PROVIDED AS PART AF SETTLEMENT NOT AN OFFER
DISCUSSIONS; SUBJECT TO PRIVILEGED AND CONFIDENTIAL
RULE OF EVIDENCE 408 AND ALL ATTORNEY WORK PRODUCT
BANKRUPTCY, STATE, AND MEXICAN
LAW EQUIVALENTS
Proposed Final Version
Corporacion Durango
Term Sheet for Debt Restructuring
The terms discussed in this proposed term sheet (this Term
Sheet) are part of a potential comprehensive compromise,each element
of which is consideration of the other elements and an integral aspect
f a proposed restructuring (the Restructuring)of indebtedness of
Corporacion Durango, S.A. de C.V. (the Company). Except as provided
in the Plan Support Agreement to which this Term Sheet is attached as
Exhibit A, this Term Sheet does not constitute an offer or a legally
binding obligation of the Company or the Ad Hoc Noteholders Committee
or any other party in interest. This Term Sheet is proffered in the
nature of a settlement proposal in furtherance of settlement discussions
and is entitled to protection from any use or disclosure to any party
of evidence, including all bankruptcy, state,and Mexican law equivalents.
Capitalized terms not defined herein shall have the meanings set forth
on Schedule I.
I. Overview Generally, as part of the Restructuring, all of
the terms and conditions contained in the Secured
Debt shall continue in their present form, except
that payments on Secured Debt at specific corporate
entities shall be limited to the cash flow of such
entities as further described below.
Senior Unsecured Debt is presently guaranteed by
the Note Guarantor Group and will retain such
guarantees and be restructured into Tranches A,
B and C as described below. Unsecured Debt which
is presently unguaranteed will be restructured
into Tranche D as described below.All Senior
Unsecured Debt shall be restructured for the full
amount of existing principal, and interest through
the PDI Cutoff Date. Structurally Subordinate
Unsecured Debt shall be restructured for the full
amount of the allowed principal and interest claim
outstanding as of the Closing Date. Cash debt
service relief shall be provided in the form of
deferred amortization to maturity and the creation
of four tranches of new notes (collectively, the
New Notes) to be issued by the Company as follows:
(a) an amortizing tranche having a cash pay floating
interest rate (Tranche A consisting of the A
Notes),(b) a bullet-maturity tranche having a
cash pay fixed interest rate (Tranche B consisting
of the B Notes), (c) a bullet-maturity tranche
having a zero percent cash pay interest rate, but
carrying a contingent fixed interest rate,
compounded from inception,payable upon certain
events further described below (Tranche C
consisting of the C Notes),and (d) a bullet-
maturity tranche having a fixed pay in kind interest
rate to be greed,compounded from inception,payable
at maturity (Tranche D consisting of the D Notes).
Under certain circumstances, excess cash from
operations,asset sales,and other sources at the Note
Guarantor Group shall be applied in certain amounts
to reduce amounts due under Tranches A, B, and C.
In certain cases,similar excess cash at the Company
will be applied undercertain circumstances to
reduce amounts due under all Tranches.
The New Notes shall be issued by the Company.The A
Notes,the B Notes and the C Notes shall be jointly
and severally guaranteed by each company in the Note
Guarantor Group. The A Note and B Note guaranties
shall be pari passu,the C Note guaranty shall be
subordinate to the A Note and B Note guaranties.
The D Notes shall not be guaranteed.
The A Notes and the B Notes shall be secured ratably
by the fixed assets of the Company and the Note
Guarantor Group.
In addition to the issuance of the New Notes,the
Company shall (a) fund a Tender Offer for
outstanding debt with funds derived from cash on
hand, and (b) issue equity to holders of the senior
Unsecured Debt and the Structurally Subordinate
Unsecured Debt as further described below.
The conditions precedent to the Restructuring are
set forth below. Upon satisfaction of the conditions
precedent, the Restructuring shall be effected
pursuant to the Exchange Offer. If the Exchange
Offer does not result in the restructuring of at
least 97% of the Unsecured Debt, but the Company
obtains acceptances from holders of the Senior
Unsecured Debt constituting a majority in number and
2/3 in amount,the Company shall commence a bankruptcy
proceeding under chapter 11 (the Chapter 11 Case)
of the United States Bankruptcy Code (the Bankruptcy
Code), before a United States Bankruptcy Court of
appropriate venue under Section 1408 of title 28 of
the United States Code that is acceptable to counsel
for Corporacion Durango and counsel for the Senior
Unsecured Creditors (the Bankruptcy Court).
The action of an Unsecured Creditor in electing
to participate in the Exchange Offer shall be
deemed to constitute an acceptance of a chapter
11 plan of reorganization providing for like
treatment (the Chapter 11 Plan) in accordance
with Section 1126(b) of the Bankruptcy Code.
II. Tranche A
Issuer: Company
Guarantors: Each member of the Note Guarantor Group shall
deliver a joint and several guaranty of the A
Notes which shall provide for payment of all
amounts when due directly to the Paying Agent
without any demand being made by the holders.
Paying Agent: The Note Guarantor Group shall name a Paying
Agent which shall be an institution satisfactory
to the Senior Unsecured Creditors and the
Company and which shall not be an affiliate of
the Company. Payments on the A Notes shall be
made from the Note Guarantor Group to the Paying
Agent. The Note Guarantor Group shall determine
among themselves the relative allocation of such
payments from time to time.
Security: All current and future fixed assets of the
Company and the Note Guarantor Group shall be
subject to a Mexican mortgage for the ratable
benefit of the A Notes and the B Notes. Sale
procedures to be discussed, including third
party sale at fair market value.
Principal Amount: An amount for each holder determined in
accordance with the Tender and Allocation Rules
(set forth on Schedule III).
The aggregate principal amount of Tranche A
shall not be less than the Tranche A Minimum
Amount or more than the Tranche A Maximum
Amount.
The aggregate principal amount of Tranche A plus
Tranche B shall equal .7699 multiplied by the
principal amount of Senior Unsecured Debt after
giving effect to the Tender Offer.
Interest: LIBOR plus 3.00% per annum, payable quarterly
(provided that such interest shall begin to
accrue on January 1, 2004, with all amounts
accrued prior to the Closing Date payable on the
Closing Date).
Maturity Date: December 31, 2010.
Amortization: Quarterly amortizations based on the following
grid:
Year Percentage of
Ending original principal
December amount of A Notes
31 amortized
2004 0.0%
2005 5.0
2006 12.5
2007 15.0
2008 15.0
2009 25.0
2010 27.5
Total 100.0%
Mandatory As more fully set forth in Section VI below, the
Prepayment: Tranche A Portion of Mandatory Prepayments shall
be applied first to repay principal amounts of
Tranche A until such Tranche is paid in full and
then shall be applied to Tranche C-A. Mandatory
Prepayments applied to the A Notes shall be
applied to individual A holders in accordance
with the Mandatory Prepayment Rule set forth in
Section VI.
Optional Redemption: No optional redemption available until December
31, 2005. Thereafter available without premium
or penalty (provided that if made other than on
the last day on an interest period Issuer shall
pay any LIBOR breakage costs in respect
thereof), subject to (a) three business days
advance notice and (b) equal and ratable
redemption of Tranche B Notes.
Affirmative See Schedule IV
Covenants:
Negative Covenants: See Schedule IV
Financial Covenants: See Schedule IV
Representations and Shall be drafted in a manner usual and customary
Warranties: for a private bank deal, as to: financial
statements (including pro forma financial
statements); absence of undisclosed liabilities;
no material adverse change; corporate existence;
compliance with law; corporate power and
authority; enforceability of credit
documentation; no conflict with law, material
contractual obligations or organizational
documents; no material litigation; ownership of
property free and clear of liens, other than
permitted liens; intellectual property; taxes;
margin stock regulations; Investment Company
Act; subsidiaries; environmental matters; labor
matters; accuracy of disclosure; creation and
perfection of security interests; and any other
representation and warranty reasonably requested
by the Senior Unsecured Creditors.
Events of Default: Shall be drafted in a manner usual and customary
for a private bank deal, including nonpayment of
principal when due (no grace period); nonpayment
of interest, fees or other amounts (30 day grace
period); material inaccuracy of representations
and warranties; violation of covenants (subject
to grace periods to be agreed); cross-default
(see below); bankruptcy events; material
judgments ($15,000,000 threshold); and actual or
asserted invalidity of any guarantee, security
document, or security interest.
The cross-default provision shall include:
(a) payment Event of Default under the B Notes;
(b) any other Event of Default under the B
Notes which has not been remedied or waived
within 90 days from the date an officer provided
(or is required to provide) notice thereof to
the trustee; provided that if any waiver of such
Event of Default is granted by the holders of
the B Notes prior to any remedial action being
taken by holders of the A Notes (unless such
remedial action is an acceleration which has
been rescinded), the cross-default in respect
thereof shall be automatically waived; and
(c) acceleration of any indebtedness of the
Company or the Note Guarantor Group in aggregate
outstanding principal amount in excess of $15
million.
