credit commitments, of which approximately $61 million will be outstanding at closing ), (ii) repay all of the outstanding indebtedness under and terminate its current bank credit agreements (the "1989 Credit Agreement") and (iii) merge the Company's 93 percent owned subsidiary Stone Savannah River Pulp & Paper Corporation ("Savannah River") into a wholly owned subsidiary of the Company and, as described below, repay or acquire Savannah River's outstanding indebtedness, preferred stock and common stock; each of the foregoing transactions is expected to be conditioned upon the successful completion of the other transactions (collectively, the "Related Transactions"). In connection with the Savannah River merger, the Company would (i) repay all of the indebtedness outstanding under and terminate Savannah River's bank credit agreement ($249.5 million as of June 30, 1994), (ii) call for redemption the $130 million principal amount F-5 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4: SUBSEQUENT EVENT (CONTINUED) of Savannah River's 14 1/8 percent Senior Subordinated Notes due 2000 at a redemption price equal to the applicable premium percentage of the principal amount, (iii) call for redemption or otherwise acquire the outstanding shares of Series A Cumulative Redeemable Exchangeable Preferred Stock of Savannah River not owned by the Company at a redemption price equal to the applicable premium percentage of the principal amount plus accrued and unpaid dividends and (iv) purchase the outstanding shares of common stock of Savannah River not owned by the Company. The completion of the Offering, together with the Related Transactions, is expected to improve the Company's financial flexibility by extending the scheduled amortization obligations and final maturities of more than $1 billion of the Company's indebtedness and improve the Company's liquidity by replacing its current $166 million revolving credit facility commitments with a $450 million of revolving credit commitment. While the Company currently anticipates that the Offering and Related Transactions will be completed during the fourth quarter of 1994, no assurance can be given that they will be completed. The Company will incur a charge for the write-off of previously incurred unamortized debt issuance costs, related to the debt being repaid, currently estimated to be in the range of $45 to $49 million, net of income tax benefit upon the completion of the Offering and Related Transactions. This non-cash charge would be recorded as an extraordinary loss from the early extinguishment of debt in the Company's Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit). NOTE 5: INVOLUNTARY CONVERSION On April 13, 1994 a digester vessel ruptured at the Company's pulp and paperboard mill in Panama City, Florida causing extensive damage to certain of the facility's assets. As a result of this occurrence, the Company's second quarter 1994 results include a $22 million pretax involuntary conversion gain (approximately $13.7 million after taxes) which reflects the expected net proceeds from the property damage insurance claim in excess of the carrying value of the assets damaged or destroyed. The Company currently estimates that the mill's linerboard production facilities will have been shut down for a total of approximately 23 weeks and bleached market pulp production facilities will have been shut down for a total of approximately 18 weeks. These shutdowns will result in production outages of approximately 138,000 tons of linerboard and 107,000 tons of bleached market pulp. After deductibles, the Company expects insurance proceeds to cover both property damage and business interruption claims. NOTE 6: FINANCING ACTIVITIES On February 3, 1994, the Company, under its $1 billion shelf registration, sold $710 million principal amount of 9 7/8 percent Senior Notes due February 1, 2001 and 16.5 million shares of common stock for an additional $251.6 million at $15.25 per common share. On February 17, 1994, the underwriters elected to exercise their option to purchase an additional 2.47 million shares of common stock for an additional $37.7 million, also at $15.25 per common share (collectively, with the February 3, 1994 offering, the "February 1994 Offerings"). The net proceeds from the February 1994 Offerings of approximately $962 million were used to (i) prepay all of the 1995 and portions of the 1996 and 1997 scheduled amortization under the Company's bank credit agreements (aggregating approximately $652 million) which includes two term loan facilities, two revolving credit facilities and an additional term loan (the "1989 Credit Agreement"), (including the ratable amortization payment under the revolving credit facilities of the 1989 Credit Agreement which had the effect of reducing the total commitments thereunder to approximately $168 million); (ii) redeem the Company's 13 5/8 percent Subordinated Notes due 1995 at a price equal to par, approximately $98 million principal amount, plus accrued interest to the F-6 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6: FINANCING ACTIVITIES (CONTINUED) redemption date; (iii) repay approximately $136 million of the outstanding borrowings under the Company's revolving credit facilities without reducing the commitments thereunder; and (iv) provide incremental liquidity in the form of cash. The 9 7/8 percent Senior Notes are redeemable by the Company on or after February 1, 1999. Interest is payable semi-annually commencing August 1, 1994 and continuing each February 1 and August 1, until maturity. In the first quarter of 1994, the Company wrote-off $16.8 million of unamortized debt issuance costs, net of income tax benefit, as a result of the debt prepayments mentioned above. Such non-cash charge is reflected as an extraordinary loss from the early extinguishment of debt in the Company's Consolidated Statement of Operations and Retained Earnings (Accumulated Deficit) for the six months ended June 30, 1994. NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS The Company and its bank group have amended the Company's 1989 Credit Agreement several times during the past three years. Such amendments provided, among other things, greater financial flexibility and/or relief from certain financial covenants. In some instances, certain restrictions and limitations applicable to the 1989 Credit Agreement were tightened. There can be no assurance that future covenant relief will not be required or, if such relief is requested by the Company, that it will be obtained from the Company's bank lenders. As described in Note 4, the Offering and the Related Transactions, if completed, would fully repay the 1989 Credit Agreement, which would then be terminated. The most recent amendment, which was executed in February of 1994 and became effective upon the completion of the February 1994 Offerings, as discussed in Note 6, provided, among other things, for the following: (i) Enabled the Company to apply up to $200 million of net proceeds from the February 1994 Offerings, which increased liquidity, as repayment of borrowings under the revolving credit facilities of the 1989 Credit Agreement without reducing the commitments thereunder and, to the extent no balance was outstanding under the revolving credit facilities, permitted the Company to retain the balance of such $200 million of proceeds in cash. (ii) Enabled the Company to redeem the Company's 13 5/8 percent Subordinated Notes maturing on June 1, 1995 from the proceeds received from the February 1994 Offerings at a price equal to par, approximately $98 million principal amount, plus accrued interest to the redemption date. (iii) Amended the required levels of EBITDA (as defined in the 1989 Credit Agreement) for certain specified periods to the following:
PERIODS EBITDA - -------------------------------------------------------------------- -------------- For the six months ended June 30, 1994.............................. $ 55 million For the nine months ended September 30, 1994........................ $111 million For the twelve months ended December 31, 1994....................... $180 million For the twelve months ended March 31, 1995.......................... $226 million
The required level of EBITDA is scheduled to increase for each rolling four quarter period thereafter until December 31, 1996, when the EBITDA for the twelve months ended December 31, 1996 is required to be $822 million. (iv) Reset to zero as of January 1, 1994 the dividend pool under the 1989 Credit Agreement which permits payment of dividends on the Company's capital stock and modifies the components used in calculating the ongoing balance in the dividend pool. Effective January 1, 1994, dividend F-7 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED) payments on the Company's common stock and on certain preferred stock issues cannot exceed the sum of (i) 75 percent of the consolidated net income (as defined in the 1989 Credit Agreement) of the Company from January 1, 1994 to the date of payment of such dividends, minus (ii) 100 percent of the consolidated net loss (as defined in the 1989 Credit Agreement), of the Company from January 1, 1994 to the date of payment of such dividends, plus (iii) 100 percent of any net cash proceeds from sales of common stock or certain preferred stock of the Company from January 1, 1994 to any date of payment of such dividends (excluding the proceeds from the February 1994 Offerings for which no dividend credit was received by the Company). Additionally, the restriction in the 1989 Credit Agreement with respect to dividends on Series E Cumulative Convertible Exchangeable Preferred Stock (the "Series E Cumulative Preferred Stock") now mirrors the dividend restriction in the Company's Senior Subordinated Indenture dated as of March 15, 1992. (v) Replaced the existing cross-default provisions relating to obligations of $10 million or more of the Company's separately financed subsidiaries, Seminole and Savannah River, with cross-acceleration provisions. (vi) Replaced the current prohibition of investments in Stone Venepal Consolidated Pulp Inc. with restrictions substantially similar to the restrictions applicable to the Company's subsidiaries, Savannah River and Seminole. (vii) Maintains the monthly indebtedness ratio requirement, as defined in the 1989 Credit Agreement, at no higher than: 81.5 percent as of the end of each month from December 31, 1993 and ending prior to March 31, 1995 and 81 percent as of the end of each month from March 31, 1995 and ending prior to June 30, 1995. The indebtedness ratio requirement is scheduled to periodically decrease thereafter (from 80 percent on June 30, 1995) until February 28, 1997, when the ratio limitation is required to be 68 percent. (viii) Maintains the Consolidated Tangible Net Worth requirement ("CTNW"), (as defined in the 1989 Credit Agreement), at equal to or greater than 50 percent of the highest CTNW for any quarter since the inception of the 1989 Credit Agreement. There can be no assurance that the Company will be able to achieve and maintain compliance with the prescribed financial ratio tests or other requirements of its 1989 Credit Agreement. Failure to achieve or maintain compliance with such financial ratio tests or other requirements under the 1989 Credit Agreement, in the absence of a waiver or amendment, would result in an event of default and could lead to the acceleration of the obligations under the 1989 Credit Agreement. The Company has successfully sought and received waivers and amendments to its 1989 Credit Agreement on various occasions since entering into the 1989 Credit Agreement. If further waivers or amendments are requested by the Company, there can be no assurance that the Company's bank lenders will again grant such requests. The failure to obtain any such waivers or amendments would reduce the Company's flexibility to respond to adverse industry conditions and could have a material adverse effect on the Company. Pursuant to an output purchase agreement entered into in 1986 with Seminole, the Company is obligated to purchase and Seminole is obligated to sell all of Seminole's linerboard production. Seminole produces 100 percent recycled linerboard and is dependent upon an adequate supply of recycled fiber, in particular old corrugated containers ("OCC"). Under the agreement, the Company paid fixed prices for linerboard, which generally exceeded market prices, until June 3, 1994. Thereafter, the Company is only obligated to pay market prices for the remainder of the agreement. Because market prices for linerboard are currently less than the fixed prices previously in effect under the output purchase agreement and due to recent significant increases in the cost of recycled fiber, it is anticipated that Seminole will not comply with certain financial covenants at September 30, 1994. Accordingly, F-8 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED) Seminole's lenders under its credit agreement have agreed to grant waivers and amendments with respect to such covenants for periods up to and including June 30, 1995. There can be no assurance that the lenders will grant such waivers or that Seminole will not require additional waivers in the future. Depending upon the level of market prices and the cost and supply of recycled fiber, Seminole may need to undertake additional measures to meet its debt service requirements (including covenants), including obtaining additional sources of funds or liquidity, postponing or restructuring of debt service payments or refinancing the indebtedness. In the event that such measures are required and are not successful, and such indebtedness is accelerated by the respective lenders to Seminole, the lenders to the Company under the 1989 Credit Agreement and various other of its debt instruments would be entitled to accelerate the indebtedness owed by the Company. Pursuant to an output purchase agreement entered into in 1988 with Savannah River, the Company is obligated to purchase and Savannah River is obligated to sell all of Savannah River's linerboard and market pulp production at fixed prices until December 1994 and November 1995, respectively, and thereafter at market prices for the remainder of the agreement. While the fixed prices in effect at June 30, 1994 for Savannah River were higher than market prices at such date, the price differentials have not had, nor are they expected to have, a significant impact on the Company's results of operations or financial position. Notwithstanding the fixed price provisions of the output purchase agreement, due to the relatively high cost of raw materials (primarily wood and recycled fiber), and its highly leveraged capital structure, Savannah River has required a waiver from its bank lenders of its fixed-charges-coverage ratio for each fiscal quarter end since December 31, 1993. Management has prepared projections that indicate that Savannah River will require another waiver from its bank lenders through at least December 31, 1994. Furthermore, Savannah River may need to undertake additional measures to meet its debt service requirements (including covenants), including obtaining additional sources of funds or liquidity, postponing or restructuring of debt service payments or refinancing the indebtedness. In the event that such measures are required and are not successful, and such indebtedness is accelerated by the respective lenders to Savannah River, the lenders to the Company under the 1989 Credit Agreement and various other of its debt instruments would be entitled to accelerate the indebtedness owed by the Company. As described in Note 4, the Offering and Related Transactions, if completed, would repay the Savannah River indebtedness, including borrowings outstanding under its credit agreement, and would result in the termination of the output purchase agreement. The Company will seek additional waivers from Savannah River's lenders if the Offering and Related Transactions, as described in Note 4, are not completed as of September 29, 1994. As a result of the February 1994 Offerings, the "dividend pool" established by the restrictions on payment of dividends under the Senior Subordinated Indenture dated March 15, 1992 relating to the Company's 10-3/4 percent Senior Subordinated Notes due June 15, 1997, its 11 percent Senior Subordinated Notes due August 15, 1999 and its 10-3/4 percent Senior Subordinated Debenture due April 1, 2002 was replenished from the sale of the common shares. On May 16, 1994, the Company paid both a regular quarterly cash dividend of $.4375 per share and a cumulative cash dividend of $1.3125 per share on the Company's $1.75 Series E Cumulative Convertible Exchangeable Preferred Stock ("Series E Cumulative Preferred Stock"), to stockholders of record on April 15, 1994. The cumulative cash dividend fully satisfied all accumulated dividends in arrears on the Series E Cumulative Preferred Stock at that time. As a result of net losses, the dividend pool has been subsequently depleted and, accordingly, the Company's Board of Directors did not declare the scheduled August 15, 1994 quarterly dividend on the Series E Cumulative Preferred Stock. In the event the Company does not pay a dividend on the Series E Cumulative Preferred Stock for six quarters, the holders of the Series E Cumulative Preferred Stock F-9 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED) would have the right to elect two members to the Company's Board of Directors until the accumulated dividends on such Series E Cumulative Preferred Stock have been declared and paid or set apart for payment. Due to industry conditions during the past few years and due principally to depressed product prices and significant interest costs attributable to the Company's highly leveraged capital structure, the Company incurred net losses in each of the last three years and for the first half of 1994 and expects to incur a net loss for the 1994 fiscal year. While market conditions have improved since October 1993, permitting the Company to implement price increases for most of its products, such prices remain below the historical high prices which were achieved during the peak of the last industry cycle, particularly prices for newsprint and market pulp. Additionally, while product prices have increased since October 1993, the Company's production costs (including labor, fiber and energy), as well as its interest expense, have increased since the last pricing peak in the industry, increasing pressure on the Company's net margins for its products. The successive net losses have significantly impaired the Company's liquidity and available sources of liquidity. The Company improved its liquidity and financial flexibility through the completion of the February 1994 Offerings. Notwithstanding these improvements in the Company's liquidity and financial flexibility, unless the Company achieves and maintains increased selling prices beyond current levels, the Company will continue to incur net losses and would not generate sufficient cash flows to meet fully the Company's debt service requirements in the future. Without such price increases, the Company may exhaust all or substantially all of its cash resources and borrowing availability under the existing revolving credit facilities. In such event, the Company would be required to pursue other alternatives to improve liquidity, including further costs reductions, additional sales of assets, the deferral of certain capital expenditures, obtaining additional sources of funds or liquidity and/or pursuing the possible restructuring of its indebtedness. There can be no assurance that such measures, if required, would generate the liquidity required by the Company to operate its business and service its indebtedness. As currently scheduled, beginning in 1996 and continuing thereafter, the Company will be required to make significant amortization payments on its existing indebtedness which would require the Company to raise sufficient funds from operations and/or other sources or refinance and/or restructure maturing indebtedness. No assurance can be given that the Company will be successful in doing so. As discussed in Note 4, the Offering, together with the Related Transactions, if completed, is expected to improve the Company's financial flexibility by extending the scheduled amortization obligations and final maturities of more than $1 billion of the Company's indebtedness and improve the Company's liquidity by replacing its current $166 million revolving credit facility commitments with a $450 million of revolving credit commitment. F-10 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8: INVENTORIES Inventories are summarized as follows:
JUNE 30, DECEMBER 31, 1994 1993 ----------- -------------- (IN MILLIONS) Raw materials and supplies......................................... $ 296.8 $ 333.8 Paperstock*........................................................ 240.3 284.2 Work in process.................................................... 20.2 16.8 Finished products -- converting facilities......................... 114.0 99.5 ----------- ------- 671.3 734.3 Excess of current cost over LIFO inventory value................... (14.8) (14.9) ----------- ------- Total inventories.................................................. $ 656.5 $ 719.4 ----------- ------- ----------- ------- - ------------------------ * Includes linerboard, corrugating medium, kraft paper, newsprint, market pulp and groundwood paper.
At June 30, 1994 and December 31, 1993, the percentage of total inventories costed by the LIFO, FIFO and average cost methods were as follows:
JUNE 30, 1994 DECEMBER 31, 1993 ------------- ------------------- LIFO............................................................... 43% 44% FIFO............................................................... 8% 6% Average Cost....................................................... 49% 50%
NOTE 9: CURRENT MATURITIES OF LONG-TERM DEBT Current maturities of long-term debt at June 30, 1994 and December 31, 1993 consisted of the following components:
JUNE 30, DECEMBER 31, 1994 1993 ----------- -------------- (IN MILLIONS) Senior debt........................................................ $ 18.1 $ 17.7 Subordinated debt.................................................. -- 4.9 Non-recourse debt of consolidated affiliates....................... 271.3 290.5 ----------- ------- Total current maturities of long-term debt......................... $ 289.4 $ 313.1 ----------- ------- ----------- -------
As described in Note 4, the Offering and the Related Transactions, if completed, would repay the Savannah River indebtedness, including borrowings outstanding under its credit agreement, which would then be terminated. The 1989 Credit Agreement limits in certain specific circumstances any further investments by the Company in Stone-Consolidated, Seminole and Savannah River. Savannah River has substantial indebtedness which had been incurred in connection with project financing and is significantly leveraged. As of June 30, 1994, Savannah River had $383.1 million in outstanding indebtedness (including $249.5 million in secured indebtedness owed to bank lenders). Emerging Issues Task Force Issue No. 86-30, "Classification of Obligations When a Violation is Waived by the Creditor," requires a company to reclassify long-term debt as current when a covenant violation has occurred at the balance sheet date or would have occurred absent a loan modification and it is probable that the borrower will not be able to comply with the same covenant at measurement dates that are within the next twelve months. In May 1994, Savannah River received a waiver of its fixed-charges-coverage covenant requirement as of June 30, 1994. Management has prepared projections that indicate that Savannah River will not be in compliance with F-11 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9: CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED) this covenant as of September 30, 1994. Consequently, approximately $215.8 million and $237.9 million of Savannah River debt that otherwise would have been classified as long-term has been classified as current in the June 30, 1994 and December 31, 1993 consolidated balance sheets, respectively. Savannah River has received from its lenders waivers of the appropriate financial covenants through September 29, 1994. Savannah River will seek additional waivers from its lenders if the Offering and Related Transactions, as described in Note 4, are not completed as of September 29, 1994. Failure to obtain covenant relief beyond September 29, 1994 would result in a default under Savannah River's credit agreement and other indebtedness and, if any such indebtedness was accelerated by the holders thereof, the lenders to the Company under the 1989 Credit Agreement and various other of the Company's debt instruments would be entitled to accelerate the indebtedness owed by the Company. The following table provides, as of June 30, 1994, the actual amounts of long-term debt maturing through 2000 and thereafter. Remainder of 1994......................................... $ 269.3 1995...................................................... 270.1 1996...................................................... 216.1 1997...................................................... 748.7 1998...................................................... 524.8 1999...................................................... 323.0 2000...................................................... 566.5 Thereafter................................................ 1,457.3
NOTE 10: SUMMARY FINANCIAL INFORMATION FOR STONE SOUTHWEST CORPORATION Shown below is consolidated, summarized financial information for Stone Southwest, Inc. (formerly known as Southwest Forest Industries, Inc.). The summarized financial information for Stone Southwest, Inc. does not include purchase accounting adjustments or the impact of the debt incurred to finance the acquisition of Stone Southwest, Inc.:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1994 1993 1994 1993 --------- --------- --------- --------- (IN MILLIONS) Net sales............................................................... $ 402.7 $ 409.6 $ 827.9 847.3 Cost of products sold and depreciation.................................. 343.9 343.1 713.5 698.4 Income (loss) before cumulative effects of accounting changes........... 10.4 (3.2) 6.9 2.4 Cumulative effect of change in accounting for postemployment benefits (net of $2.5 income tax benefit)....................................... -- -- (3.9) -- Cumulative effect of change in accounting for postretirement benefits (net of $5.2 income tax benefit)....................................... -- -- -- (8.3) Net income (loss)....................................................... 10.4 (3.2) 3.0 (5.9)
JUNE 30, DECEMBER 31, 1994 1993 ---------- -------------- (IN MILLIONS) Current assets........................................................................ $ 340.7 $ 360.9 Noncurrent assets*.................................................................... 1,629.5 1,600.5 Current liabilities................................................................... 147.7 141.3 Noncurrent liabilities and obligations................................................ 395.1 395.8 - ------------------------ * Includes $890.8 and $857.4 due from the Company at June 30, 1994 and December 31, 1993, respectively.
F-12 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11: SEGMENT INFORMATION Financial information by business segment is summarized as follows:
SIX MONTHS ENDED ----------------------------------------------- THREE MONTHS ENDED JUNE 30, 1994 ----------------------------------------------- ---------------------- JUNE 30, 1993 INCOME ---------------------- (LOSS) INCOME BEFORE (LOSS) INCOME BEFORE TAXES, INCOME JUNE 30, 1994 JUNE 30, 1993 MINORITY TAXES, ---------------------- ---------------------- INTEREST, MINORITY INCOME INCOME EXTRAORDINARY INTEREST (LOSS) (LOSS) LOSS AND AND BEFORE BEFORE CUMULATIVE CUMULATIVE INCOME INCOME EFFECT OF EFFECT OF TAXES AND TAXES AND AN AN TOTAL MINORITY TOTAL MINORITY TOTAL ACCOUNTING TOTAL ACCOUNTING SALES INTEREST SALES INTEREST(A) SALES CHANGE SALES CHANGE(A) ---------- --------- ---------- --------- ---------- --------- ---------- --------- (IN MILLIONS) Paperboard and paper packaging.................... $ 992.4 $ 52.6 $ 960.2 $ 51.5 $ 1,946.4 $ 105.1 $ 1,933.2 $ 113.9 White paper and pulp.......... 275.8 (7.9) 238.7 (42.9) 536.5 (46.2) 492.7 (86.7) Other......................... 90.7 14.7 80.5 5.9 179.3 26.4 173.2 19.5 Intersegment.................. (4.6) -- (11.8) -- (17.1) -- (25.2) -- ---------- --------- ---------- --------- ---------- --------- ---------- --------- 1,354.3 59.4 1,267.6 14.5 2,645.1 85.3 2,573.9 46.7 Interest expense.............. (110.7) (101.8) (224.3) (204.1) Foreign currency transaction adjustments.................. (.7) (3.6) (15.9) (5.1) General corporate and miscellaneous (net).......... (18.7) (17.4) (36.9) (34.8) ---------- --------- ---------- --------- ---------- --------- ---------- --------- Total......................... $ 1,354.3 $ (70.7) $ 1,267.6 $ (108.3) $ 2,645.1 $ (191.8) $ 2,573.9 $ (197.3) ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
Financial information by geographic region is summarized as follows:
SIX MONTHS ENDED ----------------------------------------------- THREE MONTHS ENDED JUNE 30, 1994 ----------------------------------------------- ---------------------- JUNE 30, 1993 INCOME ---------------------- (LOSS) INCOME BEFORE (LOSS) INCOME BEFORE TAXES, INCOME JUNE 30, 1994 JUNE 30, 1993 MINORITY TAXES, ---------------------- ---------------------- INTEREST, MINORITY INCOME INCOME EXTRAORDINARY INTEREST (LOSS) (LOSS) LOSS AND AND BEFORE BEFORE CUMULATIVE CUMULATIVE INCOME INCOME EFFECT OF EFFECT OF TAXES AND TAXES AND AN AN TOTAL MINORITY TOTAL MINORITY TOTAL ACCOUNTING TOTAL ACCOUNTING SALES INTEREST SALES INTEREST(A) SALES CHANGE SALES CHANGE(A) ---------- --------- ---------- --------- ---------- --------- ---------- --------- (IN MILLIONS) United States................. $ 985.7 $ 61.0 $ 925.7 $ 24.7 $ 1,937.5 $ 100.4 $ 1,850.5 $ 70.0 Canada........................ 247.5 (2.6) 192.1 (9.4) 454.1 (17.3) 383.0 (26.3) Europe........................ 141.0 1.0 160.8 (.8) 282.3 2.2 359.7 3.0 ---------- --------- ---------- --------- ---------- --------- ---------- --------- 1,374.2 59.4 1,278.6 14.5 2,673.9 85.3 2,593.2 46.7 Interest expense.............. (110.7) (101.8) (224.3) (204.1) Foreign currency transaction adjustments.................. (.7) (3.6) (15.9) (5.1) General corporate and miscellaneous (net).......... (18.7) (17.4) (36.9) (34.8) Inter-area eliminations....... (19.9) -- (11.0) -- (28.8) -- (19.3) -- ---------- --------- ---------- --------- ---------- --------- ---------- --------- Total......................... $ 1,354.3 $ (70.7) $ 1,267.6 $ (108.3) $ 2,645.1 $ (191.8) $ 2,573.9 $ (197.3) ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- - ------------------------------ (a) Adjusted to conform to current financial statement presentation.
F-13 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12: ADDITIONAL CASH FLOW STATEMENT INFORMATION The Company's non-cash investing and financing activities and cash payments for interest and income taxes were as follows:
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 ----------------- ------------------- 1994 1993 1994 1993 ------- ------- -------- -------- (IN MILLIONS) Non-cash investing and financing activities: Unrealized (gain) loss on an investment in an equity security (net of income tax benefit)....................... $ (3.3) $ -- $ 5.7 $ -- Note receivable received from sale of assets................ -- -- 1.3 -- Preferred stock dividends issued by a consolidated affiliate.................................................. -- 1.5 -- 2.9 Capital lease obligations incurred.......................... -- -- -- .2 Cash paid during the periods for: Interest (net of capitalization)............................ $ 91.9 $ 92.3 $ 190.7 $ 188.3 Income taxes (net of refunds)............................... (.4) 1.9 2.6 7.7 ------- ------- -------- -------- ------- ------- -------- --------
F-14 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Stone Container Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of stockholders' equity present fairly, in all material respects, the financial position of Stone Container Corporation and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 11 to the consolidated financial statements, the Company's liquidity has been adversely affected by the net losses incurred in the past three years. Recent financings and other transactions have improved liquidity; however, improvements in cash flows from operations eventually will be necessary. In addition, as discussed in Note 18, two of the Company's subsidiaries may need to undertake additional measures to meet their separate debt service requirements. As discussed in Note 1 to the consolidated financial statements, the Company changed its methods of accounting for income taxes and for postretirement benefits other than pensions effective January 1, 1992 and 1993, respectively. PRICE WATERHOUSE LLP Chicago, Illinois March 23, 1994 F-15 STONE CONTAINER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 ---------- ---------- ---------- (IN MILLIONS EXCEPT PER SHARE) SALES Net sales.................................................................. $ 5,059.6 $ 5,520.7 $ 5,384.3 ---------- ---------- ---------- OPERATING COSTS AND EXPENSES Cost of products sold...................................................... 4,223.5 4,473.7 4,287.2 Selling, general and administrative expenses............................... 512.2 543.5 522.8 Depreciation and amortization.............................................. 346.8 329.2 273.5 Equity (income) loss from affiliates....................................... 11.7 5.3 (1.1) Other net operating (income) expense....................................... 4.7 12.8 (62.8) ---------- ---------- ---------- 5,098.9 5,364.5 5,019.6 ---------- ---------- ---------- Income (loss) from operations.............................................. (39.3) 156.2 364.7 Interest expense........................................................... (426.7) (386.1) (397.4) Other, net................................................................. (.9) .6 14.7 ---------- ---------- ---------- Loss before income taxes and cumulative effects of accounting changes...... (466.9) (229.3) (18.0) Provision (credit) for income taxes........................................ (147.7) (59.4) 31.1 ---------- ---------- ---------- NET LOSS Loss before cumulative effects of accounting changes....................... (319.2) (169.9) (49.1) Cumulative effect of change in accounting for postretirement benefits (net of income taxes of $23.3)................................................. (39.5) -- -- Cumulative effect of change in accounting for income taxes................. -- (99.5) -- ---------- ---------- ---------- Net loss..................................................................... (358.7) (269.4) (49.1) Preferred stock dividends.................................................... (8.1) (6.9) -- ---------- ---------- ---------- Net loss applicable to common shares......................................... $ (366.8) $ (276.3) $ (49.1) ---------- ---------- ---------- ---------- ---------- ---------- NET LOSS PER COMMON SHARE* Loss before cumulative effects of accounting changes....................... (4.59) (2.49) (.78) Cumulative effect of change in accounting for postretirement benefits...... (.56) -- -- Cumulative effect of change in accounting for income taxes................. -- (1.40) -- ---------- ---------- ---------- Net loss per common share.................................................... $ (5.15) $ (3.89) $ (.78) ---------- ---------- ---------- ---------- ---------- ---------- - ------------------------ * Amounts per common share have been adjusted for the 2 percent common stock dividend issued September 15, 1992.
The accompanying notes are an integral part of these statements. F-16 STONE CONTAINER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------ 1993 1992 ----------- ----------- (IN MILLIONS) Current assets: Cash and cash equivalents............................................................. $ 247.4 $ 58.9 Accounts and notes receivable (less allowances of $19.3).............................. 622.3 688.1 Inventories........................................................................... 719.4 785.3 Other................................................................................. 164.1 169.5 ----------- ----------- Total current assets............................................................ 1,753.2 1,701.8 ----------- ----------- Property, plant and equipment......................................................... 5,240.7 5,365.1 Accumulated depreciation and amortization............................................. (1,854.3) (1,661.9) ----------- ----------- Property, plant and equipment -- net............................................ 3,386.4 3,703.2 Timberlands........................................................................... 83.9 69.4 Goodwill.............................................................................. 910.5 983.5 Other................................................................................. 702.7 569.1 ----------- ----------- Total assets.................................................................... $ 6,836.7 $ 7,027.0 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable......................................................................... $ -- $ 33.0 Current maturities of senior and subordinated long-term debt.......................... 22.6 144.7 Current maturities of non-recourse debt of consolidated affiliates.................... 290.5 40.1 Accounts payable...................................................................... 297.1 364.2 Income taxes.......................................................................... 47.6 62.2 Accrued and other current liabilities................................................. 285.7 300.6 ----------- ----------- Total current liabilities....................................................... 943.5 944.8 ----------- ----------- Senior long-term debt................................................................. 2,338.0 2,511.1 Subordinated debt..................................................................... 1,257.8 1,019.2 Non-recourse debt of consolidated affiliates.......................................... 672.6 574.8 Other long-term liabilities........................................................... 270.3 152.7 Deferred taxes........................................................................ 470.6 685.2 Redeemable preferred stock of consolidated affiliate.................................. 42.3 36.3 Minority interest..................................................................... 234.5 .2 Commitments and contingencies (Note 18)............................................... Stockholders' equity: Series E preferred stock.............................................................. 115.0 115.0 Common stock (71.2 and 71.0 shares outstanding)....................................... 574.3 645.7 Retained earnings..................................................................... 101.6 496.0 Foreign currency translation adjustment............................................... (179.0) (149.3) Unamortized expense of restricted stock plan.......................................... (4.8) (4.7) ----------- ----------- Total stockholders' equity...................................................... 607.1 1,102.7 ----------- ----------- Total liabilities and stockholders' equity...................................... $ 6,836.7 $ 7,027.0 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these statements. F-17 STONE CONTAINER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES Net loss........................................................................ $ (358.7) $ (269.4) $ (49.1) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Cumulative effect of change in accounting for postretirement benefits......... 39.5 -- -- Cumulative effect of change in accounting for income taxes.................... -- 99.5 -- Depreciation and amortization................................................. 346.8 329.2 273.5 Deferred taxes................................................................ (133.9) (67.5) 21.6 Foreign currency transaction losses (gains)................................... 11.8 15.0 (4.9) Payment on settlement of interest rate swaps.................................. (33.0) -- -- Other -- net.................................................................. (89.3) 60.6 12.3 Changes in current assets and liabilities -- net of adjustments for divestitures and an acquisition: Decrease (increase) in accounts and notes receivable -- net................... 44.9 (66.6) 33.5 Decrease (increase) in inventories............................................ 28.9 10.5 (60.4) Decrease (increase) in other current assets................................... (9.3) 9.2 (75.2) Increase (decrease) in accounts payable and other current liabilities......... (60.4) (34.9) 59.2 --------- --------- --------- Net cash provided by (used in) operating activities........................... (212.7) 85.6 210.5 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings...................................................................... 611.4 1,024.8 753.0 Payments made on debt........................................................... (698.1) (912.4) (795.9) Non-recourse borrowings of consolidated affiliates.............................. 400.6 40.0 155.5 Payments by consolidated affiliates on non-recourse debt........................ (55.0) (10.4) (34.4) Proceeds from issuance of preferred stock....................................... -- 111.0 -- Proceeds from issuance of common stock.......................................... -- .1 176.0 Proceeds from issuance of common stock of a consolidated subsidiary............. 161.8 -- -- Proceeds from the settlement of cross currency swaps............................ 67.9 -- -- Cash dividends.................................................................. (4.0) (30.7) (44.7) --------- --------- --------- Net cash provided by financing activities..................................... 484.6 222.4 209.5 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures: Funded by project financings.................................................. (14.6) (79.1) (219.8) Other......................................................................... (135.1) (202.3) (210.3) --------- --------- --------- Total capital expenditures.................................................. (149.7) (281.4) (430.1) --------- --------- --------- Payments made for businesses acquired........................................... (.1) (27.2) (18.8) Proceeds from sales of assets................................................... 106.0 9.5 22.1 Other -- net.................................................................... (40.7) (10.7) 13.7 --------- --------- --------- Net cash used in investing activities......................................... (84.5) (309.8) (413.1) --------- --------- --------- Effect of exchange rate changes on cash......................................... 1.1 (3.4) 3.3 --------- --------- --------- NET CASH FLOWS Net increase (decrease) in cash and cash equivalents............................ 188.5 (5.2) 10.2 Cash and cash equivalents, beginning of period.................................. 58.9 64.1 53.9 --------- --------- --------- Cash and cash equivalents, end of period........................................ $ 247.4 $ 58.9 $ 64.1 --------- --------- --------- --------- --------- --------- - ------------------------ See Note 5 regarding non-cash financing and investing activities and supplemental cash flow information.
The accompanying notes are an integral part of these statements. F-18 STONE CONTAINER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 1993 1992 1991 ---------------------- ----------------------- ----------------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES --------- ----------- ---------- ----------- ---------- ----------- (IN MILLIONS EXCEPT PER SHARE) PREFERRED STOCK Balance at January 1............................. $ 115.0 4.6 $ -- -- $ -- -- Issuance of preferred stock: Public offering................................ -- -- 115.0 4.6 -- -- --------- --- ---------- --- ---------- --- Balance at December 31........................... 115.0 4.6 115.0 4.6 -- -- --------- --- ---------- --- ---------- --- --- --- --- COMMON STOCK Balance at January 1............................. 645.7 71.0 613.2 69.5 435.7 60.0 Issuance of common stock: Public offering................................ -- -- -- -- 174.7 9.2 Exercise of stock options...................... -- -- .1 -- .1 -- Restricted stock plan.......................... 2.9 .2 2.8 .1 2.7 .3 Preferred stock conversion..................... .1 -- -- -- -- -- 2 percent common stock dividend................ -- -- 29.6 1.4 -- -- Public offering of subsidiary stock............ (74.4) -- -- -- -- -- --------- --- ---------- --- ---------- --- Balance at December 31........................... 574.3 71.2 645.7 71.0 613.2 69.5 --------- --- ---------- --- ---------- --- --- --- --- RETAINED EARNINGS Balance at January 1............................. 496.0 832.8 926.7 Net loss......................................... (358.7) (269.4) (49.1) Cash dividends: Common stock*.................................. -- (24.8) (44.7) Preferred stock*............................... (4.0) (5.9) -- 2 percent common stock dividend.................. -- (29.6) -- Minimum pension liability in excess of unrecognized prior service cost................. (31.7) (7.1) (.1) --------- ---------- ---------- Balance at December 31........................... 101.6 496.0 832.8 --------- ---------- ---------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance at January 1............................. (149.3) 95.5 101.5 Aggregate adjustment from translation of foreign currency statements............................. (29.7) (244.8) (6.0) --------- ---------- ---------- Balance at December 31........................... (179.0) (149.3) 95.5 --------- ---------- ---------- UNAMORTIZED EXPENSE OF RESTRICTED STOCK PLAN Balance at January 1............................. (4.7) (4.0) (3.4) Issuance of shares............................... (2.9) (2.8) (2.7) Amortization of expense.......................... 2.8 2.1 2.1 --------- ---------- ---------- Balance at December 31........................... (4.8) (4.7) (4.0) --------- ---------- ---------- Total stockholders' equity at December 31........ $ 607.1 $ 1,102.7 $ 1,537.5 --------- ---------- ---------- --------- ---------- ---------- - ------------------------ * Cash dividends paid on common stock, adjusted for the 2 percent stock dividend issued September 15, 1992, were $.35 per share in 1992 and $.71 per share in 1991. No cash dividends on common stock were paid in 1993. Cash dividends paid on preferred stock were $.875 per share in 1993 and $1.28 per share in 1992.
The accompanying notes are an integral part of these statements. F-19 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and all subsidiaries that are more than 50 percent owned. The Company's subsidiary Cartomills, S.A. ("Cartomills") was also accounted for as a consolidated subsidiary beginning October 31, 1990 upon the Company's acquisition of 30 percent of the outstanding common stock of Cartomills. In 1992, the Company purchased the remaining 70 percent of the common stock of Cartomills. All significant intercompany accounts and transactions have been eliminated. Investments in non-consolidated affiliated companies are primarily accounted for by the equity method. PER SHARE DATA: Net loss per common share is computed by dividing net loss applicable to common shares by the weighted average number of common shares outstanding during each year. The weighted average number of common shares outstanding was 71,162,646 in 1993, 70,986,564 in 1992 and 63,206,529 in 1991. Common stock equivalent shares, issuable upon exercise of outstanding stock options, are included in these calculations when they would have a dilutive effect on the per share amounts. All amounts per common share and the weighted average number of common shares outstanding have been adjusted for the 2 percent common stock dividend issued September 15, 1992. Fully diluted earnings per share is not disclosed because of the anti-dilutive effect of the Company's convertible securities. RECLASSIFICATIONS: Certain prior year amounts have been restated to conform with the current year presentation in the Consolidated Statements of Operations, the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents and, therefore, includes such investments as cash and cash equivalents in its financial statements. INVENTORIES: Inventories are stated at the lower of cost or market. The primary methods used to determine inventory costs are the first-in-first-out ("FIFO") method, the last-in-first-out ("LIFO") method and the average cost method. PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION: Property, plant and equipment is stated at cost. Expenditures for maintenance and repairs are charged to income as incurred. Additions, improvements and major replacements are capitalized. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income. For financial reporting purposes, depreciation and amortization is primarily provided on the straight-line method over the estimated useful lives of depreciable assets, or over the duration of the leases for capitalized leases, based on the following annual rates:
TYPE OF ASSET RATES - ------------------------------------------------------------------------------- ------------- Machinery and equipment........................................................ 5% to 33% Buildings and leasehold improvements........................................... 2% to 10% Land improvements.............................................................. 4% to 7%
F-20 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) TIMBERLANDS: Timberlands are stated at cost less accumulated cost of timber harvested. The Company amortizes its private fee timber costs over the estimated total fiber that will be available during the estimated growth cycle. Cost of non-fee timber harvested is determined on the basis of timber removal rates and the estimated volume of recoverable timber. The Company capitalizes interest costs related to pre-merchantable timber. INCOME TAXES: Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which required a change from the deferred method to the liability method of accounting for income taxes. In connection with the adoption of SFAS 109, the Company recorded a one-time, non-cash after-tax charge to its first quarter 1992 earnings of $99.5 million or $1.40 per share of common stock. This adjustment is reported as a cumulative effect of a change in accounting principles in the Company's Statements of Operations. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. SFAS 109 requires that assets and liabilities acquired in a business combination accounted for under the purchase method of accounting be recorded at their gross fair values, with a separate deferred tax balance recorded for the related tax effects. Accordingly, effective with the adoption of SFAS 109, the Company's property, plant and equipment increased by $331 million, resulting in increased annual depreciation expense of approximately $28 million which is offset by comparable reductions in deferred income tax expense as the related taxable temporary differences reverse. The impact of the adoption of SFAS 109 on the deferred income tax accounts as of January 1, 1992 was an increase in the deferred tax liability of approximately $500 million and an increase in the current deferred tax asset of approximately $18 million. Financial statements for years prior to 1992 have not been restated. GOODWILL AND OTHER ASSETS: Goodwill is amortized on a straight-line basis over 40 years, and is recorded net of accumulated amortization of approximately $129 million and $107 million at December 31, 1993 and 1992, respectively. The Company assesses at each balance sheet date whether there has been a permanent impairment in the value of goodwill. This is accomplished by determining whether projected undiscounted future cash flows from operations exceed the net book value of goodwill as of the assessment date. Such projections reflect price, volume and cost assumptions. Additional factors considered by management in the preparation of the projections and in assessing the value of goodwill include the effects of obsolescence, demand, competition and other pertinent economic factors and trends and prospects that may have an impact on the value or remaining useful life of goodwill. Deferred debt issuance costs are amortized over the expected life of the related debt using the interest method. Start-up costs on major projects were capitalized and amortized over a ten-year period prior to October 1, 1993. Effective October 1, 1993, the Company changed its estimate of the useful life of deferred start-up costs to a five-year period. The effect of this change in estimate was to increase depreciation and amortization expense by approximately $3.1 million and decrease net income by $2.0 million or $.02 per common share. Other long-term assets include $80 million and $73 million of unamortized deferred start-up costs at December 31, 1993 and 1992, respectively. F-21 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PUBLIC OFFERING OF SUBSIDIARY STOCK: When the sale of subsidiary stock takes the form of a direct sale of its unissued shares, the Company records the difference relating to the carrying amount per share and the offering price per share as an adjustment to common stock in those instances in which the Company has determined that the difference does not represent a permanent impairment. FOREIGN CURRENCY TRANSLATION: The functional currency for the Company's foreign operations is the applicable local currency. Accordingly, assets and liabilities are translated at the exchange rate in effect at the balance sheet date and income and expenses are translated at average exchange rates prevailing during the year. Translation gains or losses are accumulated as a separate component of stockholders' equity entitled Foreign Currency Translation Adjustment. Foreign currency transaction gains or losses are credited or charged to income. These transaction gains or losses arise primarily from the translation of monetary assets and liabilities that are denominated in a currency other than the local currency. FOREIGN CURRENCY AND INTEREST RATE HEDGES: The Company utilizes various financial instruments to hedge its foreign currency and interest rate exposures. Premiums received and fees paid on the financial instruments are deferred and amortized over the period of the agreements. Gains and losses on the instruments are used to offset the effects of foreign exchange and interest rate fluctuations in the Statements of Operations. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"), which required the Company to change from the pay-as-you-go (cash) method to the accrual method of accounting for such postretirement benefits (primarily health care and life insurance). Upon adoption of SFAS 106, the Company recorded its catch-up accumulated postretirement benefit obligation (approximately $62.8 million) by recognizing a one-time, non-cash charge of $39.5 million, net of income taxes, as a cumulative effect of an accounting change in its 1993 first quarter Statement of Operations. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for the estimated costs of providing certain benefits to former or inactive employees and the employees' beneficiaries and dependents after employment but before retirement. The Company intends to adopt SFAS 112 by recognizing the catch-up obligation for its worldwide operations as a cumulative effect of an accounting change effective January 1, 1994 in the 1994 first quarter Statement of Operations. The one-time, non-cash charge will be approximately $14 million, net of income taxes. NOTE 2 -- SUBSEQUENT EVENTS On February 3, 1994, under the Company's $1 billion shelf registration, the Company sold $710 million principal amount of 9 7/8 percent Senior Notes due February 1, 2001 and 16.5 million shares of common stock for an additional $251.6 million at $15.25 per common share. On February 17, 1994, the underwriters elected to exercise their option to sell an additional 2.47 million shares of common stock for an additional $37.7 million, also at $15.25 per common share in the February 1994 Offerings. The net proceeds from the February 1994 Offerings of approximately $962 million were used to (i) prepay approximately $652 million of the 1995, 1996 and 1997 required amortization under the 1989 Credit Agreement including the ratable amortization payment under the revolving credit facilities which had the effect of reducing the total commitments thereunder to approximately $168 million; (ii) redeem the F-22 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- SUBSEQUENT EVENTS (CONTINUED) Company's 13 5/8 percent Subordinated Notes due 1995 at a price equal to par, approximately $98 million principal amount, plus accrued interest to the redemption date; (iii) repay approximately $136 million of the outstanding borrowings under the Company's revolving credit facilities without reducing the commitments thereunder; and (iv) provide liquidity in the form of cash. Had the issuance of the common shares occurred on January 1, 1993, the Company's weighted average number of common shares outstanding would have been 84,270,232 and the net loss per common share would have been $4.35 for the year ended December 31, 1993. NOTE 3 -- ACQUISITIONS/MERGERS/DISPOSITIONS In December 1993, the Company sold two of its short-line railroads in a transaction in which the Company has guaranteed to contract minimum railroad services which will provide freight revenues to the railroads over a 10 year period. The transaction has been accounted for as a financing and accordingly, had no impact on the Company's 1993 net loss. The Company received proceeds of approximately $28 million, of which approximately $19 million was used to repay commitments under the 1989 Credit Agreement. Also in December 1993, the Company sold its 49 percent equity interest in Titan. The net proceeds were used to repay commitments under the 1989 Credit Agreement and for repayment of borrowings under its revolving credit facilities without reducing commitments thereunder. The sale resulted in a pre-tax gain of approximately $35.4 million. On May 6, 1993, the Company's wholly-owned German subsidiary, Europa Carton A.G., ("Europa Carton"), completed a joint venture with Financiere Carton Papier (FCP), a French company, to merge the folding carton operations of Europa Carton with those of FCP ("FCP Group"). Under the joint venture, FCP Group is owned equally by Europa Carton and the shareholders of FCP immediately prior to the merger. The Company's investment in the joint venture is being accounted for under the equity method of accounting. During 1993, the Company increased its ownership in the common stock of Savannah River from 90.2 percent to 92.8 percent through the purchase of an additional 6,152 common shares and through the receipt of Series D Preferred Stock as a dividend in kind on Savannah River's Series B Preferred Stock and the election of its right to convert the Series D Preferred Stock into 198,438 common shares. The Company had previously increased its ownership in the common stock of Savannah River from 50.0 percent to 90.2 percent by acquiring 321,502 shares during 1992 and 1991. Savannah River operates a linerboard and market pulp mill in Port Wentworth, Georgia. In October and November 1992, the Company purchased the remaining 70.0 percent of the common stock (12,600 shares) of Cartomills, a Belgian company that operates two corrugated container plants. In June 1992, the Company acquired an additional 45,666 shares of Seminole common stock, thereby increasing its ownership in the common stock of Seminole from 94.4 percent to 99.0 percent. The Company had previously increased its ownership in the common stock of Seminole from 85.4 percent to 94.4 percent by purchasing 90,000 shares during 1991. Seminole operates an unbleached recycled linerboard and kraft paper mill in Jacksonville, Florida. The Company also made a minor acquisition and a divestiture during the years for which financial statements are presented which did not have a significant impact on the Company's results of operations or financial condition. F-23 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 -- PUBLIC OFFERING OF SUBSIDIARY STOCK In December 1993, Stone-Consolidated, a newly created Canadian subsidiary, acquired the newsprint and uncoated groundwood papers business of Stone Canada and sold $346.5 million of units in an initial public offering comprised of both common stock and convertible subordinated debentures (the "Units Offering"). Each unit was priced at $2,100 and consisted of 100 shares of common stock at $10.50 per share and $1,050 principal amount of convertible debentures. The convertible subordinated debentures mature December 31, 2003, bear interest at an annual rate of 8 percent and are convertible beginning June 30, 1994, into 6.211 shares of common stock for each Canadian $100 principal amount, representing a conversion price of $12.08 per share. Concurrent with the initial public offering, Stone-Consolidated sold $225 million of senior secured notes in a public offering in the United States. The senior secured notes mature December 15, 2000 and bear interest at an annual rate of 10.25 percent. As a result of the Units Offering, 16.5 million shares of common stock, representing 25.4 percent of the total shares outstanding of Stone-Consolidated, were sold to the public, resulting in the recording in the Company's Consolidated Balance Sheet of a minority interest liability of $236.7 million. The Company used approximately $373 million of the net proceeds from the sale of the Stone-Consolidated securities for repayment of commitments under its 1989 Credit Agreement and the remainder for general corporate purposes. As a result of the Units Offering, the Company recorded a charge of $74.4 million to common stock relating to the excess carrying value per common share over the offering price per common share associated with the shares issued. NOTE 5 -- ADDITIONAL CASH FLOW STATEMENT INFORMATION The Company's non-cash investing and financing activities and cash payments (receipts) for interest and income taxes were as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) Issuance of 2 percent common stock dividend.............................. $ -- $ 29.6 $ -- Conversion of notes receivable into investments in an affiliate.......... -- 7.3 -- Preferred stock dividends issued by a consolidated affiliate............. 6.0 5.1 4.4 Capital lease obligations incurred....................................... .3 4.3 -- Assumption of debt in connection with an acquisition..................... -- 3.8 -- Note payable issued in exchange for common shares of a consolidated affiliate............................................................... -- 1.1 -- Exchange of non-recourse debt of consolidated affiliate.................. -- -- 12.5 Accrued liability converted to subordinated debt......................... -- -- 9.8 --------- --------- --------- --------- --------- --------- Cash paid (received) during the year for: Interest (net of capitalization)....................................... $ 375.9 $ 355.6 $ 370.3 Income taxes (net of refunds).......................................... (11.7) (1.9) 14.3 --------- --------- --------- --------- --------- ---------
In 1993, the other-net component of net cash used in operating activities included debt issuance costs of $84 million and an adjustment to remove the effect of a $35 million gain from the sale of the Company's 49 percent equity interest in Titan, partially offset by adjustments to remove the effects of amortization of deferred debt issuance costs and a non-cash charge of $19 million pertaining to the writedown of certain decommissioned assets. In 1992, the other-net component of net cash provided by operating activities included $54 million of cash received from the sale of an energy contract in October 1992. F-24 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 -- INVENTORIES Inventories are summarized as follows:
DECEMBER 31, -------------------- 1993 1992 --------- --------- (IN MILLIONS) Raw materials and supplies..................................... $ 333.8 $ 345.9 Paperstock..................................................... 284.2 316.6 Work in process................................................ 16.8 22.2 Finished products.............................................. 99.5 119.3 --------- --------- 734.3 804.0 Excess of current cost over LIFO inventory value............... (14.9) (18.7) --------- --------- Total inventories.............................................. $ 719.4 $ 785.3 --------- --------- --------- ---------
At December 31, 1993 and 1992, the percentages of total inventories costed by the LIFO, FIFO and average cost methods were as follows:
1993 1992 ----------- ----------- LIFO.............................................................. 44% 42% FIFO.............................................................. 6% 7% Average Cost...................................................... 50% 51%
NOTE 7 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is summarized as follows:
DECEMBER 31, ------------------------ 1993 1992 ----------- ----------- (IN MILLIONS) Machinery and equipment................................... $ 4,398.7 $ 4,381.4 Buildings and leasehold improvements...................... 675.0 668.4 Land and land improvements................................ 103.0 105.7 Construction in progress.................................. 64.0 209.6 ----------- ----------- Total property, plant and equipment....................... 5,240.7 5,365.1 Accumulated depreciation and amortization................. (1,854.3) (1,661.9) ----------- ----------- Total property, plant and equipment -- net................ $ 3,386.4 $ 3,703.2 ----------- ----------- ----------- -----------
Property, plant and equipment includes capitalized leases of $70.3 million and $71.8 million and related accumulated amortization of $24.2 million and $19.8 million at December 31, 1993 and 1992, respectively. NOTE 8 -- INCOME TAXES Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which required a change from the deferred method to the liability method of accounting for income taxes. In connection with the adoption of SFAS 109, the Company recorded a one-time, non-cash after-tax charge to its first quarter 1992 earnings of $99.5 million or $1.40 per share of common stock. This adjustment is reported as a cumulative effect of a change in accounting principles in the Company's Statements of Operations. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their F-25 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- INCOME TAXES (CONTINUED) respective tax bases. SFAS 109 requires that assets and liabilities acquired in a business combination accounted for under the purchase method of accounting be recorded at their gross fair values, with a separate deferred tax balance recorded for the related tax effects. The provision (credit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) Currently payable (refundable): Federal....................................................... $ (28.4) $ (24.7) $ (7.2) State......................................................... 4.0 3.0 (3.1) Foreign....................................................... 10.6 21.7 18.4 --------- --------- --------- (13.8) -- 8.1 --------- --------- --------- Deferred: Federal....................................................... (45.4) 4.9 -- State......................................................... (31.3) (10.8) .9 Foreign....................................................... (57.2) (53.5) 22.1 --------- --------- --------- (133.9) (59.4) 23.0 --------- --------- --------- Total provision (credit) for income taxes....................... $ (147.7) $ (59.4) $ 31.1 --------- --------- --------- --------- --------- ---------
The income tax (credit) at the federal statutory rate is reconciled to the provision (credit) for income taxes as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) Federal income tax (credit) at federal statutory rate........... $ (163.4) $ (78.0) $ (6.1) Additional taxes (credits) resulting from: Non-deductible depreciation and amortization of intangibles... 9.5 9.5 27.2 Foreign statutory rate decreases.............................. (11.2) -- -- U.S. statutory rate increase.................................. 8.7 -- -- State income taxes, net of federal income tax effect.......... (17.7) (5.1) (1.4) Foreign income taxed at rates in excess of U.S. statutory rate......................................................... 4.3 6.1 10.0 Minimum taxes -- foreign jurisdictions........................ 3.6 4.6 4.3 Other -- net.................................................. 18.5 3.5 (2.9) --------- --------- --------- Provision (credit) for income taxes............................. $ (147.7) $ (59.4) $ 31.1 --------- --------- --------- --------- --------- ---------
F-26 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- INCOME TAXES (CONTINUED) The components of the net deferred tax liability as of December 31, 1993 and 1992 were as follows:
DECEMBER 31, -------------------- 1993 1992 --------- --------- (IN MILLIONS) Deferred tax assets: Carryforwards............................................... $ 262.6 $ 125.9 Compensation-related accruals............................... 49.3 5.4 Reserves.................................................... 33.7 29.0 Deferred gain............................................... 26.2 20.3 Tax benefit transfers....................................... 8.8 12.7 Other....................................................... 11.6 18.4 --------- --------- 392.2 211.7 Valuation allowance........................................... (1.2) (1.2) --------- --------- Total deferred tax asset...................................... 391.0 210.5 Deferred tax liability: Depreciation and amortization............................... (754.3) (779.5) Start-up costs.............................................. (27.8) (27.9) LIFO reserve................................................ (18.1) (8.1) Pension..................................................... (12.5) (25.7) Other....................................................... (35.2) (36.5) --------- --------- Total deferred tax liability.................................. (847.9) (877.7) --------- --------- Deferred tax liability -- net................................. $ (456.9) $ (667.2) --------- --------- --------- ---------
During 1991, deferred taxes were provided for significant timing differences between revenue and expenses for tax and financial statement purposes. Following is a summary of the significant components of the deferred tax provision:
YEAR ENDED DECEMBER 31, 1991 --------------- (IN MILLIONS) Depreciation and amortization....................................... $ (2.4) Acquisition related expenses........................................ (2.9) Capitalized interest................................................ 12.4 Start-up costs...................................................... 7.2 Pension costs....................................................... (.2) Other -- net........................................................ 8.9 ----- Deferred income tax provision..................................... $ 23.0 ----- -----
The components of the loss before income taxes and cumulative effects of accounting changes are:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) United States....................................... $ (315.1) $ (74.1) $ (39.0) Foreign............................................. (151.8) (155.2) 21.0 --------- --------- --------- Loss before income taxes and cumulative effects of accounting changes................................. $ (466.9) $ (229.3) $ (18.0) --------- --------- --------- --------- --------- ---------
F-27 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- INCOME TAXES (CONTINUED) As a result of certain acquisitions, the Company had, at December 31, 1993, approximately $27 million of pre-acquisition net operating loss carryforwards and approximately $5 million of investment tax credit carryforwards for federal income tax purposes. To the extent not utilized, the carryforwards will expire in the period commencing in the year 1996 and ending in the year 2004. At December 31, 1993, Bridgewater Paper Company Ltd., which was acquired in the 1989 Stone-Canada acquisition, had approximately $92 million of net operating loss carryforwards for United Kingdom income tax purposes. These losses are available indefinitely. At December 31, 1993, the Company had approximately $252 million of net operating loss carryforwards for U.S. tax purposes and, additionally, approximately $236 million of net operating loss carryforwards for Canadian tax purposes. To the extent not utilized, the U.S. net operating losses will expire in 2007 and 2008 and the Canadian net operating losses will expire in 1998, 1999 and 2000. The Company also had approximately $11 million of alternative minimum tax credit carryforwards for U.S. tax purposes which are available indefinitely. NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS The Company has contributory and noncontributory pension plans for the benefit of most salaried and certain hourly employees. The funding policy for the plans, with the exception of the Company's salaried supplemental unfunded plans and the Company's German subsidiary's unfunded plan, is to annually contribute the statutory required minimum. The salaried pension plans provide benefits based on a formula which takes into account each participant's estimated final average earnings. The hourly pension plans provide benefits under a flat benefit formula. The salaried and hourly plans provide reduced benefits for early retirement. The salaried plans take into account offsets for governmental benefits. Net pension expense for the combined pension plans includes the following components:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) Service cost -- benefits earned during the period......................... $ 17.4 $ 17.2 $ 15.6 Interest cost on projected benefit obligations............................ 63.7 64.0 61.7 Actual return on plan assets.............................................. (91.9) (32.8) (86.5) Net amortization and deferral............................................. 40.4 (26.6) 30.2 --------- --------- --------- Net pension expense....................................................... $ 29.6 $ 21.8 $ 21.0 --------- --------- --------- --------- --------- ---------
F-28 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) The following table sets forth the funded status of the Company's pension plans and the amounts recorded in the Consolidated Balance Sheets:
DECEMBER 31, ------------------------------------------------------------------------------- 1993 1992 -------------------------------------- -------------------------------------- ACCUMULATED ACCUMULATED ASSETS EXCEED BENEFITS EXCEED ASSETS EXCEED BENEFITS EXCEED ACCUMULATED BENEFITS ASSETS ACCUMULATED BENEFITS ASSETS -------------------- --------------- -------------------- --------------- (IN MILLIONS) Actuarial present value of benefit obligations: Vested benefits................................. $(185.0) $(498.8) $(465.0) $(116.9) Non-vested benefits............................. (11.4) (37.9) (34.4) (6.3) ------- ------- ------- ------- Accumulated benefit obligation.................. (196.4) (536.7) (499.4) (123.2) Effect of increase in compensation levels....... (23.2) (76.6) (75.0) (14.1) ------- ------- ------- ------- Projected benefit obligation for service rendered through December 31.............................. (219.6) (613.3) (574.4) (137.3) Plan assets at fair value, primarily stocks, bonds, guaranteed investment contracts, real estate and mutual funds which invest in listed stocks and bonds................................. 219.0 395.3 518.7 49.8 ------- ------- ------- ------- Excess of projected benefit obligation over plan assets........................................... (.6) (218.0) (55.7) (87.5) Unrecognized prior service cost................... 4.6 29.4 14.5 6.8 Unrecognized net actuarial loss................... 39.4 127.3 96.1 5.6 Unrecognized net assets........................... -- -- (9.9) -- Adjustment required to recognize minimum liability........................................ -- (92.4) -- (19.6) ------- ------- ------- ------- Net prepaid (accrual)............................. $ 43.4 $(153.7) $ 45.0 $ (94.7) ------- ------- ------- ------- ------- ------- ------- -------
In accordance with Statement of Financial Accounting Standards No. 87, "Employer's Accounting for Pensions," the Company has recorded an additional minimum liability for underfunded plans representing the excess of the unfunded accumulated benefit obligation over previously recorded liabilities. The additional minimum liability at December 31, 1993 of $92.4 million is recorded as a long-term liability with an offsetting intangible asset of $29.4 million and a charge to stockholders' equity of $39.6 million, F-29 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) net of a tax benefit of $23.4 million. Of this additional minimum liability, $19.6 million was recorded as a long-term liability at December 31, 1992 with an offsetting intangible asset of $6.7 million and a charge to stockholders' equity of $7.9 million, net of a tax benefit of $5.0 million. The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations was 7.5 percent for all U.S. and German operations and 8.0 percent for Canadian and United Kingdom operations and 4.0 percent, respectively, for 1993 and 9.0 percent and 4.5 to 5.0 percent, respectively, for 1992. The expected long-term rate of return on assets was 11 percent for 1993 and 1992. The change in the weighted average discount rates during 1993 had the effect of increasing the total projected benefit obligation at December 31, 1993 by $108.8 million and the change in the rate of increase in future compensation levels in 1993 had the effect of decreasing the projected benefit obligation by $19.3 million. Certain domestic operations of the Company participate in various multi-employer union-administered defined benefit pension plans that principally cover production workers. Pension expense under these plans was $5.1 million for 1993 and 1992 and $4.7 million for 1991. In addition to providing pension benefits, the Company provides certain retiree health care and life insurance benefits covering substantially all U.S. salaried and hourly employees and certain Canadian employees. Employees become eligible for such benefits if they are fully vested in one of the Company's pension plans when they retire from the Company and they begin to draw retirement benefits upon termination of service. Such retiree health care costs were expensed as the claims were paid through December 31, 1992. However, as discussed in Note 1 -- "Summary of Significant Accounting Policies," effective January 1, 1993, the Company adopted SFAS 106, which required the Company to accrue for its obligation to pay such postretirement health care costs during the employees' years of service, as opposed to when such costs are actually paid. The effect of SFAS 106 on income from operations is not material. In conjunction with the adoption, the Company, effective January 1, 1993, implemented cost saving provisions designed to reduce certain postretirement health care and life insurance costs. Among other things, these provisions provide for a cap on the Company's share of certain health care costs. Such provisions do not apply to current retirees and those active employees age 55 and over who were eligible to retire as of December 31, 1992. Accordingly, the Company is generally responsible for 50 percent of the claims of such individuals. Net worldwide periodic postretirement benefit cost for 1993 included the following components:
(IN MILLIONS) Service cost-benefits attributed to service during the period......... $ 1.0 Interest cost on accumulated postretirement benefit obligation........ 5.5 --- Net worldwide periodic postretirement benefit cost.................... $ 6.5 --- ---
Worldwide postretirement benefits costs for retired employees approximated $4.7 million for 1992. Prior to 1992, the cost of providing such benefits for retired employees was not readily separable from the cost of providing benefits for active employees. On a combined basis, worldwide health care and life insurance benefit cost for both active and retired employees approximated $76 million in 1991. F-30 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) The following table sets forth the components of the Company's accumulated postretirement benefit obligation and the amount recorded in the Consolidated Balance Sheet at December 31, 1993:
U.S. FOREIGN TOTAL --------- ----------- --------- (IN MILLIONS) Accumulated postretirement benefit obligation: Retirees................................................................ $ 19.0 $ 22.5 $ 41.5 Active employees -- fully eligible...................................... 15.3 3.0 18.3 Other active employees.................................................. 15.5 2.6 18.1 --------- ----- --------- Total accumulated postretirement benefit obligation....................... 49.8 28.1 77.9 Unrecognized net loss..................................................... (12.6) (2.1) (14.7) --------- ----- --------- Postretirement benefit liability.......................................... $ 37.2 $ 26.0 $ 63.2 --------- ----- --------- --------- ----- ---------
The Company has not currently funded any of its accumulated postretirement benefit obligation. The discount rate used in determining the accumulated postretirement benefit cost was 7.5 percent for U.S. and German operations and 8.0 percent for Canadian and United Kingdom operations. The assumed health care cost trend rates for substantially all employees used in measuring the accumulated postretirement benefit obligation range from 7 percent to 15 percent decreasing to ultimate rates of 5.5 percent to 8 percent. If the health care cost trend rate assumptions were increased by 1 percent, the accumulated postretirement benefit obligation at December 31, 1993 and the net periodic postretirement benefit cost for the year ended December 31, 1993 would have increased by $6.5 million and $0.6 million, respectively. At December 31, 1993, the Company had approximately 8,300 retirees and 29,000 active employees of which approximately 3,000 and 21,100, respectively, were employees of U.S. operations. F-31 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ---------------------- 1993 1992 ---------- ---------- (IN MILLIONS) Senior debt: Term loans (8.3% and 10.0% weighted average rates) payable $116.0 on March 31, 1995 and in semi-annual installments of $116.7 on September 30, 1995, March 31 and September 30, 1996 and $411.6 on March 1, 1997........................................................ $ 877.7 $ 1,230.1 Additional term loan (6.3% and 7.0% weighted average rates) payable $38.7 on March 31, 1995 and in semi-annual installments of $39.0 on September 30, 1995 and March 31, 1996 and $38.9 on September 30, 1996 and $137.3 on March 1, 1997............................. 292.9 371.0 Revolving credit agreements (5.7% and 6.4% weighted average rates) due March 1, 1997..... 263.8 257.0 11.875% senior notes due December 1, 1998 (less unamortized discount of $1.1 and $1.3)... 238.9 238.7 12.625% senior notes due July 15, 1998................................................... 150.0 -- 5.8% to 11.625% fixed rate utility systems and pollution control revenue bonds, payable in varying annual sinking fund payments through the year 2010 and varying principal payments through the year 2016 (less unamortized debt discount of $7.8 and $8.6)........ 203.5 206.2 Obligations under accounts receivable securitization programs (4.8% and 5.3% weighted average rates) due September 15, 1995................................................... 232.4 261.8 4.0% to 7.96% term loans payable in varying amounts through 1999......................... 41.2 54.6 Obligations under capitalized leases..................................................... 11.2 23.1 Cartomills 8.50% to 10.75% loans payable in varying installments through the year 1997... 5.1 7.1 Cartomills (4.74% weighted average rate) loan payable in annual installments through the year 1999............................................................................... 7.1 -- Floating rate revenue bonds (8.0% weighted average rates), payable in semi-annual installments of $.12 through 1996....................................................... .7 .9 Other.................................................................................... 31.2 5.3 ---------- ---------- 2,355.7 2,655.8 Less: current maturities................................................................. (17.7) (144.7) ---------- ---------- Total senior long-term debt.............................................................. 2,338.0 2,511.1 ---------- ----------
F-32 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED)
DECEMBER 31, ---------------------- 1993 1992 ---------- ---------- (IN MILLIONS) Subordinated debt: 11.5% senior subordinated notes, payable in two annual sinking fund payments of $57.5 commencing September 1, 1997 and maturing on September 1, 1999 with a lump sum payment of $115.0............................................................................... 230.0 230.0 10.75% senior subordinated debentures maturing on April 1, 2002, (less unamortized debt discount of $.9)........................................................................ 199.1 199.1 8.875% convertible senior subordinated notes maturing on July 15, 2000 (less $1.5)....... 248.5 -- 10.75% senior subordinated notes maturing on June 15, 1997............................... 150.0 150.0 11.0% senior subordinated notes maturing on August 15, 1999.............................. 125.0 125.0 6.75% convertible subordinated debentures with annual sinking fund payments of $11.5 commencing on February 15, 2002 and maturing on February 15, 2007 with a lump sum payment of $57.5........................................................................ 115.0 115.0 13.625% subordinated notes maturing on June 1, 1995 (less unamortized debt discount of $.2 and $.3)............................................................................ 98.1 98.0 12.125% subordinated debentures with annual sinking fund payments of $14.0 commencing on September 15, 1996 and maturing in the year 2001 with a lump sum payment of $70.0 (including unamortized debt premium of $2.2 and $2.4 and net of $50.1 repurchased by the Company)................................................................................ 92.1 92.3 Subordinated note bearing an incremental borrowing rate adjusted annually (10.0% and 11.1% average rates) payable on January 18, 1994........................................ 4.9 9.8 ---------- ---------- 1,262.7 1,019.2 Less: current maturities................................................................. (4.9) -- ---------- ---------- Total subordinated debt.................................................................. 1,257.8 1,019.2 ---------- ----------
F-33 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED)
DECEMBER 31, ---------------------- 1993 1992 ---------- ---------- (IN MILLIONS) Non-recourse debt of consolidated affiliates: Stone-Consolidated 10.25% senior secured notes due December 15, 2000..................... 225.0 -- Stone-Consolidated 8% convertible subordinated debentures maturing on December 31, 2003.................................................................................... 174.5 -- Savannah River obligation under a senior credit facility (8.4% and 8.8% weighted average rates), payable in varying amounts through the year 1998................................ 268.9 297.0 Savannah River 5.375% to 10.25% fixed rate revenue bonds, payable in varying amounts through the year 1997 and maturing in 2000 and 2010 (less unamortized debt discount of $.2 and $.2)............................................................................ 4.7 4.9 Savannah River 14.125% senior subordinated notes due December 15, 2000 (less unamortized debt discount of $1.0 and $1.1)......................................................... 129.0 128.9 Seminole obligation under a senior credit facility (6.4% and 6.8% weighted average rates), payable in varying amounts from 1993 through the year 2000...................... 120.6 122.0 Seminole senior notes maturing on December 31, 1993 (interest rate of 14.0%)............. -- 15.0 Seminole obligation payable at 13.5% imputed interest rate (less unamortized debt discount of $2.4 and $2.9).............................................................. 11.6 11.1 Seminole 13.5% subordinated notes due with annual sinking fund payments of $7.2 and maturing on October 15, 1996 with a lump sum payment of $14.4........................... 28.8 36.0 ---------- ---------- 963.1 614.9 Less: current maturities................................................................. (290.5) (40.1) ---------- ---------- Total non-recourse debt of consolidated affiliates..................................... 672.6 574.8 ---------- ---------- Total long-term debt..................................................................... $ 4,268.4 $ 4,105.1 ---------- ---------- ---------- ----------
The 1989 Credit Agreement provided for a $400 million multiple-draw facility (the "MDF") to supplement the revolving credit facility thereunder. The MDF had substantially the same terms and conditions, including covenants, as the 1989 Credit Agreement. Proceeds of MDF borrowings (approximately $371 million) were required to be used solely to repay regularly scheduled amortization of term loans under the 1989 Credit Agreement. The Company cancelled the remaining commitment under the MDF in 1991. On October 1, 1992, the $371 million outstanding under the MDF was converted to an Additional Term Loan (the "ATL"). Borrowings under the ATL are collateralized by an equal and ratable lien on the existing collateral under the 1989 Credit Agreement. The 1989 Credit Agreement permits the Company to choose among various interest rate options, to specify the portion of the borrowings to be covered by specific interest rate options and to specify the interest rate period to which the interest rate options are to apply, subject to certain parameters. As a result of the February 1994 amendment, interest rate options available to the Company under term loans, ATL and revolving credit borrowings under the 1989 Credit Agreement are (i) U.S. or Canadian prime rate plus a borrowing margin of 2 percent, (ii) CD rate plus a borrowing margin of 3 1/8 percent, (iii) Eurodollar rate plus a borrowing margin of 3 percent and (iv) bankers' acceptance rate plus a F-34 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED) borrowing margin of 3 percent. Upon achievement of specified indebtedness ratios and interest coverage ratios, the borrowing margins will be reduced. Additionally, the Company pays a 3/8 percent commitment fee on the unused portions of the revolving credit facilities. The weighted average rates as reflected in the table do not include the effects of the amortization of deferred debt issuance costs. The 1989 Credit Agreement requires that the Company hedge a portion of the U.S. dollar-based borrowings to protect against increases in market interest rates. Pursuant to that requirement, at December 31, 1993, the Company was a party to an interest rate swap contract which had the effect of fixing the interest rate at approximately 12.9 percent on $150 million of U.S. term loan borrowings. The interest rate swap is scheduled to expire on March 22, 1994. During 1993, the Company sold prior to their expiration date, certain of its U.S. dollar denominated interest rate swaps and cross currency swaps associated with the Credit Agreement borrowings of Stone-Canada. The net proceeds totaled approximately $34.9 million, the substantial portion of which was used to repay borrowings under the Company's revolving credit facilities. At December 31, 1993, the $1.45 billion of borrowings and accrued interest outstanding under the 1989 Credit Agreement and the ATL were secured by property, plant and equipment with a net book value of $518.4 million and by common stock of various subsidiaries of the Company representing net assets of approximately $3.4 billion (including collateralized property, plant and equipment with a net book value of $349.4 million) and by a lien on the Company's inventories. Additionally, other loan agreements aggregating $646.0 million were collateralized by approximately $1.56 billion of property, plant and equipment-net. Emerging Issues Task Force Issue No. 86-30, "Classification of Obligations When a Violation is Waived by the Creditor," requires a company to reclassify long-term debt as current when a covenant violation has occurred at the balance sheet date or would have occurred absent a loan modification and it is probable that the borrower will not be able to comply with the same covenant at measurement dates that are within the next twelve months. In November 1993, Savannah River received a waiver of its fixed-charges-coverage covenant requirement as of December 31, 1993 and March 31, 1994. Management has prepared projections that indicate that upon the expiration of the waiver Savannah River will not be in compliance with this covenant as of June 30, September 30, and December 31, 1994. Consequently, approximately $237.9 million of Savannah River debt that otherwise would have been classified as long-term has been classified as current in the December 31, 1993 consolidated balance sheet. Savannah River intends to seek, prior to June 10, 1994, appropriate financial covenant waivers or amendments from its bank group, although no assurance can be given that such waivers or amendments will be obtained. Any such failure to obtain covenant relief would result in a default under Savannah River's credit agreement and other indebtedness and, if any such indebtedness was accelerated by the holders thereof, the lenders to the Company under the 1989 Credit Agreement and various other of the Company's debt instruments will be entitled to accelerate the indebtedness owed by the Company. On July 6, 1993, the Company sold $150 million principal amount of 12 5/8 percent Senior Notes due July 15, 1998 (the "12 5/8 percent Senior Notes"). The 12 5/8 percent Senior Notes are not redeemable by the Company prior to maturity. Interest is payable semi-annually on January 15 and July 15, commencing January 15, 1994. Also on July 6, 1993, the Company sold, in a private transaction, $250 million principal amount of 8 7/8 percent Convertible Senior Subordinated Notes due July 15, 2000 (the "8 7/8 percent Convertible Senior Subordinated Notes"). The Company filed a shelf registration statement registering the 8 7/8 percent Convertible Senior Subordinated Notes for resale by the holders thereof, which was declared effective August 13, 1993. The 8 7/8 percent Convertible Senior Subordinated Notes are convertible, at the option of the holder, sixty days following the date of original issuance and prior to maturity, into shares of F-35 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED) the Company's common stock at a conversion price of $11.55 per share of common stock, subject to adjustment in certain events. Additionally, the 8 7/8 percent Convertible Senior Subordinated Notes are redeemable, at the option of the Company, in whole or in part, on and after July 15, 1998. Interest is payable semi-annually on January 15 and July 15, commencing January 15, 1994. The net proceeds of approximately $386 million received from the sales of the 12 5/8 percent Senior Notes and the 8 7/8 percent Convertible Senior Subordinated Notes were used by the Company to repay borrowings, without a reduction of commitments under the revolving credit facilities of its 1989 Credit Agreement, thereby restoring borrowing availability thereunder. In December 1993, Stone-Consolidated sold $173.3 million of 8 percent convertible subordinated debentures as part of the Units Offering. Concurrent with the Units Offering, Stone-Consolidated sold $225 million of 10 1/4 percent Senior Secured Notes maturing on December 15, 2000 in a public offering in the United States. See Note 4 -- "Public Offering of Subsidiary Stock," for further details. On February 20, 1992, the Company sold $115 million principal amount of 6 3/4 percent Convertible Subordinated Debentures due February 15, 2007 (the "6 3/4 percent Subordinated Debentures"). The 6 3/4 percent Subordinated Debentures are convertible, at the option of the holder, at any time prior to maturity, into shares of the Company's common stock at a conversion price of $33.94 per share of common stock (adjusted for the 2 percent common stock dividend issued September 15, 1992), subject to adjustment in certain events. Additionally, the 6 3/4 percent Subordinated Debentures are redeemable at the option of the Company, in whole or from time to time in part, on and after February 16, 1996. Interest is payable semi-annually on February 15 and August 15, commencing August 15, 1992. The net proceeds from the sale of the 6 3/4 percent Subordinated Debentures were used to fully prepay the $59.5 million sinking fund obligation due June 1, 1992, including accrued interest due thereon, and to prepay $47.5 million of the $59.5 million sinking fund obligation due June 1, 1993, including accrued interest due thereon, on the Company's 13 5/8 percent Subordinated Notes. On March 18, 1992, the Company sold $200 million principal amount of 10 3/4 percent Senior Subordinated Debentures due April 1, 2002 (the "10 3/4 percent Senior Subordinated Debentures"). The 10 3/4 percent Senior Subordinated Debentures are redeemable at the option of the Company, in whole or from time to time in part, on and after April 1, 1997. Interest is payable semi-annually on April 1 and October 1, commencing October 1, 1992. The net proceeds from these debentures were used to fund future capital expenditures by the Company. On June 25, 1992, the Company sold $150 million principal amount of 10 3/4 percent Senior Subordinated Notes due June 15, 1997 (the "10 3/4 percent Senior Subordinated Notes"). The 10 3/4 percent Senior Subordinated Notes are redeemable at the option of the Company, in whole or from time to time in part, on and after June 15, 1995. Interest is payable semi-annually on June 15 and December 15, commencing December 15, 1992. The net proceeds of approximately $147 million from the issuance of these notes were used to fund a partial redemption of the Company's 13 5/8 percent Subordinated Notes including accrued interest due thereon. On August 11, 1992, the Company sold $125 million principal amount of 11 percent Senior Subordinated Notes due August 15, 1999 (the "11 percent Senior Subordinated Notes"). The 11 percent Senior Subordinated Notes are redeemable at the option of the Company, in whole or from time to time in part, on and after August 15, 1997. Interest is payable semi-annually on February 15 and August 15, commencing February 15, 1993. The Company entered into a three-year interest rate swap arrangement that has the effect of converting, for the first three years, the fixed rate of interest on $100 million of the 11 percent Senior Subordinated Notes into a floating interest rate. As a result of this swap arrangement, the effective rate of interest for 1993 was 9.95 percent. While the Company is exposed to credit loss on its F-36 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED) interest rate swaps in the event of nonperformance by the counterparties to such swaps, management believes that such nonperformance is unlikely to occur. The Company used the net proceeds from the issuance of the 11 percent Senior Subordinated Notes to partially repay approximately $102 million and $20 million, respectively, under its revolving credit facility and the March 1993 term loan amortization of its Credit Agreement. In 1992, Stone Financial Corporation ("Stone Fin") extended the maturity date of the $185 million three-year revolving credit facility used to purchase the accounts receivable for the first tranche of the Company's accounts receivable securitization program to September 15, 1995 from September 15, 1994. Stone Fin has the option, subject to bank consent, to extend the maturity date of its credit facility beyond September 15, 1995. Various interest rate options (LIBOR plus 1 1/4 percent or Prime) are available to Stone Fin under its credit facility. In accordance with the provisions of this program, Stone Fin purchases (on an ongoing basis) certain of the accounts receivable of Stone Delaware, Inc., Stone Corrugated, Inc., and Stone Southwest, Inc., each of which is a wholly-owned subsidiary of the Company. Such purchased accounts receivable are solely the assets of Stone Fin, a wholly-owned but separate corporate entity of the Company, with its own separate creditors. In the event of a liquidation of Stone Fin such creditors would be entitled to satisfy their claims from Stone Fin's assets prior to any distribution to the Company. At December 31, 1993 and 1992, the Company's Consolidated Balance Sheets included $175.6 million and $160.3 million, respectively of Stone Fin accounts receivable and $150.5 million and $146.3 million, respectively, of borrowings under the program. On August 20, 1992, the Company completed the second tranche of its accounts receivable securitization program through the sale of certain of its accounts receivable to a newly formed wholly-owned subsidiary, Stone Fin II Receivables Corporation ("Stone Fin II"). Stone Fin II purchased the accounts receivable with proceeds from borrowings under a $180 million, three-year revolving credit facility (due September 15, 1995) provided by South Shore Funding Corporation, an unaffiliated financial organization. Stone Fin II has the option, subject to bank consent, to extend the maturity date of its credit facility beyond September 15, 1995. Two interest rate options (LIBOR plus 1 1/4 percent or Prime) are available to Stone Fin II under its credit facility. In accordance with the provisions of this program, Stone Fin II purchases (on an ongoing basis) certain of the accounts receivable of Stone Consolidated Newsprint, Inc., Stone Packaging Corporation, Stone Southwest, Inc. and Stone Bag Corporation, each of which is a wholly-owned subsidiary of the Company. Such purchased accounts receivable are solely the assets of Stone Fin II, a wholly-owned but separate corporate entity of the Company, with its own separate creditors. In the event of a liquidation of Stone Fin II, such creditors would be entitled to satisfy their claims from Stone Fin II's assets prior to any distribution to the Company. The initial net proceeds of approximately $100 million from this transaction were used by the Company to complete the prepayment of its March 31, 1993 term loan installment and partially prepay approximately $57 million of its $175 million term loan installment due September 30, 1993. Subsequent proceeds from this securitization program were used for general corporate purposes. At December 31, 1993 and 1992, the Company's Consolidated Balance Sheets included $124.4 million and $152.6 million, respectively, of Stone Fin II accounts receivable and $81.9 million and $115.5 million, respectively, of borrowings under the program. In August and October 1992, the Company refinanced, in two separate issues, $30 million and $35 million of tax-exempt revenue bonds, respectively. The $30 million bonds bear interest at a rate of 7 7/8 percent and are due August 1, 2013. The $35 million bonds bear interest at a rate of 8 1/4 percent and are due June 1, 2016. F-37 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED) The following table provides, as of December 31, 1993, the actual and pro forma amounts of long-term debt maturing during the next five years. The maturities on a pro forma basis reflect the impact of the 1994 Offerings discussed in Note 2 and the application of the net proceeds received therefrom, as if such transaction had occurred as of December 31, 1993.
AS ADJUSTED FOR ACTUAL THE 1994 OFFERINGS ---------- ------------------ (IN MILLIONS) 1994......................................................... $ 308.4 $ 308.4 1995......................................................... 710.5 270.2 1996......................................................... 437.9 219.1 1997......................................................... 946.4 732.2 1998......................................................... 523.9 523.9 Thereafter................................................... 1,643.2 2,353.2
The 1995 maturities include $232.4 million outstanding under Stone Fin's and Stone Fin II's revolving credit facilities. Stone Fin and Stone Fin II have the option, subject to bank consents, to extend or refinance such obligations beyond 1995. Amounts payable under capitalized lease agreements are excluded from the above tabulation. See Note 13 for capitalized lease maturities. The 1989 Credit Agreement contains covenants that include, among other things, requirements to maintain certain financial tests and ratios (including a minimum current ratio, an indebtedness ratio, a minimum earnings before interest, taxes, depreciation and amortization test ("EBITDA") and a tangible net worth test) and certain restrictions and limitations, including those on capital expenditures, changes in control, payment of dividends, sales of assets, lease payments, investments, additional borrowings, mergers and purchases of stock and assets. The 1989 Credit Agreement also contains cross-default provisions relating to the non-recourse debt of its consolidated affiliate, Stone-Consolidated Corporation, and cross-acceleration provisions relating to the non-recourse debt of the consolidated affiliates, including Seminole and Savannah River (see Note 18). Additionally, the Company's 1989 Credit Agreement provides for mandatory prepayments from sales of certain assets, debt and equity financings and excess cash flows. These prepayments along with voluntary prepayments are to be applied ratably to reduce loan commitments under the 1989 Credit Agreement. The indebtedness under the 1989 Credit Agreement is secured by a substantial portion of the assets of the Company. The Company and its bank group have amended the Company's 1989 Credit Agreement several times during the past three years. Such amendments provided among other things, greater financial flexibility and/or relief from certain financial covenants. In some instances, certain restrictions and limitations applicable to the 1989 Credit Agreement were tightened. There can be no assurance that future covenant relief will not be required or, if such relief is requested by the Company, that it will be obtained from the banks' lenders. The most recent amendment, which was executed in February of 1994 and became effective upon the completion of the February 1994 Offerings, as discussed in Note 2 -- "Subsequent Events," provided, among other things, for the following: (i) Permitted the Company to apply up to $200 million of net proceeds from the 1994 Offerings, which increased liquidity, as repayment of borrowings under the revolving credit facilities of the 1989 Credit Agreement without reducing the commitments thereunder and to the extent no balance was outstanding under the revolving credit facilities, permitted the Company to retain the balance of such $200 million of proceeds in cash. F-38 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED) (ii) Permitted the Company to redeem the Company's 13 5/8 percent Subordinated Notes maturing on June 1, 1995 from the proceeds received from the February 1994 Offerings at a price equal to par, approximately $98 million principal amount, plus accrued interest to the redemption date. (iii) Amended the required levels of EBITDA (as defined in the 1989 Credit Agreement) for certain specified periods to the following: For the three months ended March 31, 1994..................... $20 million For the six months ended June 30, 1994........................ $55 million For the nine months ended September 30, 1994.................. $111 million For the twelve months ended December 31, 1994................. $180 million For the twelve months ended March 31, 1995.................... $226 million
The required level of EBITDA is scheduled to increase for each rolling four quarter period thereafter until December 31, 1996, when the EBITDA for the twelve months ended December 31, 1996 is required to be $822 million. (iv) Reset to zero as of January 1, 1994 the dividend pool under the 1989 Credit Agreement which permits payment of dividends on the Company's capital stock and modifies the components used in calculating the ongoing balance in the dividend pool. Effective January 1, 1994, dividend payments on the Company's common stock and on certain preferred stock issues cannot exceed the sum of (i) 75 percent of the consolidated net income (as defined in the 1989 Credit Agreement) of the Company from January 1, 1994 to the date of payment of such dividends, minus (ii) 100 percent of the consolidated net loss, (as defined in the 1989 Credit Agreement), of the Company from January 1, 1994 to the date of payment of such dividends, plus (iii) 100 percent of any net cash proceeds from sales of common stock or certain preferred stock of the Company from January 1, 1994 to any date of payment of such dividends (excluding the proceeds from the 1994 Offerings for which no dividend credit was received by the Company). Additionally, the restriction with respect to dividends on Series E Cumulative Convertible Exchangeable Preferred Stock (the "Series E Cumulative Preferred Stock") was amended to mirror the dividend restriction in the Company's Senior Subordinated Indenture dated as of March 15, 1992. (v) Replaced the existing cross-default provisions relating to obligations of $10 million or more of the Company's separately financed subsidiaries, Seminole and Savannah River, with cross-acceleration provisions. (vi) Replaced the current prohibition of investments in Stone Venepal Consolidated Pulp Inc. with restrictions substantially similar to the restrictions applicable to the Company's subsidiaries, Savannah River and Seminole. (vii) Maintains the monthly indebtedness ratio requirement, as defined in the 1989 Credit Agreement, to be no higher than: 81.5 percent as of the end of each month from December 31, 1993 and ending prior to March 31, 1995 and 81 percent as of the end of each month from March 31, 1995 and ending prior to June 30, 1995. The indebtedness ratio requirement is scheduled to periodically decrease thereafter (from 80 percent on June 30, 1995) until February 28, 1997, when the ratio limitation is required to be 68 percent. (viii) Maintains the Consolidated Tangible Net Worth requirement (CTNW) (as defined in the 1989 Credit Agreement) to be equal to or greater than 50 percent of the highest CTNW for any quarter since the inception of the 1989 Credit Agreement. F-39 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- LONG-TERM DEBT (CONTINUED) Additionally, at various times during the year, the Company amended and restated its 1989 Credit Agreement which provided, among other things to, (i) extend the maturity of the revolving credit facilities from March 1, 1994 to March 1, 1997 and reduce over a three-year period the revolving loan commitments; (ii) revise various financial covenants to provide greater financial flexibility to the Company; (iii) permit the Company to retain 25 percent of the net proceeds from future sales of equity securities (which could be used to reduce revolving credit borrowings without reducing the commitments thereunder); and (iv) permit the Company to retain 50 percent (maximum $100 million in the aggregate) of the net proceeds from any sale or disposition of its investment in certain joint ventures or unconsolidated subsidiaries (which could be used to reduce revolving credit borrowings without reducing the commitments thereunder). As part of these amendments, the Company agreed (i) to pay certain fees and higher interest rate margins and (ii) mortgage or pledge additional collateral including a pledge of the Stone-Consolidated common stock owned by the Company. There can be no assurance that the Company will be able to achieve and maintain compliance with the prescribed financial ratio tests or other requirements of its 1989 Credit Agreement. Failure to achieve or maintain compliance with such financial ratio tests or other requirements under the 1989 Credit Agreement, in the absence of a waiver or amendment, would result in an event of default and could lead to the acceleration of the obligations under the 1989 Credit Agreement. The Company has successfully sought and received waivers and amendments to its 1989 Credit Agreement on various occasions since entering into the 1989 Credit Agreement. If further waivers or amendments are requested by the Company, there can be no assurance that the Company's bank lenders will again grant such requests. The failure to obtain any such waivers or amendments would reduce the Company's flexibility to respond to adverse industry conditions and could have a material adverse effect on the Company. NOTE 11 -- LIQUIDITY MATTERS The Company's liquidity and financial flexibility is adversely affected by the net losses incurred during the past three years. Recently, the Company has improved its liquidity and financial flexibility through the completion of the February 1994 Offerings as discussed in Note 2 -- "Subsequent Events." At March 14, 1994 the Company had borrowing availability of $168.2 million under its revolving credit facilities. Notwithstanding these improvements in the Company's liquidity and financial flexibility, unless the Company achieves substantial price increases beyond year-end levels, the Company will continue to incur net losses and negative cash flows from operating activities. Without such sustained substantial price increases, the Company may exhaust all or substantially all of its cash resources and borrowing availability under the revolving credit facilities. In such event, the Company would be required to pursue other alternatives to improve liquidity, including further cost reductions, sales of assets, the deferral of certain capital expenditures, obtaining additional sources of funds or pursuing the possible restructuring of its indebtedness. There can be no assurance that such measures, if required, would generate the liquidity required by the Company to operate its business and service its indebtedness. As currently scheduled, beginning in 1996 and continuing thereafter, the Company will be required to make significant amortization payments on its indebtedness which will require the Company to raise sufficient cash from operations or other sources or refinance or restructure maturing indebtedness. No assurance can be given that the Company will be able to generate or raise such funds. The Company, as part of its financial plan, had intended to sell an energy supply agreement related to its Florence, South Carolina mill. Even though a sale is still being investigated by the Company, the Company is no longer pursuing the original transaction; however, the Company is currently investigating alternative transactions. F-40 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12 -- DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS At December 31, 1993 and 1992, the carrying values of the Company's financial instruments approximate their fair values, except as noted below:
DECEMBER 31, ------------------------------------------------------ 1993 1992 -------------------------- -------------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------------- ---------- -------------- ---------- (IN MILLIONS) Notes receivable and long-term investments......... $ 134.9 $ 118.1 $ 65.5 $ 51.1 Senior debt........................................ 2,344.5 2,362.8 2,623.5 2,635.3 Subordinated debt.................................. 1,262.6 1,189.5 1,019.2 949.5 Non-recourse debt of consolidated affiliates....... 963.1 1,002.3 627.3 627.3 Standby letters of credit.......................... -- 76.1 -- 68.9 Currency and interest rate hedges in payable position.......................................... 2.6 4.2 6.5 4.4
The fair values of notes receivable and certain investments are based on discounted future cash flows or the applicable quoted market price. The fair value of the Company's debt is estimated based on the quoted market prices for the same or similar issues. The fair value of letters of credit represent the face amount of the letters of credit adjusted for current rates. The fair value of interest rate swap agreements are obtained from dealer quotes. These values represent the estimated amount the Company would pay to terminate agreements, taking into consideration the current interest rate and market conditions. NOTE 13 -- LONG-TERM LEASES The Company leases certain of its facilities and equipment under leases expiring through the year 2023. Future minimum lease payments under capitalized leases and their present value at December 31, 1993, and future minimum rental commitments (net of sublease rental income and exclusive of real estate taxes and other expenses) under operating leases having initial or remaining non-cancellable terms in excess of one year, are reflected below:
CAPITALIZED OPERATING LEASES LEASES ------------- ----------- (IN MILLIONS) 1994.................................................................. $ 5.6 $ 73.2 1995.................................................................. 2.7 64.0 1996.................................................................. 2.0 52.2 1997.................................................................. 1.2 45.3 1998.................................................................. .3 40.8 Thereafter............................................................ 2.0 148.6 ----- ----------- Total minimum lease payments.......................................... 13.8 $ 424.1 ----------- ----------- Less: Imputed interest................................................ (2.6) ----- Present value of future minimum lease payments........................ $ 11.2 ----- -----
Approximately $2.8 million of the total present value of future minimum capital lease payments relates to a Stone-Consolidated newsprint mill. Minimum lease payments for capitalized leases have not been reduced by minimum sublease rental income of $1.6 million due in the future under a non-cancellable lease. F-41 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13 -- LONG-TERM LEASES (CONTINUED) Rent expense for operating leases, including leases having a duration of less than one year, was approximately $83 million in 1993, $84 million in 1992 and $81 million in 1991. NOTE 14 -- PREFERRED STOCK The Company has authorized 10,000,000 shares of preferred stock, $.01 par value, of which 4,600,000 shares are outstanding at December 31, 1993. Shares of preferred stock can be issued in series with varying terms as determined by the Board of Directors. On February 20, 1992, the Company issued 4,600,000 shares of $1.75 Series E Cumulative Preferred Stock at $25.00 per share. Dividends on the Series E Cumulative Preferred Stock are payable quarterly when, as and if declared by the Company's Board of Directors. The Series E Cumulative Preferred Stock is convertible, at the option of the holder at any time, into shares of the Company's common stock at a conversion price of $33.94 per share of common stock (adjusted for the 2 percent common stock dividend issued September 15, 1992), subject to adjustment under certain conditions. The Series E Cumulative Preferred Stock may alternatively be exchanged, at the option of the Company, on any dividend payment date commencing February 15, 1994, for the Company's 7 percent Convertible Subordinated Exchange Debentures due February 15, 2007 (the "Exchange Debentures") in a principal amount equal to $25.00 per share of Series E Cumulative Preferred Stock so exchanged. The Exchange Debentures would be virtually identical to the 6 3/4 percent Subordinated Debentures, except that the Exchange Debentures would bear interest at the rate of 7 percent per annum and the interest payment dates would differ. Additionally, the Series E Cumulative Preferred Stock is redeemable at the option of the Company, in whole or from time to time in part, on and after February 16, 1996. The net proceeds of $111 million from the sale of the Series E Cumulative Preferred Stock were used to partially prepay the $175 million March 31, 1993 semi-annual term loan amortization under the 1989 Credit Agreement. The Company paid cash dividends during the first two quarters of 1993 on its Series E Cumulative Preferred Stock. However, due to a restrictive provision in the Senior Subordinated Indenture dated March 15, 1992 (the "Senior Subordinated Indenture") relating to the Company's 10 3/4 percent Senior Subordinated Notes, its 11 percent Senior Subordinated Notes and its 10 3/4 percent Senior Subordinated Debentures, the Board of Directors did not declare the scheduled August 15, 1993 or the November 15, 1993 quarterly dividend of $.4375 per share on the Series E Cumulative Preferred Stock nor was it permitted to declare or pay future dividends on the Series E Cumulative Preferred Stock until the Company generated income, or effected certain sales of capital stock, to replenish the dividend "pool" under various of its debt instruments. As of December 31, 1993, accumulated dividends on the Series E Cumulative Preferred Stock amounted to $4.0 million. As a result of the February 1994 Offerings, the dividend pool under the Senior Subordinated Indenture was replenished from the sale of the common shares. Pursuant to the most recent amendment to the Company's 1989 Credit Agreement, the Company will be able, to the extent declared by the Board of Directors, to pay dividends on the Series E Cumulative Preferred Stock to the extent permitted under the Senior Subordinated Indenture. In the event the Company does not pay a dividend on the Series E Cumulative Preferred Stock for six quarters, the holders of the Series E Cumulative Preferred Stock would have the right to elect two members to the Company's Board of Directors until the accumulated dividends on such Series E Cumulative Preferred Stock have been declared and paid or set apart for payment. REDEEMABLE PREFERRED STOCK OF A CONSOLIDATED AFFILIATE: The Company's Consolidated Balance Sheets include the Redeemable Series A Preferred Stock (the "Series A Preferred Stock") of Savannah River. Savannah River has authorized 650,000 shares of Series A Preferred Stock, of which 637,900 shares and 548,500 shares, having a total liquidation F-42 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 -- PREFERRED STOCK (CONTINUED) preference of $63.8 million and $54.9 million, were outstanding at December 31, 1993 and 1992, respectively. The Company owns one-third of the Series A Preferred Stock and has eliminated such investment in consolidation. The Series A Preferred Stock, $.01 par value, liquidation preference $100 per share, is cumulative with dividends of $15.375 per annum payable quarterly when, as and if declared by Savannah River's Board of Directors. On or prior to December 15, 1993, dividends are payable through the issuance of additional shares of Series A Preferred Stock; thereafter, such dividends are payable in cash. Stock dividends of approximately $6.0 million in 1993, $5.1 million in 1992 and $4.4 million in 1991, representing approximately 60,000 shares, 51,000 shares and 44,000 shares, respectively, have been distributed to shareholders other than the Company. Commencing December 15, 2001, Savannah River is required to redeem the Series A Preferred Stock at its liquidation preference in no less than three annual installments. Additionally, upon the occurrence of certain events, Savannah River may be required to redeem all of the Series A Preferred Stock at prices declining annually to 100 percent of the liquidation preference by December 15, 2001. The Series A Preferred Stock is solely the obligation of Savannah River and is without recourse to the parent company. SERIES F PREFERRED STOCK: As a result of the agreement discussed in Note 18 between the Company and Venezolana de Pulpa y Papel ("Venepal"), a Venezuelan pulp and paper company, the Company has authorized 400,000 shares of 7 percent Series F Cumulative Convertible Exchangeable Preferred Stock (the "Series F Preferred Stock"). The Series F Preferred Stock, $.01 par value, liquidation preference $100 per share, is cumulative with dividends of $7 per annum payable quarterly when, as and if declared by the Company's Board of Directors and is convertible into shares of the Company's common stock at a conversion price of $18.422, subject to adjustment under certain conditions. The terms of the Series F Preferred Stock are virtually identical to the Series E Preferred Stock, except for the liquidation preference and the conversion rate. No shares of Series F Preferred Stock have been issued to date. NOTE 15 -- COMMON STOCK The Company has authorized 200,000,000 shares of common stock, $.01 par value, of which 71,174,587 shares were outstanding at December 31, 1993. On September 15, 1992, the Company issued a 2 percent stock dividend to common stockholders of record August 25, 1992. The stock dividend was effected by the issuance of one share of common stock for every 50 shares of common stock held. Accordingly, all amounts per common share and weighted average number of common shares for all periods included in the consolidated financial statements have been retroactively adjusted to reflect this stock dividend. STOCK RIGHTS: Each outstanding share of the Company's common stock carries a stock purchase right ("Right"). Each Right entitles the holder to purchase from the Company one one-hundredth of a share of Series D Junior Participating Preferred Stock, par value $.01 per share, at a purchase price of $130 subject to adjustment under certain circumstances. The Rights expire August 8, 1998 unless extended or earlier redeemed by the Company. The Rights will be exercisable only if a person or group, subject to certain exceptions, acquires 15 percent or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by such person or group of 15 percent or more of the Company's common stock. The Company can redeem the Rights at the rate of $.01 per Right at any time before the tenth business day (subject to extension) after a 15 percent position is acquired. F-43 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 -- COMMON STOCK (CONTINUED) If the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder (other than the acquiring person or group) to purchase, at the Right's then-current exercise price, a number of the acquiring company's shares of common stock having a market value at that time of twice the Right's then-current exercise price. In addition, in the event that a 15 percent or greater stockholder acquires the Company by means of a reverse merger in which the Company and its common stock survive, or engages in self-dealing transactions with the Company, each holder of a Right (other than the acquiring person or group) will be entitled to purchase the number of shares of the Company's common stock having a market value of twice the then-current exercise price of the Right. STOCK OWNERSHIP AND OPTION PLANS: In 1982, the Company adopted an Incentive Stock Option Plan under which options are granted to key employees who are not participants in the Company's Long-Term Incentive Program described below. This plan expired on March 21, 1992 and upon its expiration, the Board of Directors adopted a 1993 Plan, effective January 1, 1993. The provisions under the 1993 Plan are similar to the 1982 Plan, with 1,530,000 shares of common stock authorized except that under the new plan the Company may issue either incentive stock options or non-qualified stock options. Options under these plans provide for the purchase of common shares at prices not less than 100 percent of the market value of such shares on the date of grant. The options are exercisable, in whole or in part, after one year but no later than ten years from the date of the respective grant. No accounting recognition is given to stock options until they are exercised, at which time the option price received is credited to common stock. F-44 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 -- COMMON STOCK (CONTINUED) Transactions under the stock option plans are summarized as follows:
OPTION PRICE OPTION SHARES PER SHARE* -------------- --------------- Outstanding January 1, 1991................................... 574,833 $ 4.98-29.28 Granted..................................................... -- -- Exercised................................................... (9,998 ) 6.01-8.74 Cancelled................................................... -- -- -------------- --------------- Outstanding December 31, 1991................................. 564,835 4.98-29.28 Granted..................................................... -- -- Exercised................................................... (22,950 ) 4.98-29.28 Adjustment for 2 percent stock dividend..................... 10,707 8.74-29.28 Cancelled................................................... (6,561 ) 6.01 -------------- --------------- Outstanding December 31, 1992................................. 546,031 8.74-29.28 Granted..................................................... -- -- Exercised................................................... -- -- Cancelled................................................... -- -- -------------- --------------- Outstanding December 31, 1993................................. 546,031 8.74-29.28 -------------- --------------- Options exercisable at December 31, 1993........................................................ 546,031 8.74-29.29 1992........................................................ 546,031 8.74-29.28 Options available for grant at December 31, 1993........................................................ 1,530,000 1992........................................................ 1,530,000 - ------------------------ *Adjusted for the 2 percent stock dividend issued September 15, 1992.
Additionally, the Company's Long-Term Incentive Program provides for contingent awards of restricted shares of common stock and cash to certain key employees.The payment of the cash portion of the awards granted will depend on the extent to which the Company has met certain long-term performance goals as established by a committee of outside directors. The compensation related to this program is amortized over the related five-year restricted periods. The charge (credit) to compensation expense under this plan was $(1.2) million, $3.6 million and $4.7 million in 1993, 1992 and 1991, respectively. In 1993, prior cash awards that were accrued have been deemed to be not payable due to the financial results of the Company. Under this plan, 1,800,000 shares have been reserved for issuance, of which 186,253, 120,834 and 238,546 shares were granted in 1993, 1992 and 1991, respectively. At December 31, 1993, there were 951,761 shares available for grant. NOTE 16 -- RELATED PARTY TRANSACTIONS The Company sells linerboard and corrugating medium to MacMillan Bathurst, a 50 percent owned non-consolidated affiliate and to Titan, a 49 percent owned non-consolidated affiliate. As discussed in Note 3, the Company sold its 49 percent interest in Titan in December 1993. Additionally, the Company purchases market pulp from Stone Venepal Consolidated Pulp Inc. ("Stone Venepal Consolidated"), a 50 percent owned non-consolidated affiliate of the Company. Stone Venepal Consolidated owns 50 percent of the Celgar Pulp Company, which operates a market pulp mill in British Columbia. The Company also sells boxboard to FCP, a 50 percent owned non-consolidated affiliate. Transactions under all of these agreements are primarily at market prices. F-45 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16 -- RELATED PARTY TRANSACTIONS (CONTINUED) The following table summarizes the transactions between the Company and its non-consolidated affiliates and the payable and receivable balances outstanding at the end of each year.
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) MacMillan Bathurst: Sales to........................................................ $ 77.4 $ 67.3 $ 79.4 Net receivable from............................................. 9.9 9.8 6.1 Titan: Sales to........................................................ $ 18.3 $ 13.4 $ 16.1 Net receivable from............................................. (a) 12.8 14.3 Management fee from............................................. 1.0 1.0 .8 FCP Group: Sales to........................................................ $ 4.3 (b) (b) Stone Venepal Consolidated: Purchases from.................................................. $ 1.4 $ .5 $ 1.1 Net payable to.................................................. .7 .2 -- - ------------------------ (a) Not applicable as equity investment in Titan was sold in December 1993. (b) Not applicable for 1992 and 1991 as FCP Group was formed in 1993.
NOTE 17 -- ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER NET OPERATING (INCOME) EXPENSE: The major components of other net operating (income) expense are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) Writedown of decommissioned assets............................. $ 19.2 $ 4.0 $ 4.0 Gain from an involuntary conversion at a paper mill............ -- -- (17.5) Loss on writedown of investments............................... 3.4 8.8 -- Gains on sales of investments or assets........................ (40.7) -- (7.4) Loss from sale of business..................................... -- -- 1.5 Gain from settlement and termination of Canadian supply contract...................................................... -- -- (41.8) Writedown of certain receivables to net realizable value....... 14.2 -- -- Other.......................................................... 8.6 -- (1.6) --------- --------- --------- Total other net operating (income) expense..................... $ 4.7 $ 12.8 $ (62.8) --------- --------- --------- --------- --------- ---------
INTEREST EXPENSE:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) Total interest cost incurred.................................. $ 437.5 $ 433.5 $ 479.3 Interest capitalized.......................................... (10.8) (47.4) (81.9) --------- --------- --------- Interest expenses............................................. $ 426.7 $ 386.1 $ 397.4 --------- --------- --------- --------- --------- ---------
F-46 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17 -- ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE: Selling, general and administrative expenses include provisions for doubtful accounts and notes receivable of $12.2 million for 1993, $8.3 million for 1992 and $7.1 million for 1991. OTHER, NET: The major components of other, net are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- (IN MILLIONS) Interest income................................................... $ 11.2 $ 11.5 $ 8.4 Dividend income................................................... .4 .8 1.0 Foreign currency transaction gains (losses)....................... (11.8) (15.0) 4.9 Minority interest expense......................................... (3.6) (5.3) (5.8) Other............................................................. 2.9 8.6 6.2 --------- --------- --------- Total other, net.................................................. $ (.9) $ .6 $ 14.7 --------- --------- --------- --------- --------- ---------
INVESTMENTS IN NON-CONSOLIDATED AFFILIATES: The Company had investments in non-consolidated affiliates of $107.2 million and $131.9 million at December 31, 1993 and 1992, respectively. These amounts are included in other long-term assets in the Company's Consolidated Balance Sheets. See Note 16 for discussion of the transactions between the Company and its major non-consolidated affiliates. ACCRUED AND OTHER CURRENT LIABILITIES: The major components of accrued and other current liabilities are as follows:
YEAR ENDED DECEMBER 31, -------------------- 1993 1992 --------- --------- (IN MILLIONS) Accrued interest........................................................... $ 68.2 $ 60.4 Accrued payroll, related taxes and employee benefits....................... 85.8 105.5 Other...................................................................... 131.7 134.7 --------- --------- Total accrued and other current liabilities................................ $ 285.7 $ 300.6 --------- --------- --------- ---------
OTHER LONG-TERM LIABILITIES: Included in other long-term liabilities at December 31, 1993 and 1992 is approximately $52.3 million and $57.8 million, respectively, of deferred income relating to the October 1992 sale of an energy contract at the Company's Hopewell mill. This amount is being amortized over a 12 year period. NOTE 18 -- COMMITMENTS AND CONTINGENCIES At December 31, 1993, the Company, excluding Savannah River and Seminole, had commitments outstanding for capital expenditures under purchase orders and contracts of approximately $20.3 million of which $8.3 million relates to Stone-Consolidated. Savannah River and Seminole had, at December 31, 1993, commitments outstanding for capital expenditures of approximately $4.9 million in the aggregate. The Company has a 50 percent equity interest in Stone Venepal Consolidated which in turn has a 50 percent undivided interest in the assets and liabilities of a joint venture which owns the Celgar pulp F-47 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) mill located at Castlegar, British Columbia. Venepal owns the other 50 percent equity interest in Stone Venepal Consolidated. On February 12, 1991, Stone Venepal Consolidated entered into a $350 million (Canadian) bank credit agreement for the purpose of financing its 50 percent share of a major improvement and expansion project at the Castlegar mill. Additionally, the Company entered into a Completion Financing Agreement for the purpose of funding part of the project costs that were incurred in excess of the primary borrowing facility, up to a maximum of $50 million (Canadian) in the aggregate. At December 31, 1993, the Company has paid $37.5 million (Canadian) under the Completion Financing Agreement which is the maximum amount the Company has determined it will be required to contribute. On October 30, 1992, the Company and Venepal entered into an agreement whereby Venepal's investment in the Celgar pulp mill, represented by Venepal's ownership of 50 percent of the outstanding common stock of Stone Venepal Consolidated can be exchanged for the Company's Series F Preferred Stock (see Note 14). The exchange would occur at Venepal's option as a result of certain specific conditions relating to the operations of the Celgar pulp mill. None of these conditions as of December 31, 1993 have occurred that would trigger the exchange. The Company may, at its option, elect to honor the contingent exchange obligation with a cash payment to Venepal. Based upon Venepal's initial investment in Stone Venepal Consolidated, 212,903 shares of Series F Preferred Stock, liquidation preference $100 per share, would be issued in the event Venepal elected its exchange option. Further, if the Series F Preferred shares were converted to the Company's common stock at the conversion price of $18.422, an additional 1,155,703 shares of common stock would be issued. Venepal's interest in Stone Venepal Consolidated replaces the equity ownership formerly held by Power Corporation of Canada. The 1989 Credit Agreement limits in certain specific circumstances any further investments by the Company in Stone-Consolidated Corporation, Seminole and Savannah River. Savannah River and Seminole have incurred substantial indebtedness in connection with project financings and are significantly leveraged. As of December 31, 1993, Savannah River had $402.6 million in outstanding indebtedness (including $268.9 million in secured indebtedness owed to bank lenders) and Seminole had $161.0 million in outstanding indebtedness (including $120.6 million in secured indebtedness owed to bank lenders). The Company has entered into separate output purchase agreements with each of these subsidiaries which require the Company to purchase Seminole's linerboard production at fixed prices until no later than September 1, 1994 and Savannah River's linerboard and market pulp production at fixed prices until December 1994 and November 1995, respectively. After such dates, the Company is required to purchase the respective production at market prices for the remaining terms of these agreements. While the fixed prices in effect at December 31, 1993 were higher than market prices at such date, the price differentials have not had, nor are they expected to have, a significant impact on the Company's results of operations or financial position. However, at the time that the fixed price provisions of the output purchase agreements terminate, such subsidiaries may need to undertake additional measures to meet their debt service requirements (including covenants), including obtaining additional sources of funds, postponing or restructuring of debt service payments or refinancing the indebtedness. In the event that such measures are required and are not successful, and such indebtedness is accelerated by the respective lenders to Savannah River or Seminole, the lenders to the Company under the 1989 Credit Agreement and various other of its debt instruments would be entitled to accelerate the indebtedness owed by the Company. Under certain timber contracts, title passes as the timber is cut. These are considered to be commitments and are not recorded until the timber is removed. At December 31, 1993 commitments on such contracts, which run through 1997, were approximately $16.8 million. F-48 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company's operations are subject to extensive environmental regulation by federal, state and local authorities in the United States and regulatory authorities with jurisdiction over its foreign operations. The Company has in the past made significant capital expenditures to comply with water, air and solid and hazardous waste regulations and expects to make significant expenditures in the future. Capital expenditures for environmental control equipment and facilities were approximately $28 million in 1993 and the Company anticipates that 1994 and 1995 environmental capital expenditures will approximate $71 million and $96 million, respectively. Included in these amounts are capital expenditures for Stone-Consolidated which were approximately $5 million in 1993 and are anticipated to approximate $36 million in 1994 and $64 million in 1995. Although capital expenditures for environmental control equipment and facilities and compliance costs in future years will depend on legislative and technological developments which cannot be predicted at this time, the Company anticipates that these costs are likely to increase as environmental regulations become more stringent. Environmental control expenditures include projects which, in addition to meeting environmental concerns, yield certain benefits to the Company in the form of increased capacity and production cost savings. In addition to capital expenditures for environmental control equipment and facilities, other expenditures incurred to maintain environmental regulatory compliance (including any remediation) represent ongoing costs to the Company. On December 17, 1993, the Environmental Protection Agency proposed regulations under the Clean Air Act and the Clean Water Act for the pulp and paper industry, which if and when implemented, would affect directly a number of the Company's facilities. Since the regulations have only recently been proposed, the Company is currently unable to estimate the nature or level of future expenditures that may be required to comply with such regulations if the proposed regulations become final in some form. In addition, the Company is from time to time subject to litigation and governmental proceedings regarding environmental matters in which injunctive and/or monetary relief is sought. The Company has been named as a potentially responsible party ("PRP") at a number of sites which are the subject of remedial activity under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") or comparable state laws. Although the Company is subject to joint and several liability imposed under Superfund, at most of the multi-PRP sites there are organized groups of PRPs and costs are being shared among PRPs. Future environmental regulations, including the December 17, 1993 regulations, may have an unpredictable adverse effect on the Company's operations and earnings, but they are not expected to adversely affect the Company's competitive position. The Company has entered into a purchase agreement with a certain party in which the Company has agreed to purchase annually 90,000 tons of linerboard at specified prices over a ten year period. Commencement of this agreement is contingent upon the completion of a manufacturing facility by the other party. Refer to Notes 10 and 13 for further discussion of the Company's debt, hedging and lease commitments. Additionally, the Company is involved in certain litigation primarily arising in the normal course of business. In the opinion of management, the Company's liability under any pending litigation would not materially affect its financial condition or results of operations. NOTE 19 -- SEGMENT INFORMATION BUSINESS SEGMENTS: The Company operates principally in two business segments. The paperboard and paper packaging segment is comprised primarily of facilities that produce containerboard, kraft paper, boxboard, corrugated containers and paper bags and sacks. The white paper and pulp segment consists of F-49 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 -- SEGMENT INFORMATION (CONTINUED) facilities that manufacture and sell newsprint, groundwood paper and market pulp. The Company has other operations, primarily consisting of wood products operations, flexible packaging operations and railroad operations. Intersegment sales are accounted for at transfer prices which approximate market prices. Operating profit includes all costs and expenses directly related to the segment involved. The corporate portion of operating profit includes corporate general and administrative expenses and equity income (loss) of non-consolidated affiliates. Assets are assigned to segments based on use. Corporate assets primarily consist of cash and cash equivalents, fixed assets, certain deferred charges and investments in non-consolidated affiliates. Financial information by business segment is summarized as follows:
1993 1992 1991 -------------- -------------- -------------- (IN MILLIONS) Sales: Paperboard and paper packaging......................... $ 3,810.1 $ 4,185.7 $ 4,037.7 White paper and pulp................................... 965.0 1,078.3 1,115.8 Other.................................................. 330.6 303.0 275.3 Intersegment........................................... (46.1) (46.3) (44.5) -------------- -------------- -------------- Total sales........................................ $ 5,059.6 $ 5,520.7 $ 5,384.3 -------------- -------------- -------------- -------------- -------------- -------------- Income (loss) before income taxes and cumulative effects of accounting changes: Paperboard and paper packaging......................... $ 206.4 $ 322.1 $ 355.8 White paper and pulp................................... (194.2) (87.0) 84.1 Other.................................................. 36.4 12.0 (6.0) -------------- -------------- -------------- 48.6 247.1 433.9 Interest expense....................................... (426.7) (386.1) (397.4) Foreign currency transaction gains (losses)............ (11.8) (15.0) 4.9 General corporate...................................... (77.0)(1) (75.3)(1) (59.4)(1) -------------- -------------- -------------- Loss before income taxes and cumulative effects of accounting changes................................ $ (466.9) $ (229.3) $ (18.0) -------------- -------------- -------------- -------------- -------------- -------------- Depreciation and amortization: Paperboard and paper packaging......................... $ 179.5 $ 173.3 $ 154.5 White paper and pulp................................... 135.8 123.6 88.8 Other.................................................. 20.9 24.3 23.0 General corporate...................................... 10.6 8.0 7.2 -------------- -------------- -------------- Total depreciation and amortization................ $ 346.8 $ 329.2 $ 273.5 -------------- -------------- -------------- -------------- -------------- -------------- Assets: Paperboard and paper packaging......................... $ 3,436.5 $ 3,516.3 $ 3,728.5 White paper and pulp................................... 2,632.8 2,763.4 2,459.9 Other.................................................. 344.6 379.6 383.4 General corporate...................................... 422.8(2) 367.7(2) 331.1(2) -------------- -------------- -------------- Total assets....................................... $ 6,836.7 $ 7,027.0 $ 6,902.9 -------------- -------------- -------------- -------------- -------------- --------------
F-50 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
1993 1992 1991 -------------- -------------- -------------- (IN MILLIONS) Capital expenditures: Paperboard and paper packaging......................... $ 100.7 $ 177.1 $ 322.6 White paper and pulp................................... 44.2 98.6 100.6 Other.................................................. 1.5 4.8 4.4 General corporate...................................... 3.3 .9 2.5 -------------- -------------- -------------- Total capital expenditures......................... $ 149.7 $ 281.4 $ 430.1 -------------- -------------- -------------- -------------- -------------- -------------- - ------------------------ (1) Includes equity in net income (loss) of non-consolidated vertically integrated affiliates as follows: Paperboard and paper packaging segment -- $(5.2) in 1993, $(3.3) in 1992 and $2.4 in 1991; White paper and pulp segment -- $(2.5) in 1993, $(2.7) in 1992 and $(1.5) in 1991; and other -- $(4.0) in 1993, $.7 in 1992 and $.2 in 1991. (2) Includes investments in non-consolidated vertically integrated affiliates as follows: Paperboard and paper packaging segment -- $33.6 in 1993, $42.2 in 1992 and $38.6 in 1991; White paper and pulp segment -- $27.8 in 1993, $29.4 in 1992 and $26.2 in 1991; and other -- $45.8 in 1993, $2.2 in 1992 and $1.3 in 1991.
