FORM S-4
As filed with the Securities and Exchange Commission on
July 17, 2006
Registration No.
333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
P. H. Glatfelter Company
(Exact name of Registrant as specified in its charter)
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Pennsylvania |
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2621 |
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23-0628360 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification No.) |
96 South George Street, Suite 500
York, Pennsylvania 17401
(717) 225-4711
(Address and telephone number of Registrants principal
executive offices)
John P. Jacunski
Senior Vice President and Chief Financial Officer
P. H. Glatfelter Company
96 South George Street, Suite 500
York, Pennsylvania 17401
(717) 225-4711
(Name, address and telephone number of agent for service)
with a copy to:
Bruce Czachor
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
(212) 848-4000
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 being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Amount to be |
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Offering Price |
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Aggregate |
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Amount of |
Securities to be Registered |
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Registered |
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Per Unit |
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Offering Price (1) |
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Registration Fee (2) |
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71/8
% Notes due 2016
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$200,000,000 |
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100% |
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$200,000,000 |
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$21,400 |
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Guarantees of
71/8
% Notes due 2016
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(1) |
Estimated solely for the purposes of calculating the
registration fee in accordance with Rule 457(f) under the
Securities Act of 1933, as amended. |
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(2) |
Calculated based upon the market value of the securities to be
received by the registrants in the exchange in accordance with
Rule 457(f). Pursuant to Rule 457(n), no registration
fee will be paid in connection with the guarantee. |
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 Section 8(a), may determine.
TABLE OF ADDITIONAL REGISTRANTS
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Primary Standard | |
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State or other | |
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Industrial | |
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I.R.S. Employer | |
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Jurisdiction of | |
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Classification | |
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Identification | |
Name |
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Incorporation | |
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Code Number | |
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Number | |
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PHG Tea Leaves, Inc.
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DE |
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2612 |
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52-2068690 |
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Mollanvick, Inc.
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DE |
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2612 |
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52-2068900 |
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The Glatfelter Pulp Wood Company
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MD |
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2612 |
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23-1519556 |
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GLT International Finance, LLC
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DE |
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2612 |
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32-0019096 |
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Glenn-Wolfe, Inc.
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DE |
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2612 |
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52-2017675 |
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The information in this prospectus is not
complete and may be changed. We may not sell securities until
the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting offers
to buy these securities in any state where the offer or sale is
not permitted.
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SUBJECT TO COMPLETION, DATED
JULY 17, 2006
PROSPECTUS
OFFER TO EXCHANGE
all outstanding unregistered
71/8% notes
due 2016
($200,000,000 aggregate principal amount)
for
71/8%
exchange notes due 2016
that have been registered under the Securities Act of 1933
Fully and unconditionally guaranteed
as to payment of principal and interest
by the Subsidiary Guarantors
TERMS OF THE EXCHANGE OFFER
This prospectus and accompanying letter of transmittal relate to
the proposed offer by P. H. Glatfelter Company to exchange up to
$200,000,000 aggregate principal amount of
71/8%
exchange notes due 2016, which are registered under the
Securities Act of 1933, as amended, for any and all of its
unregistered
71/8
% notes due 2016 that were issued on April 28,
2006. The exchange notes are guaranteed as to payment of
principal and interest by certain of P. H. Glatfelter
Companys domestic subsidiaries (the Subsidiary
Guarantors). The unregistered notes have certain transfer
restrictions. The exchange notes will be freely transferable.
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME,
ON ,
2006, UNLESS WE EXTEND THE OFFER. |
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Tenders of outstanding unregistered notes may be withdrawn at
any time before 5:00 p.m. on the date the exchange offer
expires. |
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All outstanding unregistered notes that are validly tendered and
not validly withdrawn will be exchanged. |
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The terms of the exchange notes to be issued are substantially
similar to the unregistered notes, except they are registered
under the Securities Act, do not have any transfer restrictions
and do not have registration rights or rights to additional
interest. |
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The exchange of unregistered notes for exchange notes will not
be a taxable event for U.S. federal income tax purposes. |
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P. H. Glatfelter Company will not receive any proceeds from the
exchange offer. |
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The exchange notes will not be listed on any exchange. |
Please see Risk Factors beginning on page 13
for a discussion of certain factors you should consider in
connection with the exchange offer.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is ,
2006.
Each holder of an unregistered note wishing to accept the
exchange offer must deliver the unregistered note to be
exchanged, together with the letter of transmittal that
accompanies this prospectus and any other required
documentation, to the exchange agent identified in this
prospectus. Alternatively, you may effect a tender of
unregistered notes by book-entry transfer into the exchange
agents account at The Depository Trust Company
(DTC). All deliveries are at the risk of the holder.
You can find detailed instructions concerning delivery in the
section called The Exchange Offer in this prospectus
and in the accompanying letter of transmittal.
If you are a broker-dealer that receives exchange notes for your
own account, you must acknowledge that you will deliver a
prospectus in connection with any resale of the exchange notes.
The letter of transmittal accompanying this prospectus states
that, by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an
underwriter within the meaning of the Securities
Act. You may use this prospectus, as we may amend or supplement
it in the future, for your resales of exchange notes. We will
make this prospectus available to any broker-dealer for use in
connection with any such resale for a period of 180 days
after the date of consummation of this exchange offer.
TABLE OF CONTENTS
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This prospectus incorporates important business and financial
information about us that is not included in or delivered with
this prospectus. Information incorporated by reference is
available without charge to holders of our unregistered
71/8% notes
due 2016 upon written or oral request to us at P.
H. Glatfelter Company, 96 South George Street,
Suite 500, York, Pennsylvania 17401, Attention: Investor
Relations, telephone number
(717) 225-4711. To
obtain timely delivery, security holders must request this
information no later than five (5) business days before the
date they must make their investment decision which would
be ,
2006.
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not
making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus and the documents
incorporated by reference are accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since these dates.
References to we, us, our,
Glatfelter and the Company are to P. H.
Glatfelter Company and its consolidated subsidiaries unless
otherwise specified or the context otherwise requires.
Whenever we refer in this prospectus to the
71/8% notes
due 2016, we will refer to them as the unregistered
notes. Whenever we refer in this prospectus to the
registered
71/8
% notes due 2016, we will refer to them as the
exchange notes. The unregistered notes and the
exchange notes are collectively referred to as the
notes.
PROSPECTUS SUMMARY
This prospectus summary highlights selected information
appearing elsewhere in this prospectus and may not contain all
of the information that is important to you. You should
carefully read this prospectus in its entirety including the
documents incorporated by reference.
Our Company
Glatfelter began operations in 1864 and today we believe we are
one of the worlds leading manufacturers of specialty
papers and engineered products. Headquartered in York,
Pennsylvania, we own and operate paper mills located in Spring
Grove, Pennsylvania, Neenah, Wisconsin, Gernsbach, Germany and
Scaër, France, as well as an abaca pulp mill in the
Philippines. In March 2006, we acquired a J R Crompton
Ltd., or Crompton, mill located in Gloucestershire, United
Kingdom, which we refer to as the Lydney mill. In
April 2006, we acquired the carbonless business operations of
New Page Corporation, which includes a paper making
facility in Chillicothe, Ohio and coating operations in Fremont,
Ohio, which we refer to collectively as Chillicothe. As part of
our integration plan for Chillicothe, we are transferring the
production of products currently manufactured at our Neenah
facility to Chillicothe and are permanently shutting down our
Neenah facility. For additional information, see
Recent Developments below.
We serve customers in numerous markets, including book
publishing, carbonless and forms, envelope and converting, food
and beverage, pressure-sensitive, digital imaging, composite
laminates and other highly technical niche markets. Many of the
markets in which we operate are characterized by
higher-value-added products and, in some cases, by higher growth
prospects and lower cyclicality than commodity paper markets.
Examples of some of our key product offerings include papers for:
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tea bags and coffee filters; |
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trade book publishing; |
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specialized envelopes; |
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playing cards; |
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pressure-sensitive postage stamps; |
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metallized labels for beer bottles; |
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digital imaging applications; and |
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carbonless products. |
We market our products worldwide both through wholesale paper
merchants, brokers and agents and directly to our customers. In
2005, our revenue was $589.2 million and in the first
quarter of 2006, our revenue was $163.1 million.
Recent Developments
On April 3, 2006, we completed our acquisition of
Chillicothe, the carbonless business operations of NewPage
Corporation, for $81.8 million in cash, subject to certain
post-closing working capital adjustments. The Chillicothe assets
consist of a 440,000 ton-per-year paper making facility in
Chillicothe, Ohio and coating operations based in Fremont, Ohio.
Chillicothe had revenue of $441.5 million in 2005 and a
total of approximately 1,700 employees as of March 31,
2006.
We executed the Chillicothe acquisition so that we could take
advantage of Chillicothes scale and efficient
manufacturing environment. We are transferring the production of
products currently manufactured at our Neenah facility to
Chillicothe, and we intend to significantly expand our
higher-value-added Specialty Papers business unit, in each case
leveraging Chillicothes lower-cost production platform. We
are closing our Neenah facility to rationalize assets that are
no longer competitive and anticipate that the facility will be
permanently shut down by June 30, 2006. In connection with
the planned closure of the Neenah facility, we expect to record
estimated total pre-tax charges of $54 million to
$60 million, including $22.5 million of estimated
pre-tax cash
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charges. The charges are primarily related to asset writedowns
and accelerated depreciation, employee termination and related
benefits and contract termination costs.
On March 8, 2006, we entered into two separate agreements
to acquire certain assets of Crompton, a global supplier of wet
laid nonwoven products based in Manchester, United Kingdom.
Since February 7, 2006, Crompton has been subject to
insolvency proceedings before The High Court of Justice Chancery
Division, Manchester District.
Under the terms of our first agreement with Crompton, on
March 13, 2006, we acquired Cromptons Lydney mill,
located in Gloucestershire, United Kingdom, for approximately
$65 million based on currency exchange rates on that date.
The facility employs approximately 240 people and had 2005
revenues of approximately $78.8 million. The Lydney mill,
which is now included in our Long Fiber & Overlay
Papers business unit, produces a broad portfolio of wet laid
nonwoven products, including tea bags and coffee filter papers,
clean room wipes, lens tissue and dye filter paper, double-sided
adhesive tape substrates and battery grid pasting tissue. The
acquisition of the Lydney mill further strengthened our leading
position in tea bags and coffee filter papers and is part of our
long-term strategy to drive growth in our Long Fiber &
Overlay Papers business unit. Our acquisition of the Lydney mill
is currently being reviewed by the European Commission.
Under the terms of the second agreement with Crompton, we agreed
to purchase Cromptons Simpson Clough mill, located in
Lancashire, United Kingdom, and other related assets for
$21.7 million. The administrator in the insolvency
proceedings terminated this agreement in accordance with
contractual provisions due to additional time that may have been
required should an in-depth regulatory review have been
necessary.
On April 3, 2006, in connection with the consummation of
the Chillicothe acquisition, we entered into our new credit
facility, which provides for a $200.0 million revolving
credit facility and a $100.0 million term loan facility. As
of June 30, 2006, borrowings under our new credit facility
consisted of $52.9 million of indebtedness under the
revolving credit facility and $99.4 million of indebtedness
under the term loan facility. Proceeds from our new credit
facility were used to repay in full all amounts outstanding
under our former revolving credit facility due June 2006, to
finance the Chillicothe acquisition and for general corporate
purposes. For more information, see Description of Other
Indebtedness.
Our Business Units
We manage our business as two distinct units: the North
America-based Specialty Papers business unit and the
Europe-based Long Fiber & Overlay Papers business unit.
Our North America-based Specialty Papers business unit focuses
on papers for the production of high-quality hardbound books and
other book publishing needs, the envelope and converting markets
and highly technical customized products for the digital
imaging, casting and release, pressure sensitive and several
niche technical specialty markets.
We believe we are the leading supplier of book publishing papers
in the United States. Specialty Papers also produces paper that
is converted into specialized envelopes in a wide array of
colors, finishes and capabilities. The book publishing and
envelope and converting papers markets are generally more mature
and, therefore, have modest growth characteristics.
Specialty Papers highly technical engineered products
include those designed for multiple end-uses, such as papers for
pressure-sensitive postage stamps, greeting and playing cards,
digital imaging applications and for release paper applications.
These products comprise an array of distinct business niches
that are in a continuous state of evolution. Many of these
products are utilized in demanding, specialized customer and
end-user applications and, therefore, command higher per ton
values and generally exhibit greater pricing stability relative
to commodity grade paper products. Some of our products are new
and high-growth while
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others are more mature and further along on the development
curve. Because many of these products are technically complex
and involve substantial customer-supplier development
collaboration, product pricing has remained relatively stable.
Effective April 1, 2006, our Specialty Papers business unit
also includes the Chillicothe carbonless business operations.
Carbonless papers are designed for multiple end-uses, such as
credit card receipts, forms and other applications.
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Long Fiber & Overlay Papers |
Our Europe-based Long Fiber & Overlay Papers business
unit focuses on higher-value-added products, such as paper for
tea bags and coffee pods/pads and filters, decorative laminates
used for furniture and flooring and metallized products used in
the labeling of beer bottles. Long fiber papers, which is the
generic term we use to describe products made from abaca pulp
(primarily tea bag and coffee filter papers), accounted for a
majority of this business units net sales. Our focus on
long fiber papers has made us one of the worlds largest
producers of tea bag papers. The balance of this units
sales is comprised of overlay and technical specialty products,
which include flooring and furniture overlay papers, metallized
products and papers for adhesive tapes, vacuum bags, holographic
labels and gift wrap. Many long fiber and overlay papers are
technically sophisticated. We believe we are well positioned to
produce these extremely lightweight papers because we understand
their complexities, which require the use of highly specialized
fiber and specifically designed papermaking equipment. As of
March 13, 2006, our Long Fiber & Overlay Papers
business unit also includes the Lydney mill.
Our Competitive Strengths
Since commencing operations over 140 years ago, we believe
that Glatfelter has developed into one of the worlds
leading manufacturers of specialty papers and engineered
products. We believe that the following competitive strengths
have contributed to our success:
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Leading positions in higher-value, niche segments. We
have focused our resources to achieve leading positions in
certain higher-value, niche segments. Our products include
various highly specialized paper products designed for
technically demanding end uses. Consequently, many of our
products achieve premium pricing relative to commodity paper
grades. In 2005, we derived approximately 75% of our total sales
from these higher-value, niche products. The specialized nature
of these products generally provides greater pricing stability
relative to commodity paper products. |
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Customer-centric business focus. We offer a unique and
diverse product line that can be customized to serve the
individual needs of our customers. Our size allows us to develop
close relationships with our key customers and to be adaptable
in our product development, manufacturing, sales and marketing
practices. We believe that this approach has led to the
development of excellent customer relationships, defensible
market positions and increased pricing stability relative to
commodity paper producers. Additionally, our customer-centric
focus has been a key driver of our success in new product
development. |
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Significant investment in product development. In order
to keep up with our customers ever-changing needs, we
continually enhance our product offerings through significant
investment in product development. In each of the past three
years, we invested approximately $5 million in product
development activities. We derive a significant portion of our
revenue from products developed, enhanced or improved as a
result of these activities. Revenue generated from products
developed, enhanced or improved within the five previous years
as a result of these activities represented approximately 47%,
60% and 52% of our net sales in 2003, 2004 and 2005,
respectively. |
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Integrated production. As a partially integrated
producer, we are able to mitigate changes in the costs of
certain raw materials and energy. Our Spring Grove and
Chillicothe facilities are vertically integrated operations
producing in excess of 85% of the annual pulp required for their
paper production. The principal raw material used to produce
this pulp is pulpwood, consisting of both hardwoods and
softwoods. We own approximately 81,000 acres of timberlands
and, in 2005, obtained approximately 20% of our pulpwood
requirements for our Spring Grove facility from Glatfelter-owned |
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timberlands, which helps stabilize our fiber costs in a highly
fragmented market. Our Spring Grove and Chillicothe facilities
also generate 100% of the steam and substantially all of the
electricity required for their operations. In addition, our
Philippine mill processes abaca fiber to produce abaca pulp,
which is a key raw material used by our Long Fiber &
Overlay Papers business unit. |
Our Business Strategy
Our vision is to become the global supplier of choice in
specialty papers and engineered products. We are continuously
developing and refining strategies to strengthen our business
and position it for the future. Execution of these strategies is
intended to capitalize on our customer relationships, technology
and people, as well as our leadership positions in certain
product lines. In recent years, our industry has been challenged
by a supply and demand imbalance, particularly for
commodity-like products. To be successful in the current market
environment, our strategy is focused on aggressively reducing
costs and continually repositioning our product portfolio to
increase our focus on higher-value, niche products and to better
align our product offerings with our customers
ever-changing needs. Certain key elements of our business
strategy are outlined below:
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Reposition our product portfolio. By leveraging our
leadership positions in several specialty niche segments, we
plan to accelerate growth, improve margins and generate better
financial returns through the optimization of our product
portfolio. In 2005, approximately 75% of our total sales were
derived from what we consider to be higher-value, niche
products. Over time, we plan to increase our concentration on
such products by driving growth in our sales of trade book
papers, uncoated specialty products, long fiber and overlay
products and other specialty products. The recently acquired
Chillicothe assets provide a significant scaleable production
platform to support this strategy. We believe that this strategy
will realign our business more closely with our customers
needs and further reduce our exposure to the higher level of
cyclicality experienced in commodity paper grades. |
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Execute Long Fiber & Overlay Papers growth plan.
A core component of our long-term strategy is to drive growth in
our Long Fiber & Overlay Papers business unit.
Currently, we are one of the leading producers of tea bag and
coffee pod/pad papers in the world, and we expect that the
Lydney mill acquisition will further strengthen our competitive
position. We believe that this segment has promising growth
characteristics as certain geographies move toward the use of
tea bags as opposed to loose tea leaves, and we believe that we
are well positioned to capitalize on this growth by leveraging
our strong customer relationships and leading position in this
segment. |
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Employ a low-cost approach to specialty product
manufacturing. While we are focused on higher-value, niche
products, we seek to employ a commodity-like, low-cost approach
to our manufacturing activities. In 2004, we initiated the North
American Restructuring Program that improved operating results
by, among other factors, improving workforce efficiencies and
implementing improved supply chain management processes. In the
fourth quarter of 2005, we began the implementation of the
European Optimization and Restructuring Program, or the EURO
Program, a comprehensive series of actions designed to improve
the performance of the Long Fiber & Overlay Papers
business unit. The pre-tax financial benefits of the EURO
Program are estimated to be $7 million to $9 million
annually by 2008. |
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Maintain a strong balance sheet and preserve financial
flexibility. We are focused on prudent financial management
and the maintenance of a conservative capital structure. We are
committed to maintaining a strong balance sheet and preserving
our flexibility so that we may pursue strategic opportunities,
including strategic acquisitions, that will benefit our company. |
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Timberland Strategy. We recently completed an extensive
study to determine the optimal approach for managing our
timberlands in a way that creates the greatest value for our
company. The study considered many factors including, among
others, land valuations, external and internal wood costs and
future fiber requirements. We concluded that the most
advantageous approach is to sell 40,000 acres of higher and
better use, or HBU, properties in an orderly fashion. In some
cases, low-cost, low-risk opportunities may exist to add value
to some of these acres through entitlements. It is |
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estimated that our pre-tax cost of fiber will increase by
approximately $2.3 million to $4.6 million per year
when all 40,000 HBU acres are sold, but we believe that the
expected proceeds from these planned sales will outweigh this
increased cost. Currently, we intend to retain the pure
timberland properties to mitigate the cost of replacing
internally generated wood with outside sources. Execution of our
Timberland Strategy is expected to take approximately three to
five years to complete and is estimated to provide pre-tax cash
proceeds of approximately $150 million to
$200 million, assuming, among other factors, acceptable
market conditions and a carefully executed plan of disposition. |
Company Information
We are incorporated under the laws of the Commonwealth of
Pennsylvania. Our executive offices are located at 96 South
George Street, Suite 500, York, Pennsylvania 17401. Our
telephone number is
(717) 225-4711.
Our Web site address is www.glatfelter.com. The information
on our Web site is not part of this prospectus.