Acceleration shall occur upon a vote of at least
two holders of A Notes which hold in the
aggregate at least 51% in principal amount of
the A Notes outstanding (or automatically upon a
bankruptcy Event of Default).
Equal and Ratable If at any time after the Closing Date the
Enhancement: holders of the B Notes receive, in exchange for
waivers or amendments granted with respect to
the B Notes, any (a) additional liens securing
the B Notes, (b) additional guarantees of the B
Notes or (c) fees, then, in any such case, the
holders of the A Notes shall be entitled to
receive the same, on an equal and ratable basis,
based on then outstanding principal amounts.
Administrative Banamex or any other Mexican bank, Mexican
Agent: subsidiary of a non-Mexican bank, or any other
financial institution with authority to operate
as a bank in Mexico, acceptable to the Company
and the Steering Group, Banamex, Bank of America
and JP Morgan Chase.
Subtranches: None
Liquidity: Transfer restrictions similar to a private bank
transaction.
III. Tranche B
Issuer: Company
Guarantors: Each member of the Note Guarantor Group shall
deliver a joint and several guaranty of the B
Notes which shall provide for payment of all
amounts when due directly to the Paying Agent
without any demand being made by the holders.
Paying Agent: The Note Guarantor Group shall name a Paying
Agent which shall be an institution satisfactory
to the Senior Unsecured Creditors and the
Company and which shall not be an affiliate of
the Company. Payments on the B Notes shall be
made by the Note Guarantor Group directly to the
paying agent. The Note Guarantor Group shall
determine among themselves the relative
allocation of such payments from time to time.
Security: All current and future fixed assets of the
Company and the Note Guarantor Group shall be
subject to a Mexican mortgage for the ratable
benefit of the A Notes and the B Notes. Sale
procedures to be discussed, including third
party sale at fair market value.
Principal Amount: An amount for each holder determined in
accordance with the Tender and Allocation Rules
(set forth on Schedule III).
The Tender and Allocation Rules provide that the
principal amount of Tranche B shall be
determined after the Tender Offer, and shall be
an amount equal to (a) .7699 multiplied by the
principal amount of Senior Unsecured Debt after
giving effect to the Tender Offer minus (b) the
principal amount of Tranche A.
Interest: Fixed interest rate, payable quarterly in
accordance with the following grid (provided
that such interest shall begin to accrue on
January 1, 2004, with all amounts accrued prior
to the Closing Date payable on the Closing
Date):
Year
Ending Per Annum
December Rate
31
2004 7.75%
2005 8.75%
2006 9.75%
2007 9.75%
2008 9.75%
2009 9.75%
2010 9.75%
Maturity Date: December 31, 2010.
Amortization: Bullet maturity.
Mandatory As more fully set forth in Section VI below, the
Prepayment: Tranche B Portion of Mandatory Prepayments shall
be applied first to repay principal amounts of
Tranche C-B until such Tranche is paid in full
(in cash or by discount realization) and then
shall be applied to Tranche B. Such payments to
Tranche B shall be subject to call protection at
104% of principal amount for calendar year 2006,
declining 1% per annum thereafter to par.
Optional Redemption: No optional redemption available until December
31, 2005. Thereafter, redemption available
subject to (a) call protection at 104% of
principal amount for calendar year 2006,
declining 1% per annum thereafter to par and (b)
equal and ratable redemption of A Notes.
Affirmative See Schedule IV
Covenants:
Negative Covenants: See Schedule IV
Financial Covenants: None.
Representations and Shall be drafted in a manner usual and customary
Warranties: for a public bond deal.
Events of Default: The following, which shall be drafted in a
manner usual and customary for a public bond
deal: nonpayment of principal when due (no
grace period); nonpayment of interest, fees or
other amounts (30 day grace period); material
inaccuracy of representations and warranties;
violation of covenants (subject to grace periods
to be agreed); cross-default (see below);
bankruptcy events; material judgments
($15,000,000 threshold); and actual or asserted
invalidity of any guarantee, security document,
or security interest.
The cross-default provision shall include:
(a) payment Event of Default under the A Notes;
(b) any other Event of Default under the A
Notes which has not been remedied or waived
within 90 days from the date an officer provided
(or is required to provide) notice thereof to
the trustee provided that if any waiver of such
Event of Default is granted by the holders of the
A Notes prior to any remedial action being taken
by holders of the B Notes (unless such
remedial action is an acceleration which has
been rescinded), the cross-default in respect
thereof shall be automatically waived; and
(c) acceleration of any indebtedness of the
Company or the Note Guarantor Group in aggregate
outstanding principal amount in excess of $15
million
Acceleration shall occur upon a vote of 25% in
principal amount of the B Notes outstanding (or
automatically upon a bankruptcy Event of
Default), which may be rescinded within 60 days
by a vote of the holders of 51% in principal
amount of the B Notes outstanding if the
triggering Event of Default has been cured or
waived.
Equal and Ratable In the event that, at any time after closing,
Enhancement: the holders of the A Notes receive in exchange
for waivers or amendments granted with respect
to the A Notes any (a) additional liens securing
the A Notes, (b) additional guarantees of the A
Notes or (c) fees, then, in any such case, the
holders of the B Notes shall be entitled to
receive the same, on an equal and ratable basis,
based on then outstanding principal amounts.
Trustee: Wells Fargo, or any other trustee acceptable to
the Company and the Steering Group.
Subtranches: None
Liquidity: If the Exchange Offer is successful, the same
transfer restrictions, if any, as existed
immediately prior to the Restructuring. If a
Chapter 11 Plan is confirmed the B Notes shall
have the benefit of Section 1145 of the
Bankruptcy Code.
IV. Tranche C
Issuer: Company
Subtranches: In accordance with the Tender and Allocation
Rules, Tranche C shall be divided into Tranche C-
A, which shall be issued to holders of A Notes,
and Tranche C-B, which shall be issued to
holders of B Notes. Tranche C-A Notes and
Tranche C-B Notes shall vote separately.
Guarantors: Each member of the Note Guarantor Group shall
deliver a joint and several guaranty of the C
Notes which shall provide for payment of all
amounts when date due directly to the Paying
Agent without any demand being made by the
holders. Such guarantees shall be subordinated
to the guarantees provided to the A Notes and B
Notes and any refinancings or replacements
thereof upon terms determined by the Senior
Unsecured Creditors and reasonably acceptable to
the Company.
Paying Agent: The Note Guarantor Group shall name a Paying
Agent which shall be an institution satisfactory
to the Senior Unsecured Creditors and the
Company and which shall not be an affiliate of
the Company. Payments on the C Notes shall be
made by the Note Guarantor Group to the Paying
Agent. The Note Guarantor Group shall determine
among themselves the relative allocation of such
payments from time to time.
Security: None
Principal Amount: An amount for each holder determined in
accordance with the Tender and Allocation Rules
(set forth on Schedule III).
The aggregate principal amount of Tranche C
shall equal the sum of (a) .2301 multiplied by
the principal amount of Senior Unsecured Debt
after giving effect to the Tender Offer, plus
(b) the amount of interest accrued and unpaid on
the Senior Unsecured Debt as of the PDI Cutoff
Date.
Interest: None, provided that an 8% per annum interest
rate, compounded annually shall apply
retroactive to the Closing Date, and be
immediately payable, upon:
(a) a payment default under the C Notes;
or
(b) a voluntary filing by the Company or
any member of the Note Guarantor Group under
U.S., Mexican (including a concurso mercantil
proceeding), or other bankruptcy, insolvency, or
similar law prior to the repayment in full of
the C Notes; or
(c) an involuntary filing against the
Company or any member of the Note Guarantor
Group under U.S. bankruptcy law that is not
dismissed within 60 days.
(d) the declaration of concurso mercantil by a
Mexican court of competent jurisdiction against
the Company or any member of the Note Guarantor
Group as the result of an involuntary filing in
Mexico.
Maturity Date: December 31, 2012.
Amortization: Bullet maturity.
Mandatory As more fully described in Section VI, Mandatory
Redemption/ Change Prepayments shall be applied to Tranche C, and
of Control: shall be applied to the subtranches of Tranche C
as follows: The Tranche A Portion of Mandatory
Prepayments shall be applied first to the A
Notes until such Notes are paid in full and then
shall be applied to the Tranche C-A Notes. The
Tranche B Portion of Mandatory Prepayments shall
be applied first to the Tranche C-B Notes until
such Notes are paid in full (in cash or by
discount realization) and then shall be applied
to the Tranche B Notes.
Change of Control. In addition, if a Change of
Control shall occur with respect to the Company
or any Note Guarantor, the C Notes shall be
redeemed at par (subject to the redemption
discount described below).
Other Mandatory Redemption. As more fully set
forth in Section VI below, the Company shall,
under certain circumstances, redeem C Notes with
certain proceeds from the sale of non-guarantor
subsidiary stock and/or assets.