GEOGRAPHIC SEGMENTS: The chart below provides financial information for the Company's operations based on the region in which the operations are located.
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF AN INTER-AREA ACCOUNTING TRADE SALES SALES TOTAL SALES CHANGE ASSETS ----------- ---------- ----------- ------------- ------------ (IN MILLIONS) 1993 United States............................................... $3,678.2 $ 16.4 $3,694.6 $ 112.0 $3,256.8 Canada...................................................... 756.2 16.9 773.1 (69.5) 2,374.8 Europe...................................................... 625.2 1.7 626.9 6.1 782.3 ----------- ---------- ----------- ------------- ------------ 5,059.6 35.0 5,094.6 48.6 6,413.9 Interest expense............................................ (426.7) Foreign currency transaction losses......................... (11.8) General corporate........................................... (77.0)(1) 422.8(2) Inter-area eliminations..................................... (35.0) (35.0) -- ----------- ---------- ----------- ------------- ------------ Total....................................................... $5,059.6 $ -- $5,059.6 $(466.9) $6,836.7 ----------- ---------- ----------- ------------- ------------ ----------- ---------- ----------- ------------- ------------
F-51 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF AN INTER-AREA ACCOUNTING TRADE SALES SALES TOTAL SALES CHANGE ASSETS ----------- ---------- ----------- ------------- ------------ (IN MILLIONS) 1992 United States............................................... $3,908.5 $ 28.9 $3,937.4 $ 300.3 $3,406.0 Canada...................................................... 770.4 20.0 790.4 (97.3) 2,375.6 Europe...................................................... 841.8 5.1 846.9 44.1 877.7 ----------- ---------- ----------- ------------- ------------ 5,520.7 54.0 5,574.7 247.1 6,659.3 Interest expense............................................ (386.1) Foreign currency transaction losses......................... (15.0) General corporate........................................... (75.3)(1) 367.7(2) Inter-area eliminations..................................... (54.0) (54.0) -- ----------- ---------- ----------- ------------- ------------ Total....................................................... $5,520.7 $ -- $5,520.7 $(229.3) $7,027.0 ----------- ---------- ----------- ------------- ------------ ----------- ---------- ----------- ------------- ------------ 1991 United States............................................... $3,700.0 $ 29.8 $3,729.8 $ 335.2 $3,277.5 Canada...................................................... 870.6 24.6 895.2 13.8 2,389.8 Europe...................................................... 813.7 -- 813.7 84.9 904.5 ----------- ---------- ----------- ------------- ------------ 5,384.3 54.4 5,438.7 433.9 6,571.8 Interest expense............................................ (397.4) Foreign currency transaction gains.......................... 4.9 General corporate........................................... (59.4)(1) 331.1(2) Inter-area eliminations..................................... (54.4) (54.4) -- ----------- ---------- ----------- ------------- ------------ Total....................................................... $5,384.3 $ -- $5,384.3 $ (18.0) $6,902.9 ----------- ---------- ----------- ------------- ------------ ----------- ---------- ----------- ------------- ------------ - ------------------------ (1) Includes equity in net income (loss) of non-consolidated vertically integrated affiliates as follows: United States -- $(1.0) in 1993, $(1.2) in 1992 and $(.1) in 1991; Canada -- $(3.0) in 1993, $(3.0) in 1992 and $(.6) in 1991; and other -- $(7.7) in 1993, $(1.1) in 1992 and $1.8 in 1991. (2) Includes investments in non-consolidated vertically integrated affiliates as follows: United States -- $ -- in 1993, $4.7 in 1992 and $1.2 in 1991; Canada -- $63.0 in 1993, $68.7 in 1992 and $64.9 in 1991; and other -- $44.2 in 1993, $.4 in 1992 and $ -- in 1991.
The Company's export sales from the United States were $341 million, $428 million and $330 million for 1993, 1992 and 1991, respectively. F-52 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 -- SUMMARY OF QUARTERLY DATA (UNAUDITED) The following table summarizes quarterly financial data for 1993 and 1992:
QUARTER ---------------------------------------------- FIRST(2) SECOND THIRD FOURTH(1) YEAR ---------- ---------- ---------- ---------- ---------- (IN MILLIONS EXCEPT PER SHARE) 1993 Net sales.......................................... $ 1,306.3 $ 1,267.6 $ 1,242.6 $ 1,243.1 $ 5,059.6 Cost of products sold.............................. 1,070.3 1,050.3 1,058.9 1,044.1 4,223.5 Depreciation and amortization...................... 87.1 88.8 81.2 89.7 346.8 Loss before cumulative effect of an accounting change............................................ (62.7) (71.6) (99.2) (85.8) (319.2) Cumulative effect of change in accounting for postretirement benefits........................... (39.5) -- -- -- (39.5) Net loss........................................... (102.2) (71.6) (99.2) (85.8) (358.7) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Per share of common stock: Loss before cumulative effect of an accounting change.......................................... (.91) (1.03) (1.42) (1.23) (4.59) Cumulative effect of change in accounting for postretirement benefits......................... (.56) -- -- -- (.56) ---------- ---------- ---------- ---------- ---------- Net loss......................................... (1.47) (1.03) (1.42) (1.23) (5.15) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash dividends per common share.................... -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1992 Net sales.......................................... $ 1,354.3 $ 1,371.1 $ 1,464.6 $ 1,330.7 $ 5,520.7 Cost of products sold.............................. 1,084.2 1,107.8 1,193.3 1,088.4 4,473.7 Depreciation and amortization...................... 77.8 82.4 87.1 81.9 329.2 Loss before cumulative effect of an accounting change............................................ (9.3) (40.7) (43.2) (76.7) (169.9) Cumulative effect of change in accounting for income taxes...................................... (99.5) -- -- -- (99.5) Net loss........................................... (108.8) (40.7) (43.2) (76.7) (269.4) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Per share of common stock: Loss before cumulative effect of an accounting change.......................................... (.15) (.60) (.64) (1.10) (2.49) Cumulative effect of change in accounting for income taxes.................................... (1.40) -- -- -- (1.40) ---------- ---------- ---------- ---------- ---------- Net loss......................................... (1.55) (.60) (.64) (1.10) (3.89) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash dividends per common share.................... .17 .18 -- -- .35 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ------------------------ (1) The fourth quarter of 1993 includes a pre-tax gain of approximately $35.4 million from the sale of the Company's 49 percent equity interest in Titan and a reduction in an accrual resulting from a change in the Company's vacation pay policy which were partially offset by the writedown of the carrying values of certain Company assets. The fourth quarter of 1992 was unfavorably impacted by a roll-back of linerboard price increases which resulted in the issuance of customer credits in the fourth quarter pertaining to third quarter 1992 billings. Price increases are invoiced for shipments on or after the effective date of the price increase. In certain circumstances the Company, as a result of
F-53 STONE CONTAINER CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 -- SUMMARY OF QUARTERLY DATA (UNAUDITED) (CONTINUED) competitive pressures, may issue credits for the previously billed price increases. When it becomes probable that a price increase will not be successful or will be delayed, the Company accrues for possible credits to be issued. (2) The Company adopted SFAS 106 effective January 1, 1993 and SFAS 109 effective January 1, 1992. (3) Amounts per common share have been adjusted for the 2 percent common stock dividend issued September 15, 1992.
F-54 STONE CONTAINER CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED) Set forth below is the unaudited Pro Forma Condensed Consolidated Statement of Operations of the Company for the six months ended June 30, 1994. The unaudited Pro Forma Condensed Consolidated Statement of Operations includes the historical results of the Company and gives effect to the 1994 sale of $710 million principal amount of 9 7/8% Senior Notes due February 1, 2001, the concurrent issuance of 18.97 million shares of common stock for $287.8 million at $15.25 per common share, the Offering and the application of the net proceeds therefrom, and the Related Transactions (collectively, the "1994 Financings") as if they had occurred as of January 1, 1994. The pro forma financial data do not purport to be indicative of the Company's results of operations that would actually have been obtained had the 1994 Financings been completed as of the beginning of the period presented, or to project the Company's results of operations at any future date or for any future period. The unaudited pro forma adjustments are based upon available information and upon certain assumptions that the Company believes are reasonable. The unaudited pro forma financial data and accompanying notes should be read in conjunction with the historical financial information of the Company, including the notes thereto, included elsewhere in this Prospectus.
HISTORICAL PRO FORMA SIX SIX MONTHS PRO FORMA MONTHS ENDED ADJUSTMENTS ENDED JUNE 30, 1994 JUNE 30, 1994(1) FINANCINGS(2) 1994 --------- ---------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales......................................... $2,645.1 $ $2,645.1 Operating costs and expenses: Cost of products sold............................. 2,184.0 2,184.0 Selling, general and administrative............... 270.5 270.5 Depreciation and amortization..................... 177.7 177.7 Equity loss from affiliates....................... 5.7 5.7 Other net operating income........................ (33.4) (33.4) --------- ---------- --------- 2,604.5 2,604.5 --------- ---------- --------- Income from operations............................ 40.6 40.6 Interest expense.................................. (224.3) 64.7(a) (227.6) (68.0)(b) Other, net........................................ (8.1) 11.0(c) 2.9 --------- ---------- --------- Loss before income taxes, minority interest, extraordinary loss and cumulative effect of an accounting change................................ (191.8) 7.7 (184.1) Credit for income taxes........................... (60.0) 1.9(e) (58.1) Minority interest................................. 2.1 3.1(d) 5.2 --------- ---------- --------- Loss before extraordinary loss and cumulative effect of an accounting change................... $ (129.7) $ 8.9 $ (120.8) --------- ---------- --------- --------- ---------- --------- Loss per share of common stock before extraordinary loss and cumulative effect of an accounting change................................ $ (1.55) $ (1.38) --------- --------- --------- --------- Weighted average common shares outstanding (in millions)........................................ 86.0 90.3 --------- --------- --------- --------- - ------------------------------ (1) Basis of preparation: The unaudited Pro Forma Condensed Consolidated Statement of Operations has been prepared from and should be read in conjunction with the historical consolidated financial statements of the Company included elsewhere in this Prospectus. (2) Pro forma adjustments relating to the 1994 Financings: (a) To record a reduction of historical interest expense and amortization of deferred debt issuance costs of $64.7 million as a result of (i) the assumed repayment of 1989 Credit Agreement indebtedness; (ii) the assumed repayment of borrowings under the Savannah River Credit Agreement; (iii) the assumed repayment of the 13 5/8% Subordinated Notes due June 1, 1995 and (iv) the assumed redemption of the Savannah River Notes at a redemption price equal to 107.0625% of the principal amount. In the first quarter of 1994, the Company wrote-off $16.8 million of unamortized deferred debt issuance costs, net of income tax benefit, as a result of debt repayments. Assuming that the Offering and the Related Transactions are completed as planned, the Company will incur a charge of approximately $45 million, net of income tax benefit, pertaining to the write-off of unamortized deferred debt issuance costs related to the debt being repaid and costs associated with the redemption of the Savannah River Notes. These write-offs are not included in the unaudited Pro Forma Condensed Consolidated Statement of Operations. (b) To record pro forma interest expense and amortization of debt fees of $68.0 million related to the 9 7/8% Senior Notes due February 1, 2001, the % First Mortgage Notes due 2002, the % Senior Notes due 2004, the % term loan under the Credit Agreement and the revolving credit facility under the Credit Agreement. For purposes of the unaudited Pro Forma Condensed Consolidated Statement of Operations, management has assumed weighted average interest rates of 11.5%, 12% and 7.1% for the First Mortgage Notes, the Senior Notes and the term loan under the Credit Agreement, respectively. (c) To decrease the foreign exchange transaction losses by $11.0 million to reflect the effects of the reversal of the historical foreign exchange transaction losses associated with a foreign subsidiary's U.S. dollar denominated debt that was repaid. (d) To reverse minority interest expense of $3.1 million as a result of the purchase of the 72,346 outstanding shares of common stock of Savannah River not owned by the Company and the redemption of the 425,243 outstanding shares of the Savannah River Preferred not owned by the Company. (e) To record an adjustment to income taxes of $1.9 million pertaining to the interest expense adjustments described in Notes 2(a) and 2(b) and the foreign exchange transaction loss adjustment described in Note 2(c) using the estimated U.S. and Canadian statutory income tax rates of 39 percent and 35 percent, respectively. The U.S. tax rate includes the effects of state income taxes.
F-55 STONE CONTAINER CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1993 (UNAUDITED) Set forth below is the unaudited Pro Forma Condensed Consolidated Statement of Operations of the Company for the year ended December 31, 1993. The unaudited Pro Forma Condensed Consolidated Statement of Operations includes the historical results of the Company and gives effect to the public offerings in December 1993 by Stone-Consolidated of Cdn. $231 million of its common stock, Cdn. $231 million of its 8% Convertible Unsecured Subordinated Debentures due 2003 and $225 million of its 10.25% Senior Secured Notes due 2000 (the "Stone- Consolidated Transaction") as if they had occurred as of January 1, 1993. The historical results are further adjusted for the 1994 sale of $710 million principal amount of 9 7/8% Senior Notes due February 1, 2001, for the concurrent issuance of 18.97 million shares of common stock for $287.8 million at $15.25 per common share, for the Offering and the application of the net proceeds therefrom, and for the Related Transactions (collectively, the "1994 Financings") as if they had occurred as of January 1, 1993. The pro forma financial data do not purport to be indicative of the Company's results of operations that would actually have been obtained had the Stone-Consolidated Transaction and the 1994 Financings been completed as of the beginning of the period presented, or to project the Company's results of operations at any future date or for any future period. The unaudited pro forma adjustments are based upon available information and upon certain assumptions that the Company believes are reasonable. The unaudited pro forma financial data and accompanying notes should be read in conjunction with the historical financial information of the Company, including the notes thereto, included elsewhere in this Prospectus.
HISTORICAL PRO FORMA YEAR YEAR ENDED PRO FORMA PRO FORMA ENDED DECEMBER ADJUSTMENTS ADJUSTMENTS DECEMBER 31, STONE-CONSOLIDATED 1994 31, 1993(1) TRANSACTIONS(2) FINANCINGS(3) 1993 --------- ---------- ---------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales............................... $5,059.6 $ $ $5,059.6 Operating costs and expenses: Cost of products sold................... 4,223.5 4,223.5 Selling, general and administrative expenses............................... 512.2 512.2 Depreciation and amortization........... 346.8 346.8 Equity loss from affiliates............. 11.7 11.7 Other net operating expense............. 4.7 4.7 --------- ---------- ---------- --------- 5,098.9 5,098.9 --------- ---------- ---------- --------- Loss from operations.................... (39.3) (39.3) Interest expense........................ (426.7) 21.7(a) 201.6(f) (435.7) (43.8)(b) (188.5)(g) Other, net.............................. 2.7 (10.9)(c) 4.0(h) (4.2) --------- ---------- ---------- --------- Loss before income taxes and cumulative effect of an accounting change......... (463.3) (33.0) 17.1 (479.2) Credit for income taxes................. (147.7) (11.1)(e) 3.9(j) (154.9) Minority interest....................... (3.6) 9.3(d) 4.3(i) 10.0 --------- ---------- ---------- --------- Loss before cumulative effect of an accounting change...................... $ (319.2) $(12.6) $ 17.5 $ (314.3) --------- ---------- ---------- --------- --------- ---------- ---------- --------- Loss per share of common stock before cumulative effect of an accounting change................................. $ (4.59) $ (3.58) --------- --------- --------- --------- Weighted average common shares outstanding (in millions).............. 71.2 90.1 --------- --------- --------- --------- - ------------------------------ (1) Basis of preparation: The unaudited Pro Forma Condensed Consolidated Statement of Operations has been prepared from and should be read in conjunction with the historical consolidated financial statements of the Company included elsewhere in this Prospectus. (2) Pro forma adjustments relating to the Stone-Consolidated Transaction: (a) To record a reduction of historical interest expense and amortization of deferred debt issuance costs of $21.7 million as a result of the assumed repayment of certain 1989 Credit Agreement indebtedness. (b) To record pro forma interest expense and amortization of debt fees of $38.7 million related to Stone-Consolidated's 10.25% Senior Secured Notes due 2000 and 8% Convertible Unsecured Subordinated Debentures due 2003 and to record amortization of the amendment fees of $5.1 million related to the Company's 1989 Credit Agreement. (c) To increase the foreign exchange transaction losses by $10.9 million to reflect the effects of foreign currency remeasurement pertaining to Stone-Consolidated's U.S. dollar denominated 10.25% Senior Secured Notes due 2000, partially offset by the reversal of the historical foreign exchange transaction losses associated with the U.S. dollar denominated debt that was repaid. (d) To record the minority interest share of the net losses of Stone-Consolidated of $9.3 million for the year ended December 31, 1993 based on the pro forma statement of operations of Stone-Consolidated. (e) To record the adjustment to income taxes of $11.1 million pertaining to the interest expense adjustments described in Notes 2(a) and 2(b) and for the foreign exchange transaction loss adjustment described in Note 2(c) using the applicable U.S. and Canadian statutory income tax rates of 39 percent and 35 percent, respectively. The U.S. tax rates include the effects of state income tax rates.
F-56 (3) Pro forma adjustments relating to the 1994 Financings: (f) To record a reduction of historical interest expense and amortization of deferred debt issuance costs of $201.6 million as a result of (i) the assumed repayment of 1989 Credit Agreement indebtedness; (ii) the assumed repayment of borrowings under the Savannah River Credit Agreement; (iii) the assumed repayment of the 13 5/8% Subordinated Notes due June 1, 1995 and (iv) the assumed redemption of the Savannah River Notes at a redemption price equal to 107.0625% of the principal amount. In the first quarter of 1994, the Company wrote-off $16.8 million of unamortized deferred debt issuance costs, net of income tax benefit, as a result of debt repayments. Assuming that the Offering and the Related Transactions are completed as planned, the Company will incur a charge of approximately $45 million, net of income tax benefit, pertaining to the write-off of unamortized deferred debt issuance costs related to the debt being repaid and costs associated with the redemption of the Savannah River Notes. These write-offs are not included in the unaudited Pro Forma Condensed Consolidated Statement of Operations. (g) To record pro forma interest expense and amortization of debt fees of $188.5 million related to the 9 7/8% Senior Notes due February 1, 2001, the % First Mortgage Notes due 2002, the % Senior Notes due 2004, the % term loan under the Credit Agreement and the revolving credit facility under the Credit Agreement. For purposes of the unaudited Pro Forma Condensed Consolidated Statement of Operations, management has assumed weighted average interest rates of 11.5%, 12%, 6.5% and 6.0% for the First Mortgage Notes, the Senior Notes, the term loan under the Credit Agreement and the revolving credit facility under the Credit Agreement, respectively. (h) To decrease the foreign exchange transaction losses by $4.0 million to reflect the effects of the reversal of the historical foreign exchange transaction losses associated with a foreign subsidiary's U.S. dollar denominated debt that was repaid. (i) To reverse minority interest expense of $4.3 million as a result of the purchase of the 72,346 outstanding shares of common stock of Savannah River not owned by the Company and the redemption of the 425,243 outstanding shares of the Savannah River Preferred not owned by the Company. (j) To record an adjustment to income taxes of $3.9 million pertaining to the interest expense adjustments described in Notes 3(f) and 3(g) and the foreign exchange transaction loss adjustment described in Note 3(h) using the estimated U.S. and Canadian statutory income tax rates of 39 percent and 35 percent, respectively. The U.S. tax rate includes the effects of state income taxes.
F-57 STONE CONTAINER CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 1994 (UNAUDITED) Set forth below is the unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company as of June 30, 1994. The unaudited Pro Forma Condensed Consolidated Balance Sheet includes the historical financial position of the Company and gives effect to the Offering and the Related Transactions as if they had occurred as of June 30, 1994. The pro forma financial data do not purport to be indicative of the Company's financial position that would actually have been obtained had the Offering and the application of net proceeds therefrom, and Related Transactions been completed as of the date presented, or to project the Company's financial position at any future date. The unaudited pro forma adjustments are based upon available information and upon certain assumptions that the Company believes are reasonable. The unaudited pro forma financial data and accompanying notes should be read in conjunction with the historical financial information of the Company, including the notes thereto, included elsewhere in this Prospectus.
PRO FORMA ADJUSTMENTS FOR HISTORICAL THE OFFERING PRO FORMA JUNE 30, AND RELATED JUNE 30, 1994(1) TRANSACTIONS(2) 1994 --------- ------------ --------- (IN MILLIONS) ASSETS: Current assets: Cash and cash equivalents............... $ 150.1 $1,104.7(a) $ 142.4 (1,051.2)(b) (61.2)(c) Accounts and notes receivable (less allowance of $20.2).................... 709.3 709.3 Inventories............................. 656.5 656.5 Other................................... 246.0 (34.1)(a) 211.9 --------- ------------ --------- Total current assets................ 1,761.9 (41.8) 1,720.1 --------- ------------ --------- Property, plant and equipment........... 5,251.9 5.6(c) 5,257.5 Accumulated depreciation and amortization........................... (1,970.0) (1,970.0) --------- ------------ --------- Property, plant and equipment -- net................................ 3,281.9 5.6 3,287.5 Timberlands............................. 88.9 88.9 Goodwill................................ 875.9 875.9 Other................................... 679.8 50.0(a) 663.0 (66.8)(c) --------- ------------ --------- Total assets............................ $6,688.4 $ (53.0) $6,635.4 --------- ------------ --------- --------- ------------ --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Current maturities of senior and subordinated long-term debt............ $ 18.1 $ 4.0(a) $ 22.1 Current maturities of non-recourse debt of consolidated affiliates............. 271.3 (249.5)(b) 21.8 Accounts payable........................ 288.8 288.8 Income taxes............................ 46.0 46.0 Accrued and other current liabilities... 313.9 (1.0)(b) 312.9 --------- ------------ --------- Total current liabilities........... 938.1 (246.5) 691.6 --------- ------------ --------- Senior long-term debt................... 2,277.6 1,116.6(a) 2,723.5 (670.7)(b) Subordinated debt....................... 1,159.6 1,159.6 Non-recourse debt of consolidated affiliates............................. 657.0 (129.1)(b) 527.9 Other long-term liabilities............. 315.6 315.6 Deferred taxes.......................... 382.9 (28.4)(c) 354.1 (.4)(b) Redeemable preferred stock of consolidated affiliate................. 42.3 (42.3)(c) -- Minority interest....................... 223.3 (.1)(c) 223.2 Commitments and contingencies STOCKHOLDERS' EQUITY: Series E preferred stock.............. 115.0 115.0 Common stock (90.4 shares outstanding)......................... 853.1 (4.0)(c) 849.1 Accumulated deficit................... (72.8) (47.6)(c) (120.9) (.5)(b) Foreign currency translation adjustment........................... (197.4) (197.4) Unamortized expense of restricted stock plan........................... (5.9) (5.9) --------- ------------ --------- Total stockholders' equity.......... 692.0 (52.1) 639.9 --------- ------------ --------- Total liabilities and stockholders' equity................................. $6,688.4 $ (53.0) $6,635.4 --------- ------------ --------- --------- ------------ --------- - ------------------------------ (1) Basis of preparation: The unaudited Pro Forma Condensed Consolidated Balance Sheet has been prepared from and should be read in conjunction with the historical consolidated financial statements of the Company included elsewhere in this Prospectus.
F-58 (2) Pro forma adjustments relating to the Offering and Related Transactions: (a) To record gross proceeds of $1.160 billion, less estimated deferred debt issuance costs of $50 million, from (i) the issuance of $500 million principal amount of % First Mortgage Notes due 2002; (ii) the issuance of $200 principal amount of % Senior Notes due 2004; (iii) $400 million of borrowings under a % term loan under the Credit Agreement; and (iv) initial borrowings of $20.0 million under a $450 million revolving credit facility under the Credit Agreement (these initial borrowings are net of $34.1 million of cash escrow released due to the repayment of the 1989 Credit Agreement and $7.7 million of Savannah River's cash balance at June 30, 1994). The net proceeds from these borrowings are assumed to have been used as described in Notes 2(b) and 2(c). (b) To record (i) the assumed repayment of $670.7 million of indebtedness under the 1989 Credit Agreement; (ii) the assumed repayment of $249.5 million of borrowings outstanding under the Savannah River Credit Agreement; (iii) the assumed redemption of $129.1 million (net of unamortized debt discount of $.9 million) of the Savannah River Notes; (iv) an extraordinary loss of $.5 million, net of income tax benefit of $.4 million, related to the write-off of $.9 million of unamortized debt discounts; and (v) the assumed payment of $1.0 million of accrued interest. (c) To record (i) the purchase of the 72,346 outstanding shares of common stock of Savannah River not owned by the Company for $2.2 million; (ii) the redemption of the 425,243 outstanding shares of the Savannah River Preferred not owned by the Company, along with accrued and unpaid dividends thereunder for $45.8 million; (iii) the elimination of the $.1 million minority interest liability pertaining to Savannah River; (iv) an extraordinary loss of $47.6 million, net of income tax benefit of $28.4 million, relating to the write-off of $66.8 million of unamortized deferred debt issuance costs pertaining to the debt being repaid in Note (b) and $9.2 million of other costs associated with the redemption of the Savannah River Notes; and (v) a charge to common stock of $4.0 million associated with the redemption of the Savannah River Preferred not owned by the Company.
F-59 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................. 3 Risk Factors................................... 13 Company Profile................................ 21 Use of Proceeds................................ 22 Capitalization................................. 23 Selected Consolidated Financial Data........... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 26 Business....................................... 42 Properties..................................... 52 Management..................................... 55 Security Ownership By Certain Beneficial Owners and Management................................ 59 Credit Agreement............................... 64 Description of Notes........................... 68 The Collateral Under the First Mortgage Note Indenture..................................... 98 Underwriting................................... 103 Experts........................................ 104 Legal Matters.................................. 104 Available Information.......................... 104 Annex A -- Summary Appraisal................... A-1 Index to Financial Statements.................. F-1
$700,000,000 [LOGO] STONE CONTAINER $500,000,000 % FIRST MORTGAGE NOTES DUE 2002 $200,000,000 % SENIOR NOTES DUE 2004 SALOMON BROTHERS INC BT SECURITIES CORPORATION MORGAN STANLEY & CO. INCORPORATED KIDDER, PEABODY & CO. INCORPORATED BEAR, STEARNS & CO. INC. PROSPECTUS DATED , 1994 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth expenses in connection with the distribution of the securities being registered, other than underwriting discounts and commissions. All amounts are estimated, except for the SEC Filing Fee. SEC Filing Fee......................................... $ 310,320 NASD Filing Fee........................................ $ 30,500 Trustees' charges...................................... 40,000* Printing and engraving................................. 200,000* Accounting Fees........................................ 75,000* Legal Fees and Expense................................. 200,000* Blue Sky Fees and Expenses............................. 15,000* Miscellaneous.......................................... 14,180* ---------- Total........................................ $ 885,000* ---------- ---------- - ------------------------ *Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Reference is made to Section 145 ("Section 145") of the Delaware General Corporation Law of the State of Delaware (the "Delaware GCL") which provides for indemnification of directors and officers in certain circumstances. In accordance with Section 102(b)(7) of the Delaware GCL, the Company's Restated Certificate of Incorporation provides that directors shall not be personally liable for monetary damages for breaches of their fiduciary duty as directors except for (i) breaches of their duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law, (iii) under Section 174 of the Delaware GCL (unlawful payment of dividends) or (iv) transactions from which a director derives an improper personal benefit. The Restated Certificate of Incorporation of the Company provides for indemnification of directors and officers to the full extent provided by the Delaware GCL, as amended from time to time. It states that the indemnification provided therein shall not be deemed exclusive. The Company may maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify him against such expense, liability or loss, under the provisions of the Delaware GCL. The Underwriting Agreements, forms of which have been filed as Exhibits 1(a) and 1(b) to this Registration Statement, provide for indemnification of directors and officers of the Company against certain liabilities. Similar indemnification provisions were contained in underwriting agreements executed in connection with prior offerings and sales of securities by the Company. Pursuant to Section 145 and the Restated Certificate of Incorporation, the Company maintains directors' and officers' liability insurance coverage. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On July 6, 1993, the Company sold $250 million principal amount of its 8 7/8% Convertible Senior Subordinated Notes due July 15, 2000 (the "Convertible Notes"). The Company sold the Convertible Notes to Salomon Brothers Inc and BT Securities Corporation (the "Initial Purchasers") pursuant to a Purchase Agreement (the "Purchase Agreement") dated June 24, 1993. The sale of the Convertible Notes was not registered under the Securities Act of 1933, as amended (the "Act"), in reliance upon representations from the Initial Purchasers and the exemption from registration under Section 4(2) of the II-1 Act. The Company sold the Convertible Notes to the Initial Purchasers at a price equal to 99.355% of principal amount ($248,387,500) LESS a discount of 3.5% ($8,750,000), yielding net proceeds to the Company of $239,637,500 (95.855% of principal amount). The Initial Purchasers agreed in the Purchase Agreement to only offer the Convertible Notes to purchasers who made appropriate representations that such purchasers were Qualified Institutional Buyers in compliance with Rule 144A under the Act in a sale exempt from the registration requirements of the Act. The Company subsequently filed a registration statement on Form S-3 registering the Convertible Notes (and the shares of Common Stock and Preferred Stock Purchase Rights into which the Convertible Notes are convertible) for resale by the holders thereof. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - -------------- --------------------------------------------------------------------------------------------------- 1 Form of Underwriting Agreement** 2 Asset Acquisition Agreement dated December 17, 1993 between Stone-Consolidated Inc. (now Stone Container (Canada) Inc.) and Stone-Consolidated Corporation and intervened to by the Company, filed as Exhibit 2 to the Company's Current Report on Form 8-K dated January 3, 1994, is hereby incorporated by reference. 3(a) Restated Certificate of Incorporation of the Company.* 3(b) By-laws of the Company, as amended, March 28, 1994.* 4(a) Specimen certificate representing Common Stock, $.01 par value, filed as Exhibit 4(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1987, is hereby incorporated by reference. 4(b) Specimen certificate representing the $1.75 Series E Cumulative Convertible Exchangeable Preferred Stock, filed as Exhibit 4(g) to the Company's Registration Statement on Form S-3, Registration Number 33-45374, filed February 6, 1992, is hereby incorporated by reference. 4(c) Rights Agreement, dated as of July 25, 1988, between the Company and The First National Bank of Chicago, filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated July 27, 1988, is hereby incorporated by reference. 4(d) Amendment to Rights Agreement, dated as of July 23, 1990, between the Company and The First National Bank of Chicago, filed as Exhibit 1A to the Company's Form 8 dated August 2, 1990 amending the Company's Registration Statement on Form 8-A dated July 27, 1988, is hereby incorporated by reference. 4(e) Credit Agreement, dated as of March 1, 1989 (the "Canadian Term Loan Agreement"), among Stone Container Corporation of Canada (now Stone Container (Canada) Inc.), the Banks named therein, Bankers Trust Company, as agent for such Banks, and Citibank, N.A., Manufacturers Hanover Trust Company (now Chemical Bank) and The First National Bank of Chicago, as co-agents for such Banks, filed as Exhibit 28(b) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is hereby incorporated by reference. 4(f) Revolving Credit Agreement, dated as of March 1, 1989 (the "Canadian Revolver"), among Stone Container Acquisition Corporation (now Stone Container (Canada) Inc.), the Banks named therein, BT Bank of Canada, as administrative agent for such Banks, The Bank of Nova Scotia, as payment agent for such Banks, and Bankers Trust Company, as collateral agent for such Banks, filed as Exhibit 28(d) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is hereby incorporated by reference. - ------------------------ * Previously filed ** Filed herewith
II-2
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - -------------- --------------------------------------------------------------------------------------------------- 4(g) Third Amended and Restated U.S. Credit Agreement, dated as of March 1, 1989 and re-executed as of October 5, 1993 (the "U.S. Credit Agreement"), among the Company, the Banks named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit Agreement, and Citibank, N.A., Manufacturers Hanover Trust Company (now Chemical Bank) and The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit Agreement, filed as Exhibit 4(a) to the Company's Current Report on Form 8-K, dated January 3, 1994, is hereby incorporated by reference. 4(h) First Amendment, Waiver and Consent dated as of December 29, 1993, among the Company, the financial institutions named therein, Bankers Trust Company, as agent under the U.S. Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents under the U.S. Credit Agreement, filed as Exhibit 4(b) to the Company's Current Report on Form 8-K, dated January 3, 1993, is hereby incorporated by reference. 4(i) Second Amendment and Waiver dated as of January 24, 1994, among the Company, the financial institutions named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit Agreement, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby incorporated by reference. 4(j) Indenture, dated as of September 15, 1986, relating to the 12 1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest Corporation (now Stone Southwest, Inc.), between Southwest Forest Industries, Inc. and Bankers Trust Company, as Trustee, together with the First Supplemental Indenture, dated as of September 1, 1987, among Stone Container Corporation, a Nevada corporation, the Company and National Westminster Bank USA, as Trustee (which has been succeeded by Shawmut Bank, N.A., as Trustee), and the Second Supplemental Indenture, dated as of December 14, 1987, among Stone Southwest Corporation, the Company and National Westminster Bank USA, as Trustee (which has been succeeded by Shawmut Bank, N.A., as Trustee), filed as Exhibit 4(i) to the Company's Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1, 1991, is hereby incorporated by reference. 4(k) Indenture, dated as of September 1, 1989, between the Company and Bankers Trust Company, as Trustee, relating to the Company's 11 1/2% Senior Subordinated Notes due September 1, 1999, filed as Exhibit 4(n) to the Company's Registration Statement on Form S-3, Registration Number 33-46764, filed March 27, 1992, is hereby incorporated by reference. 4(l) Indenture, dated as of February 15, 1992, between the Company and The Bank of New York, as Trustee, relating to the Company's 6 3/4% Convertible Subordinated Debentures due February 15, 2007, filed as Exhibit 4(p) to the Company's Registration Statement on Form S-3, Registration Number 33-45978, filed on March 4, 1992, is hereby incorporated by reference. 4(m) Senior Subordinated Indenture, dated as of March 15, 1992, between the Company, and The Bank of New York, as Trustee, filed as Exhibit 4(a) to the Company's Registration Statement Form S-3, Registration Number 33-46764, filed on March 27, 1992, is hereby incorporated by reference.
II-3
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - -------------- --------------------------------------------------------------------------------------------------- 4(n) Indenture dated as of June 15, 1993 between the Company and Norwest Bank Minnesota, National Association, as Trustee, relating to the Company's 8 7/8% Convertible Senior Subordinated Notes due 2000, filed as Exhibit 4(a) to the Company's Registration Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby incorporated by reference. 4(o) Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as Trustee, relating to the Company's Senior Debt Securities, filed as Exhibit 4(u) to the Company's Registration Statement on Form S-3, Registration Number 33-45374, filed on January 29, 1992, is hereby incorporated by reference. 4(p) First Supplemental Indenture dated as of June 23, 1993 between the Company and The Bank of New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as Trustee, filed as Exhibit 4(aa) to the Company's Registration Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby incorporated by reference. 4(q) Second Supplemental Indenture dated as of February 1, 1994 between the Company and the Bank of New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, as amended, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby incorporated herein by reference. 4(r) Indenture dated as of August 1, 1993 between the Company and Norwest Bank Minnesota, National Association, as Trustee, relating to the Company's Senior Subordinated Debt Securities, filed as Exhibit 4(a) to the Company's Form S-3 Registration Statement, Registration Number 33-49857, filed July 30, 1993, is hereby incorporated by reference. 4(s) Form of Indenture relating to the First Mortgage Notes.** 4(t) Form of Indenture relating to the Senior Notes.** 4(u) Form of Credit Agreement dated October , 1994, among the Company, the financial institutions signatory thereto and Bankers Trust Company, as agent for such financial institutions.**
Indentures with respect to other long-term debt, none of which exceeds 10% of the total assets of the Company and its subsidiaries on a consolidated basis, are not attached. (The Company agrees to furnish a copy of such documents to the Commission upon request.) 4(v) Guaranty, dated October 7, 1983, between the Company and The Continental Group, Inc., filed as Exhibit 4(h) to the Company's Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1, 1991, is hereby incorporated by reference. 5 Opinion of Leslie T. Lederer, Vice President, Secretary and Counsel of the Company.** 10(a) Management Incentive Plan, incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1980. 10(b) Unfunded Deferred Director Fee Plan, incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1981. 10(c) Form of "Stone Container Corporation Compensation Agreement" between the Company and its directors that elect to participate, incorporated by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10(d) Stone Container Corporation 1982 Incentive Stock Option Plan, incorporated by reference to Appendix A to the Prospectus included in the Company's Form S-8 Registration Statement, Registration Number 2-79221, effective September 27, 1982. - ------------------------ * Previously filed ** Filed herewith
II-4
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - -------------- --------------------------------------------------------------------------------------------------- 10(e) Stone Container Corporation 1993 Stock Option Plan, incorporated by reference to Appendix A to the Company's Proxy Statement dated as of April 10, 1992. 10(f) Stone Container Corporation Deferred Income Savings Plan, conformed to reflect amendment effective as of January 1, 1990, incorporated by reference to Exhibit 4(i) to Company's Form S-8 Registration Statement, Registration Number 33-33784, filed March 9, 1990. 10(g) Form of "Employee Continuity Agreement in the Event of a Change of Control" entered into with all officers with 5 or more years of service with the Company, incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10(h) Stone Container Corporation 1986 Long-Term Incentive Program, incorporated by reference to Exhibit A to the Company's Proxy Statement dated as of April 5, 1985. 10(i) Stone Container Corporation 1992 Long-Term Incentive Program, incorporated by reference to Exhibit A to the Company's Proxy Statement dated as of April 11, 1991. 10(j) Supplemental Retirement Income Agreement between Company and James Doughan dated as of February 10, 1989, incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 12 Computation of Ratios of Earnings to Fixed Charges.* 21 Subsidiaries of the Company incorporated by reference to Exhibit 12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 23(a) Consent of Price Waterhouse LLP** 23(b) Consent of American Appraisal Associates, Inc.* 23(c) The consent of Leslie T. Lederer is contained in his opinion filed as Exhibit 5 to the Registration Statement. 24 Powers of Attorney* 25(a) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York relating to the Senior Notes.** 25(b) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Norwest Bank Minnesota, N.A. relating to the First Mortgage Notes.** 99(a) Summary Valuation Report Prepared With Respect to the Collateral** - ------------------------ * Previously filed ** Filed herewith
(b) Schedules The following financial statement schedules which are not included in the Prospectus appear on the following pages of the Registration Statement:
PAGE SCHEDULE - ----------- ----------------------------------------------------------------------------------------------------- S-1 Schedule V -- Property, Plant and Equipment S-2 Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment S-3 Schedule VIII -- Valuation and Qualifying Accounts and Reserves S-3 Schedule IX -- Short-term Borrowings S-3 Schedule X -- Supplementary Income Statement Information S-4 Summarized Financial Information -- Stone Southwest, Inc.
II-5 ITEM 17. UNDERTAKINGS The Company hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registration pursuant to the provisions described under Item 15 above or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company or in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has duly caused this Amendment No. 3 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and the State of Illinois on the 27th day of September, 1994. STONE CONTAINER CORPORATION By: _______/s/_LESLIE T. LEDERER______ Leslie T. Lederer VICE PRESIDENT, SECRETARY AND COUNSEL Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to Registration Statement has been signed below on September 27, 1994 by the following persons in the capacities indicated: Chairman of the Board, President and Chief * Executive Officer and Director of (Principal Roger W. Stone Executive Officer) Executive Vice President -- Chief Financial * and Planning Officer (Principal Financial Arnold F. Brookstone Officer) * Senior Vice President and Corporate Controller Thomas P. Cutilletta (Principal Accounting Officer) * Richard A. Giesen Director * James J. Glasser Director * George D. Kennedy Director * Howard C. Miller, Jr. Director * John D. Nichols Director
II-7 * Jerry K. Pearlman Director * Richard J. Raskin Director * Alan Stone Director * Avery Stone Director * Ira N. Stone Director * James H. Stone Director By: /s/LESLIE T. LEDERER Leslie T. Lederer (ATTORNEY-IN-FACT)
II-8 STONE CONTAINER CORPORATION AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT (A) (IN MILLIONS)
COLUMN B COLUMN F ---------- COLUMN C COLUMN E ---------- COLUMN A BALANCE AT -------- COLUMN D ----------- BALANCE AT - ------------------------------------------------------------------- BEGINNING ADDITIONS ----------- OTHER END OF CLASSIFICATION OF PERIOD AT COST RETIREMENTS CHANGES PERIOD - ------------------------------------------------------------------- ---------- -------- ----------- ----------- ---------- For the year ended December 31, 1993: Machinery and equipment.......................................... $4,381.4 $257.4 $31.7 $(208.4) $4,398.7 Building and leasehold improvements.............................. 668.4 28.0 4.8 (16.6) 675.0 Land and land improvements....................................... 105.7 5.8 .8 (7.7) 103.0 Construction in progress......................................... 209.6 (141.5) .2 (3.9) 64.0 ---------- -------- ----- ----------- ---------- Total.......................................................... $5,365.1 $149.7 $37.5 $(236.6)(B) $5,240.7 Timberlands...................................................... 72.5 24.5 6.9 (2.5)(D) 87.6 ---------- -------- ----- ----------- ---------- Total.......................................................... $5,437.6 $174.2 $44.4 $(239.1) $5,328.3 ---------- -------- ----- ----------- ---------- ---------- -------- ----- ----------- ---------- For the year ended December 31, 1992: Machinery and equipment.......................................... $3,548.8 $577.4 $13.0 $ 268.2 $4,381.4 Building and leasehold improvements.............................. 579.5 111.6 .4 (22.3) 668.4 Land and land improvements....................................... 67.3 9.9 .2 28.7 105.7 Construction in progress......................................... 631.0 (417.5) -- (3.9) 209.6 ---------- -------- ----- ----------- ---------- Total.......................................................... $4,826.6 $281.4 $13.6 $ 270.7 (C) $5,365.1 Timberlands...................................................... 52.2 22.0 9.9 8.2 (E) 72.5 ---------- -------- ----- ----------- ---------- Total.......................................................... $4,878.8 $303.4 $23.5 $ 278.9 $5,437.6 ---------- -------- ----- ----------- ---------- ---------- -------- ----- ----------- ---------- For the year ended December 31, 1991: Machinery and equipment.......................................... $3,083.6 $523.0 $43.1 $ (14.7) $3,548.8 Building and leasehold improvements.............................. 549.3 44.8 7.1 (7.5) 579.5 Land and land improvements....................................... 65.3 1.3 2.1 2.8 67.3 Construction in progress......................................... 756.9 (139.0) .3 13.4 631.0 ---------- -------- ----- ----------- ---------- Total.......................................................... $4,455.1 $430.1 $52.6 $ (6.0)(D) $4,826.6 Timberlands...................................................... 49.2 13.2 10.4 .2 (D) 52.2 ---------- -------- ----- ----------- ---------- Total.......................................................... $4,504.3 $443.3 $63.0 $ (5.8) $4,878.8 ---------- -------- ----- ----------- ---------- ---------- -------- ----- ----------- ---------- - ------------------------ (A) Information relating to the rates used in computing annual depreciation and amortization is incorporated by reference to the Notes to the Financial Statements, included in this report, under Notes to the Consolidated Financial Statements, "Note 1 -- Summary of Significant Accounting Policies", pages F-20 -- F-22. (B) Primarily represents the effects of foreign currency translation, the write-off of certain decommissioned assets and the transfer of assets for the Company's European folding carton operations which in the early part of 1993 was merged into a joint venture and accordingly is now accounted for under the equity method. (C) Primarily represents the effects of foreign currency translation, assets purchased in the acquisition of Societe Emballages des Cevennes, S.A., write-up adjustments as a result of the adoption of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS 109") as of January 1, 1992 and reclassifications among property categories. (D) Primarily represents the effects of foreign currency translation. (E) Represents the effects of foreign currency translation and the adjustment as a result of the adoption of SFAS 109.
S-1 STONE CONTAINER CORPORATION AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
COLUMN C COLUMN B ----------- COLUMN F ----------- ADDITIONS COLUMN E ----------- COLUMN A BALANCE AT CHARGED TO COLUMN D ------------- BALANCE AT - ---------------------------------------------- BEGINNING COSTS AND ------------- OTHER END OF CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS CHANGES PERIOD - ---------------------------------------------- ----------- ----------- ------------- ------------- ----------- (IN MILLIONS) For the year ended December 31, 1993: Machinery and equipment..................... $ 1,488.0 $ 267.3 $ 22.3 $ (80.1) $ 1,652.9 Building and leasehold improvements......... 160.3 31.6 3.0 (3.8) 185.1 Land and land improvements.................. 13.6 2.9 .2 -- 16.3 ----------- ----------- ----- ------ ----------- Total..................................... 1,661.9 301.8 25.5 (83.9)(A) 1,854.3 Timberlands................................. 3.1 .6 -- -- 3.7 ----------- ----------- ----- ------ ----------- Total..................................... $ 1,665.0 $ 302.4 $ 25.5 $ (83.9) $ 1,858.0 ----------- ----------- ----- ------ ----------- ----------- ----------- ----- ------ ----------- For the year ended December 31, 1992: Machinery and equipment..................... $ 1,171.4 $ 263.3 $ 7.4 $ 60.7 $ 1,488.0 Building and leasehold improvements......... 126.4 33.0 .1 1.0 160.3 Land and land improvements.................. 8.6 2.4 .1 2.7 13.6 ----------- ----------- ----- ------ ----------- Total..................................... 1,306.4 298.7 7.6 64.4(B) 1,661.9 Timberlands................................. 1.3 .7 -- 1.1(D) 3.1 ----------- ----------- ----- ------ ----------- Total..................................... $ 1,307.7 $ 299.4 $ 7.6 $ 65.5 $ 1,665.0 ----------- ----------- ----- ------ ----------- ----------- ----------- ----- ------ ----------- For the year ended December 31, 1991: Machinery and equipment..................... $ 988.5 $ 208.7 $ 19.0 $ (6.8) $ 1,171.4 Building and leasehold improvements......... 96.6 27.4 4.6 7.0 126.4 Land and land improvements.................. 6.0 2.1 .7 1.2 8.6 ----------- ----------- ----- ------ ----------- Total..................................... 1,091.1 238.2 24.3 1.4(C) 1,306.4 Timberlands................................. .8 .5 -- -- 1.3 ----------- ----------- ----- ------ ----------- Total..................................... $ 1,091.9 $ 238.7 $ 24.3 $ 1.4 $ 1,307.7 ----------- ----------- ----- ------ ----------- ----------- ----------- ----- ------ ----------- - ------------------------ (A) Primarily represents the effects of foreign currency translation, the write-off of certain decommissioned assets and the transfer of assets for the Company's European folding carton operations which in the early part of 1993 was merged into a joint venture and accordingly is now accounted for under the equity method. (B) Primarily represents the effects of foreign currency translation, write-up adjustments as a result of the adoption of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS 109") as of January 1, 1992 and reclassifications among property categories. (C) Primarily represents the effects of foreign currency translation and reclassifications among property categories. (D) Represents the adjustment as a result of the adoption of SFAS 109.
S-2 STONE CONTAINER CORPORATION AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN C COLUMN B ------------- COLUMN E ----------- ADDITIONS ----------- COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT - ------------------------------------------------------------ BEGINNING COSTS AND ------------- END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD - ------------------------------------------------------------ ----------- ------------- ------------- ----------- (IN MILLIONS) Allowance for doubtful accounts and notes and sales returns and allowances: Year ended December 31, 1993.............................. $ 19.3 $ 29.2 $ 29.2 $ 19.3 Year ended December 31, 1992.............................. $ 15.6 $ 14.3 $ 10.6 $ 19.3 Year ended December 31, 1991.............................. $ 13.5 $ 13.0 $ 10.9 $ 15.6
SCHEDULE IX -- SHORT-TERM BORROWINGS
COLUMN F COLUMN D COLUMN E ------------- COLUMN C ------------- ------------- WEIGHTED COLUMN B ------------- MAXIMUM AVERAGE AVERAGE COLUMN A ----------- WEIGHTED AMOUNT AMOUNT INTEREST - ----------------------------------------------- BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE CATEGORY OF AGGREGATE END INTEREST DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD PERIOD PERIOD (A) - ----------------------------------------------- ----------- ------------- ------------- ------------- ------------- (IN MILLIONS) Notes payable to banks: Year ended December 31, 1993................. $ -- --% $ 34.0 $ 19.8 6.5% Year ended December 31, 1992................. $ 33.0 8.1% $ 50.1 $ 37.1 8.0% Year ended December 31, 1991................. $ 19.1 10.3% $ 19.3 $ 16.4 10.2% - ------------------------ (A) Weighted average interest rate for the year is determined by dividing the average daily interest expense by the total average borrowings for the year.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
COLUMN B ------------------------------- CHARGED TO COSTS AND EXPENSES, YEAR ENDED DECEMBER 31, ------------------------------- COLUMN A 1993 1992 1991 - ----------------------------------------------------------------------------------- --------- --------- --------- (IN MILLIONS) Maintenance and repairs............................................................ $ 385.5 $ 428.5 $ 399.8
S-3 STONE CONTAINER CORPORATE AND SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION -- STONE SOUTHWEST, INC. Shown below is consolidated, summarized financial information for Stone Southwest, Inc. (formerly known as Southwest Forest Industries, Inc.). The summarized financial information for Stone Southwest, Inc. ("Stone Southwest") does not include purchase accounting adjustments or the impact of the debt incurred to finance the acquisition of Stone Southwest:
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 ---------- ---------- ---------- (IN MILLIONS) Net sales.................................................................... $ 1,660.1 $ 1,755.9 $ 1,860.9 Cost of products sold and depreciation....................................... 1,396.6 1,390.7 1,488.8 Income (loss) before cumulative effects of accounting changes................ (12.6) 57.7 46.8 Cumulative effect of change in accounting for postretirement benefits........ (8.3) -- -- Cumulative effect of change in accounting for income taxes................... -- (27.2) -- Net income (loss)............................................................ (20.8) 30.5 46.8 DECEMBER 31, ---------------------- 1993 1992 ---------- ---------- Current assets............................................................... $ 360.9 $ 357.1 Noncurrent assets*........................................................... 1,600.5 1,674.6 Current liabilities.......................................................... 141.3 212.7 Noncurrent liabilities and obligations....................................... 395.8 369.2 - ------------------------ * Includes $857.4 and $915.8 due from the Company at December 31, 1993 and 1992, respectively.
S-4 INDEX TO EXHIBITS
EXHIBITS PAGE - -------------- --------- 1 Form of Underwriting Agreement** 2 Asset Acquisition Agreement dated December 17, 1993 between Stone-Consolidated Inc. (now Stone Container (Canada) Inc.) and Stone-Consolidated Corporation and intervened to by the Company, filed as Exhibit 2 to the Company's Current Report on Form 8-K dated January 3, 1994, is hereby incorporated by reference. 3(a) Restated Certificate of Incorporation of the Company.* 3(b) By-laws of the Company, as amended, March 28, 1994.* 4(a) Specimen certificate representing Common Stock, $.01 par value, filed as Exhibit 4(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1987, is hereby incorporated by reference. 4(b) Specimen certificate representing the $1.75 Series E Cumulative Convertible Exchangeable Preferred Stock, filed as Exhibit 4(g) to the Company's Registration Statement on Form S-3, Registration Number 33-45374, filed February 6, 1992, is hereby incorporated by reference. 4(c) Rights Agreement, dated as of July 25, 1988, between the Company and The First National Bank of Chicago, filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated July 27, 1988, is hereby incorporated by reference. 4(d) Amendment to Rights Agreement, dated as of July 23, 1990, between the Company and The First National Bank of Chicago, filed as Exhibit 1A to the Company's Form 8 dated August 2, 1990 amending the Company's Registration Statement on Form 8-A dated July 27, 1988, is hereby incorporated by reference. 4(e) Credit Agreement, dated as of March 1, 1989 (the "Canadian Term Loan Agreement"), among Stone Container Corporation of Canada (now Stone Container (Canada) Inc.), the Banks named therein, Bankers Trust Company, as agent for such Banks, and Citibank, N.A., Manufacturers Hanover Trust Company (now Chemical Bank) and The First National Bank of Chicago, as co-agents for such Banks, filed as Exhibit 28(b) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is hereby incorporated by reference. 4(f) Revolving Credit Agreement, dated as of March 1, 1989 (the "Canadian Revolver"), among Stone Container Acquisition Corporation (now Stone Container (Canada) Inc.), the Banks named therein, BT Bank of Canada, as administrative agent for such Banks, The Bank of Nova Scotia, as payment agent for such Banks, and Bankers Trust Company, as collateral agent for such Banks, filed as Exhibit 28(d) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is hereby incorporated by reference.
- ------------------------ * Previously filed ** Filed herewith
EXHIBITS PAGE - -------------- --------- 4(g) Third Amended and Restated U.S. Credit Agreement, dated as of March 1, 1989 and re-executed as of October 5, 1993 (the "U.S. Credit Agreement"), among the Company, the Banks named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit Agreement, and Citibank, N.A., Manufacturers Hanover Trust Company (now Chemical Bank) and The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit Agreement, filed as Exhibit 4(a) to the Company's Current Report on Form 8-K, dated January 3, 1994, is hereby incorporated by reference. 4(h) First Amendment, Waiver and Consent dated as of December 29, 1993, among the Company, the financial institutions named therein, Bankers Trust Company, as agent under the U.S. Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents under the U.S. Credit Agreement, filed as Exhibit 4(b) to the Company's Current Report on Form 8-K, dated January 3, 1993, is hereby incorporated by reference. 4(i) Second Amendment and Waiver dated as of January 24, 1994, among the Company, the financial institutions named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit Agreement, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby incorporated by reference. 4(j) Indenture, dated as of September 15, 1986, relating to the 12 1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest Corporation (now Stone Southwest, Inc.), between Southwest Forest Industries, Inc. and Bankers Trust Company, as Trustee, together with the First Supplemental Indenture, dated as of September 1, 1987, among Stone Container Corporation, a Nevada corporation, the Company and National Westminster Bank USA, as Trustee (which has been succeeded by Shawmut Bank, N.A., as Trustee), and the Second Supplemental Indenture, dated as of December 14, 1987, among Stone Southwest Corporation, the Company and National Westminster Bank USA, as Trustee (which has been succeeded by Shawmut Bank, N.A., as Trustee), filed as Exhibit 4(i) to the Company's Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1, 1991, is hereby incorporated by reference. 4(k) Indenture, dated as of September 1, 1989, between the Company and Bankers Trust Company, as Trustee, relating to the Company's 11 1/2% Senior Subordinated Notes due September 1, 1999, filed as Exhibit 4(n) to the Company's Registration Statement on Form S-3, Registration Number 33-46764, filed March 27, 1992, is hereby incorporated by reference. 4(l) Indenture, dated as of February 15, 1992, between the Company and The Bank of New York, as Trustee, relating to the Company's 6 3/4% Convertible Subordinated Debentures due February 15, 2007, filed as Exhibit 4(p) to the Company's Registration Statement on Form S-3, Registration Number 33-45978, filed on March 4, 1992, is hereby incorporated by reference. 4(m) Senior Subordinated Indenture, dated as of March 15, 1992, between the Company, and The Bank of New York, as Trustee, filed as Exhibit 4(a) to the Company's Registration Statement Form S-3, Registration Number 33-46764, filed on March 27, 1992, is hereby incorporated by reference.
EXHIBITS PAGE - -------------- --------- 4(n) Indenture dated as of June 15, 1993 between the Company and Norwest Bank Minnesota, National Association, as Trustee, relating to the Company's 8 7/8% Convertible Senior Subordinated Notes due 2000, filed as Exhibit 4(a) to the Company's Registration Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby incorporated by reference. 4(o) Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as Trustee, relating to the Company's Senior Debt Securities, filed as Exhibit 4(u) to the Company's Registration Statement on Form S-3, Registration Number 33-45374, filed on January 29, 1992, is hereby incorporated by reference. 4(p) First Supplemental Indenture dated as of June 23, 1993 between the Company and The Bank of New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as Trustee, filed as Exhibit 4(aa) to the Company's Registration Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby incorporated by reference. 4(q) Second Supplemental Indenture dated as of February 1, 1994 between the Company and the Bank of New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, as amended, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby incorporated herein by reference. 4(r) Indenture dated as of August 1, 1993 between the Company and Norwest Bank Minnesota, National Association, as Trustee, relating to the Company's Senior Subordinated Debt Securities, filed as Exhibit 4(a) to the Company's Form S-3 Registration Statement, Registration Number 33-49857, filed July 30, 1993, is hereby incorporated by reference. 4(s) Form of Indenture relating to the First Mortgage Notes.** 4(t) Form of Indenture relating to the Senior Notes.** 4(u) Form of Credit Agreement dated October , 1994, among the Company, the financial institutions signatory thereto and Bankers Trust Company, as agent for such financial institutions.**
Indentures with respect to other long-term debt, none of which exceeds 10% of the total assets of the Company and its subsidiaries on a consolidated basis, are not attached. (The Company agrees to furnish a copy of such documents to the Commission upon request.) 4(v) Guaranty, dated October 7, 1983, between the Company and The Continental Group, Inc., filed as Exhibit 4(h) to the Company's Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1, 1991, is hereby incorporated by reference. 5 Opinion of Leslie T. Lederer, Vice President, Secretary and Counsel of the Company.** 10(a) Management Incentive Plan, incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1980. 10(b) Unfunded Deferred Director Fee Plan, incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1981.
- ------------------------ * Previously filed ** Filed herewith
EXHIBITS PAGE - ------------- --------- 10(c) Form of "Stone Container Corporation Compensation Agreement" between the Company and its directors that elect to participate, incorporated by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10(d) Stone Container Corporation 1982 Incentive Stock Option Plan, incorporated by reference to Appendix A to the Prospectus included in the Company's Form S-8 Registration Statement, Registration Number 2-79221, effective September 27, 1982. 10(e) Stone Container Corporation 1993 Stock Option Plan, incorporated by reference to Appendix A to the Company's Proxy Statement dated as of April 10, 1992. 10(f) Stone Container Corporation Deferred Income Savings Plan, conformed to reflect amendment effective as of January 1, 1990, incorporated by reference to Exhibit 4(i) to Company's Form S-8 Registration Statement, Registration Number 33-33784, filed March 9, 1990. 10(g) Form of "Employee Continuity Agreement in the Event of a Change of Control" entered into with all officers with 5 or more years of service with the Company, incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10(h) Stone Container Corporation 1986 Long-Term Incentive Program, incorporated by reference to Exhibit A to the Company's Proxy Statement dated as of April 5, 1985. 10(i) Stone Container Corporation 1992 Long-Term Incentive Program, incorporated by reference to Exhibit A to the Company's Proxy Statement dated as of April 11, 1991. 10(j) Supplemental Retirement Income Agreement between Company and James Doughan dated as of February 10, 1989, incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 12 Computation of Ratios of Earnings to Fixed Charges.* 21 Subsidiaries of the Company incorporated by reference to Exhibit 12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 23(a) Consent of Price Waterhouse LLP** 23(b) Consent of American Appraisal Associates, Inc.* 23(c) The consent of Leslie T. Lederer is contained in his opinion filed as Exhibit 5 to the Registration Statement. 24 Powers of Attorney* 25(a) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York relating to the Senior Notes.** 25(b) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Norwest Bank Minnesota, N.A. relating to the First Mortgage Notes.** 99(a) Summary Valuation Report Prepared With Respect to the Collateral**
- ------------------------ * Previously filed ** Filed herewith EX-1 2 EXHIBIT 1 Draft, 9/27/94 STONE CONTAINER CORPORATION $500,000,000 __% First Mortgage Notes due 2002 $200,000,000 __% Senior Notes due 2004 UNDERWRITING AGREEMENT New York, New York _________ __, 1994 Salomon Brothers Inc BT Securities Corporation Morgan Stanley & Co. Incorporated Kidder, Peabody & Co. Incorporated Bear, Stearns & Co. Inc. c/o Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Ladies and Gentlemen: Stone Container Corporation, a Delaware corporation (the "COMPANY"), proposes to sell to you (the "UNDERWRITERS") (A) $500 million principal amount of its __% First Mortgage Notes due 2002 (the "FIRST MORTGAGE NOTES") to be issued under an indenture (the "FIRST MORTGAGE NOTE INDENTURE") to be dated as of October __, 1994, between the Company and Norwest Bank Minnesota, N.A., as trustee (the "FIRST MORTGAGE NOTE TRUSTEE"), and (B) $200 million principal amount of its __% Senior Notes due 2004 (the "SENIOR NOTES") to be issued under an indenture (the "SENIOR NOTE INDENTURE") to be dated as of October __, 1994, between the Company and The Bank of New York, as trustee (the "SENIOR NOTE TRUSTEE"). The First Mortgage Notes and the Senior Notes are together referred to herein as the "SECURITIES", the First Mortgage Note Indenture and the Senior Note Indenture are together referred to herein as the "INDENTURES", and the First Mortgage Note Trustee and the Senior Note Trustee are together referred to herein as the "TRUSTEES". The First Mortgage Notes will be secured by first ranking Liens in favor of the First Mortgage Note Trustee on certain real property, fixtures and equipment of the Company, whether now owned or hereafter acquired by the Company, and certain other related collateral (the "MORTGAGED PROPERTY"), as more fully described in and pursuant to the Security Documents. The terms which follow, when used in this Agreement, shall have the meanings indicated. Terms not otherwise defined in this Agreement are used as defined in the applicable Indenture or Indentures. "1989 CREDIT AGREEMENT" shall mean collectively the bank credit agreements between the Company and certain lenders, substantially in the form of Exhibits 4(e) - 4(i) to the Registration Statement, which agreements shall be terminated on the Closing Date. "CLOSING DATE" shall have the meaning set forth in Section 3 hereof. "COMMISSION" shall have the meaning set forth in Section 1(a) below. "CREDIT AGREEMENT" shall mean the Credit Agreement to be entered into on the Closing Date by the Company and certain lenders, substantially in the form of Exhibit ___ to the Registration Statement, consisting of a $400 million senior secured term loan and a $450 million senior secured revolving credit facility. "EFFECTIVE DATE" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became effective. "EXECUTION TIME" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "FEDERAL FUNDS INTEREST RATE" shall mean the then applicable fluctuating interest rate per annum equal to the rate on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for the Closing Date by the Federal Reserve Bank of New York. "MATERIAL SUBSIDIARIES" shall mean, on the Execution Date, Stone Canada, Stone-Consolidated, Stone Mill, Stone Hopewell, Inc., Stone Savannah, Seminole and Stone Southwest, Inc., and, as of the Closing Date, Stone Canada, Stone-Consolidated, Stone Savannah (or any successor corporations thereof), Seminole and Stone Southwest, Inc. "MORTGAGE" shall have the meaning set forth in the definition of Security Documents. "PRELIMINARY PROSPECTUS" shall mean any preliminary prospectus referred to in Section 1(a) below and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information. "PROSPECTUS" shall mean the prospectus relating to the Securities that is first filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the - 2 - Securities included in the Registration Statement at the Effective Date. "REGISTRATION STATEMENT" shall mean the registration statement referred to in Section 1(a) below, including exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto becomes effective prior to the Closing Date, shall also mean such registration statement as so amended. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A. "RELATED TRANSACTIONS" shall mean, collectively, the following transactions which will occur prior to or concurrently with the closing of the sale of the Securities, and the execution and delivery of the Indentures and the Security Documents on the Closing Date: (i) repayment of all of the outstanding indebtedness under, and termination of, the 1989 Credit Agreement (including the release of collateral secured thereunder) as described in the Prospectus; (ii) execution and delivery of the Credit Agreement and the disbursement to the Company of the $400 million term loan and a portion of the available borrowings under the revolving credit facility thereunder; (iii) repayment of all outstanding indebtedness under, and termination of, the Stone Savannah Credit Agreement as described in the Prospectus; (iv) notice of redemption of the Stone Savannah Notes, given to the trustee in respect of the Stone Savannah Notes as described in the Prospectus; (v) purchase by the Company of the Stone Savannah Common pursuant to a merger as described in the Prospectus; (vi) on or prior to December 30, 1994, the redemption or reacquisition of the Stone Savannah Preferred as described in the Prospectus; and (vii) the merger of Stone Mill Operating Corporation and Stone Connecticut Paper Board into the Company on or prior to the Closing Date as consummated in accordance with the documents delivered to the Underwriters which shall be in form and substance satisfactory to the Underwriters and the title insurers in respect of the Mortgaged Property. "RELATED TRANSACTION DOCUMENTS" shall mean the following, each to be dated on or prior to the Closing Date: (i) cross receipts regarding repayment on the Closing Date of all outstanding amounts under the 1989 Credit Agreement and the Stone Savannah Credit Agreement (and certificates evidencing termination thereof on the Closing Date); (ii) the Credit Agreement; (iii) redemption notices regarding the Stone Savannah Notes; and (iv) all documents relating to the merger transactions involving Stone Savannah, Stone Mill Operating Corporation and Stone Connecticut Paper Board and necessary to consummate such transactions in the manner contemplated by the documents delivered to the Underwriters. "RULE 424" and "RULE 430A" refer to such rules under the 1933 Act. "RULE 430A INFORMATION" means information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. - 3 - "SECURITY DOCUMENTS" shall mean the following security documents, each dated the Closing Date, between the Company, as mortgagor, and the First Mortgage Note Trustee, as mortgagee, with respect to the Company's mills located in Uncasville, Connecticut, Ontonagon, Michigan, York, Pennsylvania, and Missoula, Montana: (i) the First Mortgage Note Indenture, (ii) the First Mortgage Notes, (iii) for each such mill, the Mortgage, Assignment of Leases and Rents, (each a "MORTGAGE" and collectively the "MORTGAGES"), (iv) Security Agreements (each, a "Security Agreement" and collectively, the "Security Agreements") and (v) the related UCC-1 financing statements in form and substance reasonably satisfactory to the Underwriters and their counsel. "SEMINOLE" shall mean Seminole Kraft Corporation, a Delaware corporation. "STONE CANADA" shall mean Stone Container (Canada) Inc, a Canadian corporation. "STONE CONNECTICUT PAPER BOARD" shall mean the Stone Connecticut Paper Board Corporation, a Delaware corporation, 100% of the common stock of which is owned by the Company on the date of this Agreement and immediately prior to its merger into the Company on or before the Closing Date. "STONE-CONSOLIDATED" shall mean Stone-Consolidated Corporation, a Canadian corporation. "STONE MILL OPERATING CORPORATION" shall mean the Stone Mill Operating Corporation, a Delaware corporation, 100% of the common stock of which is owned by the Company on the date of this Agreement and immediately prior to its merger into the Company on or before the Closing Date. "STONE SAVANNAH" shall mean the Stone Savannah River Pulp & Paper Corporation, a Delaware corporation, 92.75% of the common stock of which is owned, on the date of this Agreement, by the Company, and 100% of the common stock of which will be owned as of the Closing Date (or any successor thereto). "STONE SAVANNAH COMMON" shall mean the 6.25% outstanding shares of common stock of Stone Savannah not owned by the Company on the date hereof, but which, upon the purchase thereof by the Company pursuant to a merger, will be owned by the Company on the Closing Date. "STONE SAVANNAH CREDIT AGREEMENT" shall mean the bank credit agreement dated as of December 9, 1988, between Stone Savannah and Citibank, N.A., as agent, and the lenders signatory thereto, as amended, which agreement shall be terminated on the Closing Date. "STONE SAVANNAH PREFERRED" shall mean the 425,243 outstanding shares of Stone Savannah's Series A Cumulative Redeemable Exchangeable Preferred Stock not owned by the Company - 4 - on the date hereof, to be redeemed by Stone Savannah on the terms described in the Registration Statement and Prospectus. "STONE SAVANNAH NOTES" shall mean the $130 million principal amount of Stone Savannah's 14 1/8% Senior Subordinated Notes due 2000 outstanding on the date hereof, to be redeemed by Stone Savannah on terms described in the Registration Statement and Prospectus. Section 1. Representations and Warranties. The Company represents and warrants to, and agrees with, the Underwriters as set forth below in this Section 1. (a) The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement (file number 33-54769) on Form S-1, including a related preliminary prospectus, for the registration under the Securities Act of 1933 (the "1933 ACT") of the offering and sale of the Securities. The Company may have filed one or more amendments thereto, including the related preliminary prospectus, each of which has previously been furnished to you. The Company will next file with the Commission either (i) prior to effectiveness of such registration statement, a further amendment to such registration statement (including the form of final prospectus) or (ii) after effectiveness of such registration statement, a final prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (ii), the Company has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the 1933 Act and the rules thereunder to be included in the Prospectus with respect to the Securities and the offering thereof. As filed, such amendment and form of final prospectus, or such final prospectus, shall include all Rule 430A Information, together with all other such required information, with respect to the Securities and the offering thereof and, except to the extent you shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein. (b) On the Effective Date, the Registration Statement did or will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) and on the Closing Date (as hereinafter defined), the Prospectus (and any supplements thereto) will, comply in all material respects with the applicable requirements of the 1933 Act and the Trust Indenture Act of 1939, as amended (the "1939 ACT"), and the respective rules thereunder; on the Effective Date, - 5 - the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; on the Effective Date and on the Closing Date each of the Indentures did or will comply in all material respects with the applicable requirements of the 1939 Act and the respective rules thereunder; and, on the Effective Date, the Prospectus, if not filed pursuant to Rule 424(b), did not or will not, and on the date of any filing pursuant to Rule 424(b) and on the Closing Date, the Prospectus (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the Company makes no representations or warranties as to (i) that part of the Registration Statement which shall constitute the Statement of Eligibility and Qualification (Form T-1) under the 1939 Act of each of the Trustees or (ii) the information contained in or omitted from the Registration Statement, or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any of the Underwriters specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto). (c) The Company meets all conditions for the use of Form S-1 registration statement as promulgated by the Commission pursuant to the 1933 Act. The filing of the Registration Statement by the Company with the Commission has been duly authorized by all necessary corporate action of the Company. (d) This Agreement has been duly authorized, executed and delivered by the Company. (e) Price Waterhouse, LLP, or any successor accountants, who are reporting upon the audited financial statements of the Company and its subsidiaries included in the Registration Statement and Prospectus, and who have reviewed the unaudited and other financial statements of the Company and its subsidiaries included in the Registration Statement and Prospectus, are independent accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act and the rules thereunder. (f) The consolidated financial statements and schedules (including the related notes and supporting schedules of the Company and its subsidiaries included in the Registration Statement, any Preliminary Prospectus and the Prospectus) present fairly the consolidated financial condition, results of operations and cash flows of the entities purported to be shown thereby as of the dates and - 6 - for the periods indicated, comply in all material respects with the applicable accounting requirements of the 1933 Act and the rules and regulations thereunder and have been prepared in accordance with generally accepted accounting principles, applied on a consistent basis through the periods indicated. (g) The pro forma financial statements included in the Registration Statement, any Preliminary Prospectus and the Prospectus comply in all material respects with the applicable accounting requirements of the 1933 Act and the rules and regulations thereunder, and no other pro forma financial statements or schedules are required by the 1933 Act or the rules and regulations thereunder to be included in the Registration Statement at the time it became effective and the Prospectus. The pro forma adjustments have been properly applied to the historical amounts in the computation of such pro forma statements and schedules and the assumptions described in the notes to such pro forma financial information provide a reasonable basis for presenting the significant direct effects of the transactions reflected therein and the pro forma adjustments give appropriate effect to those assumptions. (h) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with requisite corporate power and authority under such laws to own, lease and operate its properties and conduct its business as described in the Registration Statement and in the Prospectus and to execute, deliver and perform its obligations under the Credit Agreement. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not, individually or in the aggregate, have a material adverse effect on the Company and its subsidiaries taken as a whole. The Company possesses all material rights, licenses, permits and authorizations, governmental or otherwise, necessary for it to own, lease and operate each Mortgaged Property and to conduct its business as described in the Registration Statement and in the Prospectus. (i) Each of the Company's subsidiaries other than Stone Canada and Stone-Consolidated is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power and authority under such laws to own, lease and operate its properties and conduct its business as described in the Registration Statement and Prospectus, and in the case of each of Stone Savannah, Stone Connecticut Paper Board and Stone Mill Operating Corporation, to execute, deliver and perform its obligations under the relevant Related Transaction Documents to which - 7 - it is a party. Each of Stone Canada and Stone-Consolidated is a corporation validly existing and subsisting under the laws of Canada. Each of the Company's subsidiaries (other than Stone Canada and Stone- Consolidated, for which such representation is not relevant) is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not, individually or in the aggregate, have a material adverse effect on the Company and its subsidiaries taken as a whole. Except as disclosed in or contemplated by the Prospectus, all of the issued and outstanding shares of capital stock of each Material Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable and free of preemptive rights and are owned directly or indirectly by the Company (except for directors' qualifying shares and other than Seminole, Stone-Consolidated and Stone Savannah) free and clear of any pledge, Liens, security interest, charge, claim, restriction on transfer (except in the case of Stone Canada for the restrictions on transfers of its capital stock as set forth in its Articles of Amalgamation, as amended), stockholders' agreement, voting trust or other defect of title whatsoever or encumbrance of any kind. The Company owns approximately 75% of the issued and outstanding common shares of Stone- Consolidated; approximately 99% of the issued and outstanding shares of common stock and 100% of the issued and outstanding shares of the Series A Cumulative 8% Preferred Stock of Seminole; and approximately 93% of the issued and outstanding shares of common stock, 33% of the issued and outstanding shares of the Series A Cumulative Redeemable Exchangeable Preferred Stock, 100% of the issued and outstanding shares of Series B Cumulative Preferred Stock of Stone Savannah and 100% of the issued and outstanding shares of Series C Cumulative Preferred Stock of Stone Savannah. On or prior to the Closing Date, the Stone Savannah Common will be purchased pursuant to a merger and, on or prior to December 30, 1994, the Stone Savannah Preferred will be redeemed as described in the Registration Statement and the Prospectus, and 100% of the issued and outstanding shares of common stock of Stone Savannah (or any successor corporations thereof) will then be owned by the Company. (j) The Company has at the date indicated short-term debt, long-term debt, subordinated debt, debt of consolidated subsidiaries (non-recourse debt) and stockholders' equity as set forth in the Registration Statement and the Prospectus under the caption "Capitalization". The Company's equity capitalization is as set forth in the Registration Statement and Prospectus. - 8 - (k) The Indentures and the Credit Agreement have been duly authorized by all necessary corporate action of the Company and, when duly executed and delivered by the Company and, as the case may be, by the relevant Trustee or the financial institutions under the Credit Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with each of their terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). The descriptions contained in the Registration Statement and in the Prospectus of each Indenture and of the Credit Agreement fairly and accurately summarize each such document in all material respects. The Indentures have been duly qualified under and comply with the 1939 Act. (l) The Securities have been duly authorized by all necessary corporate action for issuance and sale pursuant to this Agreement (or will have been so authorized prior to the issuance of such Securities) and, when executed, authenticated, issued and delivered in the manner provided for in each applicable Indenture and sold and paid for as provided in this Agreement, the Securities will constitute valid and binding obligations of the Company entitled to the benefits of each applicable Indenture and enforceable against the Company in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). The descriptions contained in the Registration Statement and in the Prospectus of the Securities fairly and accurately summarize the First Mortgage Notes and the Senior Notes in all material respects. (m) (i) Each Security Document has been duly authorized by all necessary corporate action of the Company, and, when duly executed and delivered by the Company, will constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law); (ii) on the Closing Date, the Company will be the sole owner of and have good and - 9 - indefeasible title in fee to the real property comprising part of each Mortgaged Property, except for the portion of the Mortgaged Property located in Ontonagan, Michigan, held by the Company pursuant to a ground lease described in the relevant Mortgage, in which the Company has a valid leasehold interest, and good title to the balance of each such Mortgaged Property, in each case, after giving effect to the transactions contemplated by the Security Documents, free and clear of all Liens, subject only to Permitted Collateral Liens (as defined in the First Mortgage Note Indenture), will have good right and lawful authority to mortgage, pledge and assign the Mortgaged Property in accordance with the terms of the relevant Security Document, and will create in favor of the First Mortgage Note Trustee for the benefit of the Holders of First Mortgage Notes a valid, perfected first ranking security interest in the Mortgaged Property (as described therein), securing the payment of the First Mortgage Notes in accordance with the terms thereof. (n) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein or contemplated thereby, there has not been any material adverse change in the condition (financial or otherwise), earnings, operations or prospects of the Company and its subsidiaries taken as a whole, whether or not arising in the ordinary course of business, or any transaction entered into by the Company or any subsidiary, other than in the ordinary course of business, the Company has not declared, paid or otherwise made any dividends or distributions of any kind on any class of its capital stock, and since the date of the latest balance sheet included in the Registration Statement and in the Prospectus, neither the Company nor any of its subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole, except for liabilities or obligations which were incurred or undertaken in the ordinary course of business or which relate to matters that are reflected in the Registration Statement and the Prospectus. (o) Neither the Company nor any of its subsidiaries has distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Securities, will distribute any offering material in connection with the offering and sale of the Securities other than any of the Preliminary Prospectuses, the Prospectus or other materials, if any, that the Underwriters have approved for such distribution; PROVIDED, HOWEVER, that it is understood that the Company makes no representation or warranty herein with respect to any distribution of materials by the Underwriters. - 10 - (p) Neither the Company nor any Material Subsidiary is in violation of its respective charter or by-laws; neither the Company nor any material subsidiary is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease, permit, license, franchise or other agreement or instrument to which it is a party or by which it may be bound or to which any of its properties may be subject, except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings, operations or prospects of the Company and its subsidiaries taken as a whole. (i) The execution and delivery of this Agreement, the Indentures and the Security Documents, the filing of the Registration Statement, the issuance, sale and delivery of the Securities and the consummation of the transactions contemplated herein and therein by the Company, and compliance by the Company with the terms of this Agreement, the Indentures and the Security Documents, and (ii) the execution, delivery and performance by each of the Company, Stone Savannah, Stone Connecticut Paper Board or Stone Mill Operating Corporation of each Related Transaction Document to which it is a party and the consummation by the Company, Stone Savannah, Stone Connecticut Paper Board or Stone Mill Operating Corporation of the Related Transactions do not and will not conflict with, or result in a breach of, any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Liens, charge or encumbrance (other than the Liens created by the Security Documents, and the Credit Agreement and security agreements and mortgages relating thereto) upon, any property or assets of the Company or any subsidiary under (X) any indenture, mortgage, loan agreement, note, lease, permit, license, franchise or other agreement or instrument to which the Company or any subsidiary is a party or by which it may be bound or to which any of its properties may be subject or (Y) any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their respective properties or assets (except, in the case of (X) and (Y), for such conflicts, breaches or defaults or Liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings, operations or prospects of the Company and its subsidiaries taken as a whole). As of the Closing Date, the stockholders of Stone Savannah will have approved the merger of a wholly-owned subsidiary of the Company with and into Stone Savannah on or prior to the Closing Date. (q) There is no litigation or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or threatened against, or involving the properties or business of the Company or any of its - 11 - subsidiaries which is of a character required to be disclosed in the Registration Statement or the Prospectus which has not been properly disclosed therein; and there is no contract or document concerning the Company or any of its subsidiaries of a character required to be described in the Registration Statement and the Prospectus or to be filed as an exhibit to the Registration Statement, which is not so described or filed. (r) No authorization, approval, consent or license of any government, governmental instrumentality or court, domestic or foreign (other than under the 1933 Act, the 1939 Act, the securities or blue sky laws of the various states and filings with various states with respect to mergers of certain subsidiaries of the Company) is required for the valid issuance, sale and delivery of the Securities, or for the execution, delivery or performance of this Agreement, the Indentures, the Security Documents or the Credit Agreement by the Company, except as disclosed in the Prospectus and except as such as may have been (or will on the Closing Date be) obtained and are (or will on the Closing Date be) in full force and effect and except where the failure to obtain such authorization, approval, consent or license would not, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), earnings, operations or prospects of the Company and its subsidiaries taken as a whole or on the value of the Collateral therein and the First Mortgage Note Trustee's interest therein, or for the enforceability against the Company of any of the Securities, the Indentures, the Security Documents or the Credit Agreement. (s) The Company and its subsidiaries each owns, possesses or has obtained all governmental licenses, permits, certificates, consents, orders, approvals and other authorizations necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted (except where the failure to have such licenses, permits, certificates, consents, orders, approvals and other authorizations would not, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), earnings, operations or prospects of the Company and its subsidiaries taken as a whole) and, except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such license, permit, certificate, consent, order, approval or authorization which, in the aggregate, are reasonably expected, individually or in the aggregate, to have a material adverse effect on the condition (financial or otherwise), earnings, operations or prospects of the Company and its subsidiaries taken as a whole. - 12 - (t) The Company is not now, and after sale of the Securities to be sold by it hereunder and application of the net proceeds from such sale as described in the Registration Statement and the Prospectus under the caption "Use of Proceeds" will not be, or will not be "controlled" by, an "investment company" within the meaning of the Investment Company Act of 1940. (u) Neither the Company nor any of the Material 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" or a "holding company", as such terms are defined in the Public Utilities Holding Company Act of 1935, as amended, or is a "public utility", as such term is defined in the Federal Power Act, as amended. (v) The Company will, on or before the Closing Date, deliver to the Underwriters true and correct copies of the Security Documents and Related Transaction Documents in the form and substance satisfactory to the Underwriters. The transactions contemplated by the Related Transaction Documents to occur on or before the Closing Date have been consummated on or prior to such date. (w) There shall exist at and as of the Closing Date (after giving effect to the Related Transactions) no conditions that would constitute, or would constitute by the expiration of any notice or cure period, a Default or Event of Default under the Indentures or the Credit Agreement. All conditions to borrowing on and as of the Closing Date under the revolving credit portion of the Credit Agreement will be satisfied as of the Closing Date. Any certificate signed by any officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. Section 2. PURCHASE AND SALE. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, (i) at a purchase price of _____% of the principal amount thereof, plus accrued interest, if any, on the First Mortgage Notes from the Issue Date (as defined in the Indentures) to the Closing Date, on the principal amount of First Mortgage Notes set forth opposite such Underwriter's name in Schedule I hereto, and (ii) at a purchase price of _____% of the principal amount thereof, plus accrued interest, if any, on the Senior Notes from the Issue Date (as defined in the Indentures) - 13 - to the Closing Date, on the principal amount of Senior Notes set forth opposite such Underwriter's name in Schedule II hereto. Section 3. DELIVERY AND PAYMENT. (a) Delivery of and payment for the Securities shall be made at 10:00 A.M., New York City time, on October 12, 1994, or such later date (not later than __________ __, 1994) as the Underwriters shall designate, which date and time may be postponed by agreement between the Underwriters and the Company as provided in Section 10 hereof (such date and time of delivery and payment for the Securities being herein called the "CLOSING DATE"). Delivery of the Securities shall be made to the Underwriters against payment by the several Underwriters of the purchase price thereof to or upon the order of the Company in immediately available Federal Funds by wire transfer and payable in immediately available funds. The Company shall pay to the Underwriters an amount equal to (a) the product of $___________ multiplied by (b) the rate of the Federal Funds Interest Rate plus 3/8% (the "Rate") divided by (c) 360 by wire transfer in immediately available funds. The Payment shall be received by 3:00 p.m. on the business day immediately following the Closing Date. The Underwriters will advise the Company of the Rate and the amount of the Payment by 11:00 a.m. on such date. The wire instructions regarding the Payment are The First National Bank of Chicago, Credit of Stone Container Corporation, Account Number 08-00260. (b) Delivery of the Securities shall be made at such location as the Underwriters shall reasonably designate at least one business day in advance of the Closing Date and payment for the Securities shall be made in accordance with Subsection 3(a) above. Certificates for the Securities shall be registered in such names and in such denominations as the Underwriters may request not less than three full business days in advance of the Closing Date. Section 4. OFFERINGS BY UNDERWRITERS. It is understood that the Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus. Section 5. CERTAIN COVENANTS OF THE COMPANY. The Company covenants with the Underwriters as follows: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, to become effective. Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement to the Prospectus without your prior consent. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus is otherwise required under Rule 424(b), the Company will cause the Prospectus, properly completed, and any supplement thereto to be filed with the Commission pursuant to the - 14 - applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Underwriters of such timely filing. The Company will promptly advise the Underwriters (i) when the Registration Statement, if not effective at the Execution Time, and any amendment thereto, shall have become effective, (ii) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b), (iii) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (iv) of any request by the Commission for any amendment of the Registration Statement or supplement to the Prospectus or for any additional information, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (b) Within the time during which a prospectus relating to the Securities is required to be delivered under the 1933 Act, the Company shall comply with all requirements imposed upon it by the 1933 Act and the rules thereunder so far as is necessary to permit the continuance of sales of or dealings in the Securities as contemplated by the provisions hereof and by the Prospectus. If, during such period, any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply with the 1933 Act or the rules thereunder, the Company promptly will prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such compliance. (c) As soon as practicable, the Company will make generally available to its security holders and to the Underwriters an earnings statement or statements of the Company and its subsidiaries which will satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 under the 1933 Act. (d) The Company will furnish to the Underwriters and counsel for the Underwriters, without charge, signed copies - 15 - of the Registration Statement (including exhibits thereto) and, so long as delivery of a prospectus by the Underwriters or a dealer may be required by the 1933 Act, as many copies of each Preliminary Prospectus and the Prospectus and any supplement thereto as the Underwriters may reasonably request. The Company will pay the expenses of printing or other production of all documents relating to the offering. (e) The Company will arrange for the qualification of the Securities for sale under the laws of such jurisdictions as the Underwriters may designate, will maintain such qualifications in effect so long as required for the distribution of the Securities (PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject), will arrange for the determination of the legality of the Securities for purchase by institutional investors and will pay the fee of the National Association of Securities Dealers, Inc. (the "NASD") in connection with its review of the offering. (f) Between the date of this Agreement and termination of trading restrictions on the Securities or the expiration of thirty days from the Closing Date, whichever is later, the Company will not offer, sell, contract to sell or otherwise dispose of, directly or indirectly, or announce the offering of, any debt securities issued or guaranteed by the Company (other than the Securities, industrial revenue bonds and in connection with the refinancing of existing receivables programs, as disclosed in the Prospectus). (g) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under the caption "Use of Proceeds." (h) For a period of two years after the Closing Date, the Company will furnish to the Underwriters (A) copies of all annual reports, quarterly reports and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission; and (B) such other documents, reports and information as shall be furnished by the Company to its stockholders generally. (i) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92- 198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or - 16 - has become effective with the Commission or with the Florida Department of Banking and Finance (the "DEPARTMENT"), whichever date is later, or if the information reported in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such businesses or change, as appropriate, in a form acceptable to the Department. Section 6. PAYMENT OF EXPENSES. Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay and bear all costs and expenses incident to the performance of its obligations under this Agreement, including without limitation (a) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits), as originally filed and as amended, the Preliminary Prospectus and the Prospectus and any amendments or supplements thereto, and the cost of furnishing copies thereof to the Underwriters, (b) the printing and distribution of the Indentures, the Securities and the Security Documents, (c) the issuance and delivery of the Securities to the Underwriters, (d) the fees and the disbursements of the Company's counsel and accountants, (e) the qualification of the Securities under the applicable securities laws in accordance with Section 5(e), including filing fees and reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation, printing and mailing of the Blue Sky Survey and the Legal Investment Survey, if any, (f) any filing for review of the offering with the NASD, including any filing fees in connection therewith and the fees and disbursements of counsel for the Underwriters in connection therewith, (g) the rating of the Securities by one or more rating agencies, (h) the listing of the Securities on the New York Stock Exchange, (i) the fees and expenses of the Trustees, including the fees and disbursements of counsel for the Trustees in connection with the Indentures, the Securities and the Security Documents, (j) the actual costs and expenses of creating and perfecting security interests in the Mortgaged Property in favor of the First Mortgage Note Trustee, as the secured party for the Holders, pursuant to the Security Documents, including but not limited to filing and recording fees and expenses, fees and expenses of local counsel for the Company, and fees and expenses of the First Mortgage Note Trustee, (k) all costs, premiums and expenses incurred in connection with the purchase of title insurance policies or commitments in respect of the Mortgaged Property, insuring the Liens of the Mortgage for the benefit of the First Mortgage Note Trustee, as secured party for Holders of First Mortgage Notes, and (l) all costs and expenses incurred in connection with the survey and appraisal prepared in respect of each Mortgaged Property. Section 7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters to purchase and pay for Securities pursuant to this Agreement are subject to the accuracy - 17 - of the representations and warranties of the Company contained herein and in certificates of any officer of the Company or any subsidiary delivered pursuant to the provisions hereof, to the performance by the Company of all of its covenants and other obligations hereunder, and to the following further conditions: (a) If the Registration Statement has not become effective prior to the Execution Time, unless the Underwriters agree in writing to a later time, the Registration Statement will become effective not later than (i) 6:00 PM New York City time on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 PM New York City time on such date or (ii) 12:00 Noon on the business day following the day on which the public offering price was determined, if such determination occurred after 3:00 PM New York City time on such date; if filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any such supplement, will be filed in the manner and within the time period required by Rule 424(b); no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) The Company shall have furnished to the Underwriters the opinion of Leslie T. Lederer, Esq., in his capacity as counsel to the Company, dated the Closing Date, addressed to the Underwriters, in form and substance reasonably satisfactory to counsel for the Underwriters, to the effect that: (i) Each of the Company and the Material Subsidiaries (other than Stone Canada and Stone-Consolidated) is duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation. Each of Stone Canada and Stone-Consolidated is a corporation validly existing and subsisting under the laws of Canada. Each of the Company and the Material Subsidiaries (other than Stone Canada and Stone-Consolidated, for which such opinion is not relevant) is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not, individually or in the aggregate, have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and the Material Subsidiaries has all requisite corporate power and authority to (A) own, lease and license its respective properties and the business in which it is engaged and as described in the Registration Statement and the Prospectus, and, as applicable, to (B) execute, deliver and perform its obligations under the - 18 - Related Transaction Documents. All of the issued and outstanding shares of capital stock of each Material Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights and are owned directly or indirectly by the Company (except for directors' qualifying shares and other than Seminole, Stone Consolidated and Stone Savannah), free and clear of any pledge, Liens, encumbrance, claim, security interest, restriction on transfer (except in the case of Stone Canada for the restrictions on transfers of its capital stock as set forth in its Articles of Amalgamation, as amended), stockholders' agreement, voting trust or other defect of title whatsoever. The Company owns approximately 75% of the issued and outstanding common shares of Stone-Consolidated; approximately 99% of the issued and outstanding shares of common stock and 100% of the issued and outstanding shares of Series A Cumulative 8% Preferred Stock of Seminole Kraft Corporation, and approximately 93% of the issued and outstanding shares of common stock, approximately 33% of the issued and outstanding shares of Series A Cumulative Redeemable Exchangeable Preferred Stock and 100% of the issued and outstanding shares of Series B Cumulative Preferred Stock of Stone Savannah. On the Closing Date, 100% of the issued and outstanding shares of common stock of Stone Savannah (or any successor corporations thereof) will be owned by the Company. The Company's authorized equity capitalization is as set forth in the Registration Statement and in the Prospectus. (ii) The Indentures have been duly and validly authorized, and are qualified under and comply in all material respects with the 1939 Act, have been duly executed and delivered by the Company and, upon execution and delivery by the Trustees, will constitute valid and binding instruments of the Company, enforceable against the Company in accordance with their terms (except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). No taxes are required to be paid with respect to the execution and delivery of the Indentures by the Company and the issuance of the Securities, except for mortgage, mortgage recording, intangibles and similar taxes as contemplated by local counsel opinions delivered pursuant to Section 7(d) below. The Securities to be delivered on the Closing Date have been duly and validly authorized, executed and authenticated and, when delivered against payment therefor in accordance with this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms (except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other - 19 - similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law); the certificates for the Securities are in valid and sufficient form; no holders of outstanding securities of the Company are entitled to register such securities under the Registration Statement. The Indentures and the Securities conform in all material respects to the descriptions thereof contained in the Registration Statement and in the Prospectus. (iii) The Securities are duly authorized for listing on the New York Stock Exchange, subject only to official notice of issuance. (iv) The Security Documents and the mortgaging of and granting of security interests in respect of the Mortgaged Property have been duly and validly authorized by the Company, and the Security Documents have been duly executed and delivered by the Company and will constitute valid and binding instruments of the Company, enforceable against the Company in accordance with their terms (except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). No taxes are required to be paid with respect to the mortgaging of and granting of security interests of the Mortgaged Property or the execution and delivery of the Security Documents by the Company, except for mortgage, mortgage recording, intangibles and similar taxes as contemplated by local counsel opinion delivered pursuant to subsection 7(d) below. (v) This Agreement has been duly and validly authorized, executed and delivered by the Company. (vi) To such counsel's knowledge, there is no litigation or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or threatened against, or involving the properties or business of the Company or any of its subsidiaries which is of a character required to be disclosed in the Registration Statement or in the Prospectus which has not been properly disclosed therein; and to such counsel's knowledge, there is no contract or document concerning the Company or any of its subsidiaries of a character required to be described in the Registration Statement and in the Prospectus or to be filed as an exhibit to the Registration Statement, which is not so described or filed. - 20 - (vii) (A) The execution, delivery and performance by the Company of this Agreement, the Indentures, the Securities, the Security Documents, and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance, sale and delivery of the Securities, and (B) the execution, delivery and performance by the Company, Stone Savannah, Stone Connecticut Paper Board and Stone Mill Operating Corporation of each Related Transaction Document to which it is a party and the consummation by them of the Related Transactions, do not and will not (X) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) or require consent under, or result in the creation or imposition of any Liens, charge or encumbrance (other than the Liens created by the Security Documents, and the Credit Agreement and security agreements and mortgages relating thereto) upon any property or assets of the Company or any of its subsidiaries pursuant to the terms of any agreement, instrument, franchise, license or permit known to such counsel to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (Y) violate or conflict with any provision of the certificate of incorporation, by-laws or equivalent instruments of the Company or any of its subsidiaries, or, to the best knowledge of such counsel, any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. To such counsel's knowledge, no consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental, or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for (i) the valid issuance, sale and delivery of the Securities, or for (ii) the execution, delivery and performance of this Agreement, the Indentures, the Securities or the Security Documents, and the consummation of the transactions contemplated hereby and thereby, or for (iii) the execution, delivery and performance of the Related Transaction Documents by the Company, Stone Savannah, Stone Connecticut Paper Board and Stone Mill Operating Corporation or for the consummation of the Related Transactions, or for (iv) the enforceability against the Company of this Agreement, the Indentures, the Securities or the Security Documents, except for (1) such as may be required under state and foreign securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters (as to which such counsel need express no opinion), (2) such as have been made with the New York Stock Exchange, (3) the qualification of the Indentures under the 1939 Act, which qualification has been obtained, (4) such as have been made or obtained under the 1933 Act, and (5) filings with various - 21 - states with respect to mergers of subsidiaries of the Company. (viii) The Registration Statement, at the time it became effective, and the Prospectus and any amendments thereof or supplements thereto (other than the financial statements, financial and statistical data and supporting schedules included therein, each Form T-1 and the exhibits to the Registration Statement, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the 1933 Act, the 1939 Act and the respective rules thereunder. (ix) The Registration Statement is effective under the 1933 Act; and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued and no proceedings for such purpose have been instituted or threatened by the Commission. (x) Neither the Company nor any of the Material Subsidiaries is in violation of its respective charter or its respective by-laws and, to the knowledge of such counsel, neither the Company nor any of the Material Subsidiaries is in default (nor has an event occurred which with notice, lapse of time or both would constitute a default) in the performance of any obligation, agreement or condition contained in any loan agreement of the Company or any such Material Subsidiary where such default would reasonably be expected to have a material adverse effect on the Company and its subsidiaries taken as a whole. (xi) The Company is not now, and after sale of the Securities to be sold by it hereunder and application of the net proceeds from such sale as described in the Registration Statement and the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" within the meaning of the Investment Company Act of 1940. (xii) Neither the Company nor any of the Material 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" or a "holding company", as such terms are defined in the Public Utilities Holding Company Act of 1935, as amended, or is a "public utility", as such term is defined in the Federal Power Act, as amended. (xiii) The execution, delivery and performance by each of the Company, Stone Savannah, Stone Connecticut Paper Board and Stone Mill Operating Corporation of each Related Transaction Document to which it is a party, and the consummation by them of the Related Transactions, have been duly authorized by all necessary corporate action of the Company, Stone Savannah, Stone Connecticut Paper Board and Stone Mill Operating Corporation, as the case may be, and each Related Transaction Document to which the Company, Stone Savannah, Stone Connecticut Paper Board or Stone Mill Operating Corporation is a party - 22 - has been duly executed and delivered by such party. The Credit Agreement conforms in all material respects to the description thereof contained in the Registration Statement and the Prospectus. In addition, such counsel shall state that he has participated in conferences with officers and other representatives of the Company, representatives of the independent certified public accountants of the Company and representatives of the Underwriters at which the contents of the Registration Statement, the Prospectus and any amendment thereof or supplement thereto and related matters were discussed and, although such counsel has not undertaken to investigate or verify independently, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus or any amendment thereof or supplement thereto (except as to matters referred to in the last sentence of clause (ii) above), on the basis of the foregoing (relying to the extent appropriate in the exercise of such counsel's professional responsibility), such counsel has no reason to believe that either the Registration Statement (other than financial statements, financial data, statistical data included in statistical tables and supporting schedules included therein, as to which such counsel need express no belief) at the time it became effective (or any amendment thereof made prior to Closing Date as of the date of such amendment) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (other than financial statements, financial data, statistical data included in statistical tables and supporting schedules included therein, as to which such counsel need express no belief) as of the date thereof and the date hereof or of the opinion (or any amendment thereof or supplement thereto made prior to Closing Date as of the date of such amendment or supplement and as of the date of such opinion) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules and other financial and statistical data included therein, each applicable Form T-1 and the exhibits to the Registration Statement). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which such counsel is admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or - 23 - opinions (in form and substance reasonably satisfactory to counsel for the Underwriters) of other counsel reasonably acceptable to counsel for the Underwriters familiar with the applicable laws; and (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers and other representatives of the Company, certificates of public officials, and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and its subsidiaries, provided that copies of any such opinions, statements or certificates shall be delivered to counsel for the Underwriters. (c) On the Closing Date, the Underwriters shall have received the opinion of Sidley & Austin, special counsel for the Company, dated the Closing Date, addressed to the Underwriters, and in form and substance reasonably satisfactory to counsel for the Underwriters (i) to the effect set forth in clauses (ii), (iii), (iv), (v), (vi) (other than the last clause thereof), (vii) (but only as to the first sentence thereof), (viii), (ix), (xi), (xii) and (xiii) of Section 7(b) hereof, and (ii) as to certain matters relating to the First Mortgage Note Trustee's interest in the Cash Collateral Account. The Underwriters shall also have received a statement from such counsel substantially to the effect of the penultimate paragraph of Section 7(b) hereof. In rendering such opinion, such counsel may state that their opinion is limited to matters of Federal, Delaware corporate, Illinois and New York State laws and such counsel may rely as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company or upon certificates of public officials, provided that copies of any such certificates shall be delivered to counsel for the Underwriters. (d) On the Closing Date, the Underwriters shall have received opinions from local counsel acceptable to the Underwriters in each jurisdiction in which Mortgaged Property is located, acceptable to the Underwriters and their counsel, dated as of the Closing Date, addressed to the Underwriters and the First Mortgage Note Trustee, and covering the matters specified in Exhibit A hereto and such other matters relating to the Mortgages, the other Security Documents and the Mortgaged Property, as the Underwriters may reasonably request, all in form and substance reasonably satisfactory to counsel for the Underwriters. In rendering such opinions, each such counsel may state that its opinion is limited to matters of the law of the jurisdiction in which the Mortgaged Property is located and to matters of federal law, and such counsel may rely as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company or upon certificates of public officials, provided that copies of any such certificates shall be delivered to counsel for the Underwriters. - 24 - (e) (i) The Company shall have furnished to the Underwriters a certificate of the Company, signed by the Chairman of the Board or the President and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus, any supplement to the Prospectus and this Agreement and that: (i) the representations and warranties of the Company in this Agreement are true and correct in all material respects, and the Company is in compliance with the covenants in this Agreement, and the Company has satisfied all the conditions on its part to be satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened; (iii) since the date of the most recent financial statements included in the Prospectus (exclusive of any supplement thereto), there has been no material adverse change in the condition (financial or other), earnings, business or properties of the Company and its subsidiaries (giving effect to the Related Transactions), whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto), and neither the Company nor any of its subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole, except for liabilities or obligations which were incurred or undertaken in the ordinary course of business or which are disclosed in the Registration Statement and Prospectus; (iv) the Related Transactions have been consummated on or prior to the Closing Date; and (v) no event has occurred that would materially and adversely affect the fair market value of the Mortgaged Property and that certain other matters relating to the Mortgaged Property are correct. (f) At the Execution Time and on the Closing Date, the Underwriters shall have received a letter or letters from Price Waterhouse, LLP, independent accountants for the Company, dated as of this Agreement and as of the Closing Date, as the case may be, addressed to the Board of Directors of the Company and the Underwriters and in form and substance satisfactory to the Underwriters, to the effect that: - 25 - (i) they are independent accountants with respect to the Company within the meaning of the 1933 Act and the applicable rules and regulations thereunder; (ii) in their opinion, the audited consolidated financial statements included in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the applicable published rules and regulations of the Commission thereunder; (iii) on the basis of procedures (but not an audit in accordance with generally accepted auditing standards) extending to the date not more than five days prior to the date of such letter consisting of a reading of the minutes of the meetings of the board of directors of the Company and the audit committee of such board subsequent to December 31, 1993, inquiries of officers and other employees of the Company who have responsibility for financial and accounting matters of the Company and its subsidiaries with respect to transactions and events subsequent to December 31, 1993, and reading the unaudited condensed consolidated interim financial statements of the Company included in the Registration Statement and the Prospectus, nothing came to their attention which caused them to believe that: (A) any unaudited condensed consolidated interim financial statements of the Company included in the Registration Statement and in the Prospectus do not comply as to form in all material respects with applicable accounting requirements of the 1933 Act and with the applicable rules and regulations of the Commission thereunder or that any material modifications should be made to such unaudited condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles; (B) with respect to the period subsequent to June 30, 1994, there were, as of a specified date not more than five business days prior to the date of the letter, any change greater than $ __ million in the long term debt of the Company and its consolidated subsidiaries (excluding Seminole) and total debt of the Company, or any change in the Adjusted Capital Stock (defined as the sum of the outstanding common stock and Series E Cumulative Convertible Exchangeable Preferred Stock) of the Company, in each case as compared with the amounts shown in the June 30, 1994 unaudited condensed consolidated interim balance sheet of the Company, included in the Registration Statement and in the Prospectus, except for changes or decreases which the Prospectus discloses have occurred or may occur, and except as indicated in their letter or letters; - 26 - (C) for the period from July 1, 1994, to the date of the most recently available unaudited condensed consolidated financial data of the Company and its subsidiaries, if any, there was any decrease, as compared with the corresponding period in the prior fiscal year, in consolidated net sales, or any increase in total or per share net loss of the Company and its subsidiaries, except in all instances for any decrease and increase which the Prospectus discloses have occurred or may occur, and except as indicated in their letter or letters; and (D) with respect to the unaudited pro forma condensed balance sheet as of June 30, 1994, and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1993, and for the six months ended June 30, 1994 (the "pro forma financial statements") contained in the Registration Statement and the Prospectus, the pro forma financial statements do not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments to the historical amounts in such pro forma financial statements have not been properly applied to the historical amounts in the compilation of such statements. (iv) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and in the Prospectus agrees with the accounting records of the Company and its subsidiaries, schedules prepared by the Company from its accounting records or computations in schedules prepared by the Company from accounting records, excluding any questions of legal interpretation. References to the Prospectus in this paragraph (7) include any supplement thereto at the date of the letter. (g) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 7 or (ii) any change, or any development involving a prospective change, in or affecting the business or properties of the Company and its subsidiaries the effect of which, in any case referred to in clause (i) or (ii) above, is, in the judgment of the Underwriters, so material and adverse as to make it impractical or inadvisable to proceed with the public offering or the - 27 - delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto). (h) On the Closing Date the Underwriters shall have received an opinion from counsel to each of the Trustees, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) the Trustee is a national banking association or state chartered bank or trust company and is validly existing in good standing under the laws of the jurisdiction in which its incorporated; (ii) the relevant Trustee has the power and authority to enter into the applicable Indenture and authenticate the applicable Securities as Trustee under such Indenture; (iii) the applicable Indenture has been duly authorized, executed and delivered by the relevant Trustee, as Trustee under such Indenture, and such Indenture is valid and binding on such Trustee in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally or by equitable principles relating to the availability of remedies; and (iv) the applicable Securities have been duly authenticated and delivered by the relevant Trustee, as Trustee, under the applicable Indenture. (i) All proceedings taken in connection with the sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Underwriters and counsel for the Underwriters, and the Underwriters shall have received from counsel for the Underwriters a favorable opinion, dated as of the Closing Date, with respect to the issuance and sale of the Securities as the Underwriters may reasonably require, and the Company shall have furnished to counsel for the Underwriters such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (j) The ratings of the debt securities of the Company as of the Closing Date shall not have been downgraded by Standard & Poor's Corporation or by Moody's Investors Service, Inc. below the publicly-announced ratings as of the Execution Time and neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the senior secured or unsecured debt of the Company. (k) At or before the Closing, the following shall have occurred or shall occur: - 28 - (i) Each Related Transaction Document shall have been executed as contemplated by this Agreement and the Prospectus, and Related Transactions contemplated to occur on or before the Closing Date shall have occurred, including, in the case of the Stone Savannah Notes, proper notice shall have been given to the trustee thereof with respect to the redemption of such securities on or prior to December 30, 1994; (ii) no Default or Event of Default shall exist under either of the Indentures or the Credit Agreement; (iii) the Company shall have repaid all amounts outstanding under the 1989 Credit Agreement; the Company and the lenders thereunder shall have terminated such Credit Agreement; all Liens on real property, fixtures, equipment and other property securing indebtedness under such credit agreement shall have been released; and the Company shall have delivered to the Underwriters copies of documents evidencing the repayment and release of such Liens; and (iv) the Company shall have satisfied all conditions to borrowing under the Credit Agreement (as evidenced by a certificate by the Agent Bank (as defined in the Credit Agreement) thereunder addressed to the Underwriters), the parties to the Credit Agreement shall have executed and delivered such Credit Agreement and shall have closed all transactions contemplated thereby, and the Company shall have delivered to the Underwriters copies of such executed Credit Agreement. (l) On or prior to the Closing Date, the Company shall have caused to be delivered to the Underwriters the following documents and instruments with regards to each Mortgaged Property; (i) a Mortgage, duly executed and acknowledged by the Company and otherwise in form for recording in the appropriate recording office of the political subdivision where the related Mortgaged Property is located, together with such certificates, affidavits, questionnaires or returns as shall be required in connection with the recording or filing thereof, a Security Agreement, duly executed and acknowledged by the Company and such UCC-1 financing statements and other similar statements as are contemplated in respect of such Mortgage and such Security Agreement by the opinion set forth in paragraph 7(d) above, and any other instruments necessary to grant the interests purported to be granted by such Mortgage under the laws of the state in which the related Mortgaged Property is located, which Mortgage, Security Agreement and financing statements and other instruments shall be effective to create Liens on such Mortgaged Property subject to no Liens other than Permitted Collateral Liens (as defined in the First Mortgage Note Indenture); - 29 - (ii) such consents, approvals, amendments, supplements or other agreements as shall reasonably be deemed necessary by counsel for the Underwriters in order for the Company to grant the Liens contemplated by the Mortgage; (iii) a policy of title insurance (or a commitment to issue such a policy) insuring (or committing to insure) the Liens of such Mortgage as a valid first mortgage Lien on the real property and fixtures described therein in respect of the First Mortgage Notes in an amount not less than 110% of the appraised value, estimated by American Appraisal Associates as of September 1, 1994, which policy (or commitment) shall (a) be issued by one title company acceptable to the Underwriters, (b) include such reinsurance arrangements (with provisions for direct access) as shall be acceptable to the Underwriters, (c) have been supplemented by such endorsements, or, where such endorsements are not available at commercially reasonable premium costs, opinion letters of special counsel, architects or other professionals, which counsel, architects or other professionals shall be acceptable to the Underwriters, as shall be requested by the Underwriters and (d) contain only such exceptions to title as shall be agreed to by counsel for the Underwriters prior to the Closing Date: (iv) a survey (as prepared in respect of each Mortgaged Property); (v) certificates of insurance for the policies of insurance required by the First Mortgage Note Indenture, which policies or certificates shall bear mortgagee's endorsements naming the First Mortgage Note Trustee as an additional insured thereunder and evidencing (a) the issuance of such policies, (b) the payment of all premiums currently due and payable and (c) coverage which meets all the requirements set forth in the Security Documents; (vi) UCC, tax Liens and judgment searches confirming that the property comprising a part of such Mortgaged Property is subject to no Liens other than Permitted Collateral Liens; (vii) such affidavits, certificates and instruments of indemnification as shall reasonably be required to induce the title companies to issue the policy or policies (or the commitment) contemplated in subparagraph (iii) above; (viii) a certificate of an officer of the Company certifying that, as of the date of delivery of such certificate, there has been issued and is in effect a valid and proper certificate of occupancy or the local equivalent, if required by the local codes or ordinances for use then being made of the related Mortgaged Property, and there is not outstanding any citation, violation or similar notice - 30 - indicating that the related Mortgaged Property contains conditions which are not in compliance with local codes or ordinances relating to building or fire safety or structural soundness; and (ix) a certificate of an officer of the Company certifying that, as of the date of delivery of such certificate, there has not occurred any Casualty or Condemnation of the related Mortgaged Property or any portion thereof, and that the Company has no knowledge of any facts which have not been disclosed to American Appraisal Associates or any other party and which, if disclosed, would adversely affect the fair market value of the related Mortgaged Property. (x) a current environmental assessment and engineering report regarding the related Mortgaged Property. (xi) certified copies of all licenses, permits and authorizations, governmental or otherwise, necessary for the Company to own, lease and operate the related Mortgaged Property and to conduct its business with respect thereto as described in the Registration Statement and in the Prospectus, and as currently conducted; and (xii) all documents the Underwriters may reasonably request relating to the existence of the Company, the corporate authority for and the validity of the Mortgage, the First Mortgage Note Indenture or any other Security Document or, relating to any Mortgaged Property, the qualification of the Company to do business in the state where the related Mortgaged Property is located, evidence of compliance by the Company with all zoning and other local laws, regulations and ordinances, and any other matters relevant in connection with any Security Document. (m) All filing fees and taxes in connection with all recordings or filings of the Mortgages, and such other financing statements or security documents as may be necessary or, in the opinion of counsel for the Underwriters, desirable to perfect the Liens created, or intended to be created, by the Mortgages and the First Mortgage Note Indenture shall have been paid (or arrangements for the payment thereof satisfactory to the Underwriters shall have been made) and the Underwriters shall have received evidence satisfactory to them of such payments or shall have received evidence satisfactory to the Underwriters of such arrangements for payment. (n) Prior to the Closing Date, the Company shall have furnished to the Underwriters such further information, certificates and documents as the Underwriters may reasonably request. If any of the conditions specified in this Section 7 shall not have been fulfilled when and as required by this - 31 - Agreement, or if any of the certificates, opinions, written statements or letters furnished to the Underwriters or to counsel for the Underwriters pursuant to this Section 7 shall not be in all material respects reasonably satisfactory in form and substance to the Underwriters and to counsel for the Underwriters, all of the obligations of the Underwriters hereunder may be canceled by the Underwriters at, or at any time prior to, the Closing Date. Notice of such cancellation shall be given to the Company in writing, or by telephone, facsimile, telex or telegraph, confirmed in writing. Section 8. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person, if any, who controls each Underwriter within the meaning of Section 15 of the 1933 Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "1934 ACT"), against any and all losses, liabilities, claims, damages and expenses whatsoever (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the 1933 Act, the 1934 Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that the Company will not be liable in any such case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriters expressly for use therein; AND PROVIDED, FURTHER, that the Company shall not be liable to any Underwriter (or any director, officer, employee or agent of any Underwriter or person controlling any Underwriter) under the indemnity agreement in this Section 8(a) with respect to any preliminary prospectus or prospectus, to the extent that any such loss, liability, claim, damage or expense of such Underwriter (or any person controlling any Underwriter) results from the fact such Underwriter sold Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented in any case where such delivery is - 32 - required by the 1933 Act if the Company has previously furnished copies thereof to such Underwriter and the loss, liability, claim, damage or expense of such Underwriter results from an untrue statement, alleged untrue statement, omission or alleged omission of a material fact contained in the Preliminary Prospectus which was corrected in the Prospectus (or the Prospectus as amended or supplemented). This indemnity agreement will be in addition to any liability which the Company may otherwise have, including under this Agreement. (b) Each Underwriter severally, and not jointly, agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any losses, liabilities, claims, damages and expenses whatsoever (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the 1933 Act, the 1934 Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities, as originally filed or any amendment thereof, or any Preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriters expressly for use therein. This indemnity will be in addition to any liability which any Underwriter may otherwise have, including under this Agreement. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) of this Section 8 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may otherwise have). In case any such action is brought against - 33 - any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to take charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties. The indemnifying party under subsection (a) or (b) above shall only be liable for the legal expenses of one counsel for all indemnified parties in each jurisdiction in which any claim or action is brought; PROVIDED, HOWEVER, that the indemnifying party shall be liable for separate counsel for any indemnified party in a jurisdiction if counsel to the indemnified parties shall have reasonably concluded that there may be defenses available to such indemnified party that are different from or additional to those available to one or more of the other indemnified parties and that separate counsel for such indemnified party is prudent under the circumstances. Anything in this subsection to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; PROVIDED, HOWEVER, that such consent was not unreasonably withheld. An indemnifying party will not, without the prior written consent of the indemnified parties, which will not be unreasonably withheld, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. Attorneys' fees and other expenses incurred by an indemnified party in investigating, preparing or defending against any litigation, commenced or threatened, or any claim which are reimbursable by an indemnified party to such indemnified party pursuant to this Section 8 shall be reimbursed as incurred. Section 9. CONTRIBUTION. In order to provide for contribution in circumstances in which the indemnification - 34 - provided for in Section 8 hereof is for any reason held to be unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company, any contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, officers of the Company who signed the Registration Statement and directors of the Company) to which the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Securities or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 8 hereof, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (y) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or the Underwriters. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above. Notwithstanding the provisions of this Section 9, (i) in no case shall an Underwriter be required to contribute any amount in excess of the amount by which the underwriting discount applicable to the Securities purchased by such Underwriter pursuant to this Agreement exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any untrue or alleged untrue statement, omission or alleged omission, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or - 35 - Section 20(a) of the 1934 Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 9. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 9, notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 9 or otherwise. Section 10. DEFAULT BY AN UNDERWRITER. (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Securities hereunder, the nondefaulting Underwriter or Underwriters may in its or their discretion arrange for itself or themselves or for another party or parties to purchase such Securities to which such default relates on the terms contained herein. In the event that within five (5) calendar days after such a default the nondefaulting Underwriter does, or the nondefaulting Underwriters do, not arrange for the purchase of the Securities to which such default relates as provided in this Section 10, this Agreement shall thereupon terminate, without liability on the part of the Company with respect thereto (except in each case as provided in Sections 5, 8(a) and 9 hereof) or the nondefaulting Underwriter or Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other nondefaulting Underwriter or Underwriters, as the case may be, and the Company for damages occasioned by its or their default hereunder. (b) In the event that the Securities are to be purchased by the nondefaulting Underwriter or Underwriters, or are to be purchased by another party or parties as aforesaid, the nondefaulting Underwriter or Underwriters or the Company shall have the right to postpone the Closing Date for a period not exceeding five (5) business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which, in the opinion of counsel for the Underwriters, may thereby be made necessary or advisable. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 10 with like effect as if it had originally been a party to this Agreement with respect to such Securities. - 36 - Section 11. UNDERWRITERS' INFORMATION. The Company acknowledges that the statements with respect to the public offering of the Securities set forth on the cover page of the Prospectus and the information with respect thereto and with respect to the Underwriters under the caption "Underwriting" in the Prospectus constitute the only information furnished in writing by or on behalf of the Underwriters expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus, and the Underwriters confirm that such statements are correct. Section 12. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations and warranties, covenants and agreements of the Underwriters and the Company contained in this Agreement, including without limitation the agreements contained in Sections 6 and 13(b) hereof, the indemnity agreements contained in Section 8 hereof and the contribution agreements contained in Section 9 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters or any controlling person thereof or by or on behalf of the Company, any of its officers and directors or any controlling person thereof, and shall survive delivery of and payment for the Securities to and by the Underwriters. The representations contained in Section 1 hereof and the agreements contained in Sections 6, 8, 9 and 13(b) hereof shall survive the termination of this Agreement, including pursuant to Section 13 hereof. Section 13. TERMINATION OF AGREEMENT. (a) This Agreement shall be subject to termination in the absolute discretion of the Underwriters by notice given to the Company prior to delivery of and payment for the Securities, if prior to such time (i) in the Underwriters' reasonable opinion, any material adverse change shall have occurred since the respective dates as of which information is given in the Registration Statement or the Prospectus (as supplemented or amended prior to the occurrence of such event) in the condition (financial or otherwise) of the Company and its subsidiaries taken as a whole, whether or not arising in the ordinary course of business other than as set forth in the Prospectus as supplemented or amended prior to the occurrence of such event, or (ii) the Company shall have failed, refused or been unable to perform in any material respect any agreement on its part to be performed hereunder, (iii) any other condition to the obligations of the Underwriters hereunder as provided in Section 7 is not fulfilled when and as required in any material respect, (iv) trading in securities generally on the New York Stock Exchange, American Stock Exchange, NASD Automated Quotation System, Chicago Mercantile Exchange, and the Chicago Board of Trade shall have been suspended or materially limited, or minimum prices shall have been established on such exchange by the Commission or by such exchange or other regulatory body or governmental authority having jurisdiction, (v) a general banking moratorium shall have - 37 - been declared by Federal or New York State authorities, (vi) there is a material outbreak or escalation of armed hostilities involving the United States on or after the Execution Time, or if there has been a declaration by the United States of a national emergency or war, the effect of which shall be, in the Underwriters' reasonable judgment, to make it inadvisable or impracticable to proceed with the public offering or delivery of the Securities on the terms and in the manner contemplated in the Prospectus as supplemented or amended prior to the occurrence of such event, or (vii) there shall have been such a material adverse change in general economic, political or financial conditions or such a material adverse change in the conditions of the market for securities traded in the High Yeild Market or if the effect of international conditions on the financial markets in the United States shall be such as, in the Underwriters' reasonable judgment, makes it inadvisable or impracticable to proceed with the delivery of the Securities as contemplated hereby. (b) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to Section 10 and 13(a) hereof, except for clauses (ii) and (iii) of Section 13(a)), or if the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by the Underwriters, reimburse the Underwriters for all reasonable out-of-pocket expenses (including the reasonable fees and expenses of counsel for the Underwriters), incurred by the Underwriters in connection herewith. Section 14. NOTICES; PARTIES. (a) All communications hereunder will be in writing and effective only on receipt, and, if sent to the Underwriters, will be mailed, delivered or telecopied and confirmed to them care of Salomon Brothers Inc, at Seven World Trade Center, New York New York, 10004 (212-______); or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at 150 North Michigan Avenue, Chicago, Illinois 60601, attention of Leslie T. Lederer, Vice President, Secretary and Counsel (312-580-4625), with a copy to Sidley & Austin at One First National Plaza, Chicago, Illinois 60603, attention of Richard G. Clemens (312-853-7036). (b) This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company, and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto or thereto and their respective successors and the controlling persons and officers and directors referred to in Sections 8 and 9 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any - 38 - provision herein contained. This Agreement and all conditions and provisions thereof and hereof are intended to be for the sole benefit of the parties and their respective successors and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. Section 15. GOVERNING LAW AND TIME. This Agreement shall be governed by the laws of the State of New York. Specified times of day refer to New York City time. Very truly yours, STONE CONTAINER CORPORATION By -------------------------- Name: Title: The foregoing Agreement is hereby confirmed and accepted as of the date first above written. SALOMON BROTHERS INC BT SECURITIES CORPORATION MORGAN STANLEY & CO. Incorporated KIDDER, PEABODY & CO. Incorporated BEAR, STEARNS & CO. INC. By SALOMON BROTHERS INC - ------------------------------ Name: Title: - 39 - SCHEDULE I PRINCIPAL AMOUNT OF FIRST MORTGAGE NOTES DUE 2002 UNDERWRITERS TO BE PURCHASED - ------------ --------------- SALOMON BROTHERS INC $ BT SECURITIES CORPORATION MORGAN STANLEY & CO. Incorporated KIDDER, PEABODY & CO. Incorporated BEAR, STEARNS & CO. INC. Total. . . . . .$500,000,000.00 SCHEDULE II PRINCIPAL AMOUNT OF SENIOR NOTES DUE 2004 UNDERWRITERS TO BE PURCHASED - ------------ --------------- SALOMON BROTHERS INC $ BT SECURITIES CORPORATION MORGAN STANLEY & CO. Incorporated KIDDER, PEABODY & CO. Incorporated BEAR, STEARNS & CO. INC. Total . . . . . .$200,000,000.00 EXHIBIT A [FORM OF LOCAL COUNSEL OPINIONS] EXHIBIT B [LIST OF JURISDICTIONS IN WHICH EACH PART OF THE MORTGAGED PROPERTY IS LOCATED] EX-4.(S) 3 EXHIBIT 4(S) Exhibit 4(s) DRAFT September 27, 1994 =============================================================================== STONE CONTAINER CORPORATION, as Issuer TO NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee _________ Indenture Dated as of October ___, 1994 ____________ up to $500,000,000 __% First Mortgage Notes due 2002 - ------------------------------------------------------------------------------- STONE CONTAINER CORPORATION Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of October __, 1994 Trust Indenture Indenture Section Act Section Section 310(a)(1) . . . . . . . . . . . . . 609 (a)(2). . . . . . . . . . . . . . . . . . 609 (a)(3). . . . . . . . . . . . . . . . . . Not Applicable (a)(4). . . . . . . . . . . . . . . . . . Not Applicable (a)(5). . . . . . . . . . . . . . . . . . 609 (b) . . . . . . . . . . . . . . . . . . . 608, 610 (c) . . . . . . . . . . . . . . . . . . . Not Applicable Section 311(a). . . . . . . . . . . . . . . 613 (b) . . . . . . . . . . . . . . . . . . . 613 (b)(2). . . . . . . . . . . . . . . . . . 703(a), 703(b) Section 312(a). . . . . . . . . . . . . . . 701, 702(a) (b) . . . . . . . . . . . . . . . . . . . 702(b) (c) . . . . . . . . . . . . . . . . . . . 702(c) Section 313(a) . . . . . . . . . . . . . . 703(a) (b) . . . . . . . . . . . . . . . . . . . 703(b) (c) . . . . . . . . . . . . . . . . . . . 703(a), 703(b) (d) . . . . . . . . . . . . . . . . . . . 703(b Section 314(a)(1) . . . . . . . . . . . . . 704 (a)(2). . . . . . . . . . . . . . . . . 704 (a)(3). . . . . . . . . . . . . . . . . 704 (a)(4). . . . . . . . . . . . . . . . . 1011 (b) . . . . . . . . . . . . . . . . . . 1302 (c)(1). . . . . . . . . . . . . . . . . . 102 (c)(2). . . . . . . . . . . . . . . . . . 102 (c)(3). . . . . . . . . . . . . . . . . . Not Applicable (d) . . . . . . . . . . . . . . . . . . . 1009, 1015, . . . . . . . . . . . . . . . . . . . 1305(b), 1610 (e) . . . . . . . . . . . . . . . . . . . 102 (f) . . . . . . . . . . . . . . . . . . . Not Applicable Section 315(a). . . . . . . . . . . . . . . 601(a) (b) . . . . . . . . . . . . . . . . . . . 602, 703(a) (c) . . . . . . . . . . . . . . . . . . . 601(b) (d) . . . . . . . . . . . . . . . . . . . 601(c) (d)(1). . . . . . . . . . . . . . . . . . 601(a), 601(c) (d)(2). . . . . . . . . . . . . . . . . . 601(c) (d)(3). . . . . . . . . . . . . . . . . . 601(c) (e) . . . . . . . . . . . . . . . . . . . 514 Section 316(a). . . . . . . . . . . . . . 101 (a)(1)(A) . . . . . . . . . . . . . . . . 512 (a)(1)(B) . . . . . . . . . . . . . . . . 502, 513 (a)(2). . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . 508 ____________________ NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. Section 317(a)(1) . . . . . . . . . . . . . 503 (a)(2). . . . . . . . . . . . . . . . . . 504 (b) . . . . . . . . . . . . . . . . . . . 1003 (c) . . . . . . . . . . . . . . . . . . . 104(c) Section 318(a). . . . . . . . . . . . . . . 107 - ------------------ NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. 3 TABLE OF CONTENTS ______________ Page Parties. . . . . . . . . . . . . . . . . . . . . . . . Recitals of the Company. . . . . . . . . . . . . . . . ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions: 1991 Indenture . . . . . . . . . . . . . Acquiring Person . . . . . . . . . . . . Act. . . . . . . . . . . . . . . . . . . Affiliate. . . . . . . . . . . . . . . . Asset Disposition. . . . . . . . . . . . Asset Disposition Offer. . . . . . . . . Asset Disposition Offer Amount . . . . . Asset Disposition Payment Date . . . . . Authenticating Agent . . . . . . . . . . Authority. . . . . . . . . . . . . . . . Bankruptcy Law . . . . . . . . . . . . . Board of Directors . . . . . . . . . . . Board Resolution . . . . . . . . . . . . Business Day . . . . . . . . . . . . . . Capital Stock. . . . . . . . . . . . . . Capitalized Lease Obligation . . . . . . Cash Collateral Account. . . . . . . . . Cash Equivalents . . . . . . . . . . . . Castlewood Agreement . . . . . . . . . . Casualty . . . . . . . . . . . . . . . . Change of Control. . . . . . . . . . . . Change of Control Date; Change of Control Offer; Change of Control Payment Date . . . . . . . . . . . . . Collateral . . . . . . . . . . . . . . . Collateral Asset Disposition . . . . . . Collateral Loss Event. . . . . . . . . . Collateral Properties. . . . . . . . . . Commission . . . . . . . . . . . . . . . Commodities Agreement. . . . . . . . . . Company. . . . . . . . . . . . . . . . . ____________________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of this Indenture. Company Request; Company Order . . . . . Condemnation . . . . . . . . . . . . . . i Page Condemnation Proceeds. . . . . . . . . . Consolidated Amortization Expense. . . . Consolidated Cash Flow Available for Fixed Charges. . . . . . . . . . . . . Consolidated Depreciation Expense. . . . Consolidated Free Cash Flow. . . . . . . Consolidated Income Tax Expense. . . . . Consolidated Interest Coverage Ratio . . Consolidated Interest Expense. . . . . . Consolidated Net Income. . . . . . . . . Consolidated Net Worth . . . . . . . . . Contaminant. . . . . . . . . . . . . . . Continental Guaranty . . . . . . . . . . Continuing Director. . . . . . . . . . . Corporate Trust Office . . . . . . . . . corporation. . . . . . . . . . . . . . . covenant defeasance. . . . . . . . . . . Credit Agreements. . . . . . . . . . . . Currency Agreement . . . . . . . . . . . Custodian. . . . . . . . . . . . . . . . Default. . . . . . . . . . . . . . . . . Defaulted Interest . . . . . . . . . . . defeasance . . . . . . . . . . . . . . . Deficiency Amount. . . . . . . . . . . . Deficiency Date. . . . . . . . . . . . . Deficiency Offer . . . . . . . . . . . . Deficiency Offer Amount. . . . . . . . . Deficiency Payment Date. . . . . . . . . dollars; $ . . . . . . . . . . . . . . . Environment. . . . . . . . . . . . . . . Environmental Laws . . . . . . . . . . . Event of Default . . . . . . . . . . . . Excess Proceeds. . . . . . . . . . . . . Exchange Act . . . . . . . . . . . . . . First Mortgage Notes . . . . . . . . . . First Mortgage Note Offer. . . . . . . . First Mortgage Note Offer Price. . . . . First Mortgage Note Payment Date . . . . Five Year Treasury Rate. . . . . . . . . GAAP . . . . . . . . . . . . . . . . . . Holder; Securityholder . . . . . . . . . Improvements . . . . . . . . . . . . . . Indebetnedness . . . . . . . . . . . . . Indenture. . . . . . . . . . . . . . . . Independent Appraiser. . . . . . . . . . Independent Director . . . . . . . . . . Independent Financial Adviser. . . . . . Initial Interest Rate. . . . . . . . . . Insurance Proceeds . . . . . . . . . . . Interest Payment Date. . . . . . . . . . ii Page Interest Swap Obligations. . . . . . . . Issue Date . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . Legal Requirements . . . . . . . . . . . Lien . . . . . . . . . . . . . . . . . . Maturity . . . . . . . . . . . . . . . . Minimum Subordinated Capital Base. . . . Net Proceeds . . . . . . . . . . . . . . New Credit Agreement . . . . . . . . . . Non-Cash Consideration . . . . . . . . . Officer. . . . . . . . . . . . . . . . . Officer's Certificate. . . . . . . . . . Opinion of Counsel . . . . . . . . . . . Ordinary Course of Business Liens. . . . Outstanding. . . . . . . . . . . . . . . Partial Collateral Loss Event. . . . . . Paying Agent . . . . . . . . . . . . . . Permitted Collateral Liens . . . . . . . Permitted Existing Indebtedness of an Acquired Person. . . . . . . . . . . . Permitted Indebtedness . . . . . . . . . Permitted Liens. . . . . . . . . . . . . Permitted Refinancing Indebtedness . . . Permitted Stone Canada Indebtedness . . . . . . . . . . . . . Permitted Subordinated Indebtedness. . . Permits . . . . . . . . . . . . . . . . Person . . . . . . . . . . . . . . . . . Place of Payment . . . . . . . . . . . . Predecessor First Mortgage Note. . . . . Rate Determination Period. . . . . . . . Receivables. . . . . . . . . . . . . . . Record Date. . . . . . . . . . . . . . . Redeemable Stock . . . . . . . . . . . . Redemption Date. . . . . . . . . . . . . Redemption Price . . . . . . . . . . . . Register; Registrar. . . . . . . . . . . Release. . . . . . . . . . . . . . . . . Remedial Action. . . . . . . . . . . . . Replacement Collateral . . . . . . . . . Reset Date . . . . . . . . . . . . . . . Reset Rate . . . . . . . . . . . . . . . Responsible Officer. . . . . . . . . . . Restoration; Restore . . . . . . . . . . Restricted Payment . . . . . . . . . . . Restricted Subsidiary. . . . . . . . . . Security Documents . . . . . . . . . . . Seminole . . . . . . . . . . . . . . . . Senior Indebtedness. . . . . . . . . . . Seven Year Treasury Rate . . . . . . . . Southshore Agreement . . . . . . . . . . Special Record Date. . . . . . . . . . . Specified Bank Debt. . . . . . . . . . . iii Page Stated Maturity. . . . . . . . . . . . . Stone Canada . . . . . . . . . . . . . . Stone Canada Group . . . . . . . . . . . Stone Southwest. . . . . . . . . . . . . Subordinated Capital Base. . . . . . . . Subordinated Indebtedness. . . . . . . . Subsidiary . . . . . . . . . . . . . . . Ten Year Treasury Rate . . . . . . . . . Trustee. . . . . . . . . . . . . . . . . Trust Indenture Act. . . . . . . . . . . Two Year Treasury Rate . . . . . . . . . U.S. Government Obligations. . . . . . . Unrestricted Subsidiary. . . . . . . . . Vice President . . . . . . . . . . . . . Work . . . . . . . . . . . . . . . . . . Section 102. Compliance Certificates and Opinions . . Section 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . Section 104. Acts of Holders. . . . . . . . . . . . . Section 105 Notices, etc., to Trustee and Company. . Section 106. Notice to Holders; Waiver. . . . . . . . Section 107. Conflict with Trust Indenture Act. . . . Section 108. Effect of Headings and Table of Contents. . . . . . . . . . . Section 109. Successors and Assigns . . . . . . . . . Section 110. Separability Clause. . . . . . . . . . . Section 111. Benefits of Indenture. . . . . . . . . . Section 112. Governing Law. . . . . . . . . . . . . . Section 113. Legal Holidays . . . . . . . . . . . . . Section 114. No Recourse Against Others . . . . . . . Section 115. Incorporation by Reference to Trust Indenture Act . . . . . . . . iv Page ARTICLE TWO First Mortgage Note Forms Section 201. Forms Generally. . . . . . . . . . . . . Section 202. Form of Face of First Mortgage Note. . . Section 203. Form of Reverse of First Mortgage Note . Section 204. Form of Trustee's Certificate of Authentication . . . . . . . . . . . . Section 205. CUSIP Number . . . . . . . . . . . . . . ARTICLE THREE The First Mortgage Notes Section 301. Title and Terms. . . . . . . . . . . . . Section 302. Denominations. . . . . . . . . . . . . . Section 303. Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . Section 304. Temporary First Mortgage Notes . . . . . Section 305. Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . Section 306. Mutilated, Destroyed, Lost and Stolen First Mortgage Notes . . . . . . . . . Section 307. Payment of Interest; Interest Rights Preserved. . . . . . . . . . . . . . . Section 308. Persons Deemed Owners. . . . . . . . . . Section 309. Cancellation . . . . . . . . . . . . . . Section 310. Computation of Interest. . . . . . . . . ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . v Page Section 402. Application of Trust Money . . . . . . . ARTICLE FIVE Remedies Section 501. Events of Default. . . . . . . . . . . . Section 502. Acceleration of Maturity; Rescission and Annulment. . . . . . . . . . . . . Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . Section 504. Trustee May File Proofs of Claim . . . . Section 505. Trustee May Enforce Claims Without Possession of First Mortgage Notes . . Section 506. Application of Money Collected . . . . . Section 507. Limitation on Suits. . . . . . . . . . . Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . . . . . . Section 509. Restoration of Rights and Remedies . . . Section 510. Rights and Remedies Cumulative . . . . . Section 511. Delay or Omission Not Waiver . . . . . . Section 512. Control by Holders . . . . . . . . . . . Section 513. Waiver of Past Defaults. . . . . . . . . Section 514. Undertaking for Costs. . . . . . . . . . Section 515. Waiver of Stay or Extension Laws . . . . ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities of the Trustee . . . . . . . . . . . . Section 602. Notice of Defaults . . . . . . . . . . . vi Page Section 603. Certain Rights of Trustee. . . . . . . . Section 604. Not Responsible for Recitals or Issuance of First Mortgage Notes . . . Section 605. May Hold First Mortgage Notes. . . . . . Section 606. Money Held in Trust. . . . . . . . . . . Section 607. Compensation and Reimbursement . . . . . Section 608. Disqualification; Conflicting Interests. . . . . . . . . . . . . . . Section 609. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . Section 610. Resignation and Removal; Appointment of Successor. . . . . . . . . . . . . . . Section 611. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . Section 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . Section 613. Preferential Collection of Claims Against Company. . . . . . . . . . . . Section 614. Appointment of Authenticating Agent. . . ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . Section 702. Preservation of Information; Communications to Holders. . . . . . . Section 703. Reports by Trustee . . . . . . . . . . . Section 704. Reports by Company . . . . . . . . . . . vii Page ARTICLE EIGHT Consolidation, Merger, Lease, Sale or Transfer Section 801. When Company May Merge, etc. . . . . . . Section 802. First Mortgage Notes to Be Secured in Certain Events . . . . . . . . . . . . Section 803. Officer's Certificate; Opinion of Counsel . . . . . . . . . . Section 804. Successor Corporation Substituted. . . . ARTICLE NINE Supplements and Amendments to the Indenture and Security Documents Section 901. Supplemental Indentures and Amendments to Security Documents Without Consent of Holders. . . . . . . . . . . . . . . . Section 902. Supplemental Indentures and Amendments to Security Documents with Consent of Holders. . . . . . . . . . . . . . . . Section 903. Execution of Supplemental Indentures and Amendments to Security Documents . . . Section 904. Effect of Supplemental Indentures and Amendments . . . . . . . . . . . . Section 905. Conformity with Trust Indenture Act. . . Section 906. Reference in First Mortgage Notes to Supplemental Indentures. . . . . . . . . ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . Section 1002. Maintenance of Office or Agency. . . . . Section 1003. Money for First Mortgage Notes Payments to Be Held in Trust. . . . . . . . . . . viii Page Section 1004. Corporate Existence. . . . . . . . . . . Section 1005. Payment of Taxes and Other Claims. . . . Section 1006. Restriction on Dividends . . . . . . . . Section 1007. Limitation on Future Liens and Guaranties . . . . . . . . . . . . . . Section 1008. Limitation on Future Incurrence of Indebtedness . . . . . . . . . . . . . Section 1009. Limitation on Asset Dispositions . . . . Section 1010. Maintenance of Properties. . . . . . . . Section 1011. Compliance Certificates. . . . . . . . . Section 1012. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . Section 1013. Change of Control. . . . . . . . . . . . Section 1014. Waiver of Certain Covenants. . . . . . . Section 1015. Limitation on Collateral Asset Dispositions and Collateral Loss Events . . . . . . Section 1016. Procedures Concerning First Mortgage Note Offers. . . . . . . . . . . . . . ARTICLE ELEVEN Maintenance of Subordinated Capital Base Section 1101. Maintenance of Subordinated Capital Base . . . . . . . . . . . . . . . . . Section 1102. Alternative Interest Rate Adjustment . . ARTICLE TWELVE Redemption of First Mortgage Notes Section 1201. Election to Redeem; Notice to Trustee. . Section 1202. Selection by Trustee of the First Mortgage Notes to Be Redeemed. . . . . . Section 1203. Notice of Redemption . . . . . . . . . . ix Page Section 1204. Deposit of Redemption Price. . . . . . . Section 1205. First Mortgage Notes Payable on Redemption Date. . . . . . . . . . . . Section 1206. First Mortgage Notes Redeemed in Part. . ARTICLE THIRTEEN Collateral and Security Documents Section 1301. Security Documents . . . . . . . . . . . Section 1302. Recording. . . . . . . . . . . . . . . . Section 1303. Possession of the Collateral and the Cash Collateral Account. . . . . . Section 1304. Suits to Protect the Collateral. . . . . Section 1305. Release upon Termination of the Company's Obligations; Partial Release . . . . . ARTICLE FOURTEEN Cash Collateral Account Section 1401. Cash Collateral Account. . . . . . . . . Section 1402. Terms of Cash Collateral Account . . . . Section 1403. Representations, Warranties and Covenants Specific to the Cash Collateral Account. . . . . . . . . . ARTICLE FIFTEEN Defeasance And Covenant Defeasance Section 1501. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance. . . . . . . . . . Section 1502. Defeasance and Discharge . . . . . . . . Section 1503. Covenant Defeasance. . . . . . . . . . . Section 1504. Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . x Page Section 1505. Deposited Money and Government Obligations to be Held in Trust; Other Miscellaneous Provisions . . . . ARTICLE SIXTEEN Covenants Specific To The Collateral Property Section 1601. Good Title; Authority; Priority; Maintenance of Title; Supplemental Indentures; Registration, Recording and Filing . . . . . . . . . . . . . . Section 1602. Further Documentation to Assure Lien; Fees and Expenses . . . . . . . . . . . . . Section 1603. Impairment of Collateral . . . . . . . . Section 1604. Obligations with Respect to Leases and Material Contracts . . . . . . . . . . Section 1605. Use and Configuration; Maintenance of Collateral Properties. . . . . . . . . Section 1606. Payment of Taxes, Assessments; Compliance with Law. . . . . . . . . . Section 1607. Environmental Matters. . . . . . . . . . Section 1608. Condemnation and Expropriation . . . . . Section 1609. Required Insurance Policies. . . . . . . Section 1610. Withdrawals of Condemnation Proceeds and Insurance Proceeds . . . . . . . . Section 1611. Inspection . . . . . . . . . . . . . . . Section 1612. Failure to Make Certain Payments . . . . Signatures and Seals . . . . . . . . . . . . . . . . . Acknowledgments. . . . . . . . . . . . . . . . . . . . xi INDENTURE, dated as of October __, 1994, between STONE CONTAINER CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at Chicago, Illinois, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a Minnesota banking corporation, as Trustee (herein called the "Trustee") having its Corporate Trust office at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, United States of America. RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its ___% First Mortgage Notes due 2002 (the "First Mortgage Notes"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the First Mortgage Notes, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the First Mortgage Notes by the Holders (as hereinafter defined) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (4) the word "including" (and with correlative meaning "include") means including, without limiting the generality of, any description preceding such term; and (5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Six, are defined in that Article. "1991 Indenture" means the indenture dated as of November 1, 1991 between the Company and The Bank of New York, as Trustee, as amended and supplemented to the date hereof and, unless otherwise indicated, from time to time after the date hereof. References herein to Indebtedness issued under the 1991 Indenture shall include any Indebtedness issued thereunder both before and after the date hereof. "Acquiring Person" means any Person or group (as defined in Section 13(d)(3) of the Exchange Act) who or which, together with all affiliates and associates (as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner of shares of common stock of the Company having more than 50% of the total number of votes that may be cast for the election of directors of the Company; PROVIDED, HOWEVER, that an Acquiring Person shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or any Subsidiary of the Company or any entity holding common stock of the Company for or pursuant to the terms of any such plan, (iv) any descendant of Joseph Stone or the spouse of any such descendant, the estate of any such descendant or the spouse of any such descendant, any trust or other arrangement for the benefit of any such descendant or the spouse of any such descendant or any charitable organization established by any such descendant or the spouse of any such descendant (collectively, the "Stone Family"), or (v) any group which includes any member or members of the Stone Family and a majority of the common stock of the Company held by such group is beneficially owned by such member or members. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of common stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to more than 50% or more of the common stock of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall become the beneficial owner of more than 50% or more of the common stock of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the beneficial owner of any additional shares of common stock of the 2 Company, then such Person shall be deemed to be an "Acquiring Person." "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, transfer, sale-leaseback or other disposition of (i) shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares) or (ii) property or assets of the Company or any Restricted Subsidiary (other than a sale, transfer or other disposition of Receivables and other assets or property described in clause (vi) of the definition of Permitted Liens pursuant to a Receivables sale constituting Indebtedness pursuant to clause (ii) of the definition thereof); PROVIDED, HOWEVER, that an Asset Disposition shall not include any sale, transfer, sale- leaseback or other disposition (a) of Collateral, (b) the shares, property or assets referred to in clause (i) and (ii) by a Restricted Subsidiary to the Company or to another Restricted Subsidiary or by the Company to a Restricted Subsidiary, (c) of defaulted Receivables for collection or (d) in the ordinary course of business, but shall include any sale, transfer, sale-leaseback or other disposition by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary of the shares, property or assets referred to in clauses (i) and (ii). The designation by the Company of a Subsidiary of the Company as an "Unrestricted Subsidiary" shall constitute an Asset Disposition of such Subsidiary's property and assets net of its liabilities, unless the transfer of property and assets to such Subsidiary has previously constituted an Asset Disposition. "Asset Disposition Offer" shall have the meaning provided in Section 1009(c). "Asset Disposition Offer Amount" shall have the meaning provided in Section 1009(a). 3 "Asset Disposition Payment Date" shall have the meaning provided in Section 1009(c). "Authenticating Agent" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate First Mortgage Notes. "Authority" means any federal, state, municipal or local government or quasi-governmental agency or authority. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the board of directors of the Company; PROVIDED, HOWEVER, that when the context refers to actions or resolutions of the Board of Directors, then the term "Board of Directors" shall also mean any duly authorized committee of the Board of Directors of the Company or Officer authorized to act with respect to any particular matter to exercise the power of the Board of Directors of the Company. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or regulation to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, warrants, rights, options or other equivalents (however designated) of capital stock or any other equity interest of such Person, including each class of common stock and preferred stock. "Capitalized Lease Obligation" means, in respect of any Person, an obligation to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles. "Cash Collateral Account" means one or more accounts forming part of the Collateral in the sole dominion and control of the Trustee into which certain funds are required to be deposited by or on behalf of the Company under the terms of this Indenture and the Security Documents. 4 "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the government of the United States of America, or any agency or instrumentality of such government (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System of the United States of America, having combined capital and surplus and undivided profits of not less than $500,000,000.00 and, as applicable, rated at least "A-" by Standard & Poor's Corporation or at least "A3" by Moody's Investors Service, Inc.; (iii) commercial paper with a maturity of 180 days or less issued by a corporation (except an Affiliate of the Company) organized under the laws of any state of the United States or the District of Columbia, and, as applicable, rated at least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's Investors Service, Inc.; and (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America, or issued by any agency thereof, and backed by the full faith and credit of the United States, maturing within one year from the date of acquisition; PROVIDED that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. "Castlewood Agreement" has the meaning specified in clause (2) of the proviso to clause (i) of the definition of Permitted Indebtedness. "Casualty", with respect to any Collateral, shall mean loss of, damage to or destruction of all or any part of such Collateral. "Change of Control" means any event by which (i) an Acquiring Person has become such or (ii) Continuing Directors cease to comprise a majority of the members of the Board of Directors of the Company. "Change of Control Date", "Change of Control Offer" and "Change of Control Payment Date" shall have the respective meanings provided in Section 1013. "Collateral" means the Collateral Properties (and all additions and improvements thereto and replacements thereof), Replacement Collateral, the Cash Collateral Account and all other property that from time to time secures the First Mortgage Notes pursuant to this Indenture and the Security Documents. 5 "Collateral Asset Disposition" means any direct or indirect, voluntary or involuntary sale, conveyance, lease, sale-leaseback, transfer or other disposition, including, without limitation, by means of a merger, consolidation or similar transaction (each, a "Disposition"), or a series of related Dispositions by the Company or any of its Restricted Subsidiaries involving the Collateral (including, without limitation, a sale of, or receipt by the Company of cash or Cash Equivalents in connection with the repayment, exchange, redemption or retirement of, or an extraordinary dividend or return of capital on, any Non-Cash Consideration), other than (a) the sale of machinery, equipment, furniture, apparatus, tools or implements or other similar property that may be defective or may have become worn out or obsolete or no longer used or useful in the operation of the Collateral Properties, the aggregate fair market value of which does not exceed five million dollars ($5,000,000) in any year; (b) the sale of equipment that has been replaced by equipment of substantially equal value in an alteration or improvement made at one of the Collateral Properties; (c) the use by the Trustee of amounts on deposit in the Cash Collateral Account in accordance with Section 1009(g) or Section 1015; and (d) a Disposition permitted pursuant to Article Eight. A Collateral Asset Disposition shall not include a Condemnation or Casualty involving any Collateral. "Collateral Loss Event" means a Condemnation or Casualty involving an actual or constructive total loss or agreed or compromised actual or constructive total loss of all or substantially all of any Collateral Property. "Collateral Properties" means the mills owned by the Company at Uncasville, Connecticut, Ontonogan, Michigan, Missoula, Montana and York, Pennsylvania, as more specifically described in the Security Documents, and all mills, plants and related property constituting Replacement Collateral. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Commodities Agreement" of any Person means any forward contract, option or futures contract or similar agreement or arrangement designed to protect such Person or any of its Subsidiaries from fluctuations in the price of, or shortage of supply of, commodities. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable 6 provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller, an Assistant Controller, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Condemnation" means any taking of the Collateral or any part thereof, in or by condemnation, expropriation or similar proceeding, eminent domain proceedings, seizure or forfeiture, pursuant to any law, general or special, or by reason of the temporary requisition of the use or occupancy of the Collateral or any part thereof, by any Authority. "Condemnation Proceeds" means any award, proceeds, payment or other compensation arising out of a Condemnation. "Consolidated Amortization Expense" means, for any period, the amortization expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Cash Flow Available for Fixed Charges" means, for any period, (a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) Consolidated Income Tax Expense, (iv) Consolidated Depreciation Expense, (v) Consolidated Amortization Expense and (vi) other non-cash items reducing Consolidated Net Income, MINUS (b) non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Depreciation Expense" means, for any period, the depreciation expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Free Cash Flow" means, for any period, (a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Depreciation Expense and (iii) Consolidated Amortization Expense, MINUS (b) the sum of (i) Restricted Payments during such period, (ii) net reduction during such period in Indebtedness of the Company and its Restricted Subsidiaries (other than as a result of Asset Dispositions, Collateral Asset Dispositions or Collateral Loss Events) and (iii) the excess (but not the deficit) of capital expenditures of the Company and its Restricted Subsidiaries for such period not financed pursuant to clause (vi) of the definition of Permitted Indebtedness over Consolidated Depreciation Expense. 7 "Consolidated Income Tax Expense" means, for any period, the aggregate of the income tax expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of (i) Consolidated Cash Flow Available for Fixed Charges to (ii) Consolidated Interest Expense. "Consolidated Interest Expense" means, for any period, the interest expense (including the interest component of all Capitalized Lease Obligations and the earned discount or yield with respect to a Receivables sale constituting Indebtedness) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that, with respect to revolving credit, revolving Receivables purchases or other similar arrangements, the interest expense in respect thereof for any period shall be the PRO FORMA interest expense attributable to all amounts committed during such period under such revolving credit, revolving Receivables purchases or other similar arrangements, whether or not such amounts were actually outstanding during such period, in accordance with the terms thereof, in each case on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, for any period, the net income (or loss) of the Company and its Restricted Subsidiaries on a consolidated basis for such period taken as a single accounting period, determined in accordance with GAAP; PROVIDED, HOWEVER, that: (a) there shall be excluded therefrom (i) the net income (or loss) of any Person (other than the Company) which is not a Restricted Subsidiary, EXCEPT to the extent of the amounts of dividends or other distributions actually paid in cash or tangible property or tangible assets (such property or assets to be valued at their fair market value net of any obligations secured thereby) to the Company or any of its Restricted Subsidiaries by such Person during such period, (ii) EXCEPT to the extent includable pursuant to the foregoing clause (i), the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or that Person's property or assets are acquired by the Company or any of its Restricted Subsidiaries, (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary (other than any restrictions contained in the instruments relating to the 12-1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest) and (iv) the excess (but not the 8 deficit), if any, of (x) any gain which must be treated as an extraordinary item under GAAP or any gain realized upon the sale or other disposition of any asset that is not sold in the ordinary course of business or of any Capital Stock of a Restricted Subsidiary over (y) any loss which must be treated as an extraordinary item under GAAP or any loss realized upon the sale or other disposition of any asset that is not sold in the ordinary course of business or of any Capital Stock of a Restricted Subsidiary; and (b) there shall be included therein the amount of cash realized by the Company or any of its Restricted Subsidiaries during such period on account of dividends or other distributions theretofore paid in other than cash or tangible property or tangible assets by a Person which is not a Restricted Subsidiary. "Consolidated Net Worth" means the amount which at any date of determination, in conformity with GAAP consistently applied, would be set forth under the caption "stockholders' equity" (or any like caption) on a consolidated balance sheet of the Company and its Restricted Subsidiaries, exclusive of amounts attributable to Redeemable Stock (at such time as no Indebtedness is outstanding under the 1991 Indenture, excluding the effects of foreign currency translation adjustments). If the Company has changed one or more of the accounting principles used in the preparation of its financial statements because of a change mandated by the Financial Accounting Standards Board or its successor, then Consolidated Net Worth shall mean the Consolidated Net Worth the Company would have had if the Company had continued to use those generally accepted accounting principles employed on November 1, 1991. "Contaminant" means 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, polychlorinated biphenyls, asbestos, petroleum, including crude oil or any petroleum-derived substance, waste, or breakdown or decomposition product thereof, or any constituent of any such substance or waste. "Continental Guaranty" means the Guaranty dated as of October 7, 1983 between The Continental Group, Inc. and the Company, as amended from time to time. "Continuing Director" means any member of the Board of Directors, while such person is a member of such Board of Directors, who is not an Acquiring Person, or an Affiliate or associate of an Acquiring Person or a representative of an 9 Acquiring Person or of any such Affiliate or associate and who (a) was a member of the Board of Directors prior to November 1, 1991, or (b) subsequently became or becomes a member of such Board of Directors and whose nomination for election or election to such Board of Directors was or is recommended or approved by resolution of a majority of the Continuing Directors or who was or is included as a nominee in a proxy statement of the Company distributed when a majority of such Board of Directors consists of Continuing Directors. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, United States of America. "corporation" includes corporations, associations, companies, business trusts and limited partnerships. "covenant defeasance" has the meaning specified in Section 1503. "Credit Agreements" means (i) the credit agreement, dated as of March 1, 1989, by and among the Company, the financial institutions signatory thereto, Bankers Trust Company, as agent for such financial institutions, and Citibank, N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for such financial institutions, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time, (ii) the credit agreement, dated as of March 1, 1989, by and among Stone Canada, the financial institutions signatory thereto, Bankers Trust Company, as agent for such financial institutions, and Citibank, N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for such financial institutions, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time and (iii) the revolving credit agreement, dated as of March 1, 1989, by and among Stone Canada, the financial institutions signatory thereto, BT Bank of Canada, as administrative agent, The Bank of Nova Scotia, as payment agent, and Bankers Trust Company, as collateral agent, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time. "Currency Agreement" of any Person means any foreign exchange contract, currency swap agreement, forward currency contract, option or futures contract or other similar agreement or arrangement, and any renewal or extension thereof, designed to protect such Person or any of its Subsidiaries against fluctuations in currency values. 10 "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage or time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 307. "defeasance" has the meaning specified in Section 1502. "Deficiency Amount" shall have the meaning provided in Section 1009(b). "Deficiency Date" shall have the meaning provided in Section 1101(a). "Deficiency Offer" shall have the meaning provided in Section 1101(a). "Deficiency Offer Amount" shall have the meaning provided in Section 1101(a). "Deficiency Payment Date" shall have the meaning provided in Section 1101(c)(2). "dollars" and "$" means lawful money of the United States of America. "Environment" means all components of the earth, including, without limitation, air (and all layers of the atmosphere), land (and all surface and subsurface soil, underground spaces and cavities and all land submerged under water) and water (and all surface and underground water), organic and inorganic matter and living organisms, the interacting natural systems that include components referred to above in this definition. "Environmental Laws" means all Legal Requirements imposing liability or standards of conduct for or relating to the protection of the environment, including, without limitation, (i) any actual or potential Release of any Contaminant into the environment; (ii) the required notification of same; (iii) preventive or remedial measures in connection with any event or occurrence referred to in clause (i) of this definition above; (iv) the manufacturing, processing, use, handling, packaging, labeling, sale, storage, recycling, disposal, destruction, incineration, or transportation of any Contaminant, or any solicitation or offer to do any activity referred to in this clause (iv) in connection with any Contaminant. 11 "Event of Default" has the meaning specified in Section 501. "Excess Proceeds" means, on any date, the aggregate amount of Net Proceeds from Collateral Asset Dispositions and Collateral Loss Events consummated or occurring after the date hereof that have not been previously (a) used to purchase or invest in Replacement Collateral or Restore Collateral in accordance with Section 1015 or (b) included as part of a First Mortgage Note Offer, PROVIDED that no such Net Proceeds will constitute Excess Proceeds until the later of six months from the date of consummation of the relevant Collateral Asset Disposition or receipt of the Net Proceeds from the relevant Collateral Loss Event and the expiration of any longer period during which such Net Proceeds may be used to purchase or invest in Replacement Collateral or Restore Collateral to the extent permitted by Section 1015. "Exchange Act" means the Securities and Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder. "First Mortgage Notes" has the meaning stated in the first recital of this Indenture and more particularly means any First Mortgage Note authenticated and delivered under this Indenture. "First Mortgage Note Offer" means an offer, made by the Company pursuant to Section 1016, to repurchase, on a PRO RATA basis up to the amount of Net Sale Proceeds included in such offer, any Outstanding First Mortgage Notes tendered to the Company by any Holders thereof in response to such offer at a purchase price payable in cash equal to the First Mortgage Note Offer Price. "First Mortgage Note Offer Price" has the meaning specified in Section 1016(a). "First Mortgage Note Payment Date" has the meaning specified in Section 1016(b)(3). "Five Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values adjusted to constant maturities of five years, for the Rate Determination Period as determined from the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15(519), "Selected Interest Rates," which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities-Treasury 12 Constant Maturities-5 Year" or (ii) if said Statistical Release H.15(519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15(519) or (iii) if the Federal Reserve Board shall not then be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Five Year Treasury Rate cannot be determined as provided above, then the Five Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less than 57 months nor more than 63 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. "GAAP" means generally accepted accounting principles, as in effect as of November 1, 1991 in the United States of America, set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as is approved by a significant segment of the accounting profession. "Holder" or "Securityholder" means a Person in whose name a First Mortgage Note is registered in the Register. "Improvements" shall have the meaning provided in the applicable Security Document. "Indebtedness" means (without duplication), with respect to any Person, (i) any obligation of such Person to pay the principal of, premium, if any, interest on, penalties, reimbursement or indemnification amounts, fees, expenses or other amounts relating to any indebtedness, and any other liability, contingent or otherwise, of such Person (A) for borrowed money or the deferred purchase price of property or services (excluding trade payables and payables, indebtedness, obligations and other liabilities of the Company to any Restricted Subsidiary or of any Restricted Subsidiary to the Company or to any other Restricted Subsidiary), whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof; (B) for any letter of credit for the account of such Person 13 supporting other obligations of such Person described in this definition; or (C) for the payment of money relating to a Capitalized Lease Obligation; (ii) the unrecovered investment of a purchaser (other than the Company or any of its Restricted Subsidiaries) of such Person's Receivables pursuant to a Receivables purchase facility or otherwise (whether or not characterized as a sale of such Receivables or a secured loan, but excluding any disposition of Receivables in connection with a disposition of fixed assets or a business of such Person and any disposition of defaulted Receivables for collection), together with any obligation of such Person to pay any discount, interest, fees, indemnification amounts, penalties, recourse on account of the uncollectability of Receivables, expenses or other amounts in connection therewith; (iii) any obligation of another Person (other than a Restricted Subsidiary of such Person) of the kind described in the preceding clause (i) or (ii), which the Person has guaranteed or which is otherwise its legal liability; (iv) any obligation of another Person (other than a Restricted Subsidiary of such Person) of the kind described in the preceding clause (i) or (ii) secured by a Lien to which the property or assets of such Person are subject, whether or not the obligation secured thereby shall have been assumed by or shall otherwise be such Person's legal liability; and (v) any renewals, extensions or refundings of any of the foregoing described in any of the preceding clauses (i), (ii), (iii) and (iv). The "amount" or "principal amount" of Indebtedness of any Person at any date, as used herein, shall be the outstanding principal amount at such date of all unconditional Indebtedness, the maximum principal amount of any contingent Indebtedness or the unrecovered purchaser's investment in a sale of Receivables, in each case at such date and without taking into account any premium, interest, penalties, reimbursement or indemnification amounts, fees, expenses or other amounts (other than principal or unrecovered purchaser's investment) in respect thereof; PROVIDED, HOWEVER, that (y) with respect to Indebtedness described in clause (iv) above, the amount of Indebtedness shall be the lesser of (a) the amount of the Indebtedness of such other Person that is secured by the property or assets of such Person and (b) the fair market value of the property or assets securing such Indebtedness, and (z) with respect to revolving credit, revolving Receivables purchases or other similar arrangements, the amount of Indebtedness thereunder shall be the amounts of such commitments as of the date of determination. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Independent Appraiser" means an appraisal firm that is nationally recognized in the United States that (i) does not have any direct financial interest in the Company or any of its 14 Subsidiaries, the Trustee or in any Affiliate of any of them, and (ii) is not connected with the Company or any of its Subsidiaries, the Trustee or any such Affiliate as an employee, associate or Affiliate. "Independent Director" means, in respect of any transaction involving the Company, a director of the Company who is in fact independent of the transaction other than (a) a director who is a party to such transaction, or (b) a director who is an officer, employee, associate or Affiliate (or is related to any of them by blood or marriage unless such director is, in fact, independent of such relation) of a party to such transaction or who is an officer, employee, director or associate of an Affiliate of the Company (other than the Company and its Subsidiaries), or (c) a director who is an officer, employee or associate of the Company or any of its Subsidiaries. "Independent Financial Adviser" means an investment banking firm that is nationally recognized in the United States that (i) does not have any direct financial interest in the Company, any Subsidiary of the Company or the Trustee or in any Affiliate of any of them, and (ii) is not connected with the Company, a Subsidiary of the Company or the Trustee or any such Affiliate as an employee, associate or Affiliate. "Initial Interest Rate", when used with respect to any First Mortgage Note, means the initial rate of interest to be borne by such First Mortgage Note as stated on the face thereof. "Insurance Proceeds" shall mean any payment, proceeds or other amounts received at any time by the Company or any of its Restricted Subsidiaries under any insurance policy as compensation in respect of a Casualty, PROVIDED that proceeds received by the Company from business interruption insurance shall not constitute Insurance Proceeds. "Interest Payment Date" means the Stated Maturity of an installment of interest on any First Mortgage Note. "Interest Swap Obligations" of any Person means the obligations of such Person pursuant to any interest rate swap agreement, interest rate collar agreement, forward rate agreement, interest rate cap insurance, option or futures contract or other similar agreement or arrangement, and any renewal or extension thereof, designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates or to permit the exchange of fixed rate obligations of such Person for floating rate obligations and entered into the ordinary course of financial management of the Company and not for speculative purposes. "Issue Date" means October __, 1994. 15 "Land" shall have the meaning provided in the Security Documents. "Legal Requirements" means any and all present and future judicial and administrative rulings or decisions, and any and all present and future federal, state and local laws, ordinances, rules, regulations, permits and certificates, of any governmental authority, in each case in any way applicable to the Company or the Collateral (or the ownership or use thereof). "Lien" means any mortgage, pledge, security interest, adverse claim (as defined in Section 8.302(2) of the New York Uniform Commercial Code), encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code 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). "Maturity", when used with respect to any First Mortgage Note, means the date on which the principal of such First Mortgage Note or an installment of the principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Minimum Subordinated Capital Base" shall have the meaning provided in Section 1101(a). "Net Proceeds" means those proceeds received by the Company or any of its Restricted Subsidiaries in connection with a Collateral Asset Disposition or Collateral Loss Event consisting of (a) the sum of cash and Cash Equivalents therefrom (including any amounts of Insurance Proceeds, Condemnation Proceeds or other proceeds (other than proceeds from business interruption insurance) received in connection therewith but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the relevant property) MINUS (b) all accounting, legal, title, recording and tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be accrued as a liability under generally accepted accounting principles in effect at the date of the relevant Collateral Asset Disposition or Collateral Loss Event, directly as a consequence of such Collateral Asset Disposition or Collateral Loss Event and net of 16 all payments made on any Indebtedness which is secured by a Permitted Collateral Lien on the Collateral Property subject to such Collateral Asset Disposition or Collateral Loss Event, which must be paid in accordance with the terms of such Permitted Collateral Lien or under applicable law. "New Credit Agreement" means the credit agreement, dated as of October __, 1994, by and among the Company, the financial institutions signatory thereto and Bankers Trust Company, as agent for such financial institutions, as amended, modified, refinanced or extended from time to time. "Non-Cash Consideration" shall have the meaning provided in Section 1015(a)(v). "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer or the Secretary of the Company. "Officer's Certificate" means a certificate signed by an Officer and delivered to the Trustee that shall comply with Sections 102 and 103. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel for the Company, and who shall be reasonably acceptable to the Trustee. "Ordinary Course of Business Liens" means, with respect to any Person, (i) Liens for taxes, assessments, governmental charges, levies or claims not yet delinquent or being contested in good faith; (ii) statutory Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business (including the construction of facilities) or deposits to obtain the release of such Liens; (iii) Liens in connection with workers' compensation, unemployment insurance and other similar legislation; (iv) zoning restrictions, licenses, easements, rights-of-way and other similar charges or encumbrances or restrictions not interfering in any material respect with the business of such Person or any of its Subsidiaries; (v) Liens securing such Person's obligations with respect to commercial letters of credit; 17 (vi) Liens to secure public or statutory obligations of such Person; (vii) judgment and attachment Liens against such Person not giving rise to a Default under the First Mortgage Notes or Liens created by or existing from any litigation or legal proceeding against such Person which is currently being contested in good faith by such Person in appropriate proceedings; (viii) leases or subleases granted to other Persons or existing on property acquired by such Persons; (ix) Liens encumbering property or assets of such Person under construction arising from progress or partial payments; (x) Liens encumbering customary initial deposits and margin accounts and other Liens securing obligations arising out of Interest Swap Obligations, Currency Agreements and Commodities Agreements, in each case of the type typically securing such obligations; PROVIDED, HOWEVER, that if such Interest Swap Obligations, Currency Agreements and Commodities Agreements relate to Indebtedness not incurred in violation of this Indenture, such Lien may also cover the property and assets securing the Indebtedness to which such Interest Swap Obligations, Currency Agreements and Commodities Agreements relate; (xi) Liens encumbering deposits made to secure obligations arising from public, statutory, regulatory, contractual or warranty requirements or obligations of such Person or its Subsidiaries (not constituting Indebtedness); (xii) Liens arising from filing UCC financing statements regarding leases or consignments; (xiii) purchase money Liens securing payables (not constituting Indebtedness) arising from the purchase by such Person or any of its Affiliates of any equipment or goods in the ordinary course of business; (xiv) Liens arising out of consignment or similar arrangements for the sale of goods entered into by such Person or any of its Subsidiaries in the ordinary course of business; (xv) Liens in the ordinary course of business granted by such Person to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, or progress payments, 18 performance and return-of-money bonds and other similar obligations (not constituting Indebtedness); (xvi) Liens in favor of collecting banks constituting a right of set- off, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary on deposit with or in the possession of such bank; and (xvii) Liens in favor of customs and revenue authorities. "Outstanding" means, as of the date of determination, all First Mortgage Notes theretofore authenticated and delivered under this Indenture, EXCEPT: (i) First Mortgage Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) First Mortgage Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such First Mortgage Notes; PROVIDED that, if such First Mortgage Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) First Mortgage Notes which have been paid pursuant to Section 306 or in exchange for or in lieu of which other First Mortgage Notes have been authenticated and delivered pursuant to this Indenture, other than any such First Mortgage Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such First Mortgage Notes are held by a BONA FIDE purchaser in whose hands such First Mortgage Notes are valid obligations of the Company; and (iv) First Mortgage Notes which have been defeased pursuant to Section 1502; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding First Mortgage Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, First Mortgage Notes owned by the Company or any other obligor upon the First Mortgage Notes or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, 19 consent or waiver, only First Mortgage Notes which the Trustee knows to be so owned shall be so disregarded. First Mortgage Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such First Mortgage Notes and that the pledgee is not the Company or any other obligor upon the First Mortgage Notes or any Affiliate of the Company or of such other obligor. "Partial Collateral Loss" shall have the meaning provided in Section 1610(a). "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any First Mortgage Note on behalf of the Company. The Company may act as Paying Agent with respect to any First Mortgage Note issued hereunder. "Permitted Collateral Liens" means: (i) Liens securing the First Mortgage Notes arising under this Indenture or any Security Document; (ii) Liens on a Collateral Property for taxes or governmental assessments, charges, levies or claims not yet delinquent or for which a bond has been posted in an amount equal to the contested amount (including potential interest and penalties thereon) not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof; (iii) statutory Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business of ownership and operation of a Collateral Property relating to obligations either (a) not yet delinquent or (b) being contested in good faith by appropriate proceedings and to which appropriate reserves or other provisions have been made in advance in accordance with GAAP, in each case not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof; (iv) Liens on a Collateral Property in connection with workers' compensation, unemployment insurance and other similar legislation, surety or appeal bonds, performance bonds or other obligations of a like nature (in each case, not constituting Indebtedness) arising in the ordinary course of business with respect to the ownership and operation of such Collateral Property not interfering in any material respect with the ordinary operation of such 20 Collateral Property or materially and adversely affecting the value thereof; (v) zoning restrictions, licenses, easements, servitudes, rights-of- way, title defects, covenants running with the land and other similar charges or encumbrances or restrictions affecting a Collateral Property not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof; and (vi) assignments, leases or subleases at a Collateral Property not interfering in any material respect with the ordinary operation of such Collateral Property or materially and adversely affecting the value thereof. "Permitted Existing Indebtedness of an Acquired Person" means Indebtedness of any Person (which may be assumed or guaranteed by, or may otherwise become the legal liability of, the Company or any Restricted Subsidiary with or into which such Person is merged or consolidated) existing at the time such Person becomes a Restricted Subsidiary, or is merged with or into or consolidated with the Company or one of its Restricted Subsidiaries, so long as such Indebtedness was not created in anticipation of or as a result of such Person becoming a Restricted Subsidiary or of such merger or consolidation, and any Indebtedness to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, such Indebtedness (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that the proceeds of such Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Indebtedness. "Permitted Indebtedness" means (i)(a) any Indebtedness in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility thereunder) as of November 1, 1991 PLUS two hundred fifty million dollars ($250,000,000), and LESS the sum of (x) proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time that is applied to repay Indebtedness under the Credit Agreements and (y) the proceeds from the sale of the First Mortgage Notes and the ____% Senior Notes due 2004 of the Company; (b) any Indebtedness in a principal amount not exceeding 80% of the aggregate face amount of Receivables of the Company and its Restricted Subsidiaries (measured as of the latest date as of which information regarding Receivables is available) and constituting Indebtedness described in clause (ii) of the definition of Indebtedness or outstanding pursuant to any other revolving credit facility; (c) any Indebtedness under the 1991 Indenture issued prior to the date 21 hereof the proceeds of which have been used to repay Indebtedness under the Credit Agreements within five business days after such issuance (and any subsequent Indebtedness the proceeds of which are used to refinance such Indebtedness) and (d) the First Mortgage Notes and the __% Senior Notes due 2004 (and any subsequent Indebtedness the proceeds of which are used to refinance such Indebtedness); PROVIDED, HOWEVER, that: (1) the aggregate principal amount permitted to be outstanding under clause (a) shall be reduced by the aggregate amount of any repayments or prepayments of any Senior Indebtedness (other than the First Mortgage Notes, the __% Senior Notes due 2004 of the Company and Indebtedness issued under the 1991 Indenture) out of the proceeds of Asset Dispositions as described in and required by Section 1009 hereof after November 1, 1991, and, thereafter, shall be increased if, at the end of the fourth consecutive complete fiscal quarter after the initial reduction pursuant to this clause (1) or at any anniversary of the end of such fourth fiscal quarter, the Consolidated Free Cash Flow of the Company for the preceding four quarters has been zero or greater, in which event the amount of the increase shall be the amount by which the consolidated capital expenditures of the Company and its Restricted Subsidiaries not financed by Indebtedness referred to in clause (vi) of this definition during such four-quarter period exceeds Consolidated Depreciation Expense for such period (provided any such increase shall be made only to the extent all such reductions occurring prior to the four fiscal quarters for which such calculation of Consolidated Free Cash Flow has been made exceed all prior increases pursuant to this clause (1)); (2) (A) the aggregate amount permitted to be incurred under clause (a) shall be reduced by the principal amount outstanding under the New Credit Agreement on the date hereof net of subsequent reductions thereof, and (B) the aggregate amount permitted to be incurred under clause (b) shall be reduced by the principal amounts outstanding under each of the Pledge and Administration Agreement, dated as of August 15, 1991, between Stone Financial Corporation and Castlewood Funding Corporation (the "Castlewood Agreement") and the Pledge and Administrative Agreement, dated as of August 18, 1992, between Stone Fin II Receivables Corporation and South Shore Funding Corporation (the "Southshore Agreement") on the date hereof net of subsequent reductions thereof; (3) the Permitted Indebtedness contemplated by this clause (i) may be incurred by the Company and, in the case of Permitted Indebtedness constituting Indebtedness under 22 clause (ii) of the definition of Indebtedness, by the Company or any Restricted Subsidiary; and (4) any Restricted Subsidiary in the Stone Canada Group may incur, assume or guarantee any Indebtedness under clauses(i)(a) and (i)(b) above under any revolving credit facilities of Restricted Subsidiaries in the Stone Canada Group entered into pursuant to this clause (i), for which the aggregate amount committed thereunder does not exceed two hundred million dollars ($200,000,000), to finance the working capital of Restricted Subsidiaries in the Stone Canada Group; (ii) Permitted Subordinated Indebtedness; (iii) Permitted Refinancing Indebtedness; (iv) Permitted Stone Canada Indebtedness; (v) Permitted Existing Indebtedness of an Acquired Person; (vi) Indebtedness incurred for the purpose of acquiring Capital Stock of another Person, or assets comprising a business or line of business or intangible assets or acquiring, constructing or improving fixed assets, in each case related primarily to, or used in connection with, the paper or forest products businesses and which (a) constitutes all or a portion of (but not more than) the purchase price of such Capital Stock or assets (such purchase price including any Indebtedness assumed or repaid in connection with such purchase) or the cost of construction or improvement of such assets (together with any transaction costs relating to such purchase, construction or improvement), (b) is incurred prior to, at the time of or within 270 days after the acquisition, construction or improvement of such assets for the purpose of financing the purchase price of such Capital Stock or assets or the cost of construction or improvement thereof (together with any transaction costs relating to such purchase, construction or improvement) and (c) is the direct or guaranteed obligation of any of (1) the Company, (2) a Restricted Subsidiary formed for the purpose of acquiring such Capital Stock or assets (and having no other material assets other than assets to be used for such acquisition), (3) any Person comprised within the acquired assets or (4) in the case of the construction or improvement of fixed assets, the Restricted Subsidiary which will own such assets, or any extension, renewal or refinancing of such Indebtedness; PROVIDED, HOWEVER, that the amount so extended, renewed or refinanced shall not exceed the principal amount outstanding on the date of such extension, renewal or refinancing, PLUS costs incurred in connection with any such extension, renewal or refinancing (it being understood that any fixed assets included within capital expenditures which 23 increased Indebtedness permitted under clause (i) of the definition of Permitted Indebtedness pursuant to clause (1) to the proviso to such clause may not be financed pursuant to this clause (vi)); (vii) Indebtedness in an aggregate principal amount not to exceed three hundred million dollars ($300,000,000) at any one time outstanding; PROVIDED, HOWEVER, that no Restricted Subsidiary may incur Indebtedness under this clause (vii) to the extent that after the incurrence of such Indebtedness the sum (without duplication) of (x) all Indebtedness of Restricted Subsidiaries incurred under this clause (vii), PLUS (y) Indebtedness and other obligations then secured pursuant to clause (xii) of the definition of Permitted Liens, PLUS (z) the amount of Indebtedness that was not incurred pursuant to clause (i)(b) of this definition and is secured pursuant to clause (vi) of the definition of Permitted Liens shall not exceed three hundred million dollars ($300,000,000); (viii) Indebtedness of the Company in an aggregate principal amount not to exceed two hundred fifty million dollars ($250,000,000) at any one time outstanding; (ix) any Interest Swap Obligations, Currency Agreements or Commodities Agreements relating to Indebtedness that was not incurred in violation of the terms of this Indenture; and (x) Indebtedness to finance an increase in the working capital of any Person or Persons that (a) are organized under the laws of a jurisdiction other than the United States or any subdivision thereof and (b) became Restricted Subsidiaries after November 1, 1991; PROVIDED, HOWEVER, that Indebtedness pursuant to this clause (x) is the obligation of the Company or such Person or Persons. "Permitted Liens" means, with respect to any Person, (i) Ordinary Course of Business Liens; (ii) Liens upon property or assets acquired or constructed by such Person or any Affiliate after November 1, 1991 or constituting improvements after November 1, 1991 to property or assets; PROVIDED, HOWEVER, that (a) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance or refinance, the purchase price (such purchase price including any Indebtedness assumed or repaid in connection with such purchase) or cost of construction of the property or assets subject thereto or of such improvement, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such purchase price or cost (together with any transaction costs relating to such purchase, construction or improvement), (c) such Lien does not extend to or 24 cover any other property or assets other than such property, assets, improvement and any other improvements thereon (or, in the case of any construction or improvement, any substantially unimproved real property on which the property is constructed or the improvement is located) and (d) the occurrence of such Indebtedness is permitted by clause (vi) of the definition of Permitted Indebtedness; (iii) Liens securing obligations with respect to letters of credit (other than commercial letters of credit) to the extent the obligations supported by such letters of credit may be secured without violating Section 1007 hereof; (iv) Liens covering property subject to any Capitalized Lease Obligation or other lease which was not entered into in violation of this Indenture securing the interest of the lessor or other Person under such Capitalized Lease Obligation or other lease; (v) Liens securing obligations to a trustee pursuant to the compensation and indemnity provisions of any indenture (including this Indenture) and Liens securing obligations to a trustee or agent with respect to collateral for any Indebtedness; (vi) Liens created in connection with a disposition of Receivables (whether or not characterized as a sale of such Receivables or a secured loan) not prohibited by this Indenture on (a) such Receivables, (b) collateral securing such Receivables, (c) goods or services, the sale, lease or furnishing of which gave rise to such Receivables, (d) books and records relating to such Receivables, (e) agreements or arrangements supporting or securing such Receivables and (f) incidental property and assets relating to any of the foregoing; PROVIDED, HOWEVER, that the aggregate amount at any time of Indebtedness that is secured pursuant to this clause (vi) and was not incurred pursuant to clause (i)(b) of the definition of Permitted Indebtedness, shall at no time exceed (x) three hundred million dollars ($300,000,000) LESS (y) the sum of Indebtedness and other obligations then secured pursuant to clause (xii) of this definition PLUS the then outstanding principal amount of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the definition of Permitted Indebtedness (and not secured pursuant to this clause (vi) or such clause (xii)); (vii) Liens upon property or assets of the Company created in substitution and exchange for a Permitted Lien upon other property or assets of the Company or any of its Subsidiaries and Liens upon property or assets of any Subsidiaries of the Company created in substitution and exchange for a Permitted Lien upon other property or assets of any Subsidiaries of the Company; PROVIDED, HOWEVER, that (a) such Permitted Lien is released contemporaneously with the creation of 25 the Lien in substitution therefor, (b) the fair market value of the property or assets with respect to the Lien so released is substantially the same as the fair market value of the property or assets subject to the Lien created in substitution therefor and (c) no Lien may be placed on property or assets of the Company or a Restricted Subsidiary in substitution and exchange for a Lien upon property or assets of an Unrestricted Subsidiary; (viii) Liens upon property or assets of a Subsidiary of a Person securing Indebtedness of such Person or of such Subsidiary, which Liens are created in substitution and exchange for an outstanding pledge by such Person of a majority of the Capital Stock of such Subsidiary for the purpose of securing such Indebtedness (or a guaranty in respect thereof); PROVIDED , HOWEVER, that if the property and assets of such Subsidiary to be subjected to such Liens have a fair market value in excess of twenty-five million dollars ($25,000,000), such Subsidiary shall have guaranteed the obligations of the Company in respect of the First Mortgage Notes and, if requested by the Trustee, such Subsidiary shall have waived all its rights of subrogation and reimbursement from the Company in connection with such guaranty; (ix) Liens upon any property or assets (a) existing at the time of acquisition thereof by the Company or any Subsidiary, (b) of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company or existing at the time of a sale or transfer of any such property or assets of such Person to the Company or any Subsidiary of the Company or (c) of a Person existing at the time such Person becomes a Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens shall not have been created in contemplation of such sale, merger, consolidation, transfer or acquisition; (x) Liens existing at November 1, 1991; (xi) (a) Liens upon any property or assets of the Company and its Restricted Subsidiaries securing Indebtedness under the Credit Agreements in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility, but without duplication with respect to commitments for loans the use of proceeds of which is restricted to repayment of other Indebtedness under the Credit Agreements) as of November 1, 1991 LESS (y) the proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time that are or have been applied to repay Indebtedness under the Credit Agreements and PLUS (z) two hundred fifty million dollars ($250,000,000) and (b) Liens securing Indebtedness permitted by clause (i) of the definition of Permitted Indebtedness upon property or assets that as of November 1, 1991 secured the Credit Agreements or the Castlewood Agreement; 26 (xii) Liens securing Indebtedness or other obligations of the Company and its Restricted Subsidiaries not to exceed an aggregate principal amount of three hundred fifty million dollars ($350,000,000) LESS, at any time, the sum of (y) the then outstanding principal amount of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the definition of Permitted Indebtedness (and not secured pursuant to this clause (xii) or clause (vi) of this definition) PLUS (z) the amount of Indebtedness secured pursuant to clause (vi) of this definition and not incurred pursuant to clause (i)(b) of the definition of Permitted Indebtedness; (xiii) Liens upon property or assets of a Subsidiary securing Indebtedness or other obligations owing to the Company; (xiv) Liens on proceeds of any property or assets subject to a Lien permitted by the other clauses of this definition; (xv) any equal and ratable Lien that is granted pursuant to the Continental Guaranty and that relates to a Lien that otherwise constitutes a Permitted Lien; (xvi) Liens on property or assets used to defease Indebtedness that was not incurred in violation of this Indenture; (xvii) Liens on property or assets of any Restricted Subsidiary organized under the laws of a jurisdiction other than the United States or any subdivision thereof securing Indebtedness of such Restricted Subsidiary outstanding as of November 1, 1991 (or any extension, renewal or refinancing thereof); (xviii) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing clauses (i) through (xvii) (covering the same property and assets as such Lien); and (xix) Permitted Collateral Liens; PROVIDED, HOWEVER, that no Lien described in any of the foregoing clauses other than clause (xi)(a) shall encumber the rights of the Company with respect to Indebtedness, obligations and other liabilities owed to the Company by any Restricted Subsidiary or to any Restricted Subsidiary by the Company or another Restricted Subsidiary. "Permitted Refinancing Indebtedness" means Indebtedness of (i) the Company to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, Indebtedness of the Company or any Restricted Subsidiary (or any 27 extension, renewal or refinancing thereof) outstanding at the time of incurrence of such subsequent Indebtedness, or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance, (ii) a Restricted Subsidiary to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, Indebtedness of such Restricted Subsidiary (or any extension, renewal or refinancing thereof) outstanding at the time of incurrence of such subsequent Indebtedness, or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance, or (iii) the Company or a Restricted Subsidiary to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, any then outstanding industrial revenue or development bonds that were outstanding at November 1, 1991 (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with such exchange, refinancing or defeasance; PROVIDED, HOWEVER, that, in the case of (i), (ii) or (iii), the proceeds of such Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Indebtedness; and PROVIDED, FURTHER, that the only Indebtedness which may be subject to exchange, refinancing, redemption, or defeasance pursuant to clause (i), (ii) or (iii) of this definition shall be Indebtedness outstanding as of November 1, 1991 (other than Indebtedness under the Credit Agreements, Subordinated Indebtedness and Indebtedness under lines of credit) or any extension, renewal or refinancing thereof, and Indebtedness that was incurred after November 1, 1991 and before the date hereof (other than solely as Permitted Indebtedness under the 1991 Indenture) or is incurred after the date hereof (other than solely as Permitted Indebtedness). "Permitted Stone Canada Indebtedness" means Indebtedness of the Company or a Restricted Subsidiary in the Stone Canada Group outstanding pursuant to lines of credit in an aggregate principal amount not to exceed one hundred million dollars ($100,000,000), (of which not more than Canadian sixty million dollars (Cn.$60,000,000) may be owed by Restricted Subsidiaries in the Stone Canada Group) at any one time outstanding or pursuant to any extension, renewal or refinancing of such outstanding amount PLUS any costs incurred in connection with any such extension, renewal or refinancing; PROVIDED, HOWEVER, that the aggregate principal amount permitted to be incurred under this definition shall be reduced by the principal amount under lines of credit outstanding on the date hereof net of subsequent repayments or reductions thereof. "Permitted Subordinated Indebtedness" means (i) Subordinated Indebtedness of the Company to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, then outstanding Subordinated Indebtedness of the Company that was outstanding at November 1, 1991 (or any 28 extension, renewal or refinancing thereof), or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that (a) such Subordinated Indebtedness does not have a shorter weighted average life than that then remaining for, or a maturity earlier than that of, the Indebtedness so exchanged, refinanced, redeemed or defeased, EXCEPT that in the case of any exchange, such Subordinated Indebtedness may have a maturity that is earlier (but not more than six months earlier) than that of the Indebtedness so exchanged, PROVIDED that the Subordinated Indebtedness shall have the same or a longer weighted average life than that then remaining for the Indebtedness so exchanged and (b) in the case of refinancings, redemptions or defeasances, the proceeds of such Subordinated Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Subordinated Indebtedness; and (ii) Indebtedness of the Company in an aggregate principal amount not to exceed two hundred fifty million dollars ($250,000,000) at any one time outstanding, so long as such Indebtedness (a) constitutes Subordinated Indebtedness and (b) does not have (A) a weighted average life that is shorter than that then remaining for the (x) the Company's 9 7/8% Senior Notes due 2000 then outstanding or (y) the First Mortgage Notes then Outstanding or (B) a maturity that is earlier than the latest maturity of (x) the Company's 9 7/8% Senior Notes due 2000 then outstanding or (y) the First Mortgage Notes then Outstanding. "Permits" shall have the meaning provided in the Security Documents. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", means The City of New York or any other place or places where the principal of (and premium, if any) and interest on the First Mortgage Notes are payable. "Predecessor First Mortgage Note" of any particular First Mortgage Note means every previous First Mortgage Note evidencing all or a portion of the same debt as that evidenced by such particular First Mortgage Note; and, for the purposes of this definition, any First Mortgage Note authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen First Mortgage Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen First Mortgage Note. "Rate Determination Period" means the four full weeks ending on the seventh Business Day prior to a Reset Date. 29 "Receivables" means receivables, chattel paper, instruments, documents or intangibles evidencing or relating to the right to payment of money. "Record Date" for the interest payable on any Interest Payment Date means the close of business on the ________ __ or ________ __, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. "Redeemable Stock" means, with respect to any Person, any Capital Stock that by its terms or otherwise is required to be redeemed or purchased by such Person or any of its Subsidiaries prior to 30 days after the maturity date of the First Mortgage Notes then Outstanding, or is redeemable or subject to mandatory purchase or similar put rights at the option of the Holder thereof at any time prior to 30 days after the latest maturity date of the First Mortgage Notes then Outstanding, or any security which is convertible or exchangeable into a security which has such provisions. "Redemption Date" means the date fixed for redemption of any First Mortgage Note by or pursuant to this Indenture. "Redemption Price" means the price at which any First Mortgage Note is to be redeemed pursuant to this Indenture. "Register" and "Registrar" have the respective meanings specified in Section 305. "Release" means any releasing, spilling, emitting, emptying, leaking, pumping, pouring, injecting, depositing, disposing, dumping, discharge, dispersing, leaching, escaping, emanating or migrating of any Contaminant in, on, into or onto the environment, including without limitation the movement of any Contaminant through or in the environment, the abandonment or discard of barrels, containers, tanks or other receptacles containing any Contaminant, or any release, emission or discharge other than permitted releases as those terms are defined in any Environmental Laws. "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; or (iii) perform pre-remedial studies and investigations and post- remedial monitoring and care. "Replacement Collateral" means, at any relevant date in connection with a Collateral Asset Disposition, Collateral Loss Event or Condemnation (the proceeds of which are to be used in accordance with the last sentence of Section 1610(d)), assets 30 located in North America to be used in the pulp and paper business as conducted by the Company at such date other than the Collateral, which on such date, (a) constitute similar assets to Collateral disposed of or destroyed (and do not constitute Capital Stock of any Person (except for Non-Cash Consideration to the extent permitted by Section 1015(a) in connection with a Collateral Asset Disposition)), (b) are acquired by the Company at a purchase price which does not exceed the fair market value of such Replacement Collateral (as determined, in the case of each of (a) and (b), in good faith by a majority of the Board of Directors, including a majority of the Independent Directors, on the basis of the written opinion of a qualified Independent Appraiser or Independent Financial Adviser prepared contemporaneously with such purchase) and made available to the Trustee, (c) are free and clear of all Liens other than Permitted Collateral Liens and (d) satisfy the requirements of Section 1015(c). "Reset Date" means a date on which the interest rate on the First Mortgage Notes shall be reset pursuant to Section 1102(a). "Reset Rate" shall have the meaning provided in Section 1102(a). "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any senior trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restoration" or "Restore" means the physical repair, restoration or rebuilding of all or any portion of the Collateral following any Casualty or Condemnation. "Restricted Payment" shall have the meaning provided in Section 1006. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Security Documents" means, collectively, the mortgages, security agreements, financing statements and 31 assignments of rents and each other agreement executed and delivered pursuant to and in connection with any such documents or which otherwise grants a Lien to secure the First Mortgage Notes. "Seminole" means Seminole Kraft Corporation, a Delaware corporation. "Senior Indebtedness" means the principal of, interest on and other amounts due on (i) Indebtedness of the Company, whether outstanding on the date hereof or thereafter created, incurred, assumed or guaranteed by the Company, on or prior to the date hereof in compliance with the 1991 Indenture and thereafter, in compliance with Section 1008 hereof (including, without limitation, the Company's ____% Senior Notes due 2004 and the First Mortgage Notes), (ii) obligations of the Company related to the termination of Interest Swap Obligations, Currency Agreements or Commodities Agreements pertaining to Indebtedness described under clause (i) above and (iii) principal of or interest on the First Mortgage Notes. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include: (a) Subordinated Indebtedness, (b) Indebtedness of or amounts owed by the Company for compensation to employees, for goods or materials purchased in the ordinary course of business or for services or (c) Indebtedness of the Company to a Subsidiary of the Company. "Seven Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values adjusted to constant maturities of seven years, for the Rate Determination Period as determined from the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15 (519), "Selected Interest Rates," which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities--Treasury Constant Maturities--7 Year" or (ii) if said Statistical Release H.15 (519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15 (519) or (iii) if the Federal Reserve Board shall not be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency, or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Seven Year Treasury Rate cannot be determined as provided above, then the Seven Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each 32 Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less than 81 months nor more than 87 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. "Southshore Agreement" has the meaning specified in subparagraph 2(A) of the definition of "Permitted Indebtedness." "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Specified Bank Debt" means (i) all Indebtedness and other monetary obligations owing under the New Credit Agreement or any credit facilities with the banks signatory to the New Credit Agreement (or with banks affiliated with such banks), so long as such facilities are related to the New Credit Agreement; and (ii) Indebtedness owing as of the date hereof or hereafter to banks or other financial institutions under credit facilities which may in the future refinance, refund, replace, supplement or succeed (regardless of any gaps in time) the New Credit Agreements or the facilities referenced in clause (i) hereof (including extensions and restructurings and the inclusion of additional or different or substitute lenders), so long as (a) the aggregate principal amount outstanding (including available amounts under committed revolving credit or similar working capital facilities, letter of credit facilities and other commitments to provide credit) of such Indebtedness is at least equal to the principal of all publicly issued Senior Indebtedness (including without limitation, the First Mortgage Notes, the __% Senior Notes due 2004, and Indebtedness under the 1991 Indenture) then Outstanding (it being understood that Indebtedness described in clause (i) above and issues of Indebtedness having a principal amount lower than set forth in clause (b) below shall not be included in this amount), (b) Indebtedness outstanding under each particular credit facility has a principal amount outstanding (including available amounts under committed revolving credit or similar working capital facilities, letter of credit facilities and other commitments to provide credit) of at least twenty-five million dollars ($25,000,000) and (c) such Indebtedness constitutes Senior Indebtedness. "Stated Maturity," when used with respect to any First Mortgage Note or any installment of principal thereof or interest thereon, means the date specified in such First Mortgage Note as the fixed date on which the principal of such First Mortgage Note or any installment of principal or interest is due and payable. 33 "Stone Canada" means Stone Container (Canada) Inc., a company organized under the Canadian Business Corporations Act. "Stone Canada Group" means Stone Canada and its Restricted Subsidiaries existing as of the date hereof. "Stone Southwest" means Stone Southwest, Inc., a Delaware corporation. "Subordinated Capital Base" means the sum of (i) the Consolidated Net Worth and (ii) to the extent not included in clause (i) above, the amounts (without duplication) relating to (a) the principal amount of Subordinated Indebtedness incurred after November 1, 1991 which is unsecured and which does not have at the time of incurrence of such Subordinated Indebtedness a weighted average life that is shorter than the weighted average life remaining for the then outstanding Indebtedness under the 1991 Indenture issued prior to the date hereof, or if less than $500,000,000 of such Indebtedness is outstanding, the First Mortgage Notes or a maturity that is earlier than the maturity of any of the then Outstanding Indebtedness under this Indenture, or if less than $500,000,000 of such Indebtedness is outstanding, the First Mortgage Notes, (b) redeemable stock of the Company that does not constitute Redeemable Stock and (c) the principal amount of the 11-1/2% Senior Subordinated Notes due September 1, 1999 of the Company and the 12-1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest or any Subordinated Indebtedness exchanged for, or the net proceeds of which are used to refinance, redeem or defease, such 11 1/2% Senior Subordinated Notes due September 1, 1999 (or, at such time as no Indebtedness is outstanding under the 1991 Indenture, such 12 1/8% Subordinated Debentures due September 15, 2001) pursuant to clause (ii) of the definition of "Permitted Indebtedness", that, in the case of clauses (a), (b) and (c), as at the date of determination, in conformity with GAAP consistently applied, would be set forth on the consolidated balance sheet of the Company and its Restricted Subsidiaries. "Subordinated Indebtedness" means Indebtedness of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed by the Company) which, pursuant to the terms of the instrument creating or evidencing the same, is subordinate to the First Mortgage Notes in right of payment or in rights upon liquidation. "Subsidiary" means, with respect to any Person, (i) any corporation of which at least a majority in interest of the outstanding Capital Stock having by the terms thereof voting power under ordinary circumstances to elect directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency, is at the time, directly or indirectly, owned or 34 controlled by such Person, or by one or more other corporations a majority in interest of such stock of which is similarly owned or controlled, or by such Person and one or more other corporations a majority in interest of such stock of which is similarly owned or controlled or (ii) any other Person (other than a corporation) in which such Person, directly or indirectly, at the date of determination thereof, has at least a majority equity ownership interest; PROVIDED, HOWEVER, that, with respect to the Company, for purposes of this Indenture (other than Section 1007(b)), "Subsidiary" shall not include Seminole. "Ten Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values (adjusted to constant maturities of ten years, for the Rate Determination Period as determined from the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15 (519), "Selected Interest Rates." which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities--Treasury Constant Maturities-10 Year" or (ii) if said Statistical Release H.15 (519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15 or (iii) if the Federal Reserve Board shall not be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency, or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Ten Year Treasury Rate cannot be determined as provided above, then the Ten Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less then 117 months nor more than 123 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder. 35 "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was executed; PROVIDED, HOWEVER, that in the event that such Act is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Two Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values adjusted to constant maturities of two years, for the Rate Determination Period as determined from the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15 (519), "Selected Interest Rates," which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities -- Treasury Constant Maturities -- 2 Years" or (ii) if said Statistical Release H.15 (519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15 (519) or (iii) if the Federal Reserve Board shall not be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency, or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Two Year Treasury Rate cannot be determined as provided above, then the Two Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less than 21 months nor more than 27 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. "U.S. Government Obligations" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed by the full faith and credit of the United States of America which, in either case, are not callable or redeemable at the option of the issuer thereof or otherwise subject to prepayment, and shall also include a depository receipt issued by the New York Clearing 36 House bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, PROVIDED that (EXCEPT as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt or from any amount held by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Unrestricted Subsidiary" means a Subsidiary of the Company which has been designated as an "Unrestricted Subsidiary" for purposes of this Indenture by the Company and (i) at least 20% of whose common stock is held by one or more Persons (other than the Company and its Affiliates) which acquired such common stock in a BONA FIDE transaction for fair value and (b) at least 10% of whose total capitalization at the time of designation is in the form of common stock or at least 15% of the fair market value of whose assets at such time shall have been contributed by such Persons. An Unrestricted Subsidiary may be designated to be a Restricted Subsidiary only if, at the time of such designation, all Indebtedness and Liens of such Subsidiary could be incurred under this Indenture. As of the date of this Indenture, the Company's Unrestricted Subsidiaries are Stone-Consolidated Corporation and its Subsidiaries. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Work" shall have the meaning provided in Section 1610(b)(1). SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. 37 Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, 38 statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person or any such instrument or writing may be proved by the affidavit or a witness of such execution or by a certificate of a notary public or other Person authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of First Mortgage Notes shall be proved by the Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any First Mortgage Note shall bind every future Holder of the same First Mortgage Note and the Holder of every First Mortgage Note issued upon the registration of transfer thereof or in exchange therefor in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such First Mortgage Note. (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for 39 the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act (including revocation thereof) may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding First Mortgage Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding First Mortgage Notes shall be computed as of such record date; PROVIDED that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, attention: Secretary or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture or any First Mortgage Note provides for notice to Holders of any event, such notice shall be deemed sufficiently given (unless otherwise herein or in such First Mortgage Note expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any 40 particular Holder shall affect the sufficiency of such notice with respect to other Holders or the validity of the proceedings to which such notice relates. Where this Indenture or any First Mortgage Note provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act (including, without limitation, Sections 310 through 317, inclusive, of the Trust Indenture Act in accordance with Section 318(c) thereof), such required provision shall control, provided that, in cases where a provision of this Indenture requires that opinions or certificates be given by an independent person, such requirement shall apply notwithstanding that Section 314(d) of the Trust Indenture Act might otherwise permit such certificate to be given by an officer or employee of the Company. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or shall be excluded, as the case may be. SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. 41 SECTION 110. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the First Mortgage Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. BENEFITS OF INDENTURE. Nothing in this Indenture, in the Security Documents or in the First Mortgage Notes, express or implied, shall give to any Person, other than the parties hereto or thereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. GOVERNING LAW. This Indenture and the First Mortgage Notes shall be governed by and construed in accordance with the laws (other than the choice of law provisions) of the State of New York. SECTION 113. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any First Mortgage Note, or any other payment date, including, without limitation, any Asset Disposition Payment Date, Change of Control Payment Date or First Mortgage Note Payment Date, shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the First Mortgage Notes) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity or other payment date, PROVIDED that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity or other payment date, as the case may be. SECTION 114. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholders, as such, of the Company shall not have any liability for any obligations of the Company under the First Mortgage Notes, this Indenture or any Security Document, or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder, by accepting a First Mortgage Note, waives and releases all such liability. Such waivers and releases are part of the consideration for the issuance of the First Mortgage Notes. SECTION 115. INCORPORATION BY REFERENCE TO 42 TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture. The following Trust Indenture Act terms incorporated by reference in this Indenture have the following meanings: "indenture securities" means the First Mortgage Notes. "indenture security holder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the First Mortgage Notes, if any. All other Trust Indenture Act terms used or incorporated by reference in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by Commission rule have the meanings assigned to them therein. ARTICLE TWO FIRST MORTGAGE NOTE FORMS SECTION 201. FORMS GENERALLY. The First Mortgage Notes shall be in substantially the form set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the Officers executing such First Mortgage Notes, as evidenced by their execution of the First Mortgage Notes. The definitive First Mortgage Notes shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such First Mortgage Notes, as evidenced by their execution of such First Mortgage Notes. SECTION 202. FORM OF FACE OF FIRST MORTGAGE NOTE. Each First Mortgage Note shall be in substantially the following form: 43 (Face of First Mortgage Note) STONE CONTAINER CORPORATION ___% First Mortgage Notes due 2002 Number R__________ $_____________ STONE CONTAINER CORPORATION, a corporation duly organized and existing under the laws of Delaware (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ______________________ or registered assigns, the principal sum of _____________ DOLLARS on _________ __, 2002, and to pay interest thereon from the date hereof or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ________ __ and ________ __ of each year (commencing ________ __, 1995), at the rate of ___% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this First Mortgage Note (or one or more Predecessor First Mortgage Notes) is registered at the close of business on the Record Date for such interest, which shall be the ________ __ or ________ __ (whether or not a Business Day), as the case may be, preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Record Date and may either be paid to the Person in whose name this First Mortgage Note (or one or more Predecessor First Mortgage Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of First Mortgage Notes not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the First Mortgage Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of (and premium, if any) and interest on this First Mortgage Note will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York in dollars; PROVIDED, HOWEVER, that at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Register. 44 Reference is hereby made to the further provisions of this First Mortgage Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this First Mortgage Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. STONE CONTAINER CORPORATION By:________________________ [CORPORATE SEAL] Attest: ______________________ SECTION 203. FORM OF REVERSE OF FIRST MORTGAGE NOTE. (Reverse of First Mortgage Note) 1. This First Mortgage Note is one of a duly authorized issue of securities of the Company designated as its "_____% First Mortgage Notes due 2002" (herein called the "First Mortgage Notes") limited in aggregate principal amount to $500,000,000.00, issued and to be issued in a single series under, and equally and ratably secured by or pursuant to, an indenture dated as of October __, 1994 (as amended or supplemented from time to time, the "Indenture") between the Company and Norwest Bank Minnesota, National Association, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and each of the Holders and of the terms upon which the First Mortgage Notes are, and are to be, authenticated and delivered. All terms used in this First Mortgage Note which are not defined herein shall have the meanings assigned to them in the Indenture. 2. As provided in the Indenture, the First Mortgage Notes are secured by a pledge of the Collateral. The Trustee shall be entitled to the benefits of the Liens on the Collateral under this Indenture and the Security Documents as the same may be amended from time to time 45 pursuant to the respective provisions thereof and of the Indenture, subject only to Permitted Collateral Liens, for the benefit of each Holder accepting a First Mortgage Note. 3. Interest on this First Mortgage Note will be computed on the basis of a 360-day year of twelve, 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. If any payment of principal of (premium, if any) or installment of interest on this First Mortgage Note is not paid when due then, to the extent that payment of such interest shall be legally enforceable, interest upon such overdue principal (and premium, if any) and installment of interest, shall be paid at the rate set forth on the face of this First Mortgage Note. 4. The First Mortgage Notes are subject to redemption upon not less than 30 days' notice nor more that 45 days' notice by mail, at any time on or after _______, 1999, as a whole or from time to time in part, at the election of the Company, at a Redemption Price equal to _____% of the principal amount thereof if redeemed between ________, 1999, and _______ __, 2000 equal to __% of the principal amount thereof if redeemed between ________, 2000 and ________, 2001 and at 100% of the principal amount thereof if redeemed on or after _______ __, 2001 and prior to the Maturity Date, in each case, plus accrued interest (if any) to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such First Mortgage Notes, or one or more Predecessor First Mortgage Notes, of record at the close on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. 5. Under certain circumstances following a Collateral Asset Disposition, Collateral Loss Event or Asset Disposition, the Company may offer to repurchase First Mortgage Notes at a repurchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, from the Net Proceeds (or Excess Proceeds, as appropriate) of such Collateral Asset Disposition or Collateral Loss Event or proceeds of such Asset Disposition, as provided in, and subject to the terms of, the Indenture. The Company is required to give Holders notice of such right within the period specified in the Indenture. Holders may tender their First Mortgage Notes for repurchase on or prior to the close of business on the applicable payment date. If the aggregate principal amount of First Mortgage Notes surrendered for repurchase exceeds the aggregate principal amount of the applicable offer price, the selection of the First Mortgage Notes 46 to be repurchased shall be made by the Trustee on a PRO RATA basis. 6. EXCEPT as set forth below, as provided in the Indenture, in the event that the Company's Subordinated Capital Base is less than one billion dollars ($1,000,000,000) (the "Minimum Subordinated Capital Base") as at the end of each of any two consecutive fiscal quarters (the last day of the second such fiscal quarter, a "Deficiency Date"), then the Company shall no later than 60 days after the Deficiency Date (105 days if a Deficiency Date is also the end of the Company's fiscal year) make an offer to all Holders to purchase (a "Deficiency Offer") 10% of the principal amount of the First Mortgage Notes originally issued, or such lesser amount as may be Outstanding at the time such Deficiency Offer is made (the "Deficiency Offer Amount"), at a purchase price equal to 100% of principal amount, plus accrued and unpaid interest to the Deficiency Payment Date. Thereafter, semi-annually the Company shall make like Deficiency Offers for the then applicable Deficiency Offer Amount of First Mortgage Notes until the Company's Subordinated Capital Base as at the end of any subsequent fiscal quarter shall be equal to or greater than the Minimum Subordinated Capital Base. Notwithstanding the foregoing, after any specified Deficiency Date, the last day of any subsequent fiscal quarter shall not constitute a Deficiency Date (giving rise to an additional obligation under the first sentence of this paragraph) unless the Company's Subordinated Capital Base was equal to or greater than the Minimum Subordinated Capital Base as at the end of a fiscal quarter that followed such specified Deficiency Date and preceded such subsequent quarter. 7. Notwithstanding the foregoing, as provided in the Indenture, in the event that (1) the making of a Deficiency Offer by the Company or (2) the purchase of First Mortgage Notes by the Company in respect of a Deficiency Offer would constitute a default (with the giving of notice, the passage of time or both) with respect to any Specified Bank Debt at the time outstanding, then, in lieu of the making of a Deficiency Offer in the circumstances set forth above, (i) the interest rate on the First Mortgage Notes shall be reset as of the first day of the second fiscal quarter following the Deficiency Date (the "Reset Date") to a rate per annum (the "Reset Rate") equal to the greater of (x) the Initial Interest Rate and (y) the sum of (A) ____ basis points and (B) the higher of the [ Year Treasury Rate] and the [ Year Treasury Rate], (ii) on the first Interest Payment Date following the Reset Date, the interest rate on the First Mortgage Notes, as reset on the Reset Date, shall increase by fifty (50) basis points, and (iii) the interest rate on the First Mortgage Notes shall further increase by an additional fifty (50) basis points on each succeeding Interest Payment Date, PROVIDED, HOWEVER, that notwithstanding clauses (i), (ii) or (iii) above, in no event shall the interest rate to be borne by the First 47 Mortgage Notes at any time exceed the Initial Interest Rate by more than two hundred (200) basis points. Once the interest rate on the First Mortgage Notes has been reset as set forth above, as provided in the Indenture, if the Company's Subordinated Capital Base is equal to or greater than the Minimum Subordinated Capital Base as of the last day of any fiscal quarter subsequent to the Deficiency Date, interest on the First Mortgage Notes shall return to the Initial Interest Rate effective as of the first day of the second following fiscal quarter. 8. The Indenture also provides that upon the occurrence of a Change of Control, subject to the satisfaction of certain substantial conditions precedent set forth in the Indenture, each Holder shall have the right to require that the Company repurchase such Holder's First Mortgage Notes in whole or in part at a price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of such repurchase. 9. The Indenture contains provisions for (i) defeasance of certain of the Company's obligations (including covenants) under the Indenture and (ii) satisfaction and discharge of the Indenture upon compliance by the Company with certain conditions set forth therein, which provisions apply to this First Mortgage Note. 10. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, make certain Restricted Payments, create and incur Indebtedness, create or suffer to exist certain Liens (other than Permitted Liens). The Indenture imposes limitations on the ability of the Company to merge or consolidate with any other Person or sell, assign, transfer or lease all or substantially all of its properties or assets. All such covenants and limitations are subject to a number of important qualifications and exceptions. The Company must report periodically to the Trustee on compliance with the covenants in the Indenture. 11. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and of the Security Documents and the modification of the rights and obligations of the Company and the rights of the Holders to be affected under the Indenture and the Security Documents at any time by the Company and the Trustee with the consent of the Holders representing at least two-thirds in principal amount of the First Mortgage Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of at least two-thirds in principal amount of the First Mortgage Notes at the time Outstanding, on behalf of the Holders of all First Mortgage Notes, to waive compliance by the Company with certain provisions of the Indenture and the Security Documents, and certain defaults under the Indenture and the Security Documents, and their consequences. 48 Any such consent or waiver by the Holder of this First Mortgage Note shall bind such Holder and all future Holders of this First Mortgage Note and of any First Mortgage Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this First Mortgage Note. 12. No reference herein to the Indenture and no provision of this First Mortgage Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this First Mortgage Note at the times, place and rate, and in the coin or currency, herein prescribed. 13. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this First Mortgage Note is registrable in the Register, upon surrender of this First Mortgage Note for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this First Mortgage Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by the Holder hereof, such Holder's attorney duly authorized in writing, and thereupon one or more new First Mortgage Notes, of authorized denominations and for the same Stated Maturity and aggregate principal amount, will be issued to the designated transferee or transferees. 14. The First Mortgage Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, First Mortgage Notes are exchangeable for a like aggregate principal amount of First Mortgage Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment by the Holder of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 15. Prior to due presentment of this First Mortgage Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this First Mortgage Note is registered as the owner hereof for all purposes, whether or not this First Mortgage Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 16. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under this First Mortgage Note, the Indenture or any Security Document, or for any claim based on, in respect of 49 or by reason of, such obligations or their creation. Each Holder, by accepting a First Mortgage Note, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this First Mortgage Note. 17. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures ("CUSIP"), the Company has caused CUSIP numbers to be printed on the First Mortgage Notes as a convenience to the Holders of the First Mortgage Notes. No representation is made as to the correctness or accuracy of such numbers as printed on the First Mortgage Notes and reliance may be placed only on the other identification numbers printed hereon. ASSIGNMENT FORM To assign this First Mortgage Note, fill in the form below: (I) or (we) assign and transfer this First Mortgage Note to _______________________________________________________________________________ (Insert assignee's social security or tax I.D. number) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ agent to transfer this First Mortgage Note on the books of the Company. The agent may substitute another to act for him or her. Dated: ____________ Your Signature:_________________________________________ (Sign exactly as your name appears on the other side of this First Mortgage Note) 50 Signature Guaranty: ___________________________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this First Mortgage Note purchased by the Company pursuant to Section 1009 ("Asset Disposition Offer"), Section 1013 ("Change of Control Offer"), Section 1016 ("First Mortgage Note Offer") or Section 1101 ("Deficiency Offer") of the Indenture, check the applicable boxes: / / Section 1009: / / Section 1013: / / Section 1016: in whole / / in whole / / in whole / / in part / / in part / / in part / / amount to be amount to be amount to be purchased: $______ purchased: $______ purchased: $______ / / Section 1101: in whole / / in part / / amount to be purchased: $______ Dated:______________ Your Signature:_______________________________________ (Sign exactly as your name appears on the other side of this First Mortgage Note) Signature Guaranty: ___________________________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 51 Social Security Number or Taxpayer Identification Number:_________ SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's certificate of authentication on each First Mortgage Note shall be in substantially the following form: Dated:____________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the ___% First Mortgage Notes due 200_ issued under the Indenture referred to in the within-mentioned Indenture. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ____________________, AS TRUSTEE By:_____________________ AUTHORIZED SIGNATORY SECTION 205. CUSIP NUMBER. The Company in issuing First Mortgage Notes may use a "CUSIP" number, and if so, the Trustee may use the CUSIP number in notices of redemption or exchange as a convenience to Holders; PROVIDED, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed on the notice or on the First Mortgage Notes, and that reliance may be placed only on the other identification numbers printed on the First Mortgage Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP number of the First Mortgage Notes. ARTICLE THREE THE FIRST MORTGAGE NOTES SECTION 301. TITLE AND TERMS. The aggregate principal amount of First Mortgage Notes Outstanding at any time may not exceed the amount of 52 $500,000,000, except for First Mortgage Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other First Mortgage Notes pursuant to Section 304, 305, 306, 906 or 1206. The First Mortgage Notes shall be issued in a single series, known and designated as the "_____% First Mortgage Notes due 2002" of the Company. The Stated Maturity for the payment of principal of the First Mortgage Notes shall be ________ __, 2002, and the First Mortgage Notes shall bear interest at _____% per annum from the Issue Date, or from the most recent Interest Payment Date to which interest has been paid thereon or duly provided for, payable semi-annually on ____ __ and ________ __ of each year (commencing ____ __, 1995) until the principal thereof is paid or duly provided for. The principal of (premium, if any,) and interest on the First Mortgage Notes shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, maintained for such purpose and at any other office or agency maintained by the Company for such purpose; PROVIDED, HOWEVER, that interest may be payable at the option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Register. SECTION 302. DENOMINATIONS. The First Mortgage Notes shall be issuable in fully registered form without coupons in denominations of $1,000 or any integral multiple thereof. SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The First Mortgage Notes shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the First Mortgage Notes may be manual or facsimile. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the First Mortgage Notes. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any First Mortgage Note that has been duly authenticated and delivered by the Trustee. First Mortgage Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such First 53 Mortgage Notes or did not hold such offices at the date of such First Mortgage Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver First Mortgage Notes executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such First Mortgage Notes, and the Trustee in accordance with the Company order shall authenticate and make such First Mortgage Notes available for delivery. Each First Mortgage Note shall be dated the date of its authentication. The First Mortgage Notes may contain such notations, legends or endorsements required by law, stock exchange rule or usage. No First Mortgage Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such First Mortgage Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any First Mortgage Note shall be conclusive evidence, and the only evidence, that such First Mortgage Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. SECTION 304. TEMPORARY FIRST MORTGAGE NOTES. Pending the preparation of definitive First Mortgage Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary First Mortgage Notes which are printed, lithographed, typewritten, mimeographed, or otherwise produced, in any authorized denomination, substantially in the tenor of the definitive First Mortgage Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such First Mortgage Notes may determine, as conclusively evidenced by their execution of such First Mortgage Notes. If temporary First Mortgage Notes are issued, the Company will cause definitive First Mortgage Notes to be prepared without unreasonable delay. After the preparation of definitive First Mortgage Notes, the temporary First Mortgage Notes shall be exchangeable for definitive First Mortgage Notes upon surrender of the temporary First Mortgage Notes at the office or agency of the Company in a Place of Payment, without charge to the Holder. Upon surrender for cancellation of any one or more temporary First Mortgage Notes, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive First Mortgage Notes of authorized denominations and of like tenor. Until so exchanged the temporary First Mortgage Notes shall in all 54 respects be entitled to the same benefits under this Indenture as definitive First Mortgage Notes. SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of First Mortgage Notes and for registration of transfers of First Mortgage Notes. The Trustee is hereby appointed "Registrar" for the purpose of registering First Mortgage Notes and transfers of First Mortgage Notes as herein provided. Upon surrender for registration of transfer of any First Mortgage Note at the office or agency of the Company in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new First Mortgage Notes, of any authorized denomination or denominations and of a like aggregate principal amount, all as requested by the transferor. At the option of the Holder, First Mortgage Notes may be exchanged for other First Mortgage Notes, of any authorized denomination or denominations and of a like aggregate principal amount, upon surrender of the First Mortgage Notes to be exchanged at such office or agency upon the payment of the charges, if any, hereinafter provided. Whenever any of the First Mortgage Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the First Mortgage Notes which the Holder making the exchange is entitled to receive. All First Mortgage Notes issued upon any registration of transfer or exchange of First Mortgage Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the First Mortgage Notes surrendered upon such registration of transfer or exchange. Every First Mortgage Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or such Holder's attorney duly authorized in writing. 55 No service charge shall be made for any registration of transfer or exchange of First Mortgage Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of First Mortgage Notes, other than exchanges pursuant to Section 304, 906 or 1206 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange First Mortgage Notes during a period beginning at the opening of business 15 days before the date of the mailing of a notice of redemption of First Mortgage Notes selected for redemption under Section 1202 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any First Mortgage Note so selected for redemption in whole or in part, except the unredeemed portion of any First Mortgage Note being redeemed in part. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN FIRST MORTGAGE NOTES. If any mutilated First Mortgage Note is surrendered to the Trustee, the Company shall execute and upon its request the Trustee shall authenticate and deliver in exchange therefor a new First Mortgage Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company the Trustee (i) evidence of their satisfaction of the destruction, loss or theft of any First Mortgage Note and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such First Mortgage Note has been acquired by a BONA FIDE purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen First Mortgage Note, a new First Mortgage Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen First Mortgage Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new First Mortgage Note, pay such First Mortgage Note. No service charge shall be made for the issuance of any new First Mortgage Note under this Section, but the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. 56 Every new First Mortgage Note issued pursuant to this Section in lieu of any destroyed, lost or stolen First Mortgage Note shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen First Mortgage Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other First Mortgage Notes duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen First Mortgage Notes. SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Interest on any First Mortgage Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such First Mortgage Note (or one or more Predecessor First Mortgage Notes) is registered at the close of business on the Record Date for such interest. Any interest on any First Mortgage Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest, and any interest payable on Defaulted Interest, to the Persons in whose names the First Mortgage Notes (or their respective Predecessor First Mortgage Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each First Mortgage Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt 57 by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at such Holder's address as it appears in the Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the First Mortgage Notes (or their respective Predecessor First Mortgage Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest, and any interest payable on Defaulted Interest, on the First Mortgage Notes in any other lawful manner not inconsistent with the requirements of any securities exchange on which such First Mortgage Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each First Mortgage Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other First Mortgage Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such Predecessor First Mortgage Note. SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment of a First Mortgage Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such First Mortgage Note is registered as the owner of such First Mortgage Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such First Mortgage Note and for all other purposes whatsoever, whether or not such First Mortgage Note be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. CANCELLATION. All First Mortgage Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company 58 may at any time deliver to the Trustee for cancellation any First Mortgage Note previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all First Mortgage Notes so delivered shall be promptly cancelled by the Trustee. No First Mortgage Notes shall be authenticated in lieu of or in exchange for any of the First Mortgage Notes cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled First Mortgage Notes shall be held by the Trustee and may be destroyed (and, if so destroyed, certification of their destruction shall be delivered to the Company, unless, by a Company Order, the Company shall direct that cancelled First Mortgage Notes be returned to it). SECTION 310. COMPUTATION OF INTEREST. Interest on the First Mortgage Notes shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture and all obligations of the Company under the Security Documents shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of First Mortgage Notes herein expressly provided for), when the Trustee, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either: (A) all Outstanding First Mortgage Notes theretofore authenticated and issued hereunder (other than (i) First Mortgage Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) First Mortgage Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such First Mortgage Notes not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or 59 (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (B)(i), (ii) or (iii) above, has deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such First Mortgage Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of First Mortgage Notes which have become due and payable) or the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Company to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to clause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the First Mortgage Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with or received by the Trustee. 60 ARTICLE FIVE REMEDIES SECTION 501. EVENTS OF DEFAULT. "Event of Default", wherever used herein with respect to First Mortgage Notes, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or to be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) the Company defaults in the payment of interest on any First Mortgage Note when such interest becomes due and payable and the default continues for a period of 30 days; or (2) the Company defaults in the payment of the principal of (or premium, if any, on) any First Mortgage Note when the same becomes due and payable at Maturity, upon redemption (including redemptions under Article Twelve), upon repurchases pursuant to a Deficiency Offer as described in Article Eleven, pursuant to an Asset Disposition Offer as described in Section 1009, pursuant to a Change of Control Offer as described in Section 1013 or pursuant to a First Mortgage Note Offer as described in Section 1016 or otherwise; or (3) the Company fails to observe or perform any of its other covenants, warranties or agreements in the First Mortgage Notes or this Indenture (other than a covenant, agreement or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and the failure to observe or perform continues for the period and after the notice specified in the next to last paragraph of this Section; or (4) (i) the Company fails to pay at final maturity the principal of any Indebtedness of the Company, whether such Indebtedness now exists or shall hereafter be created and an aggregate principal amount of not less than twenty-five million dollars ($25,000,000) (or, if less, the least amount contained in any similar provision of an instrument governing any outstanding Subordinated Indebtedness of the Company, but in no event less than ten millions dollars ($10,000,000)) or more of such Indebtedness is outstanding or (ii) an event or events of default, as defined in any one or more mortgages, indentures, agreements or instruments under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Company, 61 whether such Indebtedness now exists or shall hereafter be created, shall happen and shall result in Indebtedness in an aggregate amount of not less than twenty- five million dollars ($25,000,000) (or, if less, the least amount contained in any similar provision of an instrument governing any outstanding Subordinated Indebtedness of the Company, but in no event less than ten million dollars ($10,000,000)) or more becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, and such acceleration shall not have been rescinded or annulled (or if such acceleration shall not have been rescinded or annulled, such Indebtedness shall not have been discharged), within a period of 15 days after there shall have been given to the Company by the Trustee or to the Company by the Holders of at least 25% in aggregate principal amount of the Outstanding First Mortgage Notes a written notice specifying such event or events of default and requiring the Company to cause such acceleration to be rescinded or annulled or to cause such Indebtedness to be discharged and stating that such notice is a "Notice of Default" hereunder; or (5) one or more judgments or decrees shall be entered against the Company involving, individually or in the aggregate, a liability of twenty- five million dollars ($25,000,000) or more and a sufficient number of such judgments or decrees shall not have been vacated, discharged, satisfied or stayed pending appeal within 30 days from the entry thereof so as to bring the aggregate liability in respect thereof below the twenty-five million dollar ($25,000,000) threshold; or (6) the Company pursuant to or within the meaning of any Bankruptcy Law (i) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (ii) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (iii) consents to or acquiesces in the institution of bankruptcy or insolvency proceedings against it, (iv) applies for, consents to or acquiesces in the appointment of or taking possession by a Custodian of the Company or for any material part of its property, (v) makes a general assignment for the benefit of its creditors or (vi) takes any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing; or (7) (i) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company in an involuntary case or proceeding under any Bankruptcy Law which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or 62 composition in respect of the Company, (B) appoint a Custodian of the Company or for any material part of its property or (C) order the winding-up or liquidation of its affairs, and such judgment, decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (ii) any bankruptcy or insolvency petition or application is filed, or any bankruptcy or insolvency proceeding is commenced against the Company and such petition, application or proceeding is not dismissed within 90 days; or (iii) any warrant of attachment is issued against any material portion of the property of the Company which is not released within 90 days of service; or (8) the failure to observe or perform any covenant or agreement set forth in Section 1015 and continuance of such failure for 30 days; or (9)(i) the failure to observe or perform any of the covenants, agreements or warranties contained or incorporated by reference in any Security Document and continuance of such failure for 30 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders representing at least 25% of the principal amount of Outstanding First Mortgage Notes, (ii) for any reason, other than the satisfaction in full and discharge of all obligations secured thereby, to the extent permitted by this Indenture or any Security Document, any Security Document ceases to be in full force and effect, any Lien intended to be created thereby ceases to be or is not a valid and perfected Lien having the ranking or priority contemplated thereby or any Person (other than the Trustee and the Holders or the Company) obtains any interest in the Collateral or any part thereof, except for Permitted Collateral Liens and continuance of such condition for 30 days, or (iii) the Company asserts in writing that any Security Document has ceased to be or is not in full force and effect, in contravention of this Indenture. A Default under clause (3) above is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding First Mortgage Notes notify the Company of the Default and the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." When a Default under clause (3) above is cured within such 60-day period, it ceases. The Company shall file with the Trustee written notice of the occurrence of any Default or Event of Default within five (5) business days of an Officer becoming aware of any such Default or Event of Default. 63 SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default with respect to First Mortgage Notes (other than an Event of Default specified in clause (6) or (7) of Section 501) occurs and is continuing, the Trustee by notice in writing to the Company, or the Holders of at least 25% in aggregate principal amount of the Outstanding First Mortgage Notes by notice in writing to the Company and the Trustee, may declare the unpaid principal of and accrued interest to the date of acceleration on all the Outstanding First Mortgage Notes to be due and payable immediately and, upon any such declaration, the Outstanding First Mortgage Notes shall become and be immediately due and payable. If an Event of Default specified in clause (6) or (7) of Section 501 occurs, all unpaid principal (without premium) of and accrued interest on the Outstanding First Mortgage Notes shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any First Mortgage Note. Upon payment of all such principal and interest, all of the Company's obligations under the First Mortgage Notes and (upon payment of the First Mortgage Notes) this Indenture shall terminate, EXCEPT obligations under Section 607. The Holders representing at least two-thirds in principal amount of the Outstanding First Mortgage Notes by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal and interest of the First Mortgage Notes that has become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal that has become due otherwise than by such declaration of acceleration have been paid, (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iv) all payments due to the Trustee and any predecessor Trustee under Section 607 have been made. SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if: (1) default is made in the payment of any interest on any First Mortgage Note when such interest becomes due and payable and such default continues for a period of 30 days, or 64 (2) default is made in the payment of the principal of (or premium, if any, on) any First Mortgage Note at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such First Mortgage Notes, the whole amount then due and payable on such First Mortgage Notes for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such First Mortgage Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such First Mortgage Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such First Mortgage Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, either for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted therein, or to secure any other proper remedy. SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the First Mortgage Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the First Mortgage Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, 65 (1) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the First Mortgage Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceedings, and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the First Mortgage Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF FIRST MORTGAGE NOTES. All rights of action and claims under this Indenture or the First Mortgage Notes may be prosecuted and enforced by the Trustee without the possession of any of the First Mortgage Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders in respect of which such judgment has been recovered. SECTION 506. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or 66 interest, upon presentation of the First Mortgage Notes in respect of which moneys have been collected and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 607; Second: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the First Mortgage Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such First Mortgage Notes for principal (and premium, if any) and interest, respectively; and Third: To the Company. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 506. At least fifteen (15) days before such record date, the Trustee shall mail to each Holder and the Company a notice that states the record date, the payment date and the amount to be paid. SECTION 507. LIMITATION ON SUITS. No Holder shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding First Mortgage Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day 67 period by the Holders of a majority in principal amount of the Outstanding First Mortgage Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision of this Indenture, the Holder of any First Mortgage Note shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such First Mortgage Note on the Stated Maturity or Maturities expressed in such First Mortgage Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement of mutilated, destroyed, lost or stolen First Mortgage Notes in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion of employment of any other appropriate right or remedy. 68 SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any of the First Mortgage Notes to exercise any right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding First Mortgage Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the First Mortgage Notes, PROVIDED that: (1) such direction shall not be in conflict with any rule of law or with this Indenture; (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and (3) subject to Section 601, the Trustee need not take any action which might involve the Trustee in personal liability or be unduly prejudicial to the Holders not joining therein. SECTION 513. WAIVER OF PAST DEFAULTS. Holders representing not less than at least two-thirds in principal amount of the Outstanding First Mortgage Notes may by written notice to the Trustee on behalf of the Holders of all First Mortgage Notes waive any Default or Event of Default and its consequences, except a Default or Event of Default (1) in respect of the payment of the principal of (or premium, if any) or interest on any First Mortgage Note, or (2) in respect of a covenant or other provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding First Mortgage Note affected. Upon any such waiver, such Default or Event of Default shall cease to exist and shall be deemed to have been cured, for every purpose of this Indenture and the First Mortgage Notes; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 69 SECTION 514. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any First Mortgage Note by such Holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding First Mortgage Notes, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any First Mortgage Note on or after the Stated Maturity or Maturities expressed in such First Mortgage Note (or, in the case of redemption, on or after the Redemption Date). SECTION 515. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. (a) Except during the continuance of an Event of Default, the Trustee's duties and responsibilities under this Indenture shall be governed by Section 315(a) of the Trust Indenture Act. (b) In case an Event of Default has occurred and is continuing, and is known to the Trustee, the Trustee shall 70 exercise the rights and power vested in it by this Indenture and the Security Documents, and shall use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (c) None of the provisions of Section 315(d) of the Trust Indenture Act shall be excluded from this Indenture. SECTION 602. NOTICE OF DEFAULTS. Within 30 days after the occurrence of any Default or Event of Default, the Trustee shall give to all Holders, as their names and addresses appear in the Register, notice of such Default or Event of Default known to the Trustee, unless such Default or Event of Default shall have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a Default or Event of Default in the payment of the principal of (or premium, if any) or interest on any First Mortgage Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of the Trust Indenture Act: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder or under the Security Documents, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel 71 shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder or under the Security Documents in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or under any Security Document at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities (including any liabilities arising under Environmental Laws) which might be incurred by it in compliance with such request or direction; (6) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval or other paper or document, or the books and records of the Company, unless requested in writing to do so by the Holders of a majority in principal amount of the Outstanding First Mortgage Notes; PROVIDED, HOWEVER, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is not, in the opinion of the Trustee, reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding; the reasonable expense of every such investigation shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder or under the Security Documents either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (8) the Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or under any Security Document, or in the exercise of its rights or power, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 72 SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF FIRST MORTGAGE NOTES. The recitals contained herein and in the First Mortgage Notes, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, the Security Documents or of the First Mortgage Notes. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of First Mortgage Notes or the proceeds thereof. SECTION 605. MAY HOLD FIRST MORTGAGE NOTES. The Trustee, any Authenticating Agent, any Paying Agent, any Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of First Mortgage Notes and, subject to Section 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Registrar or such other agent. SECTION 606. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder (including amounts held by the Trustee as Paying Agent) need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed upon in writing with the Company. SECTION 607. COMPENSATION AND REIMBURSEMENT. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and 73 (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability, damage, claim or expense, including taxes (other than taxes based upon or determined or measured by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a claim prior to the First Mortgage Notes upon all property and funds held or collected by the Trustee hereunder, except funds held in trust for payment of principal (and premium, if any) or interest on the First Mortgage Notes. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(6) or Section 501(7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section 607 shall survive this Indenture. SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS. The Trustee shall be disqualified only where such disqualification is required by Section 310(b) of the Trust Indenture Act. SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act having a combined capital and surplus of at least $50,000,000 subject to supervision or examination by federal or State authority, to the extent there is such an institution eligible and willing to serve. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Affiliate of the Company may serve as Trustee. If at any time the Trustee shall cease to be eligible in accordance with the 74 provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611 and execution of supplemental Security Documents if required. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding First Mortgage Notes, delivered to the Trustee and to the Company. (d) If at any time: (i) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder who has been a BONA FIDE Holder for at least six months; or (ii) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any Holder who has been a BONA FIDE Holder for at least six months; or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (A) the Company by a Board Resolution may remove the Trustee, or (B) subject to Section 315(e) of the Trust Indenture Act, any Holder who has been a BONA FIDE Holder for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee, subject to any stay of such removal entered in accordance with Section 310(b) of the Trust Indenture Act. 75 (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding First Mortgage Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a BONA FIDE Holder for at least six months may, subject to Section 514 hereof, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Trustee, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, including all rights, powers and trusts under each of the Security Documents, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject to its Lien, if any, provided for in Section 607. (b) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and 76 certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in Subsection (a) above. (c) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article and the Trust Indenture Act. SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversation or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, PROVIDED such corporation shall be otherwise qualified and eligible under this Article and the Trust Indenture Act, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any First Mortgage Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the First Mortgage Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such First Mortgage Notes. SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. At any time when any of the First Mortgage Notes remain Outstanding the Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of, and subject to the direction of, the Trustee to authenticate First Mortgage Notes issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and First Mortgage Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of First Mortgage Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an 77 Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted to with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders, as their names and addresses appear in the Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. 78 The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment is made pursuant to this Section, the First Mortgage Notes may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: Dated: ________________________ This is one of the ____% First Mortgage Notes due 20__ issued under the Indenture referred to in the within-mentioned Indenture. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ____________________ AS TRUSTEE By:____________________________ AS AUTHENTICATING AGENT By:____________________________ AUTHORIZED SIGNATORY ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee: (1) semi-annually, not later than January 1 and July 1 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of the preceding December 15 or June 15, as the case may be, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a 79 date not more than 15 days prior to the time such list is furnished; PROVIDED, HOWEVER, that so long as the Trustee is the Registrar, no such list shall be required to be furnished. SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) Holders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Holders with respect to their rights under this Indenture or under the First Mortgage Notes, and the Trustee shall comply with its obligations under such Section 312(b). (c) Each Holder of First Mortgage Notes, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b). SECTION 703. REPORTS BY TRUSTEE. (a) Within 60 days after May 15 of each year commencing with the year 1995, the Trustee shall transmit by mail to all Holders as provided in Section 313(c) of the Trust Indenture Act, a brief report dated as of such May 15, if required by and in compliance with Section 313(a) of the Trust Indenture Act. If required by Section 313(a) of the Trust Indenture Act, such report shall describe any release, or release and substitution, of Collateral subject to the Lien of any applicable Security Document (and consideration therefor, if any) which has not previously been reported. (b) The Trustee shall comply with Sections 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the First Mortgage Notes are listed, 80 with the Commission and with the Company. The Company will notify the Trustee when any of the First Mortgage Notes are listed on any stock exchange. SECTION 704. REPORTS BY COMPANY. The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, within the earlier of (a) the same 15 days after the Company would have been required to file with the Commission under the preceding clause and (b) the date which it is required to so file under the 1991 Indenture so long as any Indebtedness is outstanding thereunder, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; (3) transmit by mail to all Holders, as their names and addresses appear in the Register, (a) concurrently with furnishing the same to its stockholders, the Company's annual report to stockholders, containing certified financial statements, and any other financial reports which the Company generally furnishes to its stockholders, and (b) within 30 days after the filing thereof with the Trustee, such summaries of any other information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission; and 81 (4) furnish to the Trustee, on or before May 1 of each year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. Such certificate need not comply with Section 102. ARTICLE EIGHT CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER SECTION 801. WHEN COMPANY MAY MERGE, ETC. The Company shall not consolidate with, or merge with or into any other corporation (whether or not the Company shall be the surviving corporation), or sell, assign, transfer or lease all or substantially all of its properties and assets as an entirety or substantially as an entirety to any Person or group of affiliated Persons, in one transaction or a series of related transactions, unless: (1) either the Company shall be the continuing Person or the Person (if other than the Company) formed by such consolidation or with which or into which the Company is merged or the Person (or group of affiliated Persons) to which all or substantially all the properties and assets of the Company as an entirety are sold, assigned, transferred or leased is a corporation (or constitute corporations) organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and expressly assumes, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the First Mortgage Notes, this Indenture and the Security Documents, including the Trustee's uninterrupted Lien (subject to Permitted Collateral Liens) in respect of the Collateral; (2) immediately before and after giving effect to such transaction or series of related transactions, no Event of Default, and no Default, shall have occurred and be continuing; (3) immediately after giving effect to such transaction or series of related transactions on a PRO FORMA basis, but prior to any purchase accounting adjustments resulting from the transaction or series of related transactions, the Consolidated Net Worth of the Company (or 82 of the surviving, consolidated or transferee entity if the Company is not continuing, treating such entity as the Company for purposes of determining Consolidated Net Worth) shall be at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of related transactions; and (4) immediately after giving effect to such transaction or series of related transactions, the Company (or the surviving, consolidated or transferee entity if the Company is not continuing, but treating such entity as the Company for purposes of making such determination) would be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) immediately prior to such transaction or series of related transactions under Section 1008; PROVIDED, HOWEVER,that this Subsection (4) shall be inapplicable if (a) such transaction or series of related transactions would result in the occurrence of a Change of Control or (b) immediately prior to giving effect to such transaction or series of related transactions, the Company would not be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) under Section 1008, and immediately after giving effect to such transaction or series of related transactions on a PRO FORMA basis, but prior to any purchase accounting adjustments resulting from the transaction or series of related transactions, the Consolidated Interest Coverage Ratio of the Company (or the surviving, consolidated or transferee entity if the Company is not continuing, treating such entity as the Company for purposes of determining Consolidated Interest Coverage Ratio) shall be at least equal to the Consolidated Interest Coverage Ratio of the Company immediately before such transaction or series of related transactions; and PROVIDED, FURTHER, that notwithstanding the foregoing, if this Subsection (4) in inapplicable by reason of clause (b) of the first proviso to this Subsection, and at the date three months after the consummation of such transaction or series of related transactions the rating ascribed to the First Mortgage Notes by Standard & Poor's Corporation or Moody's Investors Service, Inc. shall be lower than the rating ascribed to the First Mortgage Notes prior to the public announcement of such transaction or series of related transactions, then the Company shall make an offer for the First Mortgage Notes at the same price and following the same procedures and obligations as required with respect to a Change of Control pursuant to Section 1013 (as if such date three months after the giving effect to such transaction or series of related transactions were the Change of Control Date). 83 SECTION 802. FIRST MORTGAGE NOTES TO BE SECURED IN CERTAIN EVENTS. If, upon any consolidation or merger, or upon any sale, assignment, transfer or lease as provided in Section 801, any material property of the Company or any Restricted Subsidiary or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, owned immediately prior thereto, would thereupon become subject to any Lien securing any indebtedness for borrowed money of, or guaranteed by, such other corporation or Person (other than any Permitted Lien), the Company, prior to such consolidation, merger, sale, assignment, transfer or lease, will by indenture supplemental hereto secure the due and punctual payment of the principal of, and premium, if any, and interest on the First Mortgage Notes then Outstanding (together with, if the Company shall so determine, any other Indebtedness of, or guaranteed by, the Company or any Restricted Subsidiary and then existing or thereafter created) equally and ratably with (or, at the option of the Company, prior to) the Indebtedness secured by such Lien. SECTION 803. OFFICER'S CERTIFICATE; OPINION OF COUNSEL. The Company shall deliver to the Trustee prior to the proposed transaction(s) covered by Section 801 an Officer's Certificate and an Opinion of Counsel, each stating that the transaction(s) and such supplemental indenture comply with this Indenture and that all conditions precedent to the consummation of the transaction(s) under this Indenture have been met. SECTION 804. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation by the Company with or merger by the Company into any other corporation or any lease, sale, assignment or transfer of all or substantially all of the property and assets of the Company in accordance with Section 801, the successor corporation formed by such consolidation or into which the Company is merged or the successor corporation or affiliated group of corporations to which such lease, sale, assignment or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture or under the Security Documents with the same effect as if such successor corporation or corporations had been named as the Company herein or under the Security Documents, and thereafter, except in the case of a lease, the predecessor corporation or corporations shall be relieved of all obligations and covenants under this Indenture, the First Mortgage Notes and the Security Documents and in the event of such conveyance or transfer, except in the case of a lease, any such predecessor corporation may be dissolved and liquidated. 84 ARTICLE NINE SUPPLEMENTS AND AMENDMENTS TO THE INDENTURE AND SECURITY DOCUMENTS SECTION 901. SUPPLEMENTAL INDENTURES AND AMENDMENTS TO SECURITY DOCUMENTS WITHOUT CONSENT OF HOLDERS. Without notice to or the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may, subject to Section 1003, enter into one or more indentures supplemental hereto or one or more amendments to the Security Documents, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the First Mortgage Notes or the Security Documents, as the case may be; or (2) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein or in the First Mortgage Notes or the Security Documents conferred upon the Company; or (3) to add any additional Events of Default; or (4) to further secure the First Mortgage Notes; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (6) to cure any ambiguity, defect or inconsistency or to correct or supplement any provision herein or in any Security Document which may be inconsistent with any other provision herein or therein; or (7) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; or (8) to make any change that does not materially adversely affect the interests of the Holders. Upon request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture or amendment to the Security Documents, and upon receipt by the Trustee of the documents described in (and subject to the last sentence of) Section 903, the Trustee shall join with the Company in the execution of any supplemental indenture or amendment to the Security Documents authorized or permitted by 85 the terms of this Indenture or the Security Documents, respectively. SECTION 902. SUPPLEMENTAL INDENTURES AND AMENDMENTS TO SECURITY DOCUMENTS WITH CONSENT OF HOLDERS With the written consent of Holders representing at least two-thirds in principal amount of the Outstanding First Mortgage Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee shall, subject to Section 903, enter into an indenture or indentures supplemental hereto or one or more amendments to any Security Document, to which it is a party (or authorize one or more amendments to any other Security Document) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any Security Document or of modifying in any manner the rights of the Holders under this Indenture or the rights or obligations of the parties to any Security Document or taking any actions pursuant thereto; PROVIDED, HOWEVER, that no such supplemental indenture or amendment in respect of any Security Document shall, without the consent of the Holder of each Outstanding First Mortgage Note, (1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any First Mortgage Note, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof or extend the time for payment thereof, or change the Place of Payment where, or the coin or currency in which, any First Mortgage Note or any premium or the interest thereon is payable, or impair the right to institute a suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding First Mortgage Notes, the consent of whose Holders is required for any such supplemental indenture or amendment, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or Defaults or Events of Default hereunder and their consequences provided for in this Indenture, or (3) change the repurchase provisions (including those contained in Article Eleven, Section 1009, Section 1013, 1015 and 1016) or redemption provisions (including those contained in Article Twelve) hereof in a manner adverse to such Holder, or 86 (4) subordinate in right of payment, or otherwise subordinate, the First Mortgage Notes to any other Indebtedness; or (5) modify any of the provisions of this Section, Section 513 or Section 1014, except to increase any such percentage or to provide that certain other provisions of this Indenture or the Security Documents cannot be modified or waived without the consent of the Holder of each Outstanding First Mortgage Note affected thereby, PROVIDED, HOWEVER, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 1014, or the deletion of this proviso, in accordance with the requirements of Sections 611(b) and 901(7); or (6) permit the creation of any Lien on the Collateral or any part thereof (other than Permitted Collateral Liens and Liens in favor of the Trustee) or terminate the Lien of any Security Document as to any part of the Collateral, except as permitted by this Indenture or any Security Document. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture or amendment to any Security Document, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES AND AMENDMENTS TO SECURITY DOCUMENTS. The Trustee shall sign any supplemental indenture or any amendment to any Security Document authorized pursuant to this Article, subject to the last sentence of this Section 903. In executing, or accepting the additional trusts created by, any supplemental indenture or any amendment to any Security Document permitted by this Article or the modifications thereby of the trusts created by this Indenture and the Security Documents, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture or amendment is authorized or permitted by this Indenture or the Security Documents, respectively. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture or amendment which affects the Trustee's own rights, duties or immunities under this Indenture and the Security Documents or otherwise. SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES AND AMENDMENTS TO SECURITY DOCUMENTS. 87 Upon the execution of any supplemental indenture or any amendment to any Security Document under this Article, this Indenture or such Security Document, as the case may be, shall be modified in accordance therewith, and such supplemental indenture or amendment shall form a part of this Indenture for all purposes; and every Holder of First Mortgage Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. REFERENCE IN FIRST MORTGAGE NOTES TO SUPPLEMENTAL INDENTURES. First Mortgage Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new First Mortgage Notes so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding First Mortgage Notes. ARTICLE TEN COVENANTS SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of (and premium, if any) and interest on the First Mortgage Notes in accordance with the terms of the First Mortgage Notes and this Indenture. An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds by 12:00 noon New York City time on that date dollars designated for and sufficient to pay the installment and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in the Place of Payment, an office or agency where First Mortgage Notes may be presented or surrendered for payment, where First Mortgage Notes may be 88 surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the First Mortgage Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the First Mortgage Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Place of Payment for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. MONEY FOR FIRST MORTGAGE NOTES PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent with respect to the First Mortgage Notes, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the First Mortgage Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents with respect to the First Mortgage Notes, it will, prior to each due date of the principal of (and premium, if any) or interest on any of the First Mortgage Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure to so act. The Company will cause each Paying Agent for the First Mortgage Notes (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree 89 with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on First Mortgage Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the First Mortgage Notes) in the making of any payment of principal (and premium, if any) or interest on the First Mortgage Notes; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any First Mortgage Note and remaining unclaimed for one year after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such First Mortgage Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York, New York notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. CORPORATE EXISTENCE. 90 Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each of its Restricted Subsidiaries and the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; PROVIDED, HOWEVER, that (a) the Company shall not be required to preserve any such right, license or franchise or the corporate existence of any of its Restricted Subsidiaries if the Board of Directors, or the board of directors of the Restricted Subsidiary concerned, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any of its Restricted Subsidiaries and that the loss thereof is not materially disadvantageous to the Holders and (b) nothing herein contained shall prevent any Restricted Subsidiary of the Company from liquidating or dissolving, or merging into, or consolidating with the Company (PROVIDED that the Company shall be the continuing or surviving corporation) or with any one or more Restricted Subsidiaries of the Company if the Board of Directors or the board of directors of the Restricted Subsidiary concerned, as the case may be, shall so determine. SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS. Without prejudice to the provisions of Article Sixteen of this Indenture and the provisions of the applicable Security Documents, the Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Restricted Subsidiary or upon the income, profits or property of the Company or any Restricted Subsidiary and (2) all lawful claims against the Company or any Restricted Subsidiary for labor, materials and supplies which in the case of either clause (1) or (2) of this Section, if unpaid, might by law become a material Lien upon the property of the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that neither the Company nor any Restricted Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1006. RESTRICTION ON DIVIDENDS. The Company will not, and will not permit any Subsidiary of the Company to, directly or indirectly, (1) declare or pay any dividend or make any distribution, in cash or otherwise, in respect of any shares of Capital Stock of the Company or to the holders of Capital Stock of the Company as such (other than dividends or distributions payable in shares of Capital Stock of the Company (other than Redeemable Stock)) or (2) purchase, redeem or otherwise acquire or retire for value any 91 of the Capital Stock of the Company or options, warrants or other rights to acquire any such Capital Stock, other than acquisitions of Capital Stock or such options, warrants or other rights by any Subsidiary of the Company from the Company (any such transaction included in clause (1) or (2) being hereafter collectively referred to as a "Restricted Payment") if (i) at the time of such Restricted Payment and after giving effect thereto, (a) an Event of Default shall have occurred and be continuing or (b) the Consolidated Net Worth of the Company shall be less than seven hundred fifty million dollars ($750,000,000); or if (ii) after giving effect to such Restricted Payment, the aggregate amount expended subsequent to November 1, 1991, for all such Restricted Payments (the amount of any Restricted Payment, if other than cash, to be the fair market value of such payment as determined by the Board of Directors of the Company, whose reasonable determination shall be conclusive and evidenced by a Board Resolution) exceeds the algebraic sum of (w) a number calculated as follows: (A) if the aggregate Consolidated Net Income of the Company earned on a cumulative basis during the period subsequent to September 30, 1991 through the end of the last fiscal quarter that is prior to the declaration of any such dividend or distribution or the giving of notice of such purchase, redemption or other acquisition or retirement and for which such financial information is then available, is a positive number, then 100% of such positive number, and (B) if the aggregate Consolidated Net Income of the Company earned on a cumulative basis during the period subsequent to September 30, 1991 through the end of the last fiscal quarter that is prior to the declaration of any such dividend or distribution or the giving of notice of such purchase, redemption or other acquisition or retirement and for which such financial information is then available, is a negative number, then 100% of such negative number, (x) the aggregate net cash proceeds received by the Company from the issuance and sale, other than to a Subsidiary of the Company, subsequent to November 1, 1991, of Capital Stock (including Capital Stock issued upon the conversion of, or in exchange for, securities other than Capital Stock and options, warrants or other rights to acquire Capital Stock, but excluding Redeemable Stock), (y) the aggregate net cash proceeds originally received by the Company from the issuance and sale, other than to a Subsidiary of the Company, of Indebtedness of the Company that is converted into Capital Stock of the Company subsequent to November 1, 1991, and (z) three hundred million dollars ($300,000,000); PROVIDED, HOWEVER, that the retirement of any shares of the Company's Capital Stock by exchange for, or out of the proceeds of the substantially concurrent sale of, other shares of Capital Stock of the Company other than Redeemable Stock shall not constitute a Restricted Payment. If all of the conditions to the declaration of a dividend or distribution set out in this Section are satisfied at the time such dividend or distribution is declared, then such dividend or distribution may be paid or made within sixty days after such declaration even if the payment of such 92 dividend, the making of such distribution or the declaration thereof would not have been permitted under this Section at any time after such declaration. SECTION 1007. LIMITATION ON FUTURE LIENS AND GUARANTIES. (a) If the Company or any Subsidiary of the Company shall create, incur, assume or suffer to exist any Lien upon any of the assets of the Company or a Subsidiary of the Company other than upon the Collateral (whether such assets are owned at November 1, 1991 or thereafter acquired) as security for (i) any Indebtedness or other obligation (whether unconditional or contingent) of the Company that ranks PARI PASSU with the First Mortgage Notes or any Indebtedness or other obligation (whether unconditional or contingent) of a Subsidiary of the Company, the Company will secure or will cause such Subsidiary to guarantee and secure the Outstanding First Mortgage Notes equally and ratably with (or, at the option of the Company, prior to) such Indebtedness or other obligation, so long as such Indebtedness or other obligation shall be so secured, or (ii) any Subordinated Indebtedness, the Company will secure the Outstanding First Mortgage Notes prior to such Subordinated Indebtedness, so long as such Subordinated Indebtedness shall be so secured; PROVIDED, HOWEVER, that this Subsection shall not apply in the case of Permitted Liens or Liens granted by any Unrestricted Subsidiary to secure Indebtedness or other obligations of itself or of any Person other than the Company and its Restricted Subsidiaries. (b) The Company will not guarantee the Indebtedness of any Subsidiary of the Company and will not permit any such Subsidiary or Seminole to guarantee (i) any Indebtedness of the Company that ranks PARI PASSU with the First Mortgage Notes, (ii) any Indebtedness of a Subsidiary of the Company or (iii) any Subordinated Indebtedness; PROVIDED, HOWEVER, that this Subsection shall not apply to (1) any guaranty by a Subsidiary if such Subsidiary also guarantees the First Mortgage Notes on a PARI PASSU basis with respect to guaranties of Indebtedness described in clause (i) and (ii) and on a senior basis with respect to guaranties of Indebtedness described in clause (iii); (2) any guaranty existing on November 1, 1991 or any extension or renewal of such guaranty to the extent such extension or renewal is for the same or a lesser amount; (3) any guaranty which constitutes Indebtedness permitted by clause (v) or (vi) of the definition of Permitted Indebtedness granted by a Person permitted to incur such Indebtedness; (4) any guaranty by the Company of Indebtedness of a Restricted Subsidiary, PROVIDED that (A) incurrence of such Indebtedness of the Restricted Subsidiary is not prohibited by this Indenture and (B) (x) such guaranty constitutes Indebtedness of the Company incurred as Permitted Indebtedness pursuant to clause (vii) or (viii) of the definition of Permitted Indebtedness (it being understood that, for purposes of determining Permitted Indebtedness, any such guaranty shall be 93 deemed to constitute Indebtedness separate from, and, in addition to, Indebtedness of a Restricted Subsidiary which is so guaranteed) or (y) immediately prior to and (on a PRO FORMA basis) after granting such guaranty, the Company would be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) under Section 1008; (5) any guaranty by an Unrestricted Subsidiary of Indebtedness or other obligations of any Person other than the Company and its Restricted Subsidiaries; (6) any guaranty by the Company or any Subsidiary or Seminole of Indebtedness or other obligations constituting Indebtedness permitted by clause (i)(a) of the definition of Permitted Indebtedness in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility, but without duplication with respect to commitments for loans the use of proceeds of which is restricted to repayment of other Indebtedness under the Credit Agreements) as of November 1, 1991, PLUS two hundred fifty million dollars ($250,000,000) and LESS the proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time applied to repay Indebtedness under the Credit Agreements; (7) any guaranty by the Company of Indebtedness of any Restricted Subsidiary outstanding on November 1, 1991 which is not subordinated to any Indebtedness of such Restricted Subsidiary, and any renewal, extension or refinancing of such Indebtedness permitted by this Indenture; (8) any guaranty by the Company of Indebtedness of any Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof, PROVIDED that the incurrence of such Indebtedness of such Restricted Subsidiary is not prohibited by this Indenture; (9) any guaranty by a Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof of the Indebtedness of any of its Subsidiaries that is a Restricted Subsidiary and that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof, PROVIDED that incurrence of such Indebtedness of such Restricted Subsidiary is not prohibited by this Indenture; (10) any guaranty by the Company or a Subsidiary of the Company of Indebtedness or other obligations in a principal amount not exceeding two hundred fifty thousand dollars ($250,000); (11) any guaranty in the form of an endorsement of negotiable instruments for deposit or collection and similar transactions; (12) any guaranty arising under or in connection with performance bonds, indemnity bonds, surety bonds, or commercial letters of credit not exceeding twenty-five million dollars ($25,000,000) in aggregate principal amount from time to time outstanding; (13) any guaranty by a Subsidiary of the Company of Indebtedness or other obligations of another Subsidiary in effect at the time of such guarantor becoming a Subsidiary and not created in contemplation thereof; or (14) any guaranty by the Company or a Restricted Subsidiary of any Interest Swap Obligation, Currency 94 Agreement or Commodities Agreement relating to Indebtedness that is guaranteed pursuant to another clause of this Subsection. SECTION 1008. LIMITATION ON FUTURE INCURRENCE OF INDEBTEDNESS. The Company will not, and will not permit any Restricted Subsidiary to, incur, create, assume, guarantee or in any other manner become directly or indirectly liable with respect to or responsible for the payment of any Indebtedness except: (1) Permitted Indebtedness; and (2) Indebtedness of the Company if at the time thereof and after giving effect thereto the Consolidated Interest Coverage Ratio of the Company, on a PRO FORMA basis for the then four most recent full quarters, taken as a whole (giving effect to (i) such Indebtedness and (ii) the effect on the Consolidated Cash Flow Available for Fixed Charges of the Company for the then four most recent full fiscal quarters, taken as a whole, as a result of any acquisition of a Person acquired by the Company or any Restricted Subsidiary with the proceeds of such Indebtedness), would be greater than 1.75 to 1. Without limiting the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, guarantee, or in any other manner become directly or indirectly liable with respect to or responsible for the payment of, Indebtedness of any Unrestricted Subsidiary in an amount greater than, for all guaranties and undertakings of responsibility by the Company and its Restricted Subsidiaries, 20% of the aggregate amount of Indebtedness of such Unrestricted Subsidiary. SECTION 1009. LIMITATION ON ASSET DISPOSITIONS. (a) (i) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Disposition at least equal to the fair market value for the assets sold or otherwise disposed of (which shall be as determined in good faith (x) in the case of dispositions of assets having a fair market value of ten million dollars ($10,000,000) or more, by the Board of Directors, whose reasonable determination shall be conclusive and evidenced by a Board Resolution, or (y) in the case of dispositions of assets having a fair market value of less than ten million dollars ($10,000,000) but not less than five million dollars ($5,000,000), an Officer of the Company, whose reasonable determination shall be conclusive and evidenced by a certificate of such Officer) and (ii) the Company will apply the aggregate net proceeds in excess of three hundred million dollars ($300,000,000) received by the Company or any Restricted Subsidiary from all Asset Dispositions occurring subsequent to November 1, 1991 (but excluding for purposes of this clause (ii), whether before or after the receipt of net proceeds in excess of three hundred million dollars ($300,000,000), (1) the net 95 proceeds of any Asset Disposition or series of related Asset Dispositions where the net proceeds are less than five million dollars ($5,000,000) and (2) the first twenty-five million dollars ($25,000,000) of net proceeds in each fiscal year without taking into account any amount excluded pursuant to (1)) as follows: (A) to the payment or prepayment of any Senior Indebtedness within six months of such Asset Disposition, or (B) to investment in the business of the Company and its Restricted Subsidiaries (including, without limitation, by acquiring equity, other than Redeemable Stock, of the transferee of such Asset Disposition) within six months of such Asset Disposition or, if such investment is with respect to a project to be completed within a period greater than six months from such Asset Disposition, then within the period of time necessary to complete such project; PROVIDED, HOWEVER, that (x) in the case of applications contemplated by clause (B), the Board of Directors has, within such six-month period, adopted in good faith a resolution committing such excess proceeds to such investment, (y) EXCEPT as provided in the next sentence, none of such excess proceeds shall be used to make any Restricted Payment or any payment in respect of Subordinated Indebtedness and (z) to the extent not applied in accordance with clauses (A) or (B) above, or if after being so applied there remain excess net proceeds in an amount greater than ten million dollars ($10,000,000), the Company shall make a PRO RATA offer to all Holders to purchase First Mortgage Notes at 100% of principal amount, plus accrued and unpaid interest to the Asset Disposition Payment Date, up to an aggregate principal amount equal to such excess net proceeds (as adjusted pursuant to Subsection (g) of this Section, the "Asset Disposition Offer Amount"). If after being applied in accordance with clauses (A), (B) and (z) above there remain excess net proceeds, the Company will apply such excess net proceeds to the general corporate purposes of the Company or any Subsidiary of the Company. (b) Notwithstanding Subsection (a) of this Section, to the extent the Company or any of its Restricted Subsidiaries receives securities or other non- cash property or assets as proceeds of an Asset Disposition (other than equity in the transferee not constituting Redeemable Stock), the Company shall not be required to make any application required by Subsection (a) of this Section until it receives cash proceeds from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property, EXCEPT that if and to the extent the sum of all cash proceeds plus the fair market value of equity (other than Redeemable Stock) in the transferee of such Asset Disposition received at the time of such Asset Disposition is less than 70% of the fair market value of the total proceeds of such Asset Disposition (with such fair market value determined and evidenced in the same manner as stated in clause (i) of Subsection (a) of this Section), the amount of such deficiency (the "Deficiency Amount") shall be 96 applied as required by Subsection (a) of this Section as if received at the time of the Asset Disposition. Any amounts deferred pursuant to the preceding sentence shall be applied in accordance with Subsection (a) of this Section when cash proceeds are thereafter received from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property; PROVIDED, HOWEVER, that the Company shall not be required to apply with respect to any equity interest in a transferee an amount exceeding the fair market value attributable to such equity interest at the time of the Asset Disposition; and PROVIDED, FURTHER, that if a Deficiency Amount was applied pursuant to the exception contained in the preceding sentence, then once the cumulative amount of applications made pursuant to Subsections (a) and (b) of this Section (including any Deficiency Amounts) equals 100% of the fair market value of the total proceeds of the Asset Disposition at the time of such Asset Disposition, cash proceeds thereafter received from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property shall not be required to be applied in accordance with Subsection (a) of this Section EXCEPT to the extent such cash proceeds exceed the Deficiency Amount. (c) An offer to purchase First Mortgage Notes required to be made pursuant to this Section is referred to as an "Asset Disposition Offer" and the date on which the purchase of First Mortgage Notes relating to any such Asset Disposition Offer is to be made is referred to as the "Asset Disposition Payment Date." (d) The Company shall provide the Trustee with notice of an Asset Disposition Offer and with all information required to accompany the notice described in (e) below, at least 45 days before any such Asset Disposition Payment Date and at least 10 days before the notice of any Asset Disposition Offer is mailed to Holders. (e) Notice of an Asset Disposition Offer described in this Section shall be mailed on behalf of the Company by the Trustee to all Holders at their last registered addresses not less than 30 days nor more than 60 days before the Asset Disposition Payment Date, which shall be a date not more than 210 days after the Asset Disposition giving rise to such Asset Disposition Offer. The Asset Disposition Offer shall remain open from the time of the mailing of such notice until not more than five Business Days before the Asset Disposition Payment Date. The notice shall state: (1) that the Asset Disposition Offer is being made pursuant to this Section and the reason for the Asset Disposition Offer; 97 (2) the purchase price and the Asset Disposition Payment Date; (3) the aggregate principal amount of First Mortgage Notes initially subject to the Asset Disposition Offer Amount and, if applicable, a description of the adjustment mechanisms describe in Subsection (g) of this Section; (4) the name and address of the Paying Agent and the Trustee and that First Mortgage Notes must be surrendered to the Paying Agent to collect the purchase price; (5) that any of the First Mortgage Notes not tendered or accepted for payment will continue to accrue interest; (6) that any First Mortgage Note accepted for payment pursuant to the Asset Disposition Offer shall cease to accrue interest after the Asset Disposition Payment Date; (7) that each Holder electing to have a First Mortgage Note purchased pursuant to an Asset Disposition Offer will be required to surrender the First Mortgage Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the First Mortgage Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the fifth Business Day prior to the Asset Disposition Payment Date; (8) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Asset Disposition Payment Date, a telegram, telex, facsimile transmission or letter setting forth: the name of the Holder, the principal amount of the First Mortgage Note the Holder delivered for purchase, the certificate number of the First Mortgage Note the Holder delivered and a statement that such Holder is withdrawing his election to have the First Mortgage Note purchased; and (9) that Holders whose First Mortgage Notes are purchased only in part will be issued new First Mortgage Notes equal in principal amount to the unpurchased portion of the First Mortgage Notes surrendered. (f) On the Asset Disposition Payment Date, the Company shall (i) accept for payment First Mortgage Notes or portions thereof tendered pursuant to the Asset Disposition Offer in an aggregate principal amount equal to the Asset Disposition Offer Amount or such lesser amount of First Mortgage Notes as shall have been tendered, (ii) on or before 12:00 noon New York City time, deposit with the Paying Agent money sufficient to pay the purchase price of all First Mortgage Notes or portions thereof so 98 accepted, and (iii) deliver or cause to be delivered to the Trustee First Mortgage Notes so accepted together with an Officer's Certificate stating the First Mortgage Notes or portions thereof accepted by the Company. If the aggregate principal amount of First Mortgage Notes tendered exceeds the Asset Disposition Offer Amount, the Company shall select the First Mortgage Notes to be purchased on a PRO RATA basis to the nearest one thousand dollars ($1,000) of principal amount. The Paying Agent shall promptly mail or deliver to Holders of First Mortgage Notes so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders a new First Mortgage Note equal in principal amount to any unpurchased portion of the First Mortgage Note surrendered. Any First Mortgage Notes not so accepted shall be promptly mailed or made available for delivery to the Holder thereof. The Company will publicly announce the results of the Asset Disposition Offer on or as soon as practicable after the Asset Disposition Payment Date. For purposes of this Section, the Trustee or its agent shall act as the Paying Agent. (g) The Company shall not make an "Asset Disposition Offer" (as defined) required under Section 1009 of the 1991 Indenture in connection with a disposition of assets other than the Collateral unless the Company shall have made an Asset Disposition Offer hereunder (and in respect of certain other Senior Indebtedness in accordance with the following sentence) on a PRO RATA basis (in an aggregate amount equal to the amount to be offered pursuant to the Asset Disposition Offer under the 1991 Indenture) the closing date of which is prior to six months after the asset disposition triggering the obligations of the Company under the 1991 Indenture. Notwithstanding the previous sentence, if on or after the date hereof, the Company issues any Senior Indebtedness (including the __% Senior Notes due 2004, reference being made to Section 1009(g) of the indenture with respect thereto) containing a requirement that an offer be made to repurchase such Senior Indebtedness under the same circumstances and in the same manner (including the prescribed time periods hereof) provided in this Section 1009, then (i) the Company may apply the Asset Disposition Offer Amount (before any adjustment pursuant to this sentence) to the PRO RATA purchase of First Mortgage Notes tendered hereunder and the Senior Indebtedness tendered thereunder and (ii) the Asset Disposition Offer Amount available to repurchase the First Mortgage Notes shall be reduced by the amount applied to the purchase of such Senior Indebtedness; PROVIDED that this sentence shall only apply to (i) Senior Indebtedness issued on or after the date hereof (including the __% Senior Notes due 2004) that explicitly permits the PRO RATA purchase of First Mortgage Notes as described herein and refers to this Section 1009(g) and any Indebtedness outstanding at the date of this Indenture that is amended to explicitly permit the PRO RATA purchase of First Mortgage Notes as described herein and 99 refers to this Section 1009(g) and (ii) asset dispositions not involving Collateral. SECTION 1010. MAINTENANCE OF PROPERTIES. The Company will cause all material properties used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order (normal wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors or of the board of directors of the Subsidiary concerned, as the case may be, desirable in the conduct of the business of the Company or any Subsidiary of the Company and not materially disadvantageous to the Holders. SECTION 1011. COMPLIANCE CERTIFICATES. (a) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year of the Company (which fiscal year currently ends on December 31), an Officer's Certificate stating whether or not the signer knows of any Default or Event of Default by the Company that occurred prior to the end of the fiscal year and is then continuing. If the signer does know of such a Default or Event of Default, the certificate shall describe each such Default or Event of Default and its status and the specific section or sections of this Indenture in connection with which such Default or Event or Default has occurred. The Company shall also promptly notify the Trustee in writing should the Company's fiscal year be changed so that the end thereof is on any date other than the date on which the Company's fiscal year currently ends. (b) The Company shall deliver to the Trustee as soon as practicable but in any event not later than 45 days after the end of each fiscal quarter an Officer's Certificate setting forth the Company's Subordinated Capital Base for purposes of this Section 1011. The Trustee may conclusively rely on the Officer's Certificate for such purposes. (c) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the First Mortgage Notes as they relate to 100 accounting matters and (ii) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof and the specific section or sections of this Indenture in connection with which such Default has occurred; PROVIDED, that without any restriction as to the scope of the audit examination, such independent certified public accountants shall not be liable by reason of the failure to obtain knowledge of such Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards. (d) The Company shall deliver to the Trustee forthwith upon becoming aware of a Default or Event of Default (but in no event later than 10 days after the occurrence of each Default or Event of Default that is continuing), an Officer's Certificate setting forth the details of such Default or Event of Default and the action that the Company proposes to take with respect thereto and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. SECTION 1012. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim, and will actively resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law, which would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on the First Mortgage Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 1013. CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control (the "Change of Control Date") and subject to the requirements of the next succeeding sentence, each Holder shall have the right to require that the Company repurchase such Holder's First Mortgage Notes in whole or in part pursuant to the offer described in Subsection (b) below (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount of such First Mortgage Notes plus accrued and unpaid interest, if any, to the date of such repurchase. If such repurchase would constitute an event of default under Specified Bank Debt, then, 101 prior to giving the notice to Holders provided in Subsection (b) below, the Company shall (i) repay in full in cash such Specified Bank Debt or (ii) obtain the requisite consent of holders of such Specified Bank Debt to permit the repurchase of First Mortgage Notes without giving rise to an event of default under such Specified Bank Debt. (b) Promptly upon satisfaction of either one of the obligations, if then applicable, set forth in clause (i) or (ii) of Subsection (a) above, the Company shall mail a notice to each Holder and the Trustee in respect of the Change of Control Offer (which notice shall contain all instructions and materials necessary to enable such Holders to tender First Mortgage Notes) stating: (1) that the Change of Control Offer is being made pursuant to this Section and that all First Mortgage Notes properly tendered will be accepted for payment; (2) the purchase price and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, but in any event prior to the date on which any Subordinated Indebtedness is paid pursuant to the terms of a provision similar to this Section) (the "Change of Control Payment Date"); (3) the name and address of the Paying Agent and the Trustee and that the First Mortgage Notes must be surrendered to the Paying Agent to collect the purchase price; (4) that any First Mortgage Note not tendered will continue to accrue interest; (5) that any First Mortgage Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (6) that each Holder electing to have a First Mortgage Note purchased pursuant to a Change of Control Offer will be required to surrender the First Mortgage Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the First Mortgage Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (7) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, 102 the principal amount of the First Mortgage Note the Holder delivered for purchase, the certificate numbers of the First Mortgage Note the Holder delivered and a statement that such Holder is withdrawing his election to have such First Mortgage Note purchased; and (8) that Holders whose First Mortgage Notes are purchased only in part will be issued new First Mortgage Notes equal in principal amount to the unpurchased portion of the First Mortgage Notes surrendered. On or before 12:00 noon New York City time on the Change of Control Payment Date, the Company shall (i) accept for payment First Mortgage Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all First Mortgage Notes or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee First Mortgage Notes so accepted, together with an Officer's Certificate stating the aggregate principal amount of the First Mortgage Notes or portions thereof so accepted by the Company. The Paying Agent shall promptly mail or deliver to the Holder of First Mortgage Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or make available for delivery to such Holder a new First Mortgage Note equal in principal amount to any unpurchased portion of the First Mortgage Note surrendered. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section, the Trustee or its agent shall act as the Paying Agent. If a Change of Control has occurred but a Change of Control Offer is not permitted to be made, the Company shall mail a notice of such Change of Control to each Holder within 30 days following a Change of Control Date. The Company shall comply with any applicable tender offer rules (including, without limitation, any applicable requirements of Rule 14e-1 under the Exchange Act) and any other legal requirements in the event that a Change of Control Offer is made under the circumstances described in this Section 1013. SECTION 1014. WAIVER OF CERTAIN COVENANTS. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1006, 1007, 1008, 1009 and 1015, if before the time for such compliance Holders representing at least two- thirds in principal amount of the Outstanding First Mortgage Notes shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or 103 condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. SECTION 1015. LIMITATION ON COLLATERAL ASSET DISPOSITIONS AND COLLATERAL LOSS EVENTS. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, consummate or permit a Collateral Asset Disposition unless: (i) the Company receives consideration in respect of and concurrently with such Collateral Asset Disposition at least equal to the fair market value of the relevant Collateral; (ii) with respect to each such Collateral Asset Disposition, the Company delivers an Officer's Certificate to the Trustee dated no more than 30 days prior to the date of consummation of the relevant Collateral Asset Disposition, certifying that (A) such disposition complies with clause (i) above, (B) the fair market value of the Collateral being sold was determined in good faith by the Board of Directors of the Company, including a majority of the Independent Directors (whose determination was based on the opinion of a qualified Independent Appraiser or Independent Financial Adviser prepared contemporaneously with such Collateral Asset Disposition and which opinion will be evidenced by an opinion letter of the Independent Appraiser or Independent Financial Adviser and attached to the Officer's Certificate), as evidenced by copies of the resolutions of the Board of Directors of the Company (which shall also indicate that the relevant Collateral Asset Disposition is being made for an appropriate business purpose which is not the redemption of the First Mortgage Notes), indicating the requisite approval by the Independent Directors and the Board of Directors, adopted in respect of and concurrently with such Collateral Asset Disposition and (C) in the case of a release of less than all of a Collateral Property, the release of the relevant portion of such Collateral Property will not interfere with or materially and adversely affect the value of the remaining portion of such Collateral Property, the maintenance and operation of such remaining portion or the Trustee's uninterrupted valid first ranking Lien (subject to Permitted Collateral Liens) on such remaining portion (accompanied by a binding commitment of a title insurer to issue an endorsement to the title insurance policy previously issued in respect of such Collateral Property confirming that, after such release, the Trustee's first ranking Lien on such remaining portion will remain unimpaired and uninterrupted (subject only to Permitted Collateral Liens existing on the date hereof or obtaining priority through operation of law)); (iii) at least 90% of such consideration is in cash or Cash Equivalents; (iv) the Net Proceeds therefrom shall be paid directly by the purchaser thereof to the Trustee and deposited into the Cash Collateral Account pending application in accordance with clause (vii) below and the Company takes such actions, at its sole expense, as shall 104 be required to ensure that the Trustee has from such date a first ranking Lien thereon (subject to Permitted Collateral Liens) pursuant to this Indenture and the Security Documents; (v) concurrently with the relevant Collateral Asset Disposition, the Company takes such actions, at its sole expense, as shall be required to ensure that the Trustee has from such date a first ranking Lien (subject to Permitted Collateral Liens) on any portion of such consideration which is not in the form of cash or Cash Equivalents ("Non-Cash Consideration"), and, upon receipt thereof, of property received in the future in exchange for all or any part of such Non-Cash Consideration, pursuant to the terms of this Indenture and the Security Documents; (vi) the Company takes such other actions, at its sole expense, as shall be required to permit the Trustee to release the Collateral being sold from the Lien of this Indenture and the Security Documents; and (vii) the Company, within six months from the date of consummation of a Collateral Asset Disposition, applies all of the Net Proceeds therefrom for the following purposes, individually or in combination, (A) to purchase or otherwise invest in Replacement Collateral (in accordance with Subsection (c) below) or (B) to make a First Mortgage Note Offer; PROVIDED that, (x) in the event that the Company enters into a binding commitment to purchase or otherwise invest in Replacement Collateral pursuant to the foregoing clause (vii)(A) within such six month period, the Company will have eighteen months from the date of consummation of such Collateral Asset Disposition to consummate such purchase or investment, which shall be completed with due diligence and (y) in connection with a Collateral Asset Disposition involving all (but not less than all) of the Collateral Property located in York, Pennsylvania (as more specifically described in the relevant Security Document), the Company may, concurrently with such Collateral Asset Disposition, make subject to the Lien of this Indenture as Replacement Collateral any other assets of the Company satisfying the definition of "Replacement Collateral" in accordance with Subsection (c) below in lieu of the assets purchased with the Net Proceeds of such Collateral Asset Disposition. The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to enter into a sale-leaseback transaction involving the Collateral. (b) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, suffer or permit a Collateral Loss Event unless: (i) the Net Proceeds therefrom are paid directly by the party providing such Net Proceeds to the Trustee and deposited in the Cash Collateral Account, (ii) the Company takes such actions, at its sole expense, as shall be required to ensure that the Trustee has from the date of such deposit a first ranking Lien (subject to Permitted Collateral Liens) on such Net Proceeds in the Cash Collateral Account pursuant to the terms of this Indenture and the Security Documents and (iii) the Company, within six months of receipt of the Net Proceeds therefrom, applies all the Net Proceeds received therefrom for the following purposes, individually or in combination: (A) to purchase or otherwise 105 invest in Replacement Collateral; (B) to Restore the relevant Collateral; or (C) to make a First Mortgage Note Offer; PROVIDED that, in the event that the Company enters into a binding commitment to purchase or otherwise invest in Replacement Collateral pursuant to the foregoing clause (iii)(A) or to Restore the relevant Collateral pursuant to the foregoing clause (iii)(B) within six months of receipt of such Net Proceeds from a Collateral Loss Event, the Company will have eighteen months from the date of such receipt to consummate or complete such purchase, investment or Restoration, which shall be carried out with due diligence. In connection with any Restoration, the Company shall follow the procedures set forth in Section 1610 hereof. (c) In the event that the Company (i) elects pursuant to clause (a)(vii)(A) of this Section or clause (b)(iii)(A) of this Section to apply any portion of the Net Proceeds from a Collateral Asset Disposition or Collateral Loss Event, respectively, to purchase or otherwise invest in Replacement Collateral, (ii) pursuant to Subsection (f) below is deemed to purchase or otherwise invest in Replacement Collateral or (iii) pursuant to clause (a)(vii)(y) elects to provide other assets of the Company as Replacement Collateral for the Collateral Property located in York, Pennsylvania following the sale thereof, (1) the Company shall deliver an Officers' Certificate to the Trustee dated no more than 30 days prior to the date of consummation of the relevant purchase of or investment in Replacement Collateral (in the case of (i)), or of the relevant Collateral Asset Disposition (in the case of (iii) or dated the date of withdrawal (in the case of (ii)), certifying that: (x) in the case of clause (i), the purchase price for or the amount of the investment in the relevant Replacement Collateral does not exceed the fair market value of such Replacement Collateral, (y) in the case of clause (ii), the Company is required to use the relevant portion of such Net Proceeds to fund an "Asset Disposition Offer" under the 1991 Indenture in accordance with Subsection (f) and has complied with Subsection (f) in connection therewith or (z) in the case of (iii), the fair market value of such Replacement Collateral is not less than thirty-one million dollars ($31,000,000), as determined in good faith by the Board of Directors of the Company, including a majority of the Independent Directors (whose determination (in the case of clauses (x) and (z)) was based on the opinion of a qualified Independent Appraiser or Independent Financial Adviser prepared contemporaneously with the consummation of such purchase of, or investment in, the relevant Replacement Collateral and which opinion will be evidenced by an opinion letter of the Independent Appraiser or Independent Financial Adviser attached to the Officers' Certificate), as evidenced by copies of the resolutions of the Board of Directors, indicating the requisite approval of the Independent Directors, adopted in respect of and concurrently with the purchase of or investment in such Replacement Collateral; and (2) the Company shall take such actions, at its 106 sole expense, as shall be required to permit the Trustee to release such Net Proceeds (or proceeds required to be applied to the prepayment of Indebtedness under the 1991 Indenture, as described in Subsection (f) of this Section) from the Lien of this Indenture and the Security Documents and to ensure that the Trustee has, from the date of such purchase or investment, a first ranking Lien (subject to Permitted Collateral Liens) on such Replacement Collateral pursuant to the terms of this Indenture and the Security Documents. Furthermore, the Trustee shall have received concurrently with the grant to it of the Lien in respect of any Replacement Collateral constituting real property or equipment the documents set forth in Section 1601(e) relating to such Replacement Collateral substantially in the form delivered to the Trustee on the date of this Indenture in respect of the original Collateral Properties. (d) Notwithstanding the foregoing, the Company may defer a First Mortgage Note Offer until such time as the Excess Proceeds exceed fifteen million dollars ($15,000,000) (30 days from which time the Company must make a First Mortgage Note Offer), PROVIDED that (i) the Company provides written notice to the Trustee of such deferred application of Excess Proceeds, (ii) all Excess Proceeds are deposited and remain on deposit in the Cash Collateral Account pending a First Mortgage Note Offer and (iii) any First Mortgage Note Offer shall include all Excess Proceeds on deposit in the Cash Collateral Account on the date of such First Mortgage Note Offer, regardless of whether the Excess Proceeds exceed fifteen million dollars ($15,000,000) at such time. All amounts remaining after the completion of any First Mortgage Note Offer shall remain in the Cash Collateral Account subject to the Lien of this Indenture. The Company may use such amounts to purchase or otherwise invest in Replacement Collateral securing the First Mortgage Notes on the basis described in Subsection (c) of this Section 1015 at any time and from time to time. (e) Within 30 days of any decision by the Company to make a First Mortgage Note Offer or of the date upon which the Excess Proceeds exceed fifteen million dollars ($15,000,000), the Company, or the Trustee at the Company's request, will mail or cause to be mailed to all Holders a notice of the First Mortgage Note Offer in accordance with Section 1016 and of the Holders' rights resulting therefrom. Such notice will contain all instructions and materials necessary to enable Holders to tender their First Mortgage Notes to the Company. (f) If, pursuant to Section 1009 of the 1991 Indenture, the Company is required to make an "Asset Disposition Offer" (as defined thereunder) using proceeds from a Collateral Asset Disposition, the Company may use such proceeds as are on deposit in the Cash Collateral Account to fund the purchase of Indebtedness under the 1991 Indenture tendered pursuant to such 107 offer; PROVIDED that the Company shall have subjected to the Lien of this Indenture and the Security Documents cash in an amount equal to such proceeds as Replacement Collateral pursuant to Subsection (c) of this Section in lieu of the cash released from the Cash Collateral Account, the amount so released being deemed to be the amount invested in or used to purchase Replacement Collateral for the purpose of such Subsection (c) and such release and substitution being deemed to constitute a purchase of such Replacement Collateral. SECTION 1016. PROCEDURES CONCERNING FIRST MORTGAGE NOTE OFFERS. (a) All First Mortgage Note Offers shall be made at an offer price (the "First Mortgage Note Offer Price") in cash (i) for Outstanding First Mortgage Notes in an amount equal to 100% of their principal amount, PLUS any accrued and unpaid interest, if any, to the First Mortgage Note Offer Payment Date, and shall be conducted in accordance with the procedures set forth in subsections (b) through (d) of this Section 1016. (b) Within 30 days after any date on which the Company decides, or is required pursuant to Section 1015, to make a First Mortgage Note Offer, the Company or the Trustee on behalf of the Company shall mail a notice to each Holder in respect of the First Mortgage Note Offer at such Holder's last registered address (which notice shall contain all instructions and materials necessary to enable such Holders to tender First Mortgage Notes) stating: (1) that the First Mortgage Note Offer is being made pursuant to this Section, and the reason for the First Mortgage Note Offer; (2) the aggregate principal amount of the First Mortgage Notes subject to the First Mortgage Note Offer; (3) that the Holder has the right to require the Company to repurchase such Holder's First Mortgage Notes at the First Mortgage Note Offer Price, subject to proration in the event the aggregate principal amount of the First Mortgage Notes subject to the First Mortgage Note Offer is less than the aggregate principal of all First Mortgage Notes tendered; (4) the name and address of the Paying Agent and the Trustee and that the First Mortgage Notes must be surrendered to the Paying Agent to collect the First Mortgage Note Offer Price; (5) the date of the closing of the First Mortgage Note Offer (the "First Mortgage Note Offer Payment Date"), which 108 shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; (6) that any of the First Mortgage Notes not tendered or accepted for payment will continue to accrue interest; (7) that any First Mortgage Note accepted for payment pursuant to the First Mortgage Note Offer shall cease to accrue interest after the First Mortgage Note Offer Payment Date; (8) that each Holder electing to have First Mortgage Notes purchased pursuant to a First Mortgage Note Offer will be required to surrender the First Mortgage Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the First Mortgage Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the fifth Business Day prior to the First Mortgage Note Payment Date; (9) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than three (3) Business Days prior to the First Mortgage Note Offer Payment Date, a telegram, telex, facsimile transmission or letter setting forth: the name of the Holder, the principal face amount of the First Mortgage Notes the Holder delivered for purchase, the certificate number of the First Mortgage Note the Holder delivered and a statement that such Holder is withdrawing its election to have such First Mortgage Notes purchased; and (10) that Holders whose First Mortgage Notes are purchased only in part will be issued new First Mortgage Notes equal in principal amount to the unpurchased portion of the First Mortgage Notes surrendered. (c) On the First Mortgage Note Offer Payment Date, the Company shall (i) accept for payment First Mortgage Notes or portions thereof tendered pursuant to the First Mortgage Note Offer in an aggregate principal amount equal to the First Mortgage Note Offer Amount or such lesser amount of First Mortgage Notes as shall have been tendered, (ii) on or before 12:00 noon New York City time, deposit with the Paying Agent money sufficient to pay the purchase price of all First Mortgage Notes or portions thereof so accepted, and (iii) deliver or cause to be delivered to the Trustee First Mortgage Notes so accepted together with an Officer's Certificate stating the First Mortgage Notes or portions thereof accepted by the Company. If the aggregate principal amount of First Mortgage Notes surrendered exceeds the aggregate principal amount of First Mortgage Notes subject to the First Mortgage Note Offer, as indicated in the notice required by Subsection (b) of this Section 1016, the 109 Trustee shall select the First Mortgage Notes to be purchased on a PRO RATA basis to the nearest one thousand dollars ($1,000) of principal amount. The Paying Agent shall promptly mail or deliver to Holders of First Mortgage Notes so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders a new First Mortgage Note equal in principal amount to any unpurchased portion of the First Mortgage Note surrendered. Any First Mortgage Notes not so accepted shall be promptly mailed or made available for delivery to the Holder thereof. The Company will publicly announce the results of the First Mortgage Note Offer on or as soon as practicable after the First Mortgage Note Offer Payment Date. For purposes of this Section, the Trustee or its agent shall act as the Paying Agent. (d) The Company shall comply with any applicable tender offer rules (including, without limitation, any applicable requirements of Rule 14e-1 under the Exchange Act) in the event that a First Mortgage Note Offer is made under the circumstances described in this Section 1016. ARTICLE ELEVEN MAINTENANCE OF SUBORDINATED CAPITAL BASE SECTION 1101. MAINTENANCE OF SUBORDINATED CAPITAL BASE. (a) Subject to the terms of Section 1102, in the event that the Company's Subordinated Capital Base is less than one billion dollars ($1,000,000,000) (the "Minimum Subordinated Capital Base") as at the end of each of any two consecutive fiscal quarters (the last day of the second such fiscal quarter, a "Deficiency Date"), then, with respect to First Mortgage Notes, the Company shall, no later than 60 days after the Deficiency Date (105 days if a Deficiency Date is also the end of the Company's fiscal year), make an offer to all Holders to purchase (a "Deficiency Offer") 10% of the principal amount of First Mortgage Notes originally issued, or such lesser amount as may be Outstanding at the time each Deficiency Offer is made (the "Deficiency Offer Amount"), at a purchase price equal to 100% of principal amount, plus accrued and unpaid interest to the Deficiency Payment Date. (b) Thereafter, semi-annually the Company shall make like Deficiency Offers for the then applicable Deficiency Offer Amount of First Mortgage Notes until the Company's Subordinated Capital Base as at the end of any subsequent fiscal quarter shall be equal to or greater than the Minimum Subordinated Capital Base. Notwithstanding the foregoing, after any specified Deficiency Date, the last day of any subsequent fiscal quarter shall not constitute a Deficiency Date (giving rise to an 110 additional obligation under Subsection (a) of this Section) unless the Company's Subordinated Capital Base was equal to or greater than the Minimum Subordinated Capital Base as at the end of a fiscal quarter that followed such specified Deficiency Date and preceded such subsequent quarter. (c) Within 60 days (105 days if a Deficiency Date is also the end of the Company's fiscal year) following a Deficiency Date, the Company shall mail a notice to each Holder in respect of the Deficiency Offer (which notice shall contain all instructions and materials necessary to enable such Holders to tender First Mortgage Notes) stating: (1) that the Deficiency Offer is being made pursuant to this Section and the reason for the Deficiency Offer; (2) the purchase price and the purchase date, which shall be 20 Business Days from the date such notice is mailed or, if acceptance for payment and payment is not then lawful, on the earliest subsequent Business Day on which acceptance for payment and payment is then lawful (a "Deficiency Payment Date"); (3) the aggregate principal amount of First Mortgage Notes subject to the Deficiency Amount; (4) the name and address of the Paying Agent and the Trustee and that First Mortgage Notes must be surrendered to the Paying Agent to collect the purchase price; (5) that any of the First Mortgage Notes not tendered or accepted for payment will continue to accrue interest; (6) that any First Mortgage Note accepted for payment pursuant to the Deficiency Offer shall cease to accrue interest after the Deficiency Payment Date; (7) that each Holder electing to have a First Mortgage Note purchased pursuant to a Deficiency Offer will be required to surrender the First Mortgage Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the First Mortgage Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Deficiency Payment Date; (8) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Deficiency Payment Date, a telegram, telex, facsimile transmission or letter setting forth: the name of the Holder, the principal amount of the First Mortgage Note the 111 Holder delivered for purchase, the certificate number of the First Mortgage Note the Holder delivered and a statement that such Holder is withdrawing his election to have the First Mortgage Note purchased; and (9) that Holders whose First Mortgage Notes are purchased only in part will be issued new First Mortgage Notes equal in principal amount to the unpurchased portion of the First Mortgage Notes surrendered. (d) On a Deficiency Payment Date, the Company shall (i) accept for payment First Mortgage Notes or portions thereof tendered pursuant to the Deficiency Offer in an aggregate principal amount equal to the Deficiency Offer Amount or such lesser principal amount of such First Mortgage Notes as shall have been tendered, (ii) on or before 12:00 noon New York City time, deposit with the Paying Agent money sufficient to pay the purchase price of all such First Mortgage Notes or portions thereof so accepted, and (iii) deliver, or cause to be delivered to the Trustee, First Mortgage Notes so accepted together with an Officer's Certificate stating the First Mortgage Notes or portions thereof accepted by the Company. If the aggregate principal amount of such First Mortgage Notes tendered exceeds the Deficiency Offer Amount, the Company shall select the First Mortgage Notes to be purchased on a PRO RATA basis to the nearest one thousand dollars ($1,000) of principal amount. The Paying Agent shall promptly mail or make available for delivery to Holders of First Mortgage Notes so accepted payment in amounts equal to the purchase prices therefor, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders new First Mortgage Notes equal in principal amounts to, any unpurchased portion of the First Mortgage Notes surrendered. Any First Mortgage Notes not so accepted shall be promptly mailed or made available for delivery to the Holder thereof. The Company will publicly announce the results of the Deficiency Offer on or as soon as practicable after the Deficiency Payment Date. For purposes of this Section, the Trustee or its agent shall act as the Paying Agent. (e) The Company shall comply with and applicable tender offer rules (including, without limitation, any applicable requirements of Rule 14e-1 under the Exchange Act) and any other legal requirements in the event that a Deficiency Offer is made under the circumstances described in this Section 1101. SECTION 1102. ALTERNATIVE INTEREST RATE ADJUSTMENT. (a) Notwithstanding the terms of Section 1101, in the event that (1) the making of a Deficiency Offer by the Company or (2) the purchase of First Mortgage Notes by the Company in respect of a Deficiency Offer would constitute a default (with 112 the giving of notice, the passage of time or both) with respect to any Specified Bank Debt at the time outstanding, then, in lieu of the making of a Deficiency Offer in the circumstances set forth in Section 1101, (i) the interest rate on the First Mortgage Notes shall be reset as of the first day of the second fiscal quarter following the Deficiency Date (the "Reset Date") to a rate per annum (the "Reset Rate") equal to the greater of (x) the Initial Interest Rate and (y) the sum of (A) ______ basis points and (B) the higher of the ______ Year Treasury Rate and the ____ Year Treasury Rate, (ii) on the first Interest Payment Date following the Reset Date, the interest rate on the First Mortgage Notes, as reset on the Reset Date, shall increase by fifty (50) basis points, and (iii) the interest rate on the First Mortgage Notes shall further increase by an additional fifty (50) basis points on each succeeding Interest Payment Date; PROVIDED, HOWEVER, that in no event shall the interest rate on the First Mortgage Notes at any time exceed the Initial Interest Rate by more than two hundred (200) basis points. (b) Once the interest rate on the First Mortgage Notes has been reset pursuant to Subsection (a) of this Section, if the Company's Subordinated Capital Base is equal to or greater than the Minimum Subordinated Capital Base as of the last day of any fiscal quarter subsequent to the Deficiency Date, interest on the First Mortgage Notes shall return to the Initial Interest Rate effective as of the first day of the second following fiscal quarter; PROVIDED, HOWEVER, that the interest rate on the First Mortgage Notes shall again be adjusted in accordance with Subsection (a) of this Section if the Company's Subordinated Capital Base shall thereafter be less than the Minimum Subordinated Capital Base as at the last day of any two consecutive subsequent fiscal quarters and if the making of a Deficiency Offer or the purchase of First Mortgage Notes by the Company in respect of a Deficiency Offer would, at such time, constitute a default (with the giving of notice, the passage of time, or both) with respect to any Specified Bank Debt at the time outstanding. (c) The Company shall notify the Trustee of the Reset Rate not later than two Business Days after the Reset Date in the circumstances set forth in Subsection (a) of this Section. Not later than five Business Days after the Trustee has received such notice from the Company, the Trustee shall mail to each Holder such notice setting forth the Reset Rate. Commencing on the Reset Date, the First Mortgage Notes shall bear interest (as determined in accordance with clauses (i), (ii) and (iii) of Subsection (a) of this Section) until the date on which such interest rate returns to the Initial Interest Rate pursuant to Subsection (b) of this Section. The Company shall notify the Trustee and the Holders of such First Mortgage Notes promptly when the interest rate on such First Mortgage Notes returns to the Initial Interest Rate pursuant to Subsection (b) of this 113 Section. Failure of the Company or the Trustee to give, or failure of a Holder to receive, such notices shall not in any event affect the validity of the proceedings of the adjustment of the interest to be borne by such First Mortgage Notes effective on the Reset Date of the Company's obligations hereunder. ARTICLE TWELVE REDEMPTION OF FIRST MORTGAGE NOTES SECTION 1201. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The Company may at its option redeem First Mortgage Notes pursuant to paragraph 4 of the reverse of the First Mortgage Notes. The election of the Company to redeem any of the First Mortgage Notes shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the First Mortgage Notes, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of First Mortgage Notes to be redeemed. The Company shall deliver to the Trustee an Officer's Certificate, a Board Resolution authorizing the redemption and an Opinion of Counsel with respect to the due authorization of such redemption and to the effect that such redemption is being made in accordance with this Indenture and the First Mortgage Notes. SECTION 1202. SELECTION BY TRUSTEE OF THE FIRST MORTGAGE NOTES TO BE REDEEMED. If less than all the First Mortgage Notes are to be redeemed, the particular First Mortgage Notes to be redeemed shall be selected not more than 90 days prior to the Redemption Date by the Trustee, from the Outstanding First Mortgage Notes not previously called for redemption or submitted for repurchase pursuant to Sections 1009, 1013, 1015 and 1016, substantially PRO RATA, by lot or by any other method as the Trustee considers fair and appropriate and that complies with the requirements of the principal national securities exchange, if any, on which such First Mortgage Notes are listed, and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of First Mortgage Notes of a denomination larger than $1,000. The Trustee shall promptly notify the Company in writing of the First Mortgage Notes selected for redemption and, in the case of any First Mortgage Note selected for partial redemption, the principal amount thereof to be redeemed. 114 For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of First Mortgage Notes shall relate, in the case of any First Mortgage Note redeemed or to be redeemed only in part, to the portion of the principal amount of such First Mortgage Note which has been or is to be redeemed. SECTION 1203. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 45 days prior to the Redemption Date, to each Holder of First Mortgage Notes to be redeemed, at the address of such Holder appearing in the Register. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price (including the amount of accrued and unpaid interest to be paid); (3) the name and address of the Paying Agent and the Trustee and that the First Mortgage Notes must be surrendered to the Paying Agent to collect the Redemption Price; (4) if less than all Outstanding First Mortgage Notes are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular First Mortgage Notes to be redeemed and that, on or after the Redemption Date, upon surrender of any First Mortgage Note to be redeemed in part, a new First Mortgage Note in principal amount equal to the unredeemed portion thereof will be issued; (5) that on the Redemption Date the Redemption Price will become due and payable upon each such First Mortgage Note or portion thereof to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date; and (6) the CUSIP number, if any, of the First Mortgage Notes to be redeemed. Notice of redemption of First Mortgage Notes to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. 115 SECTION 1204. DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the First Mortgage Notes or portions thereof which are to be redeemed on that date. SECTION 1205. FIRST MORTGAGE NOTES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the First Mortgage Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such First Mortgage Notes or portions thereof shall cease to bear interest. Upon surrender of any such First Mortgage Note for redemption in accordance with said notice, such First Mortgage Note or portion thereof shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such First Mortgage Notes, or one or more Predecessor First Mortgage Notes, registered as such at the close of business on the relevant Record Dates or Special Record Dates according to their terms and the provisions of Section 307. If any First Mortgage Note or portion thereof called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the First Mortgage Note. SECTION 1206. FIRST MORTGAGE NOTES REDEEMED IN PART. Any First Mortgage Note which is to be redeemed only in part shall be surrendered at an office or agency of the Company at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such First Mortgage Note without service charge, one or more new First Mortgage Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the First Mortgage Note so surrendered. 116 ARTICLE THIRTEEN COLLATERAL AND SECURITY DOCUMENTS SECTION 1301. SECURITY DOCUMENTS. (a) As general and continuing collateral security for the due repayment and satisfaction of all present and future indebtedness, liabilities and obligations of any kind whatsoever, under, in connection with or relating to this Indenture, including without limitation, the First Mortgage Notes and any ultimate unpaid balance thereof and to secure the due performance of all of the other present and future obligations of the Company to the Trustee (including obligations under Section 607 hereof) and the Holders under this Indenture, each Security Document and the First Mortgage Notes, the Company for all purposes, has entered into the Security Documents and pledged the Collateral. (b) The Company covenants and agrees that it has full right, power and lawful authority to grant, bargain, sell, release, convey, hypothecate, assign, mortgage, pledge, transfer and confirm the property constituting the Collateral, in the manner and form done in the Security Documents, or intended to be done, free and clear of all Liens, pledges, charges and encumbrances whatsoever (other than Permitted Collateral Liens), and that (i) it will forever warrant and defend the title to the same against the claims of all persons whatsoever (except as to Permitted Collateral Liens), (ii) it will execute, acknowledge and deliver to the Trustee such further assignments, transfers, assurances or other instruments as the Trustee may require or request, and (iii) it will do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the Trustee, to assume and confirm to the Trustee the Collateral, or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of the Security Documents, this Indenture and of the First Mortgage Notes. The Company further covenants and agrees that each Security Document, as applicable, creates or will create, as the case may be, a direct and valid first ranking Lien (subject to Permitted Collateral Liens) on the Collateral subject thereto. SECTION 1302. RECORDING. The Company will cause, at its own expense, this Indenture and each Security Document, and all amendments or supplements thereto, to be registered, recorded and filed and/or re-recorded and/or re-filed and/or renewed in such manner and in such place or places, if any, as may be required by law in order to preserve, protect and maintain the perfected first ranking Liens of the Security Documents and 117 all parts of the Collateral and to effectuate and preserve the security of the Holders and all rights of the Trustee. The Company will pay all mortgage, mortgage recording, stamp, intangible or other similiar taxes required to be paid by any Person under applicable Legal Requirements in connection with the execution, delivery, recordation, filing, perfection or enforcement of any of the Security Documents. The Company shall furnish to the Trustee: (1) promptly after the execution and delivery of this Indenture or other instrument of further assurance, an Opinion of Counsel stating that, in the opinion of such counsel, this Indenture, the Security Documents, and all other instruments of further assurance have been properly recorded, registered and filed to the extent necessary to make effective the Lien intended to be created by the Security Documents, and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, and stating that all statements have been executed and filed that are necessary fully to preserve and protect the rights of the Holders and the Trustee hereunder and under the Security Documents, or stating that, in the opinion of such counsel, no such action is necessary to make such Liens effective; and (2) by December 15 in each year beginning with the year 1995, an Opinion or Opinions of Counsel, dated as of such date, either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, registering, filing, re-recording, re-registering and re- filing of (x) this Indenture, (y) the Security Documents, and all supplemental indentures and amendments thereto, and (z) financing statements, continuation statements or other instruments of further assurances, as is necessary to maintain the Lien of each such Security Document and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary to preserve and protect the rights of the Holders and the Trustee hereunder, the rights of the Trustee under the Security Documents, or stating that, in the opinion of such counsel, no such action is necessary to maintain such Liens. SECTION 1303. POSSESSION OF THE COLLATERAL AND THE CASH COLLATERAL ACCOUNT. (a) Subject to Article 14, until the security provided by the Security Documents becomes enforceable, the Company may possess, manage, operate and enjoy, as applicable, the Collateral in accordance with the terms of the Security Documents. (b) Notwithstanding the foregoing, all moneys received by the Trustee for the release of any part of the Collateral, all 118 Condemnation Proceeds or Insurance Proceeds in respect of the Collateral received by the Trustee, and all amounts of money, securities, letters of credit and other evidences of indebtedness deposited with or held by the Trustee in accordance with this Indenture and any Security Document shall be held by the Trustee, as security for the obligations of the Company under this Indenture and the Security Documents until applied in accordance with the terms of this Indenture. Neither receipt by the Trustee, nor any application whatsoever by the Trustee of Condemnation Proceeds or Insurance Proceeds, or other moneys under this Subsection (b) shall operate as payment or novation of the Company's indebtedness under this Indenture or the Security Documents, or as a reduction of the mortgages, pledges and charges created under the Security Documents, notwithstanding any law, usage or custom to the contrary. SECTION 1304. SUITS TO PROTECT THE COLLATERAL. The Trustee shall have power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of this Indenture or any of the Security Documents, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral and in the principal, interest, issues, profits, rents, revenues and other income arising therefrom, including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of, or compliance with, such enactment, rule or order would impair the security hereunder or under any of the Security Documents, or be prejudicial to the interests of the Holders or the Trustee. SECTION 1305. RELEASE UPON TERMINATION OF THE COMPANY'S OBLIGATIONS; PARTIAL RELEASE. (a) In the event that the Company delivers an Officer's Certificate certifying that all obligations under this Indenture have been satisfied and discharged by complying with the provisions of Article Four or Section 1502, the Trustee shall (i) to the extent the satisfaction and discharge of the Security Documents is given in accordance with Article Four or Section 1502 deliver to the Holders a notice stating that the Trustee, on behalf of the Holders, disclaims and gives up any and all rights it has in and to the Collateral and under this Indenture and the Security Documents (except for Section 1607(e)), and, upon and after the receipt by the Holders of such notice, the Trustee shall not be deemed to hold any of the Collateral pursuant to this Indenture and the Security Documents on behalf of the Trustee for the benefit of the Holders; or (ii) otherwise 119 disclaim and give up any and all rights it has in and to the Collateral, and any rights it has under any of the Security Documents, and the Trustee shall not be deemed to hold any of the Collateral for the benefit of the Holders. (b) The release of any Collateral from the terms hereof or from the terms of any of the Security Documents, or the release, in whole or in part, of the Lien created hereby or by any and all of the Security Documents, will not be deemed to impair the Lien described in Section 1301 in contravention of the provisions of this Indenture if and to the extent the Collateral or Lien are released pursuant to, and in accordance with, the Security Documents and pursuant to, and in accordance with, the terms hereof. The Trustee and each of the Holders acknowledge that a release of any of the Collateral or any part of the Lien in accordance with the terms of any of the Security Documents and the terms hereof will not be deemed for any purpose to be an impairment of the Lien in contravention of the terms of this Indenture. To the extent applicable, the Company shall comply with Section 314 of the Trust Indenture Act relating to the release of property or securities from the security interest in the Collateral. Any certificate or opinion required by Section 314 of the Trust Indenture Act shall be set forth in an Officer's Certificate, except in cases in which Section 1015 of this Indenture or Section 314(d) of the Trust Indenture Act requires that such certificate or opinion be made by an independent person. ARTICLE FOURTEEN CASH COLLATERAL ACCOUNT SECTION 1401. CASH COLLATERAL ACCOUNT. The Company hereby acknowledges the establishment of the Cash Collateral Account. As collateral security for the due, full and prompt payment or performance when due of all of the Account-Related Obligations (as defined below), the Company hereby grants to the Trustee on behalf of the Holders a continuing first-ranking Lien (subject to Permitted Collateral Liens) upon and security interest in, and pledges and assigns to the Trustee on behalf of the Holders, all of the Company's right, title and interest in and to the Cash Collateral Account and all funds on deposit from time to time therein, together with all cash and non-cash proceeds (including, without limitation, investments made pursuant to Section 1402(d)) thereof and distributions with respect thereto, inclusive of all interest and earnings thereon and increments thereto (collectively, the "Account Collateral"), except for Account Collateral distributed in accordance with the terms of this Indenture, until the termination of the Cash Collateral Account pursuant to the terms of this Indenture. "Account-Related Obligations" means all of 120 the Company's present and future indebtedness, liabilities and obligations of any kind whatsoever, under, in connection with or relating to this Indenture, including, without limitation, the First Mortgage Notes and any ultimate unpaid balance thereof and to secure the due performance of all of the other present and future obligations of the Company to the Trustee (including obligations under Section 607 of this Indenture) and the Holders. From the date hereof and continuing until after satisfaction and discharge of this Indenture pursuant to Section 401 of this Indenture, the Cash Collateral Account shall be maintained with and managed by the Trustee, and the Trustee shall act with respect thereto only in accordance with this Indenture. SECTION 1402. TERMS OF CASH COLLATERAL ACCOUNT. (a) (i) From the date hereof and up and to satisfaction and discharge of this Indenture pursuant to Section 401, there shall be established by the Company a Cash Collateral Account with the Trustee in the name "Stone Container Corporation, subject to the lien and security interest in favor of Norwest Bank Minnesota, National Association" (or in the event a successor Trustee is appointed under this Indenture, a similar account shall be established consistently showing the name of such Trustee) which account shall be under the sole dominion and control of the Trustee acting in accordance with this Indenture. (ii) The Company shall have no right under the terms of the Cash Collateral Account established pursuant to clause (i) above, so long as any First Mortgage Note is Outstanding or other payments are due under this Indenture, to withdraw or instruct any Person to withdraw on its behalf any money from the Cash Collateral Account. The Company shall deposit, or shall have deposited as required by this Indenture, from time to time into the Cash Collateral Account all Net Proceeds from any Collateral Asset Disposition or Collateral Loss Event in the manner required by Section 1015, as well as any Insurance Proceeds or Condemnation Proceeds received in respect of a Partial Collateral Loss in the manner required by Section 1610. In addition, any income received by the Company or the Trustee with respect to the balance from time to time standing to the credit of the Cash Collateral Account shall be deposited in the Cash Collateral Account, and shall be applied to purchase Replacement Collateral pursuant to Section 1015, or applied to purchase First Mortgage Notes pursuant to all First Mortgage Note Offers made by the Company pursuant to Section 1015 following the date of such deposit, or applied to Restoration pursuant to Section 1610 in the event of a Partial Collateral Loss. All right, title and interest in and to the Account Collateral shall vest in the Trustee, shall constitute part of the Collateral hereunder and shall not constitute payment of the obligations of the Company 121 under Indenture or any Security Document or under the First Mortgage Notes, whether principal, premium, interest (including Defaulted Interest, and whether or not accruing after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company) or otherwise, until applied thereto as hereinafter provided. In the event that any amount is required to be deposited in the Cash Collateral Account as aforesaid, the Company shall take such actions at its sole expense as shall be required to ensure that the Trustee has from the date of such deposit a first ranking Lien and security interest (subject to Permitted Collateral Liens) on such deposit for the benefit of the Trustee and the Holders. Upon receipt of an appropriate Opinion of Counsel pursuant to Section 102 and in accordance with the Trust Indenture Act of 1939, the Trustee shall take such steps as shall be required to ensure that it has from the date of such deposit a first ranking Lien (subject to Permitted Collateral Liens) on such deposit for its benefit and for the benefit of the Holders. (iii) For so long as the First Mortgage Notes are Outstanding, the Trustee shall not exercise any right of setoff or recoupment or similar right that it may otherwise have against the Cash Collateral Account to satisfy obligations of the Company to the Trustee (other than those obligations that may have arisen under the Security Documents and in respect of the Collateral). (b) Except as otherwise provided in Section 1015, 1610 or subsection (c) of this Section 1402, no amount (including interest on amounts on deposit in the Cash Collateral Account) shall be paid or released to or for the account of, or withdrawn by or for the account of, the Company or any other Person from the Cash Collateral Account. (c) The balance from time to time standing to the credit of the Cash Collateral Account shall be distributed to the Company or any other Person entitled thereto only as permitted under Sections 1015 and 1610; PROVIDED that the Trustee shall not distribute to the Company or such other Person any such funds at any time a Default or an Event of Default shall have occurred and is continuing. If immediately available cash on deposit in the Cash Collateral Account is not sufficient to make any such permitted distribution, the Trustee shall liquidate as promptly as practicable Cash Equivalents as required to obtain sufficient cash to make such distribution and, notwithstanding any other provision of Sections 1015 and 1610 or this Section 1402, such distribution shall not be made until such liquidation has taken place. 122 (d) The Trustee shall invest from time to time amounts on deposit in the Cash Collateral Account in U.S. Government Obligations maturing within 30 days from the date of acquisition thereof, or a longer period (not exceeding one year) if the Company certifies to the Trustee that the funds are set aside either: (x) to purchase or invest in Replacement Collateral pursuant to Section 1015(a)(vii) in the event of a Collateral Asset Disposition; or (y) to Restore the relevant Collateral in accordance with Section 1610(c) and the Trustee shall at all times have the exclusive right to make investment decisions with respect to amounts on deposit in the Cash Collateral Account. Such investments described above shall be held in the name of the Trustee and shall be under the sole dominion and control of the Trustee, pursuant to this Article Fourteen, subject to the rights of the Trustee under Article Five. Each such investment shall be either: (i) evidenced by negotiable certificates or instruments, or if non-negotiable then issued in the name of the Trustee, which (1) are promptly upon acquisition delivered (together with any appropriate instruments of transfer) to, and held by, the Trustee or an agent thereof (which shall not be the Company or any of its Affiliates) in the State of New York or (2) held by of on behalf of The Depository Trust Company (the "Clearing Corporation") and credited to a securities account of the Trustee maintained with the Clearing Corporation; or (ii) maintained in book-entry form on the records of a Federal Reserve Bank and registered in the name of the Trustee, as depositary, in a book-entry securities account maintained with respect to such investment with the Federal Reserve Bank in the Federal Reserve District in which the Corporate Trust Office is located. The Company shall bear the risk of any realized losses incurred on such investments, and if any such realized loss shall occur on a day when the Company would not be permitted pursuant to subsection (a) of this Section 1402 to withdraw monies from the Cash Collateral Account, the Company shall promptly remit an amount equal to the amount of any such loss to the Trustee for credit to the Cash Collateral Account. SECTION 1403. REPRESENTATIONS, WARRANTIES AND COVENANTS SPECIFIC TO THE CASH COLLATERAL ACCOUNT. The Company represents, warrants and covenants that the Lien and security interest on the Account Collateral granted pursuant to Section 1401 is and will remain (and the Company will make all such future filings and take all such future actions as may be necessary or desirable in order to ensure that it remains) 123 a legal, valid, binding and enforceable Lien and security interest, securing the Account-Related Obligations, ranking prior and superior to all other Liens thereon (other than Permitted Collateral Liens), and covenants that it shall take all necessary action to cause and maintain a perfected first ranking Lien (subject to Permitted Collateral Liens) in such Cash Collateral Account). The Company represents and warrants that as of the date hereof, all filings and other actions necessary or desirable for the purpose of registering notice of, perfecting and establishing the first ranking of such Lien (subject to Permitted Collateral Liens) and security interest have been duly made or taken. At any time upon the reasonable request of the Trustee, the Company will, at the Company's sole expense, execute, acknowledge, deliver, record and/or file such documents or instruments in form reasonably satisfactory to the Trustee, and do such acts and things as may be reasonably necessary, desirable or proper to carry out more effectively the purposes of such Lien and security interest or to further assure, evidence, preserve or protect the perfection, ranking or other benefits thereof. ARTICLE FIFTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1501. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. The Company may at its option by Board Resolution, at any time, with respect to the First Mortgage Notes, elect to have either Section 1502 (if applicable) or Section 1503 (if applicable) be applied to the Outstanding First Mortgage Notes upon compliance with the applicable conditions set forth below in this Article. SECTION 1502. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of the option provided in Section 1501 to defease the Outstanding First Mortgage Notes, the Company shall be discharged from its obligations with respect to the Outstanding First Mortgage Notes on the date the applicable conditions set forth in Section 1504 are satisfied (hereinafter, "defeasance"). Defeasance shall mean that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding First Mortgage Notes and to have satisfied all its other obligations under such First Mortgage Notes, this Indenture and the Security Documents (and the Trustee, at the expense of the Company, shall executed proper instruments acknowledging the same); PROVIDED, HOWEVER, that the following rights, obligations, powers, trusts, duties and immunities shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding First Mortgage Notes to receive, solely from the trust fund provided for in Section 1504, payments in respect of the principal of (and 124 premium, if any) and interest on such First Mortgage Notes when such payments are due, (B) the Company's obligations with respect to such First Mortgage Notes under Sections 304, 305, 306, 1002, 1003 and 1607(e), (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article. Subject to compliance with this Article, the Company may exercise its option with respect to defeasance under this Section 1502 notwithstanding the prior exercise of its option with respect to covenant defeasance under Section 1503. SECTION 1503. COVENANT DEFEASANCE. Upon the Company's exercise of the option provided in Section 1501 to obtain a covenant defeasance with respect to the Outstanding First Mortgage Notes, the Company shall be released from its obligations under this Indenture (except its obligations under Sections 306, 506, 509, 610, 1001, 1002, 1011 and 1012) with respect to the Outstanding First Mortgage Notes on and after the date the applicable conditions set forth in Section 1504 are satisfied (hereinafter, "covenant defeasance"). Covenant defeasance shall mean that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in this Indenture (except its obligations under Sections 306, 506, 509, 610, 1001, 1002, 1011 and 1012), whether directly or indirectly by reason of any reference elsewhere herein or by reason of any reference to any other provision herein or in any other document, and such omission to comply shall not constitute an Event of Default under Section 501(3) with respect to Outstanding First Mortgage Notes, and the remainder of this Indenture and of the First Mortgage Notes shall be unaffected thereby. SECTION 1504. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to defeasance under Section 1502 and covenant defeasance under Section 1503 with respect to the Outstanding First Mortgage Notes: (1) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 609 who shall agree to comply with the provisions of this Article applicable to it), under the terms of an irrevocable trust agreement in form and substance reasonably satisfactory to such Trustee, as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders, (A) dollars in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, in each 125 case sufficient, after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any, on) and each installment of principal of (and premium, if any) and interest on the Outstanding First Mortgage Notes on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory payments applicable to the Outstanding First Mortgage Notes on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such First Mortgage Notes. (2) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit, and no Default or Event of Default under clause (6) or (7) of Section 501 hereof shall occur and be continuing, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such deposit, defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (4) Such defeasance or covenant defeasance shall not cause the First Mortgage Notes then listed on any national securities exchange registered under the Exchange Act to be delisted. (5) In the case of an election with respect to Section 1502, the Company shall have delivered to the Trustee either (A) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Outstanding First Mortgage Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred or (B) an Opinion of Counsel, based on such ruling or on a change in the applicable federal income tax law since the date of this Indenture, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding First Mortgage Notes will not recognize income, gain or loss for federal income tax purposes as a result of such 126 defeasance and will be subject to federal income tax on the same amounts, in the same manner and a the same times as would have been the case if such defeasance had not occurred. (6) In the case of an election with respect to Section 1503, the Company shall have delivered to the Trustee an Opinion of Counsel or a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Outstanding First Mortgage Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (7) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1502 or the covenant defeasance under Section 1503 (as the case may be) have been complied with. SECTION 1505. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1505, the "Trustee") pursuant to Section 1504 in respect of the Outstanding First Mortgage Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such First Mortgage Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such First Mortgage Notes of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1504 or the principal and interest received in respect thereof, other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding First Mortgage Notes. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations held by it as provided in Section 1504 which, in the 127 opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited for the purpose for which such money or U.S. Government Obligations were deposited. ARTICLE SIXTEEN COVENANTS SPECIFIC TO THE COLLATERAL PROPERTY SECTION 1601. GOOD TITLE; AUTHORITY; PRIORITY; MAINTENANCE OF TITLE; SUPPLEMENTAL INDENTURES; REGISTRATION, RECORDING AND FILING; CLOSING DOCUMENTS. (a) The Company represents, warrants and covenants that (i) it is and will be the sole owner of and has and will have good and indefeasible title in fee to the real property comprising part of each Collateral Property (except that the Company is and will be the sole holder of a leasehold interest in the portion of the Collateral Property located in Ontonagon, Michigan, as further described in the Mortgage relating to such Mortgaged Property) and good title to the balance of each such Collateral Property, and is now lawfully seized and possessed of the Collateral subject to the Liens created by the Security Documents (and any Permitted Collateral Liens); (ii) it has, and will have, good right and lawful authority to hypothecate, mortgage, pledge, assign, charge, cede and transfer all of the Collateral as provided in the Security Documents; (iii) the Collateral is, and will be, free and clear of any Lien, except Permitted Collateral Liens; and (iv) each Security Document, as applicable, creates and constitutes, and will create and constitute a valid and enforceable uninterrupted and perfected first ranking Lien (subject to Permitted Collateral Liens) on the Collateral. (b) The Company hereby does and will forever warrant and defend the title to the Collateral against the claims and demands of all Persons whomsoever and warrants that it will fully and effectively maintain the security created by the applicable Security Documents. The Company further represents and warrants that each of the material contracts, leases and agreements described in the Security Documents is in full force and effect and no defaults, waivers or indulgences exist thereunder. (c) The Company shall promptly after the execution thereof properly file or record, as applicable, the Security Documents in the appropriate public records, where, in the opinion of the Trustee, the filing or registration thereof may be necessary or advisable, and shall as applicable, from time to time renew the same, if such renewal is necessary or advisable in the opinion of the Trustee, to maintain such security. (d) Except as permitted by the Security Documents or this Indenture, the Company shall keep in effect all material rights and appurtenances to or that constitute a part of the Collateral. (e) As a condition to the effectiveness of this Indenture and the issuance of the First Mortgage Notes hereunder, 128 the Company shall have delivered to the Trustee the following documents relating to the Collateral in form and substance satisfactory to the Trustee and its counsel: (i) Security Documents and related lien searches for each Collateral Property; (ii) reports, ucc filings, tax liens, judgments and litigation with respect to each Collateral Property; (iii) title insurance policies and surveys for each Collateral Property; (iv) certificates of insurance; (v) environmental and engineer reports for each Collateral Property; (vi) evidence of compliance with zoning and other local laws (including possession of required permits) for each Collateral Property; (vii) opinion of local counsel in each jurisdiction where a Collateral Property is located; (viii) documents and opinions of counsel relating to the Company's due execution and delivery of the Security Documents; and (ix) such other documents as the Trustee or its counsel may reasonably request. SECTION 1602. FURTHER DOCUMENTATION TO ASSURE LIEN; FEES AND EXPENSES. (a) The Company shall, at its sole cost and expense, promptly do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, charges, mortgages, assignments, notices of assignment, transfers and assurances as the Trustee shall from time to time reasonably request, which may be necessary or advisable in the opinion of the Trustee from time to time to assure, perfect and maintain without interruption, convey, assign, transfer, hypothecate and confirm unto the Trustee the property and rights thereby conveyed, hypothecated or otherwise assigned, or which the Company hereunder or thereunder may be bound to convey, hypothecate or otherwise assign to the Trustee, or which may facilitate the performance of the terms of the first ranking Lien (subject to Permitted Collateral Liens) and any other Liens created under applicable Security Documents, or the filing, registering or recording of such applicable Security Document. (b) The Company shall promptly (i) deliver to the Trustee such supplemental agreements, documents or notices containing further descriptions of properties (including 129 replacements and additions to the Collateral) mortgaged or intended to be mortgaged by the applicable Security Document, as may, in the opinion of the Trustee, be necessary or advisable to give the Trustee valid and enforceable first ranking Liens (subject to Permitted Collateral Liens) upon such properties as contemplated by the granting clauses or the charging provisions of such applicable Security Document, and (ii) cause at all times to be kept registered, recorded and filed the applicable Security Document, any and all supplemental trust deeds and instruments of hypothec, mortgage, pledge, assignment, charge, cession and transfer or further assurance, any required financing and continuation statements and all other required papers in such manner and in such places as may in the opinion of the Trustee be required by law, or which may be necessary or advisable, in order fully to perfect, preserve and protect the uninterrupted Liens (subject to Permitted Collateral Liens) of the applicable Security Document as a mortgage, pledge, assignment, charge, cession and transfer of immovables and movables and interest therein. The Company shall promptly pay or cause to be paid all taxes, fees and other charges in connection with such recording and/or filing. (c) The Company shall from time to time execute and do or cause to be executed and done all such assurances and things as the Trustee may reasonably require for facilitating the realization of the Collateral, for exercising all the powers, authorities and discretion conferred upon the Trustee under such Security Document and for confirming to any purchaser of any of the Collateral, whether held by the Trustee under the applicable Security Documents or by judicial proceedings, the title to the properties so sold, and that it shall give or cause to be given all notices and directions as the Trustee may consider expedient. (d) If the government of any state in which any of the Collateral Property is located or any political subdivision thereof (including a municipality) shall levy, assess or charge any tax, imposition or assessment upon the Security Documents relating to the obligations or the interest of the Trustee, in any of the Collateral (other than income, franchise or similar taxes imposed on the Trustee or on the Holders), the Company shall pay all such taxes, assessments and impositions to, for or on account of the Trustee when due and payable and shall furnish promptly to the Trustee proof of such payment. Notwithstanding the foregoing, the Company may contest such amount paid or payable in accordance with the procedures set forth in Section 1606(d). SECTION 1603. IMPAIRMENT OF COLLATERAL. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, (i) incur or suffer to exist any Lien upon any of the Collateral other than Permitted 130 Collateral Liens, (ii) take any action or omit to take any action with respect to the Collateral that would or could be reasonably expected to have the result of adversely affecting, impairing or failing to maintain without interruption the security interests in the Collateral under this Indenture or the Security Documents, or (iii) grant any interest whatsoever (other than Permitted Collateral Liens) in any of the Collateral to any other Person (other than the Company or the Trustee), or suffer to exist any such interest. SECTION 1604. OBLIGATIONS WITH RESPECT TO LEASES AND MATERIAL CONTRACTS. (a) Without prejudice to Section 1603, if the Company shall be permitted to enter into any lease or sublease with respect to any of the Collateral Property, the Company shall not (i) execute any assignment of any such assigned lease or sublease or of the rents or any part thereof other than pursuant to the applicable Security Document, (ii) accept any prepayments of any installment of rents or other amounts to become due thereunder for a period exceeding one month (except for a security deposit), or (iii) enter into or modify any such assigned lease in any fashion which will (x) interfere in any material respect with the ordinary operation of such Collateral Property or (y) materially and adversely affect the value of such Collateral Property or the security provided by the applicable Security Document, without the prior written consent of the Trustee. (b) The Company shall furnish to the Trustee, upon the request thereof, within thirty (30) days after such request to do so, a written statement in respect of any or all of the leases that include any of the Collateral Properties, setting forth the space occupied, if any, the portion of the Collateral Property demised thereby, the rentals or other amounts payable thereunder, and such other information as the Trustee may reasonably request (to the extent reasonably available to the Company). (c) The Company shall notify the Trustee annually, within 90 days from the end of each of its fiscal years, of the existence of any and all leases or leasing contracts in respect of any part of the Collateral. SECTION 1605. USE AND CONFIGURATION; MAINTENANCE OF COLLATERAL PROPERTIES. (a) The Company represents and warrants that (i) the Collateral Properties are served by all utilities required or necessary for the current use thereof, (ii) all streets necessary to serve the Collateral Properties are substantially completed and serviceable and have been dedicated and accepted as such by each governmental authority having jurisdiction and (iii) the Company has access to the Collateral Properties from public roads or by way of recorded easements sufficient to allow the Company 131 to conduct its business as conducted presently at such Collateral Properties. (b) The Company shall, at all times, make or cause to be made such expenditures by means of renewals, replacements, repairs, maintenance or otherwise as shall be necessary to maintain, preserve and keep the Collateral Properties in good working order, condition and repair (ordinary wear and tear excepted), in a state of good operating efficiency, and shall not commit any waste on or with respect to the Collateral Properties that has the effect of reducing materially the value of such Collateral or any other property of the Company or its Restricted Subsidiaries constituting Collateral. The Company (i) shall not alter or permit to be altered the occupancy of the Collateral Properties or use of all or any part of the Collateral Properties without the prior written consent of the Trustee if such alteration could reasonably be expected to reduce materially the value of the Collateral, and (ii) shall do all other acts which from the character or use of the Collateral Properties reasonably may be necessary, advisable or appropriate to comply with the terms of this Indenture and the Security Documents. Except as otherwise permitted by this Indenture or the Security Documents, the material improvements to the Collateral Properties and any material machinery and equipment shall not be demolished, nor shall any such material improvements, machinery and equipment be removed without the prior written consent of the Trustee. (c) The Company shall duly observe and conform to all covenants, terms and conditions under or upon which any part of the Collateral is held. SECTION 1606. PAYMENT OF TAXES, ASSESSMENTS; COMPLIANCE WITH LAW. (a) Unless contested in accordance with the provisions of Subsection (d) below, the Company shall pay and discharge, from time to time when the same shall become due, all immoveable and other taxes, special assessments, levies, permits, inspection and license fees, all utility charges, including water and sewer rents and charges, and all other public charges, imposed upon or assessed against the Collateral or any part thereof or upon the revenues, rents, issues, income and profits of the Collateral or any part thereof, including, without limitation, those arising in respect of the occupancy, use or possession thereof. (b) From and after the occurrence and during the continuance of an Event of Default, the Company shall pay directly to the Trustee for deposit into the Cash Collateral Account, on the first day of each month, an amount reasonably estimated by the Trustee to be equal to one-twelfth (1/12th) of the annual taxes, assessments and other items required to be discharged by the Company under Subsection (a) above. Such amounts shall be held by the Trustee in the Cash Collateral 132 Account and (at the time that any payment is due pursuant to Subsection (a) above) the Trustee, after receipt of an Officer's Certificate, shall release an amount to make such payment and to apply such amount to the payment that is due. If the amounts so deposited by the Company into the Cash Collateral Account under this Subsection (b) prove insufficient to pay the amounts required to be discharged by the Company, then, upon demand, the Company shall pay directly to the Trustee for deposit into the Cash Collateral Account such additional amounts. In the event that the First Mortgage Notes become immediately due and payable upon maturity or acceleration, or the Collateral becomes enforceable otherwise, the Trustee may apply all or any part of the sums held pursuant to this Subsection (b) to payment and performance of the Company's obligations in accordance with this Indenture and the applicable Security Document, until such time, if any, that such acceleration is rescinded in accordance with this Indenture. (c) The Company currently has and shall maintain in full force and effect all material Permits now or hereafter required by any Authority (including, without limitation, building ordinances and codes and zoning requirements) to operate or use and occupy the Collateral Properties for their intended uses or that otherwise relate to the Collateral Property. Unless contested in accordance with the provisions of Subsection (d) below, the Company shall comply promptly in all respects with all requirements set forth in the permits and all requirements of any law, ordinance, rule, regulation or requirement of any Authority related to all or any part of the Collateral Property or the condition, use or occupancy of all or any part thereof or any recorded deed of restriction, declaration, covenant running with the land or otherwise, now or hereafter in force, except in such cases where such noncompliance would not have a material adverse effect on the condition, use, operation or value of the relevant Collateral Property. The Company shall not initiate or consent to any change in the zoning or any other permitted use classification of any Land which could reasonably be expected to have a material adverse effect on the Lien under the applicable Security Document or the value of any Collateral Property without the written consent of the Trustee. (d) The Company may at its own expense contest the amount or applicability of any of the obligations described in Subsections (a) and (c) above by appropriate legal proceedings, prosecution of which operates to prevent the collection thereof and the sale or forfeiture of the Collateral or any part thereof to satisfy the same; PROVIDED, HOWEVER, that in connection with such contest, the Company shall (i) have made provision for the payment of such contested amount on the Company's books if and to the extent required by GAAP or (ii) if deemed necessary or advisable in the opinion of the Trustee, pay directly to the Trustee for deposit into the Cash Collateral Account a sum sufficient to pay and discharge such obligation and the Trustee's estimate of all interest and penalties related thereto. 133 Notwithstanding the foregoing provisions of this subsection (d), (1) no contest of any such obligations may be pursued by the Company if such contest would (y) expose the Trustee or any Holder to any criminal liability or, unless the Company shall have furnished a bond or other security therefor reasonably satisfactory to the Trustee, any additional civil liability for failure to comply with such obligations, or (z) have a material adverse effect on the Collateral and (2) if at any time payment of any obligation imposed upon the Company by this Section 1606 shall become necessary to prevent the delivery of a sale for tax conveying the Collateral or any portion thereof because of nonpayment, the Company shall pay the same in sufficient time to prevent the delivery of such sale by any Authority. SECTION 1607. ENVIRONMENTAL MATTERS. (a) The Company (i) shall be, and shall cause its Restricted Subsidiaries to be, at all times in compliance in all material respects with all applicable Environmental Laws and (ii) shall ensure, and shall cause its Restricted Subsidiaries to ensure, that the condition of all property forming part of the Collateral is in compliance in all material respects with Environmental Laws. (b) The Company shall, and shall cause its Restricted Subsidiaries to, promptly provide notice to the Trustee of any written notice received to the effect that any of them is or may reasonably be likely to become liable to any Person or governmental authority in an amount in excess of $1,000,000 as a result of: (i) any violation or alleged violation by any of them of any Environmental Laws, (ii) any administrative or judicial complaint or order filed against any of them alleging a violation of any Environmental Laws, (iii) any breach or alleged breach of any environmental certificate, approval or permit relating to the installations or operations at the Collateral Properties, or (iv) any liability arising out of the Release or threatened Release of any Contaminant into the environment or for any damages resulting from such Release. (c) Upon reasonable request and at reasonable intervals, the Company shall, and shall cause its Restricted Subsidiaries to, provide the Trustee with updated information concerning any matter for which notice is provided under subparagraph (b) above. In addition, upon written request by the Trustee, but no more frequently than annually, the Company shall, and shall cause its Restricted Subsidiaries to, submit to the Trustee a report ("Environmental Report") providing an update of the status of each environmental, health or safety compliance, hazard or liability issue identified in any notice required pursuant to subparagraph (b), above. In the event the Company or the Restricted Subsidiaries receives any written notice from any governmental authority, or 134 if there is a change in Environmental Laws, either of which is reasonably likely to give rise to a material adverse effect on any Collateral Property, the Trustee, in its discretion, acting reasonably, may require the Company to undertake an environmental assessment, evaluating potential costs to correct or meet such change in law, using qualified engineers or environmental consultants, for any property affected by such notice or change in law and forming part of the Collateral, which assessments shall be treated as confidential by Trustee. (d) The Company shall, and shall cause its Restricted Subsidiaries to, diligently undertake any Remedial Action required under Environmental Laws in the event of (i) any violation of any Environmental Laws, (ii) any Release of any Contaminant on any property forming part of the Collateral or owned by the Company or its Restricted Subsidiaries or (ii) any other Release or threatened Release of a Contaminant into the Environment occurring in the course of the operations of the Company or its Restricted Subsidiaries or originating from said property; provided, however, that the Company and its Restricted Subsidiaries shall have no obligations under this subparagraph (d) to the extent any of them is diligently prosecuting a defense or other legal challenge to any alleged liability or requirement for Remedial Action. (e) The Company hereby undertakes, to the extent permitted by applicable law, to indemnify the Holders, as well as the Trustee, their officers, directors, employees, agents and shareholders, and agrees to hold each of them harmless from and against any and all losses, liabilities, damages, reasonable costs, expenses and claims of any and every kind whatsoever, arising out of or related to: (i) defending and/or counter-claiming or claiming over against third parties in respect of any environmental action or matter relating to any property that forms part of the Collateral, and (ii) any cost, liability or damage arising out of the disposition or settlement of any environmental action entered into by the Trustee relating to any property that forms part of the Collateral, and which at any time or from time to time may be paid or incurred by, or asserted against the Trustee for, with respect to or as a direct or indirect result of (a) the presence in contravention of any Environmental Law (or any governmental directive given to the Company or any of its Restricted Subsidiaries) on or under, or the Release from any property that forms part of the Collateral, or any other property owned or occupied by the Company or any of its 135 Restricted Subsidiaries, of any Contaminant into the environment and (b) a failure on the part of the Company or its Restricted Subsidiaries to comply with any Environmental Laws. The provisions of any undertakings and indemnifications set out in this Section 1607 shall survive the satisfaction of the Company's obligations under the First Mortgage Notes, and its release from all other obligations under this Indenture and the Security Documents. Notwithstanding the foregoing, the indemnity provided by the Company and its Restricted Subsidiaries pursuant to this Section 1607(e) shall not apply to any liabilities or costs arising out of the gross negligence or wilful misconduct of Trustee or to liabilities arising out of the actions or inactions of third parties after any transfer of any property forming a part of the Collateral. SECTION 1608. CONDEMNATION. If there shall occur any Condemnation or commencement of proceedings thereof with respect to Collateral that has a fair value exceeding $500,000.00, the Company shall immediately notify the Trustee upon receiving notice of such Condemnation or commencement of proceedings therefor. Any such Condemnation Proceeds are hereby assigned to the Trustee and shall be deposited directly into the Cash Collateral Account to be held subject to the terms of this Indenture (including Section 1610) and the applicable Security Documents, provided that, so long as no Event of Default has occurred and is continuing, such Condemnation Proceeds need not be so deposited unless they exceed two million five hundred thousand dollars ($2,500,000). The Company shall take all steps necessary to notify the condemning authority of such assignment. SECTION 1609. REQUIRED INSURANCE POLICIES. The Company shall maintain in full force the insurance coverages in respect of the Collateral required by this Section 1609 as follows: (A) POLICIES TO BE MAINTAINED: The Company shall take out and maintain at all times the following policies of insurance relating to the Collateral Properties and their operation with financially sound and reputable insurers: (1) "ALL RISKS" PROPERTY INSURANCE: Property insurance on an "all risks" basis against physical loss of, damage to or impairment of the material improvements, machinery and equipment, including coverage of the risks of earthquake and flood. All such insurance shall be for not less than full replacement cost value, with limits and sublimits, if any, consistent with Subsection (B) below. 136 The policy will apply in connection with construction, renovation, replacement and expansion. (2) BUSINESS INTERRUPTION INSURANCE: Business interruption insurance written on a gross earnings form to cover the actual loss sustained, including loss of earnings, fixed costs and debt service, resulting from interruption of business operations due to physical loss of, damage to or impairment of the material improvements, machinery and equipment. (3) BOILER AND MACHINERY INSURANCE: Comprehensive broad form boiler and machinery insurance to cover physical loss or damage, which insurance shall be for not less than full replacement cost value, with limits and sublimits, if any, consistent with Subsection (B) below. (4) COMPREHENSIVE GENERAL LIABILITY INSURANCE: Comprehensive general liability insurance to cover all sums which the Company or its Restricted Subsidiaries shall become obligated to pay by reason of liability imposed by law upon the insured or assumed by the insured under any contract for damages because of bodily injury or property damage, including in connection with any construction. Such insurance shall include the policy extensions commonly referred to as: (i) Blanket written and oral contractual liability; (ii) Owner's and contractor's protective liability; (iii) Personal injury liability; (iv) Employer's liability; (v) Property damage on a broad form basis; (vi) Non-owned automobile liability; (vii) Non-owned watercraft liability; (viii) Named peril pollution liability, including legal liability for any evacuation; and (ix) Products and completed operations liability. (5) AUTOMOBILE LIABILITY INSURANCE: Automobile liability insurance on all vehicles owned, leased, hired, operated or licensed by or in the name of the Company for bodily injury, death or property damage, including loss of use thereof. 137 (6) UMBRELLA LIABILITY INSURANCE. Excess or umbrella liability insurance in respect of the insurance required by paragraphs (4) and (5) of this Subsection 1609(A) in the aggregate in excess of the underlying limits of the policies taken out pursuant to said paragraphs (4) and (5). (B) DEDUCTIBLES AND MULTIPLE INSUREDS: Deductibles, limits and sublimits in connection with any insurance policies required under this Section 1609 shall be for such amounts as would be purchased by a prudent Person engaged in the pulp and paper industry in North America and similarly situated with the Company. If any such policies insure others as well as the Company, it will contain a cross-liability or severability of interests clause. (C) OTHER POLICIES TO BE MAINTAINED: Notwithstanding anything contained in this Section 1609, the Company shall take and maintain all such other insurance policies as may be required from time to time by any applicable statute, regulation, decree or court order. Moreover, the Trustee shall, after consultation with the Company, be entitled, acting reasonably, to require the Company to amend the scope or limits of insurance (including but not limited to decreases or increases in limits to take into account deflation or inflation) or to obtain such additional insurance, all as may be advisable in accordance with industry practice, and the Company shall comply with any request by the Trustee to do so within thirty days of such request (or such longer period as may be reasonably required to obtain such amendment or new insurance). If any insurance required to be maintained by the Company under this Section 1609 is not available on a commercially reasonable basis as a result of changes in the insurance market occurring after the date hereof, the Company may so advise the Trustee, and the Company shall procure such insurance most closely approximating the required insurance which is not available at commercially reasonable rates as determined by a Person qualified to survey risks and to recommend insurance coverage for companies in the pulp and paper industry that is not an employee, officer or director or Affiliate of the Company or any of its Affiliates selected by the Company and approved by the Trustee, as specified in a certificate of such Person delivered to the Trustee, PROVIDED that this provision shall not relieve the Company of the obligation of maintaining the insurance as required in Section 1609 (A)(1), (2) or (3). 138 (D) POLICY REQUIREMENTS: (1) PARTIES PROTECTED. The interest of the Trustee under this Indenture and as mortgagee and secured creditor in the Collateral under the Security Documents shall be noted as loss payee upon all property policies taken out by the Company relating to the Collateral, whether or not required by this Section 1609. Each of the said policies will contain a mortgage clause and a breach of conditions endorsement or extension, in form and substance satisfactory to the Trustee. The interests of other hypothecary creditors may also be noted upon property policies or protected by a mortgage clause, PROVIDED that their encumbrances relate to property other than the Collateral. Each of the said policies will contain a waiver of subrogation by the insurer against the Trustee and against the other hypothecary creditors whose interests are noted, and all of their directors, officers and employees. Each policy of insurance referred to in paragraphs (A) (1), (2), (3) and (4) shall provide for automatic assignment to the Trustee and coverage for a minimum of sixty days, regardless of the policy expiration date, after the Trustee shall have taken possession or become owner of the material improvements, machinery and/or equipment. Each liability policy written on a claims made basis shall provide that if it remains in force at the time the Security Documents is discharged, the claims reporting period will, on the request of the Trustee, be continued for one year after the expiry date of the policy. The Trustee shall be named as additional insureds under all liability policies taken out by the Company relating to the Collateral, including, without limitation, those referred to in paragraphs (A)(4) and (6). (2) NOTICE REQUIREMENTS IN POLICIES: All insurance policies shall provide for sixty days' prior written notice of cancellation, termination or material change to the Trustee and the other hypothecary creditors whose interests are noted. (3) INSURER, FORM OF POLICY: All insurance policies required by this Indenture or the Security Documents shall be taken out with reputable insurers and reinsurers which are acceptable to the Trustee, acting reasonably and in consultation with the Company's insurance broker, and which are licensed to do business as required. All such policies shall be in form acceptable to the Trustee, acting reasonably and in consultation with the Company's insurance broker. 139 All insurance shall provide primary coverage for the risks insured, without right of contribution of any other insurance carried by or on behalf of the Trustee with respect to its interest in the material improvements, machinery and equipment. All insurance shall be endorsed to provide that, inasmuch as the policy is written to cover more than one insured, all terms, conditions, insuring agreements and endorsements, with the exception of insurers limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. (4) NO CO-INSURANCE: No property policies shall permit co-insurance. (E) COMPANY'S OBLIGATIONS CONCERNING INSURANCE: (1) PAYMENT OF PREMIUMS: The Company will pay punctually all premiums payable for all insurance taken out and maintained by it and will on request furnish the Trustee with proof of such payment. (2) DELIVERY OF POLICIES, RENEWALS AND AMENDMENTS: The Company shall promptly deliver to the Trustee copies of all certificates and policies of insurance taken out by it, certified by the insurer or its authorized representative in each case. The Company shall also provide evidence (which may include cover notes or binders) of every renewal or replacement of a policy at least ten days prior to its expiry date. If any policy is materially and adversely amended the Company shall promptly provide the Trustee with a certified copy of such amendment. (3) ANNUAL CERTIFICATE OF INSURANCE: The Company will on or before the renewal date of each policy in each year deliver to the Trustee certificates of insurance issued by each of its insurers, in form and substance satisfactory to the Trustee, certifying which policies of insurance have been obtained or renewed and listing all policies in force. In addition, the Company shall deliver a certificate stating the following in respect of each such policy: (i) the policy limits; (ii) the insurance companies or underwriters carrying the insurance; (iii) the effective and expiry dates of the policy, and (iv) that the policy complies with the provisions of Section 1609(D). 