5
Summary of the Exchange Offer
On April 28, 2006, we issued $200 million aggregate
principal amount of unregistered
71/8
% notes due 2016. The unregistered notes are fully
and unconditionally guaranteed as to payment of principal and
interest by each of the subsidiary guarantors. On the same day,
we and the initial purchasers of the unregistered notes entered
into a registration rights agreement in which we agreed that
you, as a holder of unregistered notes, would be entitled to
exchange your unregistered notes for exchange notes registered
under the Securities Act. This exchange offer is intended to
satisfy these rights. After the exchange offer is completed, you
will no longer be entitled to any registration rights with
respect to the notes. The exchange notes will be our obligation
and will be entitled to the benefits of the indenture relating
to the notes. The exchange notes will also be fully and
unconditionally guaranteed as to payment of principal and
interest by each of the subsidiary guarantors. The form and
terms of the exchange notes are identical in all material
respects to the form and terms of the unregistered notes, except
that:
|
|
|
|
|
the exchange notes have been registered under the Securities Act
and, therefore, will contain no restrictive legends; |
|
|
|
the exchange notes will not have registration rights; and |
|
|
|
the exchange notes will not have rights to additional interest. |
For additional information on the terms of this exchange offer,
see The Exchange Offer.
|
|
|
The Exchange Offer |
|
We are offering to exchange any and all of our
71/8%
exchange notes due 2016, which have been registered under the
Securities Act, for any and all of our outstanding unregistered
71/8% notes
due 2016 that were issued on April 28, 2006. As of the date
of this prospectus, $200 million in aggregate principal
amount of our
71/8
% unregistered notes due 2016 are outstanding. |
|
Expiration of the Exchange Offer |
|
The exchange offer will expire at 5:00 p.m., New York City
time,
on ,
2006, unless we decide to extend the exchange offer. |
|
Conditions of the Exchange Offer |
|
We will not be required to accept for exchange any unregistered
notes, and may amend or terminate the exchange offer if any of
the following conditions or events occurs: |
|
|
|
the exchange offer or the making of any exchange by
a holder of unregistered notes violates applicable law or any
applicable interpretation of the staff of the Securities and
Exchange Commission, or the SEC); |
|
|
|
any action or proceeding shall have been instituted
or threatened with respect to the exchange offer which, in our
reasonable judgment, would impair our ability to proceed with
the exchange offer; and |
|
|
|
any laws, rules or regulations or applicable
interpretations of the staff of the SEC are issued or
promulgated which, in our good faith determination, do not
permit us to effect the exchange offer. |
|
|
|
We will give oral or written notice of any non-acceptance of the
unregistered notes or of any amendment to or termination of the
exchange offer to the registered holders of the unregistered
notes as promptly as practicable. We reserve the right to waive
any conditions of the exchange offer. |
6
|
|
|
Resales of the Exchange Notes |
|
Based on interpretative letters of the SEC staff to third
parties unrelated to us, we believe that you can resell and
transfer the exchange notes you receive pursuant to this
exchange offer without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that: |
|
|
|
any exchange notes to be received by you will be
acquired in the ordinary course of your business; |
|
|
|
you are not engaged in, do not intend to engage in
and have no arrangements or understandings with any person to
participate in, the distribution of the unregistered notes or
exchange notes; |
|
|
|
you are not an affiliate (as defined in
Rule 405 under the Securities Act) of ours, or, if you are
such an affiliate, you will comply with the registration and
prospectus delivery requirements of the Securities Act to the
extent applicable; |
|
|
|
if you are a broker-dealer, you have not entered
into any arrangement or understanding with us or any of our
affiliates to distribute the exchange notes; and |
|
|
|
you are not acting on behalf of any person or entity
that could not truthfully make these representations. |
|
|
|
If you wish to participate in the exchange offer, you must
represent to us in writing that these conditions have been met. |
|
|
|
If you are a broker-dealer and you will receive exchange notes
for your own account in exchange for unregistered notes that
were acquired as a result of market-making activities or other
trading activities, you will be required to acknowledge that you
will deliver a prospectus in connection with any resale of the
exchange notes. See Plan of Distribution for a
description of the prospectus delivery obligations of
broker-dealers. |
|
Accrued Interest on the Exchange Notes and Unregistered Notes |
|
The exchange notes will accrue interest from and including
April 28, 2006. We will pay interest on the exchange notes
semiannually in arrears on May 1 and November 1 of
each year, commencing November 1, 2006. |
|
|
|
Holders of unregistered notes that are accepted for exchange
will be deemed to have waived the right to receive any payment
in respect of interest accrued from the date of the last
interest payment date that was made in respect of the
unregistered notes until the date of the issuance of the
exchange notes. Consequently, holders of exchange notes will
receive the same interest payments that they would have received
had they not accepted the exchange offer. |
|
Procedures for Tendering Unregistered notes |
|
If you wish to participate in the exchange offer: |
|
|
|
You must transmit a properly completed and signed
letter of transmittal, and all other documents required by the
letter of transmittal, to the exchange agent at the address set
forth in the letter of transmittal. These materials must be
received by the |
7
|
|
|
|
|
exchange agent before 5:00 p.m., New York City time,
on ,
2006, the expiration date of the exchange offer. You must also
provide physical delivery of your unregistered notes to the
exchange agents address as set forth in the letter of
transmittal. The letter of transmittal must also contain the
representations you must make to us as described under The
Exchange Offer Procedures for
Tendering; or |
|
|
|
You may effect a tender of unregistered notes
electronically by book-entry transfer into the exchange
agents account at DTC. By tendering the unregistered notes
by book-entry transfer, you must agree to be bound by the terms
of the letter of transmittal. |
|
Special Procedures for Beneficial Owners |
|
If you are a beneficial owner of unregistered notes that are
held through a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender such unregistered notes,
you should contact the registered holder promptly and instruct
them to tender your unregistered notes on your behalf. |
|
Guaranteed Delivery Procedures for Unregistered notes |
|
If you cannot meet the expiration deadline, or you cannot
deliver on time your unregistered notes, the letter of
transmittal or any other required documentation, or comply on
time with DTCs standard operating procedures for
electronic tenders, you may tender your unregistered notes
according to the guaranteed delivery procedures set forth under
The Exchange Offer Guaranteed Delivery
Procedures. |
|
Withdrawal Rights |
|
You may withdraw the tender of your unregistered notes at any
time prior to 5:00 p.m., New York City time,
on ,
the expiration date. |
|
Consequences of Failure to Exchange |
|
If you are eligible to participate in this exchange offer and
you do not tender your unregistered notes as described in this
prospectus, your unregistered notes will continue to be subject
to transfer restrictions. As a result of the transfer
restrictions and the availability of exchange notes, the market
for the unregistered notes is likely to be much less liquid than
before this exchange offer. The unregistered notes will, after
this exchange offer, bear interest at the same rate as the
exchange notes. |
|
Certain U.S. Federal Income Tax Consequences |
|
The exchange of the unregistered notes for exchange notes
pursuant to the exchange offer will not be a taxable event for
U.S. federal income tax purposes. See United States
Federal Income Tax Considerations |
|
Use of Proceeds |
|
We will not receive any proceeds from the issuance of exchange
notes pursuant to the exchange offer. |
|
Exchange Agent for
Unregistered Notes |
|
SunTrust Bank |
8
Summary Description of the Exchange Notes
The following is a brief summary of some of the terms of the
exchange notes. For a more complete description of the terms of
the exchange notes, see Description of Notes in this
prospectus.
|
|
|
Issuer |
|
P. H. Glatfelter Company |
|
Exchange Notes |
|
$200,000,000 aggregate principal amount of
71/8
% exchange notes due 2016. |
|
Maturity Date |
|
May 1, 2016. |
|
Interest |
|
71/8
% per annum, payable semi-annually in arrears on
May 1 and November 1, beginning November 1, 2006. |
|
Guarantees |
|
The notes will be guaranteed fully and unconditionally, jointly
and severally, by certain of our current and future domestic
subsidiaries. |
|
Ranking |
|
The notes will be: |
|
|
|
senior unsecured obligations of the Company; |
|
|
|
equal in ranking (pari passu) with all
our existing and future senior indebtedness; and |
|
|
|
senior in right of payment to our subordinated
indebtedness. |
|
|
|
Secured debt that we may incur in the future and all our other
secured obligations in effect from time to time will be
effectively senior to the notes to the extent of the value of
the assets securing such debt or other obligations. For a more
detailed description, see Description of Notes
Optional Redemption. |
|
Optional redemption |
|
Prior to May 1, 2011, we may redeem all, but not less than
all, of the notes at a redemption price equal to 100% of the
principal amount plus accrued and unpaid interest plus a
make-whole premium set forth under Description
of the Notes Optional Redemption. We may
redeem some or all of the notes at any time and from time to
time on or after May 1, 2011, at the redemption prices set
forth under Description of the Notes Optional
Redemption, plus accrued and unpaid interest to the date
of redemption. In addition, at any time prior to May 1,
2009, we may redeem up to 35% of the notes with the proceeds of
certain equity offerings. |
|
Certain Covenants |
|
The indenture governing the notes contains covenants that, among
other things, limit our ability and the ability of our
subsidiary guarantors to: |
|
|
|
incur or guarantee additional indebtedness or issue
certain preferred stock; |
|
|
|
pay dividends on our capital stock or redeem,
repurchase or retire our capital stock or subordinated
indebtedness; |
|
|
|
transfer or sell assets; |
|
|
|
make investments; |
|
|
|
incur liens and enter into sale/leaseback
transactions; |
9
|
|
|
|
|
enter into transactions with our affiliates; and |
|
|
|
merge or consolidate with other companies or
transfer all or substantially all of the assets. |
|
|
|
These covenants are subject to important limitations and
exceptions, which are described in this prospectus. For a more
detailed description, see Description of Notes
Certain Covenants. |
|
Trustee |
|
SunTrust Bank |
|
Listing |
|
The exchange notes will not be listed on an exchange. |
|
Use of proceeds |
|
We will not receive any proceeds from the issuance of exchange
notes pursuant to the exchange offer. |
|
Risk factors |
|
See Risk Factors and the other information in this
prospectus for a discussion of risk factors related to our
business. |
10
Summary Consolidated Financial Information
You should read the following summary consolidated financial
information in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on
Form 10-K for the
year ended December 31, 2005 and our Quarterly Report on
Form 10-Q for the
three months ended March 31, 2006, each of which is
incorporated by reference herein, and with Selected
Consolidated Financial and Other Data and our audited
consolidated financial statements and related notes included
elsewhere in this prospectus. The summary consolidated financial
information as of December 31, 2004 and 2005 and for each
of the three years ended December 31, 2005 is derived from
our audited consolidated financial statements included elsewhere
in this prospectus. The summary consolidated financial
information as of December 31, 2002 and 2003 and for each
of the two years ended December 31, 2002 is derived from
our audited consolidated financial statements not included in
this prospectus. The summary consolidated financial information
as of December 31, 2001 is derived from our audited
consolidated financial statements not included in this
prospectus and is adjusted to reflect the impact of the sale in
July 2003 of our Wisches, France subsidiary and the resulting
treatment of this subsidiary as a discontinued operation. The
summary unaudited consolidated financial information for the
three months ended, and as of, March 31, 2005 and 2006 is
derived from our unaudited condensed consolidated financial
statements included elsewhere in this prospectus. The historical
results are not necessarily indicative of our future results of
operations or financial performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Year Ended December 31 | |
|
Ended March 31 | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
In thousands | |
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
632,602 |
|
|
$ |
540,347 |
|
|
$ |
533,193 |
|
|
$ |
543,524 |
|
|
$ |
579,121 |
|
|
$ |
143,896 |
|
|
$ |
160,606 |
|
Energy sales net
|
|
|
9,661 |
|
|
|
9,814 |
|
|
|
10,040 |
|
|
|
9,953 |
|
|
|
10,078 |
|
|
|
2,544 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
642,263 |
|
|
|
550,161 |
|
|
|
543,233 |
|
|
|
553,477 |
|
|
|
589,199 |
|
|
|
146,440 |
|
|
|
163,063 |
|
Cost of products sold
|
|
|
501,142 |
|
|
|
423,880 |
|
|
|
463,687 |
|
|
|
461,063 |
|
|
|
492,023 |
|
|
|
117,846 |
|
|
|
142,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
141,121 |
|
|
|
126,281 |
|
|
|
79,546 |
|
|
|
92,414 |
|
|
|
97,176 |
|
|
|
28,594 |
|
|
|
20,265 |
|
Selling, general and administrative expenses
|
|
|
60,225 |
|
|
|
53,699 |
|
|
|
59,146 |
|
|
|
59,939 |
|
|
|
67,633 |
|
|
|
17,390 |
|
|
|
16,697 |
|
Restructuring charges
|
|
|
|
|
|
|
4,249 |
|
|
|
6,983 |
|
|
|
20,375 |
|
|
|
1,564 |
|
|
|
|
|
|
|
19,298 |
|
Unusual items
|
|
|
60,908 |
|
|
|
(2,008 |
) |
|
|
11,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on disposition of plant, equipment and timberlands, net
|
|
|
(2,015 |
) |
|
|
(1,304 |
) |
|
|
(32,334 |
) |
|
|
(58,509 |
) |
|
|
(22,053 |
) |
|
|
(60 |
) |
|
|
10 |
|
Insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,785 |
) |
|
|
(20,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
22,003 |
|
|
|
71,645 |
|
|
|
34,250 |
|
|
|
103,394 |
|
|
|
70,183 |
|
|
|
11,264 |
|
|
|
(15,740 |
) |
Other nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(15,628 |
) |
|
|
(15,103 |
) |
|
|
(14,269 |
) |
|
|
(13,385 |
) |
|
|
(13,083 |
) |
|
|
(3,260 |
) |
|
|
(3,393 |
) |
|
Interest income
|
|
|
3,589 |
|
|
|
1,571 |
|
|
|
1,820 |
|
|
|
2,012 |
|
|
|
2,012 |
|
|
|
498 |
|
|
|
666 |
|
|
Other net
|
|
|
1,558 |
|
|
|
1,016 |
|
|
|
(1,385 |
) |
|
|
(1,258 |
) |
|
|
1,028 |
|
|
|
261 |
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other nonoperating expenses
|
|
|
(10,481 |
) |
|
|
(12,516 |
) |
|
|
(13,834 |
) |
|
|
(12,631 |
) |
|
|
(10,043 |
) |
|
|
(2,501 |
) |
|
|
(2,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
11,522 |
|
|
|
59,129 |
|
|
|
20,416 |
|
|
|
90,763 |
|
|
|
60,140 |
|
|
|
8,763 |
|
|
|
(18,117 |
) |
Income tax provision (benefit)
|
|
|
4,693 |
|
|
|
21,492 |
|
|
|
7,430 |
|
|
|
34,661 |
|
|
|
21,531 |
|
|
|
2,473 |
|
|
|
(6,252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
6,829 |
|
|
|
37,637 |
|
|
|
12,986 |
|
|
|
56,102 |
|
|
|
38,609 |
|
|
|
6,290 |
|
|
|
(11,865 |
) |
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
198 |
|
|
|
(64 |
) |
|
|
(513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
69 |
|
|
|
(22 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
129 |
|
|
|
(42 |
) |
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
6,958 |
|
|
$ |
37,595 |
|
|
$ |
12,661 |
|
|
$ |
56,102 |
|
|
$ |
38,609 |
|
|
$ |
6,290 |
|
|
$ |
(11,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Year Ended December 31 | |
|
Ended March 31 | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
In thousands | |
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
64,437 |
|
|
$ |
77,706 |
|
|
$ |
46,996 |
|
|
$ |
39,584 |
|
|
$ |
42,868 |
|
|
$ |
(9,115 |
) |
|
$ |
(4,712 |
) |
|
|
Investing activities
|
|
|
(30,536 |
) |
|
|
(49,610 |
) |
|
|
(62,367 |
) |
|
|
42,109 |
|
|
|
(8,029 |
) |
|
|
(4,610 |
) |
|
|
(73,511 |
) |
|
|
Financing activities
|
|
|
(48,710 |
) |
|
|
(84,605 |
) |
|
|
(2,462 |
) |
|
|
(59,753 |
) |
|
|
(15,158 |
) |
|
|
(1,892 |
) |
|
|
49,333 |
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
95,407 |
|
|
$ |
32,219 |
|
|
$ |
15,566 |
|
|
$ |
39,951 |
|
|
$ |
57,442 |
|
|
|
|
|
|
$ |
28,818 |
|
|
Working capital(1)
|
|
|
32,213 |
|
|
|
88,140 |
|
|
|
59,232 |
|
|
|
94,445 |
|
|
|
83,679 |
|
|
|
|
|
|
|
89,196 |
|
|
Total assets
|
|
|
966,604 |
|
|
|
953,202 |
|
|
|
1,027,019 |
|
|
|
1,052,270 |
|
|
|
1,044,977 |
|
|
|
|
|
|
|
1,092,777 |
|
|
Total debt
|
|
|
277,155 |
|
|
|
220,532 |
|
|
|
254,275 |
|
|
|
211,226 |
|
|
|
207,073 |
|
|
|
|
|
|
|
258,044 |
|
|
Shareholders equity
|
|
|
353,469 |
|
|
|
373,833 |
|
|
|
371,431 |
|
|
|
420,370 |
|
|
|
432,312 |
|
|
|
|
|
|
|
421,924 |
|
|
|
(1) |
Working capital is defined as current assets less current
liabilities. |
12
RISK FACTORS
You should carefully consider the risks described below. The
risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may
also adversely affect our business and operations.
If any of the matters included in the following risks were to
occur, our business, financial condition, results of operations,
cash flows or prospects could be materially adversely affected.
In such case, you may lose all or part of your original
investment.
Risks Relating to Our Business
|
|
|
Our business and financial performance may be adversely
affected by downturns in the target markets that we
serve. |
Demand for our products in the markets we serve is primarily
driven by consumption of the products we produce, which is often
affected by general economic conditions. Downturns in our target
markets could result in decreased demand for our products. In
particular, our business may be adversely affected during
periods of economic weakness by the general softness in these
target markets. Our results could be adversely affected if
economic conditions weaken. Also, there may be periods during
which demand for our products is insufficient to enable us to
operate our production facilities in an economical manner. These
conditions are beyond our ability to control and have had, and
may have, a significant impact on our sales and results of
operations.
In addition to fluctuations in demand for our products in the
markets we serve, the markets for our paper products are also
significantly affected by changes in industry capacity and
output levels. There have been periods of supply and demand
imbalance in the pulp and paper industry, which have caused pulp
and paper prices to be volatile. The timing and magnitude of
price increases or decreases in the pulp and paper market have
generally varied by region and by product type. A sustained
period of weak demand or excess supply would likely adversely
affect pulp and paper prices. This could have a material adverse
affect on our operating and financial results.
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|
|
Our industry is highly competitive and increased
competition could reduce our sales and profitability. |
We offer our products throughout the United States and globally
in approximately 80 countries. We compete on the basis of the
quality of our products, customer service, product development
activities, price and distribution. Our competition in the
markets in which we participate comes from companies of various
sizes, some of which have greater financial and other resources
than we do. In markets for our engineered products and the
products of our Long Fiber & Overlay Papers business
unit, we compete with specialty divisions of large companies
such as Ahlstrom Corporation, International Paper Company,
MeadWestvaco Corporation, Sappi Limited and Stora Enso Oyj, as
well as other companies such as Crompton. With respect to book
publishing papers, we compete with companies such as Domtar Inc.
and Weyerhaeuser Company. In the carbonless and forms sector, we
compete with Appleton Papers Inc. Finally, in the envelope
sector, we compete with companies such as Blue Ridge Paper
Products, Inc., International Paper and Weyerhaeuser.
In recent years, the global paper industry in which we compete
has been adversely affected by paper producing capacity
exceeding the demand for products. Increased competition could
force us to lower our prices or to offer additional services at
a higher cost to us, which could reduce our gross margins and
net income. The greater financial resources of certain of our
competitors may enable them to commit larger amounts of capital
in response to changing market conditions. Certain competitors
may also have the ability to develop product or service
innovations that could put us at a disadvantage.
Some of the factors that may adversely affect our ability to
compete in the markets in which we participate include:
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the entry of new competitors into the markets we serve,
including foreign producers; |
13
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the willingness of commodity-based paper producers to enter our
specialty markets when they are unable to compete or when demand
softens in their traditional markets; |
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the aggressiveness of our competitors pricing strategies,
which could force us to decrease prices in order to maintain
market share; |
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our failure to anticipate and respond to changing customer
preferences; |
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|
our inability to develop new, improved or enhanced
products; and |
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|
our inability to maintain the cost efficiency of our facilities. |
If we cannot effectively compete in the markets in which we
operate, our sales and operating results would be adversely
affected.
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|
The cost of raw materials and energy used to manufacture
our products could increase. |
We require access to sufficient and reasonably priced quantities
of pulpwood, wood and other pulps, pulp substitutes, abaca fiber
and certain other raw materials. Our Spring Grove facility is a
vertically integrated manufacturing facility that generates
approximately 85% of its annual pulp requirements. In addition,
approximately 20% of its annual pulpwood requirements in 2005
were satisfied from company-owned timberlands. However, our
Neenah facility purchases all of its wood and other pulps from
third parties, and Chillicothe, while it makes its own pulp,
purchases wood for use in its pulp mill. Our Philippine mill
purchases abaca fiber to make pulp, which we use to manufacture
our long fiber products in Gernsbach, Germany and Scaër,
France.
Coal is a principal source of fuel for our Spring Grove
facility. In the first quarter of 2006, we negotiated a new
three-year coal supply contract that will increase our annual
cost of coal by approximately $6 million beginning in 2007.
Natural gas is the principal source of fuel for our Chillicothe
facilities. Natural gas prices have increased significantly in
the United States since 2000 and reached record highs in 2005.
Prices for natural gas are expected to remain volatile for the
foreseeable future.
We may not be able to pass increased raw materials or energy
prices on to our customers if the market will not bear the
higher price or where existing agreements with our customers do
not allow us to pass along these cost increases. If price
adjustments significantly trail increases in raw materials or
energy prices or if we cannot effectively hedge against price
increases, our operating results could be adversely affected.
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|
We are subject to substantial costs and potential
liability for environmental matters. |
We are subject to various environmental laws and regulations
that govern our operations, including discharges into the
environment and the handling and disposal of hazardous
substances and wastes. We are also subject to laws and
regulations that impose liability and
clean-up responsibility
for releases of hazardous substances into the environment. To
comply with environmental laws and regulations, we have
incurred, and will continue to incur, substantial capital and
operating expenditures. We anticipate that environmental
regulation of our operations will continue to become more
burdensome and that capital and operating expenditures necessary
to comply with environmental regulations will continue, and
perhaps increase, in the future. Because environmental
regulations are not consistent worldwide, our ability to compete
in the world marketplace may be adversely affected by capital
and operating expenditures required for environmental
compliance. In addition, we may incur obligations to remove or
mitigate any adverse effects on the environment, such as air and
water quality, resulting from mills we operate or have operated.
Potential obligations include compensation for the restoration
of natural resources, personal injury and property damage.
In connection with the sale of our Ecusta Division in 2001, we
are incurring landfill closure costs and may incur additional
costs for recognized environmental concerns at the site of our
former mill related to the presence of mercury and certain other
contamination on and around the site, potentially hazardous
conditions
14
existing in the sediment and water column of the sites
water treatment and aeration and sedimentation basin, or ASB,
and contamination associated with two additional landfills on
the site that were not used by us.
We are also liable for the costs of
clean-up related to the
presence of polychlorinated biphenyls, or PCBs, in the lower Fox
River on which our Neenah facility is located. We have financial
reserves for environmental matters but we cannot be certain that
those reserves will be adequate to provide for future
obligations related to these matters, that our share of costs
and/or damages for these matters will not exceed our available
resources or that such obligations will not have a long-term,
material adverse effect on our consolidated financial position,
liquidity or results of operations.
Our environmental issues are complicated and should be reviewed
in full. For a more detailed discussion of these matters, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Environmental Matters and
Business Environmental Matters.
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We may not successfully integrate Chillicothe and execute
the related production transition plans and may not achieve our
anticipated synergies at Chillicothe. |
In April 2006, we acquired Chillicothe from NewPage Corporation.
Inherent risks in a business combination such as this include
the inability to successfully integrate the acquired production
facility and its procurement, marketing and sales requirements,
as well as information systems, finance and administration
functions. In addition, an integral component of this
acquisition is the transfer of production from our Neenah
facility to Chillicothe and the permanent shutdown of the Neenah
facility. We cannot assure you that we will be able to
successfully implement this transfer of production and the
shutdown of the Neenah facility.
Our inability to successfully execute the plans discussed above
may adversely affect our relationships with customers, suppliers
and employees. Accordingly, our financial results may be
adversely affected.
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We may not achieve our anticipated financial benefits from
our acquisition of the Lydney mill. |
In March 2006, we acquired Cromptons Lydney mill. We face
risks inherent with acquisitions, including the inability to
successfully integrate the operations of the Lydney mill, and
cannot assure you that the integration will be successful.
Furthermore, this acquisition is currently being reviewed by the
European Commission, and the results of that review could, if an
order of remedies is issued, impair our ability to integrate the
Lydney mill or have other adverse consequences, including
possible dispositions.
Our inability to successfully execute our plans for the Lydney
mill may adversely affect our relationships with customers,
suppliers and employees. Accordingly, our financial results may
be adversely affected.
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|
We are dependent on NewPage for the provision of essential
services to Chillicothe. |
In connection with the Chillicothe acquisition, we entered into
a transition services agreement with NewPage for the provision
by NewPage of necessary human resources, information technology
and other business support services for Chillicothe for up to
one year. NewPage does not, however, provide us with these
services directly. Rather, NewPage previously outsourced such
services to Accenture LLP. The failure of Accenture, with whom
we do not have a direct contractual relationship, to perform its
obligations under its agreements with NewPage could negatively
affect our business, financial condition and results of
operations since neither we nor NewPage may be able to provide
such services on a cost-effective basis or at all.
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We have operations in a politically and economically
unstable location. |
We own and operate a pulp mill in the Philippines where the
operating environment is unstable and subject to political
unrest. Our Philippine pulp mill produces abaca pulp, a
significant raw material used by our Gernsbach, Germany and
Scaër, France facilities in the production of our long
fiber-based products. Our Philippine pulp mill is a primary
provider of abaca pulp for our Long Fiber & Overlay
Papers business unit. There are limited suitable alternative
sources of readily available abaca pulp in the world. In the
event of a disruption in supply from our Philippine mill, there
is no guarantee that we could obtain adequate amounts of
15
abaca pulp from alternative sources at a reasonable price or at
all. As a consequence, any civil disturbance, unrest, political
instability or other event that causes a disruption in supply
could limit the availability of abaca pulp and would increase
our cost of obtaining abaca pulp. Such occurrences could
adversely affect our sales volumes, revenues and operating
results.