Optional Redemption: Available without premium or penalty. C-A Notes
and C-B Notes to be treated pro rata without
regard to subtranche.
Redemption Discount: The Company shall be entitled to a redemption
discount on the C Notes. The redemption
discount shall be applied to each subtranche of
C Notes individually as further described below.
Tranche C-A. The redemption discount shall
accrue (at the Discount Percentage in effect at
the time of such payment as set forth in the
table below) on each payment (other than
payments from the proceeds of sales of pledged
assets or insurance thereon) to the A Notes and
C-A Notes pursuant to the Mandatory Prepayment
Rule; provided that such discount shall not
accrue on such payments to the extent they
exceed in the aggregate 50% of the initial
aggregate principal amount of the C-A Notes.
The redemption discount shall also accrue (at
the Discount Percentage in effect at the time of
such payment as set forth in the table below) on
each other required payment and each optional
prepayment of C-A Notes, in each case, at the
Discount Percentage in effect at the time of
such payment as set forth in the table below.
The amount of the accrued discount with respect
to any payment shall be calculated by
multiplying the amount of such payment by the
Earned Discount Factor for the period in which
such payment was made (as set forth in the table
below).
Such accrued discount shall be applied to reduce
the outstanding principal amount of C-A Notes on
the date that (a) the sum of (i) the accrued
discount which would apply to the C-A Notes
(determined in accordance with the immediately
preceding paragraph) plus (ii) the aggregate
amount of principal payments to C-A Notes plus
(iii) payments made to the A Notes in accordance
with the Mandatory Prepayment Rule shall equal
(b) the initial principal amount of the C-A
Notes.
Tranche C-B. The redemption discount shall
accrue (at the Discount Percentage in effect at
the time of such payment as set forth in the
table below) on each payment (other than
payments from the proceeds of sales of pledged
assets or insurance thereon) to the C-B Notes
pursuant to the Mandatory Prepayment Rule. The
redemption discount shall also accrue (at the
Discount Percentage in effect at the time of
such payment as set forth in the table below) on
each other required payment and each optional
prepayment of C-B Notes, in each case, at the
Discount Percentage in effect at the time of
such payment as set forth in the table below.
The amount of the accrued discount with respect
to any payment shall be calculated by
multiplying the amount of such payment by the
Earned Discount Factor for the period in which
such payment was made (as set forth in the table
below).
Such accrued discount shall be applied to reduce
the outstanding principal amount of C-B Notes on
the date that (a) the sum of (i) the accrued
discount which would apply to the C-B Notes
(determined in accordance with the immediately
preceding paragraph) plus (ii) payments made to
the C-B Notes in accordance with the Mandatory
Prepayment Rule plus (iii) the aggregate amount
of other principal payments to C-B Notes shall
equal (b) the initial principal amount of the C-
B Notes.
Time Period Discount Earned
Percentage Discount
Factor
Calendar Years 50.0% 1.0000
2004-2010
January 2011 49.2% 0.9672
February 2011 48.3% 0.9355
March 2011 47.5% 0.9048
April 2011 46.7% 0.8750
May 2011 45.8% 0.8462
June 2011 45.0% 0.8182
July 2011 44.2% 0.7910
August 2011 43.3% 0.7647
September 2011 42.5% 0.7391
October 2011 41.7% 0.7143
November 2011 40.8% 0.6901
December 2011 40.0% 0.6667
January 2012 36.7% 0.5789
February 2012 33.3% 0.5000
March 2012 30.0% 0.4286
April 2012 26.7% 0.3636
May 2012 23.3% 0.3043
June 2012 20.0% 0.2500
July 2012 16.7% 0.2000
August 2012 13.3% 0.1538
September 2012 10.0% 0.1111
October 2012 6.7% 0.0714
November 2012 3.3% 0.0345
December 2012 0.0% 0.0000
The realization of the discount on Tranche C-A
and Tranche C-B is independent of whether any
amounts under Tranche A and Tranche B remain
outstanding.
Affirmative See Schedule IV
Covenants:
Negative Covenants: See Schedule IV
Financial Covenants: None
Events of Default: The following, which shall be drafted in a
manner usual and customary for a public bond
deal:
(a) payment default under the C Notes with the
following grace periods: nonpayment of
principal (no grace period), nonpayment of
interest, fees, and other amounts (30 day
grace period);
(b) breach of covenant under the C Notes
(subject to grace periods to be agreed);
(c) a voluntary filing by the Company or any
member of the Note Guarantor Group under
U.S.,Mexican (including a concurso mercantil
proceeding), or other bankruptcy, insolvency,
orsimilar law prior to the repayment in full
of the C Notes;
(d) an involuntary filing against the Company
or any member of the Note Guarantor Group
under U.S. bankruptcy law that is not
dismissed within 60 days; and
(e) the declaration of concurso mercantil by a
Mexican court of competent jurisdiction
against the Company or any member of the Note
Guarantor Group as the result of an involuntary
filing in Mexico.
Acceleration of a subtranche shall occur upon a
vote of 25% in principal amount of such
subtranche (or automatically upon a bankruptcy
Event of Default), which may be rescinded within
60 days by a vote of the holders of 51% in
principal amount of such subtranche outstanding
if the triggering Event of Default has been
cured or waived.
Liquidity: If the Exchange Offer is successful, the same
transfer restrictions, if any, as existed
immediately prior to the Restructuring. If a
Chapter 11 Plan is confirmed, the C Notes shall
have the benefit of Section 1145 of the
Bankruptcy Code.
V. Tranche D
Issuer: Company
Guarantors: None
Security: None
Principal Amount: The aggregate principal amount of Tranche D
shall equal the aggregate amount of principal
plus accrued and unpaid interest on the
Structurally Subordinate Unsecured Debt
outstanding on the Closing Date.
Interest: A per annum interest rate to be agreed among the
Company, the Steering Group, Banamex, Bank of
America and JP Morgan Chase, or, in the event of
the commencement of the Chapter 11 Case, such
other interest rate as the Bankruptcy Court
shall require to achieve confirmation of the
Chapter 11 Plan. Interest shall be compounded
annually from inception and shall apply and be
payable upon the maturity of the Tranche D Notes
(whether by acceleration or otherwise).
Maturity Date: December 31, 2013.
Amortization: Bullet maturity
Mandatory As more fully set forth in Section VI, the D
Redemption: Notes shall be redeemed pro-rata with the A
Notes, B Notes and C Notes under certain
circumstances with funds derived from outside
the Note Guarantor Group. In addition, as more
fully set forth in Section VI, the Company may,
at its discretion, utilize certain proceeds from
sales of non-guarantor subsidiary stock and
assets to repurchase D Notes.
Optional Redemption: No optional redemption allowed until the A
Notes, B Notes and C Notes are repaid in full,
except that Company may redeem D Notes with the
funds which Section VI permits it to use for D
Note purchases.
Redemption Discount: None
Affirmative See Schedule IV (Same as C Note covenants)
Covenants:
Negative Covenants: See Schedule IV (Same as C Note covenants)
Financial Covenants: None
Events of Default: The following, which shall be drafted in a
manner usual and customary for a public bond
deal:
(a) payment default under the D Notes with the
following grace periods: nonpayment of
principal (no grace period), nonpayment of
interest, fees, and other amounts (30 day grace
period);
(b) breach of covenant under the D Notes
(subject to grace periods to be agreed);
(c) a voluntary filing by the Company or any
member of the Note Guarantor Group under U.S.,
Mexican (including a concurso mercantil
proceeding), or other bankruptcy, insolvency, or
similar law prior to the repayment in full of
the D Notes; and
(d) an involuntary filing against the Company
or any member of the Note Guarantor Group under
U.S. bankruptcy law that is not dismissed within
60 days;
(e) the declaration of concurso mercantil by a
Mexican court of competent jurisdiction against
the Company or any member of the Note Guarantor
Group as the result of an involuntary filing in
Mexico.
Acceleration of the D Notes shall occur upon by
a vote of 25% in principal amount of the D Notes
outstanding (or automatically upon a bankruptcy
default), which may be rescinded within 60 days
by a vote of the holders of 51% in principal
amount of the D Notes then outstanding, if the
triggering Event of Default has been cured or
waived.
Liquidity: If the Exchange Offer is successful, the same
transfer restrictions, if any, as existed
immediately prior to the Restructuring. If a
Chapter 11 Plan is confirmed, the D Notes shall
have the benefit of Section 1145 of the
Bankruptcy Code.
VI. Treatment of
Asset Sales,
Insurance Proceeds,
Excess Cash, Equity
Issuances and the
Mandatory Prepayment
Rule
Asset Sales: On the Closing Date, all fixed assets of the
Company and the Note Guarantor Group shall be
subject to a Mexican mortgage securing the A
Notes and the B Notes.