140 (4) COMPLIANCE WITH POLICY REQUIREMENTS: The Company shall comply with all material requirements of all policies of insurance and in particular will promptly inform each of its insurers of all material events and matters which it is necessary to disclose to such insurer to preserve or obtain coverage. Without limiting the generality of the foregoing, the Company shall not in its use and occupancy of the Collateral Properties (including, without limitation, in the making of any alteration thereto) take any action that could reasonably be expected to be the basis for termination, revocation or denial of any insurance coverage required to be maintained under this Indenture or that could reasonably be expected to be the basis for a defense to any claim under any insurance policy maintained in respect of the Collateral. (5) AMOUNT OF COVERAGE: Wherever the Company is required to maintain insurance coverage for full replacement cost value or for full indemnity, it shall make due allowance for the anticipated effect of inflation or increases in costs, expenditures or revenues, as may be reasonably foreseeable. (6) NOTIFICATION OF TRUSTEE AND FILING OF PROOFS OF CLAIM: In the event of any total or partial loss with respect to any Collateral in excess of $[500,000.00] in the reasonable estimation of the Company, the Company shall notify the Trustee and any other hypothecary creditor whose interest is noted of such occurrence within thirty days of the date of the occurrence and shall do or cause to be done all such acts and things as may be necessary or advisable to obtain prompt payment of all insurance proceeds in relation thereto in accordance with the terms hereof, including (without limitation) the timely filing of interim and final proofs of loss with insurers subject, however, to the provisions of Section 1610. (F) NO OBLIGATION ON TRUSTEE: The Trustee makes no representation or warranty as to the sufficiency or adequacy of the insurance coverage required to be maintained pursuant to this Section 1609. The Trustee shall have no obligation to verify any information or statement contained in any certificate or policy delivered to it. (G) TRUSTEE MAY INSURE: If the Company fails to take out or maintain insurance as required by this Section 1609, and if it fails to rectify such situation within forty-eight hours after notice from the Trustee, the Trustee shall have the right but not the obligation to take out and maintain such insurance at the cost of the Company. No 141 insurance taken out by the Trustee shall relieve the Company of its obligation to insure hereunder and the Trustee shall not be liable for any loss or damage suffered by the Company in connection therewith. (H) Any and all Insurance Proceeds (except if no Event of Default has occurred and is continuing, and the total Insurance Proceeds received in connection with a Casualty do not exceed two million five hundred thousand dollars ($2,500,000)) received by the Company shall be paid to the Trustee to be deposited directly and held in the Cash Collateral Account subject to the terms of this Indenture, including Section 1610. Following an Event of Default, all proceeds of insurance for business interruptions of a Collateral Property shall be paid directly into the Cash Collateral Account, and shall be subject to the Lien (subject to Permitted Collateral Liens) of the applicable Security Document and shall be applied in accordance with the terms of this Indenture. SECTION 1610. WITHDRAWALS OF CONDEMNATION PROCEEDS AND INSURANCE PROCEEDS. (a) In the event of any Casualty or Condemnation not involving or constituting a Collateral Loss Event (for which no Event of Default has occurred and is continuing, and the Insurance Proceeds or Condemnation Proceeds exceed two million five hundred thousand dollars ($2,500,000)) (a "Partial Collateral Loss"), (1) the Insurance Proceeds or Condemnation Proceeds therefrom shall be paid directly to the Trustee for deposit in the Cash Collateral Account and (2) the Company shall take such actions, at its sole expense, as may be required to ensure that the Trustee has from the date of such deposit a first ranking Lien (subject to Permitted Collateral Liens) on such Insurance Proceeds or Condemnation Proceeds pursuant to the applicable Security Document or this Indenture. The Company shall apply all such Insurance Proceeds or Condemnation Proceeds to commencement and completion of Restoration of the Collateral affected by the relevant Casualty or Condemnation. (b) In connection with any Partial Collateral Loss, or any Collateral Loss Event with respect to which the Company has elected to apply the Insurance Proceeds or Condemnation Proceeds, as the case may be, to Restoration of the relevant Collateral pursuant to Section 1015(b)(iii)(B), the Company shall take such actions, at its sole expense, as shall be required to permit the Trustee to release such Insurance or Condemnation Proceeds from the Lien thereon. Upon the receipt of an appropriate Opinion of Counsel pursuant to Section 102 and in accordance with the Trust Indenture Act of 1939, and any related documentation, the Trustee shall release to the Company the Insurance Proceeds or Condemnation Proceeds from such Casualty or Condemnation on deposit in the Cash Collateral Account (less the cost of recovering and paying out such Insurance Proceeds or Condemnation Proceeds, including attorneys' fees and costs allocable to inspecting the Work (as defined below) and the plans and 142 specifications therefor) in order to enable the Company to Restore the relevant Collateral to at least its general utility and value prior to the relevant Casualty or Condemnation, only in accordance with the following procedures: (1) if the cost of the work to be completed (the "Work"), estimated by the Company, shall exceed $10,000,000.00, the Work shall be under the charge of an architect, engineer or construction manager (who may be an employee of the Company) and, before the Company commences any Work, other than temporary Work to protect property to prevent interference with business and Restoration work up to $5,000,000.00, the Trustee and an independent consulting engineer selected by the Company and approved by the Trustee shall have approved the plans and specifications for the Work, which approval shall not be unreasonably withheld or delayed, it being nevertheless understood that said plans and specifications shall provide for such Work that, upon completion thereof, the improvements shall be at least equal in general utility and value to the Improvements that were on the site prior to the Condemnation or Casualty; (2) each request for payment shall be made on no less than 10 nor more than 30 days' prior notice to the Trustee and shall be accompanied by a certificate to be made by such architect, engineer or construction manager, if supervision is required by such a person under clause (1) of this Section 1610(b), and by an Officer's Certificate, stating (i) that all of the Work completed has been done substantially in compliance with the approved plans and specifications, if any is required under said clause (1), (ii) that the sum requested is required to pay, or to reimburse the Company for the cost incurred in connection with, such Work (giving a brief description of the services and materials provided in connection with such Work); (iii) that the sum requested, when added to all proceeds previously paid out by the Trustee, does not exceed the value of the Work done (including down payments made to suppliers related to the Work in accordance with customary practice) as of the date of such certificate (less any retainer set forth in the relevant construction contract, if applicable, which shall contain customary provisions) and (iv) that the amount of Insurance Proceeds or Condemnation Proceeds, as the case may be, from the relevant Casualty or Condemnation remaining in the Cash Collateral Account, together with the Insurance Proceeds or Condemnation Proceeds which will thereafter become available in connection therewith (together with any funds of the Company other than Condemnation Proceeds or Insurance Proceeds deposited by the Company in the Cash Collateral Account for purposes of completion of such Work), will at all times be sufficient to complete the Restoration (giving in such 143 reasonable detail as the Trustee may require an estimate of the cost of such completion); (3) each request shall be accompanied by waivers of Liens (conditional as to the current request and unconditional as to prior requests) satisfactory to the Trustee covering that part of the Work for which payment or reimbursement is being requested and by evidence satisfactory to the Trustee that there has not been filed with respect to the Collateral Property any mechanic's or other Lien or instrument for the retention of title in respect of any part of the Work not discharged of record (other than Permitted Collateral Liens); (4) any Work shall, once commenced, be prosecuted diligently to completion in a good and workmanlike manner in material compliance with all applicable Legal Requirements; (5) each request shall be accompanied by an Officer's Certificate dated not more than 10 days prior to the date of such request to the effect that (i) no material contract, lease or license affecting the relevant Collateral Property immediately prior to the relevant Casualty or Condemnation shall have been canceled, or contain any still exercisable right to cancel, due to such Condemnation or Casualty; (ii) no Default or Event of Default shall have occurred and be continuing; (6) the request for any payment after the Work has been completed shall be accompanied by a copy of any certificate or certificates required by law to render occupancy of the relevant Collateral Property legal; (7) the buildings, equipment or other improvements or fixtures covered by the Work shall be subject to the Lien of and security interest created by the Security Documents (subject only to Permitted Collateral Liens) and the Trustee shall have received an Opinion of Counsel satisfactory to it to this effect; (8) each request shall be accompanied by the documentation required under Section 314(d) of the Trust Indenture Act; (9) during the performance of any such Work, the Company shall procure and maintain the insurance coverages required under Section 1609 hereof, including business interruption insurance covering the entire period of Restoration; and 144 (10) the Company shall provide such other documents as the Trustee may reasonably require. (c) All Restoration shall be completed within 360 days from the receipt of the Insurance Proceeds or Condemnation Proceeds from the relevant Casualty or Condemnation, PROVIDED that, in the event that the Company enters into a binding Commitment to Restore the relevant Collateral within six months from such receipt, the Company shall have 24 months from such receipt to complete the Restoration, which shall be carried out with due diligence. (d) In the event that any Condemnation Proceeds or Insurance Proceeds, as the case may be, remain on deposit in the Cash Collateral Account following payment of all costs in connection with the Restoration of a Collateral Property to substantially its prior value and general utility, such funds shall remain on deposit in the Cash Collateral Account and will be made available by the Trustee to the Company from time to time either (i) for the construction of improvements at any Collateral Property, which shall become subject to the first ranking Lien of the Trustee (subject to Permitted Collateral Liens) in accordance with substantially the same procedures set forth in paragraph (b) above or (ii) for the purchase of additional Collateral to be made subject to a first ranking Lien of the Trustee (subject to Permitted Collateral Liens) in accordance with substantially the same procedures set forth in Section 1015. In the event that any funds of the Company other than Insurance Proceeds or Condemnation Proceeds deposited by the Company in the Cash Collateral Account for purposes of completing the relevant Work in accordance with Section 1610(b)(2) hereof remain at such time, such funds shall be returned to the Company. In the event that, following a Partial Collateral Loss resulting from a Condemnation, it is determined by the engineering firm engaged pursuant to Section 1610(b)(1) that Restoration of the relevant Collateral Property is impossible or impracticable or that the Condemnation did not materially and adversely affect the then current or anticipated operations of the Collateral Property, the Condemnation Proceeds may be used in their entirety to purchase Replacement Collateral, in accordance with substantially the same procedures set forth in Section 1015. (e) EVENT OF DEFAULT: If an Event of Default has occurred and is continuing under this Indenture, the First Mortgage Notes or any Security Document, the Trustee may, notwithstanding anything herein contained, apply any Insurance Proceeds, Condemnation Proceeds, proceeds from business interruption insurance deposited in the Cash Collateral Account pursuant to Section 1609(H), or any amounts held by it or held in the Cash Collateral Account, to the satisfaction of the Company's obligations under this Indenture. If an event has occurred 145 which, with the passage of time after notice, may become an Event of Default, the Trustee shall be entitled to hold any such proceeds or amounts pending expiry of the notice period. SECTION 1611. INSPECTION. The Company shall, and shall cause each of its Restricted Subsidiaries to, permit authorized representatives of the Trustee (i) to inspect and obtain copies of all records and documents relating to the properties of the Company or its Subsidiaries constituting Collateral in the possession of any federal, state or municipal authorities and shall sign or cause to be signed any documents required for this purpose, and (ii) to visit and inspect the properties of the Company or its Restricted Subsidiaries constituting Collateral, and any or all books, records and documents in the possession of the Company relating to the Collateral, and to make copies and take extracts therefrom and to visit and inspect the Collateral, all upon reasonable prior notice and at such reasonable times during normal business hours and as often as may be reasonably requested. SECTION 1612. FAILURE TO MAKE CERTAIN PAYMENTS. If the Company shall fail to perform any of the covenants contained in this Article Sixteen, including, without limitation, the Company's covenants to pay the premiums in respect of all required insurance coverages, and such failure shall continue after any applicable notice and grace period, the Trustee may, but shall not be obligated to, and shall have no liability whatsoever for its failure to, make advances to perform such covenant on the Company's behalf, and all sums so advanced shall be immediately due and payable by the Company and shall bear interest at a rate which shall equal the highest interest rate then applicable under this Indenture. Neither the provisions of this Section 1612 nor any action taken by the Trustee pursuant to the provisions of this Section 1612 shall prevent any such failure to observe any covenant contained in this Indenture or the Security Documents from constituting a Default or an Event of Default. 146 This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STONE CONTAINER CORPORATION By:________________________ Name: Title: [SEAL] Attest: ____________________________ Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ______________________, as Trustee By:_______________________________ Name: Title: [CORPORATE SEAL] Attest: ____________________________ Name: Title: 147 STATE OF ILLINOIS ) ) SS.: COUNTY OF COOK ) On the ____ day of ________, 1994, before me personally came ____________, to me known, who, being by me duly sworn, did depose and say that he is _______________________, one of the parties described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal, that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. _______________________________ My commission expires: STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) On the ____ day of ________, 1994, before me personally came _____________, to me known, who, being by me duly sworn, did depose and say that he is _________ of _________________, one of the parties described in and which executed the foregoing instrument; that he knows the seal of said bank; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said bank; and that he signed his name thereto by like authority. _______________________________ My Commission Expires: EX-4.(T) 4 EXHIBIT 4(T) Exhibit 4(t) DRAFT September 27, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STONE CONTAINER CORPORATION, as Issuer TO THE BANK OF NEW YORK, as Trustee --------------- Indenture Dated as of October __, 1994 --------------- up to $200,000,000 __% Senior Notes due 2004 - -------------------------------------------------------------------------------- STONE CONTAINER CORPORATION Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of October __, 1994 Trust Indenture Indenture Section Act Section Section 310(a)(1). . . . . . . . . . . . . . 609 (a)(2). . . . . . . . . . . . . . . . . . 609 (a)(3). . . . . . . . . . . . . . . . . . Not Applicable (a)(4). . . . . . . . . . . . . . . . . . Not Applicable (a)(5). . . . . . . . . . . . . . . . . . 609 (b) . . . . . . . . . . . . . . . . . . . 608, 610 (c) . . . . . . . . . . . . . . . . . . . Not Applicable Section 311(a) . . . . . . . . . . . . . . . 613 (b) . . . . . . . . . . . . . . . . . . . 613 (b)(2). . . . . . . . . . . . . . . . . . 703(a), 703(b) Section 312(a) . . . . . . . . . . . . . . . 701, 702(a) (b) . . . . . . . . . . . . . . . . . . . 702(b) (c) . . . . . . . . . . . . . . . . . . . 702(c) Section 313(a) . . . . . . . . . . . . . . . 703(a) (b) . . . . . . . . . . . . . . . . . . . 703(b) (c) . . . . . . . . . . . . . . . . . . . 703(a), 703(b) (d) . . . . . . . . . . . . . . . . . . . 703(b) Section 314(a)(1) . . . . . . . . . . . . . 704 (a)(2). . . . . . . . . . . . . . . . . 704 (a)(3). . . . . . . . . . . . . . . . . 704 (a)(4). . . . . . . . . . . . . . . . . 1011 (b) . . . . . . . . . . . . . . . . . . Not Applicable (c)(1). . . . . . . . . . . . . . . . . . 102 (c)(2). . . . . . . . . . . . . . . . . . 102 (c)(3). . . . . . . . . . . . . . . . . . Not Applicable (d) . . . . . . . . . . . . . . . . . . . 1009 (e) . . . . . . . . . . . . . . . . . . . 102 (f) . . . . . . . . . . . . . . . . . . . Not Applicable Section 315(a) . . . . . . . . . . . . . . . 601(a) (b) . . . . . . . . . . . . . . . . . . . 602, 703(a) (c) . . . . . . . . . . . . . . . . . . . 601(b) (d) . . . . . . . . . . . . . . . . . . . 601(c) (d)(1). . . . . . . . . . . . . . . . . . 601(a), 601(c) (d)(2). . . . . . . . . . . . . . . . . . 601(c) (d)(3). . . . . . . . . . . . . . . . . . 601(c) (e) . . . . . . . . . . . . . . . . . . . 514 Section 316(a) . . . . . . . . . . . . . . 101 (a)(1)(A) . . . . . . . . . . . . . . . . 512 (a)(1)(B) . . . . . . . . . . . . . . . . 502, 513 (a)(2). . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . 508 ____________________ NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. Section 317(a)(1). . . . . . . . . . . . . . 503 (a)(2). . . . . . . . . . . . . . . . . . 504 (b) . . . . . . . . . . . . . . . . . . . 1003 (c) . . . . . . . . . . . . . . . . . . . 104(c) Section 318(a) . . . . . . . . . . . . . . . 107 ____________________ NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. 3 TABLE OF CONTENTS(1) --------------- Page Parties. . . . . . . . . . . . . . . . . . . . . . . . Recitals of the Company. . . . . . . . . . . . . . . . ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions: 1991 Indenture Acquiring Person . . . . . . . . . . . . Act. . . . . . . . . . . . . . . . . . . Affiliate. . . . . . . . . . . . . . . . Asset Disposition. . . . . . . . . . . . Asset Disposition Offer. . . . . . . . . Asset Disposition Offer Amount . . . . . Asset Disposition Payment Date . . . . . Authenticating Agent . . . . . . . . . . Authority. . . . . . . . . . . . . . . . Bankruptcy Law . . . . . . . . . . . . . Board of Directors . . . . . . . . . . . Board Resolution . . . . . . . . . . . . Business Day . . . . . . . . . . . . . . Capital Stock. . . . . . . . . . . . . . Capitalized Lease Obligation . . . . . . Castlewood Agreement . . . . . . . . . . Change of Control. . . . . . . . . . . . Change of Control Date; Change of Control Offer; Change of Control Payment Date . . . . . . . . . . . . . Commission . . . . . . . . . . . . . . . Commodities Agreement. . . . . . . . . . Company. . . . . . . . . . . . . . . . . Company Request; Company Order . . . . . Consolidated Amortization Expense. . . . Consolidated Cash Flow Available for Fixed Charges. . . . . . . . . . . . . Consolidated Depreciation Expense. . . . Consolidated Free Cash Flow. . . . . . . Consolidated Income Tax Expense. . . . . Consolidated Interest Coverage Ratio . . Consolidated Interest Expense. . . . . . Consolidated Net Income. . . . . . . . . ____________________ (1) NOTE: This table of contents shall not, for any purpose, be deemed to be a part of this Indenture. i Page Consolidated Net Worth . . . . . . . . . Continental Guaranty . . . . . . . . . . Continuing Director. . . . . . . . . . . Corporate Trust Office . . . . . . . . . corporation. . . . . . . . . . . . . . . covenant defeasance. . . . . . . . . . . Credit Agreements. . . . . . . . . . . . Currency Agreement . . . . . . . . . . . Custodian. . . . . . . . . . . . . . . . Default. . . . . . . . . . . . . . . . . Defaulted Interest . . . . . . . . . . . defeasance . . . . . . . . . . . . . . . Deficiency Amount. . . . . . . . . . . . Deficiency Date. . . . . . . . . . . . . Deficiency Offer . . . . . . . . . . . . Deficiency Offer Amount. . . . . . . . . Deficiency Payment Date. . . . . . . . . dollars; $ . . . . . . . . . . . . . . . Event of Default . . . . . . . . . . . . Exchange Act . . . . . . . . . . . . . . First Mortgage Note Indenture. . . . . . Five Year Treasury Rate. . . . . . . . . GAAP . . . . . . . . . . . . . . . . . . Holder; Securityholder . . . . . . . . . Indebtedness . . . . . . . . . . . . . . Indenture. . . . . . . . . . . . . . . . Initial Interest Rate. . . . . . . . . . Interest Payment Date. . . . . . . . . . Interest Swap Obligations. . . . . . . . Issue Date . . . . . . . . . . . . . . . Lien . . . . . . . . . . . . . . . . . . Maturity . . . . . . . . . . . . . . . . Minimum Subordinated Capital Base. . . . New Credit Agreement . . . . . . . . . . Officer. . . . . . . . . . . . . . . . . Officer's Certificate. . . . . . . . . . Opinion of Counsel . . . . . . . . . . . Ordinary Course of Business Liens. . . . Outstanding. . . . . . . . . . . . . . . Paying Agent . . . . . . . . . . . . . . Permitted Existing Indebtedness of an Acquired Person. . . . . . . . . . . . Permitted Indebtedness . . . . . . . . . Permitted Liens. . . . . . . . . . . . . Permitted Refinancing Indebtedness . . . Permitted Stone Canada Indebtedness . . . . . . . . . . . . . Permitted Subordinated Indebtedness. . . Person . . . . . . . . . . . . . . . . . ii Page Place of Payment . . . . . . . . . . . . Predecessor Senior Note. . . . . . . . . Rate Determination Period. . . . . . . . Receivables. . . . . . . . . . . . . . . Record Date. . . . . . . . . . . . . . . Redeemable Stock . . . . . . . . . . . . Redemption Date. . . . . . . . . . . . . Redemption Price . . . . . . . . . . . . Register; Registrar. . . . . . . . . . . Reset Date . . . . . . . . . . . . . . . Reset Rate . . . . . . . . . . . . . . . Responsible Officer. . . . . . . . . . . Restricted Payment . . . . . . . . . . . Restricted Subsidiary. . . . . . . . . . Seminole . . . . . . . . . . . . . . . . Senior Indebtedness. . . . . . . . . . . Senior Notes . . . . . . . . . . . . . . Seven Year Treasury Rate . . . . . . . . Special Record Date. . . . . . . . . . . Specified Bank Debt. . . . . . . . . . . Stated Maturity. . . . . . . . . . . . . Stone Canada . . . . . . . . . . . . . . Stone Canada Group . . . . . . . . . . . Stone Southwest. . . . . . . . . . . . . Subordinated Capital Base. . . . . . . . Subordinated Indebtedness. . . . . . . . Subsidiary . . . . . . . . . . . . . . . Ten Year Treasury Rate . . . . . . . . . Trustee. . . . . . . . . . . . . . . . . Trust Indenture Act. . . . . . . . . . . Two Year Treasury Rate . . . . . . . . . U.S. Government Obligations. . . . . . . Unrestricted Subsidiary. . . . . . . . . Vice President . . . . . . . . . . . . . Section 102. Compliance Certificates and Opinions . . Section 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . Section 104. Acts of Holders. . . . . . . . . . . . . Section 105 Notices, etc., to Trustee and Company. . Section 106. Notice to Holders; Waiver. . . . . . . . Section 107. Conflict with Trust Indenture Act. . . . iii Page Section 108. Effect of Headings and Table of Contents. . . . . . . . . . . Section 109. Successors and Assigns . . . . . . . . . Section 110. Separability Clause. . . . . . . . . . . Section 111. Benefits of Indenture. . . . . . . . . . Section 112. Governing Law. . . . . . . . . . . . . . Section 113. Legal Holidays . . . . . . . . . . . . . Section 114. No Recourse Against Others . . . . . . . Section 115. Incorporation by Reference to Trust Indenture Act . . . . . . . . ARTICLE TWO Senior Note Forms Section 201. Forms Generally. . . . . . . . . . . . . Section 202. Form of Face of Senior Note. . . . . . . Section 203. Form of Reverse of Senior Note . . . . . Section 204. Form of Trustee's Certificate of Authentication . . . . . . . . . . . . Section 205. CUSIP Number . . . . . . . . . . . . . . ARTICLE THREE The Senior Notes Section 301. Title and Terms. . . . . . . . . . . . . Section 302. Denominations. . . . . . . . . . . . . . Section 303. Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . Section 304. Temporary Senior Notes . . . . . . . . . Section 305. Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . iv Page Section 306. Mutilated, Destroyed, Lost and Stolen Senior Notes . . . . . . . . . . . . . Section 307. Payment of Interest; Interest Rights Preserved. . . . . . . . . . . . . . . Section 308. Persons Deemed Owners. . . . . . . . . . Section 309. Cancellation . . . . . . . . . . . . . . Section 310. Computation of Interest. . . . . . . . . ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . Section 402. Application of Trust Money . . . . . . . ARTICLE FIVE Remedies Section 501. Events of Default. . . . . . . . . . . . Section 502. Acceleration of Maturity; Rescission and Annulment. . . . . . . . . . . . . Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . Section 504. Trustee May File Proofs of Claim . . . . Section 505. Trustee May Enforce Claims Without Possession of Senior Notes . . . . . . Section 506. Application of Money Collected . . . . . Section 507. Limitation on Suits. . . . . . . . . . . Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . . . . . . Section 509. Restoration of Rights and Remedies . . . Section 510. Rights and Remedies Cumulative . . . . . v Page Section 511. Delay or Omission Not Waiver . . . . . . Section 512. Control by Holders . . . . . . . . . . . Section 513. Waiver of Past Defaults. . . . . . . . . Section 514. Undertaking for Costs. . . . . . . . . . Section 515. Waiver of Stay or Extension Laws . . . . ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities of the Trustee . . . . . . . . . . . . Section 602. Notice of Defaults . . . . . . . . . . . Section 603. Certain Rights of Trustee. . . . . . . . Section 604. Not Responsible for Recitals or Issuance of Senior Notes . . . . . . . Section 605. May Hold Senior Notes. . . . . . . . . . Section 606. Money Held in Trust. . . . . . . . . . . Section 607. Compensation and Reimbursement . . . . . Section 608. Disqualification; Conflicting Interests. . . . . . . . . . . . . . . Section 609. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . Section 610. Resignation and Removal; Appointment of Successor. . . . . . . . . . . . . . . Section 611. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . Section 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . Section 613. Preferential Collection of Claims Against Company. . . . . . . . . . . . Section 614. Appointment of Authenticating Agent. . . vi Page ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . Section 702. Preservation of Information; Communications to Holders. . . . . . . Section 703. Reports by Trustee . . . . . . . . . . . Section 704. Reports by Company . . . . . . . . . . . ARTICLE EIGHT Consolidation, Merger, Lease, Sale or Transfer Section 801. When Company May Merge, etc. . . . . . . Section 802. Senior Notes to Be Secured in Certain Events . . . . . . . . . . . . Section 803. Officer's Certificate; Opinion of Counsel . . . . . . . . . . Section 804. Successor Corporation Substituted. . . . ARTICLE NINE Supplements to the Indenture Section 901. Supplemental Indentures Without Consent of Holders. . . . . . . . . . . . . . . . Section 902. Supplemental Indentures with Consent of Holders. . . . . . . . . . . . . . . . Section 903. Execution of Supplemental Indentures . . Section 904. Effect of Supplemental Indentures. . . . Section 905. Conformity with Trust Indenture Act. . . Section 906. Reference in Senior Notes to Supplemental Indentures. . . . . . . . . vii Page ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . Section 1002. Maintenance of Office or Agency. . . . . Section 1003. Money for Senior Notes Payments to Be Held in Trust. . . . . . . . . . . Section 1004. Corporate Existence. . . . . . . . . . . Section 1005. Payment of Taxes and Other Claims. . . . Section 1006. Restriction on Dividends . . . . . . . . Section 1007. Limitation on Future Liens and Guaranties . . . . . . . . . . . . . . Section 1008. Limitation on Future Incurrence of Indebtedness . . . . . . . . . . . . . Section 1009. Limitation on Asset Dispositions . . . . Section 1010. Maintenance of Properties. . . . . . . . Section 1011. Compliance Certificates. . . . . . . . . Section 1012. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . Section 1013. Change of Control. . . . . . . . . . . . Section 1014. Waiver of Certain Covenants. . . . . . . ARTICLE ELEVEN Maintenance of Subordinated Capital Base Section 1101. Maintenance of Subordinated Capital Base . . . . . . . . . . . . . . . . . Section 1102. Alternative Interest Rate Adjustment . . ARTICLE TWELVE Redemption of Senior Notes Section 1201. Election to Redeem; Notice to Trustee. . viii Page Section 1202. Selection by Trustee of the First Mortgage Notes to Be Redeemed. . . . . . Section 1203. Notice of Redemption . . . . . . . . . . Section 1204. Deposit of Redemption Price. . . . . . . Section 1205. Senior Notes Payable on Redemption Date. . . . . . . . . . . . Section 1206. Senior Notes Redeemed in Part. . . . . . ARTICLE THIRTEEN Defeasance And Covenant Defeasance Section 1301. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance. . . . . . . . . . Section 1302. Defeasance and Discharge . . . . . . . . Section 1303. Covenant Defeasance. . . . . . . . . . . Section 1304. Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . Section 1305. Deposited Money and Government Obligations to be Held in Trust; Other Miscellaneous Provisions . . . . ix INDENTURE, dated as of October __, 1994, between STONE CONTAINER CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at Chicago, Illinois, and The Bank of New York, a New York banking corporation, as Trustee (herein called the "Trustee") having its Corporate Trust office at 101 Barclay Street, New York, New York 10286, United States of America. RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its ___% Senior Notes due 2004 (the "Senior Notes"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Senior Notes, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Senior Notes by the Holders (as hereinafter defined) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (4) the word "including" (and with correlative meaning "include") means including, without limiting the generality of, any description preceding such term; and (5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Six, are defined in that Article. "1991 Indenture" means the indenture dated as of November 1, 1991 between the Company and The Bank of New York, as Trustee, as amended and supplemented to the date hereof and, unless otherwise indicated, from time to time after the date hereof. References herein to Indebtedness issued under the 1991 Indenture shall include any Indebtedness issued thereunder both before and after the date hereof. "Acquiring Person" means any Person or group (as defined in Section 13(d)(3) of the Exchange Act) who or which, together with all affiliates and associates (as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner of shares of common stock of the Company having more than 50% of the total number of votes that may be cast for the election of directors of the Company; PROVIDED, HOWEVER, that an Acquiring Person shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or any Subsidiary of the Company or any entity holding common stock of the Company for or pursuant to the terms of any such plan, (iv) any descendant of Joseph Stone or the spouse of any such descendant, the estate of any such descendant or the spouse of any such descendant, any trust or other arrangement for the benefit of any such descendant or the spouse of any such descendant or any charitable organization established by any such descendant or the spouse of any such descendant (collectively, the "Stone Family"), or (v) any group which includes any member or members of the Stone Family and a majority of the common stock of the Company held by such group is beneficially owned by such member or members. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of common stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to more than 50% or more of the common stock of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall become the beneficial owner of more than 50% or more of the common stock of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the beneficial owner of any additional shares of common stock of the Company, then such Person shall be deemed to be an "Acquiring Person." "Act", when used with respect to any Holder, has the meaning specified in Section 104. 2 "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, transfer, sale-leaseback or other disposition of (i) shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares) or (ii) property or assets of the Company or any Restricted Subsidiary (other than a sale, transfer or other disposition of Receivables and other assets or property described in clause (vi) of the definition of Permitted Liens pursuant to a Receivables sale constituting Indebtedness pursuant to clause (ii) of the definition thereof); PROVIDED, HOWEVER, that an Asset Disposition shall not include any sale, transfer, sale- leaseback or other disposition of (a) Collateral (as defined in the First Mortgage Note Indenture while the ___% First Mortgage Notes due 2002 of the Company are outstanding), (b) the shares, property or assets referred to in clause (i) and (ii) by a Restricted Subsidiary to the Company or to another Restricted Subsidiary or by the Company to a Restricted Subsidiary, (c) of defaulted Receivables for collection or (d) in the ordinary course of business, but shall include any sale, transfer, sale-leaseback or other disposition by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary of the shares, property or assets referred to in clauses (i) and (ii). The designation by the Company of a Subsidiary of the Company as an "Unrestricted Subsidiary" shall constitute an Asset Disposition of such Subsidiary's property and assets net of its liabilities, unless the transfer of property and assets to such Subsidiary has previously constituted an Asset Disposition. "Asset Disposition Offer" shall have the meaning provided in Section 1009(c). "Asset Disposition Offer Amount" shall have the meaning provided in Section 1009(a). "Asset Disposition Payment Date" shall have the meaning provided in Section 1009(c). "Authenticating Agent" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Senior Notes. "Authority" means any federal, state, municipal or local government or quasi-governmental agency or authority. 3 "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the board of directors of the Company; PROVIDED, HOWEVER, that when the context refers to actions or resolutions of the Board of Directors, then the term "Board of Directors" shall also mean any duly authorized committee of the Board of Directors of the Company or Officer authorized to act with respect to any particular matter to exercise the power of the Board of Directors of the Company. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or regulation to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, warrants, rights, options or other equivalents (however designated) of capital stock or any other equity interest of such Person, including each class of common stock and preferred stock. "Capitalized Lease Obligation" means, in respect of any Person, an obligation to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles. 4 "Castlewood Agreement" has the meaning specified in clause (2) of the proviso to clause (i) of the definition of Permitted Indebtedness. "Change of Control" means any event by which (i) an Acquiring Person has become such or (ii) Continuing Directors cease to comprise a majority of the members of the Board of Directors of the Company. "Change of Control Date", "Change of Control Offer" and "Change of Control Payment Date" shall have the respective meanings provided in Section 1013. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Commodities Agreement" of any Person means any forward contract, option or futures contract or similar agreement or arrangement designed to protect such Person or any of its Subsidiaries from fluctuations in the price of, or shortage of supply of, commodities. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller, an Assistant Controller, its Secretary or an Assistant Secretary, and delivered to the Trustee. 5 "Consolidated Amortization Expense" means, for any period, the amortization expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Cash Flow Available for Fixed Charges" means, for any period, (a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) Consolidated Income Tax Expense, (iv) Consolidated Depreciation Expense, (v) Consolidated Amortization Expense and (vi) other non-cash items reducing Consolidated Net Income, MINUS (b) non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Depreciation Expense" means, for any period, the depreciation expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Free Cash Flow" means, for any period, (a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Depreciation Expense and (iii) Consolidated Amortization Expense, MINUS (b) the sum of (i) Restricted Payments during such period, (ii) net reduction during such period in Indebtedness of the Company and its Restricted Subsidiaries (other than as a result of Asset Dispositions, Collateral Asset Dispositions (as defined in the First Mortgage Note Indenture) or Collateral Loss Events (as defined in the First Mortgage Note Indenture)) and (iii) the excess (but not the deficit) of capital expenditures of the Company and its Restricted Subsidiaries for such period not financed pursuant to clause (vi) of the definition of Permitted Indebtedness over Consolidated Depreciation Expense. "Consolidated Income Tax Expense" means, for any period, the aggregate of the income tax expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of (i) Consolidated Cash Flow Available for Fixed Charges to (ii) Consolidated Interest Expense. "Consolidated Interest Expense" means, for any period, the interest expense (including the interest component of all Capitalized Lease Obligations and the earned discount or yield with respect to a Receivables sale constituting Indebtedness) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that, with respect to revolving credit, revolving Receivables purchases or other similar arrangements, the interest expense in respect thereof for any period shall be the PRO FORMA interest expense attributable to all amounts committed during such period under such revolving credit, 6 revolving Receivables purchases or other similar arrangements, whether or not such amounts were actually outstanding during such period, in accordance with the terms thereof, in each case on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, for any period, the net income (or loss) of the Company and its Restricted Subsidiaries on a consolidated basis for such period taken as a single accounting period, determined in accordance with GAAP; PROVIDED, HOWEVER, that: (a) there shall be excluded therefrom (i) the net income (or loss) of any Person (other than the Company) which is not a Restricted Subsidiary, EXCEPT to the extent of the amounts of dividends or other distributions actually paid in cash or tangible property or tangible assets (such property or assets to be valued at their fair market value net of any obligations secured thereby) to the Company or any of its Restricted Subsidiaries by such Person during such period, (ii) EXCEPT to the extent includable pursuant to the foregoing clause (i), the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or that Person's property or assets are acquired by the Company or any of its Restricted Subsidiaries, (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary (other than any restrictions contained in the instruments relating to the 12-1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest) and (iv) the excess (but not the deficit), if any, of (x) any gain which must be treated as an extraordinary item under GAAP or any gain realized upon the sale or other disposition of any asset that is not sold in the ordinary course of business or of any Capital Stock of a Restricted Subsidiary over (y) any loss which must be treated as an extraordinary item under GAAP or any loss realized upon the sale or other disposition of any asset that is not sold in the ordinary course of business or of any Capital Stock of a Restricted Subsidiary; and (b) there shall be included therein the amount of cash realized by the Company or any of its Restricted Subsidiaries during such period on account of dividends or other distributions theretofore paid in other than cash or tangible property or tangible assets by a Person which is not a Restricted Subsidiary. "Consolidated Net Worth" means the amount which at any date of determination, in conformity with GAAP consistently applied, would be set forth under the caption "stockholders' equity" (or any like caption) on a consolidated balance sheet of the Company and its Restricted Subsidiaries, exclusive of amounts 7 attributable to Redeemable Stock (at such time as no Indebtedness is outstanding under the 1991 Indenture, excluding the effects of foreign currency translation adjustments). If the Company has changed one or more of the accounting principles used in the preparation of its financial statements because of a change mandated by the Financial Accounting Standards Board or its successor, then Consolidated Net Worth shall mean the Consolidated Net Worth the Company would have had if the Company had continued to use those generally accepted accounting principles employed on November 1, 1991. "Continental Guaranty" means the Guaranty dated as of October 7, 1983 between The Continental Group, Inc. and the Company, as amended from time to time. "Continuing Director" means any member of the Board of Directors, while such person is a member of such Board of Directors, who is not an Acquiring Person, or an Affiliate or associate of an Acquiring Person or a representative of an Acquiring Person or of any such Affiliate or associate and who (a) was a member of the Board of Directors prior to November 1, 1991, or (b) subsequently became or becomes a member of such Board of Directors and whose nomination for election or election to such Board of Directors was or is recommended or approved by resolution of a majority of the Continuing Directors or who was or is included as a nominee in a proxy statement of the Company distributed when a majority of such Board of Directors consists of Continuing Directors. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 101 Barclay Street, New York, New York 10286, United States of America. "corporation" includes corporations, associations, companies, business trusts and limited partnerships. "covenant defeasance" has the meaning specified in Section 1303. "Credit Agreements" means (i) the credit agreement, dated as of March 1, 1989, by and among the Company, the financial institutions signatory thereto, Bankers Trust Company, as agent for such financial institutions, and Citibank, N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for such financial institutions, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time, (ii) the credit agreement, dated as of March 1, 1989, by and among Stone Canada, the financial institutions signatory thereto, Bankers Trust 8 Company, as agent for such financial institutions, and Citibank, N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents for such financial institutions, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time and (iii) the revolving credit agreement, dated as of March 1, 1989, by and among Stone Canada, the financial institutions signatory thereto, BT Bank of Canada, as administrative agent, The Bank of Nova Scotia, as payment agent, and Bankers Trust Company, as collateral agent, as amended, modified, refinanced (including, without limitation, by the New Credit Agreement) or extended from time to time. "Currency Agreement" of any Person means any foreign exchange contract, currency swap agreement, forward currency contract, option or futures contract or other similar agreement or arrangement, and any renewal or extension thereof, designed to protect such Person or any of its Subsidiaries against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage or time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 307. "defeasance" has the meaning specified in Section 1302. "Deficiency Amount" shall have the meaning provided in Section 1009(b). "Deficiency Date" shall have the meaning provided in Section 1101(a). "Deficiency Offer" shall have the meaning provided in Section 1101(a). "Deficiency Offer Amount" shall have the meaning provided in Section 1101(a). "Deficiency Payment Date" shall have the meaning provided in Section 1101(c)(2). "dollars" and "$" means lawful money of the United States of America. "Event of Default" has the meaning specified in Section 501. 9 "Exchange Act" means the Securities and Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder. "First Mortgage Note Indenture" means the indenture dated the date hereof between the Company and Norwest Bank Minnesota, National Association, as Trustee, as amended and supplemented from time to time after the date hereof. "Five Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values adjusted to constant maturities of five years, for the Rate Determination Period as determined from the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15(519), "Selected Interest Rates," which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities-Treasury Constant Maturities-5 Year" or (ii) if said Statistical Release H.15(519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15(519) or (iii) if the Federal Reserve Board shall not then be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Five Year Treasury Rate cannot be determined as provided above, then the Five Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less than 57 months nor more than 63 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. "GAAP" means generally accepted accounting principles, as in effect as of November 1, 1991 in the United States of America, set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as is approved by a significant segment of the accounting profession. 10 "Holder" or "Securityholder" means a Person in whose name a Senior Note is registered in the Register. "Indebtedness" means (without duplication), with respect to any Person, (i) any obligation of such Person to pay the principal of, premium, if any, interest on, penalties, reimbursement or indemnification amounts, fees, expenses or other amounts relating to any indebtedness, and any other liability, contingent or otherwise, of such Person (A) for borrowed money or the deferred purchase price of property or services (excluding trade payables and payables, indebtedness, obligations and other liabilities of the Company to any Restricted Subsidiary or of any Restricted Subsidiary to the Company or to any other Restricted Subsidiary), whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof; (B) for any letter of credit for the account of such Person supporting other obligations of such Person described in this definition; or (C) for the payment of money relating to a Capitalized Lease Obligation; (ii) the unrecovered investment of a purchaser (other than the Company or any of its Restricted Subsidiaries) of such Person's Receivables pursuant to a Receivables purchase facility or otherwise (whether or not characterized as a sale of such Receivables or a secured loan, but excluding any disposition of Receivables in connection with a disposition of fixed assets or a business of such Person and any disposition of defaulted Receivables for collection), together with any obligation of such Person to pay any discount, interest, fees, indemnification amounts, penalties, recourse on account of the uncollectability of Receivables, expenses or other amounts in connection therewith; (iii) any obligation of another Person (other than a Restricted Subsidiary of such Person) of the kind described in the preceding clause (i) or (ii), which the Person has guaranteed or which is otherwise its legal liability; (iv) any obligation of another Person (other than a Restricted Subsidiary of such Person) of the kind described in the preceding clause (i) or (ii) secured by a Lien to which the property or assets of such Person are subject, whether or not the obligation secured thereby shall have been assumed by or shall otherwise be such Person's legal liability; and (v) any renewals, extensions or refundings of any of the foregoing described in any of the preceding clauses (i), (ii), (iii) and (iv). The "amount" or "principal amount" of Indebtedness of any Person at any date, as used herein, shall be the outstanding principal amount at such date of all unconditional Indebtedness, the maximum principal amount of any contingent Indebtedness or the unrecovered purchaser's investment in a sale of Receivables, in each case at such date and without taking into account any premium, interest, penalties, reimbursement or indemnification amounts, fees, expenses or other amounts (other than principal or unrecovered purchaser's investment) in respect thereof; PROVIDED, HOWEVER, that (y) with respect to Indebtedness described in clause (iv) above, the amount of Indebtedness shall be the lesser of (a) the 11 amount of the Indebtedness of such other Person that is secured by the property or assets of such Person and (b) the fair market value of the property or assets securing such Indebtedness, and (z) with respect to revolving credit, revolving Receivables purchases or other similar arrangements, the amount of Indebtedness thereunder shall be the amounts of such commitments as of the date of determination. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Initial Interest Rate", when used with respect to any Senior Note, means the initial rate of interest to be borne by such Senior Note as stated on the face thereof. "Interest Payment Date" means the Stated Maturity of an installment of interest on any Senior Note. "Interest Swap Obligations" of any Person means the obligations of such Person pursuant to any interest rate swap agreement, interest rate collar agreement, forward rate agreement, interest rate cap insurance, option or futures contract or other similar agreement or arrangement, and any renewal or extension thereof, designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates or to permit the exchange of fixed rate obligations of such Person for floating rate obligations and entered into the ordinary course of financial management of the Company and not for speculative purposes. "Issue Date" means October __, 1994. "Lien" means any mortgage, pledge, security interest, adverse claim (as defined in Section 8.302(2) of the New York Uniform Commercial Code), encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code 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). "Maturity", when used with respect to any Senior Note, means the date on which the principal of such Senior Note or an installment of the principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. 12 "Minimum Subordinated Capital Base" shall have the meaning provided in Section 1101(a). "New Credit Agreement" means the credit agreement, dated as of October __, 1994, by and among the Company, the financial institutions signatory thereto and Bankers Trust Company, as agent for such financial institutions, as amended, modified, refinanced or extended from time to time. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer or the Secretary of the Company. "Officer's Certificate" means a certificate signed by an Officer and delivered to the Trustee that shall comply with Sections 102 and 103. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel for the Company, and who shall be reasonably acceptable to the Trustee. "Ordinary Course of Business Liens" means, with respect to any Person, (i) Liens for taxes, assessments, governmental charges, levies or claims not yet delinquent or being contested in good faith; (ii) statutory Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business (including the construction of facilities) or deposits to obtain the release of such Liens; (iii) Liens in connection with workers' compensation, unemployment insurance and other similar legislation; (iv) zoning restrictions, licenses, easements, rights-of-way and other similar charges or encumbrances or restrictions not interfering in any material respect with the business of such Person or any of its Subsidiaries; (v) Liens securing such Person's obligations with respect to commercial letters of credit; (vi) Liens to secure public or statutory obligations of such Person; (vii) judgment and attachment Liens against such Person not giving rise to a Default under the Senior Notes or Liens created by or existing from any litigation or legal proceeding against such Person which is currently being 13 contested in good faith by such Person in appropriate proceedings; (viii) leases or subleases granted to other Persons or existing on property acquired by such Persons; (ix) Liens encumbering property or assets of such Person under construction arising from progress or partial payments; (x) Liens encumbering customary initial deposits and margin accounts and other Liens securing obligations arising out of Interest Swap Obligations, Currency Agreements and Commodities Agreements, in each case of the type typically securing such obligations; PROVIDED, HOWEVER, that if such Interest Swap Obligations, Currency Agreements and Commodities Agreements relate to Indebtedness not incurred in violation of this Indenture, such Lien may also cover the property and assets securing the Indebtedness to which such Interest Swap Obligations, Currency Agreements and Commodities Agreements relate; (xi) Liens encumbering deposits made to secure obligations arising from public, statutory, regulatory, contractual or warranty requirements or obligations of such Person or its Subsidiaries (not constituting Indebtedness); (xii) Liens arising from filing UCC financing statements regarding leases or consignments; (xiii) purchase money Liens securing payables (not constituting Indebtedness) arising from the purchase by such Person or any of its Affiliates of any equipment or goods in the ordinary course of business; (xiv) Liens arising out of consignment or similar arrangements for the sale of goods entered into by such Person or any of its Subsidiaries in the ordinary course of business; (xv) Liens in the ordinary course of business granted by such Person to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, or progress payments, performance and return-of-money bonds and other similar obligations (not constituting Indebtedness); (xvi) Liens in favor of collecting banks constituting a right of set- off, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary on deposit with or in the possession of such bank; and 14 (xvii) Liens in favor of customs and revenue authorities. "Outstanding" means, as of the date of determination, all Senior Notes theretofore authenticated and delivered under this Indenture, EXCEPT: (i) Senior Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Senior Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Senior Notes; PROVIDED that, if such Senior Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Senior Notes which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Senior Notes have been authenticated and delivered pursuant to this Indenture, other than any such Senior Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Senior Notes are held by a BONA FIDE purchaser in whose hands such Senior Notes are valid obligations of the Company; and (iv) Senior Notes which have been defeased pursuant to Section 1302; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Senior Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Senior Notes owned by the Company or any other obligor upon the Senior Notes or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Senior Notes which the Trustee knows to be so owned shall be so disregarded. Senior Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Senior Notes and that the pledgee is not the Company or any other obligor upon the Senior Notes or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest 15 on any Senior Note on behalf of the Company. The Company may act as Paying Agent with respect to any Senior Note issued hereunder. "Permitted Existing Indebtedness of an Acquired Person" means Indebtedness of any Person (which may be assumed or guaranteed by, or may otherwise become the legal liability of, the Company or any Restricted Subsidiary with or into which such Person is merged or consolidated) existing at the time such Person becomes a Restricted Subsidiary, or is merged with or into or consolidated with the Company or one of its Restricted Subsidiaries, so long as such Indebtedness was not created in anticipation of or as a result of such Person becoming a Restricted Subsidiary or of such merger or consolidation, and any Indebtedness to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, such Indebtedness (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that the proceeds of such Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Indebtedness. "Permitted Indebtedness" means (i)(a) any Indebtedness in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility thereunder) as of November 1, 1991 PLUS two hundred fifty million dollars ($250,000,000), and LESS the sum of (x) proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time that is applied to repay Indebtedness under the Credit Agreements and (y) the proceeds from the sale of the Senior Notes and the ____% First Mortgage Notes due 2002 of the Company; (b) any Indebtedness in a principal amount not exceeding 80% of the aggregate face amount of Receivables of the Company and its Restricted Subsidiaries (measured as of the latest date as of which information regarding Receivables is available) and constituting Indebtedness described in clause (ii) of the definition of Indebtedness or outstanding pursuant to any other revolving credit facility; (c) any Indebtedness under the 1991 Indenture issued prior to the date hereof the proceeds of which have been used to repay Indebtedness under the Credit Agreements within five Business Days after such issuance (and any subsequent Indebtedness the proceeds of which are used to refinance such Indebtedness) and (d) the Senior Notes and the __% First Mortgage Notes due 2002 (and any subsequent Indebtedness the proceeds of which are used to refinance such Indebtedness); PROVIDED, HOWEVER, that: (1) the aggregate principal amount permitted to be outstanding under clause (a) shall be reduced by the aggregate amount of any repayments or prepayments of any Senior Indebtedness (other than the Senior Notes, the ___% First Mortgage due 2002 of the Company and Indebtedness 16 issued under the 1991 Indenture) out of the proceeds of Asset Dispositions as described in and required by Section 1009 hereof after November 1, 1991, and, thereafter, shall be increased if, at the end of the fourth consecutive complete fiscal quarter after the initial reduction pursuant to this clause (1) or at any anniversary of the end of such fourth fiscal quarter, the Consolidated Free Cash Flow of the Company for the preceding four quarters has been zero or greater, in which event the amount of the increase shall be the amount by which the consolidated capital expenditures of the Company and its Restricted Subsidiaries not financed by Indebtedness referred to in clause (vi) of this definition during such four-quarter period exceeds Consolidated Depreciation Expense for such period (provided any such increase shall be made only to the extent all such reductions occurring prior to the four fiscal quarters for which such calculation of Consolidated Free Cash Flow has been made exceed all prior increases pursuant to this clause (1)); (2) (A) the aggregate amount permitted to be incurred under clause (a) shall be reduced by the principal amount outstanding under the New Credit Agreement on the date hereof net of subsequent reductions thereof, and (B) the aggregate amount permitted to be incurred under clause (b) shall be reduced by the principal amounts outstanding under each of the Pledge and Administration Agreement, dated as of August 15, 1991, between Stone Financial Corporation and Castlewood Funding Corporation (the "Castlewood Agreement") and the Pledge and Administrative Agreement, dated as of August 18, 1992, between Stone Fin II Receivables Corporation and South Shore Funding Corporation (the "Southshore Agreement") on the date hereof net of subsequent reductions thereof; (3) the Permitted Indebtedness contemplated by this clause (i) may be incurred by the Company and, in the case of Permitted Indebtedness constituting Indebtedness under clause (ii) of the definition of Indebtedness, by the Company or any Restricted Subsidiary; and (4) any Restricted Subsidiary in the Stone Canada Group may incur, assume or guarantee any Indebtedness under clauses(i)(a) and (i)(b) above under any revolving credit facilities of Restricted Subsidiaries in the Stone Canada Group entered into pursuant to this clause (i), for which the aggregate amount committed thereunder does not exceed two hundred million dollars ($200,000,000), to finance the working capital of Restricted Subsidiaries in the Stone Canada Group; (ii) Permitted Subordinated Indebtedness; 17 (iii) Permitted Refinancing Indebtedness; (iv) Permitted Stone Canada Indebtedness; (v) Permitted Existing Indebtedness of an Acquired Person; (vi) Indebtedness incurred for the purpose of acquiring Capital Stock of another Person, or assets comprising a business or line of business or intangible assets or acquiring, constructing or improving fixed assets, in each case related primarily to, or used in connection with, the paper or forest products businesses and which (a) constitutes all or a portion of (but not more than) the purchase price of such Capital Stock or assets (such purchase price including any Indebtedness assumed or repaid in connection with such purchase) or the cost of construction or improvement of such assets (together with any transaction costs relating to such purchase, construction or improvement), (b) is incurred prior to, at the time of or within 270 days after the acquisition, construction or improvement of such assets for the purpose of financing the purchase price of such Capital Stock or assets or the cost of construction or improvement thereof (together with any transaction costs relating to such purchase, construction or improvement) and (c) is the direct or guaranteed obligation of any of (1) the Company, (2) a Restricted Subsidiary formed for the purpose of acquiring such Capital Stock or assets (and having no other material assets other than assets to be used for such acquisition), (3) any Person comprised within the acquired assets or (4) in the case of the construction or improvement of fixed assets, the Restricted Subsidiary which will own such assets, or any extension, renewal or refinancing of such Indebtedness; PROVIDED, HOWEVER, that the amount so extended, renewed or refinanced shall not exceed the principal amount outstanding on the date of such extension, renewal or refinancing, PLUS costs incurred in connection with any such extension, renewal or refinancing (it being understood that any fixed assets included within capital expenditures which increased Indebtedness permitted under clause (i) of the definition of Permitted Indebtedness pursuant to clause (1) to the proviso to such clause may not be financed pursuant to this clause (vi)); (vii) Indebtedness in an aggregate principal amount not to exceed three hundred million dollars ($300,000,000) at any one time outstanding; PROVIDED, HOWEVER, that no Restricted Subsidiary may incur Indebtedness under this clause (vii) to the extent that after the incurrence of such Indebtedness the sum (without duplication) of (x) all Indebtedness of Restricted Subsidiaries incurred under this clause (vii), PLUS (y) Indebtedness and other obligations then secured pursuant to clause (xii) of the definition of Permitted Liens, PLUS (z) the amount of Indebtedness that was not incurred pursuant to clause 18 (i)(b) of this definition and is secured pursuant to clause (vi) of the definition of Permitted Liens shall not exceed three hundred million dollars ($300,000,000); (viii) Indebtedness of the Company in an aggregate principal amount not to exceed two hundred fifty million dollars ($250,000,000) at any one time outstanding; (ix) any Interest Swap Obligations, Currency Agreements or Commodities Agreements relating to Indebtedness that was not incurred in violation of the terms of this Indenture; and (x) Indebtedness to finance an increase in the working capital of any Person or Persons that (a) are organized under the laws of a jurisdiction other than the United States or any subdivision thereof and (b) became Restricted Subsidiaries after November 1, 1991; PROVIDED, HOWEVER, that Indebtedness pursuant to this clause (x) is the obligation of the Company or such Person or Persons. "Permitted Liens" means, with respect to any Person, (i) Ordinary Course of Business Liens; (ii) Liens upon property or assets acquired or constructed by such Person or any Affiliate after November 1, 1991 or constituting improvements after November 1, 1991 to property or assets; PROVIDED, HOWEVER, that (a) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance or refinance, the purchase price (such purchase price including any Indebtedness assumed or repaid in connection with such purchase) or cost of construction of the property or assets subject thereto or of such improvement, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such purchase price or cost (together with any transaction costs relating to such purchase, construction or improvement), (c) such Lien does not extend to or cover any other property or assets other than such property, assets, improvement and any other improvements thereon (or, in the case of any construction or improvement, any substantially unimproved real property on which the property is constructed or the improvement is located) and (d) the occurrence of such Indebtedness is permitted by clause (vi) of the definition of Permitted Indebtedness; (iii) Liens securing obligations with respect to letters of credit (other than commercial letters of credit) to the extent the obligations supported by such letters of credit may be secured without violating Section 1007 hereof; (iv) Liens covering property subject to any Capitalized Lease Obligation or other lease which was not entered into in 19 violation of this Indenture securing the interest of the lessor or other Person under such Capitalized Lease Obligation or other lease; (v) Liens securing obligations to a trustee pursuant to the compensation and indemnity provisions of any indenture (including this Indenture) and Liens securing obligations to a trustee or agent with respect to collateral for any Indebtedness; (vi) Liens created in connection with a disposition of Receivables (whether or not characterized as a sale of such Receivables or a secured loan) not prohibited by this Indenture on (a) such Receivables, (b) collateral securing such Receivables, (c) goods or services, the sale, lease or furnishing of which gave rise to such Receivables, (d) books and records relating to such Receivables, (e) agreements or arrangements supporting or securing such Receivables and (f) incidental property and assets relating to any of the foregoing; PROVIDED, HOWEVER, that the aggregate amount at any time of Indebtedness that is secured pursuant to this clause (vi) and was not incurred pursuant to clause (i)(b) of the definition of Permitted Indebtedness, shall at no time exceed (x) three hundred million dollars ($300,000,000) LESS (y) the sum of Indebtedness and other obligations then secured pursuant to clause (xii) of this definition PLUS the then outstanding principal amount of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the definition of Permitted Indebtedness (and not secured pursuant to this clause (vi) or such clause (xii)); (vii) Liens upon property or assets of the Company created in substitution and exchange for a Permitted Lien upon other property or assets of the Company or any of its Subsidiaries and Liens upon property or assets of any Subsidiaries of the Company created in substitution and exchange for a Permitted Lien upon other property or assets of any Subsidiaries of the Company; PROVIDED, HOWEVER, that (a) such Permitted Lien is released contemporaneously with the creation of the Lien in substitution therefor, (b) the fair market value of the property or assets with respect to the Lien so released is substantially the same as the fair market value of the property or assets subject to the Lien created in substitution therefor and (c) no Lien may be placed on property or assets of the Company or a Restricted Subsidiary in substitution and exchange for a Lien upon property or assets of an Unrestricted Subsidiary; (viii) Liens upon property or assets of a Subsidiary of a Person securing Indebtedness of such Person or of such Subsidiary, which Liens are created in substitution and exchange for an outstanding pledge by such Person of a majority of the Capital Stock of such Subsidiary for the purpose of securing such Indebtedness (or a guaranty in respect thereof); PROVIDED , HOWEVER, that if the property and assets of such Subsidiary to be 20 subjected to such Liens have a fair market value in excess of twenty-five million dollars ($25,000,000), such Subsidiary shall have guaranteed the obligations of the Company in respect of the Senior Notes and, if requested by the Trustee, such Subsidiary shall have waived all its rights of subrogation and reimbursement from the Company in connection with such guaranty; (ix) Liens upon any property or assets (a) existing at the time of acquisition thereof by the Company or any Subsidiary, (b) of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company or existing at the time of a sale or transfer of any such property or assets of such Person to the Company or any Subsidiary of the Company or (c) of a Person existing at the time such Person becomes a Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens shall not have been created in contemplation of such sale, merger, consolidation, transfer or acquisition; (x) Liens existing at November 1, 1991; (xi) (a) Liens upon any property or assets of the Company and its Restricted Subsidiaries securing Indebtedness under the Credit Agreements in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility, but without duplication with respect to commitments for loans the use of proceeds of which is restricted to repayment of other Indebtedness under the Credit Agreements) as of November 1, 1991 LESS (y) the proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time that are or have been applied to repay Indebtedness under the Credit Agreements and PLUS (z) two hundred fifty million dollars ($250,000,000) and (b) Liens securing Indebtedness permitted by clause (i) of the definition of Permitted Indebtedness upon property or assets that as of November 1, 1991 secured the Credit Agreements or the Castlewood Agreement; (xii) Liens securing Indebtedness or other obligations of the Company and its Restricted Subsidiaries not to exceed an aggregate principal amount of three hundred fifty million dollars ($350,000,000) LESS, at any time, the sum of (y) the then outstanding principal amount of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the definition of Permitted Indebtedness (and not secured pursuant to this clause (xii) or clause (vi) of this definition) PLUS (z) the amount of Indebtedness secured pursuant to clause (vi) of this definition and not incurred pursuant to clause (i)(b) of the definition of Permitted Indebtedness; (xiii) Liens upon property or assets of a Subsidiary securing Indebtedness or other obligations owing to the Company; 21 (xiv) Liens on proceeds of any property or assets subject to a Lien permitted by the other clauses of this definition; (xv) any equal and ratable Lien that is granted pursuant to the Continental Guaranty and that relates to a Lien that otherwise constitutes a Permitted Lien; (xvi) Liens on property or assets used to defease Indebtedness that was not incurred in violation of this Indenture; (xvii) Liens on property or assets of any Restricted Subsidiary organized under the laws of a jurisdiction other than the United States or any subdivision thereof securing Indebtedness of such Restricted Subsidiary outstanding as of November 1, 1991 (or any extension, renewal or refinancing thereof); (xviii) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing clauses (i) through (xviii) (covering the same property and assets as such Lien); and (xix) Liens on Collateral, including Replacement Collateral (each as defined in the First Mortgage Note Indenture) securing the __% First Mortgage Notes due 2002 and Permitted Collateral Liens (as defined in the First Mortgage Note Indenture); PROVIDED, HOWEVER, that no Lien described in any of the foregoing clauses other than clause (xi)(a) shall encumber the rights of the Company with respect to Indebtedness, obligations and other liabilities owed to the Company by any Restricted Subsidiary or to any Restricted Subsidiary by the Company or another Restricted Subsidiary. "Permitted Refinancing Indebtedness" means Indebtedness of (i) the Company to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, Indebtedness of the Company or any Restricted Subsidiary (or any extension, renewal or refinancing thereof) outstanding at the time of incurrence of such subsequent Indebtedness, or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance, (ii) a Restricted Subsidiary to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, Indebtedness of such Restricted Subsidiary (or any extension, renewal or refinancing thereof) outstanding at the time of incurrence of such subsequent Indebtedness, or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance, or (iii) the Company or a Restricted Subsidiary to 22 the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, any then outstanding industrial revenue or development bonds that were outstanding at November 1, 1991 (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with such exchange, refinancing or defeasance; PROVIDED, HOWEVER, that, in the case of (i), (ii) or (iii), the proceeds of such Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Indebtedness; and PROVIDED, FURTHER, that the only Indebtedness which may be subject to exchange, refinancing, redemption, or defeasance pursuant to clause (i), (ii) or (iii) of this definition shall be Indebtedness outstanding as of November 1, 1991 (other than Indebtedness under the Credit Agreements, Subordinated Indebtedness and Indebtedness under lines of credit) or any extension, renewal or refinancing thereof, and Indebtedness that was incurred after November 1, 1991 and before the date hereof (other than solely as Permitted Indebtedness under the 1991 Indenture) or is incurred after the date hereof (other than solely as Permitted Indebtedness). "Permitted Stone Canada Indebtedness" means Indebtedness of the Company or a Restricted Subsidiary in the Stone Canada Group outstanding pursuant to lines of credit in an aggregate principal amount not to exceed one hundred million dollars ($100,000,000), (of which not more than Canadian sixty million dollars (Cn.$60,000,000) may be owed by Restricted Subsidiaries in the Stone Canada Group) at any one time outstanding or pursuant to any extension, renewal or refinancing of such outstanding amount PLUS any costs incurred in connection with any such extension, renewal or refinancing; PROVIDED, HOWEVER, that the aggregate principal amount permitted to be incurred under this definition shall be reduced by the principal amount under lines of credit outstanding on the date hereof net of subsequent repayments or reductions thereof. "Permitted Subordinated Indebtedness" means (i) Subordinated Indebtedness of the Company to the extent exchanged for, or the net proceeds of which are used to refinance, redeem or defease, then outstanding Subordinated Indebtedness of the Company that was outstanding at November 1, 1991 (or any extension, renewal or refinancing thereof), or to finance any costs incurred in connection with any such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that (a) such Subordinated Indebtedness does not have a shorter weighted average life than that then remaining for, or a maturity earlier than that of, the Indebtedness so exchanged, refinanced, redeemed or defeased, EXCEPT that in the case of any exchange, such Subordinated Indebtedness may have a maturity that is earlier (but not more than six months earlier) than that of the Indebtedness so exchanged, PROVIDED that the Subordinated Indebtedness shall have the same or a longer weighted average 23 life than that then remaining for the Indebtedness so exchanged and (b) in the case of refinancings, redemptions or defeasances, the proceeds of such Subordinated Indebtedness shall be used to so refinance, redeem or defease the Indebtedness within 12 months of the incurrence of such subsequent Subordinated Indebtedness; and (ii) Indebtedness of the Company in an aggregate principal amount not to exceed two hundred fifty million dollars ($250,000,000) at any one time outstanding, so long as such Indebtedness (a) constitutes Subordinated Indebtedness and (b) does not have (A) a weighted average life that is shorter than that then remaining for the (x) the Company's 9 7/8% Senior Notes due 2000 then outstanding or (y) the Senior Notes then Outstanding or (B) a maturity that is earlier than the latest maturity of (x) the Company's 9 7/8% Senior Notes due 2000 then outstanding or (y) the Senior Notes then Outstanding. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", means The City of New York or any other place or places where the principal of (and premium, if any) and interest on the Senior Notes are payable. "Predecessor Senior Note" of any particular Senior Note means every previous Senior Note evidencing all or a portion of the same debt as that evidenced by such particular Senior Note; and, for the purposes of this definition, any Senior Note authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Senior Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Senior Note. "Rate Determination Period" means the four full weeks ending on the seventh Business Day prior to a Reset Date. "Receivables" means receivables, chattel paper, instruments, documents or intangibles evidencing or relating to the right to payment of money. "Record Date" for the interest payable on any Interest Payment Date means the close of business on the ________ __ or ________ __, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. "Redeemable Stock" means, with respect to any Person, any Capital Stock that by its terms or otherwise is required to be redeemed or purchased by such Person or any of its Subsidiaries prior to 30 days after the maturity date of the Senior Notes then Outstanding, or is redeemable or subject to 24 mandatory purchase or similar put rights at the option of the Holder thereof at any time prior to 30 days after the latest maturity date of the Senior Notes then Outstanding, or any security which is convertible or exchangeable into a security which has such provisions. "Redemption Date" means the date fixed for redemption of any Senior Note by or pursuant to this Indenture. "Redemption Price" means the price at which any Senior Note is to be redeemed pursuant to this Indenture. "Register" and "Registrar" have the respective meanings specified in Section 305. "Reset Date" means a date on which the interest rate on the Senior Notes shall be reset pursuant to Section 1102(a). "Reset Rate" shall have the meaning provided in Section 1102(a). "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any senior trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payment" shall have the meaning provided in Section 1006. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Seminole" means Seminole Kraft Corporation, a Delaware corporation. "Senior Indebtedness" means the principal of, interest on and other amounts due on (i) Indebtedness of the Company, whether outstanding on the date hereof or thereafter created, 25 incurred, assumed or guaranteed by the Company, on or prior to the date hereof in compliance with the 1991 Indenture and thereafter in compliance with Section 1008 hereof (including, without limitation, the Company's % First Mortgage Notes due 2002 of the Company and the Senior Notes), (ii) obligations of the Company related to the termination of Interest Swap Obligations, Currency Agreements or Commodities Agreements pertaining to Indebtedness described under clause (i) above and (iii) principal of or interest on the Senior Notes. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include: (a) Subordinated Indebtedness, (b) Indebtedness of or amounts owed by the Company for compensation to employees, for goods or materials purchased in the ordinary course of business or for services or (c) Indebtedness of the Company to a Subsidiary of the Company. "Senior Notes" has the meaning stated in the first recital of this Indenture and more particularly means any Senior Note authenticated and delivered under this Indenture. "Seven Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values adjusted to constant maturities of seven years, for the Rate Determination Period as determined from the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15 (519), "Selected Interest Rates," which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities--Treasury Constant Maturities--7 Year" or (ii) if said Statistical Release H.15 (519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15 (519) or (iii) if the Federal Reserve Board shall not be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency, or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Seven Year Treasury Rate cannot be determined as provided above, then the Seven Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less than 81 months nor more than 87 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. 26 "Southshore Agreement" has the meaning specified in subparagraph 2(A) of the definition of "Permitted Indebtedness." "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Specified Bank Debt" means (i) all Indebtedness and other monetary obligations owing under the New Credit Agreement or any credit facilities with the banks signatory to the New Credit Agreement (or with banks affiliated with such banks), so long as such facilities are related to the New Credit Agreement; and (ii) Indebtedness owing as of the date hereof or hereafter to banks or other financial institutions under credit facilities which may in the future refinance, refund, replace, supplement or succeed (regardless of any gaps in time) the New Credit Agreements or the facilities referenced in clause (i) hereof (including extensions and restructurings and the inclusion of additional or different or substitute lenders), so long as (a) the aggregate principal amount outstanding (including available amounts under committed revolving credit or similar working capital facilities, letter of credit facilities and other commitments to provide credit) of such Indebtedness is at least equal to the principal of all publicly issued Senior Indebtedness (including without limitation, the Senior Notes, the % First Mortgage Notes due 2002 of the Company, and Indebtedness under the 1991 Indenture) then Outstanding (it being understood that Indebtedness described in clause (i) above and issues of Indebtedness having a principal amount lower than set forth in clause (b) below shall not be included in this amount), (b) Indebtedness outstanding under each particular credit facility has a principal amount outstanding (including available amounts under committed revolving credit or similar working capital facilities, letter of credit facilities and other commitments to provide credit) of at least twenty-five million dollars ($25,000,000) and (c) such Indebtedness constitutes Senior Indebtedness. "Stated Maturity," when used with respect to any Senior Note or any installment of principal thereof or interest thereon, means the date specified in such Senior Note as the fixed date on which the principal of such Senior Note or any installment of principal or interest is due and payable. "Stone Canada" means Stone Container (Canada) Inc., a company organized under the Canadian Business Corporations Act. "Stone Canada Group" means Stone Canada and its Restricted Subsidiaries existing as of the date hereof. "Stone Southwest" means Stone Southwest, Inc., a Delaware corporation. 27 "Subordinated Capital Base" means the sum of (i) the Consolidated Net Worth and (ii) to the extent not included in clause (i) above, the amounts (without duplication) relating to (a) the principal amount of Subordinated Indebtedness incurred after November 1, 1991 which is unsecured and which does not have at the time of incurrence of such Subordinated Indebtedness a weighted average life that is shorter than the weighted average life remaining for the then Outstanding Indebtedness under the 1991 Indenture issued prior to the date hereof, or if less than $200,000,000 of such Indebtedness is outstanding, the Senior Notes or a maturity that is earlier than the maturity of any of the then Outstanding Indebtedness under this Indenture, or if less than $200,000,000 of such Indebtedness is outstanding, the Senior Notes, (b) redeemable stock of the Company that does not constitute Redeemable Stock and (c) the principal amount of the 11-1/2% Senior Subordinated Notes due September 1, 1999 of the Company, and the 12-1/8% Subordinated Debentures due September 15, 2001 of Stone Southwest or any Subordinated Indebtedness exchanged for, or the net proceeds of which are used to refinance, redeem or defease, such 11 1/2% Senior Subordinated Notes due September 1, 1999 (or, at such time as no Indebtedness is outstanding under the 1991 Indenture, such 12-1/8% Subordinated Debentures due September 15, 2001) pursuant to clause (ii) of the definition of "Permitted Indebtedness", that, in the case of clauses (a), (b) and (c), as at the date of determination, in conformity with GAAP consistently applied, would be set forth on the consolidated balance sheet of the Company and its Restricted Subsidiaries. "Subordinated Indebtedness" means Indebtedness of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed by the Company) which, pursuant to the terms of the instrument creating or evidencing the same, is subordinate to the Senior Notes in right of payment or in rights upon liquidation. "Subsidiary" means, with respect to any Person, (i) any corporation of which at least a majority in interest of the outstanding Capital Stock having by the terms thereof voting power under ordinary circumstances to elect directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency, is at the time, directly or indirectly, owned or controlled by such Person, or by one or more other corporations a majority in interest of such stock of which is similarly owned or controlled, or by such Person and one or more other corporations a majority in interest of such stock of which is similarly owned or controlled or (ii) any other Person (other than a corporation) in which such Person, directly or indirectly, at the date of determination thereof, has at least a majority equity ownership interest; PROVIDED, HOWEVER, that, with respect to the Company, for purposes of this Indenture (other than Section 1007(b)), "Subsidiary" shall not include Seminole. 28 "Ten Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values (adjusted to constant maturities of ten years, for the Rate Determination Period as determined from the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15 (519), "Selected Interest Rates." which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities--Treasury Constant Maturities-10 Year" or (ii) if said Statistical Release H.15 (519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15 or (iii) if the Federal Reserve Board shall not be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency, or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Ten Year Treasury Rate cannot be determined as provided above, then the Ten Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less then 117 months nor more than 123 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was executed; PROVIDED, HOWEVER, that in the event that such Act is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Two Year Treasury Rate" means the arithmetic average (rounded to the nearest basis point) of the weekly average per annum yield to maturity values adjusted to constant maturities of two years, for the Rate Determination Period as determined from 29 the yield curves of the most actively traded marketable United States Treasury fixed interest rate securities (x) constructed daily by the United States Treasury Department (i) as published by the Federal Reserve Board in its Statistical Release H.15 (519), "Selected Interest Rates," which weekly average yield to maturity values currently are set forth in such Statistical Release under the caption "U.S. Government Securities -- Treasury Constant Maturities -- 2 Years" or (ii) if said Statistical Release H.15 (519) is not then published, as published by the Federal Reserve Board in any release comparable to its Statistical Release H.15 (519) or (iii) if the Federal Reserve Board shall not be publishing a comparable release, as published in any official publication or release of any other United States Government Department or agency, or (y) if the United States Treasury Department shall not then be constructing such yield curves, then as constructed by the Federal Reserve Board or any other United States Government Department or agency and published as set forth in (x) above. However, if the Two Year Treasury Rate cannot be determined as provided above, then the Two Year Treasury Rate shall mean the arithmetic average (rounded to the nearest basis point) of the per annum yields to maturity for each Business Day during the Rate Determination Period of all of the issues of actively trading issues of non-interest bearing United States Treasury fixed interest rate securities with a maturity of not less than 21 months nor more than 27 months from such Business Day (1) as published in THE WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States Government securities dealers of recognized national standing selected by the Company. "U.S. Government Obligations" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed by the full faith and credit of the United States of America which, in either case, are not callable or redeemable at the option of the issuer thereof or otherwise subject to prepayment, and shall also include a depository receipt issued by the New York Clearing House bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, PROVIDED that (EXCEPT as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt or from any amount held by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. 30 "Unrestricted Subsidiary" means a Subsidiary of the Company which has been designated as an "Unrestricted Subsidiary" for purposes of this Indenture by the Company and (i) at least 20% of whose common stock is held by one or more Persons (other than the Company and its Affiliates) which acquired such common stock in a BONA FIDE transaction for fair value and (b) at least 10% of whose total capitalization at the time of designation is in the form of common stock or at least 15% of the fair market value of whose assets at such time shall have been contributed by such Persons. An Unrestricted Subsidiary may be designated to be a Restricted Subsidiary only if, at the time of such designation, all Indebtedness and Liens of such Subsidiary could be incurred under this Indenture. As of the date of this Indenture, the Company's Unrestricted Subsidiaries are Stone-Consolidated Corporation and its Subsidiaries. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as 31 to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the 32 Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person or any such instrument or writing may be proved by the affidavit or a witness of such execution or by a certificate of a notary public or other Person authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of Senior Notes shall be proved by the Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Senior Note shall bind every future Holder of the same Senior Note and the Holder of every Senior Note issued upon the registration of transfer thereof or in exchange therefor in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Senior Note. (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act (including revocation thereof) may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Senior Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Senior Notes shall be computed as of such record date; PROVIDED that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. 33 SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, attention: Secretary or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture or any Senior Note provides for notice to Holders of any event, such notice shall be deemed sufficiently given (unless otherwise herein or in such Senior Note expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders or the validity of the proceedings to which such notice relates. Where this Indenture or any Senior Note provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published 34 notice may be in an official language of the country of publication. SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act (including, without limitation, Sections 310 through 317, inclusive, of the Trust Indenture Act in accordance with Section 318(c) thereof), such required provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or shall be excluded, as the case may be. SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 110. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Senior Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Senior Notes, express or implied, shall give to any Person, other than the parties hereto or thereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. GOVERNING LAW. This Indenture and the Senior Notes shall be governed by and construed in accordance with the laws (other than the choice of law provisions) of the State of New York. SECTION 113. LEGAL HOLIDAYS. 35 In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Senior Note, or any other payment date, including, without limitation, any Asset Disposition Payment Date or Change of Control Payment Date, shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Senior Notes) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity or other payment date, PROVIDED that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity or other payment date, as the case may be. SECTION 114. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholders, as such, of the Company shall not have any liability for any obligations of the Company under the Senior Notes or this Indenture, or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder, by accepting a Senior Note, waives and releases all such liability. Such waivers and releases are part of the consideration for the issuance of the Senior Notes. SECTION 115. INCORPORATION BY REFERENCE TO TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture. The following Trust Indenture Act terms incorporated by reference in this Indenture have the following meanings: "indenture securities" means the Senior Notes. "indenture security holder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the Senior Notes, if any. All other Trust Indenture Act terms used or incorporated by reference in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference 36 to another statute or defined by Commission rule have the meanings assigned to them therein. ARTICLE TWO SENIOR NOTE FORMS SECTION 201. FORMS GENERALLY. The Senior Notes shall be in substantially the form set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the Officers executing such Senior Notes, as evidenced by their execution of the Senior Notes. The definitive Senior Notes shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Senior Notes, as evidenced by their execution of such Senior Notes. SECTION 202. FORM OF FACE OF SENIOR NOTE. Each Senior Note shall be in substantially the following form: (Face of Senior Note) STONE CONTAINER CORPORATION ___% Senior Notes due 2004 Number R__________ $_____________ STONE CONTAINER CORPORATION, a corporation duly organized and existing under the laws of Delaware (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ______________________ or registered assigns, the principal sum of _____________ DOLLARS on _________ __, 2004, and to pay interest thereon from the date hereof or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ________ __ and ________ __ of each year (commencing ________ __, 1995), at the rate of ___% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person 37 in whose name this Senior Note (or one or more Predecessor Senior Notes) is registered at the close of business on the Record Date for such interest, which shall be the ________ __ or ________ __ (whether or not a Business Day), as the case may be, preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Record Date and may either be paid to the Person in whose name this Senior Note (or one or more Predecessor Senior Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Senior Notes not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Senior Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of (and premium, if any) and interest on this Senior Note will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York in dollars; PROVIDED, HOWEVER, that at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Register. Reference is hereby made to the further provisions of this Senior Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Senior Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. STONE CONTAINER CORPORATION By: ------------------------ [CORPORATE SEAL] Attest: - ---------------------- 38 SECTION 203. FORM OF REVERSE OF SENIOR NOTE. (Reverse of Senior Note) 1. This Senior Note is one of a duly authorized issue of securities of the Company designated as its "_____% Senior Notes due 2004" (herein called the "Senior Notes") limited in aggregate principal amount to $200,000,000.00, issued and to be issued in a single series under an indenture dated as of October __, 1994 (as amended or supplemented from time to time, the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and each of the Holders and of the terms upon which the Senior Notes are, and are to be, authenticated and delivered. All terms used in this Senior Note which are not defined herein shall have the meanings assigned to them in the Indenture. 2. Interest on this Senior Note will be computed on the basis of a 360- day year of twelve, 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. If any payment of principal of (premium, if any) or installment of interest on this Senior Note is not paid when due then, to the extent that payment of such interest shall be legally enforceable, interest upon such overdue principal (and premium, if any) and installment of interest, shall be paid at the rate set forth on the face of this Senior Note. 3. The Senior Notes are subject to redemption upon not less than 30 days' notice nor more than 45 days' notice by mail, at any time on or after _______, 1999, as a whole or from time to time in part, at the election of the Company, at a Redemption Price equal to _____% of the principal amount thereof if redeemed between ________, 1999, and _______ __, 2000 equal to ___% of the principal amount thereof if redeemed between __________, 2000 and __________, 2001, and at 100% of the principal amount thereof if redeemed on or after _______ __, 2002 and prior to the Maturity Date, in each case, plus accrued interest (if any) to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Senior Notes, or one or more Predecessor Senior Notes, of record at the close on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. 39 4. Under certain circumstances following an Asset Disposition, the Company may offer to repurchase Senior Notes in whole or in part at a repurchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, from proceeds or excess net proceeds of such Asset Disposition, as provided in, and subject to the terms of, the Indenture. The Company is required to give Holders notice of such right within the period specified in the Indenture. Holders may tender their Senior Notes for repurchase on or prior to the close of business on the payment date. If the aggregate principal amount of Senior Notes surrendered for repurchase exceeds the aggregate principal amount of the applicable offer price, the selection of the Senior Notes to be repurchased shall be made by the Trustee on a PRO RATA basis. 5. EXCEPT as set forth below, as provided in the Indenture, in the event that the Company's Subordinated Capital Base is less than one billion dollars ($1,000,000,000) (the "Minimum Subordinated Capital Base") as at the end of each of any two consecutive fiscal quarters (the last day of the second such fiscal quarter, a "Deficiency Date"), then the Company shall no later than 60 days after the Deficiency Date (105 days if a Deficiency Date is also the end of the Company's fiscal year) make an offer to all Holders to purchase (a "Deficiency Offer") 10% of the principal amount of the Senior Notes originally issued, or such lesser amount as may be Outstanding at the time such Deficiency Offer is made (the "Deficiency Offer Amount"), at a purchase price equal to 100% of principal amount, plus accrued and unpaid interest to the Deficiency Payment Date. Thereafter, semi-annually the Company shall make like Deficiency Offers for the then applicable Deficiency Offer Amount of Senior Notes until the Company's Subordinated Capital Base as at the end of any subsequent fiscal quarter shall be equal to or greater than the Minimum Subordinated Capital Base. Notwithstanding the foregoing, after any specified Deficiency Date, the last day of any subsequent fiscal quarter shall not constitute a Deficiency Date (giving rise to an additional obligation under the first sentence of this paragraph) unless the Company's Subordinated Capital Base was equal to or greater than the Minimum Subordinated Capital Base as at the end of a fiscal quarter that followed such specified Deficiency Date and preceded such subsequent quarter. 6. Notwithstanding the foregoing, as provided in the Indenture, in the event that (1) the making of a Deficiency Offer by the Company or (2) the purchase of Senior Notes by the Company in respect of a Deficiency Offer would constitute a default (with the giving of notice, the passage of time or both) with respect to any Specified Bank Debt at the time outstanding, then, in lieu of the making of a Deficiency Offer in the circumstances set forth above, (i) the interest rate on the Senior Notes shall be reset as of the first day of the second fiscal quarter following 40 the Deficiency Date (the "Reset Date") to a rate per annum (the "Reset Rate") equal to the greater of (x) the Initial Interest Rate and (y) the sum of (A) ____ basis points and (B) the higher of the ____ Year Treasury Rate and the ____ Year Treasury Rate, (ii) on the first Interest Payment Date following the Reset Date, the interest rate on the Senior Notes, as reset on the Reset Date, shall increase by fifty (50) basis points, and (iii) the interest rate on the Senior Notes shall further increase by an additional fifty (50) basis points on each succeeding Interest Payment Date, PROVIDED, HOWEVER, that notwithstanding clauses (i), (ii) or (iii) above, in no event shall the interest rate to be borne by the Senior Notes at any time exceed the Initial Interest Rate by more than two hundred (200) basis points. Once the interest rate on the Senior Notes has been reset as set forth above, as provided in the Indenture, if the Company's Subordinated Capital Base is equal to or greater than the Minimum Subordinated Capital Base as of the last day of any fiscal quarter subsequent to the Deficiency Date, interest on the Senior Notes shall return to the Initial Interest Rate effective as of the first day of the second following fiscal quarter. 7. The Indenture also provides that upon the occurrence of a Change of Control, subject to the satisfaction of certain substantial conditions precedent set forth in the Indenture, each Holder shall have the right to require that the Company repurchase such Holder's Senior Notes in whole or in part at a price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of such repurchase. 8. The Indenture contains provisions for (i) defeasance of certain of the Company's obligations (including covenants) under the Indenture and (ii) satisfaction and discharge of the Indenture upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Senior Note. 9. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, make certain Restricted Payments, create and incur Indebtedness, create or suffer to exist certain Liens (other than Permitted Liens). The Indenture imposes limitations on the ability of the Company to merge or consolidate with any other Person or sell, assign, transfer or lease all or substantially all of its properties or assets. All such covenants and limitations are subject to a number of important qualifications and exceptions. The Company must report periodically to the Trustee on compliance with the covenants in the Indenture. 10. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders to be affected under the Indenture at any time by the 41 Company and the Trustee with the consent of the Holders representing at least two-thirds in principal amount of the Senior Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of at least two-thirds in principal amount of the Senior Notes at the time Outstanding, on behalf of the Holders of all Senior Notes, to waive compliance by the Company with certain provisions of the Indenture and certain defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Senior Note shall bind such Holder and all future Holders of this Senior Note and of any Senior Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Senior Note. 11. No reference herein to the Indenture and no provision of this Senior Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Senior Note at the times, place and rate, and in the coin or currency, herein prescribed. 12. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Senior Note is registrable in the Register, upon surrender of this Senior Note for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Senior Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by the Holder hereof, such Holder's attorney duly authorized in writing, and thereupon one or more new Senior Notes, of authorized denominations and for the same Stated Maturity and aggregate principal amount, will be issued to the designated transferee or transferees. 13. The Senior Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Senior Notes are exchangeable for a like aggregate principal amount of Senior Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment by the Holder of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 14. Prior to due presentment of this Senior Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Senior Note is registered as the owner hereof for all purposes, whether or not this Senior Note be overdue, and neither 42 the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 15. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under this Senior Note or the Indenture, or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder, by accepting a Senior Note, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Senior Note. 16. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures ("CUSIP"), the Company has caused CUSIP numbers to be printed on the Senior Notes as a convenience to the Holders of the Senior Notes. No representation is made as to the correctness or accuracy of such numbers as printed on the Senior Notes and reliance may be placed only on the other identification numbers printed hereon. ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to ________________________________________________________________________________ (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ agent to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him or her. Dated: ____________ Your Signature: ________________________________________ (Sign exactly as your name appears on the other side of this Senior Note) 43 Signature Guaranty: ____________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this Senior Note purchased by the Company pursuant to Section 1009 ("Asset Disposition Offer"), Section 1013 ("Change of Control Offer"), or Section 1101 ("Deficiency Offer") of the Indenture, check the applicable boxes: / / Section 1009: / / Section 1013: / / Section 1101: in whole / / in whole / / in whole / / in part / / in part / / in part / / amount to be amount to be amount to be purchased: $______ purchased: $______ purchased: $______ Dated: ______________ Your Signature: _______________________________________ (Sign exactly as your name appears on the other side of this Senior Note) Signature Guaranty: ____________________________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 44 Social Security Number or Taxpayer Identification Number:_________ SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's certificate of authentication on each Senior Note shall be in substantially the following form: Dated:____________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the ___% Senior Notes due 2004 issued under the Indenture referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, ____________________, AS TRUSTEE By:_____________________ AUTHORIZED SIGNATORY SECTION 205. CUSIP NUMBER. The Company in issuing Senior Notes may use a "CUSIP" number, and if so, the Trustee may use the CUSIP number in notices of redemption or exchange as a convenience to Holders; PROVIDED, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed on the notice or on the Senior Notes, and that reliance may be placed only on the other identification numbers printed on the Senior Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP number of the Senior Notes. ARTICLE THREE THE SENIOR NOTES SECTION 301. TITLE AND TERMS. The aggregate principal amount of Senior Notes Outstanding at any time may not exceed the amount of $200,000,000, except for Senior Notes authenticated and delivered 45 upon registration of transfer of, or in exchange for, or in lieu of, other Senior Notes pursuant to Section 304, 305, 306, 906 or 1206. The Senior Notes shall be issued in a single series, known and designated as the "_____% Senior Notes due 2004" of the Company. The Stated Maturity for the payment of principal of the Senior Notes shall be ________ __, 2004, and the Senior Notes shall bear interest at _____% per annum from the Issue Date, or from the most recent Interest Payment Date to which interest has been paid thereon or duly provided for, payable semi-annually on ____ __ and ________ __ of each year (commencing ____ __, 1995) until the principal thereof is paid or duly provided for. The principal of (premium, if any,) and interest on the Senior Notes shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, maintained for such purpose and at any other office or agency maintained by the Company for such purpose; PROVIDED, HOWEVER, that interest may be payable at the option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Register. SECTION 302. DENOMINATIONS. The Senior Notes shall be issuable in fully registered form without coupons in denominations of $1,000 or any integral multiple thereof. SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Senior Notes shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Senior Notes may be manual or facsimile. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Senior Notes. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Senior Note that has been duly authenticated and delivered by the Trustee. Senior Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Senior Notes or did not hold such offices at the date of such Senior Notes. 46 At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Senior Notes executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Senior Notes, and the Trustee in accordance with the Company order shall authenticate and make such Senior Notes available for delivery. Each Senior Note shall be dated the date of its authentication. The Senior Notes may contain such notations, legends or endorsements required by law, stock exchange rule or usage. No Senior Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Senior Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Senior Note shall be conclusive evidence, and the only evidence, that such Senior Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. SECTION 304. TEMPORARY SENIOR NOTES. Pending the preparation of definitive Senior Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Senior Notes which are printed, lithographed, typewritten, mimeographed, or otherwise produced, in any authorized denomination, substantially in the tenor of the definitive Senior Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Senior Notes may determine, as conclusively evidenced by their execution of such Senior Notes. If temporary Senior Notes are issued, the Company will cause definitive Senior Notes to be prepared without unreasonable delay. After the preparation of definitive Senior Notes, the temporary Senior Notes shall be exchangeable for definitive Senior Notes upon surrender of the temporary Senior Notes at the office or agency of the Company in a Place of Payment, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Senior Notes, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Senior Notes of authorized denominations and of like tenor. Until so exchanged the temporary Senior Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Senior Notes. SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. 47 The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Senior Notes and for registration of transfers of Senior Notes. The Trustee is hereby appointed "Registrar" for the purpose of registering Senior Notes and transfers of Senior Notes as herein provided. Upon surrender for registration of transfer of any Senior Note at the office or agency of the Company in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Senior Notes, of any authorized denomination or denominations and of a like aggregate principal amount, all as requested by the transferor. At the option of the Holder, Senior Notes may be exchanged for other Senior Notes, of any authorized denomination or denominations and of a like aggregate principal amount, upon surrender of the Senior Notes to be exchanged at such office or agency upon the payment of the charges, if any, hereinafter provided. Whenever any of the Senior Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Senior Notes which the Holder making the exchange is entitled to receive. All Senior Notes issued upon any registration of transfer or exchange of Senior Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Senior Notes surrendered upon such registration of transfer or exchange. Every Senior Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or such Holder's attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Senior Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Senior Notes, other than exchanges pursuant to Section 304, 906 or 1206 not involving any transfer. 48 The Company shall not be required (i) to issue, register the transfer of or exchange Senior Notes during a period beginning at the opening of business 15 days before the date of the mailing of a notice of redemption of Senior Notes selected for redemption under Section 1202 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Senior Note so selected for redemption in whole or in part, except the unredeemed portion of any Senior Note being redeemed in part. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN FIRST MORTGAGE NOTES. If any mutilated Senior Note is surrendered to the Trustee, the Company shall execute and upon its request the Trustee shall authenticate and deliver in exchange therefor a new Senior Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company the Trustee (i) evidence of their satisfaction of the destruction, loss or theft of any Senior Note and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Senior Note has been acquired by a BONA FIDE purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Senior Note, a new Senior Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Senior Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Senior Note, pay such Senior Note. No service charge shall be made for the issuance of any new Senior Note under this Section, but the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Senior Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Senior Note shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Senior Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Senior Notes duly issued hereunder. 49 The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Senior Notes. SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Interest on any Senior Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Senior Note (or one or more Predecessor Senior Notes) is registered at the close of business on the Record Date for such interest. Any interest on any Senior Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest, and any interest payable on Defaulted Interest, to the Persons in whose names the Senior Notes (or their respective Predecessor Senior Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Senior Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at such Holder's address as it appears in the Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid 50 to the Persons in whose names the Senior Notes (or their respective Predecessor Senior Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest, and any interest payable on Defaulted Interest, on the Senior Notes in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Senior Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Senior Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Senior Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such Predecessor Senior Note. SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment of a Senior Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Senior Note is registered as the owner of such Senior Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Senior Note and for all other purposes whatsoever, whether or not such Senior Note be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. CANCELLATION. All Senior Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Senior Note previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Senior Notes so delivered shall be promptly cancelled by the Trustee. No Senior Notes shall be authenticated in lieu of or in exchange for any of the Senior Notes cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Senior Notes shall be held by the Trustee and may be destroyed (and, if so destroyed, certification of their destruction shall be delivered to the Company, unless, by a Company Order, the Company shall direct that cancelled Senior Notes be returned to it). 51 SECTION 310. COMPUTATION OF INTEREST. Interest on the Senior Notes shall be computed on the basis of a 360- day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Senior Notes herein expressly provided for), when the Trustee, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either: (A) all Outstanding Senior Notes theretofore authenticated and issued hereunder (other than (i) Senior Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Senior Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Senior Notes not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (B)(i), (ii) or (iii) above, has deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Senior Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such 52 deposit (in the case of Senior Notes which have become due and payable) or the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Company to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to clause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Senior Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with or received by the Trustee. ARTICLE FIVE REMEDIES SECTION 501. EVENTS OF DEFAULT. "Event of Default", wherever used herein with respect to Senior Notes, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or to be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) the Company defaults in the payment of interest on any Senior Note when such interest becomes due and payable and the default continues for a period of 30 days; or 53 (2) the Company defaults in the payment of the principal of (or premium, if any, on) any Senior Note when the same becomes due and payable at Maturity, upon redemption (including redemptions under Article Twelve), upon repurchases pursuant to a Deficiency Offer as described in Article Eleven, pursuant to an Asset Disposition Offer as described in Section 1009 or pursuant to a Change of Control Offer as described in Section 1013 or otherwise; or (3) the Company fails to observe or perform any of its other covenants, warranties or agreements in the Senior Notes or this Indenture (other than a covenant, agreement or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and the failure to observe or perform continues for the period and after the notice specified in the next to last paragraph of this Section; or (4) (i) the Company fails to pay at final maturity the principal of any Indebtedness of the Company, whether such Indebtedness now exists or shall hereafter be created and an aggregate principal amount of not less than twenty-five million dollars ($25,000,000) (or, if less, the least amount contained in any similar provision of an instrument governing any outstanding Subordinated Indebtedness of the Company, but in no event less than ten millions dollars ($10,000,000)) or more of such Indebtedness is outstanding or (ii) an event or events of default, as defined in any one or more mortgages, indentures, agreements or instruments under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Company, whether such Indebtedness now exists or shall hereafter be created, shall happen and shall result in Indebtedness in an aggregate amount of not less than twenty-five million dollars ($25,000,000) (or, if less, the least amount contained in any similar provision of an instrument governing any outstanding Subordinated Indebtedness of the Company, but in no event less than ten million dollars ($10,000,000)) or more becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, and such acceleration shall not have been rescinded or annulled (or if such acceleration shall not have been rescinded or annulled, such Indebtedness shall not have been discharged), within a period of 15 days after there shall have been given to the Company by the Trustee or to the Company by the Holders of at least 25% in aggregate principal amount of the Outstanding Senior Notes a written notice specifying such event or events of default and requiring the Company to cause such acceleration to be rescinded or annulled or to cause such Indebtedness to be discharged and stating that such notice is a "Notice of Default" hereunder; or 54 (5) one or more judgments or decrees shall be entered against the Company involving, individually or in the aggregate, a liability of twenty- five million dollars ($25,000,000) or more and a sufficient number of such judgments or decrees shall not have been vacated, discharged, satisfied or stayed pending appeal within 30 days from the entry thereof so as to bring the aggregate liability in respect thereof below the twenty-five million dollar ($25,000,000) threshold; or (6) the Company pursuant to or within the meaning of any Bankruptcy Law (i) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (ii) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (iii) consents to or acquiesces in the institution of bankruptcy or insolvency proceedings against it, (iv) applies for, consents to or acquiesces in the appointment of or taking possession by a Custodian of the Company or for any material part of its property, (v) makes a general assignment for the benefit of its creditors or (vi) takes any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing; or (7) (i) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company in an involuntary case or proceeding under any Bankruptcy Law which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company, (B) appoint a Custodian of the Company or for any material part of its property or (C) order the winding- up or liquidation of its affairs, and such judgment, decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (ii) any bankruptcy or insolvency petition or application is filed, or any bankruptcy or insolvency proceeding is commenced against the Company and such petition, application or proceeding is not dismissed within 90 days; or (iii) any warrant of attachment is issued against any material portion of the property of the Company which is not released within 90 days of service. A Default under clause (3) above is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Senior Notes notify the Company of the Default and the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." When a Default under clause (3) above is cured within such 60-day period, it ceases. 55 The Company shall file with the Trustee written notice of the occurrence of any Default or Event of Default within five (5) Business Days of an Officer becoming aware of any such Default or Event of Default. SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default with respect to Senior Notes (other than an Event of Default specified in clause (6) or (7) of Section 501) occurs and is continuing, the Trustee by notice in writing to the Company, or the Holders of at least 25% in aggregate principal amount of the Outstanding Senior Notes by notice in writing to the Company and the Trustee, may declare the unpaid principal of and accrued interest to the date of acceleration on all the Outstanding Senior Notes to be due and payable immediately and, upon any such declaration, the Outstanding Senior Notes shall become and be immediately due and payable. If an Event of Default specified in clause (6) or (7) of Section 501 occurs, all unpaid principal (without premium) of and accrued interest on the Outstanding Senior Notes shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Senior Note. Upon payment of all such principal and interest, all of the Company's obligations under the Senior Notes and (upon payment of the Senior Notes) this Indenture shall terminate, EXCEPT obligations under Section 607. The Holders representing at least two-thirds in principal amount of the Outstanding Senior Notes by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal and interest of the Senior Notes that has become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal that has become due otherwise than by such declaration of acceleration have been paid, (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iv) all payments due to the Trustee and any predecessor Trustee under Section 607 have been made. 56 SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if: (1) default is made in the payment of any interest on any Senior Note when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Senior Note at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Senior Notes, the whole amount then due and payable on such Senior Notes for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Senior Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Senior Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Senior Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, either for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted therein, or to secure any other proper remedy. SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Senior Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of 57 the Senior Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Senior Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceedings, and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Senior Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SENIOR NOTES. All rights of action and claims under this Indenture or the Senior Notes may be prosecuted and enforced by the Trustee without the possession of any of the Senior Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders in respect of which such judgment has been recovered. 58 SECTION 506. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Senior Notes in respect of which moneys have been collected and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 607; Second: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Senior Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Senior Notes for principal (and premium, if any) and interest, respectively; and Third: To the Company. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 506. At least fifteen (15) days before such record date, the Trustee shall mail to each Holder and the Company a notice that states the record date, the payment date and the amount to be paid. SECTION 507. LIMITATION ON SUITS. No Holder shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Senior Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; 59 (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Senior Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision of this Indenture, the Holder of any Senior Note shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Senior Note on the Stated Maturity or Maturities expressed in such Senior Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement of mutilated, destroyed, lost or stolen Senior Notes in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be 60 cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion of employment of any other appropriate right or remedy. SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any of the Senior Notes to exercise any right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Senior Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Senior Notes, PROVIDED that: (1) such direction shall not be in conflict with any rule of law or with this Indenture; (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and (3) subject to Section 601, the Trustee need not take any action which might involve the Trustee in personal liability or be unduly prejudicial to the Holders not joining therein. SECTION 513. WAIVER OF PAST DEFAULTS. Holders representing not less than two-thirds in principal amount of the Outstanding Senior Notes may by written notice to the Trustee on behalf of the Holders of all Senior Notes waive any Default or Event of Default and its consequences, except a Default or Event of Default (1) in respect of the payment of the principal of (or premium, if any) or interest on any Senior Note, or (2) in respect of a covenant or other provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Senior Note affected. 61 Upon any such waiver, such Default or Event of Default shall cease to exist and shall be deemed to have been cured, for every purpose of this Indenture and the Senior Notes; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 514. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Senior Note by such Holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Senior Notes, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Senior Note on or after the Stated Maturity or Maturities expressed in such Senior Note (or, in the case of redemption, on or after the Redemption Date). SECTION 515. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 62 ARTICLE SIX THE TRUSTEE SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. (a) Except during the continuance of an Event of Default, the Trustee's duties and responsibilities under this Indenture shall be governed by Section 315(a) of the Trust Indenture Act. (b) In case an Event of Default has occurred and is continuing, and is actually known to the Trustee, the Trustee shall exercise the rights and power vested in it by this Indenture and shall use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (c) None of the provisions of Section 315(d) of the Trust Indenture Act shall be excluded from this Indenture. (d) No implied covenants or obligations shall be read into this Indenture against the Trustee. SECTION 602. NOTICE OF DEFAULTS. Within 30 days after the occurrence of any Default or Event of Default, the Trustee shall give to all Holders, as their names and addresses appear in the Register, notice of such Default or Event of Default actually known to the Trustee, unless such Default or Event of Default shall have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a Default or Event of Default in the payment of the principal of (or premium, if any) or interest on any Senior Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of the Trust Indenture Act: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of 63 Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (4) the Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval or other paper or document, or the books and records of the Company, unless requested in writing to do so by the Holders of a majority in principal amount of the Outstanding Senior Notes; PROVIDED, HOWEVER, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is not, in the opinion of the Trustee, reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding; the reasonable expense of every such investigation shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and 64 (8) the Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights or power, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SENIOR NOTES. The recitals contained herein and in the Senior Notes, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Senior Notes. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Senior Notes or the proceeds thereof. SECTION 605. MAY HOLD SENIOR NOTES. The Trustee, any Authenticating Agent, any Paying Agent, any Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Senior Notes and, subject to Section 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Registrar or such other agent. SECTION 606. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder (including amounts held by the Trustee as Paying Agent) need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed upon in writing with the Company. SECTION 607. COMPENSATION AND REIMBURSEMENT. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable 65 expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability, damage, claim or expense, including taxes (other than taxes based upon or determined or measured by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(6) or Section 501(7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section 607 shall survive the termination of this Indenture and the resignation or removal of the Trustee. SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS. The Trustee shall be disqualified only where such disqualification is required by Section 310(b) of the Trust Indenture Act. SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act having a combined capital and surplus of at least $50,000,000 subject to supervision or examination by federal or State authority, to the extent there is such an institution eligible and willing to serve. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Affiliate of the Company may serve as Trustee. If at any time the Trustee shall cease to be eligible in accordance with the 66 provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Senior Notes, delivered to the Trustee and to the Company. (d) If at any time: (i) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder who has been a BONA FIDE Holder for at least six months; or (ii) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any Holder who has been a BONA FIDE Holder for at least six months; or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (A) the Company by a Board Resolution may remove the Trustee, or (B) subject to Section 315(e) of the Trust Indenture Act, any Holder who has been a BONA FIDE Holder for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee, subject to any stay of such removal entered in accordance with Section 310(b) of the Trust Indenture Act. 67 (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Senior Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a BONA FIDE Holder for at least six months may, subject to Section 514 hereof, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Trustee, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject to its Lien, if any, provided for in Section 607. (b) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in Subsection (a) above. 68 (c) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article and the Trust Indenture Act. SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversation or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, PROVIDED such corporation shall be otherwise qualified and eligible under this Article and the Trust Indenture Act, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Senior Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Senior Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Senior Notes. SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. At any time when any of the Senior Notes remain Outstanding the Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of, and subject to the direction of, the Trustee to authenticate Senior Notes issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Senior Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Senior Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under 69 the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted to with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders, as their names and addresses appear in the Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. 70 If an appointment is made pursuant to this Section, the Senior Notes may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: Dated: ________________________ This is one of the ____% Senior Notes due 2004 issued under the Indenture referred to in the within-mentioned Indenture. THE BANK OF NEW YORK ------------------------------- AS TRUSTEE By: ---------------------------- AS AUTHENTICATING AGENT By: ---------------------------- AUTHORIZED SIGNATORY ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee: (1) semi-annually, not later than January 1 and July 1 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of the preceding December 15 or June 15, as the case may be, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; PROVIDED, HOWEVER, that so long as the Trustee is the Registrar, no such list shall be required to be furnished. 71 SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) Holders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Holders with respect to their rights under this Indenture or under the Senior Notes, and the Trustee shall comply with its obligations under such Section 312(b). (c) Each Holder of Senior Notes, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b). SECTION 703. REPORTS BY TRUSTEE. (a) Within 60 days after May 15 of each year commencing with the year 1995, the Trustee shall transmit by mail to all Holders as provided in Section 313(c) of the Trust Indenture Act, a brief report dated as of such May 15, if required by and in compliance with Section 313(a) of the Trust Indenture Act. (b) The Trustee shall comply with Sections 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Senior Notes are listed, with the Commission and with the Company. The Company will notify the Trustee when any of the Senior Notes are listed on any stock exchange. SECTION 704. REPORTS BY COMPANY. The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, 72 copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, within the earlier of (a) the same 15 days after the Company would have been required to file with the Commission under the preceding clause and (b) the date which it is required to so file under the 1991 Indenture so long as any Indebtedness is outstanding thereunder, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; (3) transmit by mail to all Holders, as their names and addresses appear in the Register, (a) concurrently with furnishing the same to its stockholders, the Company's annual report to stockholders, containing certified financial statements, and any other financial reports which the Company generally furnishes to its stockholders, and (b) within 30 days after the filing thereof with the Trustee, such summaries of any other information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission; and (4) furnish to the Trustee, on or before May 1 of each year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. Such certificate need not comply with Section 102. 73 ARTICLE EIGHT CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER SECTION 801. WHEN COMPANY MAY MERGE, ETC. The Company shall not consolidate with, or merge with or into any other corporation (whether or not the Company shall be the surviving corporation), or sell, assign, transfer or lease all or substantially all of its properties and assets as an entirety or substantially as an entirety to any Person or group of affiliated Persons, in one transaction or a series of related transactions, unless: (1) either the Company shall be the continuing Person or the Person (if other than the Company) formed by such consolidation or with which or into which the Company is merged or the Person (or group of affiliated Persons) to which all or substantially all the properties and assets of the Company as an entirety are sold, assigned, transferred or leased is a corporation (or constitute corporations) organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and expressly assumes, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Senior Notes and this Indenture; (2) immediately before and after giving effect to such transaction or series of related transactions, no Event of Default, and no Default, shall have occurred and be continuing; (3) immediately after giving effect to such transaction or series of related transactions on a PRO FORMA basis, but prior to any purchase accounting adjustments resulting from the transaction or series of related transactions, the Consolidated Net Worth of the Company (or of the surviving, consolidated or transferee entity if the Company is not continuing, treating such entity as the Company for purposes of determining Consolidated Net Worth) shall be at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of related transactions; and (4) immediately after giving effect to such transaction or series of related transactions, the Company (or the surviving, consolidated or transferee entity if the Company is not continuing, but treating such entity as the Company for purposes of making such determination) would be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) immediately prior to 74 such transaction or series of related transactions under Section 1008; PROVIDED, HOWEVER,that this Subsection (4) shall be inapplicable if (a) such transaction or series of related transactions would result in the occurrence of a Change of Control or (b) immediately prior to giving effect to such transaction or series of related transactions, the Company would not be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) under Section 1008, and immediately after giving effect to such transaction or series of related transactions on a PRO FORMA basis, but prior to any purchase accounting adjustments resulting from the transaction or series of related transactions, the Consolidated Interest Coverage Ratio of the Company (or the surviving, consolidated or transferee entity if the Company is not continuing, treating such entity as the Company for purposes of determining Consolidated Interest Coverage Ratio) shall be at least equal to the Consolidated Interest Coverage Ratio of the Company immediately before such transaction or series of related transactions; and PROVIDED, FURTHER, that notwithstanding the foregoing, if this Subsection (4) in inapplicable by reason of clause (b) of the first proviso to this Subsection, and at the date three months after the consummation of such transaction or series of related transactions the rating ascribed to the Senior Notes by Standard & Poor's Corporation or Moody's Investors Service, Inc. shall be lower than the rating ascribed to the Senior Notes prior to the public announcement of such transaction or series of related transactions, then the Company shall make an offer for the Senior Notes at the same price and following the same procedures and obligations as required with respect to a Change of Control pursuant to Section 1013 (as if such date three months after the giving effect to such transaction or series of related transactions were the Change of Control Date). SECTION 802. SENIOR NOTES TO BE SECURED IN CERTAIN EVENTS. If, upon any consolidation or merger, or upon any sale, assignment, transfer or lease as provided in Section 801, any material property of the Company or any Restricted Subsidiary or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, owned immediately prior thereto, would thereupon become subject to any Lien securing any indebtedness for borrowed money of, or guaranteed by, such other corporation or Person (other than any Permitted Lien), the Company, prior to such consolidation, merger, sale, assignment, transfer or lease, will by indenture supplemental hereto secure the due and punctual payment of the principal of, and premium, if any, and interest on the Senior Notes then Outstanding (together with, if the Company shall so determine, any other Indebtedness of, or guaranteed by, the Company or any Restricted Subsidiary and then existing or 75 thereafter created) equally and ratably with (or, at the option of the Company, prior to) the Indebtedness secured by such Lien. SECTION 803. OFFICER'S CERTIFICATE; OPINION OF COUNSEL. The Company shall deliver to the Trustee prior to the proposed transaction(s) covered by Section 801 an Officer's Certificate and an Opinion of Counsel, each stating that the transaction(s) and such supplemental indenture comply with this Indenture and that all conditions precedent to the consummation of the transaction(s) under this Indenture have been met. SECTION 804. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation by the Company with or merger by the Company into any other corporation or any lease, sale, assignment or transfer of all or substantially all of the property and assets of the Company in accordance with Section 801, the successor corporation formed by such consolidation or into which the Company is merged or the successor corporation or affiliated group of corporations to which such lease, sale, assignment or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation or corporations had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor corporation or corporations shall be relieved of all obligations and covenants under this Indenture and the Senior Notes and in the event of such conveyance or transfer, except in the case of a lease, any such predecessor corporation may be dissolved and liquidated. ARTICLE NINE SUPPLEMENTS TO THE INDENTURE SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without notice to or the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may, subject to Section 1003, enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Senior Notes; or 76 (2) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein or in the Senior Notes conferred upon the Company; or (3) to add any additional Events of Default; or (4) to secure the Senior Notes; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (6) to cure any ambiguity, defect or inconsistency or to correct or supplement any provision herein which may be inconsistent with any other provision herein; or (7) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; or (8) to make any change that does not materially adversely affect the interests of the Holders. Upon request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in (and subject to the last sentence of) Section 903, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture. SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the written consent of Holders representing at least two thirds in principal amount of the Outstanding Senior Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee shall, subject to Section 903, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Senior Note, (1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Senior Note, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof or extend the time for payment thereof, or change the Place of Payment where, or the coin or currency in which, any Senior Note or any premium or the interest 77 thereon is payable, or impair the right to institute a suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Senior Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or Defaults or Events of Default hereunder and their consequences provided for in this Indenture, or (3) change the repurchase provisions (including those contained in Article Eleven, Section 1009 and Section 1013) or redemption provisions (including those contained in Article Twelve) hereof in a manner adverse to such Holder, or (4) subordinate in right of payment, or otherwise subordinate, the Senior Notes to any other Indebtedness; or (5) modify any of the provisions of this Section, Section 513 or Section 1014, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Senior Note affected thereby, PROVIDED, HOWEVER, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 1014, or the deletion of this proviso, in accordance with the requirements of Sections 611(b) and 901(7). It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. The Trustee shall sign any supplemental indenture authorized pursuant to this Article, subject to the last sentence of this Section 903. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental 78 indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Senior Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. REFERENCE IN SENIOR NOTES TO SUPPLEMENTAL INDENTURES. Senior Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Senior Notes so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Senior Notes. ARTICLE TEN COVENANTS SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of (and premium, if any) and interest on the Senior Notes in accordance with the terms of the Senior Notes and this Indenture. An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds by 12:00 noon New York City time on that date dollars designated for and sufficient to pay the installment and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. 