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We may not be able to develop new products acceptable to
our customers. |
Our business strategy is market focused and includes investments
in developing new products to meet the changing needs of our
customers and to maintain our market share. Our success will
depend in large part on our ability to develop and introduce new
and enhanced products that keep pace with introductions by our
competitors and changing customer preferences. If we fail to
anticipate or respond adequately to these factors, we may lose
opportunities for business with both current and potential
customers. The success of our new product offerings will depend
on several factors, including our ability to:
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anticipate and properly identify our customers needs and
industry trends; |
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price our products competitively; |
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|
develop and commercialize new products and applications in a
timely manner, particularly in the event that demand for our
existing products declines or, as in the case of carbonless
paper, continues to decline; |
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differentiate our products from our competitors
products; and |
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invest in research and development activities efficiently. |
Our inability to develop new products could adversely affect our
business and ultimately harm our profitability.
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Our international operations pose certain risks that may
adversely affect sales and earnings. |
We have significant operations and assets located in Germany,
France and the Philippines, as well as a recently acquired mill
in the United Kingdom. Our international sales and operations
are subject to a number of special risks, in addition to the
risks of our domestic sales and operations, including differing
protections of intellectual property, trade barriers, labor
unrest, exchange controls, regional economic uncertainty,
differing (and possibly more stringent) labor regulation, risk
of governmental expropriation, domestic and foreign customs and
tariffs, differing regulatory environments, difficulty in
managing widespread operations and political instability and
unrest. These factors may adversely affect our future profits.
Also, in some foreign jurisdictions in which we operate, we may
be subject to laws limiting the right and ability of entities
organized or operating therein to pay dividends or remit
earnings to affiliated companies unless specified conditions are
met. Any such limitations would restrict our flexibility in
using funds generated in those jurisdictions and potentially
limit the cash available to repay the notes.
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Foreign currency exchange rate fluctuations could
adversely affect our results of operations. |
We own and operate paper and pulp mills in Germany, France and
the Philippines, as well as a recently acquired mill in the
United Kingdom. The local currency in Germany and France is the
Euro, in the Philippines, it is the Peso, and in the United
Kingdom, it is the Pound Sterling. During the year ended
December 31, 2005, our operations in Germany, France and
the Philippines generated approximately 29% of our sales and 30%
of our operating expenses. The translation of the results from
our international operations into U.S. dollars is subject
to changes in the exchange rate of those currencies into
dollars. For example, if the value of the dollar were to rise
against these currencies, the dollar value of the revenues and
earnings generated by these businesses would decrease.
Our ability to maintain our products price competitiveness
for our operations based outside the United States is reliant,
in part, on the relative strength of the currency in which the
products price is denominated compared to the currency of
the market into which it is sold and the functional currency of
our competitors. Changes in the rate of exchange of foreign
currencies in relation to the U.S. dollar and other
currencies may
16
adversely affect our ability to offer products in certain
markets at acceptable prices and ultimately our results of
operations.
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We may be unable to generate sufficient cash flow to
simultaneously fund our operations, finance capital expenditures
and satisfy obligations. |
Our business is capital intensive and requires significant
expenditures for equipment maintenance and new or enhanced
equipment, for environmental compliance matters and to support
our business strategies and research and development efforts. We
expect to meet all of our near- and longer-term cash needs from
a combination of operating cash flow, cash and cash equivalents,
sale of timberlands, our existing credit facility or other bank
lines of credit and other long-term debt. If we are unable to
generate sufficient cash flow from these sources, we could be
unable to meet our near- and longer-term cash needs.
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We may be unable to achieve expected proceeds from a sale
of our timberlands. |
One of our primary business strategies is to sell
40,000 acres of higher and better use, or HBU, properties
over a three- to five-year period. Our ability to sell these
timberlands for the expected price depends on market conditions,
including the availability of similar properties for sale that
would compete with our properties. As a result, we may be unable
to achieve the approximately $150 million to
$200 million in pre-tax proceeds we expect from the sale of
these timberlands. It is estimated that our pre-tax cost of
fiber will increase by approximately $2.3 million to
$4.6 million per year when all 40,000 HBU acres are
sold. These costs could be higher than estimated which could
adversely affect our financial results.
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We may be unable to maintain our relationships with
organized labor unions. |
As of December 31, 2005, approximately 68% of our global
workforce was represented by various labor unions. While we
believe we enjoy satisfactory relationships with all of the
labor organizations that represent our employees, we cannot
guarantee that labor-related disputes will not arise. Labor
disputes could result in disruptions in production and could
also cause increases in production costs, which could harm
relationships with our customers and adversely affect our
business and financial results.
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If we fail to maintain satisfactory relationships with our
larger customers, our business may be harmed. |
With the exception of Chillicothe, we generally have not entered
into long-term supply agreements with our customers. We
regularly submit bids for new business or renewal of existing
business. Due to competition or other factors, we may lose
business from our customers, either partially or completely. The
loss of one or more of our significant customers, or a
substantial reduction of orders by any of our significant
customers, could harm our business and results of operations.
Moreover, our customers vary their order levels significantly
from period to period, and customers may not continue to place
orders with us in the future at the same levels as in prior
periods. In the event we lose any of our larger customers, we
may not be able to replace that revenue source, which could harm
our financial results.
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Several long-term Chillicothe customer agreements may
limit the flexibility of that business. |
We have several long-term agreements with customers of our
Chillicothe business. These agreements do not contain any
commitment by those customers to purchase Chillicothe products
but require us to provide products to such customers, upon
request, at market prices at any time during the term of any
such agreement. Our commitment to provide Chillicothe customers
with products for the full term of such agreements would limit
our flexibility to exit certain aspects of the Chillicothe
business if it became strategically desirable to do so.
17
Risks Relating to Our Indebtedness
|
|
|
Our indebtedness could adversely affect our financial
health and prevent us from fulfilling our obligations under the
notes. |
We have now and will continue to have, a significant amount of
indebtedness. As of June 30, 2006, we had
$52.9 million of indebtedness outstanding under our new
revolving credit facility, $99.4 million of indebtedness
outstanding under our new term loan facility, $200 million of
indebtedness outstanding under the unregistered notes and
$34.0 million of indebtedness outstanding under our note
payable to SunTrust. Our indebtedness could materially and
adversely affect us in a number of ways. For example, it could:
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make it more difficult for us to satisfy our obligations with
respect to the notes; |
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increase our vulnerability to adverse economic and industry
conditions; |
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures and other general corporate
purposes; |
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate; |
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place us at a disadvantage compared to our competitors that have
less debt; and |
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limit our ability to borrow additional funds, including for
future acquisitions, to meet our operating expenses and for
other purposes. |
In addition, a substantial portion of our debt, including
borrowings under our new credit facility, bears interest at
variable rates. If market interest rates increase, variable-rate
debt will create higher debt service requirements, which could
adversely affect our cash flow. While we may enter into
agreements limiting our exposure to higher interest rates, any
such agreements may not offer complete protection from this risk.
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|
Despite our current level of indebtedness, we and our
subsidiaries may still be able to incur substantially more
debt. |
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the
indenture governing the notes and the credit agreement relating
to our new credit facility do not fully prohibit us from doing
so. If new debt is added to our current level of indebtedness,
the risks associated with our indebtedness discussed above will
be increased. See Description of Other Indebtedness.
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|
To service our indebtedness, we will require a significant
amount of cash. Our ability to generate cash depends on many
factors beyond our control. |
Our ability to make payments on, and to refinance, our
indebtedness, including the notes, and to fund planned capital
expenditures will depend on our ability to generate cash in the
future. This is subject to general economic, financial,
competitive, legislative, regulatory and other factors, many of
which are beyond our control.
Our business may not generate sufficient cash flow from
operations, and we may not have available to us future
borrowings in an amount sufficient to enable us to pay our
indebtedness, including the notes, or to fund our other
liquidity needs. In these circumstances, we may need to
refinance all or a portion of our indebtedness, including the
notes, on or before maturity. Our ability to refinance our
indebtedness or obtain additional financing will depend on,
among other things:
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our financial condition at the time; |
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restrictions in the agreements governing our indebtedness,
including the indenture governing the notes; and |
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the condition of the financial markets and the industry in which
we operate. |
18
As a result, we may not be able to refinance any of our
indebtedness, including our new credit facility and the notes,
on commercially reasonable terms or at all. Without this
financing, we could be forced to sell assets to make up for any
shortfall in our payment obligations under unfavorable
circumstances. The terms of our new credit facility and the
indenture governing the notes limit our ability to sell assets
and also restrict the use of proceeds from such a sale. In
addition, we may not be able to sell assets quickly enough or
for sufficient amounts to enable us to meet our obligations,
including our obligations under the notes. Any failure to make
scheduled payments of interest and principal on our outstanding
indebtedness when due would permit the holders of such
indebtedness to declare an event of default and accelerate the
indebtedness, which in turn could lead to cross-defaults under
our other indebtedness, including our new credit facility and
the indenture governing the notes.
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|
The agreements that govern our new credit facility and the
notes contain various covenants that limit our discretion in the
operation of our business. |
The agreements and instruments that govern both our new credit
facility and the notes contain various restrictive covenants
that, among other things, restrict our ability to:
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incur more debt; |
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pay dividends, purchase company stock or make other
distributions; |
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make certain investments; |
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create certain liens; |
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enter into transactions with affiliates; |
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make acquisitions; |
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merge or consolidate; and |
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transfer or sell assets. |
In addition, the new credit facility contains covenants that
require us to achieve and maintain certain financial tests or
ratios, including some that become more restrictive over time.
Our ability to comply with these covenants is subject to various
risks and uncertainties. In addition, events beyond our control
could affect our ability to comply with these covenants. A
failure to comply with these covenants could result in an event
of default under our new credit facility, which, if not cured or
waived, could have a material adverse affect on our business,
financial condition and results of operations. In the event of
any default under our new credit facility, the lenders
thereunder:
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will not be required to lend any additional amounts to us; |
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could elect to declare all of our outstanding borrowings,
together with accrued and unpaid interest and fees, to be
immediately due and payable; and |
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could effectively require us to apply all of our available cash
to repay our borrowings even if they do not accelerate the
borrowings, |
which actions could result in an event of default under the
notes.
If we were unable to repay debt to our secured lenders, these
lenders could also proceed against the collateral securing that
debt. Even if we are able to comply with all applicable
covenants, the restrictions on our ability to manage our
business in our sole discretion could harm our business by,
among other things, limiting our ability to take advantage of
financings, investments, acquisitions and other corporate
transactions that may be beneficial to us.
19
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|
We may not have the ability to raise the funds necessary
to finance, and may also be prohibited from making, the change
of control offer required by the indenture governing the notes
and our new credit facility. |
Upon the occurrence of certain specific kinds of change of
control events, we will be required under the terms of the
indenture to offer to repurchase the notes and, under the terms
of our new credit facility, to repay all outstanding
indebtedness under that facility, plus accrued and unpaid
interest, if any. We may not have sufficient funds at the time
of the change of control to make the required repurchase of the
notes. In the event a change of control occurs at a time when we
are prohibited from purchasing the notes and we are unable to
obtain consents from our lenders to repurchase the notes or are
unable to refinance such obligations, we may be unable to
repurchase the notes. Any failure to repurchase the notes under
a change of control situation would constitute an event of
default under the indenture governing the notes which may in
turn lead to an event of default under our credit facilities or
agreements governing our other future indebtedness.
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Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require note holders to
return payments received from our subsidiary guarantors. |
If a bankruptcy case or lawsuit is initiated by unpaid creditors
of any subsidiary guarantor, the debt represented by the
guarantees entered into by our subsidiary guarantors may be
reviewed under federal bankruptcy law and comparable provisions
of state fraudulent transfer laws. Under these laws, a guarantee
could be voided, or claims in respect of a guarantee could be
subordinated to other obligations of a subsidiary guarantor if,
among other things, the subsidiary guarantor, at the time it
incurred the indebtedness evidenced by its guarantee:
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received less than reasonably equivalent value or fair
consideration for entering into the guarantee; and |
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either: |
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|
was insolvent or rendered insolvent by reason of entering into a
guarantee; or |
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was engaged in a business or transaction for which the
subsidiary guarantors remaining assets constituted
unreasonably small capital; or |
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intended to incur, or believed that it would incur, debts or
contingent liabilities beyond its ability to pay such debts or
contingent liabilities as they become due. |
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a subsidiary guarantor would be
considered insolvent if:
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the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its
assets; or |
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|
the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or |
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it could not pay its debts or contingent liabilities as they
become due. |
A court would likely find that a subsidiary guarantor did not
receive reasonably equivalent value or fair consideration for
its guarantee if the subsidiary guarantor did not substantially
benefit directly or indirectly from the issuance of the notes.
In the event of a finding that a fraudulent conveyance or
transfer has occurred, the court may void, or hold
unenforceable, the subsidiary guarantees, which could mean that
you may not receive any payments under the guarantees and the
court may direct you to repay any amounts that you have already
received from any subsidiary guarantor to such subsidiary
guarantor or a fund for the benefit of such subsidiary
guarantors creditors. Furthermore, the holders of the
notes would cease to have any direct claim against the applicable
20
subsidiary guarantor. Consequently, the applicable subsidiary
guarantors assets would be applied first to satisfy the
applicable subsidiary guarantors other liabilities, before
any portion of its assets could be applied to the payment of the
notes. Sufficient funds to repay the notes may not be available
from other sources, including the remaining subsidiary
guarantors, if any. Moreover, the voidance of a subsidiary
guarantee could result in an event of default with respect to
our and our subsidiary guarantors other debt that in turn
could result in acceleration of such debt (if not otherwise
accelerated due to our or our subsidiary guarantors
insolvency or other proceeding).
On the basis of historical financial information, recent
operating history and other factors, we believe that each
subsidiary guarantor, after giving effect to its guarantee of
these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay such debts as
they mature. We cannot assure you, however, as to what standard
a court would apply in making these determinations or that a
court would agree with our conclusions in this regard.
Each subsidiary guarantee will contain a provision intended to
limit the subsidiary guarantors liability to the maximum
amount that it could incur without causing the incurrence of
obligations under its guarantee to be a fraudulent transfer.
This provision may not be effective to protect the guarantees
from being voided under fraudulent transfer laws or may reduce
or eliminate the subsidiary guarantors obligation to an
amount that effectively makes the guarantee worthless.
|
|
|
We may not have access to the cash flow and other assets
of our non-guarantor subsidiaries that may be needed to make
payments on the notes. |
Although much of our business is conducted through our
subsidiaries, not all of our subsidiaries will guarantee the
notes. In addition, under certain circumstances our subsidiary
guarantors may be released from their guarantees. See
Description of the Notes Guarantees.
Accordingly, our ability to make payments on the notes may be or
become dependent on the earnings and the distribution of funds
from our non-guarantor subsidiaries. Our subsidiaries will be
permitted under the terms of the indenture with respect to the
notes to incur additional indebtedness that may severely
restrict or prohibit the making of distributions, the payment of
dividends or the making of loans by such subsidiaries to us. We
cannot assure you that the agreements governing the current and
future indebtedness of our non-guarantor subsidiaries will
permit these subsidiaries to provide us with sufficient
dividends, distributions or loans to fund payments on the notes
when due. In addition, to the extent the guarantees of the notes
by our guarantor subsidiaries may be limited or unenforceable,
we may also not be able to access the earnings of those
subsidiaries to help service the notes. See
Federal and state statutes allow courts, under
specific circumstances, to void guarantees and require note
holders to return payments received from our subsidiary
guarantors.
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|
|
The notes are be effectively subordinated to all
liabilities and claims of creditors of our current and future
non-guarantor subsidiaries. |
The notes will be structurally subordinated to indebtedness and
other liabilities of our non-guarantor subsidiaries, along with
any future subsidiaries that do not guarantee the notes. In the
event of a bankruptcy, liquidation or reorganization of any of
our non-guarantor subsidiaries, these non-guarantor subsidiaries
will pay the holders of their debts, holders of preferred equity
interests and their trade creditors before they will be able to
distribute any of their assets to us.
|
|
|
There may be no active trading market for the notes, and,
if one develops, it may not be liquid. |
The notes were a new issues of securities for which there was no
established trading market. We do not intend to list the notes
on any national securities exchange or to seek the admission of
the notes for quotation through the National Association of
Securities Dealers Automated Quotation System. Although when the
notes were initially issued the initial purchasers advised us
that they intended to make a market in the notes, they are not
obligated to do so and may discontinue such market making
activity at any time without notice. In addition, market making
activity will be subject to the limits imposed by the Securities
Act, and may be
21
limited during the exchange offer and the pendency of any shelf
registration statement. Although the notes are eligible for
trading in The
PORTALsm
Market, there can be no assurance as to the development or
liquidity of any market for the notes, the ability of the
holders to sell their notes or the price at which the holders
would be able to sell their notes. Future trading prices of the
notes will depend on many factors, including:
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|
our operating performance and financial condition; |
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our ability to complete the offer to exchange the unregistered
notes for the exchange notes; |
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the interest of securities dealers in making a market; and |
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|
the market for similar securities. |
Historically, the market for non-investment-grade debt has been
subject to disruptions that have caused substantial volatility
in the prices of securities similar to the notes offered hereby.
The market for the notes may be subject to similar disruptions.
Any such disruptions may adversely affect the value of your
notes.
If you do not exchange your unregistered notes, they may be
difficult to resell. It may be difficult for you to sell
unregistered notes that are not exchanged in the exchange offer
since any unregistered notes not exchanged will remain subject
to the restrictions on transfer provided for in Rule 144
under the Securities Act of 1933, as amended (the
Securities Act). These restrictions on transfer of
your unregistered notes exist because we issued the unregistered
notes pursuant to an exemption from the registration
requirements of the Securities Act and applicable state
securities laws. Generally, the unregistered notes that are not
exchanged for exchange notes pursuant to the exchange offer will
remain restricted securities and may not be offered or sold,
unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Other than
in connection with the exchange offer, we do not intend to
register the unregistered notes under the Securities Act. To the
extent any unregistered notes are tendered and accepted in the
exchange offer, the trading market, if any, for the unregistered
notes that remain outstanding after the exchange offer would be
adversely affected due to a reduction in market liquidity.
22
FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus, including the
documents incorporated by reference, that are not purely
historical are forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act, and Section 27A of
the Securities Act. When used in this prospectus and the
documents incorporated by reference, the words or phrases
expects, will continue,
estimates, we believe and similar
expressions are intended to identify forward-looking
statements within the meaning of the Exchange Act and the
Securities Act. Forward-looking statements include plans,
commitments and objectives of management for future operations.
These forward-looking statements involve risks and uncertainties
and are based on assumptions that may not be realized. Actual
results and outcomes may differ materially from those discussed
or anticipated. The following important factors, among others,
could cause our actual results to differ from any results that
might be projected, forecasted or estimated in this prospectus
and the documents incorporated by reference:
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|
variations in demand for, or pricing of, our products; |
|
|
|
changes in the cost or availability of raw materials we use, in
particular pulpwood, market pulp, pulp substitutes and abaca
fiber, and changes in energy-related costs; |
|
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|
our ability to develop new, higher-value-added products; |
|
|
|
the impact of competition, changes in industry paper production
capacity, including the construction of new mills, the closing
of mills and incremental changes due to capital expenditures or
productivity increases; |
|
|
|
costs and other effects of environmental compliance, cleanup,
damages, remediation or restoration, or personal injury or
property damages related thereto, such as the costs of natural
resource restoration or damages related to the presence of
polychlorinated biphenyls, or PCBs, in the lower Fox River on
which our Neenah, Wisconsin facility is located, and the costs
of environmental matters at our former Ecusta paper facility
located in North Carolina; |
|
|
|
the gain or loss of significant customers and/or the ongoing
viability of such customers; |
|
|
|
risks associated with our international operations, including
local economic and political environments and fluctuations in
currency exchange rates; |
|
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|
geopolitical events, including war and terrorism; |
|
|
|
enactment of adverse state, federal or foreign tax or other
legislation or changes in government policy or regulation; |
|
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|
adverse results in litigation; |
|
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|
disruptions in production and/or increased costs due to labor
disputes; |
|
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|
our ability to successfully implement the European Restructuring
and Optimization Program; |
|
|
|
our ability to successfully execute our timberland strategy to
realize the value of our timberlands; |
|
|
|
our ability to execute the planned shutdown of our Neenah
facility in an orderly manner; |
|
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|
our ability to finance, consummate and integrate acquisitions; |
|
|
|
our ability to achieve the anticipated synergies from our
acquisition of the carbonless business operations of NewPage
Corporation, which is more fully described in this prospectus,
and the related shutdown of our Neenah facility; and |
|
|
|
all other risk factors described in the section entitled
Risk Factors. |
23
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is information concerning our ratio of earnings
to fixed charges. This ratio shows the extent to which our
business generates enough earnings after the payment of all
expenses other than interest to make required interest payments
on our debt.
For the purposes of calculating the ratio of earnings to fixed
charges, earnings represent income from continuing operations
before income taxes plus fixed charges. Fixed charges consist of
interest expense (including capitalized interest) on all
indebtedness plus amortization of debt issuance costs and the
portion of rental expense that we believe is representative of
the interest component of rental expense.
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|
Year Ended December 31, | |
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| |
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Three Months Ended | |
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|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
March 31, 2006 | |
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|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Ratio of earnings to fixed charges
|
|
|
1.69 |
x |
|
|
4.63 |
x |
|
|
2.32 |
x |
|
|
7.27 |
x |
|
|
5.28 |
x |
|
|
(1 |
) |
|
|
(1) |
For the three months ended March 31, 2006 the deficit in
earnings to fixed charges totaled $18.1 million. |
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In
consideration for issuing the exchange notes contemplated by
this prospectus, we will receive unregistered notes in like
principal amount. The unregistered notes surrendered in exchange
for the exchange notes will be retired and canceled and cannot
be reissued. Accordingly, the issuance of the exchange notes
will not result in any change in our indebtedness.
24
CAPITALIZATION
The following table sets forth our cash and cash equivalents,
our long-term debt and our capitalization on an actual basis as
of March 31, 2006. You should read this table in
conjunction with Unaudited Pro Forma Consolidated
Financial Statements, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, our audited consolidated financial statements
and related notes and the audited combined financial statements
of Chillicothe and related notes, each appearing elsewhere in,
or incorporated by reference into, this prospectus.
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As of | |
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|
March 31, 2006 | |
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| |
Cash and cash equivalents
|
|
$ |
28,818 |
|
|
|
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|
Other short-term debt
|
|
$ |
3,295 |
|
Long-term debt:
|
|
|
|
|
|
Revolving credit facility(1)
|
|
|
70,749 |
|
|
New term loan facility(2)
|
|
|
|
|
|
67/8
% notes due July 2007(3)
|
|
|
150,000 |
|
|
71/8
notes due 2016(4)
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|
SunTrust note payable
|
|
|
34,000 |
|
Shareholders equity:
|
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|
|
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|
Common stock
|
|
|
544 |
|
|
Capital in excess of par value
|
|
|
41,186 |
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Retained earnings
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|
|
531,949 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(3,432 |
) |
|
Treasury stock
|
|
|
(148,323 |
) |
|
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|
|
|
|
Total shareholders equity
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|
421,924 |
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Total capitalization
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|
$ |
679,968 |
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(1) |
As of June 30, 2006, we had approximately
$52.9 million of borrowings outstanding under our new
revolving credit facility. Our revolving credit facility
provides for aggregate borrowings of $200.0 million and
matures in April 2011. |
|
(2) |
As of June 30, 2006, we had $99.4 million outstanding
under our new term loan facility. Our new term loan facility
matures in April 2011. |
|
(3) |
On June 5, 2006, the $150 million
67/8% notes
were redeemed with proceeds from the $200 million
71/8
% note issuance. |
|
(4) |
As of June 30, 2006, we had $200 million of
71/8
% notes due 2016 outstanding. |
25
DESCRIPTION OF OTHER INDEBTEDNESS
New Credit Facility
On April 3, 2006, we, along with certain of our
subsidiaries as borrowers and certain of our subsidiaries as
guarantors, entered into a credit agreement with certain banks
named therein, PNC Bank, National Association, as agent, PNC
Capital Markets LLC and Credit Suisse Securities (USA) LLC,
as joint lead arrangers and bookrunners, and Credit Suisse
Securities (USA) LLC, as syndication agent. This new credit
facility replaced our prior credit facility maturing in June
2006. A portion of the proceeds from the new credit facility
were used to repay in full all amounts outstanding under our
former $125.0 million revolving credit facility which was
scheduled to expire on June 24, 2006. The remaining
proceeds were used to finance the Chillicothe acquisition and
for general corporate purposes.