Treatment of the Proceeds of Stock or Certain
Assets of Ponderosa Industrial de Mexico, S.A.
de C.V. (Ponderosa). If the Company shall
sell the stock or the assets of Ponderosa
constituting that property, plant, and equipment
located in Chihuahua, Mexico (the Wood Products
Division), the proceeds from such sale shall be
paid over to the Collateral Agent for the
benefit of the holders of the A Notes and B
Notes. Prior to January 1, 2006, the Collateral
Agent shall, at the direction of the Company,
release proceeds of the sale of the Wood
Products Division to the Paying Agent to make
scheduled principal and interest payments on the
A Notes and B Notes. On January 1, 2006, the
net proceeds from the sale of the Wood Products
Division that remain on deposit with the
Collateral Agent shall be distributed to the
holders of the A Notes, B Notes and C Notes in
accordance with the Mandatory Prepayment Rule.
Additionally, if the Company and Ponderosa s
secured bank creditor elect to do so, the net
cash proceeds from the sale of the Wood Products
Division which would otherwise have gone to
repay the secured bank creditor of Ponderosa, or
a portion thereof (the Wood Products Loan
Proceeds), may be retained and such secured
loan may continue as an unsecured loan provided
that all of the Wood Products Loan Proceeds are
transferred to the Collateral Agent on the
Closing Date (or, if after the Closing Date, on
the date on which such proceeds are received by
the Company). The Collateral Agent will release
such proceeds at the Company s request to make
payments to such bank creditor so long as the
aggregate amount of such payments does not
exceed the amount of Wood Products Loan Proceeds
originally transferred to the Collateral Agent.
Any Wood Products Loan Proceeds remaining on
deposit with the Collateral Agent on January 1,
2006 will be applied in accordance with the
Mandatory Prepayment Rule. The Note Guarantor
Group will not guarantee such indebtedness, but
such debt may be serviced with cash flows from
the Note Guarantor Group once there are no Wood
Products Loan Proceeds available for such
purpose on deposit with the Collateral Agent.
Asset Sales at Note Guarantor Group. From time
to time, the Company may direct the Collateral
Agent to release its liens on certain assets in
order to permit a member of the Note Guarantor
Group to consummate a sale of mortgaged assets.
The Collateral Agent shall receive all net
proceeds of each such sale and, to the extent
not re-invested in replacement assets of the
Note Guarantor Group on terms to be agreed,
distribute (a) an amount equal to 85% of the net
proceeds of such asset sales to the holders of
the A Notes, B Notes and C Notes in accordance
with the Mandatory Prepayment Rule, and (b) an
amount equal to 15% of the net proceeds of such
asset sales to the relevant member of the Note
Guarantor Group. Insurance proceeds shall be
treated in a similar manner.
Sales of Subsidiary Stock (other than Shares of
members of the Note Guarantor Group) by Company.
All net cash proceeds of any sale of the stock
of a non-Guarantor subsidiary (or the sale of
all or substantially all of the assets of a non-
Guarantor subsidiary) shall be divided pro rata
(based on outstanding principal amounts at the
time of receipt of net proceeds) between (i) the
A, B and C Notes and (ii) the D Notes. Any such
proceeds allocated to the A, B, and C Notes
shall be delivered to and held by the Collateral
Agent and released at the direction of the
Company in accordance with the next three
paragraphs. Any of such proceeds allocated to
the D Notes shall be held by the Company and may
be used to redeem and repurchase D Notes.
The first $10 million of net cash proceeds
allocated in accordance with the preceding
paragraph to the A, B, and C Notes may be used
by the Company for open market purchases of, or
tender offers for, any combination of A, B and C
Notes, provided that (x) if any such proceeds
are used for open market purchases of A Notes, a
pro rata amount will be used within 30 calendar
days for open market purchases of B Notes, and
vice versa, and, provided, further, that (I) if
the purchase price for any such purchase of A
Notes is above 50 cents per dollar of principal
amount of A Notes, then the Company must offer
to each other holder of A Notes to purchase a
ratable amount of A Notes held by such holder at
such same purchase price and (II) if the
purchase price for any such purchase of B Notes
is above 50 cents per dollar of principal amount
of B Notes, then the Company must offer to each
holder of A Notes to purchase a ratable amount
of A Notes held by such holder at such same
purchase price, (y) if any such proceeds are
used for tender offers for A Notes, a pro rata
amount will be used for tender offers for B
Notes, and vice versa, and (z) if any such
proceeds are used for purchases of (or tenders
for) C-A Notes, a pro rata amount will be used
for purchases of (within 30 calendar days) or
tenders for C-B Notes, and vice versa. Amounts
unused in any tender offer for one series of A,
B, C-A or C-B Notes may be used to fund
oversubscriptions in tender offers for another
series of A, B, C-A or C-B Notes.
Net cash proceeds in excess of $10,000,000
allocated to the A, B and C Notes shall be used
by the Company to fund tender offers for any
combination of A, B and C Notes, provided that
(x) if any such proceeds are used for tender
offers for A Notes, a pro rata amount will be
offered to the B Notes, and vice versa, (y) if
any such proceeds are used for tender offers for
C-A Notes, a pro rata amount will be used for
tender offers for C-B Notes, and vice versa, and
(z) amounts unused in any tender offer for one
series of A, B, C-A or C-B Notes may be used to
fund oversubscriptions in tender offers for
another series of A, B, C-A or C-B Notes. If any
such proceeds remain unused one year after the
receipt by the Company thereof, such remaining
proceeds shall be applied in accordance with the
Mandatory Prepayment Rule and such redemptions
will count towards the redemption discount on C
Notes (up to the aggregate cap thereon).
Tender offers made pursuant to either of the two
immediately preceding paragraphs shall permit
the tendering party to specify whatever purchase
price it wishes and the offering party may
accept tenders which result in the greatest
retirement of Debt.
In addition, the Company at any time may elect
to apply any net cash proceeds allocated to the
A, B and C Notes from any such sale (whether or
not in excess or $10,000,000 and whether or not
1 year has elapsed from the receipt thereof) in
accordance with the Mandatory Prepayment Rule
and such redemptions will count towards the
redemption discount on Tranche C (up to the
aggregate cap thereon).
Sales of Shares of Note Guarantor Group. Not
permitted, other than shares of Ponderosa as
provided for above.
Sales of Company Assets. 85% of net proceeds
from sales of assets of the Company (and related
insurance proceeds) shall be used to redeem A
Notes, B Notes and C Notes (per the Mandatory
Prepayment Rule) and D Notes, pro rata, and 15%
may remain with the Company.
Excess Cash Balance Starting in 2006, the Company shall make
Sweep: payments in an amount equal to 100% of the
Excess Cash Balance Sweep in accordance with the
Mandatory Prepayment Rule.
Equity Issuances: Equity Issuances at the Note Guarantor Group.
Members of the Note Guarantor Group may issue
equity at fair market value, provided that (a)
an amount equal to 85% of the net proceeds of
any such issuances shall be applied to repay the
A Notes, B Notes and C Notes in accordance with
the Mandatory Prepayment Rule, and (b) an amount
equal to 15% of the net proceeds of such equity
issuance shall be distributed to the relevant
member of the Note Guarantor Group.
Equity Issuances at the Company. The Company
may issue equity at fair market value, provided
that (a) an amount equal to 85% of the net
proceeds of such equity issuances shall be paid
to the holders of the A Notes, B Notes, C Notes
and D Notes pro-rata, and (b) an amount equal to
15% of the net proceeds of such equity issuances
may remain with the Company. Such payments to
the A Notes, B Notes and C Notes shall be
distributed to such Notes pursuant to the
Mandatory Prepayment Rule.
Mandatory Prepayment The relative allocation of Mandatory Prepayments
Rule: to holders of the A, B and C Notes shall be made
in accordance with the following rules:
(a) Tranche A Portion of Mandatory Prepayments.
The Tranche A Portion of Mandatory Prepayments
shall be allocated to the payment of (i) A Notes
until all A Notes are paid in full, and then
(ii) C-A Notes until all C-A Notes are paid in
full. Payments to individual holders of A Notes
shall be based on such holder s pro-rata
principal amount of the C-A Notes received on
the Closing Date (whether or not such C-A Notes
are still held by such holder of A Notes).
(b) Tranche B Portion of Mandatory Prepayments.
The Tranche B Portion of Mandatory Prepayments
shall be allocated to the payment of (i) C-B
Notes until all Tranche C-B Notes are paid in
full, and then (ii) B Notes until all Tranche B
Notes are paid in full.
If the recipients of either the Tranche A
Portion of Mandatory Prepayments or the Tranche
B Portion of the Mandatory Prepayments, as the
case may be, have been repaid in full pursuant
to clause (a) or clause (b) above and any A
Notes, B Notes or C Notes remain outstanding,
then 100% of Mandatory Prepayments shall be
applied to such other outstanding A Notes, B
Notes, and C Notes in the manner set forth
above for such A Notes, B Notes, and C Notes.