79 SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in the Place of Payment, an office or agency where Senior Notes may be presented or surrendered for payment, where Senior Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Senior Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Senior Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Place of Payment for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. MONEY FOR SENIOR NOTES PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent with respect to the Senior Notes, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Senior Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents with respect to the Senior Notes, it will, prior to each due date of the principal of (and premium, if any) or interest on any of the Senior Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure to so act. 80 The Company will cause each Paying Agent for the Senior Notes (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Senior Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Senior Notes) in the making of any payment of principal (and premium, if any) or interest on the Senior Notes; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Senior Note and remaining unclaimed for one year after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Senior Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York, New York notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any 81 unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. CORPORATE EXISTENCE. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each of its Restricted Subsidiaries and the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; PROVIDED, HOWEVER, that (a) the Company shall not be required to preserve any such right, license or franchise or the corporate existence of any of its Restricted Subsidiaries if the Board of Directors, or the board of directors of the Restricted Subsidiary concerned, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any of its Restricted Subsidiaries and that the loss thereof is not materially disadvantageous to the Holders and (b) nothing herein contained shall prevent any Restricted Subsidiary of the Company from liquidating or dissolving, or merging into, or consolidating with the Company (PROVIDED that the Company shall be the continuing or surviving corporation) or with any one or more Restricted Subsidiaries of the Company if the Board of Directors or the board of directors of the Restricted Subsidiary concerned, as the case may be, shall so determine. SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Restricted Subsidiary or upon the income, profits or property of the Company or any Restricted Subsidiary and (2) all lawful claims against the Company or any Restricted Subsidiary for labor, materials and supplies which in the case of either clause (1) or (2) of this Section, if unpaid, might by law become a material Lien upon the property of the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that neither the Company nor any Restricted Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1006. RESTRICTION ON DIVIDENDS. The Company will not, and will not permit any Subsidiary of the Company to, directly or indirectly, (1) declare or pay any dividend or make any distribution, in cash or otherwise, in respect of any shares of Capital Stock of the Company or to the holders of Capital Stock of the Company as such 82 (other than dividends or distributions payable in shares of Capital Stock of the Company (other than Redeemable Stock)) or (2) purchase, redeem or otherwise acquire or retire for value any of the Capital Stock of the Company or options, warrants or other rights to acquire any such Capital Stock, other than acquisitions of Capital Stock or such options, warrants or other rights by any Subsidiary of the Company from the Company (any such transaction included in clause (1) or (2) being hereafter collectively referred to as a "Restricted Payment") if (i) at the time of such Restricted Payment and after giving effect thereto, (a) an Event of Default shall have occurred and be continuing or (b) the Consolidated Net Worth of the Company shall be less than seven hundred fifty million dollars ($750,000,000); or if (ii) after giving effect to such Restricted Payment, the aggregate amount expended subsequent to November 1, 1991, for all such Restricted Payments (the amount of any Restricted Payment, if other than cash, to be the fair market value of such payment as determined by the Board of Directors of the Company, whose reasonable determination shall be conclusive and evidenced by a Board Resolution) exceeds the algebraic sum of (w) a number calculated as follows: (A) if the aggregate Consolidated Net Income of the Company earned on a cumulative basis during the period subsequent to September 30, 1991 through the end of the last fiscal quarter that is prior to the declaration of any such dividend or distribution or the giving of notice of such purchase, redemption or other acquisition or retirement and for which such financial information is then available, is a positive number, then 100% of such positive number, and (B) if the aggregate Consolidated Net Income of the Company earned on a cumulative basis during the period subsequent to September 30, 1991 through the end of the last fiscal quarter that is prior to the declaration of any such dividend or distribution or the giving of notice of such purchase, redemption or other acquisition or retirement and for which such financial information is then available, is a negative number, then 100% of such negative number, (x) the aggregate net cash proceeds received by the Company from the issuance and sale, other than to a Subsidiary of the Company, subsequent to November 1, 1991, of Capital Stock (including Capital Stock issued upon the conversion of, or in exchange for, securities other than Capital Stock and options, warrants or other rights to acquire Capital Stock, but excluding Redeemable Stock), (y) the aggregate net cash proceeds originally received by the Company from the issuance and sale, other than to a Subsidiary of the Company, of Indebtedness of the Company that is converted into Capital Stock of the Company subsequent to November 1, 1991, and (z) three hundred million dollars ($300,000,000); PROVIDED, HOWEVER, that the retirement of any shares of the Company's Capital Stock by exchange for, or out of the proceeds of the substantially concurrent sale of, other shares of Capital Stock of the Company other than Redeemable Stock shall not constitute a Restricted Payment. If all of the conditions to the declaration of a dividend or distribution set out in this Section are 83 satisfied at the time such dividend or distribution is declared, then such dividend or distribution may be paid or made within sixty days after such declaration even if the payment of such dividend, the making of such distribution or the declaration thereof would not have been permitted under this Section at any time after such declaration. SECTION 1007. LIMITATION ON FUTURE LIENS AND GUARANTIES. (a) If the Company or any Subsidiary of the Company shall create, incur, assume or suffer to exist any Lien upon any of the assets of the Company or a Subsidiary of the Company (whether such assets are owned at November 1, 1991 or thereafter acquired) as security for (i) any Indebtedness or other obligation (whether unconditional or contingent) of the Company that ranks PARI PASSU with the Senior Notes or any Indebtedness or other obligation (whether unconditional or contingent) of a Subsidiary of the Company, the Company will secure or will cause such Subsidiary to guarantee and secure the Outstanding Senior Notes equally and ratably with (or, at the option of the Company, prior to) such Indebtedness or other obligation, so long as such Indebtedness or other obligation shall be so secured, or (ii) any Subordinated Indebtedness, the Company will secure the Outstanding Senior Notes prior to such Subordinated Indebtedness, so long as such Subordinated Indebtedness shall be so secured; PROVIDED, HOWEVER, that this Subsection shall not apply in the case of Permitted Liens or Liens granted by any Unrestricted Subsidiary to secure Indebtedness or other obligations of itself or of any Person other than the Company and its Restricted Subsidiaries. (b) The Company will not guarantee the Indebtedness of any Subsidiary of the Company and will not permit any such Subsidiary or Seminole to guarantee (i) any Indebtedness of the Company that ranks PARI PASSU with the Senior Notes, (ii) any Indebtedness of a Subsidiary of the Company or (iii) any Subordinated Indebtedness; PROVIDED, HOWEVER, that this Subsection shall not apply to (1) any guaranty by a Subsidiary if such Subsidiary also guarantees the Senior Notes on a PARI PASSU basis with respect to guaranties of Indebtedness described in clause (i) and (ii) and on a senior basis with respect to guaranties of Indebtedness described in clause (iii); (2) any guaranty existing on November 1, 1991 or any extension or renewal of such guaranty to the extent such extension or renewal is for the same or a lesser amount; (3) any guaranty which constitutes Indebtedness permitted by clause (v) or (vi) of the definition of Permitted Indebtedness granted by a Person permitted to incur such Indebtedness; (4) any guaranty by the Company of Indebtedness of a Restricted Subsidiary, PROVIDED that (A) incurrence of such Indebtedness of the Restricted Subsidiary is not prohibited by this Indenture and (B) (x) such guaranty constitutes Indebtedness of the Company incurred as Permitted 84 Indebtedness pursuant to clause (vii) or (viii) of the definition of Permitted Indebtedness (it being understood that, for purposes of determining Permitted Indebtedness, any such guaranty shall be deemed to constitute Indebtedness separate from, and, in addition to, Indebtedness of a Restricted Subsidiary which is so guaranteed) or (y) immediately prior to and (on a PRO FORMA basis) after granting such guaranty, the Company would be permitted to incur an additional dollar of Indebtedness (not constituting Permitted Indebtedness) under Section 1008; (5) any guaranty by an Unrestricted Subsidiary of Indebtedness or other obligations of any Person other than the Company and its Restricted Subsidiaries; (6) any guaranty by the Company or any Subsidiary or Seminole of Indebtedness or other obligations constituting Indebtedness permitted by clause (i)(a) of the definition of Permitted Indebtedness in a principal amount not exceeding the principal amount outstanding or committed under the Credit Agreements (including any letter of credit facility, but without duplication with respect to commitments for loans the use of proceeds of which is restricted to repayment of other Indebtedness under the Credit Agreements) as of November 1, 1991, PLUS two hundred fifty million dollars ($250,000,000) and LESS the proceeds from the sale of all Indebtedness under the 1991 Indenture issued from time to time applied to repay Indebtedness under the Credit Agreements; (7) any guaranty by the Company of Indebtedness of any Restricted Subsidiary outstanding on November 1, 1991 which is not subordinated to any Indebtedness of such Restricted Subsidiary, and any renewal, extension or refinancing of such Indebtedness permitted by this Indenture; (8) any guaranty by the Company of Indebtedness of any Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof, PROVIDED that the incurrence of such Indebtedness of such Restricted Subsidiary is not prohibited by this Indenture; (9) any guaranty by a Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof of the Indebtedness of any of its Subsidiaries that is a Restricted Subsidiary and that is organized under the laws of a jurisdiction other than the United States or any subdivision thereof, PROVIDED that incurrence of such Indebtedness of such Restricted Subsidiary is not prohibited by this Indenture; (10) any guaranty by the Company or a Subsidiary of the Company of Indebtedness or other obligations in a principal amount not exceeding two hundred fifty thousand dollars ($250,000); (11) any guaranty in the form of an endorsement of negotiable instruments for deposit or collection and similar transactions; (12) any guaranty arising under or in connection with performance bonds, indemnity bonds, surety bonds, or commercial letters of credit not exceeding twenty-five million dollars ($25,000,000) in aggregate principal amount from time to time outstanding; (13) any guaranty by a Subsidiary of the Company of Indebtedness or other obligations of another Subsidiary in effect at the time of such guarantor becoming a Subsidiary and not created in 85 contemplation thereof; or (14) any guaranty by the Company or a Restricted Subsidiary of any Interest Swap Obligation, Currency Agreement or Commodities Agreement relating to Indebtedness that is guaranteed pursuant to another clause of this Subsection. SECTION 1008. LIMITATION ON FUTURE INCURRENCE OF INDEBTEDNESS. The Company will not, and will not permit any Restricted Subsidiary to, incur, create, assume, guarantee or in any other manner become directly or indirectly liable with respect to or responsible for the payment of any Indebtedness except: (1) Permitted Indebtedness; and (2) Indebtedness of the Company if at the time thereof and after giving effect thereto the Consolidated Interest Coverage Ratio of the Company, on a PRO FORMA basis for the then four most recent full quarters, taken as a whole (giving effect to (i) such Indebtedness and (ii) the effect on the Consolidated Cash Flow Available for Fixed Charges of the Company for the then four most recent full fiscal quarters, taken as a whole, as a result of any acquisition of a Person acquired by the Company or any Restricted Subsidiary with the proceeds of such Indebtedness), would be greater than 1.75 to 1. Without limiting the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, guarantee, or in any other manner become directly or indirectly liable with respect to or responsible for the payment of, Indebtedness of any Unrestricted Subsidiary in an amount greater than, for all guaranties and undertakings of responsibility by the Company and its Restricted Subsidiaries, 20% of the aggregate amount of Indebtedness of such Unrestricted Subsidiary. SECTION 1009. LIMITATION ON ASSET DISPOSITIONS. (a) (i) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless (except as otherwise permitted in the last sentence of Subsection (g) below) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Disposition at least equal to the fair market value for the assets sold or otherwise disposed of (which shall be as determined in good faith (x) in the case of dispositions of assets having a fair market value of ten million Board of Directors, whose reasonable determination shall be conclusive and evidenced by a Board Resolution, or (y) in the case of dispositions of assets having a fair market value of less than ten million dollars ($10,000,000) but not less than five million dollars ($5,000,000), an Officer of the Company, whose reasonable determination shall be conclusive and evidenced by a certificate of such Officer) and (ii) the Company will apply the aggregate net proceeds in excess of three hundred million dollars ($300,000,000) received by the Company or any Restricted 86 Subsidiary from all Asset Dispositions occurring subsequent to November 1, 1991 (but excluding for purposes of this clause (ii), whether before or after the receipt of net proceeds in excess of three hundred million dollars ($300,000,000), (1) the net proceeds of any Asset Disposition or series of related Asset Dispositions where the net proceeds are less than five million dollars ($5,000,000) and (2) the first twenty-five million dollars ($25,000,000) of net proceeds in each fiscal year without taking into account any amount excluded pursuant to (1)) as follows: (A) to the payment or prepayment of any Senior Indebtedness within six months of such Asset Disposition, or (B) to investment in the business of the Company and its Restricted Subsidiaries (including, without limitation, by acquiring equity, other than Redeemable Stock, of the transferee of such Asset Disposition) within six months of such Asset Disposition or, if such investment is with respect to a project to be completed within a period greater than six months from such Asset Disposition, then within the period of time necessary to complete such project; PROVIDED, HOWEVER, that (x) in the case of applications contemplated by clause (B), the Board of Directors has, within such six-month period, adopted in good faith a resolution committing such excess proceeds to such investment, (y) EXCEPT as provided in the next sentence, none of such excess proceeds shall be used to make any Restricted Payment or any payment in respect of Subordinated Indebtedness and (z) to the extent not applied in accordance with clauses (A) or (B) above, or if after being so applied there remain excess net proceeds in an amount greater than ten million dollars ($10,000,000), the Company shall make a PRO RATA offer to all Holders to purchase Senior Notes at 100% of principal amount, plus accrued and unpaid interest to the Asset Disposition Payment Date, up to an aggregate principal amount equal to such excess net proceeds (as adjusted pursuant to Subsection (g) of this Section, the "Asset Disposition Offer Amount"). If after being applied in accordance with clauses (A), (B) and (z) above there remain excess net proceeds, the Company will apply such excess net proceeds to the general corporate purposes of the Company or any Subsidiary of the Company. (b) Notwithstanding Subsection (a) of this Section, to the extent the Company or any of its Restricted Subsidiaries receives securities or other non- cash property or assets as proceeds of an Asset Disposition (other than equity in the transferee not constituting Redeemable Stock), the Company shall not be required to make any application required by Subsection (a) of this Section until it receives cash proceeds from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property, EXCEPT that if and to the extent the sum of all cash proceeds plus the fair market value of equity (other than Redeemable Stock) in the transferee of such Asset Disposition received at the time of such Asset Disposition is less than 70% of the fair market value of 87 the total proceeds of such Asset Disposition (with such fair market value determined and evidenced in the same manner as stated in clause (i) of Subsection (a) of this Section), the amount of such deficiency (the "Deficiency Amount") shall be applied as required by Subsection (a) of this Section as if received at the time of the Asset Disposition. Any amounts deferred pursuant to the preceding sentence shall be applied in accordance with Subsection (a) of this Section when cash proceeds are thereafter received from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property; PROVIDED, HOWEVER, that the Company shall not be required to apply with respect to any equity interest in a transferee an amount exceeding the fair market value attributable to such equity interest at the time of the Asset Disposition; and PROVIDED, FURTHER, that if a Deficiency Amount was applied pursuant to the exception contained in the preceding sentence, then once the cumulative amount of applications made pursuant to Subsections (a) and (b) of this Section (including any Deficiency Amounts) equals 100% of the fair market value of the total proceeds of the Asset Disposition at the time of such Asset Disposition, cash proceeds thereafter received from a sale, repayment, exchange, redemption or retirement of or extraordinary dividend or return of capital on such non-cash property shall not be required to be applied in accordance with Subsection (a) of this Section EXCEPT to the extent such cash proceeds exceed the Deficiency Amount. (c) An offer to purchase Senior Notes required to be made pursuant to this Section is referred to as an "Asset Disposition Offer" and the date on which the purchase of Senior Notes relating to any such Asset Disposition Offer is to be made is referred to as the "Asset Disposition Payment Date." (d) The Company shall provide the Trustee with notice of an Asset Disposition Offer and with all information required to accompany the notice described in (e) below, at least 45 days before any such Asset Disposition Payment Date and at least 10 days before the notice of any Asset Disposition Offer is mailed to Holders. (e) Notice of an Asset Disposition Offer described in this Section shall be mailed on behalf of the Company by the Trustee to all Holders at their last registered addresses not less than 30 days nor more than 60 days before the Asset Disposition Payment Date, which shall be a date not more than 210 days after the Asset Disposition giving rise to such Asset Disposition Offer. The Asset Disposition Offer shall remain open from the time of the mailing of such notice until not more than five Business Days before the Asset Disposition Payment Date. The notice shall state: 88 (1) that the Asset Disposition Offer is being made pursuant to this Section and the reason for the Asset Disposition Offer; (2) the purchase price and the Asset Disposition Payment Date; (3) the aggregate principal amount of Senior Notes initially subject to the Asset Disposition Offer Amount and, if applicable, a description of the adjustment mechanisms describe in Subsection (g) of this Section; (4) the name and address of the Paying Agent and the Trustee and that Senior Notes must be surrendered to the Paying Agent to collect the purchase price; (5) that any of the Senior Notes not tendered or accepted for payment will continue to accrue interest; (6) that any Senior Note accepted for payment pursuant to the Asset Disposition Offer shall cease to accrue interest after the Asset Disposition Payment Date; (7) that each Holder electing to have a Senior Note purchased pursuant to an Asset Disposition Offer will be required to surrender the Senior Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the fifth Business Day prior to the Asset Disposition Payment Date; (8) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Asset Disposition Payment Date, a telegram, telex, facsimile transmission or letter setting forth: the name of the Holder, the principal amount of the Senior Note the Holder delivered for purchase, the certificate number of the Senior Note the Holder delivered and a statement that such Holder is withdrawing his election to have the Senior Note purchased; and (9) that Holders whose Senior Notes are purchased only in part will be issued new Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered. (f) On the Asset Disposition Payment Date, the Company shall (i) accept for payment Senior Notes or portions thereof tendered pursuant to the Asset Disposition Offer in an aggregate principal amount equal to the Asset Disposition Offer Amount or 89 such lesser amount of Senior Notes as shall have been tendered, (ii) on or before 12:00 noon New York City time, deposit with the Paying Agent money sufficient to pay the purchase price of all Senior Notes or portions thereof so accepted, and (iii) deliver or cause to be delivered to the Trustee Senior Notes so accepted together with an Officer's Certificate stating the Senior Notes or portions thereof accepted by the Company. If the aggregate principal amount of Senior Notes tendered exceeds the Asset Disposition Offer Amount, the Company shall select the Senior Notes to be purchased on a PRO RATA basis to the nearest one thousand dollars ($1,000) of principal amount. The Paying Agent shall promptly mail or deliver to Holders of Senior Notes so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders a new Senior Note equal in principal amount to any unpurchased portion of the Senior Note surrendered. Any Senior Notes not so accepted shall be promptly mailed or made available for delivery to the Holder thereof. The Company will publicly announce the results of the Asset Disposition Offer on or as soon as practicable after the Asset Disposition Payment Date. For purposes of this Section, the Trustee or its agent shall act as the Paying Agent. (g) The Company shall not make an "Asset Disposition Offer" (as defined) required under Section 1009 of the 1991 Indenture in connection with a disposition of assets other than the Colleteral (as defined in the First Mortgage Note Indenture) unless the Company shall have made an Asset Disposition Offer hereunder (and in respect of certain other Senior Indebtedness in accordance with the following sentence) on a PRO RATA basis (in an aggregate amount equal to the amount to be offered pursuant to the Asset Disposition Offer under the 1991 Indenture) the closing date of which is prior to six months after the asset disposition triggering the obligations of the Company under the 1991 Indenture. Notwithstanding the previous sentence, if on or after the date hereof, the Company issues any Senior Indebtedness (including the __% First Mortgage Notes due 2002 of the Company, reference being made to Section 1009(g) of the First Mortgage Note Indenture) containing a requirement that an offer be made to repurchase such Senior Indebtedness under the same circumstances and in the same manner (including the prescribed time periods hereof) provided in this Section 1009, then (i) the Company may apply the Asset Disposition Offer Amount (before any adjustment pursuant to this sentence) to the PRO RATA purchase of Senior Notes tendered hereunder and the Senior Indebtedness tendered thereunder and (ii) the Asset Disposition Offer Amount available to repurchase the Senior Notes shall be reduced by the amount applied to the purchase of such Senior Indebtedness; PROVIDED that this sentence shall only apply to (i) Senior Indebtedness issued on or after the date hereof (including the __% First Mortgage Notes due 2002 of the Company) that explicitly permits the PRO RATA purchase of Senior Notes as described herein and refers to 90 this Section 1009(g) and any Indebtedness outstanding at the date of this Indenture that is amended to explicitly permit the PRO RATA purchase of Senior Notes as described herein and refers to this Section 1009(g). In the event that the First Mortgage Notes are refinanced through a public or private offering of Indebtedness constituting debt securities and the amount of such refinancing Indebtedness is no greater than the principal amount of the __% First Mortgage Notes due 2002 Outstanding as of the date of such refinancing, the Company need not comply with Subsection (a) of this Section 1009 in respect of an Asset Disposition involving the collateral securing such Indebtedness (other than collateral granted in respect of such Indebtedness pursuant to a negative pledge or similar provision contained in the indenture or similar instrument relating to such Indebtedness) to the extent that such compliance would constitute a default under such indenture or similar instrument. SECTION 1010. MAINTENANCE OF PROPERTIES. The Company will cause all material properties used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order (normal wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors or of the board of directors of the Subsidiary concerned, as the case may be, desirable in the conduct of the business of the Company or any Subsidiary of the Company and not materially disadvantageous to the Holders. SECTION 1011. COMPLIANCE CERTIFICATES. (a) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year of the Company (which fiscal year currently ends on December 31), an Officer's Certificate stating whether or not the signer knows of any Default or Event of Default by the Company that occurred prior to the end of the fiscal year and is then continuing. If the signer does know of such a Default or Event of Default, the certificate shall describe each such Default or Event of Default and its status and the specific section or sections of this Indenture in connection with which such Default or Event or Default has occurred. The Company shall also promptly notify the Trustee in writing should the Company's fiscal year be changed so that the 91 end thereof is on any date other than the date on which the Company's fiscal year currently ends. (b) The Company shall deliver to the Trustee as soon as practicable but in any event not later than 45 days after the end of each fiscal quarter an Officer's Certificate setting forth the Company's Subordinated Capital Base for purposes of this Section 1011. The Trustee may conclusively rely on the Officer's Certificate for such purposes. (c) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the Senior Notes as they relate to accounting matters and (ii) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof and the specific section or sections of this Indenture in connection with which such Default has occurred; PROVIDED, that without any restriction as to the scope of the audit examination, such independent certified public accountants shall not be liable by reason of the failure to obtain knowledge of such Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards. (d) The Company shall deliver to the Trustee forthwith upon becoming aware of a Default or Event of Default (but in no event later than 10 days after the occurrence of each Default or Event of Default that is continuing), an Officer's Certificate setting forth the details of such Default or Event of Default and the action that the Company proposes to take with respect thereto and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. SECTION 1012. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim, and will actively resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law, which would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on the Senior Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted 92 to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 1013. CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control (the "Change of Control Date") and subject to the requirements of the next succeeding sentence, each Holder shall have the right to require that the Company repurchase such Holder's Senior Notes in whole or in part pursuant to the offer described in Subsection (b) below (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount of such Senior Notes plus accrued and unpaid interest, if any, to the date of such repurchase. If such repurchase would constitute an event of default under Specified Bank Debt, then, prior to giving the notice to Holders provided in Subsection (b) below, the Company shall (i) repay in full in cash such Specified Bank Debt or (ii) obtain the requisite consent of holders of such Specified Bank Debt to permit the repurchase of Senior Notes without giving rise to an event of default under such Specified Bank Debt. (b) Promptly upon satisfaction of either one of the obligations, if then applicable, set forth in clause (i) or (ii) of Subsection (a) above, the Company shall mail a notice to each Holder and the Trustee in respect of the Change of Control Offer (which notice shall contain all instructions and materials necessary to enable such Holders to tender Senior Notes) stating: (1) that the Change of Control Offer is being made pursuant to this Section and that all Senior Notes properly tendered will be accepted for payment; (2) the purchase price and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, but in any event prior to the date on which any Subordinated Indebtedness is paid pursuant to the terms of a provision similar to this Section) (the "Change of Control Payment Date"); (3) the name and address of the Paying Agent and the Trustee and that the Senior Notes must be surrendered to the Paying Agent to collect the purchase price; (4) that any Senior Note not tendered will continue to accrue interest; (5) that any Senior Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (6) that each Holder electing to have a Senior Note purchased pursuant to a Change of Control Offer will be 93 required to surrender the Senior Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (7) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Senior Note the Holder delivered for purchase, the certificate numbers of the Senior Note the Holder delivered and a statement that such Holder is withdrawing his election to have such Senior Note purchased; and (8) that Holders whose Senior Notes are purchased only in part will be issued new Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered. On or before 12:00 noon New York City time on the Change of Control Payment Date, the Company shall (i) accept for payment Senior Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Senior Notes or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee Senior Notes so accepted, together with an Officer's Certificate stating the aggregate principal amount of the Senior Notes or portions thereof so accepted by the Company. The Paying Agent shall promptly mail or deliver to the Holder of Senior Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or make available for delivery to such Holder a new Senior Note equal in principal amount to any unpurchased portion of the Senior Note surrendered. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section, the Trustee or its agent shall act as the Paying Agent. If a Change of Control has occurred but a Change of Control Offer is not permitted to be made, the Company shall mail a notice of such Change of Control to each Holder within 30 days following a Change of Control Date. The Company shall comply with any applicable tender offer rules (including, without limitation, any applicable requirements of Rule 14e-1 under the Exchange Act) and any other 94 legal requirements in the event that a Change of Control Offer is made under the circumstances described in this Section 1013. SECTION 1014. WAIVER OF CERTAIN COVENANTS. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1006, 1007, 1008 and 1009, if before the time for such compliance Holders representing at least two-thirds in principal amount of the Outstanding Senior Notes shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN MAINTENANCE OF SUBORDINATED CAPITAL BASE SECTION 1101. MAINTENANCE OF SUBORDINATED CAPITAL BASE. (a) Subject to the terms of Section 1102, in the event that the Company's Subordinated Capital Base is less than one billion dollars ($1,000,000,000) (the "Minimum Subordinated Capital Base") as at the end of each of any two consecutive fiscal quarters (the last day of the second such fiscal quarter, a "Deficiency Date"), then, with respect to Senior Notes, the Company shall, no later than 60 days after the Deficiency Date (105 days if a Deficiency Date is also the end of the Company's fiscal year), make an offer to all Holders to purchase (a "Deficiency Offer") 10% of the principal amount of Senior Notes originally issued, or such lesser amount as may be Outstanding at the time each Deficiency Offer is made (the "Deficiency Offer Amount"), at a purchase price equal to 100% of principal amount, plus accrued and unpaid interest to the Deficiency Payment Date. (b) Thereafter, semi-annually the Company shall make like Deficiency Offers for the then applicable Deficiency Offer Amount of Senior Notes until the Company's Subordinated Capital Base as at the end of any subsequent fiscal quarter shall be equal to or greater than the Minimum Subordinated Capital Base. Notwithstanding the foregoing, after any specified Deficiency Date, the last day of any subsequent fiscal quarter shall not constitute a Deficiency Date (giving rise to an additional obligation under Subsection (a) of this Section) unless the Company's Subordinated Capital Base was equal to or greater than the Minimum Subordinated Capital Base as at the end of a fiscal 95 quarter that followed such specified Deficiency Date and preceded such subsequent quarter. (c) Within 60 days (105 days if a Deficiency Date is also the end of the Company's fiscal year) following a Deficiency Date, the Company shall mail a notice to each Holder in respect of the Deficiency Offer (which notice shall contain all instructions and materials necessary to enable such Holders to tender Senior Notes) stating: (1) that the Deficiency Offer is being made pursuant to this Section and the reason for the Deficiency Offer; (2) the purchase price and the purchase date, which shall be 20 Business Days from the date such notice is mailed or, if acceptance for payment and payment is not then lawful, on the earliest subsequent Business Day on which acceptance for payment and payment is then lawful (a "Deficiency Payment Date"); (3) the aggregate principal amount of Senior Notes subject to the Deficiency Amount; (4) the name and address of the Paying Agent and the Trustee and that Senior Notes must be surrendered to the Paying Agent to collect the purchase price; (5) that any of the Senior Notes not tendered or accepted for payment will continue to accrue interest; (6) that any Senior Note accepted for payment pursuant to the Deficiency Offer shall cease to accrue interest after the Deficiency Payment Date; (7) that each Holder electing to have a Senior Note purchased pursuant to a Deficiency Offer will be required to surrender the Senior Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Deficiency Payment Date; (8) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Deficiency Payment Date, a telegram, telex, facsimile transmission or letter setting forth: the name of the Holder, the principal amount of the Senior Note the Holder delivered for purchase, the certificate number of the Senior Note the Holder delivered and a statement that such Holder is withdrawing his election to have the Senior Note purchased; and 96 (9) that Holders whose Senior Notes are purchased only in part will be issued new Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered. (d) On a Deficiency Payment Date, the Company shall (i) accept for payment Senior Notes or portions thereof tendered pursuant to the Deficiency Offer in an aggregate principal amount equal to the Deficiency Offer Amount or such lesser principal amount of such Senior Notes as shall have been tendered, (ii) on or before 12:00 noon New York City time, deposit with the Paying Agent money sufficient to pay the purchase price of all such Senior Notes or portions thereof so accepted, and (iii) deliver, or cause to be delivered to the Trustee, Senior Notes so accepted together with an Officer's Certificate stating the Senior Notes or portions thereof accepted by the Company. If the aggregate principal amount of such Senior Notes tendered exceeds the Deficiency Offer Amount, the Company shall select the Senior Notes to be purchased on a PRO RATA basis to the nearest one thousand dollars ($1,000) of principal amount. The Paying Agent shall promptly mail or make available for delivery to Holders of Senior Notes so accepted payment in amounts equal to the purchase prices therefor, and the Company shall execute and the Trustee shall promptly authenticate and mail or make available for delivery to such Holders new Senior Notes equal in principal amounts to, any unpurchased portion of the Senior Notes surrendered. Any Senior Notes not so accepted shall be promptly mailed or made available for delivery to the Holder thereof. The Company will publicly announce the results of the Deficiency Offer on or as soon as practicable after the Deficiency Payment Date. For purposes of this Section, the Trustee or its agent shall act as the Paying Agent. (e) The Company shall comply with and applicable tender offer rules (including, without limitation, any applicable requirements of Rule 14e-1 under the Exchange Act) and any other legal requirements in the event that a Deficiency Offer is made under the circumstances described in this Section 1101. SECTION 1102. ALTERNATIVE INTEREST RATE ADJUSTMENT. (a) Notwithstanding the terms of Section 1101, in the event that (1) the making of a Deficiency Offer by the Company or (2) the purchase of Senior Notes by the Company in respect of a Deficiency Offer would constitute a default (with the giving of notice, the passage of time or both) with respect to any Specified Bank Debt at the time outstanding, then, in lieu of the making of a Deficiency Offer in the circumstances set forth in Section 1101, (i) the interest rate on the Senior Notes shall be reset as of the first day of the second fiscal quarter following the Deficiency Date (the "Reset Date") to a rate per annum (the "Reset Rate") equal to the greater of (x) the Initial Interest 97 Rate and (y) the sum of (A) ______ basis points and (B) the higher of the ____ Year Treasury Rate and the ____ Year Treasury Rate, (ii) on the first Interest Payment Date following the Reset Date, the interest rate on the Senior Notes, as reset on the Reset Date, shall increase by fifty (50) basis points, and (iii) the interest rate on the Senior Notes shall further increase by an additional fifty (50) basis points on each succeeding Interest Payment Date; PROVIDED, HOWEVER, that in no event shall the interest rate on the Senior Notes at any time exceed the Initial Interest Rate by more than two hundred (200) basis points. (b) Once the interest rate on the Senior Notes has been reset pursuant to Subsection (a) of this Section, if the Company's Subordinated Capital Base is equal to or greater than the Minimum Subordinated Capital Base as of the last day of any fiscal quarter subsequent to the Deficiency Date, interest on the Senior Notes shall return to the Initial Interest Rate effective as of the first day of the second following fiscal quarter; PROVIDED, HOWEVER, that the interest rate on the Senior Notes shall again be adjusted in accordance with Subsection (a) of this Section if the Company's Subordinated Capital Base shall thereafter be less than the Minimum Subordinated Capital Base as at the last day of any two consecutive subsequent fiscal quarters and if the making of a Deficiency Offer or the purchase of Senior Notes by the Company in respect of a Deficiency Offer would, at such time, constitute a default (with the giving of notice, the passage of time, or both) with respect to any Specified Bank Debt at the time outstanding. (c) The Company shall notify the Trustee of the Reset Rate not later than two Business Days after the Reset Date in the circumstances set forth in Subsection (a) of this Section. Not later than five Business Days after the Trustee has received such notice from the Company, the Trustee shall mail to each Holder such notice setting forth the Reset Rate. Commencing on the Reset Date, the Senior Notes shall bear interest (as determined in accordance with clauses (i), (ii) and (iii) of Subsection (a) of this Section) until the date on which such interest rate returns to the Initial Interest Rate pursuant to Subsection (b) of this Section. The Company shall notify the Trustee and the Holders of such Senior Notes promptly when the interest rate on such Senior Notes returns to the Initial Interest Rate pursuant to Subsection (b) of this Section. Failure of the Company or the Trustee to give, or failure of a Holder to receive, such notices shall not in any event affect the validity of the proceedings of the adjustment of the interest to be borne by such Senior Notes effective on the Reset Date of the Company's obligations hereunder. 98 ARTICLE TWELVE REDEMPTION OF SENIOR NOTES SECTION 1201. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The Company may at its option redeem Senior Notes in whole or in part pursuant to paragraph 3 of the reverse of the Senior Notes. The election of the Company to redeem any of the Senior Notes shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company in whole or in part of less than all the Senior Notes, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Senior Notes to be redeemed. The Company shall deliver to the Trustee an Officer's Certificate, a Board Resolution authorizing the redemption and an Opinion of Counsel with respect to the due authorization of such redemption and to the effect that such redemption is being made in accordance with this Indenture and the Senior Notes. SECTION 1202. SELECTION BY TRUSTEE OF THE SENIOR NOTES TO BE REDEEMED. If less than all the Senior Notes are to be redeemed, the particular Senior Notes to be redeemed shall be selected not more than 90 days prior to the Redemption Date by the Trustee, from the Outstanding Senior Notes not previously called for redemption or submitted for repurchase pursuant to Sections 1009 and 1013, substantially PRO RATA, by lot or by any other method as the Trustee considers fair and appropriate and that complies with the requirements of the principal national securities exchange, if any, on which such Senior Notes are listed, and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Senior Notes of a denomination larger than $1,000. The Trustee shall promptly notify the Company in writing of the Senior Notes selected for redemption and, in the case of any Senior Note selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Senior Notes shall relate, in the case of any Senior Note redeemed or to be redeemed only in part, to the portion of the principal amount of such Senior Note which has been or is to be redeemed. 99 SECTION 1203. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 45 days prior to the Redemption Date, to each Holder of Senior Notes to be redeemed, at the address of such Holder appearing in the Register. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price (including the amount of accrued and unpaid interest to be paid); (3) the name and address of the Paying Agent and the Trustee and that the Senior Notes must be surrendered to the Paying Agent to collect the Redemption Price; (4) if less than all Outstanding Senior Notes are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Senior Notes to be redeemed and that, on or after the Redemption Date, upon surrender of any Senior Note to be redeemed in part, a new Senior Note in principal amount equal to the unredeemed portion thereof will be issued; (5) that on the Redemption Date the Redemption Price will become due and payable upon each such Senior Note or portion thereof to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date; and (6) the CUSIP number, if any, of the Senior Notes to be redeemed. Notice of redemption of Senior Notes to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1204. DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Senior Notes or portions thereof which are to be redeemed on that date. SECTION 1205. SENIOR NOTES PAYABLE ON REDEMPTION DATE. 100 Notice of redemption having been given as aforesaid, the Senior Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Senior Notes or portions thereof shall cease to bear interest. Upon surrender of any such Senior Note for redemption in accordance with said notice, such Senior Note or portion thereof shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Senior Notes, or one or more Predecessor Senior Notes, registered as such at the close of business on the relevant Record Dates or Special Record Dates according to their terms and the provisions of Section 307. If any Senior Note or portion thereof called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Senior Note. SECTION 1206. SENIOR NOTES REDEEMED IN PART. Any Senior Note which is to be redeemed only in part shall be surrendered at an office or agency of the Company at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Senior Note without service charge, one or more new Senior Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Senior Note so surrendered. ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. The Company may at its option by Board Resolution, at any time, with respect to the Senior Notes, elect to have either Section 1302 (if applicable) or Section 1303 (if applicable) be applied to the Outstanding Senior Notes upon compliance with the applicable conditions set forth below in this Article. SECTION 1302. DEFEASANCE AND DISCHARGE. 101 Upon the Company's exercise of the option provided in Section 1301 to defease the Outstanding Senior Notes, the Company shall be discharged from its obligations with respect to the Outstanding Senior Notes on the date the applicable conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance"). Defeasance shall mean that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Senior Notes and to have satisfied all its other obligations under such Senior Notes and this Indenture (and the Trustee, at the expense of the Company, shall executed proper instruments acknowledging the same); PROVIDED, HOWEVER, that the following rights, obligations, powers, trusts, duties and immunities shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Senior Notes to receive, solely from the trust fund provided for in Section 1304, payments in respect of the principal of (and premium, if any) and interest on such Senior Notes when such payments are due, (B) the Company's obligations with respect to such Senior Notes under Sections 304, 305, 306, 1002 and 1003 (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article. Subject to compliance with this Article, the Company may exercise its option with respect to defeasance under this Section 1302 notwithstanding the prior exercise of its option with respect to covenant defeasance under Section 1303. SECTION 1303. COVENANT DEFEASANCE. Upon the Company's exercise of the option provided in Section 1301 to obtain a covenant defeasance with respect to the Outstanding Senior Notes, the Company shall be released from its obligations under this Indenture (except its obligations under Sections 306, 506, 509, 610, 1001, 1002, 1011 and 1012) with respect to the Outstanding Senior Notes on and after the date the applicable conditions set forth in Section 1304 are satisfied (hereinafter, "covenant defeasance"). Covenant defeasance shall mean that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in this Indenture (except its obligations under Sections 306, 506, 509, 610, 1001, 1002, 1011 and 1012), whether directly or indirectly by reason of any reference elsewhere herein or by reason of any reference to any other provision herein or in any other document, and such omission to comply shall not constitute an Event of Default under Section 501(3) with respect to Outstanding Senior Notes, and the remainder of this Indenture and of the Senior Notes shall be unaffected thereby. SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to defeasance under Section 1302 and covenant defeasance under Section 1303 with respect to the Outstanding Senior Notes: 102 (1) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 609 who shall agree to comply with the provisions of this Article applicable to it), under the terms of an irrevocable trust agreement in form and substance reasonably satisfactory to such Trustee, as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders, (A) dollars in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any, on) and each installment of principal of (and premium, if any) and interest on the Outstanding Senior Notes on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory payments applicable to the Outstanding Senior Notes on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Senior Notes. (2) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit, and no Default or Event of Default under clause (6) or (7) of Section 501 hereof shall occur and be continuing, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such deposit, defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (4) Such defeasance or covenant defeasance shall not cause the Senior Notes then listed on any national securities exchange registered under the Exchange Act to be delisted. (5) In the case of an election with respect to Section 1302, the Company shall have delivered to the Trustee either (A) a ruling directed to the Trustee received from the 103 Internal Revenue Service to the effect that the Holders of the Outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred or (B) an Opinion of Counsel, based on such ruling or on a change in the applicable federal income tax law since the date of this Indenture, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and a the same times as would have been the case if such defeasance had not occurred. (6) In the case of an election with respect to Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel or a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (7) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. SECTION 1305. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Senior Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Senior Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Senior Notes of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. 104 The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof, other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Senior Notes. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited for the purpose for which such money or U.S. Government Obligations were deposited. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STONE CONTAINER CORPORATION By: -------------------------------- Name: Title: [SEAL] Attest: - ---------------------------- Name: Title: THE BANK OF NEW YORK ______________________, as Trustee By: -------------------------------- Name: 105 Title: [CORPORATE SEAL] Attest: - ---------------------------- Name: Title: 106 STATE OF ILLINOIS ) ) SS.: COUNTY OF COOK ) On the ____ day of ________, 1994, before me personally came ____________, to me known, who, being by me duly sworn, did depose and say that he is _______________________, one of the parties described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal, that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. ------------------------------- My commission expires: STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) On the ____ day of ________, 1994, before me personally came _____________, to me known, who, being by me duly sworn, did depose and say that he is _________ of _________________, one of the parties described in and which executed the foregoing instrument; that he knows the seal of said bank; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said bank; and that he signed his name thereto by like authority. ------------------------------- My Commission Expires: EX-4.U 5 EXHIBIT 4(U) EXHIBIT 4(u) _________________________________________________________________ STONE CONTAINER CORPORATION $850,000,000 CREDIT AGREEMENT Dated as of October __, 1994 with THE FINANCIAL INSTITUTIONS SIGNATORY HERETO, BANKERS TRUST COMPANY, as Agent, and BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA, CAISSE NATIONALE DE CREDIT AGRICOLE, CHEMICAL BANK, THE CHASE MANHATTAN BANK, N.A., DRESDNER BANK AG CHICAGO BRANCH, THE FIRST NATIONAL BANK OF CHICAGO, THE LONG-TERM CREDIT BANK OF JAPAN, LTD., NATIONSBANK OF NORTH CAROLINA, N.A., THE SUMITOMO BANK, LTD. AND THE TORONTO-DOMINION BANK, AS CO-AGENTS _________________________________________________________________ CREDIT AGREEMENT THIS CREDIT AGREEMENT is dated as of October __, 1994 and is made by and among Stone Container Corporation, a Delaware corporation (the "BORROWER"), the undersigned financial institutions in their capacities as lenders hereunder (hereinafter collectively, the "LENDERS," and each individually, a "LENDER"), Bankers Trust Company, as agent (the "AGENT") for the Lenders hereunder, and Bank of America National Trust & Savings Association, The Bank of New York, The Bank of Nova Scotia, Caisse Nationale de Credit Agricole, Chemical Bank, The Chase Manhattan Bank, N.A., Dresdner Bank AG Chicago Branch, The First National Bank of Chicago, The Long-Term Credit Bank of Japan, Ltd., NationsBank of North Carolina, N.A., The Sumitomo Bank, Ltd. and The Toronto-Dominion Bank, as co-agents for the Lenders (collectively, the "CO-AGENTS," and each individually, a "CO-AGENT"). RECITALS: A. The Borrower has requested the Lenders to make a Term Loan to the Borrower in the aggregate principal amount of $400,000,000 and to make available Revolving Loans to the Borrower under a revolving credit facility (including a letter of credit subfacility and a swing line facility), subject to certain restrictions set forth herein, in an aggregate principal amount not to exceed $450,000,000 at any time outstanding. B. The proceeds of the Term Loan, Revolving Loans, Letters of Credit and Swing Line Loans made or issued hereunder will be used by the Borrower (i) to provide all or a portion of the funds necessary to repay in full all of the indebtedness outstanding under the U.S. Credit Agreement on the Closing Date; (ii) to make loans and/or capital contributions on the Closing Date to Stone-Canada, which will, concurrently therewith, repay all of the indebtedness outstanding under the Canadian Credit Agreements; (iii) to provide all or a portion of the funds necessary to repay all of the indebtedness outstanding under the Stone Savannah Credit Agreement on the Closing Date and to consummate the Stone Savannah Transactions; (iv) in the case of Letters of Credit, to meet the ordinary course of business letter of credit needs of the Borrower and its Subsidiaries; and (v) for ongoing working capital and general corporate purposes of the Borrower and its Subsidiaries. C. The Lenders are willing to make the Term Loan and to extend commitments to make the Revolving Loans and Swing Line Loans, and to issue or participate, as the case may be, in Letters of Credit, to the Borrower, in each case for the respective purposes stated above on the terms and subject to the conditions hereinafter set forth. -1- 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 Section 1.1 DEFINITIONAL APPENDIX. Unless the context otherwise requires, each capitalized term used herein, including the preamble and recitals above, and defined in the attached Definitional Appendix (which shall be deemed to be a part of this Agreement) shall have the meaning ascribed to such term in the Definitional Appendix. Section 1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS. All accounting terms used herein and not expressly defined in this Agreement shall have the respective meanings given to them in accordance with generally accepted accounting principles in the United States of America or Canada, as applicable, as in effect on the date hereof (as applicable, the "AGREEMENT ACCOUNTING PRINCIPLES"); and 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 such generally accepted accounting principles. Notwithstanding the foregoing sentence, the financial statements required to be delivered pursuant to SECTION 5.1.1 shall be prepared in accordance with generally accepted accounting principles in the United States or Canada, as applicable, as in effect on the respective dates of their preparation. Where the Handbook of the Canadian Institute of Chartered Accountants includes a statement on a method of accounting relating to a Canadian Subsidiary of the Borrower, such statement shall be regarded as the only generally accepted accounting principle in effect in Canada applicable to the circumstances that it covers. Notwithstanding the foregoing, other than for purposes of the financial statements referenced in SECTIONS 5.1.1(b)(i) and 5.1.1(c)(i), in all computations of Consolidated Current Assets, Consolidated Current Liabilities, Consolidated Net Income, Consolidated Net Loss, Consolidated Net Worth, Consolidated Tangible Net Worth, Total Consolidated Indebtedness for Borrowed Money and all other "consolidated" amounts, and in all computations referred to in the third sentence of SECTION 5.1.1(b) and clause (z) of the second sentence of SECTION 5.1.1(c), the assets, liabilities, income, losses, net worth and other relevant amounts concerning Seminole Kraft, S-CC and SVCPI shall not be consolidated but shall instead, as applicable, be excluded or accounted for utilizing the equity method. -2- ARTICLE II LOAN PROVISIONS Section 2.1 LOAN COMMITMENTS. (a) TERM LOAN. Each Term 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 a loan to the Borrower on the Closing Date to, but not including, the Term Loan Maturity Date, in an aggregate principal amount equal to the Term Loan Commitment of such Lender. Each Term Lender's Term Loan Commitment shall expire immediately and without further action on the Closing Date if the Term Loan is not made on the Closing Date. The Borrower may only make a Borrowing under the Term Loan Commitments on the Closing Date. No amount of the Term Loan which is repaid or prepaid by the Borrower may be reborrowed hereunder. The Term Loan shall be a Prime Rate Loan unless and until converted, in whole or in part, to a Eurodollar Rate Loan pursuant to this Agreement; PROVIDED, HOWEVER, that Eurodollar Rate Term Loans shall only have Interest Periods of one month during the first ninety (90) days following the date hereof. (b) REVOLVING LOANS. Each Revolving Lender severally, and for itself alone, 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 to the Borrower on a revolving basis from time to time from and after the Closing Date to, but not including, the Revolver Termination Date, in its Revolving Loan Pro Rata Share of such aggregate amount as the Borrower may request, but not exceeding in an aggregate principal amount at any one time outstanding (giving effect to the contemporaneous application of any Revolving Loan proceeds to the payment of any L/C Obligations, Florence L/C Obligations or Swing Line Loans) the applicable Revolving Loan Commitment of such Revolving Lender at such time MINUS (i) such Revolving Lender's Revolving Loan Pro Rata Share of the L/C Obligations outstanding at such time, (ii) such Revolving Lender's Revolving Loan Pro Rata Share of Florence L/C Obligations outstanding at such time and (iii) such Revolving Lender's Revolving Loan Pro Rata Share of Swing Line Loans outstanding at such time. Prior to the Revolver Termination Date, Revolving Loans may be repaid and reborrowed by the Borrower in accordance with the provisions hereof. Section 2.2 OBLIGATIONS; NOTES (a) TERM LOAN OBLIGATIONS. The Borrower's obligation to each Term Lender to repay the principal of, and interest on, the Term Loan made hereunder shall be evidenced by a promissory note (each a "TERM NOTE" and collectively the "TERM NOTES") duly -3- executed and delivered by the Borrower substantially in the form of EXHIBIT 2.2(a) hereto, the terms of which are incorporated herein by reference in their entirety and made a part hereof and shall (i) be payable to the order of each Term Lender in the amount of such Lender's Term Loan Commitment, (ii) be dated the Closing Date, (iii) provide that the Term Loan evidenced thereby shall mature on the Term Loan Maturity Date, (iv) bear interest as provided in this Agreement and (v) have attached thereto a principal payments schedule substantially in the form of the Schedule to EXHIBIT 2.2(a). Each Term Lender shall, and is hereby authorized to, make a notation on the principal payments schedule of the date and the amount of any principal payments. Such schedules as maintained by each Term Lender shall, absent manifest error, constitute PRIMA FACIE evidence of the amount outstanding under the Term Loan. Notwithstanding the foregoing, the failure to make a notation with respect to any principal payment shall not limit or otherwise affect the obligation of the Borrower hereunder or under any Term Note with respect to the Term Loan and payments of principal or interest by the Borrower shall not be affected by the failure by any Term Lender to make a notation thereof on the principal payments schedule nor shall such failure or error affect any rights of the Borrower hereunder or under applicable law. Subject to the earlier acceleration or prepayment of the Term Loan as permitted or required by this Agreement, the Borrower shall repay the outstanding principal balance of the Term Loan in semi-annual installments payable to the order of the respective Term Lenders (according to their Term Loan Pro Rata Shares) on the dates and in the respective aggregate amounts as follows: PAYMENT DATE AMOUNT April 1, 1995 $2,000,000 October 1, 1995 $2,000,000 April 1, 1996 $2,000,000 October 1, 1996 $2,000,000 April 1, 1997 $2,000,000 October 1, 1997 $2,000,000 April 1, 1998 $2,000,000 October 1, 1998 $2,000,000 April 1, 1999 $2,000,000 October 1, 1999 $190,000,000 April 1, 2000 $192,000,000 (b) REVOLVING LOAN OBLIGATIONS. The Borrower's obligations to each Revolving Lender to repay the principal of, and interest on, all of the Revolving Loans made by each Revolving Lender hereunder shall be evidenced by a promissory note (each a "REVOLVING NOTE" and collectively the "REVOLVING NOTES") duly executed and delivered by the Borrower substantially in the form of EXHIBIT 2.2(b) hereto, the terms of which are incorporated herein by reference in their entirety and made a part hereof and shall (i) be payable to the order of each Revolving Lender in the amount of such Lender's Revolving Loan Commitment, (ii) be dated the Closing -4- Date, (iii) provide that each Revolving Loan evidenced thereby shall be repaid on the Revolver Termination Date as provided herein, (iv) bear interest as provided in this Agreement and (v) have attached thereto a principal payments schedule substantially in the form of the Schedule to EXHIBIT 2.2(B). On the Closing Date and at the time of the making of each Revolving Loan or principal payment, as the case may be, such Revolving Lender shall, and is hereby authorized to, make a notation on the Principal Payments Schedule with respect to such Lender's Revolving Note of the date and the amount of each Revolving Loan or payment, as the case may be. Such schedule as maintained by each Revolving Lender shall, absent manifest error, constitute PRIMA FACIE evidence of the amounts outstanding under the Revolving Loans. Notwithstanding the foregoing, the failure by any Revolving Lender to make a notation with respect to any Revolving Loan shall not limit or otherwise affect the obligation of the Borrower hereunder or under such Lender's Revolving Note with respect to such Revolving Loan and payments of principal by the Borrower shall not be affected by the failure to make a notation thereof on the principal payments schedule nor shall such failure or error affect any rights of the Borrower hereunder or under applicable law. Although the Revolving Notes shall be dated the Closing Date, interest in respect thereof shall be payable only for the periods during which the Revolving Loans evidenced thereby are outstanding and although the stated amount of the Revolving Notes shall be equal to each Revolving Lender's Revolving Loan Commitment, each Revolving Note shall be enforceable with respect to the Borrower's obligation to pay the principal amount thereof only to the extent of the unpaid principal amount of the Revolving Loans at the time evidenced thereby. Subject to the earlier acceleration or prepayment of the Revolving Loans as permitted or required by this Agreement, the Borrower shall repay all Revolving Loans then outstanding on the Revolver Termination Date. (c) SWING LINE LOAN OBLIGATIONS. The Borrower's obligation to the Swing Line Lender to repay the principal of, and interest on, all of the Swing Line Loans made by the Swing Line Lender hereunder shall be evidenced by a promissory note (the "SWING LINE NOTE") duly executed and delivered by the Borrower substantially in the form of EXHIBIT 2.2(c) hereto, the terms of which are incorporated herein by reference in their entirety and made a part hereof and shall (i) be payable to the order of the Swing Line Lender in the amount of the Swing Line Commitment, (ii) be dated the Closing Date, (iii) provide that each Swing Line Loan evidenced thereby shall be repaid as provided herein, (iv) bear interest as provided in this Agreement and (v) have attached thereto a principal payments schedule substantially in the form of the schedule to EXHIBIT 2.2(c). On the Closing Date and at the time of the making of each Swing Line Loan or principal payment, as the case may be, the Swing Line Lender shall, and is hereby authorized to, make a notation on the principal payments schedule to the Swing Line Note of the date and the amount of each Swing Line Loan or payment, as the case may be. Such schedule as -5- maintained by the Swing Line Lender shall, absent manifest error, constitute PRIMA FACIE evidence of the amounts outstanding under the Swing Line Loans. Notwithstanding the foregoing, the failure by the Swing Line Lender to make a notation with respect to any Swing Line Loan shall not limit or otherwise affect the obligation of the Borrower hereunder or under the Swing Line Lender's Swing Line Note with respect to such Swing Line Loan and payments of principal by the Borrower shall not be affected by the failure to make a notation thereof on the principal payments schedule nor shall such failure or error affect any rights of the Borrower hereunder or under applicable law. Although the Swing Line Note shall be dated the Closing Date, interest in respect thereof shall be payable only for the periods during which the Swing Line Loans evidenced thereby are outstanding and although the stated amount of the Swing Line Note shall be equal to the Swing Line Commitment, the Swing Line Note shall be enforceable with respect to the Borrower's obligation to pay the principal amount thereof only to the extent of the unpaid principal amount of the Swing Line Loans at the time evidenced thereby. Subject to the earlier acceleration or prepayment of the Swing Line Loans as permitted or required by this Agreement, the Borrower shall repay all Swing Line Loans outstanding on the Revolver Termination Date. Section 2.3 BORROWING OPTIONS. The Term Loan and the Revolving Loans shall, at the option of the Borrower and except as otherwise provided in this Agreement, consist of (i) Prime Rate Loans, (ii) Eurodollar Rate Loans or (iii) part Prime Rate Loans and part Eurodollar Rate Loans, provided that all Loans made pursuant to the same Borrowing shall be of the same Type. As to any Eurodollar Rate Loan, any Lender may, if it so elects, fulfill its commitment to make such Loan by causing a foreign branch or affiliate of such Lender to make or continue such Loan, provided that in such event such Lender's Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as the case may be, of the Loan shall, for purposes of this Agreement, be considered to have been made by such Lender and the obligation of the Borrower to repay such Lender's Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as the case may be, of the Loan shall nevertheless be to such Lender and shall be deemed held by such Lender for the account of such branch or affiliate. Section 2.4 MINIMUM AMOUNT OF EACH BORROWING. The aggregate principal amount of each Borrowing by the Borrower hereunder shall be not less than $5 million ($1 million in the case of Swing Line Loans) and, in each case, if greater, shall be in an integral multiple of $1 million above such minimum; PROVIDED, HOWEVER, that (i) any Borrowing consisting of Revolving Loans made pursuant to SECTION 2.11(c) may be in the amount of the Swing Line Loan(s) refunded thereby and (ii) such Revolving Loans shall be Prime Rate Revolving Loans unless and until converted into Eurodollar Rate Revolving Loans pursuant to the terms of SECTION 2.6. -6- Section 2.5 NOTICE OF BORROWING. Whenever the Borrower desires to make a Borrowing hereunder, it shall give the Agent at its office located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006 at least one (1) Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Prime Rate Loan, and at least (3) three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Eurodollar Rate Loan, to be made hereunder. In each case such notice shall be given prior to 1:00 p.m. (New York City time) on the date specified. Each such notice (a "NOTICE OF BORROWING"), which shall be in the form of EXHIBIT 2.5 hereto, shall be irrevocable, shall be deemed a representation by the Borrower 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, (ii) the date of Borrowing (which shall be a Business Day) and (iii) whether the Loans being made pursuant to such Borrowing are to be Prime Rate Loans or Eurodollar Rate Loans and, with respect to Eurodollar Rate Loans, the Interest Period to be applicable thereto. The Agent shall as promptly as practicable give each Revolving Lender written notice (or telephonic notice confirmed in writing) of each proposed Borrowing with respect to the Revolving Loans, of such Revolving Lender's Revolving Loan Pro Rata Share thereof and of the other matters covered by the Notice of Borrowing. Without in any way limiting the Borrower's obligation to confirm in writing any telephonic notice, the Agent may act without liability upon the basis of telephonic notice believed by the Agent in good faith to be from the Borrower prior to receipt of written confirmation, with the Agent's records being, absent manifest error, conclusive and binding on all parties hereto. Section 2.6 CONVERSION OR CONTINUATION. The Borrower may elect (i) at any time to convert Prime Rate Loans or any portion thereof to Eurodollar Rate Loans and (ii) at the end of any Interest Period with respect thereto, to convert Eurodollar Rate Loans or any portion thereof into Prime Rate Loans or to continue such Eurodollar Rate Loans or any portion thereof for an additional Interest Period; PROVIDED, HOWEVER, that the aggregate principal amount of the Eurodollar Rate Loans for each Interest Period therefor must be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. Each conversion or continuation of Term Loans shall be allocated among the Term Loans of the Term Lenders in accordance with their respective Term Loan Pro Rata Shares. Each conversion or continuation of Revolving Loans shall be allocated among the Revolving Loans of the Revolving Lenders in accordance with their respective Revolving Loan Pro Rata Shares. Each such election shall be in substantially the form of EXHIBIT 2.6 hereto (a "NOTICE OF CONVERSION OR CONTINUATION") and shall be made by giving the Agent at least three Business Days' prior written notice thereof specifying (i) the amount and type of conversion or continuation, (ii)in the case of a conversion to or a continuation of Eurodollar Rate Loans, the Interest Period therefor, and (iii) in the case of -7- a conversion, the date of conversion (which date shall be a Business Day and, if a conversion from Eurodollar Rate Loans, shall also be the last day of the Interest Period therefor). The Agent shall promptly notify each Revolving Lender or Term Lender, as applicable, of its receipt of a Notice of Conversion or Continuation and of the contents thereof. Notwithstanding the foregoing, no conversion in whole or in part of Prime Rate Loans to Eurodollar Rate Loans, and no continuation in whole or in part of Eurodollar Rate Loans upon the expiration of any Interest Period therefor, shall be permitted at any time at which an Unmatured Event of Default or an Event of Default shall have occurred and be continuing. If, within the time period required under the terms of this SECTION 2.6, the Agent does not receive a Notice of Conversion or Continuation from the Borrower containing a permitted election to continue any Eurodollar Rate Loans for an additional Interest Period or to convert any such Loans, then, upon the expiration of the Interest Period therefor, such Loans will automatically convert to Prime Rate Loans. Each Notice of Conversion or Continuation shall be irrevocable. Section 2.7 DISBURSEMENT OF FUNDS. No later than 12:00 noon (New York City time) on the date specified in the applicable Notice of Borrowing, so long as the Agent has notified such Lender of such Notice of Borrowing, each Lender will make available its Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as the case may be, of the Borrowing requested to be made on such date in Dollars and in immediately available funds, at the office (the "PAYMENT OFFICE") of the Agent located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006 (for the account of such non-U.S. office of the Agent as the Agent may direct in the case of Eurodollar Rate Loans), and the Agent will promptly make available to the Borrower at the Payment Office the aggregate of the amounts so made available by the applicable Lenders. Unless the Agent shall have been notified by any Lender prior to the date of a Borrowing that such Lender does not intend to make available to the Agent such Lender's Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as the case may be, of such Borrowing, the Agent may assume that such Lender has made such amount available to the Agent on such date of Borrowing and the Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Lender on the date of Borrowing, the 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 the Agent's demand therefor, the Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover from the Borrower interest on such corresponding amount, in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to but excluding the date such corresponding amount is recovered by the Agent, at a rate per annum equal to the rate applicable to Prime Rate Loans or Eurodollar Rate -8- Loans, as the case may be, applicable during the period in question and, upon payment of such amounts to the Agent, the Borrower shall be entitled to recover such amounts from such Lender. Any amounts due hereunder to the Agent from the Lenders which are 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 the Agent's standard interbank processing fee. Further, such Lender shall be deemed to have assigned any and all payments of principal and interest made on its Loans, amounts due with respect to Letters of Credit (or its participations therein) and any other amounts due to it hereunder first to the Agent to fund any outstanding Loans made available on behalf of such Lender by the Agent pursuant to this SECTION 2.7 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 Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as the case may be, of all Loans (as a result of such assignment or otherwise). Such Lender shall not have recourse against the Borrower with respect to any amounts paid to the Agent or any Lender with respect to the preceding sentence; PROVIDED, HOWEVER, that such Lender shall have full recourse against the Borrower 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 the Borrower may have against any Lender as a result of any default by such Lender hereunder. Section 2.8 INTEREST. (a) PRIME RATE REVOLVING LOANS. The Borrower agrees to pay interest in respect of the unpaid principal amount of each Prime Rate Revolving Loan from the date the proceeds thereof are made available to the Borrower (whether pursuant to a new Borrowing or upon a conversion pursuant to SECTION 2.6) until maturity (whether by acceleration or otherwise) of such Prime Rate Revolving Loan or until such Prime Rate Revolving Loan is converted into a Eurodollar Rate Revolving Loan, at a rate per annum equal to the Prime Rate in effect from time to time plus a Borrowing Margin of 1-5/8%, as such Borrowing Margin may from time to time be adjusted pursuant to SECTION 2.9. (b) EURODOLLAR RATE REVOLVING LOANS. The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Rate Revolving Loan from the date the proceeds thereof are made available to the Borrower (whether pursuant to a new Borrowing or upon a conversion pursuant to SECTION 2.6) until maturity (whether by acceleration or otherwise) of such Eurodollar Rate Revolving Loan at a rate per annum equal to the relevant Eurodollar Rate plus a Borrowing Margin of 2-5/8%, as such Borrowing Margin may from time to time be adjusted pursuant to SECTION 2.9. -9- (c) PRIME RATE TERM LOANS. The Borrower agrees to pay interest in respect of the unpaid principal amount of each Prime Rate Term Loan from the date the proceeds thereof are made available to the Borrower (whether pursuant to a new Borrowing or upon a conversion pursuant to SECTION 2.6) until maturity (whether by acceleration or otherwise) of such Prime Rate Term Loan or until such Prime Rate Term Loan is converted into a Eurodollar Rate Term Loan, at a rate per annum equal to the Prime Rate in effect from time to time plus a Borrowing Margin of 2-1/8%. (d) EURODOLLAR RATE TERM LOANS. The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Rate Term Loan from the date the proceeds thereof are made available to the Borrower (whether pursuant to a new Borrowing or upon a conversion pursuant to SECTION 2.6) until maturity (whether by acceleration or otherwise) of such Eurodollar Rate Term Loan at a rate per annum equal to the relevant Eurodollar Rate plus a Borrowing Margin of 3-1/8%. (e) SWING LINE LOANS. The Borrower agrees to pay interest in respect of the unpaid principal amount of each Swing Line Loan from the date the proceeds thereof are made available to the Borrower until maturity (whether by acceleration or otherwise) of such Swing Line Loan or until such Swing Line Loan is converted to a Revolving Loan at a rate per annum equal to the Prime Rate in effect from time to time plus a Borrowing Margin of 1-5/8%, as such Borrowing Margin may from time to time be adjusted pursuant to SECTION 2.9. (f) DEFAULT RATE INTEREST. Overdue principal and (to the extent permitted by applicable law) overdue interest in respect of each Loan shall bear interest, payable on demand, after as well as before judgment, at a rate per annum equal to (i) if such Loan is a Prime Rate Loan, the Prime Rate plus the applicable Borrowing Margin set forth in SECTION 2.8(a), (c) OR (e) (as the same may be adjusted pursuant to SECTION 2.9), as the case may be, plus 2% per annum or (ii) if such Loan is a Eurodollar Rate Loan, the Eurodollar Rate then in effect plus the applicable Borrowing Margin set forth in SECTION 2.8(b) OR (d) (as the same may be adjusted pursuant to SECTION 2.9), as the case may be, plus 2% per annum (any such applicable rate of interest in the foregoing clauses (i) and (ii) being the "DEFAULT RATE"). (g) ACCRUAL AND PAYMENT OF INTEREST. Interest shall accrue from and including the date of any Borrowing (whether pursuant to a new Borrowing or upon a conversion pursuant to SECTION 2.6) to but excluding the date of any repayment thereof. Interest on Eurodollar Rate Loans shall be payable by the Borrower in arrears on the last day of each Interest Period and, in the case of an Interest Period in excess of three months, at intervals of every three months after the initial date of such Interest Period. Notwithstanding the above, interest shall be due and payable on any amount repaid or reborrowed, as the case may be, on the date of -10- such repayment or reborrowing, as the case may be, and upon final maturity of such Loan (whether by acceleration or otherwise) and after such maturity, on demand. Interest on Prime Rate Loans shall be due and payable quarterly in arrears on the Quarterly Payment Date of each year, on the date on which such Prime Rate Loan is converted to a Eurodollar Rate Loan, on the date of any voluntary or mandatory repayment, on maturity (whether by acceleration or otherwise) and after such maturity, on demand. Interest on all Eurodollar Rate Loans shall be computed on the basis of a year consisting of 360 days and actual days elapsed. Interest on all Prime Rate Loans shall be computed on the basis of a year consisting of 365 or 366 days, as the case may be, and actual days elapsed. (h) NOTIFICATION OF RATE. The Agent, upon determining the Eurodollar Rate for any Interest Period, shall promptly give the Borrower and the other Lenders written or telephonic notice thereof. Such determination shall, absent manifest error and subject to the provisions of SECTION 2.13, be final, conclusive and binding upon all parties hereto. (i) MAXIMUM INTEREST. If any interest payment or other charge or fee payable hereunder exceeds the maximum amount then permitted by applicable law, the Borrower shall be obligated to pay the maximum amount then permitted by applicable law and the Borrower 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. (j) REFERENCE BANKS. If any Reference Bank shall for any reason no longer have a Commitment or a Loan, such Reference Bank shall thereupon cease to be a Reference Bank, and if, as a result thereof, there shall only be one Reference Bank remaining, the Borrower and the Agent (after consultation with the Lenders) shall, by notice to the Lenders, designate another Lender as a Reference Bank so that there shall at all time be at least two Reference Banks. Each Reference Bank shall use its best efforts to furnish quotations of rates to the Agent as contemplated hereby. If any of the Reference Banks shall be unable or shall otherwise fail to supply such rates to the Agent upon its request, the rate of interest shall, subject to the provisions of SECTION 2.13, be determined on the basis of the quotations of the remaining Reference Banks. Section 2.9 INTEREST RATE ADJUSTMENTS. (a) Subject to SECTION 2.9(b), the Borrowing Margins set forth in SECTIONS 2.8(a), (b) AND (e) shall be subject to adjustment pursuant to the terms and conditions set forth on SCHEDULE 1.1(b) hereto. Subject to SECTION 2.9(b), any such upward or downward adjustment shall be effective immediately upon receipt -11- by the Lenders of the officer's certificate delivered pursuant to SECTION 5.1.1(b) OR (c) which gives rise to such adjustment. (b) The Borrowing Margin for any Eurodollar Rate Revolving Loan shall be the Borrowing Margin in effect on the first day of the Interest Period with respect to such Eurodollar Rate Revolving Loan. The Borrowing Margin for any Eurodollar Rate Revolving Loan shall not change during the Interest Period applicable to such Borrowing. Section 2.10 INTEREST PERIODS. At the time it gives any Notice of Borrowing or a Notice of Conversion or Continuation with respect to Eurodollar Rate Loans, the Borrower shall elect, by giving the Agent written notice, the interest period (each an "INTEREST PERIOD") applicable to the related Eurodollar Rate Borrowing, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period, provided that: (i)the Interest Period for any Eurodollar Rate Loan shall commence on the date of such Borrowing and each Interest Period occurring thereafter in respect of a continuation of such Eurodollar Rate Loan shall commence on the day on which the immediately preceding Interest Period for such Loan expires; (ii) 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 in respect of a Eurodollar Rate Loan would otherwise expire on a day which is not a Business Day and after which no Business Day occurs in the same month, such Interest Period shall expire on the immediately preceding Business Day; (iii) if an Interest Period begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), such Interest Period shall end on the last Business Day of the first, second, third or sixth, as applicable, succeeding calendar month; and (iv) no Interest Period shall extend beyond the Revolver Termination Date for any Revolving Loans or the Term Loan Maturity Date for the Term Loan. Section 2.11 SWING LINE LOANS. (a) SWING LINE COMMITMENT. Subject to the terms and conditions hereof, the Swing Line Lender agrees to make swing line loans ("SWING LINE LOANS") to the Borrower on any Business Day from time to time from and after the Closing Date to, but not including, the Revolver Termination Date 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 cause the outstanding Revolving Loans of any Lender (other than the Swing Line Lender), when added to such Lender's Revolving Loan Pro Rata Share of the then outstanding Swing Line Loans, L/C Obligations and Florence L/C Obligations (after giving effect to the use of proceeds of such Swing Line Loans) to exceed such Lender's Revolving Loan Commitment. Amounts borrowed by the -12- Borrower under this SECTION 2.11(a) may be repaid and, to but excluding the Revolver Termination Date, reborrowed. (b) PROCEDURE FOR SWING LINE BORROWING. The Swing Line Loans shall be made and maintained as Prime Rate Loans and, notwithstanding SECTION 2.6, shall not be entitled to be converted into Eurodollar Rate Loans. The Borrower shall give the Agent and the Swing Line Lender irrevocable notice (which notice must be received by the Agent and the Swing Line Lender prior to 1:00 p.m., New York City time), on the requested borrowing date (which shall be a Business Day) specifying the amount of each requested Swing Line Loan, which shall be in a minimum amount of $1,000,000 or an integral multiple thereof. The proceeds of each Swing Line Loan will then be made available to the Borrower by the Swing Line Lender by crediting the account of the Borrower on the books of the office of the Swing Line Lender specified in SECTION 2.7 with such proceeds. (c) REFUNDING OF SWING LINE LOANS. The Swing Line Lender, at any time in its sole and absolute discretion, may on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Revolving Lender (including the Swing Line Lender) to make a Revolving Loan in an amount equal to such Revolving Lender's Revolving Loan 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. Unless any of the events described in SECTION 7.1(e) OR 7.1(f) shall have occurred (in which event the procedures of paragraph (d) of this SECTION 2.11 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 Revolving Lender shall make the proceeds of its Revolving Loan available to the Agent at its office specified in SECTION 2.7 prior to 1:00 p.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 made immediately available to the Swing Line Lender and immediately applied to repay the Refunded Swing Line Loans, and, until converted into Eurodollar Rate Loans, shall constitute Prime Rate Revolving Loans. (d) PARTICIPATION IN SWING LINE LOANS. If, prior to the making of a Prime Rate Revolving Loan pursuant to paragraph (c) of this SECTION 2.11, one of the events described in SECTIONS 7.1(e) OR 7.1(f) shall have occurred, then, subject to the provisions of clause (e) below, each Revolving Lender will, on the date such Revolving Loan was to have been made, purchase from the Swing Line Lender an undivided participating interest in the Refunded Swing Line Loan in an amount equal to its Revolving Loan Pro Rata Share of such Refunded Swing Line Loan. Upon request, each Revolving 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 -13- Lender a Swing Line Loan Participation Certificate dated the date of receipt of such funds and in such amount. (e) OBLIGATIONS UNCONDITIONAL. Each Revolving Lender's obligation to make Revolving Loans in accordance with clause (c) above and to purchase participating interests in accordance with clause (d) above shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of any Event of Default or Unmatured Event of Default; (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any other Person; (iv) any breach of this Agreement by the Borrower or any other Person; (v) any inability of the Borrower to satisfy the conditions precedent to Borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Lender does not make available to the Swing Line Lender the amount required pursuant to clause (c) or (d) 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 three days and at the Prime Rate thereafter. Notwithstanding the foregoing provisions of this SECTION 2.11(e), no Revolving Lender shall be required to make a Revolving Loan to the Borrower for the purpose of refunding a Swing Line Loan pursuant to clause (c) above or to purchase a participating interest in a Swing Line Loan pursuant to clause (d) above 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 Revolving 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 Revolving 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 Revolving Lender to make such Refunded Swing Line Loans and to purchase such participating interests shall be reinstated upon the earlier to occur of (i) the date upon which such Revolving Lender notifies the Swing Line Lender that its prior notice has been withdrawn and (ii) the date upon which the Event of Default or Unmatured Event of Default specified in such notice no longer is continuing. Section 2.12 LETTERS OF CREDIT. (a) ISSUANCE BY FACING AGENT. Subject to the terms and conditions hereof and provided that no Event of Default or Unmatured Event of Default shall have occurred and be continuing, the Borrower may request, in accordance with this SECTION 2.12, -14- that the Facing Agent issue on behalf of the Revolving Lenders Letters of Credit denominated in Dollars for the account of the Borrower with the face amount of each Letter of Credit in a minimum amount of $250,000 or such lesser amount as the Facing Agent may approve; PROVIDED, HOWEVER, that (i) each Letter of Credit shall be issued in favor of a Permitted Beneficiary; (ii) the Borrower shall not request the Facing Agent to issue any Letter of Credit if, after giving effect to such issuance, the sum of the aggregate Stated Amounts and unreimbursed drawings of the Letters of Credit then outstanding would exceed $50,000,000 or if the face amount of such requested Letter of Credit exceeds the Total Available Revolving Commitment then in effect, and (iii) in no event shall the Facing Agent issue any Letter of Credit having an expiration date later than one year from the date of issuance (or in any event later than thirty (30) days prior to the Revolver Termination Date), provided that any such Letter of Credit may be automatically extended to a date not later than one year from its expiration date (but in no event later than thirty (30) days prior to the Revolver Termination Date) on an annual basis upon the satisfaction of the applicable conditions set forth in SECTIONS 6.2(a),(b) and (d) hereof with respect to the issuance of any Letter of Credit, which satisfaction the Facing Agent may require the Borrower to certify in writing as a condition of any such extension. For each such automatic extension of a Letter of Credit, the Borrower shall deliver a written request to the Facing Agent (with a copy to the Agent) no earlier than 150 days and no later than 120 days prior to the expiration date thereof. Such request shall affirm that as of the date thereof the conditions for the issuance of a Letter of Credit set forth in SECTION 6.2 are satisfied. After receipt by the Facing Agent of such extension request, each such Letter of Credit shall be automatically extended under the terms and conditions provided above. Each request for an issuance of, or an amendment to, a Letter of Credit shall be in the form of EXHIBIT 2.12 hereto, appropriately completed. The issuance of a Letter of Credit pursuant to this SECTION 2.12 shall be deemed (A) to be a Borrowing for purposes of, without limitation, the satisfaction of the applicable conditions set forth in ARTICLE VI hereof and (B) to reduce availability under the Revolving Loan Commitments of the Revolving Lenders (except for purposes of SECTION 3.7 with respect to the calculation of Commitment Fees) then in effect by an amount equal to the sum of the aggregate Stated Amounts and unreimbursed drawings of such Letter of Credit until such time as such Letter of Credit is no longer outstanding and any amounts drawn thereunder have been reimbursed. (b) PARTICIPATION OF REVOLVING LENDERS. Immediately upon the issuance of each Letter of Credit, each Revolving Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Facing Agent a participation in such Letter of Credit and drawings thereunder in an amount equal to such Lender's Revolving Loan Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. The Facing Agent shall give the Agent written notice of the issuance or -15- amendment of a Letter of Credit on the date of issuance or amendment thereof and provide the Agent with a copy of each Letter of Credit and amendment thereto. The Agent shall give each Revolving Lender written notice of the issuance and amendment of a Letter of Credit within five (5) Business Days after each such Letter of Credit has been issued or amended pursuant to the terms hereof. (c) REQUESTS FOR ISSUANCE. Whenever the Borrower desires the issuance or extension (other than an automatic extension) of a Letter of Credit, it shall deliver to the Facing Agent and the Agent (with a duplicate copy to the Agent's Letter of Credit department at One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, Attn: Commercial Loan Division, Standby L/C Unit, 14th Floor for Standby Letters of Credit and to the Agent's Global Assets Letter of Credit Division, 130 Liberty Street, New York, New York 10006, Attn: Trade Letter of Credit, 12th Floor for Commercial Letters of Credit) a written notice in the form of EXHIBIT 2.12 hereto no later than 1:00 p.m., (New York City time) at least five (5) Business Days (or such shorter period as may be agreed to by the Facing Agent in any particular instance) in advance of the proposed date of issuance or extension. That notice shall specify (i) the proposed date of issuance or extension (which shall be a Business Day), (ii) the type of Letter of Credit, (iii) the Stated Amount of the Letter of Credit, (iv) the expiration date of the Letter of Credit, (v) the name and address of the beneficiary (which shall be a Permitted Beneficiary) and (vi) such other information as the Facing Agent may reasonably request. Prior to the date of issuance, the Borrower shall specify a precise description of the documents and the verbatim text of any certificate to be presented by the beneficiary which, if presented by the beneficiary on or prior to the expiration date of the Letter of Credit, would require the Facing Agent to make payment under the Letter of Credit; PROVIDED, HOWEVER, that the Facing Agent, in its sole judgment, may require changes in any such documents and certificates. In determining whether to pay under any Letter of Credit, the Facing Agent shall be responsible only to determine that the documents and certificates required to be delivered under that Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit. In the event that any terms or conditions of such written notice of issuance or amendment or any other document delivered in connection therewith are inconsistent with the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control. (d) REIMBURSEMENT OF DRAWINGS. In the event of any request for drawing under any Letter of Credit by the beneficiary thereof, the Facing Agent shall notify the Borrower, the Agent and the Revolving Lenders prior to the date on which the Facing Agent intends to honor such drawing, and the Borrower shall reimburse the Facing Agent on the day on which such drawing is honored in an amount in same day funds equal to the amount of such drawing, -16- provided that, anything contained in this Agreement to the contrary notwithstanding, (i) unless the Borrower shall have notified the Facing Agent and the Agent prior to 1:00 p.m. (New York City time) one Business Day prior to such drawing that the Borrower intends to reimburse the Facing Agent for the amount of such drawing with funds other than the proceeds of Revolving Loans, the Borrower shall be deemed to have timely given a Notice of Borrowing to the Agent requesting the Revolving Lenders to make a Prime Rate Revolving Loan on the date on which such drawing is honored in an amount equal to the amount of such drawing, and (ii) subject to satisfaction or waiver of the conditions specified in SECTION 6.2, the Revolving Lenders shall, on the date of such drawing, make a Prime Rate Revolving Loan in the amount of such drawing, the proceeds of which shall be made available to the Facing Agent by the Agent and applied directly by the Facing Agent for the amount of such drawing; and PROVIDED FURTHER, that, if for any reason, proceeds of Revolving Loans are not received by the Facing Agent on such date in an amount equal to the amount of such drawing, the Borrower shall reimburse the Facing Agent, on the Business Day immediately following the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Revolving Loans, if any, which are so received, plus accrued interest on such amount at the rate set forth in SECTION 2.12(f)(III). (e) FAILURE TO REIMBURSE. In the event that the Borrower shall fail to reimburse the Facing Agent as provided in SECTION 2.12(f) in an amount equal to the amount of any drawing honored by the Facing Agent under a Letter of Credit issued by it, the Facing Agent shall promptly notify the Agent and each Revolving Lender of the unreimbursed amount of such drawing and of such Lender's respective participation therein. Each Revolving Lender shall make available to the Agent for distribution to the Facing Agent an amount equal to its respective participation in same day funds at the office of the Agent specified in such notice not later than 1:00 p.m. (New York City time) on the Business Day after the date notified by the Facing Agent. In the event that any Revolving Lender fails to make available to the Facing Agent the amount of such Lender's participation in such Letter of Credit as provided in this SECTION 2.12(e), the Agent shall be entitled on behalf of the Facing Agent to recover such amount on demand from the Lender together with interest at the Federal Funds Rate until three days after the date on which the Facing Agent gives notice of payment and at the Prime Rate plus 2% for each day thereafter until such amount is paid. 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 and any other amounts due to it hereunder to the Facing Agent to fund the amount of any drawn Letter of Credit which such Lender was required to fund pursuant to this SECTION 2.12(e) until such amount has been funded (as a result of such assignment or otherwise). The failure of any Lender to make funds available to the Facing Agent of such amount shall not relieve any other Lender of its obligation -17- hereunder to make funds available to the Facing Agent pursuant to this SECTION 2.12(e). The Agent shall distribute to each Revolving Lender which has paid all amounts payable by it under this SECTION 2.12(e) with respect to any Letter of Credit issued by the Facing Agent such Lender's Revolving Loan Pro Rata Share of all payments received by the Facing Agent from the Borrower in reimbursement of drawings honored by the Facing Agent under such Letter of Credit when such payments are received. (f) LETTER OF CREDIT FEES. The Borrower agrees to pay to the Agent or the Facing Agent, as specified below, the following amounts with respect to each Letter of Credit issued by the Facing Agent: (i) a facing fee to the Facing Agent in an amount separately agreed to by the Borrower and the Facing Agent; (ii) a Letter of Credit fee (the "LETTER OF CREDIT FEE") per annum to the Agent equal to the greater of (A) the applicable Borrowing Margin for Eurodollar Rate Revolving Loans determined pursuant to SECTION 2.8(b) and SECTION 2.9 as in effect from time to time MINUS one-half percent ( 1/2%) per annum, and (B) one percent (1%) per annum, of the Stated Amount of such Letter of Credit, payable quarterly in arrears on each Quarterly Payment Date (or if such day is not a Business Day, then on and through the immediately preceding Business Day), on the expiration date and after the expiration date, on demand, commencing on the first such day of the issuance of such Letter of Credit, and calculated on the basis of a 360-day year and the actual number of days elapsed; (iii) to the Agent with respect to drawings made under any such Letter of Credit, interest, payable on demand, on the amount paid by the Facing Agent in respect of each such drawing from the date of the drawing through the date such amount is reimbursed by the Borrower (including any such reimbursement out of the proceeds of Revolving Loans pursuant to SECTION 2.1(b)) at a rate that is at all times equal to 2.0% per annum in excess of the greatest interest rate otherwise payable under this Agreement for Prime Rate Loans as then in effect; and (iv) to the Facing Agent with respect to the issuance, amendment or transfer of any such Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with the 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. -18- Promptly upon receipt by the Agent of any amount described in clause (ii) or (iii) of this SECTION 2.12(f), the Agent shall distribute to each Revolving Lender its Revolving Loan Pro Rata Share of such amount; PROVIDED, HOWEVER, that amounts described in clause (iii) above that accrue prior to the date upon which Revolving Lenders are required (x) to fund Prime Rate Revolving Loans pursuant to SECTION 2.12(d)(ii) or (y) to make available to the Facing Agent the amount of such Lender's participation in such Letter of Credit, as the case may be, in respect of any unreimbursed drawings under any Letter of Credit may be retained by the Agent. (g) REIMBURSEMENT OBLIGATION UNCONDITIONAL. The obligation of the Borrower to reimburse the Facing Agent for drawings made under the Letters of Credit issued by the Facing Agent shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such transferee may be acting), the Facing Agent or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between the Borrower or one of its Subsidiaries and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Facing Agent under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit, provided that such payment does not constitute gross negligence or willful misconduct of the Facing Agent; (v) any other circumstance or happening whatsoever which is similar to any of the foregoing; or (vi) the fact that an Event of Default shall have occurred and be continuing. -19- (h) INCREASED COSTS. If, after the date of this Agreement, by reason of (i) any change in applicable law, regulation, rule, decree or regulatory requirement or any change in the interpretation or application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement or (ii) compliance by the Facing Agent, the Agent or any Revolving Lender with any direction, request or requirement (whether or not having the force of law) of any governmental or monetary authority including, without limitation, Regulation D: (A) the Facing Agent, the Agent or any Revolving Lender shall be subject to any tax, levy, charge or withholding of any nature or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations under this SECTION 2.12, whether directly or by such being imposed on or suffered by the Facing Agent, the Agent or such Revolving Lender (except for (x) 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 such Lender's principal office or applicable lending office is located and (y) United States withholding taxes, which shall be governed by the provisions of SECTION 3.11); (B) any reserve, deposit or similar requirement of any Governmental Authority is or shall be applicable, imposed or modified in respect of any Letters of Credit issued by the Facing Agent and participated in by the Lenders; or (C) there shall be imposed on the Facing Agent by any Governmental Authority any other condition regarding any Letter of Credit issued pursuant to this SECTION 2.12; and the result of the foregoing is to directly or indirectly increase the cost to the Facing Agent, the Agent or any Revolving Lender of issuing, making or maintaining any Letter of Credit, or to reduce the amount receivable in respect thereof by the Facing Agent, the Agent or any Revolving Lender, then and in any case the Agent may, notify the Borrower and the Borrower shall pay on demand such amounts as the Agent may reasonably specify to be necessary to compensate the Facing Agent, the Agent or any Revolving Lender for such additional cost or reduced receipt together with interest on such amount from the date demanded until payment in full thereof at a rate equal at all times to the Default Rate. The determination by the Facing Agent, the Agent or any Revolving Lender of any amount due pursuant to this SECTION 2.12(h) shall be set forth in a certificate delivered to the Agent (which certificate the Agent shall promptly deliver to the Borrower) setting forth the calculation thereof in reasonable detail, and shall, in the absence of manifest error, be final, conclusive and binding on all of the parties hereto. -20- (i) INDEMNIFICATION. In addition to amounts payable as elsewhere provided in this SECTION 2.12, the Borrower hereby agrees to protect, indemnify, pay and hold the Facing Agent, the Agent and the Revolving Lenders harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees and allocated costs of internal counsel) which the Facing Agent, the Agent and the Revolving Lenders may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of or payment of any drawing under, any Letter of Credit, other than as a result of the gross negligence or willful misconduct of the Facing Agent, the Agent or any Revolving Lender as determined by a court of competent jurisdiction, or (ii) the failure of the 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"). (j) LETTER OF CREDIT BENEFICIARIES. As between (i) the Borrower and (ii) the Facing Agent, the Agent and the Revolving Lenders, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by the Facing Agent by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Facing Agent shall not be responsible: (A) 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 such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) for failure of any such Letter of Credit to comply fully with conditions required in order to draw on such Letter of Credit; (D) 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; (E) for errors in interpretation of technical terms; (F) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (G) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (H) for any consequences arising from causes beyond the control of the Facing Agent including, without limitation, any Government Acts, in each case other than as a result of the gross negligence or willful misconduct of the Facing Agent. None of the above shall affect, impair, or prevent the vesting of any of the Facing Agent's rights or powers hereunder. -21- (k) FACING AGENT. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the 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 and not with gross negligence or willful misconduct as determined by a court of competent jurisdiction, shall not put the Facing Agent under any resulting liability to the Borrower or any Revolving Lender. (l) NO INDEMNIFICATION FOR CERTAIN ACTS. Notwithstanding anything to the contrary contained in this SECTION 2.12, the Borrower shall have no obligation to indemnify the Agent, the Facing Agent or any Revolving Lender in respect of any liability incurred by the Agent, the Facing Agent or any Revolving Lender arising out of the gross negligence or willful misconduct of the Agent, the Facing Agent or any Revolving Lender, as determined by a court of competent jurisdiction, or out of the wrongful dishonor by the Facing Agent of a proper demand for payment made under the Letters of Credit issued by it. Section 2.13 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that any Lender shall have determined (which determination shall, absent manifest error, be final, conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Agent): (i) on any Interest Rate Determination Date that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, any Lender shall incur increased costs or reduction in the amounts received or receivable hereunder with respect to any Eurodollar Rate Loan because of (x) any change since the date of this Agreement 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 any Lender of the principal of or interest on the Obligations 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 3.11) or (B) a change in official reserve requirements (but, in all events, excluding reserves required under Regulation D -22- to the extent included in the computation of the Eurodollar Rate) and/or (y) other circumstances since the date of this Agreement affecting such Lender or the interbank Eurodollar market or the position of such Lender in such market (excluding, however, differences in a Lender's cost of funds from those of the Agent which are solely the result of credit differences between such Lender and the Agent); or (iii) at any time, that the making or continuance of any Eurodollar Rate Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any 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 date of this Agreement which materially and adversely affects the interbank Eurodollar market in general; then, and in any such event, such Lender (or the Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to the Borrower and, except in the case of clause (i) above, to the Agent of such determination (which notice the Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Rate Loans shall no longer be available until such time as the Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Agent no longer exist,and any Notice of Borrowing or Notice of Conversion or Continuation given by the Borrower with respect to Eurodollar Rate Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon written demand therefore, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender 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 in reasonable detail, submitted to the Borrower 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 2.13(a)(y) for periods occurring prior to the 180th day before the giving of such notice) shall not release or diminish the Borrower's obligations to pay additional amounts pursuant to this SECTION 2.13(a)(y), and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in SECTION 2.13(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 -23- 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 2.13(A). (b) At any time that any Eurodollar Rate Loan is affected by the circumstances described in SECTION 2.13(a)(ii) OR (iii), the Borrower may (and in the case of a Eurodollar Rate Loan affected by the circumstances described in SECTION 2.13(A)(III) shall) either (i) if the affected Eurodollar Rate Loan is then being made initially or pursuant to a conversion, by giving the Agent telephonic notice (confirmed in writing) on the same date that the Borrower was notified by the affected Lender or the Agent pursuant to SECTION 2.13(a)(ii) OR (iii), cancel the respective Borrowing, or (ii) if the affected Eurodollar Rate Loan is then outstanding, upon at least three Business Days' written notice to the Agent, require the affected Lender to convert such Eurodollar Rate Loan into a Prime 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 2.13(b). (c) CAPITAL REQUIREMENTS. If at any time after the date hereof, 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 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 or Loans hereunder or its obligations hereunder, then the Borrower 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, Loans and obligations hereunder, cover all commitments and obligations similar to the Commitments, Loans 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 2.13(c), and such Lender's determination of compensation owing under this SECTION 2.13(c) shall, absent manifest error, be final, conclusive and binding on all the parties -24- hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this SECTION 2.13(c), will give prompt written notice thereof to the Agent and the Borrower, which notice shall show the basis for calculation of such additional amounts in reasonable detail, 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 2.13(c) for periods occurring prior to the 180th day before the giving of such notice) shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this SECTION 2.13(c). The obligations of the Borrower under this SECTION 2.13(c) shall survive payment in full of the Obligations and termination of this Agreement. Section 2.14 REPLACEMENT OF AFFECTED LENDERS. If any Lender is owed increased costs under SECTION 2.13(a)(ii) OR (iii), SECTION 2.13(c), SECTION 2.12(h) or SECTION 3.11 materially in excess of those of the other Lenders, the Borrower shall have the right, if no Unmatured Event of Default or Event of Default then exists, to replace such Lender (the "REPLACED LENDER") with one or more other Eligible Assignee or Assignees (collectively, the "REPLACEMENT LENDER") reasonably acceptable to the Agent, PROVIDED that (i) at the time of any replacement pursuant to this SECTION 2.14, the Replacement Lender shall enter into one or more Assignment Agreements pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans of, and participation in Letters of Credit and Swing Line Loans by, the Replaced Lender and all rights and obligations under any participation agreements to which the Replaced Lender is a party with respect to the L/C Agreement, and (ii) all obligations of the Borrower 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 and the payment of amounts referred to in clauses (i) and (ii) above, the Replaced Lender shall become a Lender hereunder and the Replaced Lender shall be released from its obligations under the Loan Documents and 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, neither the Facing Agent nor the Swing Line Lender may be replaced hereunder at any time while it has Letters of Credit or Swing Line Loans, respectively, outstanding hereunder unless arrangements satisfactory to the Facing Agent or Swing Line Lender (including the furnishing of a standby letter of credit in form and substance, and issued by an issuer satisfactory to the Facing Agent or the furnishing of collateral of a kind, in amounts and pursuant to arrangements satisfactory to the Facing Agent) have been made with respect to such outstanding Letters of Credit or Swing Line Loans. -25- Section 2.15 CHANGE OF LENDING OFFICE. Each Lender agrees that it will use reasonable efforts to designate an alternate Lending Office with respect to any of its Eurodollar Rate Loans affected by the matters or circumstances described in SECTION 2.13 to reduce the liability of the Borrower or avoid the results described thereunder, so long as such designation is not financially disadvantageous to such Lender as determined by such Lender in its sole discretion and will not result in the imposition upon the Borrower of an increased liability for Taxes pursuant to SECTION 2.13(a) OR 3.11(a). Section 2.16 FUNDING LOSSES. The Borrower shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such amounts in reasonable detail and which request shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto), 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 Eurodollar Rate Loans to the extent not recovered by such Lender in connection with the liquidation or re-employment of such funds and including the compensation payable by such Lender to a Person to which the Lender has participated all or a portion of such Borrowing) and any loss sustained by such Lender in connection with the good faith liquidation or good faith 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 Eurodollar Rate Loan remained outstanding until the last day of the Interest Period applicable to such Eurodollar Rate Loans) which the Lender may sustain as a result of: (i) for any reason (other than a default by such Lender or the Agent) a Borrowing of, or conversion from or into, Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion or Continuation (whether or not withdrawn); (ii) any payment, prepayment or conversion or continuation of any of its Eurodollar Rate Loans 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 Eurodollar Rate Loans not being made on the date specified in a notice of payment given by the Borrower; or (iv) (A) any other failure by the Borrower to repay its Eurodollar Rate Loans when required by the terms of this Agreement or (B) an election made by the Borrower pursuant to SECTION 2.14. A written notice as to additional amounts owed such Lender under this SECTION 2.16 and delivered to the Borrower and the Agent by such Lender shall, absent manifest error, be final, conclusive and binding for all purposes. Section 2.17 PRO RATA BORROWINGS. All Borrowings of Term Loans and Revolving Loans under this Agreement shall be loaned by the Term Lenders or Revolving Lenders pro rata on the basis of their Term Loan Pro Rata Share or Revolving Loan Pro Rata Share, as the case may be. No Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and each -26- 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 Commitment hereunder. Section 2.18 FLORENCE LETTERS OF CREDIT. As soon as practicable after the Closing Date, the Agent shall cause the current expiration date of the Florence Letters of Credit to be extended to the Revolver Termination Date as contemplated in Section 3 of each of the L/C Agreement Amendments executed by Gelco Corporation and Westinghouse Electric Corporation as of the Closing Date. ARTICLE III TERMINATION OF COMMITMENTS, PREPAYMENTS AND FEES Section 3.1 MANDATORY REVOLVING LOAN AND SWING LINE LOAN PREPAYMENTS AND COMMITMENT REDUCTIONS. (a) If at any time the sum of (i) the aggregate principal amount of all Revolving Loans and Swing Line Loans outstanding plus (ii) the aggregate amount of L/C Obligations and Florence L/C Obligations outstanding exceeds the aggregate of the Revolving Loan Commitments of the Revolving Lenders then in effect, the Borrower shall immediately prepay the Revolving Loan Obligations in an aggregate principal amount equal to such excess together with any accrued but unpaid interest with respect to such excess. If at any time the aggregate principal amount of all Swing Line Loans outstanding exceeds the Swing Line Commitment of the Swing Line Lender then in effect, the Borrower shall immediately prepay the Swing Line Loan Obligations in an aggregate principal amount equal to such excess together with any accrued but unpaid interest with respect to such excess. (b) If an Event of Default shall have occurred and the Agent shall have notified the Borrower of the election of the Required Lenders to take any action specified in SECTION 7.2, the Revolving Loan Commitment of each Revolving Lender and the Swing Line Commitment of the Swing Line Lender shall, subject to reinstatement pursuant to SECTION 7.2, be automatically reduced to $0 without any action on the part of or the giving of notice to the Borrower by any Lender. Section 3.2 VOLUNTARY PREPAYMENTS. The Borrower may repay Revolving Loans, Terms Loans and Swing Line Loans in whole at any time or in part from time to time, without penalty or premium, on the following terms and conditions: (i) the Borrower shall give the Agent written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay the Loans, the amount of such prepayment and, in the case of Eurodollar Rate Loans, the specific Borrowing or Borrowings pursuant to which made, which notice shall -27- be given by Borrower at least one Business Day prior to the date of such prepayment (or by 11:00 a.m. (New York City time) on the date of prepayment in the case of a prepayment of Swing Line Loans) and which notice shall promptly be transmitted by the Agent to each of the 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 $5,000,000 and in integral multiples of $1,000,000 above such minimum and each partial prepayment of a Swing Line Loan shall be an aggregate principal amount of at least $1,000,000 and in integral multiples of $1,000,000 above such minimum; PROVIDED, HOWEVER, that no partial prepayment of Eurodollar Rate Loans made pursuant to a single Borrowing under the Term Loan or the Revolving Loan shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the minimum borrowing amount as set forth in SECTION 2.4; (iii) any repayment of a Eurodollar Rate Loan on a day other than the last day of an Interest Period applicable thereto shall be subject to the provisions of SECTION 2.16; and (iv) each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. 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 3.2 are for the benefit of the Agent and may be waived unilaterally by the Agent. Section 3.3 VOLUNTARY COMMITMENT REDUCTIONS. After the Closing Date, the Borrower shall have the right, upon at least five (5) Business Days' prior written notice to the Agent and the Revolving Lenders given prior to 10:00 a.m. (New York City time) on the fifth Business Day preceding the proposed reduction date, without premium or penalty, to permanently reduce or terminate the unutilized portion of the aggregate of the Total Revolving Loan Commitments in whole at any time or in part from time to time, in a minimum amount of $5,000,000 (unless the Total Revolving Loan Commitment at such time is less than $10,000,000, in which case, in an amount equal to the Total Revolving Loan Commitment at such time) and, if such reduction is greater than $5,000,000, in integral multiples of $1,000,000 above such minimum; PROVIDED, HOWEVER, that no such reduction or termination of the Revolving Loan Commitments shall be permitted if, after giving effect thereto and to any prepayment or payment of the Revolving Loans and Swing Line Loans on the proposed reduction date, the then outstanding aggregate principal amount of Revolving Loans and Swing Line Loans plus the then aggregate amount of L/C Obligations and Florence L/C Obligations would exceed the aggregate Revolving Loan Commitments of the Revolving Lenders then in effect; and PROVIDED FURTHER, that all prepayments of Eurodollar Rate Loans shall be subject to SECTION 2.16. Any such reduction shall apply proportionately to the Revolving Loan Commitments of the Revolving Lenders based on such Lender's Revolving Loan Pro Rata Share. Simultaneously with each reduction or termination of the Revolving Loan Commitments, the Borrower shall pay to the Agent for the account of each Revolving Lender the Commitment Fee accrued on the amount of the -28- Revolving Loan Commitments so reduced or terminated through the date thereof. Any reduction in the Revolving Loan Commitment of the Swing Line Lender below $25,000,000 shall, without any further action on the part of the Borrower, cause a dollar for dollar reduction in the Swing Line Commitment of the Swing Line Lender. Notwithstanding the foregoing, the Borrower shall not be entitled to terminate the Total Revolving Loan Commitment in full unless, concurrently therewith, the Borrower terminates the Florence Letters of Credit (whether by obtaining a replacement letter of credit therefor, repaying the Florence Bonds or otherwise) such that no Florence L/C Obligations remain outstanding. Section 3.4 MANDATORY PREPAYMENTS. Subject in each case to the provisions of SECTION 3.5: (a) PREPAYMENTS FROM EXCESS CASH FLOW. Within five (5) Business Days after the delivery to the Agent of any Excess Cash Flow Schedule pursuant to SECTION 5.1.1(c), beginning with the Excess Cash Flow Schedule delivered in 1995 with respect to Fiscal Year 1994, the Borrower shall prepay the Term Loan in accordance with SECTION 3.6 if the Excess Cash Flow disclosed on such Excess Cash Flow Schedule with respect to the preceding Fiscal Year (i) is positive and (ii) is greater than $50 million. Any mandatory prepayment pursuant to this SECTION 3.4(a) shall be in an amount equal to (A) the amount of such positive Excess Cash Flow in excess of $50 million MULTIPLIED by (B) 50% or such lesser Excess Cash Flow Percentage in effect at such time. (b) PREPAYMENTS FROM INCURRENCE OF INDEBTEDNESS. If the Borrower or any Wholly-Owned Subsidiary of the Borrower receives any proceeds (whether in cash or marketable securities) attributable to the issuance and sale or other disposition of any Indebtedness for Money Borrowed described in clause (i) of the definition of Indebtedness for Money Borrowed of the Borrower or any Wholly-Owned Subsidiary of the Borrower or any rights to acquire any such debtor debt security or other Indebtedness for Money Borrowed described in clause (i) of the definition of Indebtedness for Money Borrowed (other than (i) Indebtedness permitted by SECTION 5.2.2 other than SECTION 5.2.2(g), (l) or (p), (ii) proceeds received by a Person which cannot be remitted to the Borrower or a Subsidiary of the Borrower as a result of any legal or contractual restriction applicable to such Person existing on the date of this Agreement and identified on SCHEDULE 3.4 hereto and any legal or contractual restriction contained in any Indebtedness which refinances any Indebtedness referenced on SCHEDULE 3.4 provided that the terms thereof are no more onerous to the Borrower or any Subsidiary than those existing on the date hereof, (iii) Indebtedness permitted by SECTION 5.2.2(p) which is not by the terms of such Section required to be used to prepay the Loans and (iv) Indebtedness for Money Borrowed of Seminole Kraft), then the Borrower shall prepay the Term Loan Obligations promptly (but in any event within five Business Days after receipt of such proceeds) to the extent of all of such proceeds from debt or debt -29- securities (net of any costs or expenses incurred in connection with the issuance or sale or other disposition thereof). (c) PREPAYMENTS FROM ASSET SALES. If the Borrower or any Wholly-Owned Subsidiary of the Borrower receives any Material Sale Proceeds, then the Borrower shall prepay the Obligations, to the extent of such proceeds, promptly (but in any event within five Business Days) after the first date on which such Persons have received Material Sale Proceeds totalling an aggregate amount of $5 million or more and within five Business Days after each date thereafter when such Persons have received additional Material Sale Proceeds totalling an aggregate of $5 million or more; PROVIDED, HOWEVER, that during the pendency of an Event of Default all Material Sales Proceeds shall be payable upon the demand of the Agent. "MATERIAL SALE PROCEEDS" means, without duplication, (i) the cash or cash equivalent proceeds or marketable securities resulting from the sale or other disposition (including, without limitation, by a sale-leaseback transaction) of (A) assets or other tangible or intangible property or rights ("ASSETS") not constituting CP&L Property, Collateral or Mortgaged Property (unless Substitute Collateral has been provided pursuant to SECTION 9.13(c)) and having an aggregate fair market value in excess of $1 million for each separate transaction or series of related transactions involving the same seller or (B) any Collateral or Mortgaged Property (and including any Net Awards and Net Proceeds required to be paid to the Agent pursuant to the terms of the Mortgages), LESS (ii) the amount of income taxes payable and any direct costs or expenses incurred in connection with such sale or disposition, LESS (iii) the amount of indebtedness secured by such Assets that are sold, which indebtedness is required to be and is repaid upon such sale, but Material Sales Proceeds shall not include: (A) proceeds of inventory sold or otherwise disposed of in the ordinary course of business; (B) subject to the giving of notice to and deposit of funds with the Agent as provided below, proceeds of Assets not constituting Collateral or Mortgaged Property (unless Substitute Collateral has been provided pursuant to SECTION 9.13(c)), sold or exchanged to the extent such proceeds are utilized in connection with the replacement thereof within 180 days of the sale or exchange of such assets; (C) proceeds of Permitted Investments; (D) proceeds received by a Person which cannot be remitted to the Borrower or a Subsidiary of the Borrower as a result of any legal or contractual restriction applicable to such Person existing on the date of this Agreement and identified on SCHEDULE 3.4 hereto and any legal or contractual restriction contained in any Indebtedness which refinances any Indebtedness referenced on SCHEDULE 3.4 provided that the terms thereof are no more onerous to the Borrower or any Subsidiary than those existing on the date hereof; (E) proceeds resulting from the payment of insurance with respect to such Assets provided such proceeds are used for the replacement of such Assets or are required to be applied to a purpose specified in a legal instrument applicable to such Assets or from the payment of business interruption insurance; (F) proceeds resulting from the sale or other disposition of Assets -30- between the Borrower and any Wholly-Owned Subsidiary (other than a Restricted Subsidiary) of the Borrower or Stone-Canada or between any Wholly-Owned Subsidiaries (other than Restricted Subsidiaries) of the Borrower or Stone-Canada; (G) up to an aggregate amount of $200 million of net proceeds from the sale or other disposition of Assets not constituting Collateral or Mortgaged Property or Assets constituting Collateral or Mortgaged Property for which Substitute Collateral has been provided pursuant to SECTION 9.13(c), designated by the Borrower in writing to the Agent as being excluded from the prepayment requirements of this Section (any amount so designated being "EXCLUDED SALE PROCEEDS"); (H) proceeds received by Seminole Kraft; or (I) proceeds from the sale or other disposition of any Assets constituting collateral which secures the Indebtedness under the First Mortgage Note Documents. The cash, cash equivalent proceeds or marketable securities resulting from the repayment or other liquidation of the investments permitted by SECTION 5.2.7(i) shall be included within the meaning of "MATERIAL SALE PROCEEDS." Proceeds described in subpart (B) of the exclusion from the definition of Material Sale Proceeds shall be so excluded only if, within five (5) Business Days after such proceeds are received, the Borrower gives the Agent written notice of its intent to utilize such proceeds for replacement purposes and (to the extent such proceeds have not already been so utilized) delivers such proceeds to the Agent to be held in an account as security for the Obligations pursuant to documentation satisfactory to the Agent. During the period ending on the 180th day after receipt of such proceeds by the Borrower or one of its Subsidiaries, the Borrower may, so long as no Event of Default or Unmatured Event of Default shall have occurred and be continuing, withdraw funds from such account to pay or reimburse itself for such replacement costs. Funds in such account shall be held and invested in the manner prescribed for Deposited Monies pursuant to SECTION 3.5. All amounts remaining in such account at the conclusion of such 180 day period shall, subject to SECTION 3.6(f), be applied on such date as a prepayment pursuant to this Section and SECTIONS 3.5 and 3.6 as if constituting Material Sale Proceeds received on such date. Section 3.5 OTHER PROVISIONS WITH RESPECT TO THE LOANS. Subject to the obligations of the Agent provided for in this SECTION 3.5 and if no Event of Default or Unmatured Event of Default shall have occurred and be continuing, any monies otherwise required to be used to prepay a Eurodollar Rate Loan pursuant to SECTION 3.4 on a date other than the last day of the Interest Period applicable thereto shall be paid to the Agent (the "DEPOSITED MONIES") when due but, until the earlier of the occurrence of an Event of Default and the end of the applicable Interest Period when the Deposited Monies shall be applied to make such prepayment, shall be held in an account by the Agent for the benefit of the Lenders and the Borrower shall have no right to or interest in such funds and such funds shall be used to prepay such Eurodollar Rate Loan upon the earlier of the occurrence of an Event of Default or at the end of the applicable Interest Period; PROVIDED, HOWEVER, that any funds held in such account shall be -31- invested by the Agent (to the extent the Agent is reasonably able to do so) on behalf of the Borrower at the direction of the Borrower in Permitted Investments selected by the Borrower and having a maturity not exceeding the Business Day prior to the end of the relevant Interest Period. Interest on the applicable Loans shall continue to accrue until the Deposited Monies are applied to the prepayment thereof. Any such investments shall be held by the Agent or under the control of the Agent. The interest accruing on such investments and any profits realized from such investments shall be, after giving effect to such repayment of such Loans with the Deposited Monies, paid to the Borrower; PROVIDED, HOWEVER, that any loss resulting from such investments shall be charged to and be immediately payable by the Borrower upon demand of the Agent. Section 3.6 ORDER OF PREPAYMENT AND PAYMENT. (a) All prepayments of principal of Revolving Loans made by the Borrower pursuant to SECTIONS 3.1 AND 3.2 shall be made with interest on such repaid Revolving Loans and with respect to each Revolving Lender, in proportional amounts equal to such Revolving Lender's Revolving Loan Pro Rata Share of such payment and, shall be applied (i) first to the payment of Prime Rate Revolving Loans and second to the payment of Eurodollar Rate Revolving Loans, and (ii) with respect to Eurodollar Rate Revolving Loans, pro rata in order of the maturity of such Loans. (b) All prepayments of principal of the Term Loan made by the Borrower pursuant to SECTIONS 3.2 OR 3.4 (other than prepayments made under SECTION 3.4(c) with any Material Sale Proceeds derived from the sale of any Collateral or Mortgaged Property) shall be applied (i) to the unpaid principal amount of the Term Loan in the inverse order of the remaining regularly scheduled principal installments set forth in SECTION 2.2(A), together with accrued interest on such prepaid principal amount and with respect to each Term Lender, in proportional amounts equal to such Term Lender's Term Loan Pro Rata Share; and (ii) first to the payment of Prime Rate Term Loans and second to the payment of Eurodollar Rate Term Loans, and within such Eurodollar Rate Term Loans, pro rata in order of the maturity of such Loans. (c) All prepayments of principal made by the Borrower pursuant to SECTION 3.4(c) out of Material Sale Proceeds derived from the sale of Collateral or Mortgaged Property (other than Collateral or Mortgaged Property for which Substitute Collateral is provided in accordance with SECTION 9.13(C)) shall be applied on a pro rata basis (relative to the outstanding principal amount of the Term Loan and the aggregate amount of the Revolving Loan Commitments) to the unpaid principal amount of the Term Loan and to the unpaid principal amount of the Revolving Loans (to the extent thereof), and contemporaneously with such prepayment there shall be a permanent reduction of the aggregate outstanding Revolving Loan Commitments (and with respect to each Revolving Lender, based on such Lender's Revolving Loan Pro Rata Share)in an amount equal to -32- such Revolving Loan pro rata portion of such Material Sale Proceeds (the "REVOLVING PORTION"). In the event that any Material Sale Proceeds relative to the Revolving Portion remain after the prepayment of Revolving Loans, any excess shall be deposited with the Agent to cash collateralize any L/C Obligations then outstanding, but only to the extent and in the aggregate amount of such Obligations; PROVIDED, HOWEVER, that the Borrower shall only be required to deposit such excess proceeds if and for so long as an Unmatured Event of Default or an Event of Default has occurred and is continuing at such time or if and to the extent the aggregate outstanding Revolving Loan Commitments have, pursuant to the preceding sentence, been reduced to an amount less than the L/C Obligations then outstanding. Prepayments of Loans described in this SECTION 3.4(C) shall be applied first to the payment of Prime Rate Loans and second to the payment of Eurodollar Rate Loans, and, within such Eurodollar Rate Loans, pro rata in order of the maturity of such Loans. (d) All regularly scheduled principal installments on the Term Loan Obligations shall be applied first to the payment of Prime Rate Loans and second to the payment of Eurodollar Rate Loans. (e) During the pendency of an Event of Default, all payments in respect of the Obligations shall be applied first to interest, fees, costs, expenses and other amounts (other than principal) then owing, and second to principal; PROVIDED, HOWEVER, that proceeds of collateral realized pursuant to the exercise of remedies under any security instrument securing the Obligations shall be applied as specified in such security instrument. (f) Notwithstanding anything in SECTION 3.4, 3.6 OR 9.2 to the contrary, at the request of the Borrower any Term Lender may waive its right to receive all or any part of such Lender's portion of any mandatory prepayment of the Term Loan required to be made under SECTION 3.4 (such portion, "WAIVED PROCEEDS") by delivering such waiver in writing to the Agent and the Borrower, signed by an authorized officer of such Lender and in form satisfactory to the Agent. Upon receipt of such written waiver, the Borrower shall be relieved of its obligation to prepay such amount and may apply such Waived Proceeds to Permitted Uses. Any request by the Borrower for a waiver of any prepayment pursuant to this SECTION 3.6(f) shall be in writing and shall be delivered to the Agent, which shall promptly distribute such request to the Term Lenders. Each Term Lender shall use reasonable efforts to respond to such waiver request within five Business Days following receipt of a written request therefor. Any failure by a Term Lender to respond to such waiver request within such period shall be deemed to be an election by such Lender not to waive its right to receive its portion of such mandatory prepayment and shall in no event give rise to any obligation or liability of any kind on the part of such Term Lender. -33- Section 3.7 COMMITMENT FEES. (a) The Borrower shall pay to the Agent for pro rata distribution to each Revolving Lender (based on its Revolving Loan Pro Rata Share) a commitment fee (the "COMMITMENT FEE") for the period commencing on the date of this Agreement to the Revolver Termination Date or the earlier termination of the Revolving Loan Commitments, computed at a rate equal to 1/2 of 1% per annum on the average daily unused portion of the aggregate Revolving Loan Commitments of the Revolving Lenders in effect at the time under this Agreement; PROVIDED, HOWEVER, that solely for purposes of computing Commitment Fees, all outstanding Swing Line Loans, L/C Obligations and Florence L/C Obligations shall at all times be deemed to be an unused portion of the aggregate Revolving Loan Commitments. (b) Unless otherwise specified herein, accrued Commitment Fees payable under SECTION 3.7(a) shall be due and payable (i) quarterly on the Quarterly Payment Dates of each year, (ii) on the Revolver Termination Date and (iii) upon any reduction or termination in whole or in part of the Revolving Loan Commitments. The Commitment Fees shall be computed on the basis of a year consisting of 360 days and actual days elapsed. Section 3.8 CLOSING FEES. (a) On the Closing Date the Borrower shall pay to the Agent for distribution to the Lenders a closing fee (the "FACILITY FEE") comprised of the amounts set forth on SCHEDULE 3.8 hereto. (b) On the Closing Date the Borrower shall pay to the Agent for distribution to the Lenders a commitment fee (the "ADDITIONAL COMMITMENT FEE") comprised of the amounts set forth on SCHEDULE 3.8 hereto. Section 3.9 AGENT'S FEES. Without duplication as to any fees expressly set forth in this Agreement, the Borrower shall pay the separately negotiated Agent's fees (the "AGENT'S FEES") as and when required by the separate agreement between the Borrower and the Agent. Section 3.10 AGENT'S ADMINISTRATIVE FEE. The Borrower shall pay to the Agent for its own account a separately negotiated annual fee payable in arrears in equal semi-annual installments as required by the separate agreement between the Borrower and the Agent (the "AGENT'S ADMINISTRATIVE FEE"). Section 3.11 PAYMENTS. (a) All payments by the Borrower under this Agreement or under any Loan Document shall be made without setoff, counterclaim or other defense and in such amounts as may be necessary in order that all such payments (after deduction or withholding for or on -34- account of any present or future taxes (withholding or otherwise), levies, imposts, duties, assessments or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, other than any franchise tax or tax imposed on or measured by the income of a Lender pursuant to the income tax laws of the United States of America or the jurisdictions where such Lender's principal or lending offices are located (collectively the "TAXES")) shall not be less than the amounts otherwise specified to be paid under this Agreement. The Borrower shall indemnify and hold the Agent, the Facing Agent and the Lenders harmless against any and all such Taxes together with all interest or penalties owing in respect thereof. A certificate as to any additional amount payable to a Lender under this Section submitted to the Borrower and the Agent by such Lender shall show in reasonable detail the amount payable and the calculations used to determine in good faith such amount, and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the Borrower shall promptly furnish to each Lender such certificates, receipts and other documents as may be reasonably required (in the judgment of such Lender) to establish any tax credit to which such Lender may be entitled. (b) All payments (including prepayments) to be made by the Borrower on account of principal or interest on any of its Obligations shall be made to the Agent at its Payment Office for the ratable account of the Revolving Lenders, the Term Lenders or for the Swing Line Lender or the Facing Agent, as the case may be, not later than 12:00 noon (New York City time) on the date when due, in each case in lawful money of the United States of America and in immediately available funds. Except as required under SECTION 2.12(H), 2.13 or 2.16 or as permitted under SECTION 3.6(f), all payments (including prepayments) received by the Agent on account of principal or interest on the Obligations or Letter of Credit Fees or Commitment Fees shall be deemed made, and shall be distributed by the Agent to the Revolving Lenders, the Term Lenders, the Swing Line Lender or the Facing Agent, as the case may be, and with respect to any such payments to the Revolving Lenders or the Term Lenders, distributed by the Agent to the Revolving Lenders and the Term Lenders in accordance with their Revolving Loan Pro Rata Shares and Term Loan Pro Rata Shares, respectively, and, as among all Lenders (including the Swing Line Lender and the Facing Agent), be applied ratably according to the amount of principal, interest, Letter of Credit Fees and Commitment Fees then due and owing to such Revolving Lenders, Term Lenders or the Swing Line Lender or the Facing Agent, at the time such payment is received. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day (PROVIDED, HOWEVER, that if a payment in respect of a Eurodollar Rate Loan would otherwise be made on a day which is not a Business Day and after which no Business Day occurs in the same month, such payment shall be made on the next preceding Business Day), and, with respect to payments -35- on principal and, to the extent permitted by law, interest thereon, interest thereon shall be payable at the then applicable rate during such extension. Payments received after noon (New York City time) on any date shall be deemed received on the next succeeding Business Day. (c) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code), shall submit to the Borrower within 31 days after it becomes a Lender hereunder duly completed and signed copies of either Form 1001 (relating to such Lender and entitling it to a complete exemption from United States withholding on all amounts to be received by such Lender at any Lending Office designated by such Lender, including fees, under this Agreement) or Form 4224 (relating to all amounts to be received by such Lender at any Lending Office designated by such Lender, including fees, under this Agreement) of the United States Internal Revenue Service and Form W-8 (relating to the foreign status exemption from United States federal income tax backup withholding). Thereafter and from time to time, each such Lender shall submit to the Borrower such additional duly completed and signed copies of one or the other of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) requested by the Borrower from such Lender and (ii) required under then-current United States law or regulations to avoid United States withholding taxes on payment in respect of all amounts to be received by such Lender at any Lending Office designated by such Lender, including fees, under this Agreement. Upon the request of the Borrower, each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower a certificate to the effect that it is such a United States person. If any Lender determines that it is unable to submit to the Borrower any form or certificate that such Lender is obligated to submit pursuant to this Section, or that such Lender is required to withdraw or cancel any such form or certificate previously submitted, such Lender shall promptly notify the Borrower of such fact. Any amount that would otherwise have been required to be paid by the Borrower in respect of United States withholding Taxes pursuant to this Section shall not be payable by the Borrower to any Lender that (i) is neither (a) entitled to submit said Form 1001 or said Form 4224 (or said successor forms) other than on account of a change in applicable law or regulations or in any treaty nor (b) a United States person (as such term is defined in Section 7701(a)(30) of the Code), or (ii) has failed to submit any form or certificate that it was required to file pursuant to this Section and entitled to file under applicable law. -36- ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Agent, the Co-Agents and the Lenders to enter into this Agreement and the other Loan Documents and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, the Borrower makes the following representations and warranties as of the Closing Date (both before and after giving effect to the consummation of the Related Transactions) and as of the date of each subsequent Credit Event, all of which shall survive the execution and delivery of this Agreement and the other Loan Documents and the making of the Loans and issuance of the Letters or Credit, with the occurrence of each Credit Event on or after the Closing Date being deemed to constitute a representation and warranty that the matters specified in this ARTICLE IV are true and correct on and as of the Closing Date and on and as of the date of each such Credit Event, PROVIDED that any representation or warranty which by 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: Section 4.1 DUE ORGANIZATION AND STANDING. The Borrower and each Subsidiary of the Borrower is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation. The Borrower and each Subsidiary of the Borrower is duly qualified and in good standing as a foreign corporation, and is duly authorized to do business, in each jurisdiction in which the ownership or leasing of its or their properties or the conduct of its or their business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect, either individually or in the aggregate. Section 4.2 POWER AND AUTHORITY. The Borrower and each Subsidiary of the Borrower has all requisite corporate power and authority to own, operate and encumber its property and assets and to carry on its business as presently conducted and as proposed to be conducted. Each of the Borrower and its Subsidiaries has all requisite power and authority (corporate and otherwise) (i) to execute, deliver and perform its obligations under each of the Basic Agreements to which it is a party, (ii) to assign and grant a security interest or mortgage in the Collateral and the Mortgaged Property in the manner and for the purpose contemplated by the Security Agreements and the Mortgages, respectively, to which it is a party, and (iii) to execute, deliver and perform its obligations under all other agreements and instruments executed and delivered by it pursuant to or in connection with any Basic Agreement to which it is a party or bound thereby. Section 4.3 SUBSIDIARIES. SCHEDULE 4.3 attached hereto is a complete and correct list of all Subsidiaries of the -37- Borrower as of the date hereof and as of the Closing Date. Except as set forth on SCHEDULE 4.3, all of the issued and outstanding shares of capital stock of each such Subsidiary other than directors' qualifying shares, if any, are owned directly or indirectly by the Borrower as of the date hereof and as of the Closing Date. As of the date hereof and as of the Closing Date, all shares of capital stock of each Subsidiary of the Borrower have been validly issued, are fully paid and non-assessable and all such shares owned directly or indirectly by the Borrower are owned free and clear of all Liens other than Permitted Liens. Except as set forth on SCHEDULE 4.3, as of the date hereof and as of the Closing Date, no authorized but unissued or treasury shares of capital stock of any such Subsidiary are subject to any option, warrant, right to call or commitment of any kind or character. Except as set forth on SCHEDULE 4.3, as of the date hereof and as of the Closing Date, the Borrower has no Subsidiaries other than Wholly-Owned Subsidiaries. Section 4.4 NO VIOLATION OF AGREEMENTS. The execution, delivery and performance by each of the Borrower and its Subsidiaries of each of the Basic Agreements to which it is a party and all other agreements and instruments to be executed and delivered by the Borrower or any of its Subsidiaries pursuant hereto or thereto or in connection herewith or therewith, the assignment of, and the grant of a security interest or mortgage in, the Collateral or on the Mortgaged Property in the manner and for the purpose contemplated by the Security Agreements and the Mortgages, respectively, do not and will not (i) violate in any material respect any provisions of any law, statute, rule, regulation (including, without limitation, Regulations G, T, U or X of the Board), order, license, permit, writ, judgment, decree, determination or award presently in effect having applicability to the Borrower or any of its Subsidiaries, (ii) conflict with or result in a breach of or constitute a tortious interference with or constitute a default under the certificate of incorporation or by-laws, or other organizational documents, as the case may be, of either the Borrower or any of its Subsidiaries or any indenture or loan or credit agreement, or any other material agreement or instrument, to which the Borrower or any of its Subsidiaries is a party or by which the Borrower or any of its Subsidiaries or any of their respective properties are bound or affected, or any governmental permit, license or order, (iii) result in or require the creation or imposition of any Lien (except for Permitted Liens) of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Borrower or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person which have not been obtained on or prior to the date hereof, except for such approvals and consents referred to on SCHEDULE 4.4 hereto. Neither the Borrower nor any Subsidiary of the Borrower is in default under or in violation of any such law, statute, rule, regulation, judgment, decree, license, order or permit described above or any indenture, mortgage, deed of trust, agreement or other instrument described above or under its -38- charter or by-laws, in each case the consequences of which default or violation, either in any one case or in the aggregate, would have a Material Adverse Effect. Section 4.5 DUE AUTHORIZATION, ETC. The execution, delivery and performance (or filing, as the case may be) of each of the Basic Agreements, and the consummation of the transactions contemplated thereby, have been duly authorized by all requisite corporate action on the part of the Borrower or its applicable Subsidiaries party to such Basic Agreements and no other corporate proceedings on the part of the Borrower or its applicable Subsidiaries are necessary to authorize any of the Basic Agreements. Each of the Basic Agreements to which it is a party and each other agreement or instrument executed and delivered by the Borrower or any of its Subsidiaries pursuant hereto or thereto or in connection herewith or therewith has been duly executed and delivered (or filed, as the case may be) by the Borrower or such Subsidiary and constitutes or will constitute a legal, valid and binding obligation of the Borrower or such Subsidiary, enforceable against the Borrower or such Subsidiary in accordance with its respective terms (subject, as to enforcement, to bankruptcy, insolvency, reorganization and other similar laws affecting the enforcement of creditors' rights generally and general equitable principles). Each of the Basic Agreements is in full force and effect and the Borrower and the other parties thereto (other than the Lenders) have performed and complied in all material respects with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the Closing Date, and no default by the Borrower or any Subsidiary of the Borrower or, to the best knowledge of the Borrower, any of the other parties thereto (other than the Lenders), exists thereunder. From and after the Closing Date, the Security Agreements will give the Agent for the benefit of the Lenders, as security for the repayment of the obligations secured thereby, assuming proper filings and recordations are made, a valid and perfected first priority lien (which priority is subject only to prior Liens permitted by such agreements) upon and security interest in the Collateral, and each of the Mortgages will give the Agent for the benefit of the Lenders, as security for the repayment of the obligations secured thereby, assuming proper filings and recordations are made, a valid and first priority lien (which priority is subject only to prior Liens permitted by the respective Mortgages) upon and security interest in the respective Mortgaged Property, subject to Permitted Liens. Section 4.6 INDEBTEDNESS FOR MONEY BORROWED. Attached hereto as SCHEDULE 4.6 is a complete and correct list of all Indebtedness for Money Borrowed, exclusive of intercompany Indebtedness for Money Borrowed owing between and among the Borrower and its Wholly-Owned Subsidiaries, of the Borrower and each Subsidiary of the Borrower outstanding as of the date hereof and as of the Closing Date, showing the aggregate principal amount which will be outstanding on the Closing Date after giving effect -39- to the Related Transactions and the making of the Loans hereunder. The Borrower has delivered or caused to be delivered to the Agent a true and complete copy of the form of each instrument evidencing Indebtedness for Money Borrowed listed on SCHEDULE 4.6 and of each instrument pursuant to which such Indebtedness for Money Borrowed was issued. All Indebtedness of the Borrower to the Agent or the Lenders under any Basic Agreement constitutes Senior Indebtedness. No Indebtedness of the Borrower to any party is senior in priority of payment to the Obligations. Section 4.7 FISCAL QUARTERS AND YEAR. The Fiscal Quarters of the Borrower and its Subsidiaries begin on the first day of January, April, July and October and end on the last day of March, June, September and December, respectively, of each year. The Fiscal Year of the Borrower and each of its Subsidiaries commences on January 1 and ends on December 31 of each calendar year. Section 4.8 TITLE TO AND CONDITIONS OF PROPERTIES. Except as disclosed on SCHEDULE 4.8 hereto, as of the date hereof and as of the Closing Date, the Borrower or one of its Subsidiaries has valid, legal and marketable title to, or a subsisting leasehold interest in, all material items of real and personal property reflected on the Balance Sheet or acquired after the date of the Balance Sheet except for assets sold, transferred or otherwise disposed of in the ordinary course of business since the date of the Balance Sheet, in each case (except as to leasehold interests) free and clear of all Liens, except Permitted Liens. As of the date hereof and as of the Closing Date, substantially all items of real and material personal property owned by, leased to or used by the Borrower and/or each Subsidiary of the Borrower 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. Section 4.9 LITIGATION, PROCEEDINGS, LICENSES, PERMITS. There is no action, suit or proceeding, or any governmental investigation or any arbitration pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries or any material property of any thereof before any court or arbitrator or any governmental or administrative body, agency or official (i) which asserts the invalidity, or seeks to enjoin, or otherwise materially interferes with, the performance or consummation, of any Basic Agreement, or (ii) which is reasonably likely to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries (A) is in default with respect to any order of any court, arbitrator or governmental body or is subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding against it under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters or (B) has violated or is in -40- violation of any statute, rule or regulation of any governmental authority in each case where such violation or default would have a Material Adverse Effect. The Borrower and each of its Subsidiaries have been and are current and in good standing with respect to all governmental approvals, permits, certificates, licenses, inspections, consents and franchises necessary to continue to conduct their respective businesses in accordance with applicable laws, rules and regulations and to own or lease and operate their respective properties, except where the failure to be so would not have a Material Adverse Effect. Section 4.10 GOVERNMENTAL CONSENTS, ETC. Except to the extent not required to be obtained prior to the date hereof (or, with respect to any future date, required to be obtained as of such date), and except as disclosed on SCHEDULE 4.10 hereto, no authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange or any other Person is required in connection with the execution, delivery and performance by the Borrower and its Subsidiaries of any Basic Agreement or the assignment of, and the grant of a security interest in or mortgage on the Collateral or the Mortgaged Property, in the manner and for the purposes contemplated by the Security Agreements or the Mortgages, respectively, and all of such consents shall have been obtained prior to, and shall remain in full force and effect on, and any requirements described on SCHEDULE 4.10 shall have been met on or prior to, the date hereof. Section 4.11 FINANCIAL STATEMENTS. (a) The Borrower has heretofore caused to be delivered to each Lender complete and correct copies of consolidated balance sheets of the Borrower and its Subsidiaries for the fiscal year ended December 31, 1993 and as at June 30, 1994 (such consolidated balance sheet and the notes thereto as at June 30, 1994 being herein referred to as the "BALANCE SHEET"), and consolidated statements of income and consolidated statements of cash flows for such year then ended, certified by Price Waterhouse, whose report thereon is incorporated by reference therein, together with unaudited consolidated statements of income and consolidated statements of cash flows for the three months ended June 30, 1994. As of the date hereof and as of the Closing Date, the consolidated balance sheets and the notes thereto fairly present the assets, liabilities and financial condition of the Borrower and its Subsidiaries as at the respective dates thereof, and the consolidated statements of income and consolidated statements of cash flows and the notes thereto fairly present the results of operations of the Borrower and its Subsidiaries for the respective periods therein referred to, all in accordance with generally accepted accounting principles consistently applied throughout the -41- respective periods involved and the prior periods, except as stated therein or in the notes thereto. (b) The Borrower has furnished to the Agent the pro forma consolidated balance sheet (the "PRO FORMA") of the Borrower and its Subsidiaries attached hereto as EXHIBIT 4.11(b). As of the date hereof and as of the Closing Date, the Pro Forma is complete and accurate in all material respects and fairly presents the Borrower's assets, liabilities and financial condition, on a consolidated basis, taking into account the transactions contemplated by the Basic Agreements, the Related Transactions and the making of the Loans hereunder based on the assumptions set forth in the notes to the Pro Forma. (c) The Borrower has furnished to the Agent initial Forecasts for the Borrower dated as of the date hereof and attached hereto as EXHIBIT 4.11(c). For purposes of this Agreement, "FORECASTS" shall mean forecasted balance sheets for the forthcoming five (5) years, year-by-year; forecasted cash flow statements (including proposed Capital Expenditures) for the forthcoming five (5) years, year-by-year; forecasted profit and loss statements for the forthcoming five (5) years, year-by-year, and for the forthcoming Fiscal Year, quarter-by-quarter, together with appropriate supporting details consistent with EXHIBIT 4.11(c). The initial Forecasts have been prepared by the Borrower on the basis of the assumptions set forth therein and represent, as of the date hereof and as of the Closing Date, the good faith estimate of the Borrower regarding the course of the Borrower's business for the periods covered thereby. The Borrower believes in good faith on the date hereof and on the Closing Date that the assumptions set forth in the initial Forecasts are reasonable. (d) Except as set forth on SCHEDULE 4.11(d) hereto, neither the Borrower nor any of its Subsidiaries has any material liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, or any material unsatisfied judgments or any leases for a period in excess of five (5) years which either individually or in the aggregate are material (herein called "MATERIAL LIABILITIES"), except (a) Material Liabilities which are fully reflected or reserved against on (i) the Pro Forma, with respect to the period from the date hereof until the delivery of the initial Most Recent Balance Sheet in Fiscal Year 1995 and (ii) the Most Recent Balance Sheet, with respect to all periods thereafter, and (b) Material Liabilities incurred subsequent to the date of the Pro Forma or the Most Recent Balance Sheet, as the case may be, in the ordinary course of business consistent with past practice. The reserves, if any, reflected on the Pro Forma or the Most Recent Balance Sheet, as the case may be, for all Material Liabilities referred to in clause (a) above are appropriate and reasonable as of the date of the Pro Forma or Most Recent Balance Sheet, as the case may be. -42- Section 4.12 NO MATERIAL ADVERSE CHANGE. Except for the transactions specifically contemplated by the Basic Agreements or reflected on the Pro Forma and matters disclosed in the public filings identified on SCHEDULE 4.12 hereto, since December 31, 1993 there has been no material adverse change in the condition (financial or otherwise), business, assets, liabilities, prospects or results of operations of the Borrower and its Subsidiaries taken as a whole. Section 4.13 TAX RETURNS AND PAYMENTS. The Borrower and each of its Subsidiaries has timely filed or caused to be filed all tax returns which are required to be filed, and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than those the amount or validity of which is being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with generally accepted accounting principles have been provided on the books of the Borrower or such Subsidiary, as the case may be); and no tax liens have been filed and no claims are being asserted with respect to any such taxes, fees or other charges (other than such liens or claims, the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with generally accepted accounting principles have been provided). Section 4.14 PATENTS, ETC. The Borrower and each of its Subsidiaries own, are licensed or otherwise have the lawful right to use, or have all permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of their businesses except where the failure to own or have the right to use will not have a Material Adverse Effect. To the best of Borrower's knowledge, the use of such permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how and processes by the Borrower and each of its Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements as do not, in the aggregate, give rise to any liability on the part of the Borrower or any of its Subsidiaries which has or is reasonably likely to have a Material Adverse Effect. The consummation of the transactions contemplated by the Basic Agreements will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any permits, governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how or processes by the Borrower or any of its Subsidiaries in any manner which has or is reasonably likely to have a Material Adverse Effect. Section 4.15 ERISA. -43- (a) With respect to the Borrower and its Subsidiaries (other than Stone-Canada and its Subsidiaries except to the extent that a Plan of Stone-Canada or any Subsidiary of Stone-Canada is subject to ERISA): (i) No termination since September 2, 1974 of any Plan of the Borrower or any of its Subsidiaries or any ERISA Affiliate has resulted in any material liability of the Borrower or any of its Subsidiaries. All Plans of the Borrower or any of its Subsidiaries have been operated and administered in a manner so as not to result in any material liability for failure to comply with ERISA, and if intended to qualify under Section 401(a) or 403(a) of the Code, in a manner so as not to result in any material liability for failure to comply with the applicable provisions thereof. Neither the Borrower nor any of its Subsidiaries or any ERISA Affiliate has engaged in any transaction in connection with which any such entity could be subjected to either a material civil penalty assessed pursuant to Section 502(i) of ERISA or a material tax imposed by Section 4975 of the Code. Full payment has been made on a timely basis of all amounts which the Borrower or any of its Subsidiaries or any ERISA Affiliate is required under the terms of each Plan to have paid as a contribution to such Plan. None of the Plans which is subject to Part 3 of Subtitle B of Title 1 of ERISA or Section 412 of the Code has an accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived. Neither the Borrower nor any of its Subsidiaries or ERISA Affiliates has any contingent liability under Section 4069 of ERISA. No material liability to the PBGC has been or is expected by the Borrower to be incurred with respect to any Plan by the Borrower or any of its Subsidiaries or any ERISA Affiliate; and there has been no Reportable Event, and no event or condition, which presents a material risk of termination of any such Plan by the PBGC which would result in material liability of the Borrower or any of its Subsidiaries or any ERISA Affiliate. No material liability has been or is expected to be incurred by the Borrower or any of its Subsidiaries or any ERISA Affiliate resulting from any withdrawal by the Borrower, any of its Subsidiaries or any ERISA Affiliate from a plan in which it was a substantial employer (within the meaning of Section 4001 (a)(2) of ERISA). Assuming that no portion of the Loan proceeds to be advanced hereunder is attributable, directly or indirectly, to the assets of any employee benefit plan (within the meaning of Section 3(3) of ERISA) or plan (within the meaning of Section 4975(e) of the Code), the execution, performance and delivery of the Basic Agreements by any party thereto will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code for which an exemption therefrom is not available. The aggregate fair market value of the assets of the Plans exceeds the aggregate present value -44- of accrued benefits under such Plans and, with respect to any Plan the fair market value of the assets of which does not exceed the present value of accrued benefits thereunder (an "UNDERFUNDED PLAN"), the amount by which the present value of accrued benefits under each Underfunded Plan exceeds the fair market value of the assets of such Underfunded Plan is not material to the Borrower and its Subsidiaries taken as a whole. (ii) No material liability has been or is expected to be incurred by the Borrower or any of its Subsidiaries or any ERISA Affiliate with respect to any Multiemployer Plan except for future contributions to any Multiemployer Plan pursuant to the terms of any applicable collective bargaining agreement. Full payment has been made of all amounts which the Borrower or any ERISA Affiliate is required under the terms of any Multiemployer Plan to have paid as a contribution to such Multiemployer Plan as of the last day of the most recent fiscal year of such Multiemployer Plan, except for any contribution which might be required and is unpaid because of mathematical error in the calculation of such amount. (iii) No liability which would have a Material Adverse Effect has been or is expected to be incurred by the Borrower or any of its Subsidiaries or any ERISA Affiliate for failure to comply with the health coverage continuation requirements enacted under the Consolidated Omnibus Budget Reconciliation Act of 1986. (b) With respect to Stone-Canada and its Subsidiaries, except as set forth on SCHEDULE 4.15, there are no unfunded liabilities arising out of any pension plan or under any benefit plan to which Stone-Canada or any Subsidiary of Stone-Canada is a party or by which either is bound and all employer contributions required thereunder to date have been made. Section 4.16 GOVERNMENTAL REGULATION. Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or any other federal or state statute or regulation such that its ability to incur indebtedness is limited or its ability to consummate the transactions contemplated hereby is materially impaired. Section 4.17 FEDERAL RESERVE REGULATIONS. Neither the Borrower nor any Subsidiary of the Borrower is engaged, directly or indirectly, principally, or as one of its important activities, in the business of extending, or arranging for the extension of, credit for the purpose of purchasing or carrying any Margin Stock, within the meaning of Regulation G, U or X of the Board. Following -45- application of the proceeds of each Loan, not more than 25% of the value of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a consolidated basis) will be Margin Stock. Section 4.18 TRANSACTION DOCUMENTS. The Borrower has delivered to the Agent true, complete and correct copies of the Transaction Documents (including all schedules, exhibits, annexes, amendments and all other documents delivered pursuant thereto or in connection therewith). The Transaction Documents as originally executed and delivered by the parties thereto have not been amended, waived, supplemented or modified without the consent of the Required Lenders. Neither the Borrower nor any other party thereto is in default in the performance or compliance with any provisions thereof. The Transaction Documents are in material compliance with all applicable laws and the transactions effected thereunder were consummated in accordance with applicable laws and regulations. Section 4.19 SOLVENCY OF THE BORROWER. As of the date hereof and as of the Closing Date, no obligation shall have been incurred by the Borrower or any Subsidiary of the Borrower with intent to hinder, delay, disturb or defraud creditors of the Borrower or any Subsidiary of the Borrower and the Borrower and each of its Subsidiaries (i) shall not be "insolvent" (within the meaning of Section 101(29) of The Bankruptcy Code of 1978, as amended, Section 2 of the Uniform Fraudulent Conveyance Act or Section 2 of the Uniform Fraudulent Transfer Act) and will not become "insolvent" (after giving effect to the financing contemplated hereby or any application of the proceeds of the Loans or the proceeds from the Transaction Documents) as a result of the incurrence of any such obligations; (ii) shall not be engaged in any business or transaction with unreasonably small capital (after giving effect to the financing contemplated hereby); and (iii) shall be able to perform its contingent obligations and other commitments as they mature in the normal course of business. Section 4.20 CERTAIN FEES. Other than as set forth in the Transaction Documents or in the documentation relating to the public debt financing contemplated thereby, no broker's or finder's fees or commissions were paid or will be payable by the Borrower or any Subsidiary of the Borrower with respect to the transactions contemplated by the Basic Agreements. No similar fees or commissions were paid or will be payable by the Borrower or any Subsidiary of the Borrower for any other services rendered to the Borrower or any Subsidiary of the Borrower in connection with the transactions contemplated hereby. The Borrower covenants that it will indemnify the Agent, the Co-Agents and each Lender against and hold the Agent, the Co-Agents 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 such issuance or offer, issue and sale, or the transactions contemplated hereby. The obligations of the Borrower -46- under this Section shall survive the termination of this Agreement and the discharge of the Borrower's obligations hereunder and under the Obligations. Section 4.21 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 4.21, (i) the operations of and the real property associated with the Borrower and each of its Subsidiaries is in compliance with all applicable Environmental Laws except where the failure to so comply could not be expected to have a Material Adverse Effect; (ii) the Borrower and each of its Subsidiaries has obtained and maintains all material environmental, health and safety permits, certificates, licenses, approvals and authorizations necessary for their respective operations under all applicable Environmental Laws (collectively, "ENVIRONMENTAL PERMITS"), and all such Environmental Permits are in good standing and the Borrower and its Subsidiaries are in material compliance with all terms and conditions of such Environmental Permits; (iii) neither the Borrower nor any of its Subsidiaries nor any of their present or past properties or operations (whether owned or leased) are subject to: (A) any written claim, request for information, judgment, order, decree or agreement from or with any Governmental Authority or private party related to any material violation of or material non-compliance with Environmental Laws or Environmental Permits, (B) any pending or, to the knowledge of the Borrower, threatened judicial or administrative proceeding, action, suit or investigation related to any Environmental Laws or Environmental Permits which, if determined adversely to the Borrower or any of its Subsidiaries, could have a Material Adverse Effect, or (C) any liabilities, obligations or costs arising from any Remedial Action or any Release or threatened Release of a Contaminant into the environment regardless of whether the Release or threatened Release is occurring on the Borrower's or any Subsidiaries present or past properties or at any other location, in each case where such Remedial Action, Release or threatened Release would have a Material Adverse Effect; and (iv) except as disclosed on SCHEDULE 4.21 hereto, as of the date hereof and as of the Closing Date, neither the Borrower nor any of its Subsidiaries has received any written notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person for an amount in excess of $500,000 as a result of the Release or threatened Release of a Contaminant into the environment. Section 4.22 DISCLOSURE. No statement, fact, representation or warranty of the Borrower or its Subsidiaries contained in the Basic Agreements, the Note Prospectus or any other document furnished to the Lenders by or on behalf of the Borrower or any Subsidiary for use in connection with the transactions contemplated by the Basic Agreements contains any untrue statement of a material fact nor do such documents taken as a whole omit to state a material fact necessary in order to make the statements contained herein or therein, as the case may be, not misleading when made. The pro forma forecasts, projections and pro forma -47- financial information contained in such materials are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made, it being recognized by the Lenders that such pro forma forecasts and projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such pro forma forecasts and projections will differ from the forecasted or projected results. As of the date of this Agreement there is no fact known to the Borrower (other than matters of a general economic nature not peculiar to the Borrower, or its Subsidiaries) which materially and adversely affects the condition (financial or otherwise), properties, business, prospects or operations of the Borrower and its Subsidiaries taken as a whole which has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated hereby. Section 4.23 SURVIVAL OF WARRANTIES; COVENANT REGARDING DISCLOSURE. All representations and warranties contained in this Agreement and the other Basic Agreements shall survive the execution and delivery of this Agreement and such other Basic Agreements, as the case may be, and the termination hereof and thereof. The Borrower may from time to time propose in writing to the Agent and Lenders modifications or supplements to the disclosures contained herein or the disclosure schedules attached to this Agreement in order to maintain the accuracy thereof; PROVIDED, HOWEVER, that any modifications or supplements to the disclosures contained in this Agreement or the disclosure schedules attached to this Agreement and provided by the Borrower after the date hereof shall not be deemed a part of this Agreement until accepted in writing by the Required Lenders, PROVIDED that a Lender shall be deemed to have accepted any such proposed modification or supplement if such Lender fails to give written notice of the rejection thereof within 30 days after receipt from the Borrower of such proposed modification or supplement expressly requesting acceptance thereof under this SECTION 4.23. ARTICLE V COVENANTS Section 5.1 AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that for so long as this Agreement is in effect and until the Obligations and all other obligations incurred hereunder or under any other Loan Document, whether or not matured, are paid in full and all Commitments have terminated, the Borrower will, unless first having procured the written consent of the Required Lenders: 5.1.1 FINANCIAL DATA. Furnish to the Agent and each Lender: -48- (a) Within five (5) Business Days after an Executive Officer of the Borrower shall have obtained knowledge of the occurrence of an Event of Default and/or an Unmatured Event of Default, the written statement of the chief executive officer, chief operating officer, chief financial officer or treasurer of the Borrower setting forth the details of each such Event of Default or Unmatured Event of Default which has occurred and is continuing and the action which the Borrower proposes to take with respect thereto. (b) Within forty-five (45) days (or in the case of the financial statements referenced in SECTIONS 5.1.1(b)(ii), sixty (60) days) after the end of each Fiscal Quarter (except the last Fiscal Quarter) of each Fiscal Year of the Borrower, (i) unaudited financial statements consisting of a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter and a consolidated statement of income and a consolidated statement of cash flows of the Borrower and its Subsidiaries for such quarter and for the portion of the fiscal year through such quarter, all in reasonable detail and certified (subject to normal year-end audit adjustments) on behalf of the Borrower by the chief executive officer, chief financial officer, chief accounting officer or treasurer of the Borrower as having been prepared in accordance with generally accepted accounting principles consistently applied and (ii) unaudited financial statements consisting of a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter and a consolidated statement of income and a consolidated statement of cash flows of the Borrower and its Subsidiaries for such quarter and for the portion of the fiscal year through such quarter, all in reasonable detail and certified (subject to normal year-end audit adjustments) on behalf of the Borrower by the chief executive officer, chief operating officer, chief financial officer, chief accounting officer or treasurer of the Borrower as having been prepared in accordance with generally accepted accounting principles consistently applied (except that in such statements Seminole Kraft and S-CC shall be accounted for utilizing the equity method). The financial statements delivered pursuant to SECTION 5.1.1(b)(i) shall be accompanied by a certificate from such officer addressed to the Lenders substantially in the form of EXHIBIT 5.1.1, to the extent applicable, stating that no Event of Default and no Unmatured Event of Default has come to his attention which was continuing at the end of such quarter or on the date of his certificate, or if such an Event of Default or Unmatured Event of Default has come to his attention and was continuing at the end of such quarter or on the date of his certificate, indicating the nature of such Event of Default or Unmatured Event of Default and the action which the Borrower proposes to take with respect thereto. Such certificate shall also detail the amount of any Discretionary Funds originating during such -49- Fiscal Quarter, any utilization of Discretionary Funds during such Fiscal Quarter, the amount of the Discretionary Funds Basket and the Dividend Basket as of the end of such Fiscal Quarter, the amount of any Debt Basket Proceeds remaining in the Discretionary Funds Basket after any utilization thereof and any utilization of the Dividend Basket for Investments, Acquisitions or Capital Expenditures during such Fiscal Quarter and shall set forth detailed computations as to the Borrower's compliance with the covenants set forth in SECTIONS 5.2.2, 5.2.3, 5.2.5, 5.2.7, 5.2.9, 5.2.11, 5.2.12, 5.2.15, 5.3.1 and 5.3.2 and detailed computations showing whether an adjustment of Borrowing Margins pursuant to SECTION 2.9 is required. To the extent that the accounting principles utilized in the preparation of any financial statements delivered by the Borrower pursuant to SECTION 5.1.1(b) OR (c) are at variance with the Agreement Accounting Principles (other than accounting for Seminole Kraft and S-CC utilizing the equity method for purposes of the financial statements delivered pursuant to SECTIONS 5.1.1(c)(ii) and 5.1.1(c)(ii)), such financial statements shall be accompanied by a statement detailing the nature of such variance. In addition to the consolidated financial statements delivered pursuant to SECTION 5.1.1 (b)(i), the Borrower will provide, as soon as available and in any event within sixty (60) days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of each Fiscal Year of each of Seminole Kraft and S-CC, respectively, unaudited financial statements consisting of a balance sheet and statement of stockholders' equity of each of Seminole Kraft and S-CC as at the end of such quarter and a statement of income and cash flows of each of Seminole Kraft and S-CC for such quarter and for the portion of the fiscal year through such quarter, all in reasonable detail and certified (subject to normal year-end audit adjustments) on behalf of Seminole Kraft or S-CC, as the case may be, by the chief executive officer, chief operating officer, chief financial officer or treasurer of Seminole Kraft or S-CC, as the case may be, as having been prepared in accordance with generally accepted accounting principles consistently applied. Reporting requirements for separate S-CC financial information under this subsection and SUBSECTIONS 5.1.1(c),(d) and (e) shall terminate when and if S-CC ceases to be a Subsidiary. (c) Within ninety (90) days after the end of each Fiscal Year of the Borrower, (i) financial statements consisting of a consolidated balance sheet and statement of stockholders' equity of the Borrower and its Subsidiaries as at the end of such fiscal year and a consolidated statement of income and a consolidated statement of cash flows of the Borrower and its Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year, certified without qualification as to scope of audit by independent public accountants of recognized national -50- standing and reputation selected by the Borrower, (ii) unaudited financial statements, consisting of a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and a consolidated statement of income and a consolidated statement of cash flows of the Borrower and its Subsidiaries for such fiscal year, all in reasonable detail and certified on behalf of the Borrower by the chief executive officer, chief financial officer, chief accounting officer or treasurer of the Borrower as having been prepared in accordance with generally accepted accounting principles consistently applied (except that in such statements Seminole Kraft and S-CC shall be accounted for utilizing the equity method) and (iii) a schedule setting forth the computation of Excess Cash Flow for the fiscal year then ended (an "EXCESS CASH FLOW SCHEDULE"). The financial statements delivered pursuant to SECTION 5.1.1(c)(i) shall be accompanied by a certificate from the chief executive officer, chief operating officer, chief financial officer, chief accounting officer or treasurer of the Borrower to the Lenders substantially in the form of EXHIBIT 5.1.1, to the extent applicable, (x) stating that no Event of Default and no Unmatured Event of Default has come to his attention which was continuing at the end of such fiscal year or on the date of his certificate, or, if such an Event of Default or Unmatured Event of Default has come to his attention which was so continuing, the certificate shall indicate the nature of such Event of Default or Unmatured Event of Default and the action which the Borrower proposes to take with respect thereto, (y) setting forth detailed computations showing whether an adjustment of Borrowing Margins pursuant to SECTION 2.9(a) is required, and (z) setting forth computations as to the Borrower's compliance for the preceding fiscal year with the covenants set forth in SECTIONS 5.2.2, 5.2.3, 5.2.5, 5.2.7, 5.2.9, 5.2.11, 5.2.12, 5.2.15, 5.3.1 and 5.3.2. Such certificate shall also detail the amount of any Discretionary Funds originating during the final Fiscal Quarter of the preceding Fiscal Year, any utilization of Discretionary Funds during such Fiscal Quarter, the amount of the Discretionary Funds Basket and the Dividend Basket as of the end of such Fiscal Quarter, the amount of any Debt Basket Proceeds remaining in the Discretionary Funds Basket after any utilization thereof and any utilization of the Dividend Basket for Investments, Acquisitions or Capital Expenditures during such Fiscal Quarter. In addition to the consolidated financial statements delivered pursuant to SECTION 5.1.1(c)(i), the Borrower will provide, as soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of Seminole Kraft and S-CC, respectively, audited financial statements consisting of a balance sheet and statement of stockholders' equity of each of Seminole Kraft and S-CC as at the end of such fiscal year and a statement of income and cash flows of each of Seminole Kraft and S-CC for such fiscal year, setting forth in -51- comparative form the corresponding figures for the preceding fiscal year, certified without qualification as to scope of audit by independent public accountants of recognized national standing and reputation elected by Seminole Kraft or S-CC, as the case may be. (d) Within ninety (90) days after the end of each fiscal year of the Borrower, projections for the Borrower and its Subsidiaries (except for Seminole Kraft and S-CC, which shall be accounted for utilizing the equity method) for the next five Fiscal Years (on a quarter-by-quarter basis for the next succeeding fiscal year and on a year-by-year basis for the duration of such five year period), except with respect to the first projections to be delivered in 1995, which shall be for the next six Fiscal Years, consisting of forecasted consolidated balance sheets, statements of income and statements of cash flow, together with appropriate supporting details and a statement of underlying assumptions, all in substantially the form of EXHIBIT 4.11(c) hereto; PROVIDED, HOWEVER, that in no event shall the Borrower be required to deliver projections covering any period subsequent to the last day of the calendar year following the year during which the Term Loan Maturity is scheduled to occur. (e) Within ninety (90) days after the end of each Fiscal Year of the Borrower, a year to year variance analysis which sets forth a reasonably detailed reconciliation of the actual consolidated (except for Seminole Kraft and S-CC, which shall be accounted for utilizing the equity method) financial results of the Borrower for such year and the projections of results for such year previously delivered by the Borrower pursuant to SECTION 5.1.1(d). (f) Promptly upon any Executive Officer of the Borrower obtaining knowledge thereof, notice of any action, suit, proceeding or investigation pending or threatened against or affecting the Borrower or any Subsidiary of the Borrower or any of its or their respective properties before any court, governmental agency or regulatory authority (Federal, provincial, state or local) which is reasonably likely to have a Material Adverse Effect. (g) Promptly upon their distribution, copies of financial statements, reports, notices and proxy statements sent by the Borrower or any publicly-held Subsidiary of the Borrower to their respective security holders generally (in their capacity as security holders only) and all regular and periodic reports and final registration statements or other official statements (and all amendments or supplements thereto) required to be filed by the Borrower or any publicly-held Subsidiary of the Borrower with the Securities and Exchange Commission, any competent securities regulatory -52- authority in Canada or with any national securities exchange on which any of its securities are listed with respect to its securities outstanding or to be outstanding and copies of all press releases and other statements made available generally by the Borrower or any publicly-held Subsidiary of the Borrower to the public concerning material developments in the business of the Borrower or any publicly-held Subsidiary of the Borrower. (h) Such other information respecting the properties, business affairs, financial condition and/or operations of the Borrower or any Subsidiary of the Borrower as any Lender through the Agent may from time to time reasonably (with respect to frequency as well as scope) request. 5.1.2 DISCHARGE OF TAXES, ETC. Pay and cause each of its Subsidiaries to pay (i) all taxes, assessments and governmental charges or levies imposed upon it or any of them or upon its or any of their income, profits or property prior to the date on which penalties attach thereto, and (ii) all claims for labor, material or supplies which, if unpaid, might become a Lien upon the property of the Borrower or any Subsidiary prior to the time they are overdue and may become a Lien upon any such property, except to the extent that the aggregate of all such taxes, assessments, governmental charges, levies, penalties and claims referred to in (i) and (ii) above not so paid, does not exceed $25 million at any time outstanding for the Borrower and its Subsidiaries taken as a whole; PROVIDED, HOWEVER, that neither the Borrower nor any Subsidiary of the Borrower shall be required to pay or discharge any such tax, assessment, charge, levy or claim while the same is being contested by it in good faith and by appropriate proceedings and so long as the Borrower or such Subsidiary, as the case may be, shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting principles) reasonably deemed by it to be adequate with respect thereto. 5.1.3 CORPORATE EXISTENCE; BUSINESS. (a) Except for the Mergers, except as otherwise permitted by SECTION 5.2.8 and except that any Subsidiary may be liquidated, dissolved, wound up, merged or amalgamated (other than Seminole Kraft with respect to any merger, unless, in the case of Seminole Kraft, such merger is permitted by SECTION 5.2.8) where such liquidation, dissolution, merger, winding-up or amalgamation will not have a Material Adverse Effect, (i) preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights and franchises and (ii) qualify and remain qualified, and cause each of its Subsidiaries to qualify and remain qualified, as a foreign corporation authorized to do business in each other jurisdiction in which the failure to so qualify or remain qualified would have a Material Adverse Effect. -53- (b) Maintain and operate, and cause each of its Subsidiaries to maintain and operate, its business in substantially the manner in which it is currently conducted and operated. 5.1.4 COMPLIANCE WITH LAWS. Comply, and cause each of its Subsidiaries to comply, with all laws, rules, regulations and governmental orders (foreign, federal, provincial, state and local) having applicability to any of them or to the business or businesses at any time conducted by any of them, where the failure to so comply would have a Material Adverse Effect. 5.1.5 PERFORMANCE OF BASIC AGREEMENTS. Duly and punctually pay and perform its obligations and cause each of its Subsidiaries to pay and perform its obligations under the Basic Agreements in all material respects in accordance with the terms thereof and without breach of the terms of each thereof. 5.1.6 INSPECTION OF BOOKS AND PROPERTIES. (a) Permit, and cause each of its Subsidiaries to permit, any Lender or its respective representatives (including without limitation any accounting and/or financial advisor or other similar professional retained by or on behalf of the Agent pursuant to SECTION 9.5), at any reasonable time during regular business hours, and from time to time upon reasonable written notice of such Lender to the Borrower, 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 and, with the written consent of the Borrower (which consent shall not be required if an Event of Default has occurred and is continuing), their respective independent public accountants, in all cases acting reasonably both as to frequency and as to scope. (b) The Agent and each Lender agree that all materials and information (other than publicly available material and information) obtained by or provided to the Agent or such Lender pursuant to the foregoing provisions of this Section which are identified or designated by the Borrower in writing as confidential and which was not previously in the possession of or known to the recipient thereof on a non-confidential basis shall be held in confidence and that the Agent or such Lender, as the case may be, will use its best efforts not to disclose any such information unless the same has previously been made public, PROVIDED that nothing in this Agreement shall prohibit the Agent or such Lender, as the case may be, from, or subject the Agent or such Lender to liability for, disclosing any of such information (i) pursuant to any order, writ, judgment, decree, injunction or ruling of any governmental body (including any bank regulators) to whose jurisdiction the Agent or such Lender may be subject, (ii) pursuant to any applicable requirement of law or regulation, (iii) to the -54- auditors, attorneys and other advisors of the Agent or such Lender to the extent required in connection with their services to the Agent or such Lender with respect to this Agreement, (iv) to the extent necessary in the enforcement of rights hereunder or under the Basic Agreements during the continuance of an Unmatured Event of Default or Event of Default, (v) to actual or prospective Assignees or participants as permitted by SECTION 9.12(g) or to any Lender hereunder. 5.1.7 MAINTENANCE OF BOOKS AND RECORDS. Keep, or cause to be kept, and cause each of its Subsidiaries to keep or cause to be kept, proper books of record and account, in which complete and accurate entries are made reflecting its and their business and financial transactions. 5.1.8 ERISA. (a) Other than with respect to Stone-Canada and its Subsidiaries (except to the extent that a Plan of Stone-Canada or any Subsidiary of Stone-Canada is subject to ERISA), (i) within ten (10) days, after it or any of its Subsidiaries or any ERISA Affiliate knows that a Reportable Event has occurred with respect to any Plan or Multiemployer Plan (whether or not the requirement for notice of such Reportable Event has been waived by the PBGC), deliver, or cause such Subsidiary or any ERISA Affiliate to deliver to the Agent in sufficient quantity for distribution to each Lender a certificate of a Responsible Officer of the Borrower or such Subsidiary or any ERISA Affiliate, as the case may be, setting forth the details of such Reportable Event; PROVIDED, HOWEVER, that with respect to any Reportable Event described in ERISA Section 4043(b)(3) this clause (i) shall not apply if the PBGC has waived the requirement that notice of the Reportable Event be given to the PBGC and if this clause (i) shall apply to any Reportable Event described in ERISA Section 4043(b)(3) then the ten (10)-day period of time referred to above shall be extended to thirty days; (ii) upon the request of the Agent or any Lender made from time to time and promptly confirmed in writing, deliver to the Agent in sufficient quantity for distribution to each Lender a copy of the most recent available actuarial report and annual report completed with respect to any Plan; (iii) within ten (10) days, after it or any of its Subsidiaries or any ERISA Affiliate knows that any of the following have occurred with respect to any Plan: (A) any such Plan has been terminated, (B) the Plan Sponsor initiates any action to terminate any such Plan, or (C) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate any such Plan, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to the Agent and each Lender a written notice thereof; (iv) within ten (10) days, after it or any of its Subsidiaries or any ERISA Affiliate knows 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 or a withdrawal from a Plan in which any such entity was a -55- substantial employer within the meaning of Section 4001(a)(2) of ERISA (or a deemed withdrawal within the meaning of Section 4062(e) of ERISA with respect to an Underfunded Plan) deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to the Agent in sufficient quantity for distribution to each Lender a written notice thereof; and (v) within ten (10) days after it or any of its Subsidiaries or any ERISA Affiliate knows that a prohibited transaction (within the meaning of Section 406 of ERISA) with respect to any Employee Benefit Plan has occurred and knows such transaction will result in a material liability to such entity under Section 4975 of the Code or otherwise, if such transaction is not corrected, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to the Agent in sufficient quantity for distribution to each Lender a certificate of an Executive Officer of the Borrower or such Subsidiary or ERISA Affiliate, as the case may be, setting forth the details of such prohibited transaction and such entity's proposed response thereto. For purposes of this Section, the Borrower, any of its Subsidiaries and any ERISA Affiliate shall be deemed to have knowledge of all facts known by the Plan Administrator of any Plan of which such entity is the Plan Sponsor; PROVIDED, HOWEVER, that with respect to any Multiemployer Plan, the Borrower, any of its Subsidiaries and any ERISA Affiliate shall not be deemed to have any knowledge other than the actual knowledge of their respective officers. (b) With respect to Stone-Canada and its Subsidiaries, except for Europa Carton, A.G., within ten (10) days after the Borrower or any of its Subsidiaries knows that Stone-Canada or any of its Subsidiaries has unfunded liabilities which exceed the liabilities set forth on SCHEDULE 4.15 arising out of any pension plan to which Stone-Canada or any of its Subsidiaries is a party or by which either is bound, deliver to the Agent in sufficient quantity for distribution to each Lender a certificate of a Responsible Officer of the Borrower or such Subsidiary disclosing such unfunded liabilities. 5.1.9 INSURANCE. Maintain, and cause each of its Subsidiaries to maintain, such insurance, to such extent and against such hazards and liabilities, as is customarily maintained by Persons similarly situated to the extent that such insurance is available at commercially reasonable rates, and furnish to the Agent in sufficient quantity for distribution to each Lender, upon written request, information as to the insurance carried by the Borrower or any Subsidiary of the Borrower. The provisions of this SECTION 5.1.9 shall be deemed to be supplemental to, but not duplicative of, the provisions of any of the other Loan Documents that require the maintenance of insurance with respect to the Collateral and Mortgaged Property. 5.1.10 MAINTENANCE OF PROPERTIES. Except as to equipment no longer used or useful to the business of the Borrower and its Subsidiaries, keep and maintain all material properties, -56- equipment and other assets (and shall cause its Subsidiaries to keep and maintain their respective material properties, equipment and other assets) in good repair, working order and condition (ordinary wear and tear excepted) and shall make all necessary replacements thereof and renewals and repairs thereto so that the value thereof and the operating efficiency of the Borrower and its Subsidiaries shall at all times be maintained and preserved in a manner consistent with past practices of the Business. With respect to all items of leased equipment, the Borrower shall, and shall cause its Subsidiaries to, keep, maintain, repair, replace and operate such leased properties, equipment and other assets in accordance with the terms of the applicable lease, in either case, to the extent failure to do so would result in a Material Adverse Effect. 5.1.11 USE OF PROCEEDS. (i) Use the proceeds of the Term Loan, Revolving Loans, Letters of Credit and Swing Line Loans (A) to provide all or a portion of the funds necessary to repay in full all of the indebtedness outstanding under the U.S. Credit Agreement on the Closing Date, (B) to make loans and/or capital contributions on the Closing Date to Stone-Canada, which will, on the Closing Date, repay all of the indebtedness outstanding under the Canadian Credit Agreements, (C) to repay in whole or in part the indebtedness outstanding under the Stone Savannah Credit Agreement and to fund the Stone Savannah Transactions, (D) in the case of Letters of Credit, for general corporate purposes and (E) for ongoing working capital and general corporate purposes; and (ii) not use any part of the proceeds of any Loan or Letter of Credit hereunder for any purpose other than as set forth in this Section, including without limitation, to purchase or carry any Margin Stock or to extend credit to others for such purpose in violation of Regulation G, U or X of the Board. 5.1.12 LENDER MEETING. Cause a meeting open to all Lenders to be held at least once in each fiscal year for the purpose of having officers of the Borrower describe generally the Borrower's business, financial results and prospects and respond to inquiries from the Lenders regarding such matters. 5.1.13 REDEMPTION OF SENIOR SUBORDINATED NOTES AND STONE SAVANNAH STOCK. On or prior to December 30, 1994, (i) cause the amounts deposited with the trustee under the Stone Savannah Senior Subordinated Note Indenture on the Closing Date to be used to redeem in full all of the Stone Savannah Senior Subordinated Notes at par (plus stated premium), together with accrued and unpaid interest thereon, (ii) redeem in full or otherwise purchase, (A) all of the outstanding Stone Savannah Preferred Stock at par (plus stated premium), together with accrued and unpaid dividends thereon, and (B) all of the issued and outstanding Stone Savannah Common Stock not owned by the Borrower and (iii) cause Stone Savannah to merge into the Borrower or make other arrangements satisfactory to the Required Lenders with respect to the Collateral -57- and Mortgaged Property owned by Stone Savannah. The redemptions and purchases described in (i) and (ii) of this SECTION 5.1.13 are collectively referred to as the "STONE SAVANNAH TRANSACTIONS". 5.1.14 ENVIRONMENTAL NOTIFICATION. (a) Notify the Agent, in writing, promptly, and in any event within twenty (20) days after a Responsible Officer learns thereof, of any: (A) written notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person in an amount in excess of $1,000,000 as a result of the Release or threatened Release of any Contaminant into the environment; (B) written notice that the Borrower or any of its Subsidiaries is subject to investigation by any governmental authority evaluating whether any Remedial Action involving potential claims or costs to the Borrower or its Subsidiaries in excess of $1,000,000 is needed to respond to any material Release or threatened Release of any Contaminant into the environment; or (C) notice of violation to the Borrower or any of its Subsidiaries of conditions which result in a notice of violation of any Environmental Laws or Environmental Permits, which could reasonably be expected to have a Material Adverse Effect. (b) Upon written request by the Agent, the Borrower shall promptly submit to the Agent and the Lenders a report providing an update of the status of each environmental, health or safety compliance, hazard or liability issue identified in any notice or report required pursuant to clause (i) above and any other environmental, health and safety compliance obligation, remedial obligation or liability that could reasonably be expected to have a Material Adverse Effect. 5.1.15 ENVIRONMENTAL COMPLIANCE. The Borrower shall, and shall cause each of its Subsidiaries, in the exercise of its reasonable business judgment, to take prompt and appropriate action to respond to any material non-compliance with Environmental Laws or Environmental Permits or to any unpermitted Release or threatened Release of a Contaminant, and shall regularly report to the Agent on such response. Without limiting the generality of the foregoing, whenever the Agent or any Lender has a reasonable basis to believe that the Borrower is not in material compliance with all Environmental Laws or Environmental Permits or that any property of the Borrower or its Subsidiaries, or any property to which Contaminants generated by Borrower or its Subsidiaries have come to be located ("OFFSITE PROPERTY") has or may become contaminated or subject to an order or decree such that any such non-compliance, contamination or order or decree could reasonably be expected to have a Material Adverse Effect then the Borrower agrees to, at the Agent's request and the Borrower's expense: (a) cause a qualified environmental engineer reasonably acceptable to the Agent to assess -58- the site where the alleged or actual noncompliance contamination has occurred and prepare and deliver to the Agent, the Lenders and the Borrower a report reasonably acceptable to Agent setting forth the results of such assessments, a proposed plan and schedule for responding to any environmental problems described therein, and an estimate of the costs thereof; and (b) provide the Agent, the Lenders and the Borrower a supplemental report of such engineer whenever the scope of the environmental problems or the Borrower's response thereto or the estimated costs thereof, shall change in any material respect; or, as an alternative to subparagraphs (a) and (b) above, the Borrower, upon the Agent's or any Lender's request, shall allow the Agent or such Lender, as the case may be, or an agent or representative of the Agent or such Lender, to enter onto the property to conduct any desired environmental audits and tests at the Borrower's expense. The Agent and the Lenders hereby covenant and agree that any reports, records, notices, estimates or other information they receive in connection with this subsection shall be kept strictly confidential, and shall not be disclosed to or used by any Person (other than the Agent's or any Lender's authorized representatives for the purpose of reviewing or enforcing the Agent's or such Lender's rights hereunder, which persons shall also be bound by this sentence) unless and only to the extent that disclosure is required pursuant to any Environmental Laws, Environmental Permits, or order of a court of competent jurisdiction, in which case the Agent or such Lender, as the case may be, shall promptly notify the Borrower in writing of such requirement and the nature and extent of the required disclosure. 5.1.16 ADDITIONAL SUBSIDIARY GUARANTEES. Upon the request of the Agent, the Borrower shall cause any domestic Subsidiary (other than Seminole Kraft and StoneSub) from time to time having assets with a fair market value in excess of $25 million to execute a Subsidiary Guarantee; PROVIDED, HOWEVER, that in the event the Borrower acquires, directly or indirectly, a domestic Subsidiary in an Acquisition after the Closing Date, such Subsidiary shall not be required to execute a Subsidiary Guarantee so long as (i) all of the funds used by the Borrower, directly or indirectly, to acquire such Subsidiary were Discretionary Funds and (ii) neither the Borrower nor any other Subsidiary shall make any loans or advances to, or any Investments in (other than the initial Investment therein), such Subsidiary, or assume, guarantee or endorse or otherwise become directly or contingently liable in respect of, any obligation of such Subsidiary until a Subsidiary Guarantee is so delivered. 5.1.17 DELAYED COLLATERAL. (a) The parties acknowledge that as a result of delays associated with title and survey matters, third party consent requirements and other matters (i) with respect to certain converting plants it has been impractical to consummate on the -59- Closing Date the mortgaging of the interests of the Borrower or a Subsidiary, as applicable, in the Mortgaged Property (the "DELAYED PROPERTIES") marked with an asterisk on SCHEDULE 1.1(c), and (ii) with respect to certain of the Mortgaged Properties that are being mortgaged on the Closing Date, certain title, survey, local counsel opinions and other documents ("ANCILLARY DOCUMENTS") may not be available on the Closing Date. (b) As soon as practicable, but in any event on or prior to January 31, 1995, the Borrower shall, or, as applicable, shall cause its applicable Subsidiaries to, execute and deliver, or cause to be delivered, to the Agent (i) Mortgages with respect to the Delayed Properties together with all fixed assets and inventory located at such facilities and including such environmental information and studies, leases, title reports, title insurance (with all requirements for the issuance thereof having been satisfied), lien searches, opinions of counsel, evidence of recordation and payment of applicable taxes as the Agent may reasonably request and (ii) such Ancillary Documents as the Agent may reasonably request. The Borrower shall also take or cause to be taken all actions reasonably requested by the Agent in order to perfect or protect the Liens of the Mortgages with respect to the Delayed Properties. Without limiting the foregoing, the Borrower shall use its best non-financial efforts to secure such landlord consents, waivers and similar documents as the Agent may reasonably request in connection with leasehold mortgages and related mortgages or pledges of the Delayed Properties. (c) To the extent that the Agent shall, in its sole discretion, determine that in light of environmental, legal or other considerations it would be adverse to the interests of the Lenders or impractical to accept as collateral one or more of the Delayed Properties, it may in writing release the Borrower from its obligations to pledge any of such Delayed Properties, provided that the Borrower shall provide, or cause to be provided, such alternative collateral of reasonably comparable value as may be acceptable to the Agent. Such additional collateral shall be granted pursuant to such documentation and within such time period as may be satisfactory to the Agent. (d) To the extent that the Borrower or an applicable Subsidiary is contractually prohibited from granting a leasehold mortgage or mortgage on any Delayed Property which is leased or subject to an industrial revenue bond financing and the Borrower has complied with the last sentence of SECTION 5.1.17(b), the Borrower shall be released from its obligation to grant a leasehold mortgage or mortgage thereupon but shall not be released from its obligation to pledge the fixed assets or inventory located at such Delayed Property unless the Borrower or its applicable Subsidiary is contractually prohibited from doing so in the relevant lease. -60- 5.1.18 MERGER OF STONE SOUTHWEST. The Borrower shall cause Stone Southwest to be merged with and into the Borrower promptly after the earlier of (i) at such time as when such merger would no longer cause a violation or breach of the terms and conditions of the Stone Southwest Indenture or any other material agreement or indenture to which Stone Southwest is a party and (ii) such time as all Indebtedness issued under the Stone Southwest Indenture and such other agreements and indentures has been paid in full and such merger is no longer restricted thereby. Section 5.2 NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that for so long as this Agreement is in effect and until the Obligations and all other obligations incurred hereunder, whether or not matured, are paid in full and all Commitments have terminated, without the prior written consent of the Required Lenders, the Borrower will not nor will it permit any Subsidiary of the Borrower to: 5.2.1 LIENS. Except for Permitted Liens, create, incur, assume or permit to exist any Lien on any of its or any of its Subsidiaries' existing or future properties, assets (including stock of any Subsidiaries), income or rights in any thereof whether now owned or hereafter acquired. 5.2.2 INDEBTEDNESS FOR MONEY BORROWED. Create, incur, assume or suffer to exist any Indebtedness for Money Borrowed except for: (a) the Obligations under the Loan Documents; (b) Indebtedness for Money Borrowed as shown on SCHEDULE 4.6 hereto; (c) Indebtedness for Money Borrowed incurred by Europa Carton, A.G., Ston Forestal, S.A., Stone de Mexico, Stone-Venepal, Cartomills, S.A. or Societe Emballages de Cevennes, S.A., Seminole Kraft or any Subsidiary thereof which is not guaranteed by and is non-recourse to the Borrower or any Subsidiary of the Borrower; (d) intercompany loans and advances (i) made in the ordinary course of business to the Borrower or Wholly-Owned Subsidiaries of the Borrower and, in the case of non-Wholly-Owned Subsidiaries, Indebtedness arising out of Investments permitted by SECTION 5.2.7; or (ii) made to StoneSub in an aggregate principal amount at any time outstanding not in excess (together with any unreimbursed capital contributions made pursuant to SECTION 5.2.7(h)) of (A) the amounts contemplated from time to time by the terms of the respective Receivables Financings and (B) those amounts, up to an aggregate at any one time outstanding of $5 million for each $100 million (on a pro-rated basis) of Receivables Financings -61- which have been established and are in existence at such time, which may be advanced to StoneSub in order to cure or remedy, or otherwise avoid the commencement of, liquidation, termination or similar events in connection with the Receivables Financings; PROVIDED, HOWEVER, that, except as otherwise expressly permitted under this Agreement, this clause (d) shall not be deemed to permit intercompany Indebtedness for Money Borrowed made to SVCPI (other than pursuant to contractual agreements permitted by this Agreement and as in effect on the date hereof) Seminole Kraft or to S-CC or any of S-CC's Subsidiaries other than Indebtedness for Money Borrowed made between S-CC and its Subsidiaries or between Subsidiaries of S-CC; (e) the Indebtedness for Money Borrowed of any Person at the time such Person becomes a Subsidiary, or is merged or consolidated with or into the Borrower or a Subsidiary of the Borrower, so long as such Indebtedness for Money Borrowed was not created in anticipation of or as a result of such Person becoming a Subsidiary of the Borrower or of such merger or consolidation; (f) refinancings of Indebtedness for Money Borrowed due to remarketing provisions, to provisions relating to computing a variable rate of interest or to provisions providing for the fixing of interest rates on theretofore variable rate obligations as provided for in the instruments pursuant to which such Indebtedness for Money Borrowed was issued as in effect on the date hereof or assumed pursuant to SECTION 5.2.2(e), PROVIDED that the principal amount of such Indebtedness for Money Borrowed is not increased thereby except to the extent necessary to finance the fees and costs of such refinancing; (g) Indebtedness for Money Borrowed all the net proceeds of which are used promptly (but in no event more than five Business Days) after the date of the incurrence of such Indebtedness for Money Borrowed to effect the prepayments as set forth in SECTIONS 3.4 AND 3.6 so long as (i) such Indebtedness for Money Borrowed is not secured by any Lien (other than Permitted Liens described in clause (h) of the definition of Permitted Liens), (ii) such Indebtedness has an average life which is at least equal to one year greater than the remaining average life of the Term Loan and (iii) such Indebtedness has a maturity which is at least one year after the latest date (taking into account the application of all previous prepayments) on which any regularly scheduled principal installment is at the time due to be paid on the Term Loan; (h) Indebtedness for Money Borrowed (i) in respect of tax-exempt financings or (ii) all of the net proceeds of which -62- are used to effect a prepayment or defeasance of any IRB identified on SCHEDULE 5.2.2 hereto (A) in the event that amendments to the Code are enacted which would require that the Borrower prepay or defease such IRB, (B) which is put to the Borrower pursuant to presently existing contractual arrangements identified on SCHEDULE 5.2.2 hereto and which the Borrower is not able to resell at a market interest rate without effecting a "reissuance" thereof for tax purposes, or (C) which is being refinanced on terms requiring repayment of such Indebtedness for Money Borrowed at times no earlier than and in amounts no greater (except to the extent necessary to finance the fees and costs of such refinancing) than required by the present amortization schedule for the IRB being refinanced and subject to covenants, defaults and other terms which are not materially more restrictive upon or disadvantageous to the obligor than the existing terms; (i) Indebtedness for Money Borrowed consisting of Financing Lease Obligations (including, without limitation, Indebtedness under the Florence Agreements); PROVIDED, HOWEVER, that the amount of such obligations incurred after the date hereof and payable prior to the Term Loan Maturity Date shall not exceed $100 million; (j) Indebtedness for Money Borrowed constituting guarantees by the Borrower or any Subsidiary permitted by SECTION 5.2.3; (k) Indebtedness for Money Borrowed of the Borrower or a Subsidiary of the Borrower, as the case may be, issued, incurred or assumed in respect of the purchase price of property which is not secured by any Lien other than a Lien referred to in clause (b) of the definition of Permitted Liens; PROVIDED, HOWEVER, that not more than $100 million in aggregate principal amount of such Indebtedness for Money Borrowed shall mature prior to the Term Loan Maturity Date; (l) Subordinated Debt; (m) Indebtedness for Money Borrowed consisting of an unsecured line of credit not exceeding at any time outstanding $50 million in aggregate principal amount by Stone-Canada or any Subsidiary of Stone-Canada (other than S-CC); (n) Indebtedness for Money Borrowed as defined in clause (vi) of the definition of such term contained in the Definitional Appendix; (o) Indebtedness for Money Borrowed incurred in respect of (i) foreign exchange, interest rate swap, interest rate cap insurance, hedging agreements or similar arrangements entered into in the ordinary course of business by the Borrower in -63- connection with the Obligations with a notional amount of such agreements not exceeding the aggregate principal amount of the Obligations, (ii) foreign exchange or currency swap agreements or similar arrangements entered into in the ordinary course of business by the Borrower or any Subsidiary to protect the Borrower or any Subsidiary against fluctuations in currency values and (iii) one or more unsecured interest rate swap or similar hedging arrangements entered into in the ordinary course of business by the Borrower pursuant to which the fixed interest rate payment obligations up to $500 million aggregate principal amount of Indebtedness for Money Borrowed at any time outstanding would be converted to floating interest rate payment obligations; (p) Indebtedness for Money Borrowed of the Borrower as permitted by the penultimate sentence of SECTION 5.2.13; and Indebtedness for Money Borrowed by StoneSub from the Issuer pursuant to Receivables Financings which in the aggregate shall not permit StoneSub to incur Indebtedness for Money Borrowed in excess of, subject to the third proviso of the penultimate sentence of SECTION 5.2.13, $500 million at any one time outstanding (and in the event that the Accounts Receivable Financing Program includes Canadian dollar Receivables of Subsidiaries organized under Canadian laws, without giving effect to increases in such amount after the date of the incurrence of such Indebtedness for Money Borrowed, or portion thereof, solely as the result of subsequent fluctuations in the exchange rate between U.S. and Canadian dollars); PROVIDED, HOWEVER, that if (i) the Borrower either (A) acquires any Subsidiaries not in existence as of the date hereof (other than through the formation of Subsidiaries in the ordinary course of business to conduct existing lines of business) or (B) enters into any lines of business in which it is not engaged as of the date hereof and (ii) the Borrower and/or StoneSub engages in a Receivables Financing or financing permitted by the penultimate sentence of SECTION 5.2.13, in each case with respect to the Receivables of the Subsidiary so acquired or the line of business so acquired (each such financing, solely to the extent relating to such new Subsidiary or new line of business, a "NEW RECEIVABLES FINANCING") then, in such event, the initial proceeds to the Borrower or StoneSub (as applicable) of such New Receivables Financing, net of the amount of any initial deposit to, the applicable cash collateral spread account and of the fees and expenses of the Borrower or StoneSub incurred in establishing such New Receivables Financing and net of any amounts required to refinance then existing New Receivables Financings, shall be used (following remittance to the Borrower or the Participating Subsidiary, as applicable, for the purchase of Receivables therefrom) to make a mandatory prepayment as required by SECTION 3.4(B) in the order required by SECTION -64- 3.6(B) and (ii) in the case of any New Receivables Financing structured as a borrowing by StoneSub (or deemed to be a borrowing pursuant to the terms hereof), StoneSub shall borrow (A) on the initial date of any New Receivables Financing, the maximum borrowings then available to it (based on the initial amount of Receivables transferred) under such New Receivables Financing (except that such initial maximum borrowings may be reduced by no more than $2 million for each New Receivables Financing for reasons of administrative practicality) and (B) after such initial date, in the reasonable business judgment of StoneSub, the maximum borrowings practicable under such New Receivables Financings which have been established and are continuing. For purposes of this Agreement, (i) in the event that the terms of any New Receivables Financing are amended to increase the potential borrowings or sales thereunder, the initial borrowing or sale by StoneSub under such amended program shall be deemed to constitute a borrowing or sale under an additional New Receivables Financing to the extent of such increase, PROVIDED that this clause (i) shall not apply in the event that the increase in the potential borrowings or sales under such New Receivables Financing is being made solely to finance additional purchases of Receivables from then existing business lines of Participating Subsidiaries whose Receivables with respect to such business line or lines have grown or are expected to grow as the result of price increases, greater sales or similar changes in general business lines, (ii) in the event that any sale or purported sale of Receivables to StoneSub by the Borrower or any Participating Subsidiary is required to be recharacterized as a loan, the resulting obligations of the Borrower or such Participating Subsidiary shall not be deemed to be Indebtedness for Money Borrowed and (iii) any Receivables Financing structured as a sale of Receivables by StoneSub to the Issuer shall, for all purposes of this Agreement, and regardless of the treatment thereof by the Borrower on its financial statements, be deemed to be an incurrence by StoneSub of Indebtedness for Money Borrowed in respect of the financing of the Receivables involved and not as a sale of such Receivables by StoneSub; (q) Indebtedness for Money Borrowed constituting refinancings of Indebtedness for Money Borrowed identified on SCHEDULE 4.6 hereto or in SECTION 5.2.2(v); PROVIDED, HOWEVER, that no such refinancing shall shorten the final maturity or average loan life of the refinanced Indebtedness, increase the collateral, if any, securing any such refinanced Indebtedness (provided that any collateral securing such refinanced Indebtedness may be substituted with other property or assets so long as the fair market value thereof does not exceed the fair market value of the collateral being substituted at the time of such substitution), be on terms which, taken as a whole, are materially more adverse to the obligor or modify in -65- any way adverse to the Lenders any subordination provisions applicable to such Indebtedness and, to the extent the refinanced Indebtedness is non-recourse to the Borrower and its other Subsidiaries and is not otherwise permitted to be recourse Indebtedness, such Indebtedness shall be non-recourse to the Borrower and its other Subsidiaries; (r) Indebtedness for Money Borrowed the net proceeds of which are used to pay annual premiums for property and casualty insurance policies maintained by the Borrower or its Subsidiaries and other prepaid amounts in respect of goods or services purchased by the Borrower or its Subsidiaries in the ordinary course of business, which Indebtedness at no time exceeds $40 million in aggregate outstanding principal amount, is unsecured (except for Liens described in clause (n) of the definition of Permitted Liens) and is incurred on terms and pursuant to documentation satisfactory to the Agent; (s) from and after the date on which the Borrower has repaid all outstanding Revolving Loan Obligations and Swing Line Obligations, has terminated the Swing Line Commitment and all Revolving Loan Commitments, and has caused the Florence Letters of Credit to be terminated, and there exists no L/C Obligations or Florence L/C Obligations, Indebtedness for Money Borrowed under a replacement revolving credit facility in an aggregate principal amount not to exceed $450 million, all of the proceeds of which (net of issuance costs) are used for general corporate purposes (including without limitation repayment of Revolving Loans and Swing Line Loans), PROVIDED that such Indebtedness for Money Borrowed shall be on terms not materially more adverse to the Borrower than those existing hereunder; (t) secured or unsecured Indebtedness for Money Borrowed in an aggregate principal amount not to exceed $200 million for general corporate purposes; PROVIDED, HOWEVER, that (i) the terms of such Indebtedness for Money Borrowed and the documentation relating thereto shall be reasonably satisfactory to the Required Lenders, (ii) to the extent such Indebtedness for Money Borrowed is secured, such Liens are permitted by clause (o) of the definition of Permitted Liens and the Indebtedness secured thereby shall not be less than 66% of the value of the collateral securing such Indebtedness as of the date which such Indebtedness is incurred, as such value is evidenced by appraisals or other information delivered to the Agent by the Borrower and reasonably acceptable to the Required Lenders, and (iii) in no event shall any Subsidiary incur Indebtedness pursuant to this subsection that is recourse to the Borrower or any other Subsidiary if such Indebtedness refinances Indebtedness that is non-recourse to the Borrower and its other Subsidiaries and -66- is not otherwise permitted to be recourse to the Borrower and its other Subsidiaries; (u) Indebtedness for Money Borrowed of S-CC and Subsidiaries of S-CC to the extent permitted by the S-CC Debt Documents. Any such Indebtedness for Money Borrowed shall be non-recourse to the Borrower or any of its other Subsidiaries (except S-CC and its Subsidiaries); and (v) Indebtedness for Money Borrowed incurred pursuant to the Senior Notes and the First Mortgage Notes. Any Indebtedness for Money Borrowed used in the calculation of any threshold amount specified in any clause of this SECTION 5.2.2 shall not be used to calculate the threshold amounts specified in another of such clauses. 5.2.3 GUARANTEES. Assume, guarantee or endorse, or otherwise become directly or contingently liable in respect of, any obligation of any Person, except, without duplication: (a) subject to SECTION 5.3.2, the Borrower may assume, guarantee or endorse, or otherwise become directly or contingently liable in respect of, any obligation of any Person, PROVIDED that notwithstanding the foregoing the Borrower shall not be permitted to assume, guarantee or otherwise take any of the foregoing actions with respect to any Indebtedness for Money Borrowed incurred by S-CC, Seminole Kraft, StoneSub, SVCPI or any Subsidiary of any of such entities except as set forth on SCHEDULE 5.2.3 hereto; (b) by way of endorsement of negotiable instruments for deposit or collection and similar transactions; (c) guarantees identified on SCHEDULE 5.2.3 hereto; (d) guarantees by any Subsidiary of the Borrower of Indebtedness for Money Borrowed constituting Financing Lease Obligations of any of its Subsidiaries (other than S-CC, Seminole Kraft, SVCPI, or any of their respective Subsidiaries) permitted by SECTION 5.2.2; (e) guarantees by a Subsidiary of the Borrower (other than Seminole Kraft, S-CC or any of their Subsidiaries) in the ordinary course of business of such Subsidiary of Indebtedness of any Person not exceeding in principal amount $75 million in the aggregate for the Subsidiaries of the Borrower taken as a whole (excluding Seminole Kraft, S-CC and any of their Subsidiaries) at any time outstanding; (f) as contemplated by Section 10.01 of the Leveraged Lease; -67- (g) guarantees by a Subsidiary of the Borrower in effect at the time of its becoming a Subsidiary of the Borrower and not created in contemplation thereof; and (h) to the extent not otherwise permitted by this Section, guarantees by and other contingent liabilities of S-CC and Subsidiaries of S-CC to the extent permitted by the S-CC Debt Documents. 5.2.4 AFFILIATE TRANSACTIONS. Enter into or engage in any material transaction or contract (other than (i) agreements existing on the date hereof and identified on SCHEDULE 5.2.4 hereto, (ii) transactions or contracts with affiliates permitted by SECTION 5.2.3, 5.2.7, 5.2.8 or 5.2.9 and (iii) agreements between S-CC and any of its Subsidiaries or between Subsidiaries of S-CC) with any Affiliate other than Wholly-Owned Subsidiaries of the Borrower (except for the Restricted Subsidiaries of the Borrower), on a basis less favorable to the Borrower or such Subsidiary of the Borrower than those that could be obtained at the time in a comparable good faith arms length transaction with an unrelated third party. Except as specified on SCHEDULE 5.2.4 or as otherwise specifically permitted under this Agreement, the Borrower shall not permit any contract identified on SCHEDULE 5.2.4 to be directly or indirectly amended or extended without the prior consent of the Required Lenders; PROVIDED, HOWEVER, that any such contract may be amended without the prior consent of the Required Lenders if the applicable amendment is not materially adverse to the Borrower or its applicable Subsidiary and if a copy of the amendment is delivered to the Agent within five Business Days after its execution. 5.2.5 DIVIDENDS. Declare or pay any dividend or distribution, or purchase or redeem any shares of any class of capital stock of the Borrower or any Subsidiary of the Borrower, or make any other payment or distribution on or in respect of any class of capital stock of the Borrower or any of its Subsidiaries, or set aside any amounts for any such purposes, except that: (a) any Subsidiary may pay dividends or make distributions (including, without limitation, distributions in the form of the redemption or purchase for cancellation of shares or in connection with the reduction of capital) to the Borrower or to any Wholly-Owned Subsidiary of the Borrower; (b) the Borrower may pay cash dividends, make distributions on its capital stock or make purchases or redemptions of its capital stock to the extent that the aggregate amount of all such dividends, distributions, purchases and redemptions from October 1, 1994 to the date of the proposed dividend, distribution, purchase or redemption (after giving effect to such proposed dividend, distribution, -68- purchase or redemption) would not exceed the sum of (A) an amount equal to (1) 75% of the Consolidated Net Income of the Borrower for the period from October 1, 1994 to the date of payment of such proposed dividend, distribution, purchase or redemption MINUS (2) 100% of the Consolidated Net Loss of the Borrower for the period from October 1, 1994 to the date of payment of such proposed dividend, distribution, purchase or redemption PLUS (B) 100% of the cash proceeds (net of the pro rata fees, costs and expenses of sale and underwriting discounts and commissions) of sales of common stock and Permitted Preferred Stock of the Borrower from the Closing Date to the date of payment of such proposed dividend, distribution, purchase or redemption MINUS (C) the sum of the amount of Investments made pursuant to SECTION 5.2.7(g), and Capital Expenditures made pursuant to subsection (ii) of the penultimate sentence of SECTION 5.2.11; PROVIDED, HOWEVER, that without respect to the foregoing limitations, the Borrower shall be permitted to pay cash dividends and to make distributions with respect to its Permitted Preferred Stock outstanding as of the date hereof (but not with respect to its common stock or subsequently issued preferred stock) to the extent such dividends or distributions are at the time permitted by the terms of the Borrower's Indenture to the Bank of New York, as trustee, dated as of March 15, 1992; and PROVIDED FURTHER, that if all of the conditions to the declaration of a dividend or distribution set out in this subsection are satisfied at the time such dividend or distribution is declared, then, subject to the proviso which follows SECTION 5.2.5(h), such dividend or distribution may be paid or made within forty-five (45) days after such declaration even if the payment of such dividend, the making of such distribution or the declaration thereof would not have been permitted under this SECTION 5.2.5(b) at any time after such declaration; and PROVIDED FURTHER, that solely for purposes of computing Consolidated Net Income and Consolidated Net Loss pursuant to clause (A) of this SECTION 5.2.5(b), there shall be excluded from the computation thereof fees and other charges or write-offs incurred or accrued (including, without limitation, the write-off of previously unamortized debt issuance costs related to the Debt Refinancing) in respect of Indebtedness incurred or repaid in connection with the consummation of this Agreement, the Related Transactions and the Stone Savannah Transactions; (c) the Borrower may distribute shares of its common stock to holders of the same or another class of its common stock as a stock dividend or in connection with a stock split; (d) the Borrower may distribute rights to purchase for cash Permitted Preferred Stock or common stock to the holders of its capital stock; -69- (e) the Borrower may exchange shares of its common stock or Permitted Preferred Stock for any outstanding shares of its capital stock other than preferred stock which is not Permitted Preferred Stock; (f) the Borrower may acquire the capital stock of Stone Savannah as contemplated by SECTION 5.1.13; (g) the Borrower or any Subsidiary of the Borrower may make any Investment permitted by SECTION 5.2.7; and (h) S-CC and its Subsidiaries may pay dividends on their respective capital stock to the extent not prohibited by the terms of the S-CC Debt Documents; PROVIDED, HOWEVER, that in the case of clause (b) above no Event of Default or Unmatured Event of Default (except in the case of regular quarterly dividends on the Borrower's common stock, and/or Permitted Preferred Stock which do not exceed the amount of the regular quarterly dividend paid by the Borrower on its common stock and/or Permitted Preferred Stock for the calendar quarter ending prior to such proposed dividend, in which case an Unmatured Event of Default relating to a payment default only) shall have occurred and be continuing before or after giving effect to any such proposed dividend. 5.2.6 NEGATIVE DEBT COVENANTS. Except for (i) instruments evidencing Indebtedness for Money Borrowed set out in SCHEDULE 4.6 hereto, (ii) instruments set out in SCHEDULE 3.4, 4.3, 5.2.2 or 5.2.4 hereto, in either case as in effect on the date hereof, (iii) agreements to which Seminole Kraft is a party as permitted by SECTION 5.2.2(m), (iv) agreements to which StoneSub is or becomes a party pursuant to the Accounts Receivable Financing Program, (v) the S-CC Debt Documents and other agreements to which S-CC or any Subsidiary of S-CC is a party or (vi) in the case of any Person becoming a Subsidiary after the date hereof, agreements in existence at the time it becomes a Subsidiary to the extent they were not entered into in anticipation of such Person becoming a Subsidiary, directly or indirectly, voluntarily create or otherwise voluntarily cause or suffer to exist or become effective any encumbrance or restriction (other than encumbrances or restrictions existing on the date hereof and referenced on SCHEDULE 3.4 and any encumbrances or restrictions contained in any Indebtedness which refinances any Indebtedness referenced on SCHEDULE 3.4 provided that the terms thereof are no more onerous to the Borrower or any Subsidiary than those existing on the date hereof) on the ability of any Subsidiary of the Borrower to: (A) pay dividends or make any other distributions on its capital stock; (B) make loans or advances to the Borrower; or (C) repay loans or advances from the Borrower. In addition, the Borrower shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, voluntarily create or otherwise voluntarily cause or suffer to exist or become -70- effective any encumbrance or restriction upon its ability to encumber any of its property to secure the Obligations or any Subsidiary Guarantee or to guaranty the Obligations and encumber its property to secure such guaranty except for (1) encumbrances or restrictions set forth on SCHEDULE 5.2.6 hereto, (2) encumbrances or restrictions upon StoneSub created in connection with the Accounts Receivable Financing Program, (3) in the case of any Person becoming a Subsidiary after the date hereof, encumbrances or restrictions existing at the time it becomes a Subsidiary to the extent they were not created in anticipation of such Person becoming a Subsidiary, (4) Permitted Liens or (5) encumbrances or restrictions on S-CC or Subsidiaries of S-CC to the extent not prohibited by the S-CC Debt Documents. 5.2.7 INVESTMENTS. Have or make any Investment in any Subsidiary or other Affiliate or any other Person except for: (a) existing Investments and commitments to make Investments set forth on SCHEDULE 5.2.7 hereto and existing Investments and Investments to be made in the future pursuant to the existing commitments or contracts of the Borrower and its Subsidiaries set forth on SCHEDULE 5.2.7-A hereto, but in no event in excess of the amounts specified on such SCHEDULE 5.2.7-A; (b) Permitted Investments; (c) Investments in Wholly-Owned Subsidiaries of the Borrower other than Investments in StoneSub, S-CC or any of S-CC's Subsidiaries (except as specifically permitted by clause (j) of this Section) and other than additional Investments in Seminole Kraft or SVCPI made after the date, if any, on which such Person has become a Wholly-Owned Subsidiary of the Borrower; (d) in Fiscal Year 1994 and each Fiscal Year thereafter, Investments in an amount equal to 15% of Capital Expenditures permitted in such year by SECTION 5.2.11 (excluding Capital Expenditures permitted by the last sentence thereof but including Capital Expenditure amounts carried over from year to year so long as the Borrower had positive Consolidated Net Income in the Fiscal Year in which such carryover amount originates); PROVIDED, HOWEVER, that the amount of such Investments shall be reduced by the amount of any Investments made by the Borrower or its Subsidiaries during Fiscal Year 1994 and thereafter and identified on SCHEDULE 5.2.7-A (other than the Belgium Cartomills Investment) and shall also be reduced by the amount of any Acquisitions pursuant to SECTION 5.2.9(E)(I). (e) Investments by the Borrower in Persons as permitted by SECTION 5.2.9; -71- (f) loans or advances of a type included in the definition of Investments and made by the Borrower or any Subsidiary of the Borrower in the ordinary course of the Borrower's or such Subsidiary's business; (g) Investments (including Investments in S-CC, Seminole Kraft and SVCPI) in amounts not exceeding the amount of the Dividend Basket immediately prior to the making of such Investment; (h) Investments in StoneSub not in excess (together with outstanding Indebtedness for Money Borrowed under SECTION 5.2.2(d)(ii)) of (i) the amounts contemplated from time to time by the terms of the respective Receivables Financings and (ii) those amounts, up to an aggregate at any one time outstanding, of $5 million for each $100 million (on a pro-rated basis) of Receivables Financings which have been established and are in existence at such time, which may be advanced to StoneSub in order to cure or remedy, or otherwise avoid the commencement of, liquidation, termination or similar events in connection with the Receivables Financings; (i) Investments made by the Borrower or any Subsidiary of the Borrower in respect of debt or equity securities to the extent received in a transaction permitted by SECTION 5.2.8(b) or 5.2.12; (j) Investments by S-CC in its Subsidiaries and other Investments by S-CC and its Subsidiaries to the extent not prohibited by the S-CC Debt Documents; (k) Investments by Europa Carton, A.G. out of the proceeds of Indebtedness incurred by Europa Carton, A.G. pursuant to SECTION 5.2.2(C); (l) additional Investments (other than Investments in Seminole Kraft, S-CC, SVCPI or any of their respective Subsidiaries) out of Discretionary Funds (other than any Discretionary Funds resulting from any Debt Basket Proceeds) in an amount not to exceed the Discretionary Funds Basket made at a time when no Event of Default or Unmatured Event of Default shall have occurred and be continuing; (m) Investments in Stone Savannah on the Closing Date as contemplated by SECTIONS 5.1.13 AND 6.1(l); (n) Investments consisting of securities or notes received in settlement of accounts receivable incurred in the ordinary course of business from a customer which the Borrower has reasonably determined is unable to make cash payments in accordance with the terms of such account receivable; and -72- (o) additional Investments in amounts and pursuant to the terms and conditions set forth on SCHEDULE 1.1(b) hereto. Except as specifically provided in the foregoing clauses (d) (with respect to SVCPI only), (g) and (j) neither the Borrower nor any Subsidiary shall be permitted to make additional Investments in Seminole Kraft, S-CC, SVCPI or any of their respective Subsidiaries (other than pursuant to contractual agreements permitted by this Agreement and as in effect on the date hereof and set forth on SCHEDULE 5.2.7-a). 5.2.8 MERGERS. Merge into or consolidate or amalgamate with any Person except that: (a) any Wholly-Owned Subsidiary of the Borrower (except for StoneSub and any Restricted Subsidiary) may merge, consolidate or amalgamate with or into the Borrower or another Wholly-Owned Subsidiary of the Borrower (except for StoneSub and any Restricted Subsidiary) and any corporation that is a StoneSub may merge or consolidate with any other corporation that is a StoneSub; PROVIDED, HOWEVER, that Seminole Kraft may merge or consolidate with or into the Borrower only if Seminole Kraft has no Indebtedness for Money Borrowed outstanding at the time of such merger or consolidation except for any Indebtedness for Money Borrowed the terms and conditions of which have been approved by the Required Lenders and PROVIDED FURTHER, that StoneSub may merge with and into the Borrower in order to consummate a refinancing of the Receivables Financings existing on the date hereof so long as (i) the Borrower immediately contributes and transfers all or a substantial portion of the assets of StoneSub into a newly formed StoneSub in connection with such refinancing and (ii) all Indebtedness of the StoneSub which has been merged with and into the Borrower is immediately repaid in full with the proceeds of such refinancing; (b) any Subsidiary of the Borrower may merge with a third party in a transaction for which the Borrower or one of its Wholly-Owned Subsidiaries receives less than $50 million in aggregate consideration or in a transaction in which the Borrower or one of its Wholly-Owned Subsidiaries receives $50 million or more in aggregate consideration and receives (i) at least 70% of such consideration for such merger in cash or cash equivalents and readily marketable securities, (ii) non-cash consideration for such merger consisting of debt obligations of the purchaser and (iii) if any consideration to be received consists of a note or other debt obligation, such note or debt obligation shall be either (A) a note which is not by its terms or the terms of any related instrument subordinate to any other indebtedness or (B) a note or debt obligation secured by a first priority security interest in the assets of the Subsidiary of the Borrower so merged subject -73- only to the Permitted Liens described in subsections (c) and (f) of the definition of Permitted Liens; (c) any Wholly-Owned Subsidiary of the Borrower may merge with a third party in a transaction in which the only consideration paid by the Borrower or such Subsidiary of the Borrower is common stock of the Borrower or Permitted Preferred Stock; (d) a Wholly-Owned Subsidiary may be liquidated and its assets distributed to one or more Wholly-Owned Subsidiaries and/or the Borrower; (e) the Borrower may merge or consolidate with any Person (except for StoneSub, SVCPI and any Restricted Subsidiaries and Wholly-Owned Subsidiaries that borrow independently on a non-recourse basis) so long as (i) the Borrower is the surviving entity, (ii) the Consolidated Tangible Net Worth of the Borrower immediately following such merger or consolidation is greater than or equal to the Consolidated Tangible Net Worth of the Borrower immediately prior to such merger or consolidation and (iii) at the time of such merger or consolidation and immediately thereafter no Event of Default or Unmatured Event of Default shall have occurred and be continuing; and (f) any Wholly-Owned Subsidiary of S-CC may merge with S-CC or with any other Wholly-Owned Subsidiary of S-CC to the extent not prohibited by the S-CC Debt Documents. The Borrower shall cause any equity interest or other non-cash consideration received by the Borrower or any of its Subsidiaries in consideration of any transaction permitted by this Section and involving aggregate consideration of $50 million or more to be pledged by the Borrower or such Subsidiary, as applicable, to the Agent for the benefit of the Lenders pursuant to a Supplemental Pledge Agreement. For purposes of this Section, the use of the terms "merge" and "merger" shall be deemed to include, in the case of Canadian Subsidiaries of the Borrower, the terms "amalgamate" and "amalgamation," respectively. 5.2.9 PURCHASE OF STOCK OR ASSETS. Acquire any assets, capital stock or debt securities of any Person (an "ACQUISITION") except that: (a) the Borrower and its Subsidiaries may acquire assets other than capital stock in the ordinary course of business; (b) the Borrower or any Subsidiary of the Borrower may purchase assets or capital stock of a Person for a consideration consisting in whole of common stock or Permitted Preferred Stock of the Borrower so long as no Event of Default -74- or Unmatured Event of Default shall have occurred and be continuing after giving effect to such Investment; (c) the Borrower or any Subsidiary of the Borrower may make any Investment permitted by SECTION 5.2.7 hereof; (d) the Borrower may purchase the Facility pursuant to Section 10.01, 10.04 or 19.09 of the Leveraged Lease; (e) the Borrower or any Subsidiary of the Borrower may make Acquisitions for cash consideration or property, provided that the aggregate cash consideration or property paid by the Borrower and its Subsidiaries for such Acquisition shall not exceed (i) the maximum amount of Investments then permitted pursuant to SECTION 5.2.7(d) PLUS (ii) after such maximum amount has been reduced to zero, and so long as no Event of Default or Unmatured Event of Default shall have occurred and be continuing, an amount of Discretionary Funds (other than any Discretionary Funds resulting from any Debt Basket Proceeds) not exceeding the Discretionary Funds Basket; (f) the Borrower or any Subsidiary may make Acquisitions for cash consideration or property PROVIDED that the cash consideration or property paid by the Borrower and its Subsidiaries for any Acquisition shall not exceed the amount of the Dividend Basket immediately prior to the making of such Acquisition; (g) Capital Expenditures permitted by SECTION 5.2.11 hereof and expenditures of the type described in subsections (i)-(v) of the definition of Capital Expenditures may be made; (h) Seminole Kraft may acquire shares of its common stock pursuant to put, call and option agreements pursuant to the Securities Purchase Agreement dated as of October 31, 1986 among Seminole Kraft, the Borrower and certain Purchasers named therein; (i) the Borrower or any Subsidiary of the Borrower may acquire assets in connection with the asset exchanges permitted by the proviso to the first sentence of SECTION 5.2.12; (j) the Borrower or any Subsidiary of the Borrower may acquire capital stock or debt securities to the extent permitted by SECTION 5.2.10; (k) StoneSub may purchase or otherwise acquire an interest in Receivables (with cash or by means of the issuance of Indebtedness for Money Borrowed permitted by SECTION 5.2.2(d)(II)) pursuant to the Accounts Receivable Financing Program; and -75- (l) S-CC may make Acquisitions to the extent not prohibited by the S-CC Debt Documents. Any acquisition or purchase counted for purposes of any of SECTIONS 5.2.9(A)-(L) shall not be counted for the purposes of any other such subsection. 5.2.10 PREPAYMENT OF INDEBTEDNESS; CERTAIN AMENDMENTS. (a) Make any voluntary purchase or prepayment of or defease any Indebtedness for Money Borrowed or purchase, voluntarily redeem or otherwise voluntarily acquire any preferred or preference stock of the Borrower or any of its Subsidiaries, except (i) the Obligations (to the extent otherwise permitted hereby); (ii) a prepayment or defeasance of the IRBs as permitted in SECTION 5.2.2(h); (iii) the redemption, purchase, defeasance or voluntary prepayments of any Indebtedness of the Borrower arising under or in connection with the Florence Agreements; (iv) repayment of the unsecured lines of credit permitted by SECTION 5.2.2(m) or of intercompany loans or advances permitted by SECTION 5.2.2(d); (v) the redemption or purchase of preferred or preference stock of Stone-Canada or any of its Wholly-Owned Subsidiaries; (vi) refinancings permitted by SECTION 5.2.2; (vii) a purchase or acquisition permitted under SECTION 5.2.7; (viii) S-CC or any Subsidiary of S-CC may voluntarily purchase, prepay or defease any of its Indebtedness for Money Borrowed; (ix) so long as no Event of Default or Unmatured Event of Default shall have occurred and be continuing, the prepayment of any maturity or maturities of debt securities of the Borrower (including the payment of principal, stated premium, if any, and interest thereon) out of Discretionary Funds in an amount not to exceed the Discretionary Funds Basket; (x) the Debt Refinancing and the Stone Savannah Transactions, all of which shall occur on the Closing Date, except as otherwise provided in SECTION 5.1.13, as a Related Transaction pursuant to the Transaction Documents; (xi) transactions permitted by SECTION 5.2.10(b); and (xii) prepayments of Indebtedness for Money Borrowed utilizing the proceeds of Indebtedness permitted by SECTION 5.2.2(t); (b) Amend, modify, cancel or issue any securities (except for debt securities which are otherwise permitted by SECTION 5.2.2) in exchange for any Indebtedness for Money Borrowed or any preferred or preference stock of the Borrower or any of its Subsidiaries, except (i) that the Borrower may issue its common stock or Permitted Preferred Stock in exchange for Indebtedness for Money Borrowed; (ii) that Stone-Canada or any of its Wholly-Owned Subsidiaries may issue common, preferred or preference stock to any other Wholly-Owned Subsidiary in exchange for inter-company debt; (iii) that Stone-Canada may issue common and/or preferred shares of capital stock to the -76- Borrower in exchange for intercompany debt of Stone-Canada to the Borrower or in exchange for preferred shares of capital stock of Stone-Canada held by the Borrower; and (iv) with respect to S-CC or any of its Subsidiaries, to the extent not prohibited by the S-CC Debt Documents; or (c) Materially amend, modify or grant any material waiver (for purposes hereof any amendment, modification or waiver with respect to subordination provisions, increasing the principal amount, increasing the interest rate or shortening maturity shall be deemed material) with respect to any indenture (including, without limitation, the Senior Subordinated Indenture), note or other instrument (including, without limitation, the Continental Guaranty) evidencing or creating such Indebtedness for Money Borrowed or preferred stock of the Borrower or any Subsidiary (other than Permitted Preferred Stock which remains Permitted Preferred Stock after giving effect to any such amendment, modification or waiver) or pursuant to which any such Indebtedness for Money Borrowed or preferred stock was issued, PROVIDED that this clause (c) shall not apply to agreements for Indebtedness for Money Borrowed of Seminole Kraft, S-CC or any Subsidiary of S-CC which Indebtedness is nonrecourse to the Borrower or any other Subsidiary of the Borrower (other than Seminole Kraft or S-CC or any Subsidiary of S-CC, as the case may be). 5.2.11 CAPITAL EXPENDITURES. Expend or incur any Capital Expenditure in any Fiscal Year if the aggregate amount of the Capital Expenditures expended or incurred by the Borrower and its Subsidiaries (exclusive of Seminole Kraft, S-CC and Subsidiaries of S-CC) in such Fiscal Year would exceed the following amounts, as such amounts may be increased in any Fiscal Year pursuant to the terms and conditions set forth on SCHEDULE 1.1(b): FISCAL YEAR AMOUNT 1994 $225 million 1995 $225 million 1996 and each Fiscal $275 million Year thereafter Each of the foregoing amounts established for Fiscal Years commencing with and including 1994 may be carried forward from one year to the next to the extent not used for Capital Expenditures (or for Investments pursuant to SECTION 5.2.7(d)) during any prior Fiscal Year. Capital Expenditures permitted above (i) shall be reduced for any Fiscal year by the amount of Investments made during such Fiscal Year pursuant to SECTION 5.2.7(d) and by the amount of expenditures made during such Fiscal Year pursuant to -77- SECTION 5.2.9(E), (ii) at the option of the Borrower, may be increased at any time or from time to time by an amount not exceeding the amount of the Dividend Basket immediately prior to the making of such Capital Expenditure, and (iii) at the option of the Borrower, so long as no Event of Default or Unmatured Event of Default shall have occurred and be continuing, may be increased at any time or from time to time by an amount of Discretionary Funds (other than any Discretionary Funds resulting from any Debt Basket Proceeds) not exceeding the Discretionary Funds Basket. Notwithstanding the foregoing limitations on Capital Expenditures in this SECTION 5.2.11, the Borrower and its Subsidiaries may make Cluster Expenditures. 5.2.12 SALE OF ASSETS. Sell, lease, assign, transfer or otherwise dispose of any Asset (other than cash or Permitted Investments) or related group of Assets, including shares of capital stock, to a Person which is not the Borrower or a Wholly-Owned Subsidiary of the Borrower (other than a Restricted Subsidiary) except sales or other dispositions of inventory in the ordinary course of business for cash or represented by accounts receivable, unless the transaction (i) is a disposition permitted by SECTION 5.2.13, (ii) is a disposition of Collateral or Mortgaged Property and is for consideration consisting solely of cash, cash equivalents or readily marketable securities, (iii) is a disposition not involving Collateral or Mortgaged Property and is for aggregate consideration of not more than $50 million or (iv) is a disposition not involving Collateral or Mortgaged Property and is for aggregate consideration in excess of $50 million, of which at least 70% consists of cash or cash equivalents and readily marketable securities and any non-cash consideration consists of debt obligations of the purchaser which are either in the form of (A) a note which is not by its terms or the terms of any related instrument subordinate to any other indebtedness or (B) a note or debt obligation secured by a first priority security interest in the assets of the purchaser purchased in such transaction subject only to the Permitted Liens described in subsections (c) and (f) of the definition of Permitted Liens; PROVIDED, HOWEVER, that mills and plant facilities and leasehold interests therein not constituting Collateral or Mortgaged Property may be exchanged for like-kind assets on an arms-length basis; PROVIDED FURTHER, that S-CC and any Subsidiary of S-CC may sell, lease, assign, transfer or otherwise dispose of assets to the extent not prohibited by, and in accordance with the requirements of, the S-CC Debt Documents; PROVIDED FURTHER, that in no event may the Borrower sell, lease, assign or otherwise transfer any Collateral or Mortgaged Property to any Subsidiary unless Substitute Collateral is provided in accordance with SECTION 9.13(C), except (x) to the extent provided in the Security Agreements and Mortgages and (y) that the Borrower may transfer Collateral or Mortgaged Property not exceeding $10 million in aggregate fair market value to one or more Subsidiaries so long as each such Subsidiary takes such transferred property subject to the Liens under the applicable Loan Documents. The -78- Borrower shall cause any equity interest or other non-cash consideration received by the Borrower or any of its Subsidiaries in consideration of any transaction permitted by this Section and involving aggregate consideration of $50 million or more to be pledged by the recipient thereof to the Agent for the benefit of the Lenders pursuant to a Supplemental Pledge Agreement; PROVIDED, HOWEVER, that such requirement shall not apply if (i) the Assets disposed of are subject to a Lien and such equity interest or other non-cash consideration is required to be and is pledged or paid over to the holder of such Lien or (ii) such consideration constitutes Excluded Sale Proceeds. 5.2.13 SALE OF ACCOUNTS RECEIVABLE. Sell or otherwise dispose of any account receivable, including any sale or transfer to any Subsidiary of the Borrower, except that (a) any Subsidiary of the Borrower may sell or transfer any of its accounts receivable to the Borrower, (b) the Borrower or any Subsidiary of the Borrower may sell its accounts receivable in the ordinary course of business consistent with the Borrower's or such Subsidiaries' collection practices as in effect from time to time and not as part of a financing and (c) the Borrower or any Participating Subsidiary may sell or otherwise grant an interest in its Receivables to StoneSub, and StoneSub may sell or otherwise grant an interest in its Receivables to other Persons, in each case pursuant to the Accounts Receivable Financing Program. In addition to the foregoing, the Borrower or any Subsidiary eligible to be a Participating Subsidiary may directly sell interests in Receivables to a financial institution or other Person (whether on a revolving purchase basis or in a one-time transaction); PROVIDED, HOWEVER, that all such sales shall be on terms (considered as a whole) not materially more onerous to the Borrower and the Lenders than those permitted for sales by StoneSub to the Issuer under the Receivables Financings in existence on the date hereof; and PROVIDED FURTHER, that any such sales of receivables shall, for all other purposes of this Agreement, and regardless of the treatment thereof by the Borrower on its financial statements, be deemed to be an incurrence by the Borrower of Indebtedness for Money Borrowed in respect of the financing of the receivables involved and not as a sale of such receivables; and PROVIDED FURTHER, that the aggregate of the Indebtedness for Money Borrowed deemed to have been incurred and at any time outstanding pursuant to this sentence shall reduce on a dollar-for-dollar basis the aggregate principal amount of Indebtedness for Money Borrowed which StoneSub is permitted to have outstanding at any time under SECTION 5.2.2(p) pursuant to Receivables Financings. Notwithstanding anything in this Section to the contrary, S-CC and its Subsidiaries shall be permitted to dispose of any account receivable to the extent not prohibited by the S-CC Debt Documents. 5.2.14 SUBSIDIARIES. (a) Other than non-Wholly-Owned Subsidiaries in existence on the date hereof, Seminole Kraft, S-CC and Subsidiaries of S-CC, permit to exist Subsidiaries which are -79- not Wholly-Owned Subsidiaries; or (b) permit any Subsidiary which was a Wholly-Owned Subsidiary on the date hereof to cease to be a Wholly-Owned Subsidiary, except in either case as otherwise permitted by SECTIONS 5.2.8, or 5.2.12, as a result of honoring the existing contractual commitments referenced on SCHEDULE 5.2.7-a or, in the case of clause (b), as a result of a transaction otherwise permitted hereby whereby such entity ceases to be a Subsidiary. 5.2.15 LEASE PAYMENTS. Except for lease payments arising in connection with the Leveraged Lease or any Financing Lease, incur, assume or suffer to exist or permit any of its Subsidiaries to incur, assume or suffer to exist, any obligation for rental payments as lessee, whether directly or as guarantor, if after giving effect thereto, the aggregate amount of lease payments required to be made by the Borrower and its Subsidiaries (other than Seminole Kraft, S-CC and Subsidiaries of S-CC) will exceed $150 million during any calendar year, PROVIDED, HOWEVER, that S-CC and its Subsidiaries may incur, assume or suffer to exist any obligations for rental payments, as lessee, whether directly or as guarantor, to the extent not prohibited by the S-CC Debt Documents. 5.2.16 ACCOUNTS RECEIVABLE FINANCING PROGRAM. Enter into any initial documentation in connection with a Receivables Financing or any sales of receivables permitted by the penultimate sentence of SECTION 5.2.13 unless such documentation (i) has been approved by the Required Lenders or is on terms and conditions which, taken as a whole, are not materially more adverse to the Borrower and the Lenders than the documentation in existence on the date hereof with respect to existing Receivables Financings or (ii) is non-material documentation entered into pursuant to such approved documentation or amend or modify in any material respect any of such documentation unless such amendment or modification has been so approved or otherwise satisfies the conditions of clause (i) above. Section 5.3 FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees that for so long as this Agreement is in effect and until the Obligations and all other obligations incurred hereunder whether or not matured, are paid in full, the Borrower will, unless first having procured the written consent of the Required Lenders: 5.3.1 INTEREST COVERAGE RATIO. As of the end of each Fiscal Quarter, calculated for the most recently completed four Fiscal Quarters (but if four fiscal quarters have not been completed since the date hereof, then for the number of Fiscal Quarters that have been completed since the date hereof), maintain an Interest Coverage Ratio for such period ending on a date set forth below of not less than the amount set forth opposite such date: DATE RATIO -80- December 31, 1994 1.00 to 1 March 31, 1995 1.15 to 1 June 30, 1995 1.25 to 1 September 30, 1995 1.35 to 1 December 31, 1995 1.50 to 1 March 31, 1996 1.65 to 1 June 30, 1996 1.75 to 1 September 30, 1996 1.85 to 1 December 31, 1996 2.00 to 1 March 31, 1997 2.00 to 1 June 30, 1997 2.00 to 1 September 30, 1997 2.25 to 1 and thereafter 5.3.2 INDEBTEDNESS RATIO. Have an Indebtedness Ratio of not more than the following amounts as of the end of each Fiscal Quarter ending on a date set forth below: DATE RATIO December 31, 1994 through March 31, 1996 .85 to 1 June 30, 1996 through September 30, 1996 .80 to 1 December 31, 1996 through September 30, 1997 .77 to 1 December 31, 1997 through September 30, 1998 .72 to 1 December 31, 1998 through September 30, 1999 .67 to 1 December 31, 1999 and thereafter .62 to 1 ARTICLE VI CONDITIONS OF CREDIT Section 6.1 CONDITIONS PRECEDENT TO THE INITIAL BORROWING. The right of the Borrower to make the Initial Borrowing and the obligation of the Lenders to make the Initial Loans under this Agreement shall be subject to the fulfillment, at or prior to the time of the making of such Initial Loans, of each of the following conditions: (a) The Borrower shall have duly executed and delivered to the Agent, with a signed counterpart for each Lender, this Agreement and, subject to SECTION 5.1.17, all of the other Loan Documents, all of which shall be in full force and effect. -81- (b) All of the other Basic Agreements shall have been duly executed and delivered in form and substance satisfactory to the Agent and shall be in full force and effect. (c) No Event of Default or Unmatured Event of Default shall have occurred and be continuing or will occur after giving effect to the making of the Initial Loans and the consummation of the transactions contemplated by the Basic Agreements. (d) The Mergers shall have been consummated in compliance with the Merger Documents and with all applicable laws. The Agent shall have received duly executed copies of the Merger documents as filed with the Secretary of the State of Delaware. (e) The Agent shall have received proof that the applicable Loan Documents and appropriate financing statements and other documents required by the applicable Loan Documents have been filed and/or recorded in such jurisdictions as the Agent shall have specified or arrangements for such filing or recording satisfactory to the Agent have been made; PROVIDED, HOWEVER, that with respect to the recordations of the Mortgages in the real estate records of any jurisdictions, proof of recordation shall not be required if the Agent receives the title insurance or binders to assure the same in accordance with this SECTION 6.1. (f) The Agent shall have received copies of searches of financing statements filed under the Uniform Commercial Code, lien and judgment searches and title searches, as appropriate, with respect to the Collateral and the Mortgaged Property which searches are reasonably satisfactory to the Agent. (g) Subject to SECTION 5.1.17, the Agent shall have received binding policies of mortgagee's title insurance (with such co-insurance and/or reinsurance arrangements as are satisfactory to the Agent and with such special endorsements as the Agent shall require, all in form reasonably satisfactory to the Agent), together with such surveys as the Agent shall require, on each parcel of the Mortgaged Property specified by the Agent pursuant to policies on the applicable ALTA form which will insure that the mortgagees thereunder will have a valid first mortgage lien (subject to Permitted Liens) in the amounts specified on SCHEDULE 6.1(g) hereto, subject to such exceptions as are provided for in the Mortgages. (h) The Agent shall have received the signed opinion of Sidley & Austin, counsel to the Borrower and its Subsidiaries, dated the Closing Date and addressed to the Agent, the Co-Agents and all of the Lenders in substantially the form set forth on EXHIBIT 6.1(h) hereto, with such changes (if any) therein as shall be acceptable to the Agent and as to such other matters as the Agent may reasonably request, and the Agent shall have received the signed opinions addressed to all of the Lenders of such local -82- counsel reasonably satisfactory to the Agent as the Agent may reasonably request. (i) The Agent shall have received a copy of all resolutions (in form and substance reasonably satisfactory to the Agent) adopted by the Board of Directors of each of the Borrower and those Subsidiaries (including, without limitation, each of the Merged Subsidiaries) as reasonably deemed necessary by the Agent, authorizing or relating to (i) the execution, delivery and performance of the Basic Agreements and the other documents and instruments provided for therein, (ii) the consummation of the Mergers, and (iii) the consummation of the transactions contemplated hereby and thereby, (iv) the granting and confirmation of the liens, pledges, mortgages and security interests pursuant to the Security Agreements, and the Mortgages by the Borrower and its applicable Subsidiaries, together with by-laws of the Borrower and such Subsidiaries, all certified by the Secretary or a Vice-President of the Borrower and such Subsidiary. Such certificate shall be dated the Closing Date and shall state that the resolutions set forth therein have not been amended, modified, revoked or rescinded as of such date and are at such date in full force and effect. (j) The Agent shall have received certified copies of the charters of each of the Borrower and those Subsidiaries as reasonably deemed necessary by the Agent in their respective jurisdictions of incorporation and evidence of their good standing therein. (k) The Agent shall have received a certificate of the Secretary or a Vice-President of the Borrower, dated the Closing Date as to the incumbency and signature of the officers of the Borrower and any applicable Subsidiary executing any Basic Agreement and any certificate or other document or instrument to be delivered pursuant thereto by or on behalf of the Borrower or such Subsidiary, together with evidence of the incumbency of such Secretary or Vice-President, as the case may be. (l) Contemporaneously with the funding of the Initial Loans, the Borrower shall have (i) paid in full all outstanding indebtedness under the U.S. Credit Agreement, the U.S. Credit Agreement shall have been terminated and all Liens existing pursuant thereto shall have been released and terminated, (ii) made loans and/or capital contributions to Stone-Canada, the proceeds of which Stone-Canada shall have used to pay in full all outstanding indebtedness under the Canadian Credit Agreements such that the Canadian Credit Agreements shall have been terminated and all Liens existing pursuant thereto shall have been released and terminated, (iii) caused the payment in full of all outstanding indebtedness under the Stone Savannah Credit Agreement such that the Stone Savannah Credit Agreement shall have been terminated and all Liens existing pursuant thereto shall have been released and terminated, -83- and (iv) shall have given irrevocable notice of redemption to the trustee of the Stone Savannah Senior Subordinated Note Indenture with respect to all outstanding Stone Savannah Senior Subordinated Notes and shall have caused to be deposited with such trustee funds sufficient to redeem in full all of the Stone Savannah Senior Subordinated Notes at par (plus stated premium), together with interest accrued and to accrue through the date of redemption, which shall be on or prior to December 30, 1994. All of the foregoing shall be pursuant to documentation reasonably satisfactory to the Agent. (m) The Agent shall have received a certificate executed by a Responsible Officer on behalf of the Borrower, dated the Closing Date and in the form of EXHIBIT 6.1(M) hereto. (n) All outstanding participations in the Florence Letters of Credit shall have been terminated and all Revolving Lenders (other than BT) shall have entered into a Participation Agreement with respect to its Revolving Loan Pro Rata share of the Florence L/C Obligations. (o) Each of Westinghouse Electric Corporation, Gelco Corporation and BT shall have entered into amendments to the L/C Agreement in substantially the form of EXHIBIT 6.1(O) hereto. (p) Contemporaneously with the funding of the Initial Loans, the Borrower shall have paid in full all accrued Commitment Fees and the Facility Fee. (q) The Borrower shall have paid the Agent the Agent's Fees due on the date of this Agreement. (r) The Agent shall have received a Notice of Borrowing by 3:00 p.m. New York time on the Business Day prior to the Closing Date with respect to its Initial Loans hereunder. (s) The Agent shall have received the Environmental Study, the results of which shall be acceptable to the Agent. (t) The Agent shall have received certificates of insurance evidencing insurance required to be maintained pursuant to SECTION 5.1.9 and the other Loan Documents, evidence of full payment of premiums thereon and loss payable endorsements, all as required by this Agreement and the other Loan Documents. (u) The Borrower shall have realized gross proceeds of $700 million from the issuance and sale of the Senior Notes and the First Mortgage Notes and the Agent shall have received a duly executed copy of each of the Senior Note Documents and the First Mortgage Note Documents, the terms, conditions, representations, warranties, covenants, events of default and other provisions of which shall be satisfactory in all respects to the Agent. -84- (v) The Borrower shall have entered into a letter agreement with the Facing Agent providing for Letter of Credit fees, in form and substance satisfactory to the Facing Agent. (w) All corporate and other proceedings taken in connection with the transactions hereunder at or prior to the Closing Date and all documents incident thereto shall be reasonably satisfactory in form and substance to the Agent. (x) The Agent shall have received such other documents or legal opinions as the Agent or the Required Lenders may reasonably request, all in form and substance satisfactory to the Agent. The Borrower shall have furnished to the Agent or the Lenders such additional copies or executed counterparts of the documents referred to above as the Agent or any Lender may request. Section 6.2 CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The right of the Borrower to make any Borrowing or to have issued any Letter of Credit, and the obligation of each Lender to make a Loan (including the Loans made on the Closing Date and Swing Line Loans) in respect of any such Borrowing and the obligation of the Facing Agent to issue or any Revolving Lender to participate in any Letter of Credit shall, in each case, be subject to the fulfillment at or prior to the time of the making of such Borrowing, or the issuance of such Letter of Credit, as the case may be, of each of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in ARTICLE IV of this Agreement and in 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 warranty shall be true and correct as of such specified date. (b) NO DEFAULT. No Event of Default shall have occurred and shall then be continuing on such date or will occur after giving effect to such Borrowing (including without limitation the use of proceeds requirements set forth in SECTION 5.1.11). (c) NOTICE OF BORROWING; LETTER OF CREDIT REQUEST. (i) Prior to the making of each Loan, the 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, the Agent and the Facing Agent shall have received a request for the issuance of a Letter of Credit meeting the requirements of SECTION 2.12(c). -85- (d) OTHER INFORMATION. The Agent shall have received such other instruments and documents as the Agent or the Required Lenders may reasonably request in connection with the Loans and Letters of Credit and all such instruments and documents shall be reasonably satisfactory in form and substance to the Agent. The acceptance of the benefits of each such Credit Event by the Borrower shall be deemed to constitute a representation and warranty by it to the effect of paragraphs (a), (b) and (c) of this SECTION 6.2. ARTICLE VII EVENTS OF DEFAULT Section 7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "EVENT OF DEFAULT": (a) PAYMENTS. The Borrower (i) shall fail to pay when due (whether at maturity, upon acceleration, by mandatory prepayment or otherwise) any payment of principal on any Obligation or (ii) shall default in the payment of interest on any Obligation or default in the payment of any fee or other amount owing hereunder or under any other Loan Document when due and, in the case of this clause (ii), such default in payment shall continue for a period of five (5) Business Days; or (b) REPRESENTATIONS AND WARRANTIES. Any representation or warranty on the part of the Borrower contained in, or incorporated by reference in, any Basic Agreement or any document, instrument or certificate delivered pursuant thereto shall have been incorrect in any material respect when made or deemed to have been made; or (c) CERTAIN COVENANTS. The Borrower shall default in the performance or observance of any term, covenant, condition or agreement on its part to be performed or observed under SECTION 5.1 (except SECTIONS 5.1.1(b)-(h), 5.1.2, 5.1.3(b), 5.1.4, 5.1.5 (giving effect to any cure or remedy periods in the documents referred to in such Sections), 5.1.6, 5.1.7, 5.1.8, 5.1.9, 5.1.12 and 5.1.15), 5.2 (except for SECTION 5.2.1 with respect to non-contractual Liens) or 5.3; or (d) OTHER COVENANTS. The Borrower 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 Basic Agreement (and not constituting an Event of Default under any other clause of this SECTION 7.1) and, with respect only to such defaults as are capable of being remedied, such default shall continue unremedied for a period of thirty (30) days after written or telephonic (promptly confirmed in writing) notice -86- thereof has been given to the Borrower by the Agent or any Lender; or (e) BANKRUPTCY. The Borrower or any of its 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; or (f) INVOLUNTARY PROCEEDINGS. Involuntary proceedings or an involuntary petition shall be commenced or filed against the Borrower or any of its 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) INDEBTEDNESS FOR MONEY BORROWED. (i) The Borrower or any of its Subsidiaries shall default in the payment when due, whether at stated maturity or otherwise, of any Indebtedness for Money Borrowed having an aggregate principal amount of $10 million or more, (ii) an event of default as defined in any mortgage, indenture, agreement or instrument under which there may be issued, or by which there may be secured or evidenced, any such Indebtedness for Money Borrowed shall occur which permits any holder thereof to cause any such Indebtedness for Money Borrowed of the Borrower or any of its Subsidiaries to become due and payable prior to the stated maturity or due date thereof, or (iii) any event or condition shall occur which with notice or lapse of time or both permits such Indebtedness for Money Borrowed of the Borrower or any of its Subsidiaries to be declared due and payable prior to its stated maturity or due date; PROVIDED, HOWEVER, that solely with respect to S-CC, SVCPI, Seminole Kraft or any of their Subsidiaries, (A) any event described in subsection (i) above shall -87- constitute an Event of Default only if the payment default relates to the final maturity of the relevant Indebtedness for Money Borrowed and the holder thereof has commenced legal action in respect of such default and (B) any event described in subsection (ii) or (iii) above shall constitute an Event of Default only if the relevant "event of default", "event" or "condition" results in any such Indebtedness for Money Borrowed being declared due and payable prior to its stated maturity or due date; or (h) JUDGMENTS. One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving, individually or in the aggregate, a liability of $10 million or more and a sufficient number of such judgments or decrees shall not have been vacated, discharged, satisfied or stayed pending appeal within thirty (30) days from the entry thereof so as to bring the aggregate below the $10 million threshold set forth above; or (i) BASIC AGREEMENTS. (i) Any of the Basic Agreements shall cease for any reason to be in full force and effect (other than termination in accordance with its terms) or the obligor thereunder shall disavow or seek to discontinue its obligations thereunder, or shall contest the validity or enforceability of any thereof; or (ii) any Lien purported to be granted pursuant to the Security Agreements or the Mortgages for any reason shall cease to be a legal, valid or enforceable lien and security interest in the Collateral or the Mortgaged Property, as the case may be; or (j) ERISA. Either (i) any Reportable Event which constitutes reasonable grounds for the termination of any Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer or liquidate any Plan shall have occurred; (ii) a trustee shall be appointed by a United States District Court to administer any Plan; (iii) the PBGC shall institute proceedings to terminate any Plan; (iv) any Plan shall be terminated; or (v) the Borrower, any of its Subsidiaries or any ERISA Affiliate shall become liable to the PBGC pursuant to ERISA Sections 4063 or 4064; AND the aggregate outstanding liability of the Borrower, all of its Subsidiaries, and all ERISA Affiliates with respect to the Plan (assuming the Plan had terminated) and all other Plans as to which any of the events (i) through (v) has occurred exceeds $10 million or a contribution failure occurs with respect to any Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; or (k) OTHER ERISA. Either (i) a trustee shall be appointed by a United States District Court to administer any Multiemployer Plan; (ii) the PBGC shall institute proceedings to terminate any Multiemployer Plan; (iii) the Borrower, any of its Subsidiaries or any ERISA Affiliates shall become liable to any Multiemployer Plan pursuant to ERISA Section 4201; or (iv) any Multiemployer Plan shall be terminated; AND the aggregate out- -88- standing liability of the Borrower, all of its Subsidiaries, and all ERISA Affiliates with respect to the Multiemployer Plan (assuming the Multiemployer Plan had terminated if either (i) or (ii) has occurred) and all other Multiemployer Plans as to which any of the events (i) through (iv) has occurred exceeds $20 million; or (l) CROSS-DEFAULTS. Any default or event of default shall occur under any of the Subsidiary Guarantees, the Security Agreements, the Mortgages, any other Basic Agreement, the L/C Agreement or the Continental Guaranty; PROVIDED, HOWEVER, that for purposes of this Section and SECTION 7.1(G), no Default or Event of Default shall be deemed to have occurred under the Continental Guaranty to the extent that such Default or Event of Default arises solely out of a cross-default under the Continental Guaranty to the debt instruments of SVCPI, S-CC or Seminole Kraft and Continental has neither sought to enforce any remedies under the Continental Guaranty in respect thereof nor given the Borrower written notice of its intent to do so upon the passage of time or the occurrence or non-occurrence of specified events; or (m) CHANGE OF CONTROL. There shall have occurred a Change of Control. Section 7.2 REMEDIES. If an Event of Default shall occur and be continuing, the Agent may and, at the direction of the Required Lenders shall, take one or more of the following actions: (a) by written or oral or telephonic notice (in the case of oral or telephonic notice confirmed in writing promptly thereafter) to the Borrower declare the Total Maximum Commitment to be terminated whereupon the Total Maximum Commitment shall forthwith terminate or (b) by written or oral or telephonic notice (in the case of oral or telephonic notice confirmed in writing promptly thereafter) to the Borrower declare all sums then owing by the Borrower hereunder to be forthwith due and payable, whereupon all such sums shall become and be immediately due and payable without presentment, demand, protest or notice of any kind (except as expressly provided for herein), all of which are hereby expressly waived by the Borrower. In the case of the occurrence of any Event of Default described in clause (e) or (F) of SECTION 7.1, the Total Maximum Commitment shall forthwith terminate and the Obligations, 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, and other amounts payable by the Borrower hereunder shall also become immediately due and payable, all without notice of any kind. If the maturity of the Obligations has been accelerated pursuant to the preceding paragraph, the Borrower shall, on the Business Day it receives notice from the Agent or the Required Lenders thereof, deposit in an account with the Agent, for the -89- benefit of the Revolving Lenders, an amount in cash equal to the L/C Obligations as of such date. Such deposit shall be held by the Agent as collateral for the payment and performance of the L/C Obligations. The Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Permitted Investments, which investments shall be made at the option and sole discretion of the Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Monies in such account shall (i) automatically be applied by the Agent to reimburse the Facing Agent and BT for any Letter of Credit disbursement, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower at such time and (iii) be applied to satisfy the Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of an acceleration of the Obligations, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived and the acceleration has been rescinded and annulled as provided in the succeeding paragraph. Anything in this SECTION 7.2 to the contrary notwithstanding, the Agent shall, if requested by the Required Lenders (or all the Lenders if required by the terms of SECTION 9.2), within thirty (30) days of (a) the delivery to the Borrower of a notice of acceleration of the Obligations or (b) an automatic acceleration of the Obligations by reason of the occurrence of any Event of Default described in clause (e) or (f) of SECTION 7.1, rescind and annul any acceleration of the Obligations; PROVIDED, HOWEVER, that at the time such acceleration is so rescinded and annulled (i) all past due interest and principal, if any, on the Obligations and all other sums payable under this Agreement (except any principal and interest on any Obligations which has become due and payable by reason of such acceleration pursuant to this SECTION 7.2) shall have been duly paid and (ii) no other Event of Default or Unmatured Event of Default shall have occurred and be continuing and the Agent shall have received the certificate of an Executive Officer of the Borrower to such effect. If any reduction in commitments has occurred pursuant to this SECTION 7.2 in connection with any such acceleration, then upon the rescission and annulment of such acceleration pursuant to this SECTION 7.2, the Revolving Loan Commitment of each Revolving Lender and Swing Line Commitment shall be reinstated to the respective amounts thereof which would have been in effect on the date of such rescission and annulment had no commitment reduction occurred pursuant to this SECTION 7.2. -90- ARTICLE VIII THE AGENT In this ARTICLE VIII, the Lenders agree among themselves as follows: Section 8.1 APPOINTMENT. The Lenders hereby appoint BT as Agent hereunder and under each other Loan Document as herein specified. Each Lender hereby irrevocably authorizes and each holder of any Obligation by the acceptance thereof shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of this Agreement and the other Basic Agreements (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 and therein and to exercise such powers hereunder and thereunder as are specifically delegated to the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of their respective duties hereunder, or under the Loan Documents, by or through their respective agents or employees. Section 8.2 NATURE OF DUTIES. The Agent shall not have any duties or responsibilities, express or implied, except those expressly set forth in this Agreement and the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender, any Co-Agent or the Borrower. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or 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 the Borrower and its Subsidiaries in connection with the making and the continuance of the Loans and the issuance of Letters of Credit hereunder, and shall make its own appraisal of the creditworthiness of the Borrower. The Agent shall not have any 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. The 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 VII. Section 8.3 RIGHTS, EXCULPATION, ETC. Neither the Agent nor any of its officers, directors, employees or agents shall be liable to any Lender for any action taken or omitted by it hereunder or under any of the Loan Documents, or in connection -91- herewith or therewith, unless caused by its or their gross negligence or willful misconduct. Neither the Agent nor any of its officers, directors, employees or agents shall be responsible to any Lender for or have any duty to ascertain, inquire into, or verify (i) any recitals, statements, representations or warranties made in connection with any Loan Document or any Borrowing hereunder, (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender, (iii) the satisfaction of any condition specified in ARTICLE VI, except receipt of items required to be delivered to the Agent, or (iv) the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of any of the Loan Documents or the financial condition of the Borrower or any of its Subsidiaries. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of any of the Loan Documents or the financial condition of the Borrower or any of its Subsidiaries, 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. The Agent shall have no duty to disclose to the Co-Agents or the Lenders information that is not required to be furnished by the Borrower to the Agent at such time, but is voluntarily furnished by the Borrower to the Agent (either in its capacity as Agent or in its individual capacity). The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of any of the Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are requested, the 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. Any such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under any of the Loan Documents in accordance with the instructions of the Required Lenders. The Lenders hereby acknowledge that the Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Section 8.4 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents and attorneys-in-fact and shall not be answerable to the Lenders or the Co-Agents, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents -92- or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. Section 8.5 RELIANCE. The Agent shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message reasonably believed by them to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all matters pertaining to any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by them. Section 8.6 INDEMNIFICATION. To the extent that the Agent is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, acting pursuant hereto, in any way relating to or arising out of any of the Loan Documents or any action taken or omitted by the Agent, under any of the Loan Documents, in proportion to each Lender's respective ratable share of the aggregate of the Total Maximum Commitment (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination); PROVIDED, HOWEVER, that no Lender shall be liable for any fees payable to the Agent pursuant to SECTION 3.9 or for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The obligations of the Lenders under this SECTION 8.6 shall survive the payment in full of the Obligations and the termination of this Agreement. Section 8.7 NOTICE OF DEFAULT. The 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 the Agent has received written notice from a Lender or the 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 the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. Section 8.8 THE AGENT INDIVIDUALLY. With respect to its Revolving Loan Pro Rata Share, Term Loan Pro Rata Share and Maximum Commitment hereunder and the Loans made or Letters of Credit issued by it, the Agent in its individual capacity 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 an Obligation. The terms "Lenders" or "Required Lenders" or any -93- similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender, one of the Required Lenders or a holder of an Obligation. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower or any Subsidiary of the Borrower as if they were not acting as Agent pursuant hereto. Section 8.9 RESIGNATION BY THE AGENT. (a) The Agent may resign from the performance of all its functions and duties hereunder at any time by giving 15 Business Days' prior written notice to the Borrower 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 by the Agent, the Required Lenders shall appoint a successor Agent who shall be satisfactory to the Borrower and shall be an incorporated bank or trust company having total assets in excess of $3 billion (or the foreign currency equivalent thereof). (c) If a successor Agent shall not have been so ap-pointed within said 15 Business Day period, the Agent, with the consent of the Borrower, 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 Borrower, appoint a successor Agent as provided above. (d) If no successor Agent has been appointed pursuant to clause (b) or (c) by the 20th Business Day after the date such notice of resignation was given by the Agent, the Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of the Agent hereunder until such time, if any, as the Required Lenders, with the consent of the Borrower, appoint a successor Agent as provided above. Section 8.10 HOLDERS OF OBLIGATIONS. The Agent may deem and treat the payee of any Obligation as reflected on the books and records of the 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 the Agent pursuant to SECTION 9.12(d). Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is 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. -94- Section 8.11 CO-AGENTS. None of the Lenders identified on the cover page or signature pages of this Agreement as a "Co-Agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement or any other Loan Document other than those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders identified as Co-Agents in deciding to enter into this Agreement or in taking or refraining from taking any action hereunder or pursuant hereto. ARTICLE IX MISCELLANEOUS Section 9.1 NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay on the part of the 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 and in the other Loan Documents are cumulative and are not exclusive of any remedies that may be available to the Agent or any Lender at law, in equity or otherwise. Section 9.2 AMENDMENTS. No amendment, modification, supplement, termination or waiver of or to any provision of this Agreement, nor consent to any departure by the Borrower or any of its Subsidiaries therefrom, shall be effective unless the same shall be in writing and signed by or on behalf of the Required Lenders; PROVIDED, HOWEVER, that no such amendment, modification, supplement, termination, waiver or consent, as the case may be, which (i) reduces the rate of interest on any Loan or reduces the principal amount of any Loan or the amount of fees payable by the Borrower hereunder, or forgives any such payment or any part thereof; (ii) extends the Term Loan Maturity Date or the Revolver Termination Date or the scheduled date for the payment of interest on any Loan; (iii) changes this SECTION 9.2 or the definitions of the terms "Required Lenders", "Revolving Loan Pro Rata Share" or "Term Loan Pro Rata Share"; (iv) changes the Maximum Commitment of any Lender hereunder; (v) releases the Liens created by the Loan Documents upon all of substantially all of the Collateral and the Mortgaged Property (except where Substitute Collateral is provided or as otherwise permitted by SECTION 9.13); or (vi) releases or terminates all or substantially all of the Subsidiary Guarantees shall be effective unless the same shall be signed by or on behalf of (A) in the case of any changes described in clause (i), (ii) or (iii) (other than changing the definition of "Required Lenders") above, each Term Lender if amounts payable to the Term Lenders would be affected by such change or each Revolving Lender if amounts payable to the Revolving Lenders would be affected by such change, with each class of Lenders voting as a separate class, and -95- (B) in the case of any changes described in clause (iv), (v) or (vi) above, each Lender hereunder; PROVIDED FURTHER, that except as provided in SECTION 3.6(f), no such amendment, modification, supplement, termination, waiver or consent which changes the application of any prepayments of any Loans, reduces the amount of or waives any prepayments of any Loans, or extends the time of payment for any prepayments of any Loans, shall be effective unless the same shall be signed by or on behalf of (i) to the extent such prepayment applies to the Term Loan, Term Lenders holding Term loans representing more than 50% of the aggregate outstanding principal amount of the Term Loan (the "Majority Term Lenders"), and (ii) to the extent such prepayment applies to the Revolving Loan, Revolving Lenders holding Revolving Loans and Revolving Loan Commitments, if any, representing more than 50% of the sum of (x) the aggregate outstanding principal amount of the Revolving Loans and (y) the Total Available Revolving Commitment; and PROVIDED FURTHER, that no such amendment, modification, supplement, termination, waiver or consent, as the case may be, which has the effect of (i) increasing the duties or obligations of the Agent hereunder; or (ii) increasing the standard of care or performance required on the part of the Agent, the Swing Line Lender or any Facing Agent hereunder, or (iii) reducing or eliminating the fees, indemnities or immunities to which the Agent, the Swing Line Lender or any Facing Agent is entitled hereunder (including, without limitation, any amendment or modification of this Section) shall be effective unless the same shall be signed by or on behalf of the Agent, the Swing Line Lender or such Facing Agent, as the case may be. Any amendment, modification or supplement of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Borrower from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given. Section 9.3 CERTAIN OTHER AMENDMENTS. No amendment which changes (i) this clause (i) or the definition of "Term Loan Pro Rata Share" shall be effective unless the same shall be signed by or on behalf of each Term Lender which at the time has outstanding any portion of the Term Loan or (ii) this clause (ii) or the definition of "Revolving Loan Pro Rata Share" shall be effective unless the same shall be signed by or on behalf of each Revolving Lender which at the time has made or has outstanding a portion of the Revolving Loan Commitment or the Revolving Loans. Section 9.4 NOTICES, ETC. Except where telephonic instructions or notices are authorized herein to be given, all notices, demands, instructions and other communications (collectively, "NOTICES") required or permitted to be given to or made upon any party hereto or any other Person shall be in writing and (except for written confirmations of telephonic or telex instructions) shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by -96- a reputable courier delivery service, or by prepaid telex, TWX or telegram (with messenger delivery specified in the case of a telegram), or by telecopier. Notices shall be deemed to be given for purposes of this Agreement (a) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (b) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (c) if given by any other means (including, without limitation, by air courier), when delivered at the address specified in this Section; PROVIDED, HOWEVER, that any Notice of Borrowing to the Agent shall not be effective until received. Unless otherwise specified in a Notice sent or delivered in accordance with the foregoing provisions of this Section Notices 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 signature pages hereto and, in the case of telephonic instructions or notices, by calling the telephone number or numbers indicated for such party. Except where notice is specifically required by this Agreement or any other Basic Agreement, no notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. Section 9.5 COSTS, EXPENSES AND TAXES. The Borrower agrees to pay (without duplication) all reasonable costs and expenses incurred by the Agent in connection with the negotiation, preparation, reproduction, execution and delivery of this Agreement and the other Basic Agreements, any amendments, waivers or modifications of any of the foregoing and any and all other documents furnished pursuant hereto or thereto or in connection herewith or therewith, including the reasonable fees and out-of-pocket expenses of Winston & Strawn, special counsel to the Agent, any local counsel retained by the Agent, reasonable attorney's fees and expenses or (but not as well as) the reasonable allocated costs of staff counsel of the Agent as well as the reasonable fees and out-of-pocket expenses of additional special counsel, independent public accountants, investment advisors and other outside experts retained by or on behalf of the Agent in connection with the administration of this Agreement or with matters generally relating to this Agreement or any of the transactions contemplated by this Agreement, and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses or (but not as well as) the reasonable allocated costs of staff counsel, if any) incurred by the Agent or any Lender in connection with the enforcement of this Agreement, any other Basic Agreement or any other agreement furnished pursuant hereto or thereto or in connection herewith or therewith. In addition, the Borrower shall pay any and all stamp, original issue and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, any Basic Agreement or the making of any Loan, and the Borrower agrees to save and hold the Agent, the Co-Agents and each Lender harmless from and against -97- any and all liabilities with respect to or resulting from any delay in paying, or omission to pay, such taxes. Expenses being reimbursed by the Borrower under this Section include, without limitation, the cost and expense of obtaining an appraisal of each parcel of real property or interest in real property described in the Mortgages, which appraisals shall be in conformity with the applicable requirements of any law or governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, including, without limitation, the provisions of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, reformed or otherwise modified from time to time, and any rules promulgated to implement such provisions. Any portion of the foregoing fees, costs and expenses which remains unpaid more than thirty (30) days following the 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. Section 9.6 INDEMNIFICATION. The Borrower will (a) indemnify and hold harmless each Lender, each Co-Agent and the Agent and each director, officer, employee, agent or attorney and Affiliate thereof (each such Person an ("INDEMNIFIED PARTY") from and against all losses, claims, damages, expenses or liabilities to which such Indemnified Party may become subject, insofar as such losses, claims, damages, expenses or liabilities (or actions, suits or proceedings including any inquiry or investigation or claims in respect thereof) arise out of, in any way relate to, or result from the transactions contemplated by any Basic Agreement or the use by the Borrower of the proceeds of any Loan, and (b) reimburse each Indemnified Party upon their demand, for any reasonable legal or other expenses (including (but not as well as) the reasonable allocated costs of staff counsel) incurred in connection with investigating, preparing to defend or defending any such loss, claim, damage, liability, action or claim; PROVIDED, HOWEVER, that no such Person shall have the right to be so indemnified hereunder for its own gross negligence or willful misconduct or bad faith as finally determined by a court of competent jurisdiction after all appeals and the expiration of time to appeal. If any action, suit or proceeding arising from any of the foregoing is brought against the Agent, any Co-Agent, any Lender or any other Person indemnified or intended to be indemnified pursuant to this SECTION 9.6, the Borrower will, if requested by the Agent, any Co-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 reasonably satisfactory to the Person or Persons indemnified or intended to be indemnified. Each Indemnified Party shall, unless the 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 -98- reasonable fees and expenses of such counsel shall be at the expense of the indemnifying party. The obligations of the Borrower under this SECTION 9.6 shall survive the termination of this Agreement and the discharge of the Borrower's other obligations hereunder and under the Obligations. Excluding any liability arising out of the gross negligence or willful misconduct of any Indemnified Party, the Borrower further agrees to indemnify and hold each Indemnified Party harmless from all loss, cost (including reasonable attorneys' fees), liability and damage whatsoever incurred by any Indemnified Party by reason of any violation of any Environmental Laws or Environmental Permits or for the Release or threatened Release of any Contaminant into the environment for which the Borrower or any of its Subsidiaries has any liability or which occurs upon the Mortgaged Property or which is related to any property currently or formerly owned, leased or operated by or on behalf of the Borrower or any of its Subsidiaries, or by reason of the imposition of any Environmental Lien or which occurs by a breach of any of the representations, warranties or covenants relating to environmental matters contained herein, including, without limitation, by reason of any matters disclosed in Schedule 4.21, PROVIDED that, with respect to any liabilities arising from acts or failure to act for which the Borrower or any of its Subsidiaries is strictly liable under any Environmental Law or Environmental Permit, the Borrower's obligation to each Indemnified Party under this indemnity shall likewise be without regard to fault on the part of the Borrower or any such Subsidiary. If the Borrower shall fail to do any act or thing which it has covenanted to do hereunder or any representation or warranty on the part of the Borrower or any Subsidiary contained herein or in any other Loan Document shall be breached, the Agent may (but shall not be obligated to), after requesting the Borrower to do such act or thing and the failure by the Borrower to immediately undertake such action to the satisfaction of the Agent, do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose, and will use its best efforts to give prompt written notice to the Borrower that it proposes to take such action. Any and all amounts so expended by the Agent shall be repaid to it by the Borrower promptly upon the Agent's demand therefor, with interest at the Default Rate in effect from time to time during the period including the date so expended by the Agent to the date of repayment. The obligations of the Borrower under this SECTION 9.6 shall survive the termination of this Agreement and the discharge of the Borrower's other Obligations hereunder. Section 9.7 SPECIAL EXPENDITURES. If the Borrower shall fail to do any act or thing which it has covenanted to do hereunder or under any other Basic Agreement or any representation or warranty on the part of the Borrower contained herein or therein shall be breached, the Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and -99- may expend its funds for such purpose, and will use its best efforts to give prompt written notice to the Borrower that it proposes to take such action. Any and all amounts so expended by the Agent shall be repayable to it by the Borrower promptly upon the Agent's demand therefor, with interest at the Default Rate in effect from time to time during the period from the date so expended by the Agent to the date of repayment. Section 9.8 CONFIRMATIONS. Each of the Borrower and each holder of any Obligation agree 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 the Agent) the aggregate unpaid principal amount of the Loans then outstanding in respect of such Obligation; each such holder agrees from time to time, upon written request received by it from the Borrower, to make the relevant internal records of such holder maintained by it with respect to such Obligation available for reasonable inspection by the Borrower at the office of such holder. Section 9.9 ADJUSTMENT. (a) If at any time any Revolving Lender or Term Lender (a "BENEFITTED LENDER") shall receive any payment (other than (i) a payment received by the Swing Line Lender in respect of any Swing Line Loan in which no Revolving Lenders have purchased a participation pursuant to SECTION 2.11(D) and (ii) non-pro rata payments to the Term Lenders solely as the result of Waived Proceeds being retained by the Borrower pursuant to SECTION 3.6(F)) of all or part of any of its Loans, or interest thereon, including as the result of SECTION 9.10, in a greater proportion relative to such Lender's Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as applicable, than any such payment to any other Revolving Lender or Term Lender in respect of such other Lender's Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as applicable, or interest thereon, such Benefitted Lender shall purchase for cash from the other Revolving Lenders or Term Lenders, as the case may be, such portion of each such other Lender's Loans as shall be necessary to cause such Benefitted Lender to share the excess payment ratably with each of the Revolving Lenders or Term Lenders, as the case may be; 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. The 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 set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) If any Lender (a "COLLATERAL BENEFITTED LENDER") shall at any time receive any collateral in respect of its Loans (whether voluntary or involuntary, by set-off, pursuant to events -100- or proceedings of the nature referred to in SECTION 7.1(e) OR 7.1(f) hereof, or otherwise) in a greater proportion than any such collateral received by any other Lender in respect of such other Lender's Loans, such Collateral Benefitted Lender shall provide such other Lenders with the benefits of any such collateral as shall be necessary to cause such Collateral Benefitted Lender to share the benefits of such collateral ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such benefits is thereafter recovered from such Collateral Benefitted Lender, such benefits shall be returned to the extent of such recovery but without interest. Section 9.10 RIGHT OF SETOFF. (a) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower, upon the occurrence and during the continuance of an Event of Default, to setoff and apply against any Indebtedness, whether matured or unmatured, of the Borrower to such Lender, any amount owing from such Lender to the Borrower, at or at any time after, the occurrence of such Event of Default, and the aforesaid right of setoff may be exercised by such Lender against the Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor of the Borrower, or against anyone else claiming through or against, the 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 Borrower and the 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. (b) The Borrower expressly agrees that to the extent the 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. Section 9.11 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different -101- 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. Section 9.12 BINDING EFFECT; ASSIGNMENT. (a) This Agreement shall be binding upon, and inure to the benefit of, the Borrower, the Agent and the Lenders and their respective successors and assigns upon the execution by the Borrower, the Agent and all of the Lenders; PROVIDED, HOWEVER, that the Borrower may not 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 the Lenders. (b) Any Lender may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an Affiliate of such Lender. (c) 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 related outstanding obligations of such Lender hereunder (in respect of any Lender, its "CREDIT EXPOSURE"); PROVIDED, HOWEVER, that in the case of a Revolving Lender, it sells it Credit Exposure ratably between its Revolving Loan Commitment and its participation interest in the Florence Letters of Credit. 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 the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The 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 occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off 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 that such right of set-off 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 9.9. The Borrower also agrees that each Participant shall be entitled to the benefits of SECTIONS 2.13 AND 2.16 with respect to its participation in the Loans and Letters of Credit outstanding from time to time, PROVIDED that such Participant's benefits under SECTIONS 2.13 AND 2.16 shall be limited to the benefits that the Lender granting the participation would be entitled to thereunder with respect to the Credit Exposure so participated. Each Lender -102- 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, supplement, modification or waiver to this Agreement or any of the Loan Documents except for any amendment, supplement, modification or waiver which reduces the rate or amount of principal, interest or fees payable by the Borrower, extends the Term Loan Maturity Date, the Revolver Termination Date or the scheduled date for any payment of interest (but only if such Participant is participating in the Term Loan or the Revolving Loan, as applicable, affected thereby), or release all or substantially all of the Collateral and Mortgaged Property (other than when Substitute Collateral is provided and other than in accordance with SECTION 9.13) or release or terminate all or substantially all of the Subsidiary Guarantees. (d) Any Lender may at any time assign to one or more banks or other entities, including an Affiliate thereof (each an "ASSIGNEE"), all or any part of its Credit Exposure pursuant to an Assignment Agreement (an "ASSIGNMENT AGREEMENT") in the form of EXHIBIT 9.12(d) hereto, PROVIDED that (i) in the case of a Revolving Lender, it assigns its Credit Exposure ratably between its Revolving Loan Commitment and its participation interest in the Florence Letters of Credit, (ii) any assignment by a Revolving lender of all or any portion of its Revolving Loan Commitment shall require the prior written consent of each Facing Agent which has issued a Letter of Credit that remains outstanding at such time, (iii) at no time shall any Revolving Lender assign any portion of its Revolving Loan Commitment if after giving effect to such assignment the transferor Lender's or the Assignee's Revolving Loan Commitment shall be less than $15,000,000 (the "REVOLVING MINIMUM AMOUNT") (except (A) with respect to an assignment of all of such Revolving Lender's Revolving Loan Commitment and (B) in the event that the Revolving Loan Commitments have been terminated, then the Revolving Minimum Amount shall refer to such transferor Lender's Revolving Loan Pro Rata Share of the aggregate principal amount of Revolving Loans and Swing Line Loans outstanding and the aggregate L/C Obligations and Florence L/C Obligations outstanding), PROVIDED that the Revolving Minimum Amount shall automatically reduce PRO RATA based on any reduction in (x) the Total Revolving Loan Commitments or (y) if the Total Revolving Loan Commitments have been terminated, the aggregate principal amount of Revolving Loans and Swing Line Loans outstanding and the aggregate L/C Obligations and Florence L/C Obligations outstanding, (iv) at no time shall any Term Lender assign any portion of its Term Loan if after giving effect to such assignment the transferor Lender's or the Assignee's principal amount of the Term Loan shall be less than $7,500,000 (the "TERM MINIMUM AMOUNT") (except with respect to an assignment of all of such Term Lender's Term Loan), PROVIDED that the Term Minimum Amount shall automatically reduce PRO RATA based on any reduction in the aggregate principal amount of the Term Loan outstanding, (v) any assignment shall require the prior written consent of the Agent and (vi) any assignment to an Assignee other -103- than another Lender, or an Affiliate of the assigning Lender or another Lender, shall require the prior written consent of the Borrower (with the consent of the Borrower not to be unreasonably withheld). Upon execution of an Assignment Agreement and the payment of a nonrefundable assignment fee of $3,500 in immediately available funds to the Agent at its Payment Office in connection with each such assignment, each Assignee shall become a party to this Agreement as a Lender and 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 and, if the Assignee has expressly assumed, for the benefit of the Borrower, 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. Such Assignment 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 (including its Revolving Loan Commitment and/or Term Loan Commitment), the Maximum Commitments, the determination of Revolving Loan Pro Rata Share or Term Loan Pro Rata Share (rounded to twelve decimal places), the Loans and any outstanding Letters of Credit and new Notes shall be issued, at the Borrower's expense, to such Assignee and to the assigning Lender upon the request of such Assignee or such assigning Lender, such new Notes to be in conformity with the requirements of SECTION 2.2 (with the appropriate modifications) to the extent needed to reflect the revised Commitment of the Assignee and the assigning Lender. (e) For so long as any Lender shall be in default of its obligation to fund its Revolving Loan Pro Rata Share of any Revolving Loan, to reimburse the Facing Agent for any drawings under any Letters of Credit or to fund its participation in any Swing Line Loan, (i) no Commitment Fees shall be accrued by or paid to such Lender and (ii) for purposes of the definition of "Required Lenders," such Lender shall be deemed not to have any Loans or Revolving Loan Commitment outstanding. (f) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time pledge or create a security interest in all or any portion of its rights under this Agreement and the other Loan Documents (including, without limitation, the Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board without notice to or consent of the Borrower and no such pledge or assignment shall release the transferor Lender from its obligations hereunder. -104- (g) A Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to Lenders, Assignees and participants (including prospective Assignees and participants), PROVIDED that with respect to any such information which has been identified or designated by the Borrower as confidential and which has not previously been made public, any such Assignee or participant shall have agreed to hold such information in confidence and not to disclose such information (subject to the exceptions specified in SECTION 5.1.6 hereof) and any prospective Assignee or participant shall have agreed to return such information which is in written form to the Borrower or otherwise destroy such information if it does not become an actual Assignee or participant. Section 9.13 RELEASE OF COLLATERAL. The following provisions shall govern the release of collateral granted by the Borrower to the Agent pursuant to the Loan Documents. (a) Upon termination of all Revolving Loan Commitments, the Swing Line Commitment, the L/C Agreement, the L/C Participation Agreements and the Florence Letters of Credit, and the payment in full of all outstanding Revolving Loan Obligations, Swing Line Obligations, L/C Obligations and Florence L/C Obligations such that no such Commitments, Loan Documents or Obligations remain outstanding, the Borrower shall be entitled to the release of the Collateral and Mortgaged Property set forth on SCHEDULE 9.13(A) hereto from the Lien of the Loan Documents upon the request of the Borrower subject to the following terms and conditions: (i) the Agent shall have received a certificate from the Borrower's chief executive or chief financial officer certifying that no Event of Default or Unmatured Event of Default has occurred and is continuing as of the date on which the Agent proposes to release such Collateral and Mortgaged Property; and (ii) at the Borrower's cost and expense, the Agent shall have received from one or more independent third parties appraisals and/or valuations acceptable to, and in form, substance and using methodologies satisfactory to, the Required Lenders, demonstrating that, after giving effect to such release, the ratio of (A) the aggregate value of the remaining Collateral and Mortgaged Property, as such value is determined by such independent third parties and acceptable to the Required Lenders, to (B) the Obligations which remain outstanding under the Loan Documents is not less than 2.50 to 1.00. The determination by the Required Lenders pursuant to the preceding sentence shall be made by those Term Lenders constituting the Required Lenders at such time. (b) Upon receipt by the Borrower and the Agent of an officer's certificate and such other information delivered pursuant to SECTION 5.1.1(c), beginning with any such officer's certificate and information delivered after December 31, 1994, the Borrower shall be entitled to the release of all -105- of the Collateral and Mortgaged Property from the Lien of the Loan Documents subject to the following terms and conditions: (i) the Agent shall have received a certificate from the Borrower's chief executive or chief financial officer certifying that no Event of Default or Unmatured Event of Default has occurred and is continuing as of the date on which the Agent proposes to release the Collateral and Mortgaged Property; and (ii) the officer's certificate delivered pursuant to SECTION 5.1.1(c) satisfies the terms and conditions set forth on SCHEDULE 1.1(b) hereto. (c) The Borrower shall be entitled to the release of all or any portion of the Collateral and/or Mortgaged Property upon the request of the Borrower subject to the following terms and conditions: (i) the Agent shall have received a certificate from the Borrower's chief executive or chief financial officer certifying that no Event of Default or Unmatured Event of Default has occurred and is continuing as of the date on which the Agent proposes to release such Collateral and Mortgaged Property; (ii) prior to the release date of such Collateral and/or Mortgaged Property the Borrower shall have furnished to the Agent for the benefit of the Lenders substitute collateral ("SUBSTITUTE COLLATERAL") which (A) is acceptable to the Required Lenders and (B) has a value as determined by the Required Lenders at least equal to the aggregate value of the Collateral and/or Mortgaged Property to be released; and (iii) such Substitute Collateral shall be provided pursuant to documentation and legal opinions in form and substance satisfactory to the Agent. Any such Substitute Collateral shall be deemed to have been granted in consideration of the release of such Collateral and/or Mortgaged Property. (d) The Borrower shall be entitled to the release of any portion of the Collateral and/or Mortgaged Property which is the subject of any sale, transfer or other disposition permitted by SECTION 5.2.12 upon the request of the Borrower subject to the following terms and conditions: (i) at least ten (10) Business Days prior to the release date of such Collateral and/or Mortgaged property the Borrower shall have furnished to the Agent in writing a description of such Collateral and/or Mortgaged Property and the proposed terms of the sale, transfer or other disposition thereof; (ii) the Agent shall have received a certificate from the Borrower's chief executive or chief financial officer certifying that no Event of Default or Unmatured Event of Default has occurred and is continuing; and (iii) prior to or contemporaneously with such release, the Agent shall have received any Material Sale Proceeds derived from such disposition in immediately available funds pursuant to the terms of SECTION 3.4(c) to be applied as a prepayment of the Obligations in accordance with SECTION 3.6(c), unless any such Material Sale Proceeds constitute Waived Proceeds pursuant to the terms of SECTION -106- 3.6(F), together with a written accounting of all proceeds from such sale, transfer or other disposition and the determination of Material Sale Proceeds resulting therefrom, in form and substance reasonably satisfactory to the Agent; PROVIDED, HOWEVER, that inventory pledged to the Agent pursuant to the Loan Documents may be sold or disposed of in the ordinary course of business free and clear of the Liens created thereby; and PROVIDED FURTHER, that immaterial portions of Collateral or Mortgaged Property may for purposes of administrative practicality or legal requirements be released by the Agent pursuant to the provisions, if any, of the respective Security Agreements or Mortgages. (e) Upon the satisfaction of the applicable conditions set forth in SECTION 9.13(a), (b) or (c), the Agent shall within thirty (30) days deliver to the Borrower all released Collateral and related documents then in the custody or possession of the Agent and shall prepare and execute release documents relating to the Collateral and Mortgaged Property to be released and shall execute and deliver to the Borrower such other documents and instruments as the Borrower may reasonably request, all without recourse upon, or warranty whatsoever by, the Agent, and at the cost and expense of the Borrower. Section 9.14 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER BASIC AGREEMENT, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES FEDERAL OR NEW YORK STATE COURT AND THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. AS A METHOD OF SERVICE, THE BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY COURT IN OR OF THE STATE OF NEW YORK BY THE DELIVERY OF COPIES OF SUCH PROCESS TO THE BORROWER, AT ITS ADDRESS SPECIFIED IN SECTION 9.4 HEREOF OR BY CERTIFIED MAIL DIRECT TO SUCH ADDRESS. Section 9.15 GOVERNING LAW. This Agreement 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 laws of said State, without regard to principles of conflicts of law. Nothing contained in this Agreement and no action taken by the Agent, any Co-Agent or any Lender pursuant hereto shall be deemed to constitute the Agent, any Co-Agent or the Lenders a partnership, an association, a joint venture or other entity. Section 9.16 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is prohibited or unenforceable in any -107- 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. Section 9.17 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. Section 9.18 TIME. Time shall be of the essence of this Agreement. Section 9.19 FURTHER ASSURANCES. The Borrower agrees to do such further acts and things and to execute and deliver to the Agent such additional assignments, agreements, powers and instruments as the Agent may reasonably require or deem advisable to carry into effect the purposes of this Agreement or to better assure and confirm unto the Agent and the Lenders, their respective rights, powers and remedies hereunder. Section 9.20 FLORIDA REAL PROPERTY. The parties hereto hereby acknowledge that the Revolving Loans and Swing Line Loans are secured by real and personal property located both inside and outside the State of Florida and hereby agree that for purposes of calculating intangible taxes due under Section 199.133, Florida Statutes, the first amounts advanced as Revolving Loans and Swing Line Loans shall be deemed to be the portion allocable to the Collateral and Mortgaged Property consisting of real property located in the State of Florida, and such portion allocable to such Collateral and Mortgaged Property shall also be deemed to be the last to be repaid under the terms hereof. Nothing herein shall limit the Agent's or any Lender's right to recover or realize from the Collateral or Mortgaged Property located in the State of Florida amounts in excess of that allocated to the Revolving Loans and Swing Line Loans or to apply amounts so recovered or realized against the Obligations in such order as required pursuant to the Loan Documents. Section 9.21 TREATMENT OF SEMINOLE KRAFT. In the event that after the Closing Date Seminole Kraft becomes a Wholly-Owned Subsidiary and refinances all outstanding non-recourse Indebtedness with Indebtedness that is recourse to the Borrower or any other Subsidiary with the consent of the Required Lenders, then Seminole Kraft shall no longer be deemed a Restricted Subsidiary for purposes hereof and, except for SECTION 5.2.8, each reference to Seminole Kraft herein, whether as an inclusion or exclusion from the applicability of a particular provision or otherwise, shall no longer be effective for purposes of giving effect to the provisions of this Agreement, it being the intent of the parties hereto that in such event Seminole Kraft shall be treated similar to any other Wholly-Owned Subsidiary for purposes of giving effect to the provisions of this Agreement. -108- [signature pages follow] -109- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. STONE CONTAINER CORPORATION By: _______________________________ Name: _____________________________ Title: ____________________________ Address: Stone Container Corporation 150 North Michigan Avenue Chicago, Illinois 60601 Attn: Mr. Arnold F. Brookstone, Executive Vice President - Chief Financial and Planning Officer Tel. No.: (312) 580-4637 Telecopier No.: (312) 580-4650 S-1 BANKERS TRUST COMPANY, in its individual capacity and as Agent By:_______________________________ Name:_____________________________ Title:____________________________ Address: Bankers Trust Company 233 South Wacker Drive Suite 8400 Chicago, IL 60606 Attention: Kevin M. Adeson, Vice-President Tel. No.: (312) 993-8143 Telex No.: 210106 (Answerback: BTCI-UR) Telecopier No.: (312) 993-8218 With a copy to: Winston & Strawn 35 West Wacker Drive Chicago, Illinois 60601 Attention: Gregory S. Murray, Esq. Tel. No.: (312) 558-5600 Telecopier No.: (312) 558-5700 S-2 DEFINITIONAL APPENDIX TO CREDIT AGREEMENT As used in this Agreement, unless the context requires a different meaning, the following terms have the meanings indicated: "ACCOUNTS RECEIVABLE FINANCING PROGRAM" means a program of sales of, or transfers of interests in, receivables (whether characterized as sales or as non-recourse loans) and related contract rights and other property (the "RECEIVABLES") by the Borrower and its Participating Subsidiaries to StoneSub, which shall finance such purchases through (i) sales or transfers of Receivables or borrowings or other debt issuances (which, except as described in EXHIBIT 1.1(e) hereto, shall be non-recourse to the Borrower and its Subsidiaries other than StoneSub) from one or more limited purpose finance companies, investors participating in an offering of debt securities, financial institutions or other Persons not affiliated with the Borrower or through one or more trusts originated by StoneSub (individually and collectively, the "ISSUER"), (ii) capital contributions from the Borrower, (iii) subordinated loans from the Borrower and its applicable Participating Subsidiaries and (iv) collections from previously purchased Receivables. Each separate financing arrangement within the Accounts Receivable Financing Program is referred to as a "RECEIVABLES FINANCING." All Receivables Financings which are in existence at any time shall together not permit StoneSub to incur more than, subject to the third proviso of the penultimate sentence of SECTION 5.2.13, $500 million of Indebtedness for Money Borrowed from the Issuer at any one time outstanding (and, in the event that the Accounts Receivable Financing Program includes Canadian dollar Receivables of Canadian Subsidiaries, without giving effect to increases in such amount after the date of the incurrence of such Indebtedness for Money Borrowed, or portion thereof, solely as the result of subsequent fluctuations in the exchange rate between United States Dollars and Canadian dollars) and shall be on terms (considered as a whole) not materially more onerous to the Borrower and the Lenders than those of Receivables Financings in existence on the date hereof. The Lenders hereby acknowledge and agree that any Receivables Financing purported to be structured as a sale of Receivables to StoneSub by the Borrower or a Participating Subsidiary and as to which the Borrower has received an opinion of counsel as to the sale nature thereof shall constitute a sale of such Receivables and not a loan from StoneSub secured by such Receivables. Nothing herein shall prevent the Borrower from alternatively structuring a Receivables Financing as the sale of Receivables by StoneSub to the Issuer, PROVIDED that any such Receivables Financing shall be subject to clause (iii) of the last sentence of SECTION 5.2.2(p) for all purposes of this Agreement. "ACQUISITION" is defined in SECTION 5.2.9. Appendix - Page 1 "ACQUIRING PERSON" means any person or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder as in effect on the date of this Agreement (the "EXCHANGE ACT")) who or which, together with all affiliates and associates (as defined in Rule 12b-2 under the Exchange Act) becomes the beneficial owner of shares of the Borrower having more than 50% of the total number of votes that may be cast for the election of directors of the Borrower; PROVIDED, HOWEVER, an Acquiring Person shall not include (i) the Borrower, (ii) any Subsidiary of the Borrower, (iii) any employee benefit plan of the Borrower or any Subsidiary of the Borrower or any entity holding common stock of the Borrower for or pursuant to the terms of any such plan, (iv) any descendant of Joseph Stone or the spouse of any such descendant, the estate of any such descendant or the spouse of any such descendant, any trust or other arrangement for the benefit of any such descendant or the spouse of any such descendant or any charitable organization established by any such descendant or the spouse of any such descendant (collectively, the "STONE FAMILY"), or (v) any group which includes any member or members of the Stone Family and a majority of the common stock held by such group is beneficially owned by such member or members (such a group is hereinafter referred to as a "STONE GROUP"). Notwithstanding the foregoing, no Person shall become an Acquiring Person as the result of an acquisition of common stock by the Borrower which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to more than 50% or more of the common stock of the Borrower then outstanding; PROVIDED, HOWEVER, that if a Person shall become the beneficial owner of more than 50% or more of the common stock of the Borrower then outstanding by reason of share purchases by the Borrower and shall, after such share purchases by the Borrower, become the beneficial owner of any additional common stock of the Borrower, then such Person shall be deemed to be an Acquiring Person. "ADDITIONAL COMMITMENT FEE" is defined in SECTION 3.8(b). "ADJUSTED WORKING CAPITAL" means the difference between Consolidated Current Assets (excluding cash and marketable securities) and Consolidated Current Liabilities. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person, whether through the ownership of voting securities, by contract or otherwise. "AGENT" is defined in the preamble to this Agreement. "AGENT'S ADMINISTRATIVE FEE" is defined in SECTION 3.10. "AGENT'S FEE" is defined in SECTION 3.9. Appendix - Page 2 "AGREEMENT" means this Credit Agreement, as the same may at any time be amended, supplemented or otherwise modified in accordance with the terms hereof and in effect. "AGREEMENT ACCOUNTING PRINCIPLES" is defined in SECTION 1.2. "ASSETS" is defined in SECTION 3.4(c). "ASSIGNEE" is defined in SECTION 9.12(d). "ASSIGNMENT AGREEMENT" is defined in SECTION 9.12(d). "AVAILABLE REVOLVING COMMITMENT" means, as to any Revolving Lender at any time, an amount equal to the excess, if any, of (i) such Lender's Revolving Loan Commitment over (ii) the sum of (A) the aggregate principal amount then outstanding of Revolving Loans made by such Lender and (B) such Lender's Revolving Loan Pro Rata Share of the L/C Obligations, Florence L/C Obligations and Swing Line Loans then outstanding. "BALANCE SHEET" is defined in SECTION 4.11(a). "BASIC AGREEMENTS" means, collectively, the Loan Documents, the Transaction Documents and all agreements amending any of the foregoing agreements. "BENEFITTED LENDER" is defined in SECTION 9.9(a). "BOARD" means the Board of Governors of the Federal Reserve System. "BORROWER" is defined in the preamble to this Agreement. "BORROWING" means the incurrence pursuant and subject to ARTICLE II of this Agreement of one Type of Loan by the Borrower from all of the Lenders having a Commitment for the Type of Loan subject to the Borrowing on a PRO RATA basis on a given date (or resulting from conversions on a given date), having in the case of Eurodollar Rate Loans, the same Interest Periods; PROVIDED, HOWEVER, that Prime Rate Loans or Eurodollar Rate Loans incurred pursuant to SECTION 2.13(b) shall be considered part of any related Borrowing of Eurodollar Rate Loans. "BORROWING MARGINS" and "BORROWING MARGIN" mean, respectively, (i) the borrowing margins referred to in SECTIONS 2.8(a), (b), (c), (d) AND (e), and (ii) any one of such borrowing margins. "BT" means Bankers Trust Company, a New York banking corporation. Appendix - Page 3 "BUSINESS DAY" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York or Chicago a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Rate Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the interbank Eurodollar market. "CANADIAN CREDIT AGREEMENTS" means the Canadian Revolving Credit Agreement and the Canadian Term Loan Agreement. "CANADIAN REVOLVING CREDIT AGREEMENT" means that certain Revolving Credit Agreement dated as of March 1, 1989, as amended, by and among Stone-Canada, BT Bank of Canada, as Administrative Agent, The Bank of Nova Scotia, as Payment Agent, Bankers Trust Company, as Collateral Agent, and the financial institutions signatory thereto. "CANADIAN TERM LOAN AGREEMENT" means that certain Credit Agreement dated as of March 1, 1989, as amended, by and among Stone-Canada, BT, as agent, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as co-agents, and the financial institutions signatory thereto. "CAPITAL EXPENDITURES" means, without duplication, with respect to the Borrower and any Subsidiary of the Borrower (other than S-CC and its Subsidiaries), any amounts expended or incurred during or in respect of a period for any purchase, exchange or other acquisition for value of any asset that is classified on a consolidated balance sheet of the Borrower prepared in accordance with generally accepted accounting principles as a fixed or capital asset; PROVIDED, HOWEVER, that in no event shall Capital Expenditures include amounts (i) expended in respect of replacements and maintenance consistent with the business practices of the Borrower in respect of plant facilities, machinery, fixtures and other like capital assets utilized in the ordinary conduct of business (to the extent such amounts are not capitalized in preparing a consolidated balance sheet in accordance with generally accepted accounting principles), (ii) expended in the replacement, repair or reconstruction of any fixed or capital asset which was destroyed or damaged, in whole or in part, to the extent of insurance proceeds are receivable or have been received by the Borrower or any such Subsidiary in respect of such destruction or damage, (iii) expended in the replacement of any fixed or capital asset within 180 days (or in the case of a disposition of collateral under the First Mortgage Note Indenture, within the time permitted for redeployment of the proceeds of the replaced fixed or capital asset pursuant to Section 1015 of such indenture) of the Appendix - Page 4 sale or other disposition of the fixed or capital asset replaced, to the extent of any cash or cash equivalent proceeds received by the Borrower or such Subsidiary in connection with such sale or other disposition of the fixed or capital asset replaced, (iv) expended for the purchase of the Facility pursuant to Section 10.01, 10.04 or 19.09 of the Leveraged Lease or (v) expended pursuant to any Financing Lease. "CASH EQUIVALENTS" means those Permitted Investments included in clauses (i)-(v) of the definition thereof, with the additional requirement that any such Permitted Investment must mature not more than 30 days after the date of its purchase. "CASH FLOW COVERAGE RATIO" means, for a period of four quarters ending on the most recent quarter end prior to the date of computation (treating each such period as a single accounting period) on a consolidated basis, a ratio of (a) the sum of (i) Consolidated Net Income of the Borrower (before income taxes) plus (ii) interest expense (net of interest income on Permitted Investments) during such period plus (iii) depreciation and amortization deducted in determining Consolidated Net Income for such period minus (iv) Capital Expenditures of the Borrower other than Capital Expenditures made through the utilization of Discretionary Funds to (b) interest expense (net of interest income on Permitted Investments) during such period. "CB" means Consolidated-Bathurst Inc., a Canadian federal corporation, and its successors and assigns. "CERTIFICATES OF OWNERSHIP AND MERGER" means (i) the Certificate of Ownership and Merger of Stone Container Corporation, a Delaware corporation, dated as of _____________, 1994, executed by the Borrower and each of Stone Connecticut Paperboard Corporation, Stone Mill Operating Corporation, Stone Bag Corporation, Stone Packaging Corporation, Stone-Consolidated Newsprint, Inc. and Stone Packaging Systems, Inc. (the "STONE MERGER SUBSIDIARIES"), merging the Stone Merger Subsidiaries with and into the Borrower and filed with the Delaware Secretary of State on ______________, 1994 and (ii) the Certificate of Ownership and Merger of Stone Southwest, Inc., a Delaware corporation, dated as of ______________, 1994, executed by Stone Southwest and each of Stone Hodge, Inc., Stone Hopewell, Inc., Manufacturers Folding Carton, Inc. and Stone Corrugated, Inc. (the "STONE SOUTHWEST MERGER SUBSIDIARIES"), merging the Stone Southwest Merger Subsidiaries with and into Stone Southwest and filed with the Delaware Secretary of State on _________, 1994. "CHANGE OF CONTROL" means any event by which (i) an Acquiring Person has become such, or (ii) Continuing Directors cease to comprise a majority of the members of the board of directors of the Borrower. Appendix - Page 5 "CLOSING DATE" means the date of the initial funding of the Loans upon the satisfaction of the conditions precedent set forth in SECTION 6.1, which date shall not be later than November 30, 1994. "CLUSTER EXPENDITURES" means capital expenditures mandated pursuant to, or made to comply with, the final adopted version, if any, of the proposed rules promulgated by the Environmental Protection Agency at 58 Fed. Reg. 66078 (December 17, 1993) with respect to Effluent Limitations Guidelines, Pretreatment Standards, and New Source Performance Standards: Pulp, Paper, and Paperboard Category; National Emission Standards for Hazardous Air Pollutants for Source Category: Pulp and Paper Production. "CO-AGENTS" and "CO-AGENT" have the respective meanings assigned to such terms in the introduction to this Agreement. "CODE" means the Internal Revenue Code of 1986, as from time to time amended, including the regulations proposed or promulgated thereunder, or any successor or regulation proposed or promulgated thereunder. "COLLATERAL" has the meaning assigned to that term in the Security Agreements and shall include the inventory, machinery and equipment of the Borrower or a Subsidiary, as applicable, located at the Mortgaged Property. "COLLATERAL BENEFITTED LENDER" is defined in SECTION 9.9(b). "COMMERCIAL LETTERS OF CREDIT" means the commercial Letters of Credit issued by the Facing Agent for the account of Borrower pursuant to SECTION 2.12, each of which is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by the Borrower or any of its Subsidiaries in the ordinary course of its business. "COMMITMENT" means, with respect to each Lender, the aggregate of the Revolving Loan Commitment and the Term Loan Commitment of such Lender and "COMMITMENTS" means such commitments of all of the Lenders collectively. For purposes of this definition, the Revolving Loan Commitment of the Swing Line Lender shall be deemed to include the Swing Line Commitment of the Swing Line Lender. "COMMITMENT FEE" is defined in SECTION 3.7(a). "CONSOLIDATED CURRENT ASSETS" means, subject to the last sentence of SECTION 1.2, as at the time any determination thereof is to be made, the amount, without duplication, that is classified on a consolidated balance sheet of the Borrower and its Appendix - Page 6 Subsidiaries as the consolidated current assets of the Borrower and its Subsidiaries at such time in accordance with generally accepted accounting principles; PROVIDED, HOWEVER, that there shall be excluded from the calculation of Consolidated Current Assets any insurance receivables (net of related payables) relating to the April, 1994 occurrence at the Panama City Mill. "CONSOLIDATED CURRENT LIABILITIES" means, subject to the last sentence of SECTION 1.2, as at the time any determination thereof is to be made, all Indebtedness of the Borrower and its Subsidiaries, without duplication, that is included as consolidated current liabilities on a consolidated balance sheet of the Borrower and its Subsidiaries in accordance with generally accepted accounting principles, except that there shall be excluded from Consolidated Current Liabilities (i) fixed sinking fund payments, (ii) mandatory redemption and other payments of principal outstanding or due (whether as a result of an acceleration or otherwise), (iii) other mandatory prepayments required to be made with respect to any Indebtedness for Money Borrowed within one year after such date of determination, (iv) any other Indebtedness for Money Borrowed maturing on demand and (v) all outstanding Revolving Loans and Swing Line Loans under this Agreement. "CONSOLIDATED NET INCOME" AND "CONSOLIDATED NET LOSS" mean, respectively, subject to the last sentence of SECTION 1.2, with respect to any period, the aggregate of the net income (loss) (before taking account of minority interests) of the Borrower and its Subsidiaries for such period, determined in accordance with generally accepted accounting principles on a consolidated basis, PROVIDED that (i) in the case of any Person which is not a consolidated Subsidiary, the net income (loss) of such Person shall be disregarded and the amount of cash dividends and distributions paid by such Person to the Borrower or a consolidated Subsidiary of the Borrower shall be included in the net income (loss) of the Borrower; and (ii) 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 the excess (but not the deficit), if any, of (A) any gain which must be treated as an extraordinary item under generally accepted accounting principles 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 Borrower or a Subsidiary of the Borrower over (B) any loss which must be treated as an extraordinary item under generally accepted accounting principles 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 Borrower or a Subsidiary of the Borrower. "CONSOLIDATED NET WORTH" of the Borrower means, subject to the last sentence of SECTION 1.2, as at the time any determination thereof is made, without duplication, an amount equal Appendix - Page 7 to the sum of (i) the Borrower's total common stockholders' equity (excluding treasury stock, the effects of FASB 115 and excluding the effects of foreign currency translation adjustments) and (ii) the amount of the Permitted Preferred Stock. "CONSOLIDATED TANGIBLE NET WORTH" of the Borrower means, subject to the last sentence of SECTION 1.2, as at the time any determination thereof is made, without duplication, an amount equal to (i) the sum of (A) the Borrower's total common stockholders' equity (excluding treasury stock, the effects of FASB 115 and excluding the effects of foreign currency translation adjustments) and (B) the amount of the Permitted Preferred Stock, MINUS (ii) the net book value of all assets of the Borrower and its Subsidiaries which would be treated as intangibles under generally accepted accounting principles, including, without limitation, deferred charges, leasehold conversion costs, franchise rights, non-compete agreements, goodwill, unamortized debt discounts, patents, patent applications, trademarks, trade names, copyrights and licenses, except for any such intangibles of Southwest Forest Industries, Inc. or CB created as the result of the acquisition of either thereof. "CONTAMINANT" means 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 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, waste, or breakdown or decomposition product thereof, or any constituent of any such substance or waste. "CONTINENTAL GUARANTY" means the Guaranty dated as of August 30, 1983 between The Continental Group, Inc., a New York corporation, and the Borrower, as amended from time to time. "CONTINUING DIRECTOR" means any member of a board of directors, while such Person is a member of such board of directors who is not an Acquiring Person, or an affiliate or associate of an Acquiring Person or a representative of an Acquiring Person or of any such affiliate or associate and who (i) was a member of such board of directors prior to the date of this Agreement, or (ii) subsequently becomes a member of such board of directors and whose nomination for election or election to such board of directors is recommended or approved by resolution of a majority of the Continuing Directors or who is included as a nominee in a proxy statement of the Borrower distributed when a majority of such board of directors consists of Continuing Directors. Appendix - Page 8 "CONVERTIBLE INDENTURE" means the Indenture dated as of June 15, 1993 between the Borrower and Norwest Bank Minnesota, National Asssociation, at Trustee, as amended, supplemented, restated or otherwise modified from time to time. "CONVERTIBLE SUBORDINATED INDENTURE" means the Indenture dated as of February 15, 1992 between the Borrower and The Bank of New York, as Trustee, pursuant to which the Borrower issued its 6-3/4% Convertible Subordinated Debentures due February 15, 2007, as amended, supplemented, restated or otherwise modified from time to time. "CP&L PROPERTY" means any intangible property or contract rights of the Borrower relating to or existing under that certain Electric Power Purchase Agreement dated as of December 17, 1984, as amended, between the Borrower and Carolina Power & Light. "CREDIT EVENT" means the making of any Loan and the issuance of any Letter of Credit. "CREDIT EXPOSURE" is defined in SECTION 9.12(c). "DEBT BASKET PROCEEDS" is defined in the definition of "Discretionary Funds." "DEBT REFINANCING" means the termination of the U.S. Credit Agreement, the Canadian Credit Agreements and the Stone Savannah Credit Agreement and the repayment in full of all obligations outstanding thereunder. "DEBT REFINANCING DOCUMENTS" means the documents and instruments entered into with respect to the termination of the commitments, and the reimbursement obligations with respect to any letters of credit issued, under the U.S. Credit Agreement, the Canadian Credit Agreements and the Stone Savannah Credit Agreement, the repayment of the loans and other obligations thereunder, the release of all guaranties and security with respect thereto and any consents required in connection therewith. "DEFAULT RATE" is defined in SECTION 2.8(f). "DELAYED COLLATERAL" is defined in SECTION 5.1.17. "DEPOSITED MONIES" is defined in SECTION 3.5. "DISCRETIONARY FUNDS" means the sum of (i) the aggregate amount of Waived Proceeds, PLUS (ii) the aggregate amount of Excluded Sale Proceeds (not to exceed $200 million), PLUS (iii) the aggregate amount of Indebtedness incurred pursuant to SECTION 5.2.2(t) (not to exceed $200 million) ("DEBT BASKET PROCEEDS"), PLUS (iv) the aggregate amount of Excess Cash Flow for each Fiscal Year of the Borrower commencing with Fiscal Year 1994 which is not Appendix - Page 9 required by SECTION 3.4(A) to be utilized as a mandatory prepayment, such amount to be determined without giving effect to any prepayment waiver pursuant to SECTION 3.6(F) and such amount with respect to any Fiscal Year becoming Discretionary Funds only after the delivery of the Excess Cash Flow Schedule for such Fiscal Year pursuant to SECTION 5.1.1(C). "DISCRETIONARY FUNDS BASKET" means, at any time, (i) the aggregate amount of Discretionary Funds less (ii) the aggregate amount of the sum of (A) Investments made pursuant to SECTION 5.2.7(L), (B) Acquisitions pursuant to SECTION 5.2.9(E)(II), (C) prepayments of Indebtedness pursuant to SECTION 5.2.10(A)(IX), and (D) Capital Expenditures made pursuant to SECTION 5.2.11(III). Any utilization of Discretionary Funds for the purpose specified in clause (C) above shall first be deemed a utilization of Debt Basket Proceeds to the extent thereof and then a utilization of other Discretionary Funds. "DIVIDEND BASKET" means, at any time, the maximum amount of cash dividends which the Borrower would then be permitted to pay to its shareholders pursuant to SECTION 5.2.5(B). "DOLLAR" and "$" shall mean lawful currency of the United States of America unless a currency of another country is specifically designated. "ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the laws of the United States of America, or any State thereof, and having total assets in excess of $5,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States of America, or any State thereof, and having total assets in excess of $5,000,000,000; or (iii) a commercial bank which is organized under the laws of any other country, and which has total assets in excess of $5,000,000,000, PROVIDED that such bank is acting through a branch or agency located in the United States of America. "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 Borrower or any of its Subsidiaries or any ERISA Affiliate. "ENVIRONMENTAL LAWS" means any and all applicable foreign, federal, state or local laws, statutes, ordinances, codes, rules, regulations, orders, decrees, judgments, 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 amended, and as amended hereafter: the defined in 42 U.S.C. Section 6903(5)), Federal Water Pollution Control Act, 33 U.S.C. Section 1251 ET SEQ., the Clean Air Act, 42 U.S.C. Section 7401 ET SEQ., Appendix - Page 10 the Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., the Solid Waste Disposal Act, 42 U.S.C. Section 6901 ET SEQ., the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 ET SEQ., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C Section 11001 ET SEQ., and the Safe Drinking Water Act, 42 U.S.C. Section 300f ET SEQ. "ENVIRONMENTAL LIEN" means a Lien in favor of any governmental authority for (i) any liability under foreign, federal, state or local environmental laws or regulations, 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" is defined in SECTION 4.21. "ENVIRONMENTAL STUDY" means those certain environmental assessments and documents upon which such assessments are based of the Facilities prepared by EnviroClean Midwest, Inc. with regard to the existing and potential liability of the Borrower with respect to any environmental matters, including a review of compliance with Environmental Laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. "ERISA AFFILIATE" means each trade or business (whether or not incorporated) which together with the Borrower or a Subsidiary of the Borrower would be deemed to be a "single employer" within the meaning of Section 4001(b) of ERISA or Section 414 of the Code, excluding any foreign Subsidiary of the Borrower which is not subject to ERISA. "EURODOLLAR RATE" means, with respect to each Interest Period to be applicable to a Eurodollar Rate Loan, the rate per annum obtained by dividing (i) the arithmetic average (rounded upward to the nearest 1/16th of 1%) of the offered quotation to first-class banks in the interbank Eurodollar market by each Reference Bank for U.S. Dollar deposits of an amount in immediately available funds approximately equal to the principal amount of the Eurodollar Rate Loan to be made by such Reference Bank for a period approximately equal to such Interest Period determined as of 10:00 a.m. (New York City time) two (2) Business Days prior the commencement of such Interest Period, PROVIDED that if any Reference Bank fails to provide the Agent in a timely fashion with its aforesaid quotation then the Eurodollar Rate shall be calculated using the arithmetic average of the quotations provided to the Agent by the other Reference Bank or Banks by (ii) a percentage equal to 100% minus the stated maximum rate (expressed as a percentage) as prescribed by the Board of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves and all reserves Appendix - Page 11 required to be maintained against "Eurocurrency liabilities" as specified in Regulation D (or any successor regulation)) applicable on the first day of such Interest Period to any member bank of the Federal Reserve System in respect of Eurodollar funding or liabilities. The determination of the Eurodollar Rate by the Agent shall be conclusive and binding on the Borrower and the Lenders absent manifest error. "EURODOLLAR RATE LOAN" means any Loan which bears interest at a rate determined with reference to the Eurodollar Rate. "EURODOLLAR RATE REVOLVING LOAN" means a Revolving Loan or any portion thereof during any period in which it bears interest at the Eurodollar Rate. "EURODOLLAR RATE TERM LOAN" means the Term Loan or any portion thereof during any period in which it bears interest at a rate determined with reference to the Eurodollar Rate. "EVENT OF DEFAULT" is defined in SECTION 7.1. "EXCESS CASH FLOW" means, without duplication, for any Fiscal Year, an amount equal to the sum of (i) Consolidated Net Income (or Consolidated Net Loss), PLUS (MINUS) (ii) depreciation, depletion, amortization, deferred taxes and other noncash expenses (revenues) which, pursuant to generally accepted accounting principles, were deducted (added) in determining the Consolidated Net Income, MINUS (PLUS) (iii) the increase (decrease) in Adjusted Working Capital from the last day of the prior Fiscal Year (excluding changes in income taxes payable), MINUS (iv) Capital Expenditures (other than Capital Expenditures incurred through the utilization of Indebtedness for Money Borrowed permitted by SECTION 5.2.2(K) or Discretionary Funds and other than Capital Expenditures of Seminole Kraft, S-CC and Subsidiaries of S-CC) for such Fiscal Year, MINUS (v) the amount of any required prepayment (except (A) under this Agreement (including as the result of mandatory reductions in the Revolving Loan Commitments) and (B) under the First Mortgage Note Documents in connection with the sale of any collateral securing the Indebtedness thereunder) or any regularly scheduled payments of Indebtedness for Money Borrowed (but excluding Indebtedness for Money Borrowed described in subparagraphs (iv) or (vi) of the definition of Indebtedness for Money Borrowed) during such year, MINUS (vi) cash dividends, distributions or other amounts paid by the Borrower to any of its stockholders with respect to its capital stock during such year, MINUS (vii) Investments by the Borrower or any Subsidiary of the Borrower (other than Seminole Kraft, S-CC and Subsidiaries of S-CC) during such year except for Investments made through the utilization of Discretionary Funds, MINUS (viii) any portion of Consolidated Net Income attributable to gains (losses) on the disposition of assets to the extent the proceeds therefrom were Appendix - Page 12 used pursuant to SECTION 3.4(c) to prepay the Obligations, MINUS (ix) dividends paid by non-Wholly-Owned Subsidiaries of the Borrower to minority shareholders other than the Borrower or Wholly-Owned Subsidiaries of the Borrower, PLUS (x) the increases in the aggregate principal amount of borrowings by StoneSub from the Issuer in connection with each Receivables Financing from (A) the later of (1) the beginning of the year for which the calculation is being made or (2) the date on which the applicable Receivables Financing commenced (if established during such year) to (B) the end of such year, MINUS (xi) the decreases in the aggregate principal amount of borrowings (other than as the result of a refinancing of such borrowings from a source other than internally generated cash or Borrowings hereunder) by StoneSub from the Issuer in connection with each Receivables Financing from (A) the later of (1) the beginning of the year for which the calculation is being made or (2) the date on which the applicable Receivables Financing commenced (if established during such year) to (B) the end of such year. "EXCESS CASH FLOW PERCENTAGE" means 50% from the date of this Agreement and continuing thereafter until adjusted pursuant to the terms and conditions set forth on SCHEDULE 1.1(b) hereto. "EXCESS CASH FLOW SCHEDULE" is defined in SECTION 5.1.1(c). "EXCLUDED SALE PROCEEDS" is defined in SECTION 3.4(c). "EXECUTIVE OFFICER" means from time to time any officer of the Borrower elected by the board of directors of the Borrower or designated as an executive officer in any Form 10-K or successor form filed by the Borrower with the Securities and Exchange Commission. "FACILITIES" means the owned and leased facilities of the Borrower set forth on SCHEDULE 1.1(c) hereto. "FACILITY" has the meaning assigned to that term in the Participation Agreement. "FACILITY FEE" is defined in SECTION 3.8(a) of this Agreement. "FACING AGENT" means BT or such other Revolving Lender as may from time to time have been designated as such by the Borrower and shall have agreed in writing to act in such capacity. "FEDERAL FUNDS RATE" means on any given day, the rate per annum equal to the weighted average 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 Appendix - Page 13 is not so published, the rate then used by first class banks in extending overnight loans to other first class banks. "FINANCING 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 generally accepted accounting principles. "FINANCING LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Financing Lease which would at such time be so required to be capitalized on the lessee's balance sheet in accordance with generally accepted accounting principles. "FIRST MORTGAGE NOTE DOCUMENTS" means the First Mortgage Note Indenture, the First Mortgage Notes, the Security Documents (as such term is defined in the First Mortgage Note Indenture) and all other documents, instruments and agreements now or hereafter evidencing or securing all or any portion of the Borrower's obligations under the First Mortgage Note Indenture and the First Mortgage Notes, including any documents, instruments or agreements evidencing or securing the amendment, refinancing, modification, replacement, renewal, restatement, refunding, deferral, extension, supplement, reissuance or resale thereof. "FIRST MORTGAGE NOTE INDENTURE" means the Indenture dated as of _________________, 1994 between the Borrower and Norwest Bank Minnesota, National Association, as Trustee, pursuant to which the Borrower issued its First Mortgage Notes, as amended, supplemented, restated or otherwise modified from time to time. "FIRST MORTGAGE NOTES" means the Borrower's ____% First Mortgage Notes due 2002 in the aggregate principal amount of $500 million and issued pursuant to the First Mortgage Note Indenture, as amended, supplemented, restated or otherwise modified from time to time. "FLORENCE AGREEMENTS" mean, collectively, (i) the Participation Agreement dated as of March 1, 1985 among the Borrower, as successor in interest to Stone Container Corporation, an Illinois corporation, the Borrower, as Ground Lessor, Dart & Kraft Financial Corporation, Irving Trust Company and NCNB National Lender of North Carolina (as amended and Supplemented by the First Supplement thereto dated as of June 1, 1986, as further amended and supplemented by the Second Supplement thereto dated as of June 1, 1987, and as further amended and supplemented and in effect from time to time, the "D&K Participation Agreement"), (ii) each of the "Basic Documents" as defined in Appendix A to the D&K Participation Agreement, (iii) the Participation Agreement dated as of March 1, 1985 among the Borrower, as successor in interest to Stone Container Corporation, an Illinois corporation, the Borrower, as Appendix - Page 14 Ground Lessor, Westinghouse Credit Corporation ("WCC"), Irving Trust Company and NCNB National Lender of North Carolina (as amended and supplemented by the First Supplement thereto dated as of June 1, 1986, and as further amended and supplemented by the Second Supplement thereto dated as of June 1, 1987, and as further amended and supplemented and in effect from time to time, the "WCC PARTICIPATION AGREEMENT"), (iv) each of the "Basic Documents" defined in Appendix A to the WCC Participation Agreement, and (v) the Transfer and Assumption Agreement dated as of March 1, 1987 between D&K Financial Corporation ("D&K") and WCC, together with such additional documents as have been executed in connection with the transfer by D&K of a portion of its interest in the D&K Participation Agreement to WCC. "FLORENCE BONDS" means the Variable Rate Demand Industrial Revenue Bonds, Series 1984, issued by Florence County, South Carolina pursuant to the Trust Indenture dated as of December 15, 1984 as in effect on the date of this Agreement. "FLORENCE L/C OBLIGATIONS" means, at any time of determination, the sum of (i) the aggregate undrawn face amount of the Florence Letters of Credit, plus (ii) the amount of any drawings under the Florence Letters of Credit which have not been reimbursed pursuant to the L/C Agreement, plus (iii) the principal amount of any term loans outstanding under the L/C Agreement. "FLORENCE LETTERS OF CREDIT" means, individually and collectively, the letters of credit from time to time issued pursuant to the L/C Agreement. "FORECASTS" is defined in SECTION 4.11(c). "GOVERNMENT ACTS" is defined in SECTION 2.12(i). "GOVERNMENTAL AUTHORITY" means any foreign, Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. "INDEBTEDNESS" means, with respect to any Person, without duplication: (a) all obligations of such Person which in accordance with generally accepted accounting principles would be shown on the balance sheet of such Person as a liability (including, without limitation, obligations for borrowed money and for the deferred purchase price of property or services, and obligations evidenced by bonds, debentures, notes or other similar instruments); (b) all obligations under Financing Leases, required to be capitalized under generally accepted accounting principles; Appendix - Page 15 (c) all guarantees (direct or indirect), all contingent reimbursement obligations under undrawn letters of credit and other contingent obligations of such Person in respect of, or obligations to purchase or otherwise acquire or to assure payment of, Indebtedness of others; (d) Indebtedness of others secured by any Lien upon property owned by such Person, whether or not assumed; and (e) all sinking fund payments or other mandatory redemption or payments on preferred or preference stock due on or prior to July 15, 2000 (other than preferred or preference shares issued to the Borrower by Stone-Canada). "INDEBTEDNESS FOR MONEY BORROWED" means, without duplication, (i) the principal amount of all Indebtedness of the Borrower or a Subsidiary of the Borrower, as the case may be, current or funded, secured or unsecured, incurred in connection with borrowings (including the sale of debt securities), (ii) all Indebtedness of the Borrower or a Subsidiary of the Borrower, as the case may be, issued, incurred or assumed in respect of the purchase price of property except for trade and intercompany accounts payable, (iii) all Financing Lease Obligations of the Borrower or a Subsidiary of the Borrower, as the case may be, (iv) any direct or indirect guarantee in respect of Indebtedness of any other Person of any of the types specified in the preceding clauses (i)-(iii), (v) the amount of all Indebtedness described in subsection (e) of the definition of Indebtedness, and (vi) the maximum stated amount from time to time available for drawing under the letters of credit issued pursuant to the L/C Agreement plus the amount of any unreimbursed drawings under the letters of credit plus (without duplication) the amount of any "Term Loans" outstanding under the L/C Agreement. "INDEBTEDNESS RATIO" means, as at the time any determination thereof is to be made, a ratio, the numerator of which shall be Total Consolidated Indebtedness for Money Borrowed and the denominator of which shall be the sum of (i) Consolidated Net Worth and (ii) Total Consolidated Indebtedness for Money Borrowed. For purposes of calculating the Indebtedness Ratio, Total Consolidated Indebtedness for Money Borrowed shall not include the aggregate principal amount of proceeds from Indebtedness incurred on the Closing Date which have been deposited and remain in escrow with the trustee of the Stone Savannah Senior Subordinated Note Indenture pursuant to SECTION 6.1(l)(iv) or Indebtedness which has been defeased and is no longer treated as Indebtedness for purposes of generally accepted accounting principles. "INITIAL LOANS" means the Term Loan and, if any Revolving Loans or Swing Line Loans are requested by the Borrower on the Closing Date, such Revolving Loans or Swing Line Loans. Appendix - Page 16 "INTEREST COVERAGE RATIO" means, for the period of four quarters ending on the most recent quarter end prior to the date of computation (treating each such period as a single accounting period) on a consolidated basis, a ratio of (a) the sum of (i) Consolidated Net Income of the Borrower (before income taxes) plus (ii) interest expense (net of interest income on Permitted Investments) during such period plus (iii) depreciation and amortization deducted in determining Consolidated Net Income for such period to (b) interest expense (net of interest income on Permitted Investments) during such period. "INTEREST PERIOD" means any interest period applicable to a Loan as determined pursuant to SECTION 2.10. "INTEREST RATE DETERMINATION DATE" means any date on which the Agent is required to determine the applicable Eurodollar Rate in connection with a Notice of Borrowing or Notice of Conversion or Continuation delivered by the Borrower. "INVESTMENT" means, with respect to any Person (such Person being referred to in this definition as the "INVESTOR"), any amount paid by the Investor, directly or indirectly, or any transfer of property, directly or indirectly, by the Investor to any other Person for capital stock of, or as a capital contribution to, or any amount which the Investor has loaned or advanced, directly or indirectly, to, any other Person, including, in the case of any Person (other than Seminole Kraft) which becomes a Subsidiary of the Borrower, the aggregate principal amount of Indebtedness for Money Borrowed of such Person outstanding at the time such Person becomes a Subsidiary. The calculation of any Investment shall be exclusive of amounts paid for goods or services in the ordinary course of business on terms customary for the industry. "INVESTMENT GRADE RATING" means a rating of the Borrower's senior unsecured long-term debt outstanding, without third-party enhancement, by Standard & Poor's Corporation of BBB- or better and by Moody's Investor Services, Inc. of Baa3 or better. "IRB" means industrial revenue bonds and other debt instruments set forth on SCHEDULE 5.2.2 hereto. "ISSUER" has the meaning assigned to that term in the definition of Accounts Receivable Financing Program. "L/C AGREEMENT" means, collectively, the letter of credit agreements entered into between (i) BT and Gelco Corporation, as successor in interest to D & K Financial Corporation, and (ii) BT and Westinghouse Electric Corporation, as successor by merger to Westinghouse Credit Corporation, with respect to the issuance by BT of one or more letters of credit to secure the Florence Bonds, as Appendix - Page 17 such letter of credit agreements may at any time be amended, modified or restated in accordance with the terms thereof and in effect. "L/C OBLIGATIONS" means, at any time, an amount equal to the sum of (i) the aggregate Stated Amount of the then outstanding Letters of Credit and (ii) the aggregate amount of drawings under Letters of Credit which have not been reimbursed and which have not been converted to Revolving Loans pursuant to SECTION 2.12(e). "L/C PARTICIPATION AGREEMENTS" means, collectively, the Letter of Credit Participation Agreements entered into by and between each Revolving Lender (other than BT) and BT dated as of the date hereof with respect to the L/C Agreement, as the same may at any time be amended, supplemented, restated or otherwise modified in accordance with the terms thereof and in effect. "LENDING OFFICE" means for each Lender, the office specified for such Lender pursuant to SECTION 9.4 as the office from which its Revolving Loan Pro Rata Share or Term Loan Pro Rata Share, as the case may be, of any Borrowing will be made. "LETTER OF CREDIT FEE" is defined in SECTION 2.12(f)(ii). "LETTERS OF CREDIT" means the Commercial Letters of Credit and the Standby Letters of Credit, but shall not include the Florence Letters of Credit. "LENDERS" and "LENDER" have the respective meanings assigned to those terms in the preamble to this Agreement and shall include each Assignee and Eligible Assignee thereof that shall become a party to this Agreement pursuant to SECTION 9.12. For purposes of this Agreement, the Lenders shall collectively include all of the Revolving Lenders in their capacities as such, all Term Lenders in their capacities as such and the Swing Line Lender in its capacity as such. A Lender may be both a Revolving Lender and a Term Lender hereunder. "LEVERAGED LEASE" means, collectively, (i) the Lease Agreement dated as of March 1, 1985 between the Borrower and D&K Financial Corporation as amended from time to time and (ii) the Lease Agreement dated as of March 1, 1985 between the Borrower and Westinghouse Credit Corporation as amended from time to time. "LIEN" means any mortgage, pledge, security interest, adverse claim (as defined in Section 8.302(2) of the New York Uniform Commercial Code), encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale of receivables with recourse against the seller or any Affiliate of the seller, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute Appendix - Page 18 other than to reflect ownership by a third party of property leased to the Borrower or any of its Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement). "LOAN" means any of the Term Loan, the Revolving Loans or the Swing Line Loans and "LOANS" means all of such Loans collectively. "LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the Security Agreements, the Mortgages, the Subsidiary Guarantees, the L/C Agreement, the L/C Participation Agreement, the Florence Letters of Credit and all other agreements, assignments, security agreements, instruments and documents executed in connection with this Agreement or any other Loan Document, in each case as the same may at any time be amended, supplemented, restated or otherwise modified and in effect. For purposes of this Agreement, "Loan Documents" shall also include all guaranties, security agreements, mortgages, pledge agreements, collateral assignments and other collateral documents in the nature of any thereof entered into by the Borrower or any Subsidiary of the Borrower after the date of this Agreement in favor of the Agent for the benefit of the Lenders in satisfaction of the requirements of this Agreement. "MAJORITY TERM LENDERS" is defined in SECTION 9.2. "MARGIN STOCK" has the meaning provided in Regulation U of the Board, as from time to time in effect or any successor to all or any portion thereof establishing margin credit restrictions. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the properties, business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower or any Subsidiary to perform its obligations under any of the Loan Documents or (iii) the validity or enforceability or any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder. "MATERIAL LIABILITIES" is defined in SECTION 4.11(d). "MATERIAL SALE PROCEEDS is defined in SECTION 3.4(c). "MAXIMUM COMMITMENT" means, when used with reference to any Lender, the aggregate amount of such Lender's Term Loan Commitment and Revolving Loan Commitment in the amounts not to exceed those set forth opposite such Lender's name on SCHEDULE 1.1(A) hereto under the caption "Amount of Maximum Commitment", subject to reduction from time to time in accordance with the terms of this Agreement. For purposes of this definition, the Revolving Loan Commitment of the Swing Line Lender shall be deemed to include the Swing Line Commitment of the Swing Line Lender. Appendix - Page 19 "MERGERS" means the merger of (i) the Stone Merger Subsidiaries with and into the Borrower, with the Borrower being the surviving corporation and (ii) Stone Southwest Merger Subsidiaries with and into Stone Southwest, with Stone Southwest being the surviving corporation. "MERGER DOCUMENTS" means the Certificates of Ownership and Merger along with all of the agreements, documents, resolutions, consents, instruments and certificates executed in order to effect the transactions contemplated by the Certificates of Ownership and Merger. "MORTGAGED PROPERTY" means, collectively, all of the properties of the Borrower and the Subsidiaries of the Borrower defined as "Mortgaged Property" in each of the respective Mortgages and shall include the fee or leasehold interests of the Borrower or a Subsidiary in the manufacturing facilities identified on SCHEDULE 1.1(c) hereto. "MORTGAGES" means, collectively, (i) the mortgages and leasehold mortgages in substantially the form of EXHIBIT 1.1(D) hereto (with such state by state modifications as may be appropriate) as required by the Agent, each dated as of the date hereof (subject to SECTION 5.1.17) and each by the Borrower or a Subsidiary, as applicable, as mortgagor, in favor of the Agent for the benefit of the Lenders (or its designee), as mortgagee, relating to the Mortgaged Property, and (ii) any other mortgage, leasehold mortgage, deed of trust, collateral assignment of lease or similar agreement executed by the Borrower or a Subsidiary of the Borrower pursuant to which such Person shall have granted a mortgage, leasehold mortgage or other Lien to the Agent for the benefit of the Lenders, as each such agreement may at any time be amended, supplemented, restated or otherwise modified in accordance with the terms thereof and in effect. "MOST RECENT BALANCE SHEET" means the most recent consolidated balance sheet of the Borrower and its Subsidiaries delivered to the Agent and each Lender pursuant to SECTION 5.1.1(b)(i). "MULTIEMPLOYER PLAN" means any plan described in Section 4001(a)(3) of ERISA and not excluded pursuant to Section 4021(b) thereof to which contributions are or have been made by the Borrower or any of its Subsidiaries or any ERISA Affiliate. "NET AWARDS" is defined in the Mortgages. "NET PROCEEDS" is defined in the Mortgages. "NEW RECEIVABLES FINANCING" is defined in SECTION 5.2.2(p). Appendix - Page 20 "NOTE" means any of the Term Notes, Revolving Notes or the Swing Line Note and "NOTES" means all of such promissory notes collectively. "NOTE PROSPECTUS" means the Prospectus for the First Mortgage Notes and the Senior Notes dated October ___, 1994. "NOTICE OF BORROWING" is defined in SECTION 2.5. "NOTICE OF CONVERSION OR CONTINUATION" is defined in SECTION 2.6. "NOTICES" is defined in SECTION 9.4. "OBLIGATIONS" means the Term Loan Obligations, the Revolving Loan Obligations, the Swing Line Loan Obligations, the L/C Obligations and all other liabilities and obligations of the Borrower and any Subsidiary of the Borrower now or hereafter arising under this Agreement or any of the other Loan Documents, whether for principal, interest, reimbursements, fees, expenses, indemnities or otherwise, and whether primary, secondary, direct, indirect, contingent, fixed or otherwise (including obligations of performance). "OFFSITE PROPERTY" is defined in SECTION 5.1.15. "PARTICIPANTS" is defined in SECTION 9.12(c). "PARTICIPATING SUBSIDIARY" means any Wholly-Owned Subsidiary of the Borrower which is a participant in the Accounts Receivable Financing Program with respect to one or more business lines thereof; PROVIDED, HOWEVER, that in no event shall Seminole Kraft, S-CC or any of its Subsidiaries or any Wholly-Owned Subsidiary which is not domiciled in the United States or Canada be a Participating Subsidiary. "PARTICIPATION AGREEMENTS" means, collectively, the D&K Participation Agreement and the WCC Participation Agreement (as each of such terms is defined within the definition of "Florence Agreements") and "PARTICIPATION AGREEMENT" means either of such Agreements. "PAYMENT OFFICE" is defined in SECTION 2.7. "PBGC" means the Pension Benefit Guaranty Corporation created by Section 4002(a) of ERISA. "PERMITTED BENEFICIARY" means any insurance company, state workers' compensation authority, state or Federal environmental agency, related trustee or surety, local utility, municipality, other domestic or foreign Governmental Authority, any vendor of goods or services being purchased by the Borrower or any Appendix - Page 21 of its Subsidiaries, any domestic or foreign financial institution, or any other Person approved by the Facing Agent, in its sole discretion. "PERMITTED INVESTMENTS" mean (i) any evidence of indebtedness, maturing not more than one year after the date of issue, issued by the United States of America, or any instrumentality or agency thereof and guaranteed fully as to principal, interest and premium, if any, by the United States of America, (ii) any certificate of deposit, maturing not more than 360 days after the date of purchase issued by a commercial banking institution which is a member of the Federal Reserve System or a Canadian banking institution and which has a combined capital and surplus and undivided profits of not less than $200 million, (iii) commercial paper, maturing not more than 360 days after the date of purchase, issued by a corporation (other than the Borrower or any Subsidiary of the Borrower or any of their respective Affiliates) organized and existing under the laws of (A) any state within the United States of America with a rating, at the time of purchase, of "P-2" (or higher) according to Moody's Investors Service, Inc. or "A-2" (or higher) according to Standard & Poor's Corporation, or (B) solely with respect to Permitted Investments made by a foreign Subsidiary, any foreign country with a rating equivalent to that specified in clause (A) above, (iv) demand deposits with any bank or trust company, (v) investments in money market funds having a rating from each of Moody's Investors Service, Inc. and Standard & Poor's Corporation in the highest investment category granted thereby (including without limitation funds for which any Lender, the Agent or any Co-Agent is investment manager or adviser), (vi) reverse repurchase agreements with respect to indebtedness issued by the United States of America, or any instrumentality or agency thereof and guaranteed fully as to principal, interest and premium, if any, by the United States of America, and (vii) in the case of foreign Subsidiaries of the Borrower, short-term investments comparable to the foregoing. "PERMITTED LIENS" means with respect to any Person: (a) Liens existing on the date hereof and referenced on SCHEDULE 1.1(d) hereto; (b) any Lien 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 (including any refinancing thereof), PROVIDED that such Lien does not extend to any other property; (c) Liens for taxes or assessments or governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves, if appropriate under generally accepted accounting principles, are being maintained; Appendix - Page 22 (d) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves, if appropriate under generally accepted accounting principles, are being maintained; (e) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, or progress payments, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (f) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (g) Liens existing on any property prior to the acquisition thereof, prior to the acquisition of the Person which owns such property or prior to the Person becoming a Subsidiary, by the Borrower or any of its Subsidiaries, in each case which lien was not created in contemplation of such acquisition; (h) the rights of collecting banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Borrower or its Subsidiaries on deposit with or in the possession of such Lender; (i) Liens created by the Loan Documents and any other Liens granted to the Agent to secure, directly or indirectly, all or any portion of the Obligations or other obligations arising pursuant to the Loan Documents; (j) the Lien granting ratable security in certain of the Mortgaged Properties and Collateral pursuant to the requirements of the Continental Guaranty; (k) Liens on the property of Seminole Kraft, S-CC or any Subsidiary of S-CC securing indebtedness which is non-recourse to the Borrower and each other Subsidiary of the Borrower (other than Subsidiaries of S-CC in the case of indebtedness of S-CC or any of its Subsidiaries) and Liens on the property of S-CC or any Subsidiary of S-CC to the extent permitted by the S-CC Debt Documents; (l) Liens in favor of any Lender which is a party to a foreign exchange or interest rate swap or hedging agreement with the Borrower as permitted by SECTION 5.2.2(o)(i), PROVIDED that Appendix - Page 23 such Liens are not senior to those of the Lenders with respect to such agreements and do not attach to properties of the Borrower other than those in which the Lenders have a security interest or mortgage; (m) Liens on the property of StoneSub securing obligations of StoneSub incurred pursuant to the Accounts Receivable Financing Program and Liens in favor of StoneSub granted by the Borrower or any Participating Subsidiary with respect to Receivables purportedly sold to StoneSub by the Borrower or any Participating Subsidiary pursuant to the Accounts Receivable Financing Program in order to evidence the right, title and interest of StoneSub in and to such Receivables; (n) Liens for Indebtedness for Money Borrowed permitted by SECTION 5.2.2(R) PROVIDED that such Liens attach only to unearned and return premiums, dividends and loss payments which reduce the unearned premiums under insurance policies the premiums of which have been financed with such Indebtedness for Money Borrowed; (o) Liens (other than those listed in clauses (a) through (n) above) securing Indebtedness for Money Borrowed in an aggregate principal amount not to exceed $175 million at any time outstanding, provided such Liens do not extend to property securing all or any part of the Obligations; (p) Liens securing Indebtedness for Money Borrowed permitted by SECTION 5.2.2(K), PROVIDED that at the time of creation thereof, such Liens do not extend to property securing all or any part of the Obligations; (q) Liens securing the First Mortgage Notes pursuant to the First Mortgage Note Documents as in effect on the Closing Date, including substitutions and replacements permitted thereby; (r) extensions, renewals or replacements of any Lien referred to in clauses (a) through (q) above, PROVIDED that the principal amount of the Indebtedness or obligation secured thereby is not increased and that any such extension, renewal or replacement is limited to the property originally encumbered thereby; and (s) Liens on an account maintained by Stone-Canada or an escrow agent therefor or Liens on amounts held back by S-CC, in any case for the payment of certain liabilities identified at the time of the December 1993 transfer of Stone-Canada's assets to S-CC in compliance with and to the extent required by the bulk sales provisions of the Civil Code of Lower Canada (Quebec). "PERMITTED PREFERRED STOCK" means preferred or preference stock of the Borrower so long as and to the extent that such Appendix - Page 24 preferred or preference stock is not subject to a sinking fund payment or other mandatory redemption or payment prior to July 15, 2000. "PERMITTED USES" means (i) for ongoing working capital and general corporate purposes of the Borrower, (ii) the making or incurrence of Capital Expenditures and/or Investments in excess of the annual limitations (and without reduction of the annual permitted basket amounts) set forth in SECTIONS 5.2.7(D) AND 5.2.11, and (iii) the prepayment of any maturity or maturities of debt securities of the Borrower, including the payment of principal, stated premium, if any, and interest thereon. "PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "PLAN" means any plan described in Section 4021(a) of ERISA and not excluded pursuant to Section 4021(b) thereof, which may be or has been established or maintained, or to which contributions are or have been made, by the Borrower or any of its Subsidiaries or any ERISA Affiliate, 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. "PRIME RATE" means at any time, the greater of (i) the rate which BT announces from time to time as its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate plus 1/2 of 1% per annum. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BT may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "PRIME RATE LOAN" means any Loan which bears interest at a rate determined with reference to the Prime Rate. "PRIME RATE REVOLVING LOAN" means a Revolving Loan or any portion thereof during any period in which it bears interest at a rate determined with reference to the Prime Rate. "PRIME RATE TERM LOAN" means the Term Loan or any portion thereof during any period in which it bears interest at a rate determined with reference to the Prime Rate. "PRO FORMA" is defined in SECTION 4.11(b). Appendix - Page 25 "QUARTERLY PAYMENT DATE" means the 25th day of March, June, September and December of each year. "RECEIVABLES" has the meaning assigned to that term in the definition of Accounts Receivable Financing Program. "RECEIVABLES FINANCING" has the meaning assigned to that term in the definition of Accounts Receivable Financing Program. "REFERENCE BANKS" means, collectively, BT, Chemical Bank and The First National Bank of Chicago and any successor reference bank determined pursuant to SECTION 2.8(j). "REFUNDED SWING LINE LOANS" is defined in SECTION 2.11(c). "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. "RELATED TRANSACTIONS" means, collectively, the execution and delivery of the Basic Agreements, the consummation of the Mergers pursuant to the Merger Documents, the issuance and sale of the Senior Notes and First Mortgage Notes pursuant to the Senior Note Documents and the First Mortgage Note Documents, respectively, the funding of the Term Loan and each Borrowing under the Revolving Loan and Swing Line Loan (if any) and each issuance of a Letter of Credit (if any) on the Closing Date, the consummation of the Debt Refinancing pursuant to the Debt Refinancing Documents, the Stone Savannah Transactions and the payment of all fees, costs and expenses associated with all of the foregoing. "RELEASE" means 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 Borrower or its Subsidiaries, including the movement of Contaminants through or in the air, soil, surface water, groundwater or property of the Borrower or its Subsidiaries. "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 studies and investigations and post-remedial monitoring and care. "REPLACED LENDER" is defined in SECTION 2.14. "REPLACEMENT LENDER" is defined in SECTION 2.14. Appendix - Page 26 "REPORTABLE EVENT" means a "reportable event" described in Section 4043(b) of ERISA or in the regulations thereunder or receipt of a notice of withdrawal liability or reorganization with respect to a Multiemployer Plan pursuant to Section 4202 or 4242 of ERISA. "REQUIRED LENDERS" means, as of the date of determination thereof, the Lenders having greater than 50% of the sum of (i) the aggregate principal amount of loans and other extensions of credit then outstanding under any of the Loan Documents plus (ii) the aggregate amount of the remaining available commitments of the Lenders under any of the Loan Documents; PROVIDED, HOWEVER, that for purposes of determining the amount of a Revolving Lender's Loans, each Revolving Lender shall be deemed to hold the principal amount of Swing Line Loans and the amount of L/C Obligations and Florence L/C Obligations equal to its Revolving Loan Pro Rata Share of the Swing Line Loans, L/C Obligations and Florence Obligations then outstanding. "RESPONSIBLE OFFICER" means, with respect to any Person, any of the chairman of the board of directors, the chief executive officer, chief operating officer, chief financial officer, any executive vice president, any vice president, treasurer, secretary or any other similar officer or position of such Person. "RESTRICTED SUBSIDIARY" means Seminole Kraft and S-CC, individually, upon the Borrower acquiring all of their respective outstanding shares of capital stock. "REVOLVER TERMINATION DATE" means May 15, 1999. "REVOLVING LENDER" means, at any time, any Lender which then has a Revolving Loan Commitment or is owed a Revolving Loan. "REVOLVING LOAN COMMITMENT" means, with respect to any Lender, the obligation of such Lender to (i) make Revolving Loans to the Borrower, (ii) participate in Swing Line Loans made by the Swing Line Lender and (iii) participate in Letters of Credit issued by the Facing Agent for the account of the Borrower, in an aggregate principal amount and/or Stated Amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on SCHEDULE 1.1(a) hereto under the caption "Amount of Revolving Loan Commitment." Each Revolving Loan Commitment shall be subject to reduction from time to time in accordance with the terms of this Agreement. "REVOLVING LOAN OBLIGATIONS" means the obligations of the Borrower to repay principal, and pay interest, on the Revolving Loans pursuant to SECTION 2.2(b). "REVOLVING LOAN PRO RATA SHARE" means, with respect to any Revolving Lender and any described aggregate or total amount, Appendix - Page 27 the amount equal to the result obtained by multiplying such aggregate or total amount by a fraction, the numerator of which shall be such Lender's Revolving Loan Commitment in effect at the time (or, if the Total Revolving Loan Commitments have been terminated, the principal amount of such Lender's Revolving Loans then outstanding) and the denominator of which shall be the Total Revolving Loan Commitments in effect at the time (or, if the Total Revolving Loan Commitments have been terminated, the aggregate principal amount of all Revolving Loans then outstanding). "REVOLVING LOANS" means, individually and collectively, each of the loans by each of the Revolving Lenders to the Borrower in accordance with SECTION 2.1(B), which Revolving Loans shall from time to time be comprised of Prime Rate Loans or Eurodollar Rate Loans or any combination of the foregoing. "REVOLVING NOTE" is defined in SECTION 2.2(b). "REVOLVING PORTION" is defined in SECTION 3.6(c). "S-CC" means Stone-Consolidated Corporation, a Canadian federal corporation. "S-CC DEBT DOCUMENTS" means the documentation pursuant to which S-CC has incurred the Indebtedness for Money Borrowed permitted by SECTIONS 5.2.2(u), as such documentation may be amended, supplemented, restated or otherwise modified from time to time, and including documentation related to refinancings of such Indebtedness for Money Borrowed permitted by such Section. "SECURITY AGREEMENTS" means, collectively, (i) the Security Agreement in the form of EXHIBIT 1.1 (a) hereto dated as of the Closing Date between the Borrower and the Agent, (ii) the Security Agreement in the form of EXHIBIT 1.1(b) hereto dated as of the Closing Date between Stone Savannah and the Agent, (iii) the Security Agreement in the form of EXHIBIT 1.1(b) hereto dated as of the Closing Date between Stone Southwest and the Agent, (iv) any Security Agreement executed by any Subsidiary of the Borrower to secure all or any portion of the Obligations after the Closing Date and (v) any Supplemental Pledge Agreement, in each case, as amended, supplemented, restated or otherwise modified from time to time. "SEMINOLE KRAFT" means Seminole Kraft Corporation, a Delaware corporation. "SENIOR INDEBTEDNESS" has the meaning assigned to that term in each of the Senior Subordinated Note Indenture, the Senior Subordinated (11-1/2%) Indenture, the Convertible Indenture, the Convertible Subordinated Indenture and, from and after the merger of Stone Southwest with and into the Borrower, the Stone Southwest Indenture. Appendix - Page 28 "SENIOR NOTE DOCUMENTS" means the Senior Note Indenture, the Senior Notes and all other documents, instruments and agreements now or hereafter evidencing all or any portion of the Borrower's obligations under the Senior Note Indenture and the Senior Notes, including any documents, instruments or agreements evidencing the amendment, refinancing, modification, replacement, renewal, restatement, refunding, deferral, extension, supplement, reissuance or resale thereof. "SENIOR NOTE INDENTURE" means the Indenture dated as of ____________, 1994 between the Borrower and _________, as Trustee, pursuant to which the Borrower issued its Senior Notes, as amended, supplemented, restated or otherwise modified from time to time. "SENIOR NOTES" means, collectively, the Borrower's ___% Senior Notes due _____ in the aggregate principal amount of $200 millon and issued pursuant to the Senior Note Indenture, as amended, supplemented, restated or otherwise modified from time to time. "SENIOR SUBORDINATED (11-1/2%) INDENTURE" means the Indenture dated as of September 1, 1989 between the Borrower and Bankers Trust Company, as Trustee, pursuant to which the Borrower issued its 11-1/2% Senior Subordinated Notes due September 1, 1999, as amended, supplemented, restated, or otherwise modified from time to time. "SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of March 15, 1992 between the Borrower and The Bank of New York, as Trustee, pursuant to which the Borrower issued its 10-3/4% Senior Subordinated Notes due June 15, 1997, its 10-3/4% Senior Subordinated Debentures due April 1, 2002 and its 11% Senior Subordinated Notes due August 15, 1999, as amended, supplemented, restated or otherwise modified from time to time. "STANDBY LETTERS OF CREDIT" means any of the standby Letters of Credit issued by the Facing Agent for the account of the Borrower pursuant to SECTION 2.12. "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. "STONE-CANADA" means Stone Container (Canada) Inc., a Canadian federal corporation and formerly named Stone-Consolidated Inc., and its successors and assigns. "STONE MERGER SUBSIDIARIES" is defined in the definition of Certificates of Ownership and Merger. Appendix - Page 29 "STONE SAVANNAH" means Stone Savannah River Pulp & Paper Corporation, a Delaware corporation, and any successor thereto. "STONE SAVANNAH CREDIT AGREEMENT" means the Credit Agreement dated as of December 9, 1988, as amended, by and among Stone Savannah, Manufacturers Hanover Trust Company and Citibank, N.A., as co-managers, the financial institutions signatory thereto and Citibank, N.A., as agent. "STONE SAVANNAH SENIOR SUBORDINATED NOTES" means the 14.125% Senior Subordinated Notes due December 15, 2000 of Stone Savannah issued pursuant to the Stone Savannah Senior Subordinated Notes Indenture. "STONE SAVANNAH SENIOR SUBORDINATED NOTES INDENTURE" means the Indenture dated as of December 15, 1988, between Stone Savannah and The Bank of New York (as successor to Manufacturers Hanover Trust Company), as Trustee, in respect of the Stone Savannah Senior Subordinated Notes, as amended from time to time. "STONE SAVANNAH TRANSACTIONS" is defined in SECTION 5.1.13. "STONE SOUTHWEST" means Stone Southwest, Inc., a Delaware corporation. "STONE SOUTHWEST INDENTURE" means the Indenture dated as of September 15, 1983 between Stone Southwest (as successor to Southwest Forest Industries, Inc.) and National Westminster Bank USA (as successor to Bankers Trust Company), as Trustee, as amended, restated or otherwise modified from time to time. "STONE SOUTHWEST MERGER SUBSIDIARIES" is defined in the definition of Certificates of Ownership and Merger. "STONESUB" means, individually and collectively, one or more corporations organized under the laws of one of the United States of America or Canada which are special purpose Wholly-Owned Subsidiaries of the Borrower formed to engage in the Accounts Receivable Financing Program, and including any Wholly-Owned Subsidiary formed as a holding company, the only assets of which consist of the capital stock of such subsidiaries formed to engaged in the Accounts Receivables Financing Program. "SUBORDINATED DEBT" means (i) the Borrower's 10-3/4% Senior Subordinated Notes due June 15, 1997, 11% Senior Subordinated Notes due August 15, 1999 and 10-3/4% Senior Subordinated Debentures due April 1, 2002 issued pursuant to the Senior Subordinated Note Indenture, (ii) the Borrower's 11-1/2% Senior Subordinated Notes due September 1, 1999 issued pursuant to the Senior Subordinated (11-1/2%) Indenture, (iii) the Borrower's 12-1/8% Subordinated Debentures due September 15, 2001 under the Appendix - Page 30 Stone Southwest Indenture, (iv) the Borrower's 8-7/8% Convertible Senior Subordinated Notes due July 15, 2000 issued pursuant to the Convertible Indenture, (v) the Borrower's 6-3/4% Convertible Subordinated Debentures due February 15, 2007 issued pursuant to the Convertible Subordinated Indenture and (vi) any other Indebtedness for Money Borrowed of the Borrower which is subordinate and junior in right of payment to the prior payment in full of all amounts owing to the Lenders under the Loan Documents pursuant to an agreement in form, terms and substance satisfactory to the Required Lenders. "SUBSIDIARY" of any Person means any corporation of which such Person, directly or indirectly, shall at the time own shares of any class or classes (however designated) having ordinary voting power for the election of at least a majority of the members of the board of directors (or the governing body) of such corporation, other than shares having such power only by reason of the happening of a contingency. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. Notwithstanding the foregoing, SVCPI shall not be deemed to be a Subsidiary for any purposes of this Agreement (including without limitation the definition of "Wholly-Owned Subsidiary") regardless of the fact that Stone-Canada and/or Affiliates of Stone-Canada may at any time own a majority or all of the outstanding voting shares of SVCPI, PROVIDED, HOWEVER that in the event Stone-Canada and/or Affiliates of Stone-Canada become the owner of a majority of the outstanding voting shares of SVCPI, then (i) SVCPI shall be deemed to be a Subsidiary for purposes of SECTIONS 5.1.1(f), (g) and (h), 5.1.6 and 5.1.7 and (ii) for purposes of the financial statements referred to in SECTIONS 5.1.1(b), (c), (d) and (e), SVCPI shall be accounted for utilizing the equity method. "SUBSIDIARY GUARANTEES" means, collectively, (i) the Subsidiary Guarantees each in the form of EXHIBIT 1.1 (c) hereto dated as of the Closing Date and executed by Stone Savannah and Stone Southwest in favor of the Agent and the Lenders and (ii) any Subsidiary Guarantee executed by any Subsidiary of the Borrower after the Closing Date pursuant to SECTION 5.1.16, in each case as amended, supplemented, restated or otherwise modified from time to time. "SUBSTITUTE COLLATERAL" is defined in SECTION 9.13(c). "SUPPLEMENTAL PLEDGE AGREEMENT" means a pledge or security agreement in a form reasonably acceptable to the Agent pursuant to which the recipient of any equity interest or other non-cash consideration described in the penultimate sentence of SECTION 5.2.8 or the last sentence of SECTION 5.2.12 pledges or hypothecates such equity interest or non-cash consideration to the Agent for the benefit of the Lenders to secure the "Obligations" (as defined in the Security Agreements). Appendix - Page 31 "SVCPI" means Stone Venepal Consolidated Pulp Inc., a Canadian federal corporation. "SWING LINE LENDER" means BT. "SWING LINE COMMITMENT" means, with respect to the Swing Line Lender at any date, the obligation of the Swing Line Lender to make Swing Line Loans pursuant to SECTION 2.11 in the amount referred to therein. "SWING LINE LOANS" is defined in SECTION 2.11(a). "SWING LINE LOAN OBLIGATIONS" means the obligations of the Borrower to repay principal, and pay interest, on the Swing Line Loans pursuant to SECTION 2.2(c). "SWING LINE LOAN PARTICIPATION CERTIFICATE" means a certificate, substantially in the form of EXHIBIT 2.11(d). "SWING LINE NOTE" is defined in SECTION 2.2(c). "TAXES" is defined in SECTION 3.11(a). "TERM LENDER" means, at any time, any Lender which then has a Term Loan Commitment or is owed any portion of the Term Loan. "TERM LOAN" means, individually and collectively, the loans made by each of the Term Lenders to the Borrower in accordance with SECTION 2.1(a), which Term Loan shall from time to time be comprised of Prime Rate Loans or Eurodollar Rate Loans or any combination of the foregoing. "TERM LOAN COMMITMENT" means, with respect to each Term Lender, the principal amount set forth opposite such Term Lender's name on SCHEDULE 1.1(a) hereto under the caption "Amount of Term Loan Commitment." "TERM LOAN MATURITY DATE" means April 1, 2000. "TERM LOAN OBLIGATIONS" means the obligations of the Borrower to repay principal, and pay interest, on the Term Loan pursuant to SECTION 2.2(a). "TERM LOAN PRO RATA SHARE" means, with respect to any Term Lender and any described aggregate or total amount, the amount equal to the result obtained by multiplying such described aggregate or total amount by a fraction, the numerator of which shall be the portion of the Term Loan made by such Lender and outstanding at the time and the denominator of which shall be the aggregate amount of the Term Loan made by all of the Term Lenders and outstanding at the time. Appendix - Page 32 "TERM NOTE" is defined in SECTION 2.2(a). "TOTAL AVAILABLE REVOLVING COMMITMENT" means, at the time any determination thereof is made, the sum of the respective Available Revolving Commitments of the Revolving Lenders at such time. "TOTAL CONSOLIDATED INDEBTEDNESS FOR MONEY BORROWED" means, subject to the last sentence of SECTION 1.2, the total of all Indebtedness for Money Borrowed of the Borrower and its Subsidiaries. "TOTAL MAXIMUM COMMITMENT" means, at the time any determination thereof is to be made, the sum of the respective Maximum Commitments of the Lenders at such time. "TOTAL REVOLVING LOAN COMMITMENTS" means, at any time any determination thereof is to be made, the sum of the respective Revolving Loan Commitments of the Revolving Lenders at such time. "TRANSACTION DOCUMENTS" means the Merger Documents, the Senior Note Documents, the First Mortgage Note Documents, the Debt Refinancing Documents and any other document, instrument or agreement executed and/or delivered in connection with the consummation of the Related Transactions. "TYPE" means any type of Loan, namely a Prime Rate Loan or a Eurodollar Rate Loan (whether a Term Loan or Revolving Loan). "UNDERFUNDED PLAN" is defined in SECTION 4.15(a). "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. "U.S. CREDIT AGREEMENT" means that certain Credit Agreement dated as of March 1, 1989, executed as of October 25, 1993 and effective as an amended and restated agreement effective as of December 17, 1993, as further amended, by and among the Borrower, BT, as Agent, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First National Bank of Chicago, as Co-Agents, and certain financial institutions signatory thereto. "WAIVED PROCEEDS" is defined in SECTION 3.6(f). "WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, at any time 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 by such Person and/or one or more Wholly-Owned Subsidiaries of such Person. Unless otherwise expressly provided, Appendix - Page 33 all references herein to a "Wholly-Owned Subsidiary" shall mean a Wholly-Owned Subsidiary of the Borrower. 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. Unless specifically stated to the contrary, all references to "Sections," "subsections," "paragraphs," "Exhibits" and "Schedules" in this Agreement shall refer to Sections, subsections, 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. c:\docs\bsh\bt\stone\creditag.10 Appendix - Page 34 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS................... 2 Section 1.1 DEFINITIONAL APPENDIX............................ 2 Section 1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS........... 2 ARTICLE II LOAN PROVISIONS.................................. 3 Section 2.1 LOAN COMMITMENTS................................. 3 (a) TERM LOAN........................................ 3 (b) REVOLVING LOANS.................................. 3 Section 2.2 OBLIGATIONS; NOTES............................... 3 (a) TERM LOAN OBLIGATIONS............................ 3 (b) REVOLVING LOAN OBLIGATIONS....................... 4 (c) SWING LINE LOAN OBLIGATIONS...................... 5 Section 2.3 BORROWING OPTIONS................................ 6 Section 2.4 MINIMUM AMOUNT OF EACH BORROWING................. 6 Section 2.5 NOTICE OF BORROWING.............................. 7 Section 2.6 CONVERSION OR CONTINUATION....................... 7 Section 2.7 DISBURSEMENT OF FUNDS............................ 8 Section 2.8 INTEREST......................................... 9 (a) PRIME RATE REVOLVING LOANS....................... 9 (b) EURODOLLAR RATE REVOLVING LOANS.................. 9 (c) PRIME RATE TERM LOANS............................ 10 (d) EURODOLLAR RATE TERM LOANS....................... 10 (e) SWING LINE LOANS................................. 10 (f) DEFAULT RATE INTEREST............................ 10 (g) ACCRUAL AND PAYMENT OF INTEREST.................. 10 (h) NOTIFICATION OF RATE............................. 11 (i) MAXIMUM INTEREST................................. 11 (j) REFERENCE BANKS.................................. 11 Section 2.9 INTEREST RATE ADJUSTMENTS........................ 11 Section 2.10 INTEREST PERIODS................................. 12 Section 2.11 SWING LINE LOANS................................. 12 (a) SWING LINE COMMITMENT............................ 12 (b) PROCEDURE FOR SWING LINE BORROWING............... 13 (c) REFUNDING OF SWING LINE LOANS.................... 13 (d) PARTICIPATION IN SWING LINE LOANS................ 13 (e) OBLIGATIONS UNCONDITIONAL........................ 14 Section 2.12 LETTERS OF CREDIT................................ 14 (a) ISSUANCE BY FACING AGENT......................... 14 (b) PARTICIPATION OF REVOLVING LENDERS............... 15 (c) REQUESTS FOR ISSUANCE............................ 16 (d) REIMBURSEMENT OF DRAWINGS........................ 16 (e) FAILURE TO REIMBURSE............................. 17 (f) LETTER OF CREDIT FEES........................... 18 (g) REIMBURSEMENT OBLIGATION UNCONDITIONAL........... 19 (h) INCREASED COSTS.................................. 20 (i) INDEMNIFICATION.................................. 21 (j) LETTER OF CREDIT BENEFICIARIES................... 21 (k) FACING AGENT..................................... 22 (l) NO INDEMNIFICATION FOR CERTAIN ACTS.............. 22 Section 2.13 INCREASED COSTS, ILLEGALITY, ETC................. 22 Section 2.14 REPLACEMENT OF AFFECTED LENDERS.................. 25 Section 2.15 CHANGE OF LENDING OFFICE......................... 26 Section 2.16 FUNDING LOSSES................................... 26 Section 2.17 PRO RATA BORROWINGS.............................. 26 Section 2.18 FLORENCE LETTERS OF CREDIT....................... 27 ARTICLE III TERMINATION OF COMMITMENTS, PREPAYMENTS AND FEES....................................... 27 Section 3.1 MANDATORY REVOLVING LOAN AND SWING LINE LOAN PREPAYMENTS AND COMMITMENT REDUCTIONS............ 27 Section 3.2 VOLUNTARY PREPAYMENTS............................ 27 Section 3.3 VOLUNTARY COMMITMENT REDUCTIONS.................. 28 Section 3.4 MANDATORY PREPAYMENTS............................ 29 (a) PREPAYMENTS FROM EXCESS CASH FLOW................ 29 (b) PREPAYMENTS FROM INCURRENCE OF INDEBTEDNESS...... 29 (c) PREPAYMENTS FROM ASSET SALES..................... 30 Section 3.5 OTHER PROVISIONS WITH RESPECT TO THE LOANS....... 31 Section 3.6 ORDER OF PREPAYMENT AND PAYMENT.................. 32 Section 3.7 COMMITMENT FEES.................................. 34 Section 3.8 CLOSING FEES..................................... 34 Section 3.9 AGENT'S FEES..................................... 34 Section 3.10 AGENT'S ADMINISTRATIVE FEE....................... 34 Section 3.11 PAYMENTS......................................... 34 ARTICLE IV REPRESENTATIONS AND WARRANTIES................... 37 Section 4.1 DUE ORGANIZATION AND STANDING.................... 37 Section 4.2 POWER AND AUTHORITY.............................. 37 Section 4.3 SUBSIDIARIES..................................... 37 Section 4.4 NO VIOLATION OF AGREEMENTS....................... 38 Section 4.5 DUE AUTHORIZATION, ETC........................... 39 Section 4.6 INDEBTEDNESS FOR MONEY BORROWED.................. 39 Section 4.7 FISCAL QUARTERS AND YEAR......................... 40 Section 4.8 TITLE TO AND CONDITIONS OF PROPERTIES............ 40 Section 4.9 LITIGATION, PROCEEDINGS, LICENSES, PERMITS....... 40 Section 4.10 GOVERNMENTAL CONSENTS, ETC....................... 41 Section 4.11 FINANCIAL STATEMENTS............................. 41 Section 4.12 NO MATERIAL ADVERSE CHANGE....................... 43 Section 4.13 TAX RETURNS AND PAYMENTS......................... 43 -ii- Section 4.14 PATENTS, ETC..................................... 43 Section 4.15 ERISA............................................ 43 Section 4.16 GOVERNMENTAL REGULATION.......................... 45 Section 4.17 FEDERAL RESERVE REGULATIONS...................... 45 Section 4.18 TRANSACTION DOCUMENTS............................ 46 Section 4.19 SOLVENCY OF THE BORROWER......................... 46 Section 4.20 CERTAIN FEES..................................... 46 Section 4.21 ENVIRONMENTAL MATTERS............................ 47 Section 4.22 DISCLOSURE....................................... 47 Section 4.23 SURVIVAL OF WARRANTIES; COVENANT REGARDING DISCLOSURE.................................... 48 ARTICLE V COVENANTS........................................ 48 Section 5.1 AFFIRMATIVE COVENANTS OF THE BORROWER............ 48 5.1.1 FINANCIAL DATA................................... 48 5.1.2 DISCHARGE OF TAXES, ETC.......................... 53 5.1.3 CORPORATE EXISTENCE; BUSINESS.................... 53 5.1.4 COMPLIANCE WITH LAWS............................. 54 5.1.5 PERFORMANCE OF BASIC AGREEMENTS.................. 54 5.1.6 INSPECTION OF BOOKS AND PROPERTIES............... 54 5.1.7 MAINTENANCE OF BOOKS AND RECORDS................. 55 5.1.8 ERISA............................................ 55 5.1.9 INSURANCE........................................ 56 5.1.10 MAINTENANCE OF PROPERTIES........................ 56 5.1.11 USE OF PROCEEDS.................................. 57 5.1.12 LENDER MEETING................................... 57 5.1.13 REDEMPTION OF SENIOR SUBORDINATED NOTES AND STONE SAVANNAH STOCK................................. 57 5.1.14 ENVIRONMENTAL NOTIFICATION....................... 58 5.1.15 ENVIRONMENTAL COMPLIANCE......................... 58 5.1.16 ADDITIONAL SUBSIDIARY GUARANTEES................. 59 5.1.17 DELAYED COLLATERAL............................... 59 5.1.18 MERGER OF STONE SOUTHWEST........................ 61 Section 5.2 NEGATIVE COVENANTS OF THE BORROWER............... 61 5.2.1 LIENS............................................ 61 5.2.2 INDEBTEDNESS FOR MONEY BORROWED.................. 61 5.2.3 GUARANTEES....................................... 67 5.2.4 AFFILIATE TRANSACTIONS........................... 68 5.2.5 DIVIDENDS........................................ 68 5.2.6 NEGATIVE DEBT COVENANTS.......................... 70 5.2.7 INVESTMENTS...................................... 71 5.2.8 MERGERS.......................................... 73 5.2.9 PURCHASE OF STOCK OR ASSETS...................... 74 5.2.10 PREPAYMENT OF INDEBTEDNESS; CERTAIN AMENDMENTS. 76 5.2.11 CAPITAL EXPENDITURES............................. 77 5.2.12 SALE OF ASSETS................................... 78 5.2.13 SALE OF ACCOUNTS RECEIVABLE...................... 79 5.2.14 SUBSIDIARIES..................................... 80 5.2.15 LEASE PAYMENTS................................... 80 -iii- 5.2.16 ACCOUNTS RECEIVABLE FINANCING PROGRAM............ 80 Section 5.3 FINANCIAL COVENANTS OF THE BORROWER.............. 80 5.3.1 INTEREST COVERAGE RATIO.......................... 80 5.3.2 INDEBTEDNESS RATIO............................... 81 ARTICLE VI CONDITIONS OF CREDIT............................. 81 Section 6.1 CONDITIONS PRECEDENT TO THE INITIAL BORROWING.... 81 Section 6.2 CONDITIONS PRECEDENT TO ALL CREDIT EVENTS........ 85 (a) REPRESENTATIONS AND WARRANTIES................... 85 (b) NO DEFAULT....................................... 85 (c) NOTICE OF BORROWING; LETTER OF CREDIT REQUEST.... 85 (d) OTHER INFORMATION................................ 86 ARTICLE VII EVENTS OF DEFAULT................................ 86 Section 7.1 EVENTS OF DEFAULT................................ 86 (a) PAYMENTS......................................... 86 (b) REPRESENTATIONS AND WARRANTIES................... 86 (c) CERTAIN COVENANTS................................ 86 (d) OTHER COVENANTS.................................. 87 (e) BANKRUPTCY....................................... 87 (f) INVOLUNTARY PROCEEDINGS.......................... 87 (g) INDEBTEDNESS FOR MONEY BORROWED.................. 87 (h) JUDGMENTS........................................ 88 (i) BASIC AGREEMENTS................................. 88 (j) ERISA............................................ 88 (k) OTHER ERISA...................................... 89 (l) CROSS-DEFAULTS................................... 89 (m) CHANGE OF CONTROL................................ 89 Section 7.2 REMEDIES......................................... 89 ARTICLE VIII THE AGENT ....................................... 91 Section 8.1 APPOINTMENT...................................... 91 Section 8.2 NATURE OF DUTIES................................. 91 Section 8.3 RIGHTS, EXCULPATION, ETC......................... 91 Section 8.4 EMPLOYMENT OF AGENTS AND COUNSEL................. 92 Section 8.5 RELIANCE......................................... 93 Section 8.6 INDEMNIFICATION.................................. 93 Section 8.7 NOTICE OF DEFAULT................................ 93 Section 8.8 THE AGENT ....................................... 93 Section 8.9 RESIGNATION BY THE AGENT......................... 94 Section 8.10 HOLDERS OF OBLIGATIONS........................... 94 -iv- Section 8.11 CO-AGENTS........................................ 95 ARTICLE IX MISCELLANEOUS.................................... 95 Section 9.1 NO WAIVER; MODIFICATIONS IN WRITING.............. 95 Section 9.2 AMENDMENTS....................................... 95 Section 9.3 CERTAIN OTHER AMENDMENTS......................... 96 Section 9.4 NOTICES, ETC..................................... 96 Section 9.5 COSTS, EXPENSES AND TAXES........................ 97 Section 9.6 INDEMNIFICATION.................................. 98 Section 9.7 SPECIAL EXPENDITURES............................. 99 Section 9.8 CONFIRMATIONS....................................100 Section 9.9 ADJUSTMENT.......................................100 Section 9.10 RIGHT OF SETOFF..................................101 Section 9.11 EXECUTION IN COUNTERPARTS........................101 Section 9.12 BINDING EFFECT; ASSIGNMENT.......................102 Section 9.13 RELEASE OF COLLATERAL............................105 Section 9.14 CONSENT TO JURISDICTION..........................107 Section 9.15 GOVERNING LAW....................................107 Section 9.16 SEVERABILITY OF PROVISIONS.......................107 Section 9.17 HEADINGS.........................................108 Section 9.18 TIME.............................................108 Section 9.19 FURTHER ASSURANCES...............................108 Section 9.20 FLORIDA REAL PROPERTY............................108 Section 9.21 TREATMENT OF SEMINOLE KRAFT......................108 DEFINITIONAL APPENDIX.............................................. 1 -v- INDEX OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit 1.1(a) - Form of Stone Container Security Agreement Exhibit 1.1(b) - Form of Subsidiary Security Agreement Exhibit 1.1(c) - Form of Subsidiary Guarantee Exhibit 1.1(d) - Form of Mortgage Exhibit 1.1(e) - Recourse Receivables Financings Exhibit 2.2(a) - Form of Term Note Exhibit 2.2(b) - Form of Revolving Note Exhibit 2.2(c) - Form of Swing Line Note Exhibit 2.5 - Form of Notice of Borrowing Exhibit 2.6 - Form of Notice of Conversion or Continuation Exhibit 2.11(d) - Form of Swing Line Loan Participation Certificate Exhibit 2.12 - Form of Request for Issuance/Amendment of Letter of Credit Exhibit 4.11(b) - Pro Forma Consolidated Balance Sheet Exhibit 4.11(c) - Forecasts Exhibit 5.1.1 - Form of Officer's Certificate pursuant to Section 5.1.1 Exhibit 6.1(h) - Form of Opinion of Sidley & Austin Exhibit 6.1(m) - Form of Certificate of Responsible Officer pursuant to Section 6.1(m) Exhibit 6.1(o) - Form of L/C Agreement Amendment Exhibit 9.12(d) - Form of Assignment Agreement SCHEDULES Schedule 1.1(a) - Loan Commitments Schedule 1.1(b) - Performance Tests Schedule 1.1(c) - Mortgaged Properties Schedule 1.1(d) - Permitted Liens Schedule 3.4 - Existing Contractual Restrictions Schedule 3.8 - Facility Fee and Additional Commitment Fee Schedule 4.3 - Subsidiaries of the Borrower Schedule 4.4 - Consents and Approvals Schedule 4.6 - Indebtedness for Money Borrowed Schedule 4.8 - Title to and Conditions of Properties Schedule 4.10 - Governmental Consents Schedule 4.11(d) - Material Liabilities Schedule 4.12 - Public Filings Schedule 4.15 - Pension Liabilities Relating to Stone- Canada and Subsidiaries of Stone- Canada Schedule 4.21 - Environmental Matters Schedule 5.2.2 - IRBs and IRB Put Contracts -vi- Schedule 5.2.3 - Guarantees Schedule 5.2.4 - Affiliate Transactions Schedule 5.2.6 - Encumbrances and Restrictions Schedule 5.2.7 - Investments Schedule 5.2.7-A - Commitments and Contracts Schedule 6.1(g) - Title Insurance relating to Mortgaged Properties Schedule 9.13(a) - Collateral Subject to Release Upon -vii- EX-5 6 EXHIBIT 5 EXHIBIT 5 September 27, 1994 Stone Container Corporation 150 North Michigan Avenue Chicago, Illinois 60601 Re: $500,000,000 Principal Amount of First Mortgage Notes and $200,000,000 Principal Amount of Senior Notes ------------------------------------------------- Ladies and Gentlemen: I refer to the Registration Statement on Form S-1 (the "Registration Statement") being filed by Stone Container Corporation (the "Company") with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration of $500,000,000 principal amount of the Company's First Mortgage Notes (the "First Mortgage Notes") and $200,000,000 principal amount of the Company's Senior Notes (the "Senior Notes")(the First Mortgage Notes and the Senior Notes being collectively referred to herein as the "Debt Securities"). The First Mortgage Notes are to be issued under an Indenture (the "First Mortgage Note Indenture") between the Company and Norwest Bank Minnesota, N.A. as trustee (the "First Mortgage Note Trustee"). The Senior Notes are to be issued under an Indenture (the "Senior Note Indenture") between the Company and The Bank of New York, as trustee (the "Senior Note Trustee"). The First Mortgage Note Indenture and the Senior Note Indenture are collectively referred to as the "Indentures" and the First Mortgage Note Trustee and the Senior Note Trustee are collectively referred to as the "Trustees." I am familiar with the proceedings to date with respect to the proposed issuance and sale of the Debt Securities and have examined such records, documents and questions of law, and satisfied myself as to such matters of fact, as I have considered relevant and necessary as a basis for this opinion. Based on the foregoing, I am of the opinion that: 1. The Company is duly incorporated and validly existing under the laws of the State of Delaware. 2. The Company has corporate power and authority to execute and deliver the Indentures and to authorize and sell the Debt Securities. 3. The Debt Securities will be legally issued and binding obligations of the Company (except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting the enforcement of creditors' rights generally and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) when (i) the Registration Statement, as finally amended, shall have become effective under the Securities Act and each Indenture shall have been qualified under the Trust Indenture Act of 1939, as amended, and duly executed and delivered by the Company and the respective Trustee; (ii) the Company's Board of Directors or a duly authorized committee thereof shall have duly adopted final resolutions authorizing the issuance and sale of the Debt Securities as contemplated by the Registration Statement and the Indentures; and (iii) the Debt Securities shall have been duly executed and authenticated as provided in the Indentures and such resolutions and shall have been duly delivered to the purchasers thereof against payment of the agreed consideration therefor. My opinion expressed herein is limited to the general corporation law of the State of Delaware, the laws of the State of Illinois and the laws of the United States. I do not find it necessary for the purposes of this opinion to cover, and accordingly express no opinion as to, the application of the securities or blue sky laws of the various states in the United States to the sale of the Debt Securities. I hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to all references to me included in or made a part of the Registration Statement. Very truly yours, /s/ Leslie T. Lederer ------------------------- Leslie T. Lederer Vice President, Secretary and Counsel -2- EX-23.A 7 EXHIBIT 23(A) EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated March 23, 1994, relating to the financial statements of Stone Container Corporation, which appears in such Prospectus. We also consent to the application of such report to the Supplemental Financial Information for the three years ended December 31, 1993 listed under Item 16(b) of this Registration Statement when such information is read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included this information. We also consent to the reference to us under the Heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Chicago, Illinois September 27, 1994 EX-25.A 8 EXHIBIT 25(A) EXHIBIT 25(a) - ------------------------------------------------------------------------------- FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| _______________________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) 48 Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) _______________________ STONE CONTAINER CORPORATION (Exact name of obligor as specified in its charter) Delaware 36-2041256 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 150 North Michigan Avenue Chicago, Illinois 60601 (Address of principal executive offices) (Zip code) ______________________ Senior Notes (Title of the indenture securities) - ------------------------------------------------------------------------------- 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - ------------------------------------------------------------------------------ Name Address - ------------------------------------------------------------------------------ Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affilia- tion. None. (See Note on page 3.) 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the Commission's Rules of Practice. 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) -2- 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33- 44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. NOTE Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of all facts on which to base a responsive answer to Item 2, the answer to said Item is based on incomplete information. Item 2 may, however, be considered as correct unless amended by an amendment to this Form T-1. -3- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 23rd day of September, 1994. THE BANK OF NEW YORK By: /s/ Walter N. Gitlin -------------------------- Name: Walter N. Gitlin Title: Vice President -4- Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1994, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin .................. $ 7,071,756 Interest-bearing balances .......... 695,722 Securities: Held-to-maturity securities ........ 1,396,356 Available-for-sale securities ...... 1,495,522 Federal funds sold in domestic offices of the bank ................ 874,129 Loans and lease financing receivables: Loans and leases, net of unearned income ........................... 25,607,366 LESS: Allowance for loan and lease losses ..................... 688,226 LESS: Allocated transfer risk reserve ........................... 29,781 Loans and leases, net of unearned income, allowance, and reserve 24,889,359 Assets held in trading accounts ...... 2,427,515 Premises and fixed assets (including capitalized leases) ................ 634,514 Other real estate owned .............. 51,996 Investments in unconsolidated subsidiaries and associated companies .......................... 164,558 Customers' liability to this bank on acceptances outstanding ............ 1,212,402 Intangible assets .................... 80,153 Other assets ......................... 1,512,404 -------------- Total assets ......................... $42,506,386 -------------- -------------- LIABILITIES Deposits: In domestic offices ................ $19,454,858 Noninterest-bearing ................ 7,576,391 Interest-bearing ................... 11,878,467 In foreign offices, Edge and Agreement subsidiaries, and IBFs ... 10,753,958 Noninterest-bearing ................ 51,653 Interest-bearing ................... 10,702,305 Federal funds purchased and secu- rities sold under agreements to re- purchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal funds purchased ............ 1,150,270 Securities sold under agreements to repurchase .................... 49,603 Demand notes issued to the U.S. Treasury ........................... 300,000 Trading liabilities .................. 1,757,487 Other borrowed money: With original maturity of one year or less .......................... 2,452,009 With original maturity of more than one year ......................... 33,969 Bank's liability on acceptances exe- cuted and outstanding .............. 1,212,877 Subordinated notes and debentures .... 1,062,320 Other liabilities .................... 1,348,031 -------------- Total liabilities .................... 39,575,382 -------------- -------------- EQUITY CAPITAL Common stock ........................ 942,284 Surplus ............................. 525,666 Undivided profits and capital reserves .......................... 1,495,590 Net unrealized holding gains (losses) on available-for-sale securities ........................ ( 26,172) Cumulative foreign currency transla- tion adjustments .................. ( 6,364) -------------- Total equity capital ................ 2,931,004 -------------- Total liabilities and equity capital ........................... $42,506,386 -------------- --------------
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. ) Alan R. Griffith ) Thomas A. Renyi ) Directors J. Carter Bacot ) ) EX-25.B 9 EXHIBIT 25(B) EXHIBIT 25(b) - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE _____________________________ ___CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b) (2) NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) A NATIONAL BANKING ASSOCIATION 41-1592157 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national Identification No.) bank) SIXTH STREET AND MARQUETTE AVENUE Minneapolis, Minnesota 55479 (Address of principal executive offices) (Zip code) _____________________________ STONE CONTAINER CORPORATION (Exact name of obligor as specified in its charter) DELAWARE 36-2041256 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 NORTH MICHIGAN AVENUE CHICAGO, ILLINOIS 60601 (Address of principal executive offices) (Zip code) _____________________________ FIRST MORTGAGE NOTES (Title of the indenture securities) - ------------------------------------------------------------------------------- Item 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Treasury Department Washington, D.C. Federal Deposit Insurance Corporation Washington, D.C. The Board of Governors of the Federal Reserve System Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the trustee, describe each such affiliation. None with respect to the trustee. No responses are included for Items 3-15 of this Form T-1 because the obligor is not in default as provided under Item 13. Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of this Statement of Eligibility. Norwest Bank incorporates by reference into this Form T-1 the exhibits attached hereto. Exhibit 1. a. A copy of Articles of Association of the trustee now in effect. * Exhibit 2. a. A copy of the certificate of authority of the trustee to commence business issued June 28, 1872, by the Comptroller of the Currency to The Northwestern National Bank of Minneapolis.* b. A copy of the certificate of the Comptroller of the Currency dated January 2, 1934, approving the consolidation of the Northwestern National Bank of Minneapolis and the Minnesota Loan and Trust Company of Minneapolis.* c. A copy of the certificate of the Acting Comptroller of the Currency dated January 12, 1943, as to change of corporate title of Northwestern National Bank and Trust Company of Minneapolis to Northwestern National Bank of Minneapolis.* d. A copy of the certificate of the Comptroller of the Currency dated May 1, 1983, authorizing Norwest Bank Minneapolis, National Association, to act as fiduciary.* Exhibit 3. A copy of the authorization of the trustee to exercise corporate trust powers issued January 2, 1934, by the Federal Reserve Board.* Exhibit 4. Copy of By-laws of the trustee as now in effect.* Exhibit 5. Not applicable. Exhibit 6. The consent of the trustee required by Section 321(b) of the Act.* Exhibit 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. ** Exhibit 8. A copy of the certificate dated May 10, 1983 of name change from Northwestern National Bank Minneapolis to Norwest Bank Minneapolis, National Association.* Exhibit 9. A copy of the certificate dated January 11, 1988, of name change from Norwest Bank Minneapolis, National Association to Norwest Bank Minnesota, National Association.* * Incorporated by reference to the exhibit of the same number filed with the registration statement number 33-66086. ** Incorporated by reference to the exhibit of the same number filed with the registration statement number 22-25782. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Norwest Bank Minnesota, National Association, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Minneapolis and State of Minnesota on the 23th day of September 1994. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION /s/ Raymond S. Haverstock --------------------------------- Raymond S. Haverstock Assistant Vice President EX-99.(A) 10 EXHIBIT 99(A) [LOGO] September 23, 1994 Stone Container Corporation Chicago, Illinois We completed an appraisal of certain property exhibited to us as that of STONE CONTAINER CORPORATION ("Stone"), located in (1) Missoula, Montana, (2) Ontonagon, Michigan, (3) York, Pennsylvania and (4) Uncasville, Connecticut and submitted our findings in a report dated September 23, 1994. This letter summarizes the appraisal report. By reference herein, all terms, conditions, definitions, and limitations contained in the appraisal report shall apply equally to this summary letter. Our appraisal expressed an opinion, as of September 1, 1994, of the fair market value of the property on the premise of continued use. It was understood that our opinion would provide a basis for effecting financing arrangements. Fair Market Value is defined as the estimated amount at which a property might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts, with equity to both. When fair market value is established on the premise of continued use, it is assumed that the buyer and the seller would be contemplating retention of the property at its present location as part of the current operations. An estimate of fair market value arrived at on the premise of continued use does not represent the amount that might be realized from piecemeal disposition of the property in the marketplace or from an alternative use of the property. The premise of continued use is generally appropriate when: - The property is fulfilling an economic demand for the service it provides or which it houses. - The property has a significant remaining useful live expectancy. - There are responsible ownership and competent management. - Diversion of the property to an alternative use would not be economically feasible or legally permitted. - Continuation of the existing use by present or similar users is practical. - Due consideration is given to the property's functional utility for its present use. - Due consideration is given to the property's economic utility. In our investigation, we appraised the designated assets as part of an operating entity. Balance sheets, financial statistics, and operating results furnished to us were accepted without verification, were examined, and were assumed to properly represent business operations and conditions. Given the trends indicated, it was concluded that prospective profits from appraised business operations, on a consolidated basis, were adequate to justify ownership and arm's-length exchange of the designated assets between a willing buyer and a willing seller at the appraised fair market value. In the review, provisions were made for the value of assets not included in the appraisal and for sufficient net-working capital. The property appraised comprises the tangible assets of the linerboard and corrugating medium paperboard mill operations of Stone located at Missoula, Montana; Ontonagon, Michigan; York, Pennsylvania; and Uncasville, Connecticut. A-1 No consideration was given to the impact of any environmental concerns which are associated with the subject property. Our appraisers are not qualified as experts in the detection of hazardous substances. Quantification of the cost to remedy environmentally related problems would have to be identified by experts in that field. Our investigation dealt with real estate comprising land, buildings, and improvements; machinery and equipment; office furniture and equipment; mobile equipment; and licensed vehicles. Excluded from the investigation were supplies, materials on hand, inventories, company records, and any current or intangible assets that might exist. For the real estate, except for the ground lease described in the mortgage with respect to the mill located in Ontonagon, Michigan in which Stone has a valid leasehold interest, we appraised the fee simple interest which is defined as an absolute fee, free of limitations to any particular class of heirs or restrictions, but subject to the limitations of eminent domain, escheat, police power and taxation. Before arriving at an opinion of value, we personally inspected the designated property and studied market conditions. For the real estate, we considered: - Location, size, and utility of the land - Size, condition, and utility of the improvements compared with new facilities - Highest and best use of the land and of the property as improved - Cost of replacement new of the improvements and that cost less depreciation arising from all causes - Sales and asking prices of vacant sites to the vicinity and general area For the personal property, we considered: - The estimated cost to acquire new or construct, or acquire used if comparable property was available - A deduction for depreciation, or loss of value, arising from condition, utility, age, wear and tear, and obsolescence - For the cost of comparable used property, used property selling prices and a positive or a negative adjustment to the market price to reflect the difference in condition and utility between the item being appraised and its normal comparative - Dealers' prices for machinery and equipment in operative condition, plus allowances for freight and installation Accordingly, based on the promise of continued use, it is our opinion that, as of September 1, 1994, the Fair Market Value of the designated assets is reasonably represented in the amount of SIX HUNDRED NINETY-FIVE MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS (U.S. $695,500,000), distributed as follows: Land................................................. $ 5,700,000 Building & Land Improvements......................... 136,970,000 Machinery and Equipment.............................. 550,330,000 Office Furniture and Equipment....................... 675,000 Licensed Vehicles and Aircraft....................... 1,825,000 ------------- Grand Total...................................... $ 695,500,000 ------------- -------------
A-2 The above fair market value does not represent the amount that might be realized from the assets' piecemeal disposition in the open market or from their use for an alternative purpose. We did not investigate the title to or any liabilities against the property appraised. Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ William K. Domoe -------------------- William K. Domoe Principal A-3 -----END PRIVACY-ENHANCED MESSAGE-----