Pursuant to the credit agreement for our new credit facility, we
may borrow, repay and reborrow revolving credit loans in an
aggregate principal amount not to exceed $200.0 million
outstanding at any time. Under the revolving credit facility, we
may request (i) letters of credit in an aggregate face
amount not to exceed $20.0 million and (ii) swing
loans (as defined in the credit agreement) in an aggregate
principal amount not to exceed $20.0 million. Under the
credit agreement, we have the option to request of PNC Bank,
subject to the approval of the banks, that the maximum principal
amount under the revolving credit facility be increased from
$200.0 million up to a maximum of $250.0 million. All
borrowings under our credit facility are unsecured.
Borrowings under our revolving credit facility may be used for
working capital, acquisitions, capital expenditures, investments
and for other general corporate purposes. As of June 30,
2006, approximately $52.9 million of indebtedness was
outstanding under our revolving credit facility. The revolving
credit commitment expires on April 2, 2011.
In addition, on April 3, 2006, pursuant to the credit
agreement, we received a term loan in the principal amount of
$100.0 million. Quarterly repayments of principal
outstanding under the term loan begin on March 31, 2007
with the final principal payment due on April 2, 2011.
Borrowings under the credit agreement bear interest, at our
option, at either (a) the banks base rate described
in the credit agreement as the greater of the prime rate or the
federal funds rate plus 50 basis points, or (b) the
EURO rate based generally on the London Interbank Offer Rate,
plus an applicable margin that varies from 67.5 basis
points to 137.5 basis points according to our corporate
credit rating determined by S&P and Moodys.
We have the right to prepay the term loan and revolving credit
borrowings in whole or in part without premium or penalty,
subject to timing conditions related to the interest rate option
chosen. If certain prepayment events occur, such as a sale of
assets or the incurrence of additional indebtedness in excess of
$10.0 million in the aggregate, we must repay a specified
portion of the term loan within five days of the prepayment
event.
The credit agreement contains a number of customary events of
default for financings of this type including, without
limitation, (i) failure to pay principal, interest or fees
when due, (ii) material breach of representations or
warranties, (iii) covenant default, (iv) cross-default
to other debt in excess of an agreed amount, (v) a change
of control, (vi) insolvency or bankruptcy and
(vii) monetary judgment default in excess of an agreed
amount. If an event of default under the credit agreement occurs
and is continuing, then PNC Bank may declare outstanding
obligations under the credit agreement immediately due and
payable.
The credit agreement contains a number of customary covenants
for financings of this type that, among other things, restrict
our ability to dispose of or create liens on assets, incur
additional indebtedness, repay other indebtedness, create liens
on assets, make acquisitions and engage in mergers or
consolidations. We are also required to comply with specified
financial tests and ratios, each as defined in the credit
agreement, including a consolidated minimum net worth test and a
maximum debt to EBITDA ratio. A breach of these requirements
would give rise to certain remedies under the credit agreement,
among which are the termination of the agreement and
acceleration of the outstanding borrowings plus accrued and
unpaid interest under our new credit facility.
26
Note Payable to SunTrust
On March 21, 2003, we sold approximately 25,500 acres
of timberlands and received as consideration a
$37.9 million
10-year
interest-bearing note receivable from The Conservation Fund. We
pledged the note as collateral under a $34.0 million note
payable to SunTrust Financial.
The note payable bears interest at a fixed rate of
3.82% per annum for five years and matures on
March 26, 2008, at which time we can choose to renew the
obligation. We have the right at any time to prepay the term
loan, in whole but not in part, without premium or penalty.
The note payable contains a number of restrictive covenants
that, among other things, limit our ability to dispose of
assets, incur additional indebtedness, repay other indebtedness,
create liens on assets, make acquisitions and engage in mergers
or consolidations.
27
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial
data in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
in our Annual Report on Form
10-K for the year ended
December 31, 2005 and our Quarterly Report on Form
10-Q for the three
months ended March 31, 2006, each of which is incorporated
by reference herein, and our audited consolidated financial
statements and related notes included elsewhere in, or
incorporated by reference into, this prospectus. The following
selected consolidated financial data as of December 31,
2004 and 2005 and for each of the three years ended
December 31, 2005 is derived from our audited consolidated
financial statements included elsewhere in this prospectus. The
selected consolidated financial data as of December 31,
2002 and 2003 and for each of the two years ended
December 31, 2002 is derived from our audited consolidated
financial statements not included in this prospectus. The
selected consolidated financial data as of December 31,
2001 is derived from our audited consolidated financial
statements not included in this prospectus and is adjusted to
reflect the impact of the sale in July 2003 of our Wisches,
France subsidiary and the resulting treatment of this subsidiary
as a discontinued operation. The selected consolidated financial
information for the three months ended, and as of,
March 31, 2005 and 2006 is derived from our unaudited
condensed consolidated financial statements included elsewhere
in this prospectus. The historical results are not necessarily
indicative of our future results of operations or financial
performance.
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|
|
|
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|
Three Months | |
|
|
Year Ended December 31 | |
|
Ended March 31 | |
|
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| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
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| |
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| |
|
| |
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| |
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| |
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| |
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| |
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In thousands | |
|
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
632,602 |
|
|
$ |
540,347 |
|
|
$ |
533,193 |
|
|
$ |
543,524 |
|
|
$ |
579,121 |
|
|
$ |
143,896 |
|
|
$ |
160,606 |
|
Energy sales net
|
|
|
9,661 |
|
|
|
9,814 |
|
|
|
10,040 |
|
|
|
9,953 |
|
|
|
10,078 |
|
|
|
2,544 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
642,263 |
|
|
|
550,161 |
|
|
|
543,233 |
|
|
|
553,477 |
|
|
|
589,199 |
|
|
|
146,440 |
|
|
|
163,063 |
|
Cost of products sold
|
|
|
501,142 |
|
|
|
423,880 |
|
|
|
463,687 |
|
|
|
461,063 |
|
|
|
492,023 |
|
|
|
117,846 |
|
|
|
142,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
141,121 |
|
|
|
126,281 |
|
|
|
79,546 |
|
|
|
92,414 |
|
|
|
97,176 |
|
|
|
28,594 |
|
|
|
20,265 |
|
Selling, general and administrative expenses
|
|
|
60,225 |
|
|
|
53,699 |
|
|
|
59,146 |
|
|
|
59,939 |
|
|
|
67,633 |
|
|
|
17,390 |
|
|
|
16,697 |
|
Restructuring charges
|
|
|
|
|
|
|
4,249 |
|
|
|
6,983 |
|
|
|
20,375 |
|
|
|
1,564 |
|
|
|
|
|
|
|
19,298 |
|
Unusual items
|
|
|
60,908 |
|
|
|
(2,008 |
) |
|
|
11,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on disposition of plant, equipment and timberlands, net
|
|
|
(2,015 |
) |
|
|
(1,304 |
) |
|
|
(32,334 |
) |
|
|
(58,509 |
) |
|
|
(22,053 |
) |
|
|
(60 |
) |
|
|
10 |
|
Insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,785 |
) |
|
|
(20,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
22,003 |
|
|
|
71,645 |
|
|
|
34,250 |
|
|
|
103,394 |
|
|
|
70,183 |
|
|
|
11,264 |
|
|
|
(15,740 |
) |
Other nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(15,628 |
) |
|
|
(15,103 |
) |
|
|
(14,269 |
) |
|
|
(13,385 |
) |
|
|
(13,083 |
) |
|
|
(3,260 |
) |
|
|
(3,393 |
) |
|
Interest income
|
|
|
3,589 |
|
|
|
1,571 |
|
|
|
1,820 |
|
|
|
2,012 |
|
|
|
2,012 |
|
|
|
498 |
|
|
|
666 |
|
|
Other net
|
|
|
1,558 |
|
|
|
1,016 |
|
|
|
(1,385 |
) |
|
|
(1,258 |
) |
|
|
1,028 |
|
|
|
261 |
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other nonoperating expenses
|
|
|
(10,481 |
) |
|
|
(12,516 |
) |
|
|
(13,834 |
) |
|
|
(12,631 |
) |
|
|
(10,043 |
) |
|
|
(2,501 |
) |
|
|
(2,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
11,522 |
|
|
|
59,129 |
|
|
|
20,416 |
|
|
|
90,763 |
|
|
|
60,140 |
|
|
|
8,763 |
|
|
|
(18,117 |
) |
Income tax provision (benefit)
|
|
|
4,693 |
|
|
|
21,492 |
|
|
|
7,430 |
|
|
|
34,661 |
|
|
|
21,531 |
|
|
|
2,473 |
|
|
|
(6,252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
6,829 |
|
|
|
37,637 |
|
|
|
12,986 |
|
|
|
56,102 |
|
|
|
38,609 |
|
|
|
6,290 |
|
|
|
(11,865 |
) |
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
198 |
|
|
|
(64 |
) |
|
|
(513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
69 |
|
|
|
(22 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
129 |
|
|
|
(42 |
) |
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
6,958 |
|
|
$ |
37,595 |
|
|
$ |
12,661 |
|
|
$ |
56,102 |
|
|
$ |
38,609 |
|
|
$ |
6,290 |
|
|
$ |
(11,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Year Ended December 31 | |
|
Ended March 31 | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Dollars in thousands | |
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
64,437 |
|
|
$ |
77,706 |
|
|
$ |
46,996 |
|
|
$ |
39,584 |
|
|
$ |
42,868 |
|
|
$ |
(9,115 |
) |
|
$ |
(4,712 |
) |
|
|
Investing activities
|
|
|
(30,536 |
) |
|
|
(49,610 |
) |
|
|
(62,367 |
) |
|
|
42,109 |
|
|
|
(8,029 |
) |
|
|
(4,610 |
) |
|
|
(73,511 |
) |
|
|
Financing activities
|
|
|
(48,710 |
) |
|
|
(84,605 |
) |
|
|
(2,462 |
) |
|
|
(59,753 |
) |
|
|
(15,158 |
) |
|
|
(1,892 |
) |
|
|
49,333 |
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
95,407 |
|
|
$ |
32,219 |
|
|
$ |
15,566 |
|
|
$ |
39,951 |
|
|
$ |
57,442 |
|
|
|
|
|
|
$ |
28,818 |
|
|
Working capital(1)
|
|
|
32,213 |
|
|
|
88,140 |
|
|
|
59,232 |
|
|
|
94,445 |
|
|
|
83,679 |
|
|
|
|
|
|
|
89,196 |
|
|
Total assets
|
|
|
966,604 |
|
|
|
953,202 |
|
|
|
1,027,019 |
|
|
|
1,052,270 |
|
|
|
1,044,977 |
|
|
|
|
|
|
|
1,092,777 |
|
|
Total debt
|
|
|
277,155 |
|
|
|
220,532 |
|
|
|
254,275 |
|
|
|
211,226 |
|
|
|
207,073 |
|
|
|
|
|
|
|
258,044 |
|
|
Shareholders equity
|
|
|
353,469 |
|
|
|
373,833 |
|
|
|
371,431 |
|
|
|
420,370 |
|
|
|
432,312 |
|
|
|
|
|
|
|
421,924 |
|
|
|
(1) |
Working capital is defined as current assets less current
liabilities. |
29
THE EXCHANGE OFFER
Purpose and Effect of Exchange Offer; Registration Rights
We sold the unregistered notes to Credit Suisse Securities
(USA) LLC, PNC Capital Markets LLC, ABN AMRO Incorporated
and SunTrust Capital Markets, Inc. as the initial purchasers,
pursuant to a purchase agreement dated April 25, 2005. The
initial purchasers resold the unregistered notes in reliance on
Rule 144A under the Securities Act. In connection with the
sale of the unregistered notes, we entered into a registration
rights agreement with the initial purchasers.
Under the registration rights agreement we agreed:
|
|
|
(1) within 120 days after the date on which the
unregistered notes were issued, to file a registration statement
with the SEC with respect to the exchange offer to exchange the
unregistered notes for exchange notes of the Company identical
in all material respects to the unregistered notes (except that
the exchange notes will not contain terms with respect to
transfer restrictions); |
|
|
(2) to use our reasonable best efforts to cause the
registration statement to be declared effective under the
Securities Act within 180 days after the date on which the
unregistered notes were issued; and |
|
|
(3) as soon as practicable after the effectiveness of the
registration statement to offer the exchange notes in exchange
for surrender of the unregistered notes; and |
|
|
(4) to use our reasonable best efforts to keep the exchange
offer open for not less than 30 days (or longer if required
by applicable law) after the date notice of the exchange offer
is mailed to the holders of the notes. |
For each unregistered note validly tendered to us and not
withdrawn pursuant to the exchange offer, we will issue to the
holder of such unregistered note an exchange note having a
principal amount equal to that of the surrendered unregistered
note. Interest on each exchange note will accrue from the last
interest payment date on which interest was paid on the
unregistered note surrendered in exchange therefor, or, if no
interest has been paid on such unregistered note, from the date
of its original issue.
Under existing SEC interpretations, the exchange notes will be
freely transferable by holders other than our affiliates after
the exchange offer without further registration under the
Securities Act if the holder of the exchange notes represents to
us in the exchange offer that it is acquiring the exchange notes
in the ordinary course of its business, that it has no
arrangement or understanding with any person to participate in
the distribution of the exchange notes and that it is not an
affiliate of the Company, as such terms are interpreted by the
SEC; provided, however, that broker-dealers receiving
exchange notes in the exchange offer will have a prospectus
delivery requirement with respect to resales of such exchange
notes. The SEC has taken the position that such participating
broker-dealers may fulfill their prospectus delivery
requirements with respect to exchange notes (other than a resale
of an unsold allotment from the original sale of the
unregistered notes) with the prospectus contained in the
registration statement.
Under the registration rights agreement, the Company is required
to allow participating broker-dealers and other persons, if any,
with similar prospectus delivery requirements to use the
prospectus contained in the registration statement in connection
with the resale of the exchange notes for 180 days
following the effective date of such registration statement (or
such shorter period during which Participating Broker-Dealers
are required by law to deliver such prospectus).
The exchange offer is not being made to, nor will we accept
tenders for exchange from, holders of unregistered notes in any
jurisdiction in which the exchange offer or the acceptance of
the exchange offer would not be in compliance with the
securities laws or blue sky laws of such jurisdiction.
If a holder is eligible to participate in this exchange offer
and does not tender its unregistered notes as described in this
prospectus, such holder will not have any further registration
rights. In that case, the unregistered notes of such holder will
continue to be subject to restrictions on transfer under the
Securities Act.
30
Shelf Registration
In the registration rights agreement, we agreed to file a shelf
registration statement in certain circumstances, including if:
|
|
|
(1) applicable interpretations of the staff of the SEC do
not permit us to effect such an exchange offer; |
|
|
(2) for any other reason we do not consummate the exchange
offer within 220 days of the date on which the unregistered
shares are issued; |
|
|
(3) an initial purchaser shall notify us following
consummation of the exchange offer that unregistered notes held
by it are not eligible to be exchanged for exchange notes in the
exchange offer; or |
|
|
(4) certain holders are prohibited by law or SEC policy
from participating in the exchange offer or may not resell the
exchange notes acquired by them in the exchange offer to the
public without delivering a prospectus. |
If a shelf registration is required, we will:
|
|
|
(1) promptly file a shelf registration statement with the
SEC covering resales of the unregistered notes or the exchange
notes, as the case may be; |
|
|
(2) (A) in the case of clause (1) immediately
above, use our reasonable best efforts to cause the shelf
registration statement to be declared effective under the
Securities Act on or prior to the 180th day after the date
on which the unregistered notes were issued and (B) in the
case of clause (2), (3) or (4) above, use our reasonable
best efforts to cause the shelf registration statement to be
declared effective under the Securities Act on or prior to the
40th day after the date on which the shelf registration
statement was required to be filed; and |
|
|
(3) keep the shelf registration statement effective until
the earliest of (A) the time when the unregistered notes
covered by the shelf registration statement can be sold pursuant
to Rule 144 without any limitations under clauses (c),
(e), (f) and (h) of Rule 144, (B) two years
from the date on which the unregistered notes were issued and
(C) the date on which all notes registered thereunder are
disposed of in accordance therewith. |
We will, in the event a shelf registration statement is filed,
among other things, provide to each holder for whom such shelf
registration statement was filed copies of the prospectus which
is a part of the shelf registration statement, notify each such
holder when the shelf registration statement has become
effective and take certain other actions as are required to
permit unrestricted resales of the unregistered notes or the
exchange notes, as the case may be. A holder selling the
unregistered notes or exchange notes pursuant to the shelf
registration statement generally would be required to be named
as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions
of the registration rights agreement that are applicable to such
holder (including certain indemnification obligations).
We may require each holder requesting to be named as a selling
security holder to furnish to us such information regarding the
holder and the distribution of the unregistered notes or
exchange notes by the holder as we may from time to time
reasonably require for the inclusion of the holder in the shelf
registration statement, including requiring the holder to
properly complete and execute such selling security holder
notice and questionnaires, and any amendments or supplements
thereto, as we may reasonably deem necessary or appropriate. We
may refuse to name any holder as a selling security holder that
fails to provide us with such information.
Additional Interest
We will pay additional cash interest on the unregistered notes
and exchange notes, subject to certain exceptions,
|
|
|
(1) if the we fail to file an registration statement with
the SEC on or prior to the 120th day after the date on
which the unregistered notes were issued, |
31
|
|
|
(2) if the registration statement is not declared effective
by the SEC on or prior to the 180th day after the or, if
obligated to file a shelf registration statement pursuant to
clause (6)(A) above, a shelf registration statement is not
declared effective by the SEC on or prior to the 180th day
after the date on which the unregistered notes were issued, |
|
|
(3) if the exchange offer is not consummated on or before
the 40th day after the registration statement is declared
effective, |
|
|
(4) if obligated to file the shelf registration statement
pursuant to clause (6)(B) above, the we fail to file the shelf
registration statement with the SEC on or prior to the
40th day after the date on which the obligation to file a
shelf registration statement arises, |
|
|
(5) if obligated to file a shelf registration statement
pursuant to clause (6)(B) above, the shelf registration
statement is not declared effective on or prior to the
40th day after the registration statement is filed, or |
|
|
(6) after the registration statement or the shelf
registration statement, as the case may be, is declared
effective, such registration statement or shelf registration
statement thereafter ceases to be effective or usable (subject
to certain exceptions) (each such event referred to in the
preceding clauses (1) through (6), a registration
default); |
from and including the date on which any such registration
default shall occur to but excluding the date on which all
registration defaults have been cured.
The rate of the additional interest will be 0.50% per annum
for the first 90-day
period immediately following the occurrence of a registration
default, and such rate will increase by an additional
0.50% per annum with respect to each subsequent
90-day period until all
registration defaults have been cured, up to a maximum
additional interest rate of 1.0% per annum. We will pay
such additional interest on regular interest payment dates. Such
additional interest will be in addition to any other interest
payable from time to time with respect to the unregistered notes
and the exchange notes.
The exchange offer is intended to satisfy our exchange offer
obligations under the registration rights agreement. The
exchange notes will not have rights to additional interest as
set forth above, upon the consummation of the exchange offer.
The above summary of the registration rights agreement is not
complete and is subject to, and qualified by reference to, all
the provisions of the registration rights agreement. A copy of
the registration rights agreement is an exhibit to the
registration statement that includes this prospectus.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, we are
offering to exchange $1,000 principal amount of exchange notes
for each $1,000 principal amount of unregistered notes. You may
tender some or all of your unregistered notes only in integral
multiples of $1,000. As of the date of this prospectus,
$200,000,000 aggregate principal amount of the unregistered
notes are outstanding.
The terms of the exchange notes to be issued are substantially
similar to the unregistered notes, except that the exchange
notes will have been registered under the Securities Act and,
therefore, the certificates for the exchange notes will not bear
legends restricting their transfer. The exchange notes will not
have registration rights and will not have rights to additional
interest. The exchange notes will be issued under and be
entitled to the benefits of the Indenture (as defined in
Description of the Exchange notes).
In connection with the issuance of the unregistered notes, we
arranged for the unregistered notes to be issued and
transferable in book-entry form through the facilities of DTC,
acting as a depositary. The exchange notes will also be issuable
and transferable in book-entry form through DTC.
There will be no fixed record date for determining the eligible
holders of the unregistered notes that are entitled to
participate in the exchange offer. We will be deemed to have
accepted for exchange validly tendered unregistered notes when
and if we have given oral (promptly confirmed in writing) or
written notice of acceptance to the exchange agent. The exchange
agent will act as agent for the tendering holders of
unregistered notes for the purpose of receiving exchange notes
from us and delivering them to such holders.
32
If any tendered unregistered notes are not accepted for exchange
because of an invalid tender or the occurrence of certain other
events described herein, certificates for any such unaccepted
unregistered notes will be returned, without expenses, to the
tendering holder thereof as promptly as practicable after the
expiration of the exchange offer.
Holders of unregistered notes who tender in the exchange offer
will not be required to pay brokerage commissions or fees or,
subject to the instructions in the letter of transmittal,
transfer taxes with respect to the exchange of unregistered
notes for exchange notes pursuant to the exchange offer. We will
pay all charges and expenses, other than certain applicable
taxes, in connection with the exchange offer. It is important
that you read the section Fees and
Expenses below for more details regarding fees and
expenses incurred in the exchange offer.
Any unregistered notes which holders do not tender or which we
do not accept in the exchange offer will remain outstanding and
continue to accrue interest and will be subject to restrictions
on transfer. We will not have any obligation to register such
unregistered notes under the Securities Act. Holders wishing to
transfer unregistered notes would have to rely on exemptions
from the registration requirements of the Securities Act.
Conditions of the Exchange Offer
You must tender your unregistered notes in accordance with the
requirements of this prospectus and the letter of transmittal in
order to participate in the exchange offer. Notwithstanding any
other provision of the exchange offer, or any extension of the
exchange offer, we will not be required to accept for exchange
any unregistered notes, and may amend or terminate the exchange
offer if:
|
|
|
|
|
the exchange offer, or the making of any exchange by a holder of
unregistered notes, violates applicable law or any applicable
interpretation of the staff of the SEC; |
|
|
|
any action or proceeding shall have been instituted or
threatened with respect to the exchange offer which, in our
reasonable judgment, would impair our ability to proceed with
the exchange offer; and |
|
|
|
any laws, rules or regulations or applicable interpretations of
the staff of the SEC have been issued or promulgated, which, in
our good faith determination, does not permit us to effect the
exchange offer. |
Expiration Date; Extensions; Amendment; Termination
The exchange offer will expire 5:00 p.m., New York City
time,
on ,
2006, unless we, in our sole discretion, extend it. In the case
of any extension, we will notify the exchange agent orally
(promptly confirmed in writing) or in writing of any extension.