VII. Conditions The consummation of the Restructuring shall be
Precedent to conditioned upon, without limitation, the
Restructuring following:
Restructuring Documentation. The financing
documentation, guaranty and security
documentation, exchange offer and tender offer
documentation and all other related
documentation shall be in a form satisfactory to
the Company and its advisors and the Senior
Unsecured Creditors executing the Plan Support
Agreement and their advisors.
Secured Debt. All documentation related to the
Secured Debt shall continue in its present form,
and the Company shall represent that the terms
of such debt are not in any way inconsistent
with the terms of the New Notes.
Intercompany Loans. All existing intercompany
loans shall be subordinated to the New Notes and
all intercompany loans held by the Company and
the Note Guarantor Group shall be pledged as
collateral for the A Notes and the B Notes.
Voting proxies (or endorsements, or such other
documentation as shall be acceptable to the
Senior Unsecured Creditors and their counsel)
for all existing intercompany loans shall be
delivered to the Collateral Agent so that such
loans may be voted by the holders of the A Notes
and B Notes in a bankruptcy or concurso
mercantil proceeding in a manner reasonably
satisfactory to the Senior Unsecured Creditors
and their advisors.
Mexican Collateral. All fixed assets of the
Company and the Note Guarantor Group shall be
pledged to the Collateral Agent for the benefit
of the holders of the A Notes and the B Notes in
a manner reasonably satisfactory to the Senior
Unsecured Creditors and their advisors.
Grant of Equity. The Company shall issue 17%
(or a lesser amount based on the successful
disposition of certain disputed unsecured
claims, but in no event less than 15.6%) of the
common equity of the Company on a fully diluted
basis in the form of local shares, or ADRs at
the option of the recipients, to be distributed
to the holders of the Senior Unsecured Debt
(based on the pre-Tender Offer principal and
interest claims of Senior Unsecured Debt) and
the Structurally Subordinate Unsecured Debt.
Restructuring Expenses. The Company shall pay
all reasonable and customary expenses of the
Steering Group, Banamex, Bank of America, and JP
Morgan Chase in connection with the
Restructuring, including the reasonable fees and
expenses of such parties approved legal and
financial advisors.
Accrued Interest. Payment on the Closing Date
of interest to holders of the A Notes and B
Notes assuming interest accrued thereon from
January 1, 2004 to the Closing Date.
VIII.Tender Offer The Company shall fund the Tender Offer with the
and Exchange funds of up to $43.5 million to purchase all
Offer Senior Unsecured Debt tendered and accepted in
accordance with the Tender and Allocation Rules
set forth on Schedule III hereto. Consummation
of the Tender Offer shall be contingent upon the
success of the Exchange Offer.
The Tender Offer shall be accompanied by the
Exchange Offer. The exchange offer shall be
subject to certain conditions, including,
without limitation, that at least 97% of the
outstanding Unsecured Debt shall have accepted
the Exchange Offer.
IX. Chapter 11 If the Exchange Offer does not result in the
Filing restructuring of at least 97% of the Unsecured
Debt, but the Company obtains acceptances from
holders of the Senior Unsecured Debt
constituting a majority in number and 2/3 in
amount, the Company shall commence the Chapter
11 Case before the Bankruptcy Court. The action
of an Unsecured Creditor in electing to
participate in the Exchange Offer shall be
deemed to constitute an acceptance of a chapter
11 plan of reorganization providing for like
treatment in accordance with Section 1126(b) of
the Bankruptcy Code.
X. Plan Support The Company, each member of the Steering Group,
Agreements Banamex, Bank of America and JPMorgan Chase
shall have entered into one or more Plan Support
Agreements in form and substance satisfactory to
all such parties in their reasonable discretion.
XI. Certain Collateral Voting Issues. Foreclosure and other
Intercreditor decisions relating to the collateral shall be
Issues determined by the holders of 66-2/3% of the
aggregate outstanding principal amounts of A
Notes and B Notes (on a combined basis) then
outstanding.
Negative Pledge. The negative pledge with
respect to any Tranche may only be amended or
waived upon a vote of 75% of the outstanding
principal amounts of such Tranche.
C Notes. C Note subtranches shall vote
separately.
Collateral Agent. The Collateral Agent shall be
any Mexican bank, any Mexican subsidiary of a
non-Mexican bank, or any other financial
institution with authority to operate as a bank
in Mexico, acceptable to the Company, the
Steering Group, Banamex, Bank of America and JP
Morgan Chase.
XII. Retainers The retainers for the advisors of the Steering
Group shall be set at the following levels:
financial advisor - $250,000; U.S. legal counsel
- $250,000; and Mexican legal counsel - $75,000.
XIII.Documentation The Company s legal advisors shall draft tender
and solicitation materials. The Steering
Group s legal advisors shall draft the Term
Sheet, Plan Support Agreement, financing
documentation relating to the B, C, and D Notes,
and all intercreditor documentation. The Senior
Unsecured Bank Creditors legal advisors shall
draft financing documentation relating to the A
Notes. Mexican security documentation shall be
drafted by the Steering Group s Mexican counsel.
Schedule I
Definitions
ACD means Administracion Corporativa de Durango, S.A. de C.V.
Administrator means Bondholder Communication Group.
Administrative Agent means the administrative agent referenced
in Section II of this Term Sheet.
Change of Control means that (a) the existing control group of
shareholders shall cease to control the Company, or (b) the Company
shall cease to control any member of the Note Guarantor Group. The
particulars of this definition, including the definition of control
shall be negotiated during documentation.
Closing Date means the date upon which all the conditions
precedent set forth in Section VII shall have occurred and the New
Notes are issued.
Collateral Agent means the collateral agent referenced in
Section XI of this Term Sheet.
Creditor means any Bank Creditor or any Bond Creditor.
Creditor Post-Tender Claim means, for each Creditor, the sum of
such Creditor s (a) Post-Tender Interest Claim plus (b) Post-Tender
Principal Claim.
Creditor Pre-Tender Claim means, for each Creditor, the sum of
such Creditor s (a) Pre-Tender Interest Claim plus (b) Pre-Tender
Principal Claim.
Excess Cash Balance Sweep means (a) 100% of all cash balances of
the Note Guarantor Group in excess of $50 million, swept quarterly for
each of the first three quarters of each fiscal year on the date of
delivery of financial statements for such fiscal quarter, and (b) 100%
of all cash balances of the Note Guarantor Group over $20 million,
swept annually on the date of delivery of the audited financial
statement for such fiscal year. The initial sweep for 2005 shall be
payable upon submission in 2006 of annual audited financial statements
to the Mexican Bolsa for fiscal year 2005.
Exchange Offer means the exchange offer whereby the Unsecured
Debt shall be exchanged for the New Notes in accordance with this Term
Sheet.
EYEMEX means Envases y Empaques de Mexico, S.A. de C.V., a
wholly-owned subsidiary of the Company.
Plan Support Agreement means that certain support agreement
between the Company and certain of the Creditors executed in connection
with this Term Sheet.
Los Cuatro means, collectively (a) Compania Papelera de
Atenquique, S.A. de C.V., (b) Ponderosa Industrial de Mexico, S.A. de
C.V., (c) Empaques de Carton Titan, S.A. de C.V., and (e) Industrias
Centauro, S.A. de C.V.
Mandatory Prepayment Rule has the meaning set forth in Section
VI of this Term Sheet.
Mandatory Prepayments means mandatory prepayments of the New
Notes as contemplated by Section VI of the Term Sheet.
Maximum Tender Pric means 65 cents for each $1 of Pre-Tender
Principal Claims.
McKinley means Durango McKinley Paper Company, a New Mexico
corporation which is a wholly-owned subsidiary of the Company.
Note Guarantor Group means, collectively, ACD, EYEMEX, Los
Cuatro and all subsidiaries of ACD, EYEMEX and Los Cuatro.
Paying Agent means an institution satisfactory to the Senior
Unsecured Creditors and the Company, which shall not be an affiliate of
the Company, and which shall act in the manner contemplated by the Term
Sheet.
PDI Cutoff Date means August 15, 2003, it being understood that
interest is calculated at normal (rather than default) rate for such
period.
Post-Tender Interest Claim means, for each Senior Unsecured
Creditor, the amount of such Senior Unsecured Creditor s Pre-Tender
Interest Claim, as adjusted after giving effect to the Step 4 of the
Tender Offer and Allocation Rules.
Post-Tender Principal Claim means, for each Senior Unsecured
Creditor, the amount of such Senior Unsecured Creditor s Pre-Tender
Principal Claim, as adjusted after giving effect to the Step 4 of the
Tender Offer and Allocation Rules.
Pre-Tender Claim means, for each Senior Unsecured Creditor, the
amount of such Senior Unsecured Creditor s Pre-Tender Principal Claim
plus such Creditor s Pre-Tender Interest Claim.