We will also notify the registered holders of unregistered notes
of the extension no later than 9:00 a.m., New York City
time, on the business day after the previously scheduled
expiration of the exchange offer.
To the extent we are legally permitted to do so, we expressly
reserve the right, in our sole discretion, to:
|
|
|
|
|
delay accepting any unregistered note; |
|
|
|
waive any condition of the exchange offer; and |
|
|
|
amend the terms of the exchange offer in any manner. |
We will give oral or written notice of any non-acceptance of the
unregistered notes or of any amendment to the exchange offer to
the registered holders of the unregistered notes as promptly as
practicable. If we consider an amendment to the exchange offer
to be material, we will promptly inform the registered holders
of unregistered notes of such amendment in a reasonable manner.
If we determine, in our sole discretion, that any of the events
or conditions described in Conditions of the
Exchange Offer has occurred, we may terminate the exchange
offer. We may:
|
|
|
|
|
refuse to accept any unregistered notes and return any
unregistered notes that have been tendered to the holders; |
33
|
|
|
|
|
extend the exchange offer and retain all unregistered notes
tendered prior to the expiration of the exchange offer, subject
to the rights of the holders of tendered unregistered notes to
withdraw their tendered unregistered notes; or |
|
|
|
waive the termination event with respect to the exchange offer
and accept all properly tendered unregistered notes that have
not been withdrawn. |
If any such waiver constitutes a material change in the exchange
offer, we will disclose the change by means of a supplement to
this prospectus which will be distributed to each registered
holder of unregistered notes, and we will extend the exchange
offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to
the registered holders of the unregistered notes, if the
exchange offer would otherwise expire during that period.
Any determination by us concerning the events described above
will be final and binding upon the parties. Without limiting the
manner by which we may choose to make public announcements of
any extension, delay in acceptance, amendment or termination of
the exchange offer, we will have no obligation to publish,
advertise, or otherwise communicate any public announcement,
other than by making a timely release to a financial news
service.
Interest on the Exchange Notes
The exchange notes will accrue interest from and including
April 28, 2006, the date the unregistered notes were
issued. Interest will be paid on the exchange notes semiannually
on May 1 and November 1 of each year, commencing on
November 1, 2006. Holders of unregistered notes that are
accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest accrued from the date
of the last interest payment date that was made in respect of
the unregistered notes until the date of the issuance of the
exchange notes. Consequently, holders of exchange notes will
receive the same interest payments that they would have received
had they not accepted the exchange offer.
Resale of Exchange Notes
Based upon existing interpretations of the staff of the SEC set
forth in several no-action letters issued to third parties
unrelated to us, we believe that the exchange notes issued
pursuant to the exchange offer in exchange for the unregistered
notes may be offered for resale, resold and otherwise
transferred by you without complying with the registration and
prospectus delivery provisions of the Securities Act, provided
that:
|
|
|
|
|
any exchange notes to be received by you will be acquired in the
ordinary course of your business; |
|
|
|
you are not engaged in, do not intend to engage in and have no
arrangements or understandings with any person to participate
in, the distribution of the unregistered notes or exchange notes; |
|
|
|
you are not an affiliate (as defined in
Rule 405 under the Securities Act) of ours or, if you are
such an affiliate, you will comply with the registration and
prospectus delivery requirements of the Securities Act to the
extent applicable; |
|
|
|
if you are a broker-dealer, you have not entered into any
arrangement or understanding with us or any of our
affiliates to distribute the exchange notes; and |
|
|
|
you are not acting on behalf of any person or entity that could
not truthfully make these representations. |
In addition, if you are a broker-dealer and you will receive
exchange notes for your own account in exchange for unregistered
notes that were acquired as a result of market-making activities
or other trading activities, you will be required to acknowledge
that you will deliver a prospectus in connection with any resale
of the exchange notes.
If you wish to participate in the exchange offer, you will be
required to make these representations to us in the letter of
transmittal. If our belief is inaccurate and you transfer any
exchange note without delivering a prospectus meeting the
requirements of the Securities Act or without an exemption from
registration under
34
the Securities Act, you may incur liability under the Securities
Act. We do not assume or indemnify you against such liability.
If you are a broker-dealer that receives exchange notes in
exchange for unregistered notes held for your own account, as a
result of market-making or other trading activities, you must
acknowledge that you will deliver a prospectus in connection
with any resale of the exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus,
you will not be deemed to admit that you are an
underwriter within the meaning of the Securities
Act. The prospectus, as it may be amended or supplemented from
time to time, may be used by any broker-dealers in connection
with resales of exchange notes received in exchange for
unregistered notes. We have agreed that, for a period of
180 days after the consummation of the exchange offer, we
will make this prospectus and any amendment or supplement to
this prospectus available to any such broker-dealer for use in
connection with any resale.
Clearing of the Notes
Upon consummation of the exchange offer, the exchange notes will
have different CUSIP and ISIN numbers from the unregistered
notes.
Procedures for Tendering
The term holder with respect to the exchange offer
means any person in whose name unregistered notes are registered
on our agents books or any other person who has obtained a
properly completed bond power from the registered holder, or any
person whose unregistered notes are held of record by DTC who
desires to deliver such unregistered notes by book-entry
transfer at DTC.
Except in limited circumstances, only a DTC participant listed
on a DTC notes position listing with respect to the unregistered
notes may tender its unregistered notes in the exchange offer.
To tender unregistered notes in the exchange offer:
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holders of unregistered notes that are DTC participants may
follow the procedures for book-entry transfer as provided for
below under Book-Entry Transfer and in
the letter of transmittal. |
In addition:
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the exchange agent must receive any corresponding certificate or
certificates representing unregistered notes along with the
letter of transmittal; |
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the exchange agent must receive, before expiration of the
exchange offer, a timely confirmation of book-entry transfer of
unregistered notes into the exchange agents account at DTC
according to standard operating procedures for electronic
tenders described below and a properly transmitted agents
message described below; or |
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the holder must comply with the guaranteed delivery procedures
described below. |
The tender by a holder of unregistered notes will constitute an
agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal. If less than all the
unregistered notes held by a holder of unregistered notes are
tendered, a tendering holder should fill in the amount of
unregistered notes being tendered in the specified box on the
letter of transmittal. The entire amount of unregistered notes
delivered to the exchange agent will be deemed to have been
tendered unless otherwise indicated.
The method of delivery of unregistered notes, the letter of
transmittal and all other required documents or transmission of
an agents message, as described under
Book Entry Transfer, to the exchange
agent is at the election and risk of the holder. Instead of
delivery by mail, we recommend that holders use an overnight or
hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery prior to the expiration of the
exchange offer. No letter of transmittal or unregistered notes
should be sent to us but must instead be delivered to the
exchange agent. Delivery of documents to DTC in accordance with
their procedures will not constitute delivery to the exchange
agent.
If you are a beneficial owner of unregistered notes that are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to tender your
unregistered notes, you
35
should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to
tender on your own behalf, you must, prior to completing and
executing the letter of transmittal and delivering your
unregistered notes, either:
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make appropriate arrangements to register ownership of the
unregistered notes in your name; or |
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obtain a properly completed bond power from the registered
holder. |
The transfer of record ownership may take considerable time and
might not be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal
as described in Withdrawal of Tenders
below, as the case may be, must be guaranteed by a member firm
of a registered national securities exchange or the National
Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United
States or an eligible guarantor institution within
the meaning of
Rule 17Ad-15 under
the Exchange Act, unless the unregistered notes tendered
pursuant thereto are tendered:
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by a registered holder who has not completed the box entitled
Special Registration Instructions or Special
Delivery Instructions in the letter of transmittal; or |
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for the account of an eligible institution. |
If the letter of transmittal is signed by a person other than
the registered holder of any unregistered notes listed therein,
the unregistered notes must be endorsed or accompanied by
appropriate bond powers which authorize the person to tender the
unregistered notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders
appears on the unregistered notes. If the letter of transmittal
or any unregistered notes or bond powers are signed by trustees,
executors, administrators, guardians,
attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when
signing and, unless waived by us, evidence satisfactory to us of
their authority to so act must be submitted with the letter of
transmittal.
We will determine in our sole discretion all the questions as to
the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of the tendered unregistered notes.
Our determinations will be final and binding. We reserve the
absolute right to reject any and all unregistered notes not
validly tendered or any unregistered notes the acceptance of
which would, in the opinion of our counsel, be unlawful. We
reserve the absolute right to waive any irregularities or
conditions of tender as to particular unregistered notes. Our
interpretation of the terms and conditions of the exchange offer
(including the instructions in the letter of transmittal) will
be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of unregistered
notes must be cured within such time as we will determine.
Neither we, the exchange agent nor any other person shall be
under any duty to give notification of defects or irregularities
with respect to tenders of unregistered notes nor shall any of
them incur any liability for failure to give such notification.
Tenders of unregistered notes will not be deemed to have been
made until such irregularities have been cured or waived. Any
unregistered notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost by
the exchange agent to the tendering holder of such unregistered
notes, unless otherwise provided in the letter of transmittal,
as soon as practicable following the expiration date of the
exchange offer.
In addition, we reserve the right in our sole discretion to
(a) purchase or make offers for any unregistered notes that
remain outstanding subsequent to the expiration date, and
(b) to the extent permitted by applicable law, purchase
unregistered notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or
offers may differ from the terms of the exchange offer.
Book-Entry Transfer
We understand that the exchange agent will make a request
promptly after the date of this document to establish an account
with respect to the unregistered notes at DTC for the purpose of
facilitating the exchange offer. Any financial institution that
is a participant in DTCs system may make book-entry
delivery of unregistered notes by causing DTC to transfer such
unregistered notes into the exchange agents DTC account in
accordance with DTCs Automated Tender Offer Program
procedures for such transfer. The exchange for tendered
unregistered notes will only be made after a timely confirmation
of a book-entry transfer of the
36
unregistered notes into the exchange agents account at
DTC, and timely receipt by the exchange agent of an agents
message.
The term agents message means a message,
transmitted by DTC and received by the exchange agent and
forming part of the confirmation of a book-entry transfer, which
states that DTC, has received an express acknowledgment from a
participant tendering unregistered notes and that such
participant has received an appropriate letter of transmittal
and agrees to be bound by the terms of the letter of
transmittal, and we may enforce such agreement against the
participant. Delivery of an agents message will also
constitute an acknowledgment from the tendering DTC participant
that the representations contained in the appropriate letter of
transmittal and described above are true and correct.
Guaranteed Delivery Procedures
Holders who wish to tender their unregistered notes and
(i) whose unregistered notes are not immediately available,
or (ii) who cannot deliver their unregistered notes, the
letter of transmittal, or any other required documents to the
exchange agent prior to the expiration date, or if such holder
cannot complete DTCs standard operating procedures for
electronic tenders before expiration of the exchange offer, may
tender their unregistered notes if:
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the tender is made through an eligible institution; |
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before expiration of the exchange offer, the exchange agent
receives from the eligible institution either a properly
completed and duly executed notice of guaranteed delivery in the
form accompanying this prospectus, by facsimile transmission,
mail or hand delivery, or a properly transmitted agents
message in lieu of notice of guaranteed delivery: |
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setting forth the name and address of the holder and the
registered number(s), the certificate number or numbers of the
unregistered notes tendered and the principal amount of
unregistered notes tendered; |
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stating that the tender offer is being made by guaranteed
delivery; and |
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guaranteeing that, within three (3) business days after
expiration of the exchange offer, the letter of transmittal, or
facsimile of the letter of transmittal, together with the
unregistered notes tendered and any other documents required by
the letter of transmittal or, alternatively, a book-entry
confirmation will be deposited by the eligible institution with
the exchange agent; and |
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the exchange agent receives the properly completed and executed
letter of transmittal, or facsimile of the letter of
transmittal, as well as all tendered unregistered notes in
proper form for transfer and all other documents required by the
letter of transmittal or, alternatively, a book-entry
confirmation, within three (3) business days after
expiration of the exchange offer. |
Upon request to the exchange agent, a notice of guaranteed
delivery will be sent to holders who wish to tender their
unregistered notes according to the guaranteed delivery
procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of unregistered
notes may be withdrawn at any time prior to 5:00 p.m., New
York City time,
on ,
2006, the expiration date of the exchange offer.
For a withdrawal to be effective:
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the exchange agent must receive a written notice, which may be
by telegram, telex, facsimile transmission or letter, of
withdrawal at the address set forth below under Exchange
Agent; or |
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for DTC participants, holders must comply with their respective
standard operating procedures for electronic tenders and the
exchange agent must receive an electronic notice of withdrawal
from DTC. |
Any notice of withdrawal must:
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specify the name of the person who tendered the unregistered
notes to be withdrawn; |
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identify the unregistered notes to be withdrawn, including the
certificate number or numbers and principal amount of the
unregistered notes to be withdrawn; |
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be signed by the person who tendered the unregistered notes in
the same manner as the original signature on the letter of
transmittal, including any required signature
guarantees; and |
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specify the name in which the unregistered notes are to be
re-registered, if different from that of the withdrawing holder. |
If unregistered notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at
DTC to be credited with the withdrawn unregistered notes and
otherwise comply with the procedures of the facility. We will
determine all questions as to the validity, form and eligibility
(including time of receipt) for such withdrawal notices, and our
determination shall be final and binding on all parties. Any
unregistered notes so withdrawn will be deemed not to have been
validly tendered for purposes of the exchange offer, and no
exchange notes will be issued with respect thereto unless the
unregistered notes so withdrawn are validly re-tendered. Any
unregistered notes which have been tendered but which are not
accepted for exchange will be returned to the holder without
cost to such holder as soon as practicable after withdrawal.
Properly withdrawn unregistered notes may be re-tendered by
following the procedures described above under Procedures
for Tendering at any time prior to the expiration date.
Consequences of Failure to Exchange
If you do not tender your unregistered notes to be exchanged in
this exchange offer, they will remain restricted
securities within the meaning of Rule 144(a)(3) of
the Securities Act.
Accordingly, they:
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may be resold only if (i) registered pursuant to the
Securities Act, (ii) an exemption from registration is
available or (iii) neither registration nor an exemption is
required by law; and |
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shall continue to bear a legend restricting transfer in the
absence of registration or an exemption therefrom. |
As a result of the restrictions on transfer and the availability
of the exchange notes, the unregistered notes are likely to be
much less liquid than before the exchange offer.
Exchange Agent
SunTrust Bank has been appointed as the exchange agent for the
exchange of the unregistered notes. Questions and requests for
assistance relating to the exchange of the unregistered notes
should be directed to the exchange agent addressed as follows:
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By Facsimile: |
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By Registered or Certified Mail: |
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By Hand/Overnight Delivery: |
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SunTrust Bank |
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SunTrust Bank |
(804) 782-7855 |
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Mail Code HDQ-5310
919 East Main Street
Richmond, VA 23219 |
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Mail Code HDQ-5310
919 East Main Street
Richmond, VA 23219 |
Confirm by Telephone:
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(804) 782-5170 |
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Attn: Pat Welling,
First Vice President,
Corporate Trust Department |
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Attn: Pat Welling,
First Vice President,
Corporate Trust Department |
Fees and Expenses
We will bear the expenses of soliciting tenders pursuant to the
exchange offer. The principal solicitation for tenders pursuant
to the exchange offer is being made by mail. Additional
solicitations may be made by our officers and regular employees
and our affiliates in person, by telegraph or telephone.
We will not make any payments to brokers, dealers or other
persons soliciting acceptances of the exchange offer. We,
however, will pay the exchange agent reasonable and customary
fees for its services and will reimburse the exchange agent for
its related reasonable
out-of-pocket expenses
and accounting and legal fees. We may also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses
incurred by them in forwarding copies of this prospectus,
letters of transmittal and related documents to the beneficial
owners of the unregistered notes and in handling or forwarding
tenders for exchange.
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We will pay all transfer taxes, if any, applicable to the
exchange of unregistered notes pursuant to the exchange offer.
The tendering holder, however, will be required to pay any
transfer taxes, whether imposed on the registered holder or any
other person, if:
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certificates representing exchange notes or unregistered notes
for principal amounts not tendered or accepted for exchange are
to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of
unregistered notes tendered; |
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tendered unregistered notes are registered in the name of any
person other than the person signing the letter of
transmittal; or |
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a transfer tax is imposed for any reason other than the exchange
of unregistered notes under the exchange offer. |
If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the letter of transmittal, the
amount of such transfer taxes will be billed directly to such
tendering holder.
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DESCRIPTION OF THE EXCHANGE NOTES
The unregistered notes were, and the exchange notes will be,
issued under an Indenture (the Indenture), dated
April 28, 2006, among P. H. Glatfelter Company, the
Subsidiary Guarantors and SunTrust Bank, as Trustee. The terms
of the notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture
Act.
Certain terms used in this description are defined under the
subheading Certain Definitions. In this
description, the words Company, we and
our refer only to P. H. Glatfelter Company and not
to any of its subsidiaries.
The following description is only a summary of the material
provisions of the Indenture. We urge you to read the Indenture
because it, not this description, defines your rights as holders
of the notes. You may request copies of the Indenture at our
address set forth under the heading Where You Can Find
Additional Information.
Brief Description of the Notes
The notes:
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are unsecured senior obligations of the Company; |
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are senior in right of payment to any future Subordinated
Obligations of the Company; and |
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are guaranteed by each Subsidiary Guarantor. |
Principal, Maturity and Interest
The Company will issue the exchange notes with a maximum initial
aggregate principal amount of $200.0 million. The Company
will issue the exchange notes in minimum denominations of $2,000
and any greater integral multiple of $1,000. The exchange notes
will mature on May 1, 2016. Subject to our compliance with
the covenant described under the subheading
Certain Covenants Limitation on
Indebtedness, we are permitted to issue an unlimited
additional aggregate principal amount of exchange notes from
time to time under the Indenture (the Additional
Notes). The notes and the Additional Notes, if any, are
treated as a single class for all purposes of the Indenture,
including waivers, amendments, redemptions and offers to
purchase. Unless the context otherwise requires, for all
purposes of the Indenture and this Description of the
Notes, references to the notes include any Additional
Notes actually issued.
Interest on the notes accrues at the rate of
71/8
% per annum and is payable semiannually in arrears
on May 1 and November 1, commencing on
November 1, 2006. We will make each interest payment to the
holders of record of the notes on the immediately preceding
April 15 and October 15. We will pay interest on
overdue principal at 1% per annum in excess of the above
rate and will pay interest on overdue installments of interest
at such higher rate to the extent lawful.
Interest on the notes accrues from the date of original
issuance. Interest is computed on the basis of a
360-day year comprised
of twelve 30-day months.
Optional Redemption
Except as set forth below, we are not entitled to redeem the
notes at our option prior to May 1, 2011.
On and after May 1, 2011, we will be entitled at our option
to redeem all or a portion of the notes upon not less than 30
nor more than 60 days notice, at the redemption
prices (expressed in percentages of principal amount on the
redemption date), plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest
payment date), if redeemed during the
12-month period
commencing on May 1 of the years set forth below:
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Period |
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Redemption Price | |
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2011
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103.563% |
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2012
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102.375% |
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2013
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101.188% |
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2014 and thereafter
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100.000% |
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In addition, at any time prior to May 1, 2009, we will be
entitled at our option, on one or more occasions, to redeem the
notes (which includes Additional Notes, if any) in an aggregate
principal amount not to exceed 35% of the aggregate principal
amount of the notes (which includes Additional Notes, if any)
issued prior to the redemption date at a redemption price
(expressed as a percentage of principal amount) of 107.125%,
plus accrued and unpaid interest to the redemption date, with
the net cash proceeds from one or more Equity Offerings;
provided, however, that
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(1) at least 65% of such aggregate principal amount of
notes (which includes Additional Notes, if any) remains
outstanding immediately after the occurrence of each such
redemption (other than notes held, directly or indirectly, by
the Company or its Affiliates); and |
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(2) each such redemption occurs within 90 days after
the date of the related Equity Offering. |
Prior to May 1, 2011, we are entitled at our option to
redeem all, but not less than all, of the notes at a redemption
price equal to 100% of the principal amount of the notes plus
the Applicable Premium as of, and accrued and unpaid interest
to, the redemption date (subject to the right of Holders on the
relevant record date to receive interest due on the relevant
interest payment date). Notice of such redemption must be mailed
by first-class mail to each Holders registered address,
not less than 30 nor more than 60 days prior to the
redemption date.
Applicable Premium means with respect to a
note at any redemption date, the greater of (1) 1.00% of
the principal amount of such note and (2) the excess of
(A) the present value at such redemption date of
(i) the redemption price of such note on May 1, 2011
(such redemption price being described in the second paragraph
in this Optional Redemption section
exclusive of any accrued interest) plus (ii) all required
remaining scheduled interest payments due on such note through
May 1, 2011 (but excluding accrued and unpaid interest to
the redemption date), computed using a discount rate equal to
the Adjusted Treasury Rate, over (B) the principal amount
of such note on such redemption date.
Adjusted Treasury Rate means, with respect to
any redemption date, (1) the yield, under the heading which
represents the average for the immediately preceding week,
appearing in the most recently published statistical release
designated H.15(519) or any successor publication
which is published weekly by the Board of Governors of the
Federal Reserve System and which establishes yields on actively
traded United States Treasury securities adjusted to constant
maturity under the caption Treasury Constant
Maturities, for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months
before or after May 1, 2011, yields for the two published
maturities most closely corresponding to the Comparable Treasury
Issue shall be determined and the Adjusted Treasury Rate shall
be interpolated or extrapolated from such yields on a straight
line basis, rounding to the nearest month) or (2) if such
release (or any successor release) is not published during the
week preceding the calculation date or does not contain such
yields, the rate per year equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, in each case calculated
on the third Business Day immediately preceding the redemption
date, plus 0.50%.
Comparable Treasury Issue means the United
States Treasury security selected by the Quotation Agent as
having a maturity comparable to the remaining term of the notes
from the redemption date to May 1, 2011, that would be
utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate
debt securities of a maturity most nearly equal to May 1,
2011.
Comparable Treasury Price means, with respect
to any redemption date, if clause (2) of the definition of
Adjusted Treasury Rate is applicable, the average of three, or
such lesser number as is obtained by the Trustee, Reference
Treasury Dealer Quotations for such redemption date.
Quotation Agent means the Reference Treasury
Dealer selected by the Trustee after consultation with the
Company.
Reference Treasury Dealer means Credit Suisse
Securities (USA) LLC and its successors and assigns and two
other nationally recognized investment banking firms selected by
the Company that are primary U.S. Government securities
dealers.
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Reference Treasury Dealer Quotations means
with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue,
expressed in each case as a percentage of its principal amount,
quoted in writing to the Trustee by such Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third
Business Day immediately preceding such redemption date.
Selection and Notice of Redemption
If we are redeeming less than all the notes at any time, the
Trustee will select notes on a pro rata basis to the
extent practicable.
We will redeem notes of $2,000 or less in whole and not in part.
We will cause notices of redemption to be mailed by first-class
mail at least 30 but not more than 60 days before the
redemption date to each holder of notes to be redeemed at its
registered address.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount thereof to be redeemed. We will issue a new
note in a principal amount equal to the unredeemed portion of
the original note in the name of the holder upon cancelation of
the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date,
interest ceases to accrue on notes or portions of them called
for redemption.
Mandatory Redemption; Offers to Purchase; Open Market
Purchases
We are not required to make any mandatory redemption or sinking
fund payments with respect to the notes. However, under certain
circumstances, we may be required to offer to purchase notes as
described under the captions Change of
Control and Certain
Covenants Limitation on Sales of Assets and
Subsidiary Stock. We may at any time and from time to time
purchase notes in the open market or otherwise.
Guarantees
The Subsidiary Guarantors will jointly and severally guarantee,
on a senior unsecured basis, our obligations under the notes.
The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee will be limited as necessary to prevent
that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See Risk
Factors Risks Relating to the Notes and the
Offering Federal and state statutes allow courts,
under specific circumstances, to void guarantees and require
note holders to return payments received from our subsidiary
guarantors.
Each Subsidiary Guarantor that makes a payment under its
Subsidiary Guarantee will be entitled upon payment in full of
all guaranteed obligations under the Indenture to a contribution
from each other Subsidiary Guarantor in an amount equal to such
other Subsidiary Guarantors pro rata portion of
such payment based on the respective net assets of all the
Subsidiary Guarantors at the time of such payment determined in
accordance with GAAP.
If a Subsidiary Guarantee were rendered voidable, it could be
subordinated by a court to all other indebtedness (including
guarantees and other contingent liabilities) of the applicable
Subsidiary Guarantor, and, depending on the amount of such
indebtedness, a Subsidiary Guarantors liability on its
Subsidiary Guarantee could be reduced to zero. See Risk
Factors Risks Relating to the Notes and the
Offering Federal and state statutes allow courts,
under specific circumstances, to void guarantees and require
note holders to return payments received from our subsidiary
guarantors.
Pursuant to the Indenture, (A) a Subsidiary Guarantor may
consolidate with, merge with or into, or transfer all or
substantially all its assets to any other Person to the extent
described below under Certain
Covenants Merger and Consolidation and
(B) the Capital Stock of a Subsidiary Guarantor may be sold
or otherwise disposed of to another Person to the extent
described below under Certain
Covenants Limitation on Sales of Assets and
Subsidiary Stock; provided, however, that in the
case of the consolidation, merger or transfer of all or
substantially all the assets of such Subsidiary Guarantor, if
such other Person is not the Company or a Subsidiary Guarantor,
such Subsidiary Guarantors obligations under its Subsidiary
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Guarantee must be expressly assumed by such other Person, except
that such assumption will not be required in the case of:
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(1) the sale or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor, including
the sale or disposition of Capital Stock of a Subsidiary
Guarantor following which such Subsidiary Guarantor is no longer
a Subsidiary; or |
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(2) the sale or disposition of all or substantially all the
assets of a Subsidiary Guarantor; |
in each case other than to the Company or an Affiliate of the
Company and as permitted by the Indenture, provided that the
Company complies with its obligations under the covenant
described under Certain Covenants
Limitation on Sales of Assets and Subsidiary Stock in
respect of such disposition. Upon any sale or disposition
described in clause (1) or (2) immediately above, the
obligor on the related Subsidiary Guarantee will be released
from its obligations thereunder.
The Subsidiary Guarantee of a Subsidiary Guarantor also will be
released:
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(1) upon the designation of such Subsidiary Guarantor as an
Unrestricted Subsidiary; |
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(2) at such time as such Subsidiary Guarantor does not have
any Indebtedness outstanding that would have required such
Subsidiary Guarantor to enter into a Guarantee Agreement
pursuant to the covenant described under
Certain Covenants Future
Subsidiary Guarantors; |
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(3) in connection with any sale or other disposition of all
of the Capital Stock of a Subsidiary Guarantor to a Person that
is not the Company or (either before or after giving effect to
such transaction) an Affiliate of the Company, if the sale of
all such Capital Stock of the Subsidiary Guarantor complies with
the covenant described under Certain
Covenants Limitation on Sales of Assets and
Subsidiary Stock; and |
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(4) if we exercise our legal defeasance option or our
covenant defeasance option as described under
Defeasance or if our obligations under
the Indenture are discharged in accordance with the terms of the
Indenture. |
Ranking
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Senior Indebtedness versus Notes |
The indebtedness evidenced by the notes and the Subsidiary
Guarantees is unsecured and ranks pari passu in right of
payment to the Senior Indebtedness of the Company and the
Subsidiary Guarantors, as the case may be. The notes are
guaranteed by the Subsidiary Guarantors.
As of June 30, 2006:
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(1) the Companys Senior Indebtedness was
approximately $386.3 million and |
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(2) the Senior Indebtedness of our Domestic Restricted
Subsidiaries was approximately $341.6 million, which
includes Senior Indebtedness of the Company guaranteed by one or
more Domestic Restricted Subsidiaries. |
The notes are unsecured obligations of the Company. Secured debt
that the Company might incur in the future and all other secured
obligations of the Company in effect from time to time will be
effectively senior to the notes to the extent of the value of
the assets securing such debt or other obligations.
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Liabilities of Subsidiaries versus Notes |
A portion of our operations are conducted through our
subsidiaries. Some of our subsidiaries are not Guaranteeing the
notes, and, as described above under
Guarantees, Subsidiary Guarantees may be
released under certain circumstances. In addition, our future
subsidiaries may not be required to Guarantee the notes. Claims
of creditors of such non-guarantor subsidiaries, including trade
creditors and creditors holding indebtedness or Guarantees
issued by such non-guarantor subsidiaries, and claims of
preferred stockholders of such non-guarantor subsidiaries,
generally will have priority with respect to the assets and
earnings of such non-guarantor subsidiaries over the claims of
our creditors, including holders of the notes.
43
Accordingly, the notes will be effectively subordinated to
creditors (including trade creditors) and preferred
stockholders, if any, of our non-guarantor subsidiaries.
Our non-guarantor Foreign Subsidiaries had aggregate
consolidated liabilities, excluding liabilities owing to the
Company or any Subsidiary Guarantor, as of March 31, 2006,
of $102.9 million and revenue for the year ended
December 31, 2005 of $179.4 million and for the three
months ended March 31, 2006 of $52.7 million. Although
the Indenture limits the incurrence of Indebtedness and
preferred stock by certain of our subsidiaries, such limitations
are subject to a number of significant qualifications. Moreover,
the Indenture does not impose any limitation on the incurrence
by such subsidiaries of liabilities that are not considered
Indebtedness under the Indenture. See Certain
Covenants Limitation on Indebtedness.
Change of Control
Upon the occurrence of any of the following events (each a
Change of Control), unless the Company has exercised
its right to redeem all of the outstanding notes as described
under Optional Redemption, each Holder
shall have the right to require that the Company repurchase such
Holders notes at a purchase price in cash equal to 101% of
the principal amount thereof on the date of purchase plus
accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest
payment date):
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(1) any person (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in
Rules 13d-3 and
13d-5 under the
Exchange Act, except that for purposes of this clause (1)
such person shall be deemed to have beneficial
ownership of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more
than 35% of the total voting power of the Voting Stock of the
Company; |
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(2) individuals who on the Issue Date constituted the Board
of Directors (together with any new directors whose election by
such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority
of the directors of the Company then still in office who were
either directors on the Issue Date or whose election or
nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors
then in office; |
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(3) the adoption of a plan relating to the liquidation or
dissolution of the Company; or |
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(4) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of
the Company (determined on a consolidated basis) to another
Person other than a transaction, following which (A) in the
case of a merger or consolidation transaction, holders of
securities that represented 100% of the Voting Stock of the
Company immediately prior to such transaction (or other
securities into which such securities are converted as part of
such merger or consolidation transaction) own directly or
indirectly at least a majority of the voting power of the Voting
Stock of the surviving Person in such merger or consolidation
transaction immediately after such transaction and in
substantially the same proportion as before the transaction, and
(B) in the case of a sale of assets transaction, each
transferee becomes an obligor in respect of the notes and a
Subsidiary of the transferor of such assets. |
Within 30 days following any Change of Control, we will
mail a notice to each Holder with a copy to the Trustee (the
Change of Control Offer) stating:
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(1) that a Change of Control has occurred and that such
Holder has the right to require us to purchase such
Holders notes at a purchase price in cash equal to 101% of
the principal amount thereof on the date of purchase, plus
accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment
date); |
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(2) the circumstances and relevant facts regarding such
Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization, in
each case after giving effect to such Change of Control); |
44
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(3) the purchase date (which shall be no earlier than
30 days nor later than 60 days from the date such
notice is mailed); and |
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(4) the instructions, as determined by us, consistent with
the covenant described hereunder, that a Holder must follow in
order to have its notes purchased. |
We will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change
of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by us and purchases
all notes validly tendered and not withdrawn under such Change
of Control Offer.
We will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase
of notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will
comply with the applicable securities laws and regulations and
shall not be deemed to have breached our obligations under the
covenant described hereunder by virtue of our compliance with
such securities laws or regulations.
The Change of Control purchase feature of the notes may in
certain circumstances make more difficult or discourage a sale
or takeover of the Company and, thus, the removal of incumbent
management. The Change of Control purchase feature is a result
of negotiations between the Company and the Initial Purchasers.
We have no present intention to engage in a transaction
involving a Change of Control, although it is possible that we
could decide to do so in the future. Subject to the limitations
discussed below, we could, in the future, enter into certain
transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control
under the Indenture, but that could increase the amount of
indebtedness outstanding at such time or otherwise affect our
capital structure or credit ratings. Restrictions on our ability
to Incur additional Indebtedness are contained in the covenants
described under Certain Covenants
Limitation on Indebtedness, Limitation
on Liens and Limitation on Sale/
Leaseback Transactions. Such restrictions can only be
waived with the consent of the holders of a majority in
principal amount of the notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture
will not contain any covenants or provisions that may afford
holders of the notes protection in the event of a highly
leveraged transaction.
Our Credit Agreement contains, and indebtedness that we may
incur in the future may contain, prohibitions on the occurrence
of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of
Control. Moreover, the exercise by the holders of their right to
require us to repurchase their notes could cause a default under
such indebtedness, even if the Change of Control itself does
not, due to the financial effect of such repurchase on us.
Finally, our ability to pay cash to the holders of notes
following the occurrence of a Change of Control may be limited
by our then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary
to make any required repurchases.
In the event a Change of Control occurs at a time when we are
prohibited by our indebtedness from purchasing notes, we may
seek the consent of the applicable creditors to the purchase of
notes or may attempt to refinance the indebtedness that contains
such prohibition. If we do not obtain such a consent or repay
such indebtedness, we will remain prohibited from purchasing
notes. In such case, our failure to offer to purchase notes
would constitute a Default under the Indenture, which would, in
turn, constitute a default under our other indebtedness.
The definition of Change of Control includes a
disposition of all or substantially all of the assets of the
Company to any Person. Although there is a limited body of case
law interpreting the phrase substantially all, there
is no precise established definition of the phrase under
applicable law. Accordingly, in certain circumstances there may
be a degree of uncertainty as to whether a particular
transaction would involve a disposition of all or
substantially all of the assets of the Company. As a
result, it may be unclear as to whether a Change of Control has
occurred and whether a holder of notes may require the Company
to make an offer to repurchase the notes as described above.
45
The provisions under the Indenture relative to our obligation to
make an offer to repurchase the notes as a result of a Change of
Control may be waived or modified with the written consent of
the holders of a majority in principal amount of the notes.
Certain Covenants
The Indenture contains covenants including, among others, those
summarized below. Following the first day (the Suspension
Date) that:
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(1) the notes have an Investment Grade Rating from both of
the Rating Agencies, and |
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(2) no Default has occurred and is continuing under the
Indenture, |
the Company and its Restricted Subsidiaries will not be subject
to the provisions of the Indenture summarized below under:
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(1) Limitation on Indebtedness, |
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(2) Limitation on Restricted
Payments, |
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(3) Limitation on Restrictions on
Distributions from Restricted Subsidiaries, |
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(4) Limitation on Sales of Assets and
Subsidiary Stock, |
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(5) clause (3) under Limitation on
Sale/Leaseback Transactions, |
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(6) clauses (a)(2) and (a)(3) of the first paragraph
under Merger and Consolidation, |
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(7) Limitation on Affiliate
Transactions and |
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(8) Future Subsidiary Guarantors |
(collectively, the Suspended Covenants). In
addition, the Subsidiary Guarantees of the Subsidiary Guarantors
will also be suspended as of the Suspension Date. In the event
that the Company and its Restricted Subsidiaries are not subject
to the Suspended Covenants for any period of time as a result of
the foregoing, and on any subsequent date (the Reversion
Date) one or both of the Rating Agencies withdraws its
Investment Grade Rating or downgrades the rating assigned to the
notes below an Investment Grade Rating, then the Company and the
Restricted Subsidiaries will thereafter again be subject to the
Suspended Covenants with respect to future events and the
Subsidiary Guarantees will be reinstated. The period of time
between the Suspension Date and the Reversion Date is referred
to in this description as the Suspension Period.
Notwithstanding that the Suspended Covenants may be reinstated,
no default will be deemed to have occurred as a result of a
failure to comply with the Suspended Covenants during the
Suspension Period.
On the Reversion Date, all Indebtedness Incurred during the
Suspension Period will be classified to have been Incurred
pursuant to paragraph (a) of
Limitation on Indebtedness or one of the
clauses set forth in paragraph (b) of
Limitation on Indebtedness (to the
extent such Indebtedness would be permitted to be Incurred
thereunder as of the Reversion Date and after giving effect to
Indebtedness Incurred prior to the Suspension Period and
outstanding on the Reversion Date). To the extent such
Indebtedness would not be so permitted to be Incurred pursuant
to paragraph (a) or (b) of
Limitation on Indebtedness, such
Indebtedness will be deemed to have been outstanding on the
Issue Date, so that it is classified as permitted under
clause (4) of paragraph (b) of
Limitation of Indebtedness. Calculations
made after the Reversion Date of the amount available to be made
as Restricted Payments under Limitation on
Restricted Payments will be made as though the covenant
described under Limitation on Restricted
Payments had been in effect since the Issue Date and
throughout the Suspension Period. Accordingly, Restricted
Payments made during the Suspension Period will reduce the
amount available to be made as Restricted Payments under
paragraph (a) of Limitation on
Restricted Payments and the items specified in
subclauses (3)(A) through (3)(D) of
paragraph (a) of Limitation on
Restricted Payments will increase the amount available to
be made under paragraph (a) thereof.
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Limitation on Indebtedness |
(a) The Company will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness; provided, however, that the Company and the
Subsidiary Guarantors will be entitled to Incur Indebtedness if,
on the date of such Incurrence and after giving effect thereto
on a pro forma basis, the Consolidated Coverage Ratio
exceeds 2.00 to 1.
46
(b) Notwithstanding the foregoing paragraph (a), the
Company and the Restricted Subsidiaries will be entitled to
Incur any or all of the following Indebtedness:
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(1) Indebtedness Incurred by the Company or any Restricted
Subsidiary pursuant to any Credit Facilities; provided,
however, that, immediately after giving effect to any such
Incurrence, the aggregate principal amount of all Indebtedness
Incurred under this clause (1) and then outstanding does
not exceed the greater of (i) $300 million and
(ii) the sum of (x) 60% of the inventory of the
Company and its Restricted Subsidiaries and (y) 85% of the
book value of the accounts receivables of the Company and its
Restricted Subsidiaries; |
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(2) Indebtedness owed to and held by the Company or a
Restricted Subsidiary; provided, however, that
(A) any subsequent issuance or transfer of any Capital
Stock which results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the obligor thereon, (B) if
the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in
full in cash of all obligations with respect to the notes and
(C) if a Subsidiary Guarantor is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all obligations of such
Subsidiary Guarantor with respect to its Subsidiary Guarantee; |
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(3) the unregistered notes and the exchange notes; |
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(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2) or
(3) of this covenant); |
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(5) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary
became a Restricted Subsidiary or was acquired by the Company
(other than Indebtedness Incurred in connection with, or to
provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a
Restricted Subsidiary or was acquired by the Company);
provided, however, that on the date such Subsidiary
became a Restricted Subsidiary or was acquired by the Company
and after giving pro forma effect thereto, the Company
would have been entitled to Incur at least $1.00 of additional
Indebtedness pursuant to paragraph (a) of this
covenant; |
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(6) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to paragraph (a) or pursuant to
clause (3), (4) or (5) or this clause (6);
provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a
Restricted Subsidiary Incurred pursuant to clause (5), such
Refinancing Indebtedness shall be Incurred only by such
Restricted Subsidiary; |
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(7) Hedging Obligations incurred in the ordinary course of
business with a bona fide intention to limit interest rate risk,
exchange rate risk or commodity price risk; |
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(8) Indebtedness in respect of workers compensation
claims, self-insurance obligations, bankers acceptances,
performance bonds, bid bonds, appeal bonds and surety bonds or
other similar bonds or obligations, and any Guarantees or
letters of credit functioning as or supporting any of the
foregoing; |
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(9) Indebtedness arising from any agreement providing for
indemnities, Guarantees, purchase price adjustments, holdbacks,
contingency payment obligations based on the performance of the
acquired or disposed assets or similar obligations (other than
Guarantees of Indebtedness) Incurred by any Person in connection
with the acquisition or disposition of assets; |
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(10) Indebtedness of Foreign Subsidiaries for purposes of
financing working capital in an aggregate principal amount at
any one time outstanding not to exceed $30.0 million; |
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(11) Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case,
Incurred for the purpose of financing all or any part of the
purchase price, cost of construction or improvement or carrying
cost of assets used in the business of the Company and its
Restricted Subsidiaries and related financing costs, and
Refinancing Indebtedness Incurred to Refinance any Indebtedness
Incurred pursuant to this clause, in an aggregate principal
amount at any one time outstanding not to exceed
$30.0 million; |
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(12) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument drawn against insufficient funds in the ordinary
course of business; provided, however, that such
Indebtedness is extinguished within five Business Days of its
Incurrence; |
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(13) Indebtedness consisting of the Subsidiary Guarantee of
a Subsidiary Guarantor and any Guarantee by a Subsidiary
Guarantor of Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (1), (2),
(3) or (4) or pursuant to clause (6) to the
extent the Refinancing Indebtedness Incurred thereunder directly
or indirectly Refinances Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (3) or
(4); and |
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(14) Indebtedness of the Company or of any Subsidiary
Guarantor in an aggregate principal amount which, when taken
together with all other Indebtedness of the Company and its
Restricted Subsidiaries outstanding on the date of such
Incurrence (other than Indebtedness permitted by
clauses (1) through (13) above or paragraph (a)),
does not exceed the greater of (i) $50 million and
(ii) 5% of Consolidated Net Tangible Assets, as determined
as of the most recent practical date (as adjusted for any
significant dispositions of assets since such date). |
(c) Notwithstanding the foregoing, neither the Company nor
any Subsidiary Guarantor will incur any Indebtedness pursuant to
the foregoing paragraph (b) if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated
Obligations of the Company or any Subsidiary Guarantor unless
such Indebtedness shall be subordinated to the notes or the
applicable Subsidiary Guarantee to at least the same extent as
such Subordinated Obligations.