Pre-Tender Interest Claim means, for each Senior Unsecured
Creditor, the amount of interest owed to such Senior Unsecured Creditor
on the PDI Cutoff Date (it being understood that the interest is
calculated at the normal rate rather than the default rate for such
period) in respect of Senior Unsecured Bank Debt and Senior Unsecured
Bond Debt.
Pre-Tender Principal Claim means, for each Senior Unsecured
Creditor, the amount of principal owed to such Senior Unsecured
Creditor on the PDI Cutoff Date in respect of Senior Unsecured Bank
Debt and Senior Unsecured Bond Debt.
Secured Debt means secured debt of the Company and its
subsidiaries identified under clause (A) on Schedule II.
Senior Unsecured Bank Creditor means a holder of Senior
Unsecured Bank Debt.
Senior Unsecured Bond Creditor means a holder of Senior
Unsecured Bond Debt.
Senior Unsecured Bank Debt means unsecured debt of the Company
identified under clause (C) on Schedule II.
Senior Unsecured Bond Debt means unsecured debt of the Company
identified under clause (D) on Schedule II.
Senior Unsecured Creditor means a holder of Senior Unsecured
Debt.
Senior Unsecured Debt means unsecured debt of the Company and
its subsidiaries identified under clause (E) on Schedule II.
Steering Group means the steering group of the ad hoc committee
of bondholders of the Company.
Structurally Subordinate Unsecured Debt means unsecured debt of
the Company identified under clause (F) on Schedule II.
Tender and Allocation Rules means the Tender and Allocation
Rules set forth on Schedule III.
Tender Consideration means $43,500,000.
Tender Form means a form approved by the Administrator, Company,
the Steering Group, Banamex, Bank of America and JP Morgan Chase, which
shall include the following information (a) name of Creditor, (b) the
amount of Creditor Pre-Tender Claim to be tendered (including a
breakdown of the Creditor Pre-Tender Principal Claim portion and the
Creditor Pre-Tender Interest Claim portion), (c) tender price (which
shall not be above 65 cents for each $1 of Creditor Pre-Tender
Principal Claim tendered), and (d) the name of the debt instrument
under which the tendered principal is owed.
Tender Offer means the tender offer by the Company to purchase
Senior Unsecured Indebtedness of the Company in accordance with the
Tender and Allocation Rules.
Term Sheet means the Term Sheet to which this Schedule I is
attached, which term shall include this Schedule and all other
Schedules thereto.
Tranche A Allocation Shortfall means the Tranche A Minimum
Amount minus the sum of amounts allocated to Tranche A pursuant to
clauses First, Second and Third in Step 7 of the Tender and
Allocation Rules.
Tranche A Maximum Amount means an amount equal to the Tranche A
Minimum Amount plus $50,000,000.
Tranche A Minimum Amount means $110,900,000.
Tranche A Portion of Mandatory Prepayments means, at any time,
an amount equal to the amount of Mandatory Prepayments to be
distributed at such time, multiplied by [__]%.1
Tranche B Portion of Mandatory Prepayments means, at any time,
an amount equal to the Mandatory Prepayments to be distributed at such
time less the Tranche A Portion of Mandatory Prepayments to be
distributed at such time.
Tranche A Request Form means a form approved by the
Administrator which shall include the following information (a) name of
Creditor, and (b) amount of principal which such Creditor requests to
allocate to Tranche A.
Unsecured Bank Debt means unsecured bank debt of the Company and
its subsidiaries identified under clause (C) on Schedule II.
Unsecured Bond Debt means unsecured bond debt of the Company and
its subsidiaries identified under clause (D) on Schedule II.
Unsecured Debt means unsecured debt of the Company and its
subsidiaries identified under clause (B) on Schedule II.
Schedule II
Schedule of Existing Indebtedness
(Pro Forma as of December 31, 2003)
A. Secured Debt
Creditor Principal Debtor(s) Company
Amount Guaranty
Arrendadora B $9.1mm Corporacion Durango, S.A de N/A
of A C.V.
Bancomext $73.5mm2 Grupo Pipsamex, S.A. de C.V.; Yes
Productora Nacional de Papel,
S.A. de C.V.; Fabrica Mexicana
de Papel, S.A. de C.V.
GE Capital $8.3mm Empaques de Carton Titan, S.A. Yes
Leasing de C.V.
Bank of $18.0mm Durango International, Inc.; No
Albuquerque Durango McKinley Paper Company
Nafinsa $0.2mm Compania Papelara de No
Atenquique, S.A. de C.V.
AKA/Commerz $11.7mm Ponderosa Industrial de Mexico, Yes
Bank S.A. de C.V.
Total Secured $120.8mm
Debt
(principal only)
B. Unsecured Debt3/
Creditor Principal Amount
2003 Notes $18.2mm
2006 Notes $301.7mm
2008 Notes $10.4mm
2009 Notes $175.0mm
Banamex $80.4mm
Bank of America (DG) $17.0mm
JPMorgan Syndicate $10.0mm
California Commerce Bank $24.2mm
JPMorgan L/C $5.0mm
JPMorgan ECP $5.0mm
HG Estate $48.1mm 4/
Total Unsecured Debt 695.0mm
(principal only)
C. Senior Unsecured Bank Debt
Creditor Principal Amount
Banamex $80.4mm
Bank of America (DG) $17.0mm
JPMorgan Syndicate $10.0mm
California Commerce Bank $24.2mm
JPMorgan L/C $5.0mm
Subtotal (principal only) $136.6mm
D. Senior Unsecured Bond Debt
Creditor Principal Amount
2006 Notes $301.7mm
2008 Notes $10.4mm
2009 Notes $175.0mm
Subtotal (principal only) $487.1mm
E. Senior Unsecured Debt
Creditor Principal Amount
2006 Notes $301.7mm
2008 Notes $10.4mm
2009 Notes $175.0mm
Banamex $80.4mm
Bank of America (DG) $17.0mm
JPMorgan Syndicate $10.0mm
California Commerce Bank $24.2mm
JPMorgan L/C $5.0mm
Total Senior Unsecured 623.7mm
Debt (principal only)
F. Structurally Subordinate Unsecured Debt5
Creditor Principal Amount
2003 Notes $18.2mm
JP Morgan ECP $5.0mm
HG Estate $48.1mm6
Subtotal (principal only) $71.3mm
Schedule III
Tender and Allocation Rules
The following steps constitute the Tender and Allocation Rules
and shall govern the Tender Offer and the allocation of Creditor
Principal Claims and Creditor Interest Claims to Tranche A, Tranche B,
and Tranche C. Capitalized terms are used as defined in Schedule I.
Step 1. Determination of Creditor Tender Claim. The Administrator
shall determine for each Senior Unsecured Creditor the amount of its
Creditor Pre-Tender Claim.
Step 2. Tender Offer Bid. Each Senior Unsecured Creditor that so
chooses may participate in the Tender Offer by electing to tender all
or a portion of its Creditor Pre-Tender Claim at a price equal to or
less than 65 cents per $1 of principal tendered. A Senior Unsecured
Creditor may tender all, a portion of, or none of its Creditor Pre-
Tender Claim. A Senior Unsecured Creditor may tender different
portions of its Creditor Pre-Tender Claim at different tender prices;
provided that (i) the total amount tendered by any Senior Unsecured
Creditor does not exceed such Creditor s aggregate Creditor Pre-Tender
Claim; and (ii) each such portion tendered totals at least $100,000.
No $100,000 threshold shall exist with respect to tenders of claims in
their entirety. A Senior Unsecured Creditor shall tender each portion
of its Creditor Pre-Tender Claim by submitting a duly completed Tender
Form to the Administrator for each portion of such Creditors Creditor
Pre-Tender Claim to be tendered.
Step 3. Acceptance of Tender Bids. The Administrator shall review
each Tender Form submitted by each Senior Unsecured Creditor and
determine which tender bids shall be accepted. The Administrator
shall first accept those Creditor Pre-Tender Claims which are tendered
at prices which result in the retiring of the greatest amount of
Creditor Pre-Tender Claims for the least amount of Company cash7 and
the Administrator shall so accept tenders of Creditor Pre-Tender
Claims until it has accepted tenders which require payment by the
Company of an amount equal to the Tender Consideration.
If, notwithstanding application of the previous sentence, the
Administrator is not able to accept all economically equivalent
tenders (because acceptance of all such tenders would require a
payment by the Company of an amount in excess of the Tender
Consideration), the Administrator shall accept portions of each such
tender on a pro-rata basis based on the amount of Creditor Pre-Tender
Claim so tendered until it has accepted tenders which require payment
by the Company of an amount equal to the Tender Consideration.
If the amount of consideration required to be paid by the Company
as a result of accepted tender bids does not exceed the Tender
Consideration, then all remaining Senior Unsecured Creditor Pre-Tender
Claims (which claims shall be calculated after giving effect to
Creditors voluntary participation in the Tender Offer in accordance
with the first and second paragraph of this Step 3) shall be deemed to
have been tendered at the Maximum Tender Price, and such deemed tender
shall be accepted pro-rata until an amount equal to the Tender
Consideration is required to be paid by the Company.