(d) For purposes of determining compliance with this
covenant:
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(1) any Indebtedness remaining outstanding under the Credit
Agreement after the application of the net proceeds from the
sale of the notes will be treated as Incurred on the Issue Date
under clause (1) of paragraph (b) above; |
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(2) in the event that an item of Indebtedness (or any
portion thereof) meets the criteria of more than one of the
types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness (or any
portion thereof) at the time of Incurrence and will only be
required to include the amount and type of such Indebtedness in
one of the above clauses; |
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(3) the Company will be entitled to divide and classify an
item of Indebtedness in more than one of the types of
Indebtedness described above; and |
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(4) the Company may, at any time, change the classification
of an item of Indebtedness or any portion thereof (except for
Indebtedness Incurred under clause (1) of
paragraph (b) above) to any other clause of
paragraph (b) above or to paragraph (a) above;
provided, however, that the Company or the applicable
Restricted Subsidiary, as the case may be, would be permitted to
Incur such item of Indebtedness or portion thereof pursuant to
such other clause or paragraph (a), as the case may be, at
time of such reclassification. |
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Limitation on Restricted Payments |
(a) The Company will not, and will not permit any
Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
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(1) a Default shall have occurred and be continuing (or
would result therefrom); |
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(2) the Company is not entitled to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the
covenant described under Limitation on
Indebtedness; or |
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(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments since the Issue Date would exceed the
sum of (without duplication): |
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(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of
the fiscal quarter immediately following the fiscal quarter
during which the Issue Date occurs to the end of the most recent
fiscal quarter ending at least 45 days |
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prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit); plus |
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(B) 100% of the aggregate Net Cash Proceeds, or the fair
market value of property other than cash, received by the
Company from the issuance or sale of its Capital Stock (other
than Disqualified Stock) subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary of the Company and
other than an issuance or sale to an employee stock ownership
plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) and 100% of any
cash, or the fair market value of property other than cash,
received as a capital contribution by the Company from its
shareholders subsequent to the Issue Date; plus |
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(C) the amount by which Indebtedness of the Company is
reduced on the Companys balance sheet upon the conversion
or exchange subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by
the Company upon such conversion or exchange); provided,
however, that the foregoing amount shall not exceed the Net
Cash Proceeds received by the Company or any Restricted
Subsidiary from the sale of such Indebtedness (excluding Net
Cash Proceeds from sales to a Subsidiary of the Company or to an
employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their
employees); plus |
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(D) an amount equal to the sum of (i) the net
reduction in the Investments (other than Permitted Investments)
made by the Company or any Restricted Subsidiary in any Person
resulting from repurchases, repayments or redemptions of such
Investments by such Person, proceeds realized on the sale of
such Investment and proceeds representing the return of capital
(excluding dividends and distributions), in each case received
by the Company or any Restricted Subsidiary, and (ii) to
the extent such Person is an Unrestricted Subsidiary, the
portion (proportionate to the Companys equity interest in
such Subsidiary) of the fair market value of the net assets of
such Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the
case of any such Person or Unrestricted Subsidiary, the amount
of Investments (excluding Permitted Investments) previously made
(and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary. |
(b) The preceding provisions will not prohibit:
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(1) any Restricted Payment made out of the Net Cash
Proceeds of the substantially concurrent sale of, or made by
exchange for, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold
to a Subsidiary of the Company or an employee stock ownership
plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) or a
substantially concurrent cash capital contribution received by
the Company from its shareholders; provided, however,
that (A) such Restricted Payment shall be excluded in the
calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale or such cash
capital contribution (to the extent so used for such Restricted
Payment) shall be excluded from the calculation of amounts under
clause (3)(B) of paragraph (a) above; |
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(2) any purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value of Subordinated
Obligations of the Company or a Subsidiary Guarantor made by
exchange for, or out of the proceeds of the substantially
concurrent Incurrence of, Indebtedness of such Person which is
permitted to be Incurred pursuant to the covenant described
under Limitation on Indebtedness;
provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for
value shall be excluded in the calculation of the amount of
Restricted Payments; |
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(3) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend
would have complied with this covenant; provided,
however, that at the time of payment of such dividend, no
other Default shall have occurred and be continuing (or result
therefrom); provided |
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further, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments; |
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(4) so long as no Default has occurred and is continuing,
the purchase, redemption or other acquisition of shares of
Capital Stock of the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of
the Company or any of its Subsidiaries (or permitted transferees
of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved
by the Board of Directors under which such individuals purchase
or sell or are granted the option to purchase or sell, shares of
such Capital Stock; provided, however, that the aggregate
amount of such Restricted Payments (excluding amounts
representing cancelation of Indebtedness) shall not exceed
$1.0 million in any calendar year; provided further,
however, that such repurchases and other acquisitions shall
be excluded in the calculation of the amount of Restricted
Payments; |
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(5) the declaration and payments of dividends on
Disqualified Stock issued pursuant to the covenant described
under Limitation on Indebtedness;
provided, however, that at the time of payment of such
dividend, no Default shall have occurred and be continuing (or
result therefrom); provided further, however, that such
dividends shall be excluded in the calculation of the amount of
Restricted Payments; |
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(6) repurchases of Capital Stock deemed to occur upon
exercise of stock options if such Capital Stock represents a
portion of the exercise price of such options; provided,
however, that such Restricted Payments shall be excluded in
the calculation of the amount of Restricted Payments; |
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(7) cash payments in lieu of the issuance of fractional
shares in connection with the exercise of warrants, options or
other securities convertible into or exchangeable for Capital
Stock of the Company; provided, however, that any such
cash payment shall not be for the purpose of evading the
limitation of the covenant described under this subheading;
provided further, however, that such payments shall be
excluded in the calculation of the amount of Restricted Payments; |
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(8) in the event of a Change of Control, and if no Default
shall have occurred and be continuing, the payment, purchase,
redemption, defeasance or other acquisition or retirement of
Subordinated Obligations of the Company or any Subsidiary
Guarantor, in each case, at a purchase price not greater than
101% of the principal amount of such Subordinated Obligations,
plus any accrued and unpaid interest thereon; provided,
however, that prior to such payment, purchase, redemption,
defeasance or other acquisition or retirement, the Company (or a
third party to the extent permitted by the Indenture) has made a
Change of Control Offer with respect to the notes as a result of
such Change of Control and has repurchased all notes validly
tendered and not withdrawn in connection with such Change of
Control Offer; provided further, however, that such
payments, purchases, redemptions, defeasances or other
acquisitions or retirements shall be included in the calculation
of the amount of Restricted Payments; |
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(9) payments of intercompany subordinated Indebtedness, the
Incurrence of which was permitted under clause (2) of
paragraph (b) of the covenant described under
Limitation on Indebtedness; provided,
however, that no Default has occurred and is continuing or
would otherwise result therefrom; provided further,
however, that such payments shall be excluded in the
calculation of the amount of Restricted Payments; |
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(10) the payment of ordinary quarterly dividends on the
common stock of the Company at a rate no greater than
$0.09 per share (as adjusted for stock splits and other
similar changes to such common stock); provided, however,
the aggregate amount of such dividends in any year shall not
exceed $17.5 million; provided further, however,
that such payments shall be included in the calculation of the
amount of Restricted Payments; and |
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(11) Restricted Payments in an amount which, when taken
together with all Restricted Payments made pursuant to this
clause (11), does not exceed $35.0 million;
provided, however, that (A) at the time of each such
Restricted Payment, no Default shall have occurred and be
continuing (or result therefrom) and (B) such Restricted
Payments shall be excluded in the calculation of the amount of
Restricted Payments. |
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Limitation on Restrictions on Distributions from
Restricted Subsidiaries |
The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) pay
dividends or make any other distributions on its Capital Stock
to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) make any loans or
advances to the Company or (c) transfer any of its property
or assets to the Company, except:
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(1) with respect to clauses (a), (b) and (c), |
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(A) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; |
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(B) any encumbrance or restriction contained in the terms
of any Indebtedness Incurred pursuant to clause (b)(1) of
the covenant described under Limitation on
Indebtedness or any agreement pursuant to which such
Indebtedness was issued if (i) either (x) the
encumbrance or restriction applies only in the event of and
during the continuance of a payment default or a default with
respect to a financial covenant contained in such Indebtedness
or agreement or (y) the Company determines at the time any
such Indebtedness is Incurred (and at the time of any
modification of the terms of any such encumbrance or
restriction) that any such encumbrance or restriction will not
materially affect the Companys ability to make principal
or interest payments on the notes and any other Indebtedness
that is an obligation of the Company and (ii) the
encumbrance or restriction is not materially more
disadvantageous to the holders of the notes than is customary in
comparable financings or agreements (as determined by the
Company in good faith); |
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(C) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred as consideration
in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date; |
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(D) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (A) or (B) of
clause (1) of this covenant or this clause (D) or
contained in any amendment to an agreement referred to in
clause (A) or (B) of clause (1) of this
covenant or this clause (D); provided, however, that
the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing
agreement or amendment are no less favorable to the Holders than
encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements; |
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(E) with respect to any Foreign Subsidiary, any encumbrance
or restriction contained in the terms of any Indebtedness, or
any agreement pursuant to which such Indebtedness was Incurred; |
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(F) Liens permitted to be incurred under the provisions of
the covenant described under Limitation on
Liens that limit the right of the debtor to dispose of the
assets subject to such Liens; |
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(G) encumbrances or restrictions contained in agreements
entered into in connection with Hedging Obligations permitted
from time to time under the Indenture; |
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(H) restrictions on cash or other deposits or net worth
requirements imposed by customers or required by insurance,
surety or bonding companies, in each case, under contracts
entered into in the ordinary course of business; |
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(I) existing under, by reason of or with respect to
applicable law, rule, regulation or order; |
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(J) with respect to any Person or the property or assets of
a Person acquired by the Company or any of its Restricted
Subsidiaries existing at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person or
the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired and any
amendments, modifications, |
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restatements, renewals, increases, extensions, supplements,
refundings, replacements or refinancings thereof, provided that
the encumbrances and restrictions in any such amendments,
modifications, restatements, renewals, increases, extensions,
supplements, refundings, replacements or refinancings are, in
the reasonable good faith judgment of the Chief Executive
Officer and the Chief Financial Officer of the Company, no more
restrictive, taken as a whole, than those in effect on the date
of the acquisition; and |
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(K) any encumbrance or restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered
into for the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition; and |
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(2) with respect to clause (c) only, |
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(A) any encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests
to the extent such provisions restrict the transfer of the lease
or the property leased thereunder; |
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(B) any encumbrance or restriction contained in credit
agreements, security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restriction restricts the transfer of the
property subject to such credit agreements, security agreements
or mortgages; and |
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(C) customary restrictions contained in asset sale
agreements limiting the transfer of such assets pending the
closing of such sale. |
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Limitation on Sales of Assets and Subsidiary Stock |
(a) The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, consummate any
Asset Disposition unless:
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(1) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all
non-cash consideration), as determined in good faith by the
Board of Directors (or, in the case of any sale of timberland
pursuant to a Pre-Approved Timberland Sale Initiative, as
determined in good faith by an executive officer of the
Company), of the shares and assets subject to such Asset
Disposition; |
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(2) at least 75% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of
(A) cash or cash equivalents or (B) Additional
Assets; and |
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(3) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Company (or such
Restricted Subsidiary, as the case may be) |
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(A) first, to the extent the Company elects, to
acquire Additional Assets within one year from the later of the
date of such Asset Disposition or the receipt of such Net
Available Cash; |
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(B) second, to the extent of the balance of such Net
Available Cash after application in accordance with
clause (A), to the extent the Company elects (or is
required by the terms of any Indebtedness), to prepay, repay,
redeem or purchase Senior Indebtedness of the Company or
Indebtedness (other than any Disqualified Stock) of a Restricted
Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the
later of the date of such Asset Disposition or the receipt of
such Net Available Cash; and |
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(C) third, to the extent of the balance of such Net
Available Cash after application in accordance with
clauses (A) and (B), to make an offer to the holders of the
notes (and to holders of other Senior Indebtedness of the
Company designated by the Company) to purchase notes (and such
other Senior Indebtedness of the Company) pursuant to and
subject to the conditions contained in the Indenture; |
provided, however, that in connection with any
prepayment, repayment or purchase of Indebtedness pursuant to
clause (B) or (C) above (other than with the Net Available
Cash from any Asset Disposition of timberland pursuant to a
Pre-Approved Timberland Sale Initiative), the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness
and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount
so prepaid, repaid or purchased.
52
Notwithstanding the foregoing provisions of this covenant, the
Company and the Restricted Subsidiaries will not be required to
apply any Net Available Cash in accordance with this covenant
except to the extent that the aggregate Net Available Cash from
all Asset Dispositions which is not applied in accordance with
this covenant exceeds $25.0 million.
For the purposes of this covenant, the following are deemed to
be cash or cash equivalents:
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(1) the assumption or discharge of Indebtedness of the
Company (other than obligations in respect of Disqualified Stock
of the Company) or any Restricted Subsidiary (other than
obligations in respect of Disqualified Stock or Preferred Stock
of a Subsidiary Guarantor) and the release of the Company or
such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition; and |
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(2) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by
the Company or such Restricted Subsidiary into cash (including,
in the case of any installment note received by the Company or
any Restricted Subsidiary in respect of any Asset Disposition of
timberland pursuant to a Pre-Approved Timberland Sale
Initiative, the receipt of cash in respect of any loan secured
solely by a pledge of such installment note and, if applicable,
the pledge or assignment of a letter of credit or similar
instrument provided by such transferee), to the extent of cash
received in that conversion. |
(b) In the event of an Asset Disposition that requires the
purchase of notes (and other Senior Indebtedness of the Company)
pursuant to clause (a)(3)(C) above, the Company will
purchase notes tendered pursuant to an offer by the Company for
the Notes (and such other Senior Indebtedness) at a purchase
price of 100% of their principal amount (or, in the event such
other Senior Indebtedness of the Company was issued with
significant original issue discount, 100% of the accreted value
thereof) without premium, plus accrued but unpaid interest (or,
in respect of such other Senior Indebtedness of the Company,
such lesser price, if any, as may be provided for by the terms
of such Senior Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth
in the Indenture. If the aggregate purchase price of the
securities tendered exceeds the Net Available Cash allotted to
their purchase, the Company will select the securities to be
purchased on a pro rata basis but in round
denominations, which in the case of the notes will be
denominations of $1,000 principal amount or multiples thereof.
The Company shall not be required to make such an offer to
purchase notes (and other Senior Indebtedness of the Company)
pursuant to this covenant if the Net Available Cash available
therefor is less than $10.0 million (which lesser amount
shall be carried forward for purposes of determining whether
such an offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition). Upon completion of such
an offer to purchase, Net Available Cash will be deemed to be
reduced by the aggregate amount of such offer.
(c) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and
any other securities laws or regulations in connection with the
repurchase of notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations
conflict with provisions of this covenant, the Company will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under this
covenant by virtue of its compliance with such securities laws
or regulations.
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Limitation on Affiliate Transactions |
(a) The Company will not, and will not permit any
Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of
any property, employee compensation arrangements or the
rendering of any service) with, or for the benefit of, any
Affiliate of the Company (an Affiliate Transaction)
unless:
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(1) the terms of the Affiliate Transaction are no less
favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of the Affiliate
Transaction in arms-length dealings with a Person who is
not an Affiliate; |
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(2) if such Affiliate Transaction involves an amount in
excess of $15.0 million, the terms of the Affiliate
Transaction are set forth in writing and a majority of the
non-employee directors of the Company disinterested with respect
to such Affiliate Transaction have determined in good faith that
the |
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criteria set forth in clause (1) are satisfied and have
approved the relevant Affiliate Transaction as evidenced by a
resolution of the Board of Directors; and |
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(3) if such Affiliate Transaction involves an amount in
excess of $30.0 million, the Board of Directors shall also
have received a written opinion from an Independent Qualified
Party to the effect that such Affiliate Transaction is fair,
from a financial standpoint, to the Company and its Restricted
Subsidiaries or is not less favorable to the Company and its
Restricted Subsidiaries than could reasonably be expected to be
obtained at the time in an arms-length transaction with a
Person who was not an Affiliate. |
(b) The provisions of the preceding
paragraph (a) will not prohibit:
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(1) any Investment (other than a Permitted Investment) or
other Restricted Payment, in each case permitted to be made
pursuant to (but only to the extent included in the calculation
of the amount of Restricted Payments made pursuant to
paragraph (a)(3) of) the covenant described under
Limitation on Restricted Payments; |
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(2) any issuance of securities, or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors; |
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(3) loans or advances to employees in the ordinary course
of business in accordance with the past practices of the Company
or its Restricted Subsidiaries, but in any event not to exceed
$5.0 million in the aggregate outstanding at any one time; |
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(4) the payment of fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or
its Restricted Subsidiaries; |
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(5) any transaction with the Company, a Restricted
Subsidiary or joint venture or similar entity which would
constitute an Affiliate Transaction solely because the Company
or a Restricted Subsidiary owns an equity interest in or
otherwise controls such Restricted Subsidiary, joint venture or
similar entity; |
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(6) the issuance or sale of any Capital Stock (other than
Disqualified Stock) of the Company; |
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(7) pledges of Capital Stock of Unrestricted Subsidiaries
for the benefit of lenders of Unrestricted Subsidiaries; and |
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(8) any agreement as in effect on the Issue Date or any
renewals or extensions of any such agreement (so long as such
renewals or extensions are not less favorable to the Company or
the Restricted Subsidiaries) and the transactions evidenced
thereby. |
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, Incur or permit to exist
any Lien (the Initial Lien) of any nature whatsoever
on any of its properties (including Capital Stock of a
Restricted Subsidiary), whether owned at the Issue Date or
thereafter acquired, securing any Indebtedness, other than
Permitted Liens, without effectively providing that the notes
shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so
secured; provided, however, that the Company and
the Restricted Subsidiaries will be entitled to Incur other
Liens to secure Indebtedness as long as the amount of
outstanding Indebtedness secured by Liens pursuant to this
proviso (including any Attributable Debt) does not exceed at the
time of such incurrence 5% of Consolidated Net Tangible Assets,
as determined as of the most recent practical date (adjusted for
any significant dispositions of assets since such date) (and any
such Liens Incurred pursuant to this proviso may be permitted to
exist).
Any Lien created for the benefit of the Holders of the notes
pursuant to the preceding sentence shall provide by its terms
that such Lien shall be automatically and unconditionally
released and discharged upon the release and discharge of the
Initial Lien.
54
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Limitation on Sale/ Leaseback Transactions |
The Company will not, and will not permit any Restricted
Subsidiary to, enter into any Sale/Leaseback Transaction with
respect to any property unless:
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(1) the Company or such Restricted Subsidiary would be
entitled to (A) Incur Indebtedness in an amount equal to
the Attributable Debt with respect to such Sale/Leaseback
Transaction pursuant to the covenant described under
Limitation on Indebtedness and
(B) create a Lien on such property securing such
Attributable Debt without equally and ratably securing the Notes
pursuant to the covenant described under
Limitation on Liens; |
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(2) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback
Transaction are at least equal to the fair market value (as
determined by the Board of Directors) of such property; and |
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(3) the Company applies the proceeds of such transaction in
compliance with the covenant described under
Limitation on Sale of Assets and Subsidiary
Stock. |
(a) The Company will not consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a
series of transactions, directly or indirectly, all or
substantially all its assets to, any Person, unless:
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(1) the resulting, surviving or transferee Person (the
Successor Company) shall be a Person organized and
existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the notes and the Indenture; |
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(2) immediately after giving pro forma effect
to such transaction (and treating any Indebtedness which becomes
an obligation of the Successor Company or any Subsidiary as a
result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; |
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(3) immediately after giving pro forma effect to
such transaction, the Successor Company would be able to Incur
an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under
Limitation on Indebtedness; and |
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(4) the Company shall have delivered to the Trustee an
Officers Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. |
provided, however, that clause (3) will not
be applicable to (A) a Restricted Subsidiary consolidating
with, merging into or transferring all or part of its properties
and assets to the Company (so long as no Capital Stock of the
Company is distributed to any Person) or (B) the Company
merging with an Affiliate of the Company solely for the purpose
and with the sole effect of reincorporating the Company in
another jurisdiction.
For purposes of this covenant, the sale, lease, conveyance,
assignment, transfer or other disposition of all or
substantially all of the properties and assets of one or more
Subsidiaries of the Company, which properties and assets, if
held by the Company instead of such Subsidiaries, would
constitute all or substantially all of the properties and assets
of the Company on a consolidated basis, shall be deemed to be
the transfer of all or substantially all of the properties and
assets of the Company.
The Successor Company will be the successor to the Company and
shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under the Indenture, and the
predecessor Company, except in the case of a lease, shall be
released from the obligation to pay the principal of and
interest on the notes.
55
(b) The Company will not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, all or
substantially all of its assets to any Person unless:
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(1) except in the case of a Subsidiary Guarantor
(x) that has been disposed of in its entirety to another
Person (other than to the Company or an Affiliate of the
Company), whether through a merger, consolidation or sale of
Capital Stock or assets or (y) that, as a result of the
disposition of all or a portion of its Capital Stock, ceases to
be a Subsidiary, in both cases, if in connection therewith the
Company (A) complies with its obligations under the
covenant described under Limitation on Sales
of Assets and Subsidiary Stock in respect of such
disposition, (B) the resulting, surviving or transferee
Person (if not such Subsidiary) shall be a Person organized and
existing under the laws of the jurisdiction under which such
Subsidiary was organized or under the laws of the United States
of America, or any State thereof or the District of Columbia,
and (C) such Person shall expressly assume, by a Guarantee
Agreement, in a form satisfactory to the Trustee, all the
obligations of such Subsidiary, if any, under its Subsidiary
Guarantee; |
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(2) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction
as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be
continuing; and |
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(3) the Company delivers to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such Guarantee Agreement,
if any, complies with the Indenture. |
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Future Subsidiary Guarantors |
The Company will not permit any Domestic Restricted Subsidiary,
directly or indirectly, to Incur any Indebtedness unless:
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(1) such Indebtedness is Incurred by such Restricted
Subsidiary pursuant to clause (2), (4), (5), (6) (with
respect to Refinancing Indebtedness of Indebtedness initially
Incurred under clause (4) or (5) only), (7), (8), (9),
(11) or (12) of paragraph (b) of the covenant
described under Limitation on
Indebtedness; |
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(2) such Restricted Subsidiary is a Subsidiary
Guarantor; or |
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(3) such Restricted Subsidiary simultaneously executes and
delivers a Subsidiary Guarantee and becomes a Subsidiary
Guarantor. |
The Company will file with the SEC (subject to the next
sentence) and provide the Trustee and Noteholders with such
annual and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections, such reports to
be so filed and provided at the times specified for the filings
of such reports under such Sections and containing all the
information, audit reports and exhibits required for such
reports. The Company agrees that it will not take any action for
the purpose of causing the SEC not to accept any such filings.
If, notwithstanding the foregoing, the SEC will not accept such
filings for any reason, the Company will post the reports
specified in the preceding sentence on its website within the
time periods that would apply if the Company were required to
file those reports with the SEC.
At any time that any of the Companys Subsidiaries are
Unrestricted Subsidiaries, then the quarterly and annual
financial information required by the preceding paragraph will
include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in
Managements Discussion and Analysis of Financial
Condition and Results of Operations, of the financial
condition and results of operations of the Company and its
Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries of
the Company.
56
Defaults
Each of the following is an Event of Default:
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(1) a default in the payment of interest on the notes when
due, continued for 30 days; |
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(2) a default in the payment of principal of any note when
due at its Stated Maturity, upon optional redemption, upon
required purchase, upon declaration of acceleration or otherwise; |
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(3) the failure by the Company to comply with its
obligations in paragraph (a) of the covenant described
above under Certain Covenants
Merger and Consolidation; |
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(4) the failure by the Company to comply for 30 days
after notice with any of its obligations in the covenants
described above under Change of Control (other than
a failure to purchase notes) or under Certain
Covenants under Limitation on
Indebtedness, Limitation on Restricted
Payments, Limitation on Restrictions on
Distributions from Restricted Subsidiaries,
Limitation on Sales of Assets and Subsidiary
Stock (other than a failure to purchase Notes),
Limitation on Affiliate Transactions,
Limitation on Liens,
Limitation on Sale/ Leaseback
Transactions, Certain
Covenants Merger and Consolidation (other than
a failure to comply with paragraph (a) thereof),
Future Subsidiary Guarantors or
SEC Reports; |
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(5) the failure by the Company or any Subsidiary Guarantor
to comply for 60 days after notice with its other
agreements contained in the Indenture; |
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(6) Indebtedness of the Company, any Subsidiary Guarantor
or any Significant Subsidiary is not paid within any applicable
grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds
$15.0 million (the cross acceleration
provision); |
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(7) certain events of bankruptcy, insolvency or
reorganization of the Company, a Subsidiary Guarantor or any
Significant Subsidiary (the bankruptcy provisions); |
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(8) any judgment or decree for the payment of money in
excess of $15.0 million is entered against the Company, a
Subsidiary Guarantor or any Significant Subsidiary, remains
outstanding for a period of 60 consecutive days following such
judgment and is not discharged, waived or stayed (the
judgment default provision); or |
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(9) a Subsidiary Guarantee ceases to be in full force and
effect (other than in accordance with the terms of the Indenture
or such Subsidiary Guarantee) or a Subsidiary Guarantor denies
or disaffirms its obligations under its Subsidiary Guarantee. |
However, a default under clauses (4) and (5) will not
constitute an Event of Default until the Trustee or the Holders
of 25% in principal amount of the outstanding notes notify the
Company of the default and the Company does not cure such
default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of the
outstanding notes may declare the principal of and accrued but
unpaid interest on all the notes to be due and payable. Upon
such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the
Company occurs and is continuing, the principal of and interest
on all the Notes will ipso facto become and be
immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the notes. Under
certain circumstances, the Holders of a majority in principal
amount of the outstanding notes may rescind any such
acceleration with respect to the notes and its consequences.
Subject to the provisions of the Indenture relating to the
duties of the Trustee, in case an Event of Default occurs and is
continuing, the Trustee will be under no obligation to exercise
any of the rights or powers under the Indenture at the request
or direction of any of the holders of the notes unless such
Holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to
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enforce the right to receive payment of principal, premium (if
any) or interest when due, no Holder of a note may pursue any
remedy with respect to the Indenture or the notes unless:
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(1) such Holder has previously given the Trustee notice
that an Event of Default is continuing; |
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(2) Holders of at least 25% in principal amount of the
outstanding notes have requested the Trustee to pursue the
remedy; |
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(3) such Holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense; |
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(4) the Trustee has not complied with such request within
60 days after the receipt thereof and the offer of security
or indemnity; and |
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(5) holders of a majority in principal amount of the
outstanding notes have not given the Trustee a direction
inconsistent with such request within such
60-day period. |
Subject to certain restrictions, the Holders of a majority in
principal amount of the outstanding notes are given the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or of exercising any
trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly
prejudicial to the rights of any other Holder of a note or that
would involve the Trustee in personal liability.