Step 4. Adjustment of Creditor Claims after Giving Effect to Tender
Offer. After completion of the Tender Offer, the Administrator shall
adjust each Senior Unsecured Creditor Pre-Tender Principal Claim and
Pre-Tender Interest Claim to reflect the Tender Offer process. For
each Senior Unsecured Creditor that participated in the Tender Offer
and had all or a portion of its tendered Creditor Pre-Tender Claim
accepted (whether voluntarily or involuntarily pursuant to Step 3),
such Creditor shall (a) have its Pre-Tender Principal Claim reduced by
the principal portion of the Creditor Pre-Tender Claim so tendered and
accepted (resulting in the Post-Tender Principal Claim for such
Creditor) and (b) have its Pre-Tender Interest Claim reduced by the
accrued interest portion of the Creditor Pre-Tender Claim so tendered
and accepted (resulting in the Post-Tender Interest Claim for such
Creditor).
Step 5. Allocation of each Creditor s Post-Tender Principal Claim to
Tranches A and B. The Administrator shall multiply each Senior
Unsecured Creditor s Post-Tender Principal Claim by 76.99%, in order
to determine the aggregate amount of Tranche A and Tranche B Notes
(the A/B Amount ) to be allocated to such Senior Unsecured Creditor
in accordance with Steps 7 and 8.
Step 6. Allocation to Tranche C. The Administrator shall determine
each Senior Unsecured Creditor s allocation of Tranche C Notes, by
calculating the sum of (a) the difference between such Creditor s Post-
Tender Principal Claim and the A/B Amount to be allocated to such
Creditor as determined in Step 5 plus (b) such Creditor s Post-Tender
Interest Claim.
Step 7. Allocation to Tranche A. Each Creditor who wishes to
participate in Tranche A shall do so by submitting to the
Administrator a Tranche A Request Form. The Administrator shall
accept and allocate participation in Tranche A to each Creditor that
submitted a Tranche A Request Form, up to the Tranche A Maximum
Amount, in the following order of priority of principal amounts:
First, to each Senior Unsecured Bank Creditor in respect
of its A/B Amount (or portions thereof) which were not submitted
pursuant to the Tender Offer;
Second, to each Senior Unsecured Bond Creditor, pro rata, in
respect of its A/B Amount (or portions thereof) which were not
submitted pursuant to the Tender Offer; and
Third, to each Senior Unsecured Bank Creditor and Senior
Unsecured Bond Creditor, pro rata, in respect of its A/B Amount
(or portions thereof) which were submitted but not accepted
pursuant to the Tender Offer.
If the aggregate amount of Senior Unsecured Creditor Post-Tender
Principal Claims submitted to the Administrator for participation in
Tranche A does not exceed the Tranche A Minimum Amount, then each
Senior Unsecured Creditor shall be deemed to have submitted an
additional Tranche A Request Form for its pro-rata portion (based on
Post-Tender Principal Claims) of the Tranche A Allocation Shortfall,
and the Administrator shall accept and allocate additional interests
in Tranche A accordingly so as to reduce to zero the Tranche A
Allocation Shortfall Amount.
Step 8. Tranche B Allocation. The remaining A/B Amount of each
Senior Unsecured Creditor not allocated to Tranche A in accordance
with Step 7 shall be allocated to Tranche B.
Step 9. Tranche C Allocation. Tranche C shall be allocated to
Tranche C-A and Tranche C-B pro-rata based on such Senior Unsecured
Creditor s principal allocation to Tranche A and Tranche B,
respectively.
Impact on Tender of the Chapter 11 Case. If a Chapter 11 Plan is
required in order to give effect to the Restructuring, the Company
shall treat each Senior Unsecured Creditor s cash tender election as a
treatment selection within the designated option treatment choices
within the Chapter 11 Plan (as opposed to actually accepting and
funding the purchase of pre-Restructuring securities at the time of
tender).
Schedule IV
Affirmative, Negative and Financial Covenants for the New Notes
Covenants for the A Notes shall be drafted in a manner usual and
customary for a private banking transaction, and covenants for the B
Notes, C Notes and D Notes shall be drafted in a manner usual and
customary for a public bond transaction. Such covenants for the New
Notes shall apply to the Company and each member of the Note Guarantor
Group and shall include the following:
Affirmative The following affirmative covenants shall apply to
all New Notes, unless otherwise indicated:
Covenants: Financial reporting.
All Notes. Company shall deliver quarterly (within
60 days after the end of each quarter) and annual
(within 120 days after the end of each year)
financial information for the Company and its
subsidiaries on a consolidated basis, the Company
and the Note Guarantor Group on a partially
consolidated basis (as agreed among the Company and
the Senior Unsecured Creditors), and the Company on
an unconsolidated basis. Annual statements shall be
audited. Annual and quarterly statements shall be
prepared in constant pesos for the current period
and the same period prior year and accompanied by a
certificate from the chief financial officer of the
Company stating that (i) no Event of Default
occurred or exists, and (ii) such financial
statements fairly present in all material respects
the operations and financial condition of the
Company and its subsidiaries on a consolidated
basis, the Company and the Note Guarantor Group on a
partially consolidated basis (as agreed among the
Company and the Senior Unsecured Creditors), and the
Company on an unconsolidated basis, as the case may
be.
Additional financial reporting requirements shall
include (i) 6K and 20F reporting, (ii) quarterly
press releases, and (iii) segment disclosure
(volume, net sales, unit prices, unit cost and
EBITDA) for Paper, Packaging and Other.
A Notes Only. Additional financial reporting shall
include, without limitation, quarterly and year end
reports (i) demonstrating (with appropriate
calculations) compliance with all financial
covenants, and (ii) containing daily cash balances
for the Company and each member of the Note
Guarantor Group. Tranche A will also contain
customary confidentiality provisions which would
cover such information.
Payment of Material Taxes and Claims. To be
determined.
Continuation of Business; Maintenance of Existence
and Material Rights and Privileges. To be
determined.
Compliance with Laws and Material Contractual
Obligations. To be determined.
Maintenance of Material Property and Insurance. To
be determined.
Maintenance of Books and Records. To be determined.
Inspection Rights.
A Notes. To be determined.
B Notes. None.
C Notes. None.
D Notes. None.
Notices of Defaults and Other Material Events.
Notices of an Event of Default under any of the Note
Tranches must be given to the trustee of such Note
Tranche and the Trustee of each of the other Note
Tranches within 5 Business Days after the occurrence
thereof.
Further Assurances (including with respect to
security for after-acquired property). To be
determined.
Subsidiaries. All subsidiaries of the Note
Guarantor Group, including any new subsidiaries,
shall be joint and several guarantors of the A
Notes, B Notes, and C Notes, and shall grant liens
upon their fixed assets to secure the A Notes and
the B Notes.
Consultants. Within six months after closing, the
Company shall retain a turnaround cash management
consultant and an engineering operational
consultant, mutually acceptable to the Company, Bank
of America, Banamex, JP Morgan Chase and the
Steering Group (to the extent each such entity
(other than the Company) continues to be a Creditor
of the Company).
Judgment Currency Indemnification. To be determined.
Payment of Additional Amounts. To be determined.
Negative The following negative covenants shall apply to all
Covenants: New Notes, unless otherwise indicated:
Debt Limitation. No debt other than the New Notes
and existing Secured Debt, provided that the
following carveouts shall apply:
(i) Purchase money indebtedness and capital
leases. For the period from the Closing Date to
the second anniversary of the Closing Date, a
basket of $20,000,000 in aggregate principal
amount outstanding at any time; from the second
anniversary of the Closing Date to the fourth
anniversary of the Closing Date a basket of
$40,000,000 in aggregate principal amount
outstanding at any time; and after the fourth
anniversary of the Closing Date a basket of
$60,000,000 in aggregate principal amount
outstanding at any time, provided that at no time
shall the aggregate principal amount outstanding
of purchase money indebtedness exceed
$20,000,000.
(ii) Working Capital. A basket of $20,000,000 in
aggregate principal amount outstanding at any
time (which may be secured by inventory or
receivables as set forth below).
(iii) Acquired Indebtedness. A basket of
$10,000,000 in aggregate principal amount
outstanding at any time for indebtedness of
acquired companies or assets purchased subject to
security interests.
(iv) Refinancings. Refinancings of existing
Secured Debt which do not increase the principal
amount thereof or increase the collateral in
connection therewith; and permitted refinancings
of any Tranche of New Notes in amounts which do
not exceed the principal amount refinanced,
provided that no refinancing (or any replacement
thereof) shall contain terms more onerous to the
remaining New Notes than the terms of the Tranche
being refinanced.
(v) Intercompany Loans. Loans among the Company
and its subsidiaries (including the indebtedness
created where a member of the Note Guarantor
Group makes a payment under a guaranty of Debt of
the Company permitted hereby); provided that such
loan is subordinated to the New Notes, the
relevant creditor has granted a voting proxy (or
endorsements, or such other documentation as
shall be acceptable to the Senior Unsecured
Creditors and their counsel) to the Collateral
Agent for the benefit of the A Notes, B Notes,
and C Notes, and in the case of creditors who are
Note Guarantors, the promissory Note is pledged
to secure the A Notes and B Notes.
(vi) Statutory bonds; etc. A customary carve-out
shall be provided for bonds and letters of credit
supporting statutory obligations or judicial
actions.
(vii) Hedging. Indebtedness occurred as a bona
fide hedge against interest rate, currency
exchange rate or commodity price fluctuations
(and not for speculative purposes).
(viii) Ponderosa. An unsecured loan from
AKA/Commerz Bank to Ponderosa of up to $9
million; provided that:
- the existing secured loan is replaced by such
unsecured loan following a sale of the stock of
Ponderosa or a sale of substantially all of the
assets of Ponderosa constituting the property,
plant, and equipment at Chihuahua, Mexico;
- upon such sale, Ponderosa has no liabilities in
connection with the Wood Products Division other
than (x) customary indemnification obligations under
the documentation relating to the sale of the Wood
Products Division (which could not reasonably be
expected to have a material adverse effect) and (y)
to repay the unsecured loan (subject to the terms of
this Term Sheet) and its obligations as a member of
the Note Guarantor Group;
- the proceeds are deposited with the Collateral
Agent as collateral for the A Notes and the B Notes,
but subject to withdrawal prior to January 1, 2006
if needed to service such unsecured loan;
- such unsecured loan is an obligation only of
Ponderosa and the Company.
(ix) Trade Indebtedness (including trade letters of
credit). Trade indebtedness (including trade letters
of credit) will not be limited so long as it is
incurred in the ordinary course and on ordinary
terms.
Negative Pledge. No liens shall exist; provided
that the following shall be allowed: (i) existing
liens securing existing Secured Debt, (ii) liens
securing debt permitted by subclauses (i) through
(viii) of clause(a) above, (iii) liens arising by
operation of law, (iv) liens on cash deposits
permitted pursuant to subclause (vi) of clause (a)
above, (v) liens securing trade letters of credit
and liens in the nature of purchase money liens
securing trade indebtedness, and (vi) other
customary exceptions to be agreed.
Restricted Payments. There shall be no dividends,
redemptions or like payments (i) from the Company;
or (ii) to the Company from the Note Guarantor
Group, except for amounts necessary to pay the Note
Guarantor Group s portion of certain classes of
expenses (including corporate overhead, taxes,
regulatory costs, audit fees, etc.) at the Company
level. Loans by members of the Note Guarantor Group
to the Company may be made in lieu of permitted
restricted payments, and shall be limited to
permitted restricted payment amounts and
Indebtedness of the Company to a member of the Note
Guarantor arising in respect of such guarantor s
payment under its guaranty of the A Notes, B Notes,
or C Notes or any other guaranty of debt allowed
under the debt covenant. There shall be no other
loans made by any member of the Note Guarantor Group
to any entities outside the Note Guarantor Group, or
any payments made on any intercompany loans owed by
the Company or members of the Note Guarantor Group
held by affiliates of the Company outside the Note
Guarantor Group, except for payments the entire
amount of which are immediately re-lent to the party
making such payment or as otherwise specifically
agreed in documentation.
Investments and Acquisitions. To be determined.
Transactions with Affiliates. No non-arms-length
transactions with affiliates with exceptions for
transactions (i) not involving the Company and
otherwise wholly within the Note Guarantor Group,
(ii) involving the Company, so long as the non-arms
length benefit flows downstream from the Company to
the Note Guarantor Group (and any such non arms
length transfer price may not be used as a market
price for any determination hereunder), and (iii) as
provided in clause (ii) of the Restricted Payments
limitation.
Capital Expenditures.
A Notes. Limitations on capital expenditures of
$12,000,000 annually, with the ability to rollover
unused amounts for a maximum of one year (but only
after exhaustion of current year amounts).
B Notes. Limitations on capital expenditures of
$24,000,000 annually, with no ability to rollover
unused amounts.
C Notes. No limitation
D Notes. No limitation
Mergers and Consolidations. To be determined.
Sales of Assets.
Assets other than Stock of Subsidiaries. None,
except (i) sales in the ordinary course of business,
(ii) dispositions of worn out or obsolete equipment,
(iii) sales of the Company or any Note Guarantor
assets the proceeds of which are applied in
accordance with Section VI of the Term Sheet, (iv)
sales of Company assets the proceeds of which are
applied in accordance with Section VI of the Term
Sheet, and (v) a $1,000,000 annual basket.
Subsidiary Stock. None, except sales of stock of
non-Note Guarantor Group subsidiaries, all of the
proceeds of which are applied in accordance with
Section VI of the Term Sheet. Sales of stock of any
member of the Note Guarantor Group are prohibited.
No Changes in Lines of Business. To be determined.
No Changes in Fiscal Year. A Notes only.
Restrictions on Prepayment of other Debt
A Notes. No full or partial optional prepayment of
B Notes without equal and ratable prepayment of A
Notes. No full or partial optional prepayment of D
Notes while A Notes remain outstanding except as
permitted pursuant to Section VI of the Term Sheet.
B Notes. No full or partial optional prepayment of
A Notes without equal and ratable prepayment of B
Notes. No full or partial optional prepayment of D
Notes while B Notes remain outstanding except as
permitted pursuant to Section VI of the Term Sheet.
C Notes. No full or partial optional prepayment of
C-A Notes without equal and ratable prepayment of C-
B Notes, and vice versa. No full or partial
optional prepayment of Notes D while C Notes remain
outstanding, except as permitted pursuant to Section
VI of the Term Sheet.
D Notes. No restrictions.
Intercompany Loans. Loans described in clause (vi)
of the Debt Limitation covenant above are permitted.
Other intercompany loans are allowed provided they
comply with the debt covenant and all other negative
covenants.
Equity Issuances. Equity issuances by the Company
or any member of the Note Guarantor Group shall be
allowed (x) so long as such issuances are at fair
market value, (y) the proceeds from such issuances
are applied in accordance with Section VI of the
Term Sheet, and (z) with respect to issuances by a
member of the Note Guarantor Group, such issuances
do not result in a Change of Control.
Repurchases of New Notes. The Company may purchase
A Notes, B Notes, C Notes, and (to the extent
purchased in accordance with Section VI of the Term
Sheet) D Notes, provided that all such purchased
Notes shall be promptly retired or pledged (and if
pledged, shall be pledged with an irrevocable voting
proxy or such other documentation as shall be
acceptable to the Senior Unsecured Creditors and
their counsel). New Notes purchased by the Company
or any affiliate of the Company shall have no voting
rights, whether in bankruptcy, a concurso mercantil,
or otherwise. Except as specifically provided
elsewhere in this Term Sheet, all offers to purchase
New Notes, whether by the Company or an affiliate,
shall be made via a pro-rata offer (or pursuant to a
tender offer) to all holders, or anonymously in a
recognized trading market.
Financial Financial Covenants.
Covenants:
A Notes. Financial covenants consisting of (a) debt
to EBITDA ratios, (b) interest coverage ratios at
levels to be determined based upon 80% of projected
EBITDA in the revised business plan8 (which shall
assume a 2% increase in LIBOR over current business
plan and fully drawn debt baskets) for the first
four years after the Closing Date, and then 85% of
the revised business plan thereafter. 45 day grace
period.
B Notes. No financial covenants.
C Notes. No financial covenants.
D Notes. No financial covenants.
_______________________________
1 This amount shall be a percentage based on a fraction, the
numerator of which is the aggregate principal amount of A Notes and
the denominator or which is the aggregate principal amount of all A
Notes and B Notes.
2 Bancomext has cash collateral of $14.1 million.
3 The Company is also contingently liable for a letter of credit
issued by Bank of America for $2.5 million at a subsidiary of the
Company, Grupo Pipsamex, S.A. de C.V. (Pipsamex). This
obligation is being restructured at Pipsamex, and, as such, is not
considered to be Unsecured Debt for purposes of the Restructuring.
4 The Company s obligations under this claim are disputed.
5 Bank of America L/C of $2.5 million will be restructured at
Pipsamex.
6 The Company s obligations under this claim are disputed.
7 Note that this formulation means that a Senior Unsecured Creditor
that tenders at 61 cents could have its tender accepted prior to a
creditor who tenders at 60 cents if the amount of debt (including
the Creditor Interest Claim, which may vary by Creditor) that would
be retired by the tender at 61 cents is at a level that is high
enough to make such tender less expensive to the Company.
8 To be delivered by Company.