If a Default occurs, is continuing and is known to the Trustee,
the Trustee must mail to each Holder of the notes notice of the
Default within 90 days after it occurs. Except in the case
of a Default in the payment of principal of or interest on any
note, the Trustee may withhold notice if and so long as a
committee of its Trust Officers in good faith determines
that withholding notice is not opposed to the interest of the
holders of the notes. In addition, we are required to deliver to
the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know
of any Default that occurred during the previous year. We are
required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action we are
taking or propose to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with
the consent of the Holders of a majority in principal amount of
the notes then outstanding (including consents obtained in
connection with a tender offer or exchange for the notes) and
any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in
principal amount of the notes then outstanding. However, without
the consent of each holder of an outstanding note affected
thereby, an amendment or waiver may not, among other things:
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(1) reduce the amount of notes whose Holders must consent
to an amendment; |
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(2) reduce the rate of or extend the time for payment of
interest on any note; |
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(3) reduce the principal of or change the Stated Maturity
of any note; |
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(4) reduce the amount payable upon the redemption of any
note or change the time at which any note may be redeemed as
described under Optional Redemption
above; |
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(5) make any note payable in money other than that stated
in the note; |
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(6) impair the right of any Holder of the notes to receive
payment of principal of and interest on such holders notes
on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such
Holders notes; |
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(7) make any change in, the amendment provisions which
require each Holders consent or in the waiver provisions; |
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(8) make any change in the ranking or priority of any note
that would adversely affect the Noteholders; or |
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(9) other than in accordance with the Indenture, make any
change in or release any Subsidiary Guarantee that would
adversely affect the Noteholders. |
Notwithstanding the preceding, without the consent of any Holder
of the notes, the Company, the Subsidiary Guarantors and Trustee
may amend the Indenture:
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(1) to cure any ambiguity, omission, defect or
inconsistency; |
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(2) to provide for the assumption by a successor
corporation of the obligations of the Company, or any Subsidiary
Guarantor under the Indenture; |
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(3) to provide for uncertificated notes in addition to or
in place of certificated notes (provided that the uncertificated
notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the
uncertificated notes are described in Section 163(f)(2)(B)
of the Code); |
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(4) to add Guarantees with respect to the notes, including
any Subsidiary Guarantees, or to secure the notes; |
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(5) to add to the covenants of the Company or a Subsidiary
Guarantor for the benefit of the holders of the notes or to
surrender any right or power conferred upon the Company or a
Subsidiary Guarantor; |
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(6) to make any change that does not adversely affect the
rights of any Holder of the notes; |
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(7) to comply with any requirement of the SEC in connection
with the qualification of the Indenture under the Trust
Indenture Act; or |
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(8) to make any amendment to the provisions of the
Indenture relating to the transfer and legending of notes;
provided, however, that (a) compliance with
the Indenture as so amended would not result in notes being
transferred in violation of the Securities Act or any other
applicable securities law and (b) such amendment does not
materially and adversely affect the rights of Holders to
transfer notes. |
The consent of the holders of the notes is not necessary under
the Indenture to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the
substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are
required to mail to holders of the notes a notice briefly
describing such amendment. However, the failure to give such
notice to all Holders of the notes, or any defect therein, will
not impair or affect the validity of the amendment.
Neither the Company nor any Affiliate of the Company may,
directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to
any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or
the notes unless such consideration is offered to all Holders
and is paid to all Holders that so consent, waive or agree to
amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
Transfer
The notes will be issued in registered form and will be
transferable only upon the surrender of the notes being
transferred for registration of transfer. We may require payment
of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers
and exchanges.
Satisfaction and Discharge
When we (1) deliver to the Trustee all outstanding notes
for cancelation or (2) all outstanding notes have become
due and payable, whether at maturity or on a redemption date as
a result of the mailing of notice of redemption, and, in the
case of clause (2), we irrevocably deposit with the Trustee
funds sufficient to pay at maturity or upon redemption all
outstanding notes, including interest thereon to maturity or
such redemption date, and if in either case we pay all other
sums payable under the Indenture by us, then the Indenture
shall, subject to certain exceptions, cease to be of further
effect.
Defeasance
At any time, we may terminate all our obligations under the
notes and the Indenture (legal defeasance), except
for certain obligations, including those respecting the
defeasance trust and obligations to
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register the transfer or exchange of the notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the notes.
In addition, at any time we may terminate our obligations under
Change of Control and under the
covenants described under Certain
Covenants (other than the covenant described under
Merger and Consolidation), the operation
of the cross acceleration provision, the bankruptcy provisions
with respect to Subsidiary Guarantors and Significant
Subsidiaries and the judgment default provision described under
Defaults above and the limitations
contained in clause (3) of the first paragraph under
Certain Covenants Merger and
Consolidation above (covenant defeasance).
We may exercise our legal defeasance option notwithstanding our
prior exercise of our covenant defeasance option. If we exercise
our legal defeasance option, payment of the notes may not be
accelerated because of an Event of Default with respect thereto.
If we exercise our covenant defeasance option, payment of the
notes may not be accelerated because of an Event of Default
specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries and Subsidiary Guarantors) or
(8) under Defaults above or because
of the failure of the Company to comply with clause (3) of
the first paragraph under Certain
Covenants Merger and Consolidation above. If
we exercise our legal defeasance option or our covenant
defeasance option, each Subsidiary Guarantor will be released
from all of its obligations with respect to the its Subsidiary
Guarantee.
In order to exercise either of our defeasance options, we must
irrevocably deposit in trust (the defeasance trust)
with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the notes to redemption
or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the notes will
not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be
subject to Federal income tax on the same amounts and in the
same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred (and, in the case
of legal defeasance only, such Opinion of Counsel must be based
on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
Concerning the Trustee
SunTrust Bank is to be the Trustee under the Indenture. We have
appointed SunTrust Bank as Registrar and Paying Agent with
regard to the notes. SunTrust Bank is an affiliate of SunTrust
Capital Markets, Inc., one of the Initial Purchasers.
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires
any conflicting interest it must either eliminate such conflict
within 90 days, apply to the SEC for permission to continue
or resign.
The Holders of a majority in principal amount of the outstanding
notes will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available
to the Trustee, subject to certain exceptions. If an Event of
Default occurs (and is not cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request
of any Holder of notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against
any loss, liability or expense and then only to the extent
required by the terms of the Indenture.
No Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder of
the Company or any Subsidiary Guarantor will have any liability
for any obligations of the Company or any Subsidiary Guarantor
under the notes, any Subsidiary Guarantee or the Indenture or
for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Holder of the notes by
accepting a note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of
the notes. Such waiver and
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release may not be effective to waive liabilities under the
U.S. Federal securities laws, and it is the view of the SEC
that such a waiver is against public policy.
Governing Law
The Indenture and the notes will be governed by, and construed
in accordance with, the laws of the State of New York.
Certain Definitions
Additional Assets means:
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(1) any property, plant or equipment used in a Related
Business; |
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(2) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock
by the Company or another Restricted Subsidiary; or |
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(3) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary; |
provided, however, that any such Restricted
Subsidiary described in clause (2) or (3) above is
primarily engaged in a Related Business.
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 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, lease,
transfer or other disposition (or series of related sales,
leases, transfers or dispositions) by the Company or any
Restricted Subsidiary, including any disposition by means of a
merger, consolidation or similar transaction (each referred to
for the purposes of this definition as a
disposition), of:
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(1) any shares of Capital Stock of a Restricted Subsidiary
(other than directors qualifying shares or shares required
by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary), |
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(2) all or substantially all the assets of any division or
line of business of the Company or any Restricted
Subsidiary, or |
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(3) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the
Company or such Restricted Subsidiary; |
provided, however, that the following shall not
constitute an Asset Disposition:
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(A) a disposition by a Restricted Subsidiary to the Company
or by the Company or a Restricted Subsidiary to a Restricted
Subsidiary; |
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(B) for purposes of the covenant described under
Certain Covenants Limitation on
Sales of Assets and Subsidiary Stock only, (i) a
disposition that constitutes a Restricted Payment (or would
constitute a Restricted Payment but for the exclusions from the
definition thereof) and that is not prohibited by the covenant
described under Certain Covenants
Limitation on Restricted Payments and (ii) a
disposition of all or substantially all the assets of the
Company in accordance with the covenant described under
Certain Covenants Merger and
Consolidation; |
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(C) a disposition of assets with a fair market value of
less than $2.5 million; |
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(D) a disposition of cash or Temporary Cash Investments; |
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(E) dispositions (including without limitation surrenders
and waivers) of accounts receivable or other contract rights in
connection with the compromise, settlement or collection thereof; |
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(F) any sale or disposition of any property or equipment
that has become damaged, worn out or obsolete or pursuant to a
program for the maintenance or upgrading of such property or
equipment; |
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(G) the creation of a Lien (but not the sale or other
disposition of the property subject to such Lien); and |
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(H) any disposition of assets that constitutes a Change of
Control to the extent the Company has complied with the
provisions under Change of Control. |
Attributable Debt in respect of a Sale/
Leaseback Transaction means, as at the time of determination,
the present value (discounted at the interest rate borne by the
notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the
lease included in such Sale/ Leaseback Transaction (including
any period for which such lease has been extended);
provided, however, that if such Sale/ Leaseback
Transaction results in a Capital Lease Obligation, the amount of
Indebtedness represented thereby will be determined in
accordance with the definition of Capital Lease
Obligation.
Average Life means, as of the date of
determination, with respect to any Indebtedness, the quotient
obtained by dividing:
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(1) the sum of the products of the numbers of years from
the date of determination to the dates of each successive
scheduled principal payment of or redemption or similar payment
with respect to such Indebtedness multiplied by the amount of
such payment by |
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(2) the sum of all such payments. |
Board of Directors means the Board of
Directors of the Company or any committee thereof duly
authorized to act on behalf of such Board.
Business Day means each day which is not a
Legal Holiday.
Capital Lease Obligation means an obligation
that is required to be classified and accounted for as a capital
lease 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 GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
For purposes of the covenant described under
Certain Covenants Limitation on
Liens, a Capital Lease Obligation will be deemed to be
secured by a Lien on the property being leased.
Capital Stock of any Person means any and all
shares, interests (including partnership interests), rights to
purchase, warrants, options, participations or other equivalents
of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities
convertible into such equity.
Chillicothe Acquisition means the
Companys acquisition of certain assets located in Ohio
from NewPage Corporation pursuant to the terms of an Asset
Purchase Agreement dated February 21, 2006.
Code means the Internal Revenue Code of 1986,
as amended.
Commodity Agreement means any commodity
forward contract, commodities futures contract, commodity swaps,
commodity option or other similar agreement or arrangement.
Consolidated Coverage Ratio as of any date of
determination means the ratio of (a) the aggregate amount
of EBITDA for the period of the most recent four consecutive
fiscal quarters ending at least 45 days prior to the date
of such determination to (b) Consolidated Interest Expense
for such four fiscal quarters; provided, however,
that:
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(1) if the Company or any Restricted Subsidiary has
Incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the
first day of such period; |
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(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness
since the beginning of such period or if any Indebtedness is to
be repaid, repurchased, defeased or otherwise discharged (in
each case other than Indebtedness Incurred under any revolving
credit facility unless such Indebtedness has been permanently
repaid and has not been |
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replaced) on the date of the transaction giving rise to the need
to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be
calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if the Company
or such Restricted Subsidiary had not earned the interest income
actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness; |
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(3) if since the beginning of such period the Company or
any Restricted Subsidiary shall have made any Asset Disposition,
EBITDA for such period shall be reduced by an amount equal to
EBITDA (if positive) directly attributable to the assets which
are the subject of such Asset Disposition for such period, or
increased by an amount equal to EBITDA (if negative), directly
attributable thereto for such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to
the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after
such sale); |
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(4) if since the beginning of such period the Company or
any Restricted Subsidiary (by merger or otherwise) shall have
made an Investment in any Restricted Subsidiary (or any Person
which becomes a Restricted Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all of an
operating unit of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro
forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition had occurred
on the first day of such period; and |
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(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with
or into the Company or any Restricted Subsidiary since the
beginning of such period) shall have made any Asset Disposition,
any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto
as if such Asset Disposition, Investment or acquisition had
occurred on the first day of such period. |
For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the
amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
If any Indebtedness is incurred under a revolving credit
facility and is being given pro forma effect, the
interest on such Indebtedness shall be calculated based on the
average daily balance of such Indebtedness for the four fiscal
quarters subject to the pro forma calculation to the
extent that such Indebtedness was incurred solely for working
capital purposes.
Consolidated Current Liabilities as of the
date of determination means the aggregate amount of liabilities
of the Company and its consolidated Restricted Subsidiaries
which may properly be classified as current liabilities
(including taxes accrued as estimated), on a consolidated basis,
after eliminating:
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(1) all intercompany items between the Company and any
Restricted Subsidiary; and |
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(2) all current maturities of long-term Indebtedness, all
as determined in accordance with GAAP consistently applied. |
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Consolidated Interest Expense means, for any
period, the total interest expense of the Company and its
consolidated Restricted Subsidiaries, plus, to the extent not
included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without
duplication:
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(1) interest expense attributable to Capital Lease
Obligations; |
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(2) amortization of debt discount and debt issuance cost; |
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(3) capitalized interest; |
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(4) non-cash interest expense; |
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(5) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers acceptance
financing; |
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(6) net payments pursuant to Hedging Obligations; |
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(7) dividends accrued in respect of all Disqualified Stock
of the Company and all Preferred Stock of any Restricted
Subsidiary, in each case held by Persons other than the Company
or a Wholly Owned Subsidiary (other than dividends payable
solely in Capital Stock (other than Disqualified Stock) of the
Company); provided, however, that such dividends
will be multiplied by a fraction the numerator of which is one
and the denominator of which is one minus the effective combined
tax rate of the issuer of such Preferred Stock (expressed as a
decimal) for such period (as estimated by the chief financial
officer of the Company in good faith); |
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(8) interest incurred in connection with Investments in
discontinued operations; |
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(9) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or
secured by the assets of) the Company or any Restricted
Subsidiary; and |
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(10) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used
by such plan or trust to pay interest or fees to any Person
(other than the Company) in connection with Indebtedness
Incurred by such plan or trust. |
Consolidated Net Income means, for any
period, the net income of the Company and its consolidated
Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
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(1) any net income of any Person (other than the Company)
if such Person is not a Restricted Subsidiary, except that: |
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(A) subject to the exclusion contained in clause (4)
below, the Companys equity in the net income of any such
Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or
a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid
to a Restricted Subsidiary, to the limitations contained in
clause (3) below); and |
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(B) the Companys equity in a net loss of any such
Person for such period shall be included in determining such
Consolidated Net Income; |
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(2) any net income (or loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction
(or any transaction accounted for in a manner similar to a
pooling of interests) for any period prior to the date of such
acquisition; |
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(3) any net income of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that: |
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(A) subject to the exclusion contained in clause (4)
below, the Companys equity in the net income of any such
Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause); and |
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(B) the Companys equity in a net loss of any such
Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; |
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(4) any gain (or loss) realized upon the sale or other
disposition of any assets of the Company, its consolidated
Subsidiaries or any other Person (including pursuant to any
sale-and-leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (or
loss) realized upon the sale or other disposition of any Capital
Stock of any Person; |
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(5) extraordinary gains or losses; and |
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(6) the cumulative effect of a change in accounting
principles, |
in each case, for such period. Notwithstanding the foregoing,
for the purposes of the covenant described under
Certain Covenants Limitation on
Restricted Payments only, there shall be excluded from
Consolidated Net Income any repurchases, repayments or
redemptions of Investments, proceeds realized on the sale of
Investments or return of capital to the Company or a Restricted
Subsidiary to the extent such repurchases, repayments,
redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to
clause (a)(3)(D) thereof.
Consolidated Net Tangible Assets as of any
date of determination, means the total amount of assets (less
accumulated depreciation and amortization, allowances for
doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated
balance sheet of the Company and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance
with GAAP, and after giving effect to purchase accounting and
after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of:
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(1) minority interests in consolidated Subsidiaries held by
Persons other than the Company or a Restricted Subsidiary; |
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(2) excess of cost over fair value of assets of businesses
acquired, as determined in good faith by the Board of Directors; |
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(3) any revaluation or other
write-up in book value
of assets subsequent to the Issue Date as a result of a change
in the method of valuation in accordance with GAAP consistently
applied; |
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(4) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, licenses, organization
or developmental expenses and other intangible items; |
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(5) treasury stock; |
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(6) cash set apart and held in a sinking or other analogous
fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not
reflected in Consolidated Current Liabilities; and |
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(7) Investments in and assets of Unrestricted Subsidiaries. |
Credit Agreement means the Credit Agreement
entered into by and among, the Company, certain of its
Subsidiaries, the lenders from time to time a party thereto, PNC
Bank, National Association, as Agent, and Credit Suisse
Securities (USA) LLC, as Syndication Agent, together with
the related documents thereto (including the term loans and
revolving loans thereunder, any guarantees and security
documents), as amended, extended, renewed, restated,
supplemented, refunded, replaced, refinanced or otherwise
modified (in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from
time to time by one or more credit facilities, and any agreement
(and related document) entered into in substitution for any
credit agreement, in which case, the credit agreement or similar
agreement together with all other documents and instruments
related thereto shall constitute the Credit
Agreement, whether with the same or any other agent,
lender or group of lenders.
Credit Facilities means one or more debt
facilities (including the Credit Agreement (and any hedging
arrangements with the lenders thereunder or Affiliates of such
lenders, secured by the collateral securing the Companys
Obligations under the Credit Agreement, if any), commercial
paper facilities, fiscal agency agreements or indentures, in
each case with banks or other institutional lenders or a
trustee, providing for
65
revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders
against such receivables), letters of credit or issuance of
notes, bonds, debentures or other evidences of Indebtedness, in
each case as amended, extended, renewed, restated, supplemented,
refunded, replaced, refinanced or otherwise modified (in whole
or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions) from time to time by
one or more of such facilities or forms of Indebtedness.
Currency Agreement means in any foreign
exchange contract, currency swap agreement or other similar
agreement with respect to currency values.
Default means any event which is, or after
notice or passage of time or both would be, an Event of Default.
Disqualified Stock means, with respect to any
Person, any Capital Stock which by its terms (or by the terms of
any security into which it is convertible or for which it is
exchangeable at the option of the holder) or upon the happening
of any event:
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(1) matures or is mandatorily redeemable (other than
redeemable only for Capital Stock of such Person which is not
itself Disqualified Stock) pursuant to a sinking fund obligation
or otherwise; |
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(2) is convertible or exchangeable at the option of the
holder for Indebtedness or Disqualified Stock; or |
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(3) is mandatorily redeemable or must be purchased upon the
occurrence of certain events or otherwise, in whole or in part; |
in each case on or prior to the first anniversary of the Stated
Maturity of the notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to
require such Person to purchase or redeem such Capital Stock
upon the occurrence of an asset sale or change
of control occurring prior to the first anniversary of the
Stated Maturity of the notes shall not constitute Disqualified
Stock if:
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(i) the asset sale or change of
control provisions applicable to such Capital Stock are
not more favorable to the holders of such Capital Stock than the
terms applicable to the notes and described under
Certain Covenants Limitation on
Sales of Assets and Subsidiary Stock and
Certain Covenants Change of
Control; and |
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(ii) any such requirement only becomes operative after
compliance with such terms applicable to the notes, including
the purchase of any notes tendered pursuant thereto. |
The amount of any Disqualified Stock that does not have a fixed
redemption, repayment or repurchase price will be calculated in
accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were redeemed, repaid or repurchased on any
date on which the amount of such Disqualified Stock is to be
determined pursuant to the Indenture; provided,
however, that if such Disqualified Stock could not be
required to be redeemed, repaid or repurchased at the time of
such determination, the redemption, repayment or repurchase
price will be the book value of such Disqualified Stock as
reflected in the most recent financial statements of such Person.
Domestic Restricted Subsidiary means any
Restricted Subsidiary that is not a Foreign Subsidiary.
EBITDA for any period means the sum of
Consolidated Net Income, plus the following to the extent
deducted in calculating such Consolidated Net Income:
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(1) all income tax expense of the Company and its
consolidated Restricted Subsidiaries; |
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(2) Consolidated Interest Expense; |
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(3) depreciation and amortization expense of the Company
and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid item that was
paid in cash in a prior period); |
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(4) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such
non-cash charge to the extent that it represents an accrual of
or reserve for cash |
66
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expenditures in any future period) less all non-cash items of
income of the Company and its consolidated Restricted
Subsidiaries (other than accruals of revenue by the Company and
its consolidated Restricted Subsidiaries in the ordinary course
of business); and |
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(5) to the extent not included in clauses (1) through
(4) above, Permitted EBITDA Add-Backs; |
in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the
depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same
proportion, including by reason of minority interests) that the
net income or loss of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without
prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
Equity Offering means any public or private
sale after the Issue Date of common stock of the Company, other
than public offerings with respect to the Companys common
stock registered on
Form S-8.
Exchange Act means the U.S. Securities
Exchange Act of 1934, as amended.
Exchange Notes means the debt securities of
the Company issued pursuant to the Indenture in exchange for,
and in an aggregate principal amount equal to, the notes, in
compliance with the terms of the Registration Rights Agreement.
Foreign Subsidiary means any Restricted
Subsidiary of the Company that is not organized under the laws
of the United States of America or any State thereof or the
District of Columbia.
GAAP means generally accepted accounting
principles in the United States of America as in effect from
time to time, including those set forth in:
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(1) the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants; |
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(2) statements and pronouncements of the Financial
Accounting Standards Board; |
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(3) such other statements by such other entity as approved
by a significant segment of the accounting profession; and |
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(4) the rules and regulations of the SEC governing the
inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be
filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. |
Guarantee means any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness of any Person and any obligation, direct or
indirect, contingent or otherwise, of such Person:
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(1) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness of such Person
(whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities
or services, to take-or-pay or to maintain financial statement
conditions or otherwise); or |
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(2) entered into for the purpose of assuring in any other
manner the obligee of such Indebtedness of the payment thereof
or to protect such obligee against loss in respect thereof (in
whole or in part); |
provided, however, that the term
Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The
term Guarantee used as a verb has a corresponding
meaning.
Guarantee Agreement means a supplemental
indenture, in a form reasonably satisfactory to the Trustee,
pursuant to which a Subsidiary Guarantor guarantees the
Companys obligations with respect to the notes on the
terms provided for in the Indenture.
67
Hedging Obligations of any Person means the
obligations of such Person pursuant to any Interest Rate
Agreement, Currency Agreement or Commodity Agreement.
Holder or Noteholder means
the Person in whose name a note is registered on the
Registrars books.
Incur means issue, assume, Guarantee, incur
or otherwise become liable for; provided, however,
that any Indebtedness of a Person existing at the time such
Person becomes a Restricted Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Person at the time it becomes a Restricted
Subsidiary. The term Incurrence when used as a noun
shall have a correlative meaning. Solely for purposes of
determining compliance with Certain
Covenants Limitation on Indebtedness:
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(1) amortization of debt discount or the accretion of
principal with respect to a non-interest bearing or other
discount security; |
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(2) the payment of regularly scheduled interest in the form
of additional Indebtedness of the same instrument or the payment
of regularly scheduled dividends on Capital Stock in the form of
additional Capital Stock of the same class and with the same
terms; and |
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(3) the obligation to pay a premium in respect of
Indebtedness arising in connection with the issuance of a notice
of redemption or making of a mandatory offer to purchase such
Indebtedness |
will not be deemed to be the Incurrence of Indebtedness.
Indebtedness means, with respect to any
Person on any date of determination (without duplication):
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(1) the principal in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible
or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and
payable; |
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(2) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/ Leaseback Transactions
entered into by such Person; |
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(3) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding any accounts
payable or other liability to trade creditors arising in the
ordinary course of business); |
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(4) all obligations of such Person for the reimbursement of
any obligor on any letter of credit, bankers acceptance or
similar credit transaction (other than obligations with respect
to letters of credit securing obligations (other than
obligations described in clauses (1) through
(3) above) entered into in the ordinary course of business
of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following
payment on the letter of credit); |
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(5) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any
Disqualified Stock of such Person or, with respect to any
Preferred Stock of any Subsidiary of such Person, the principal
amount of such Preferred Stock to be determined in accordance
with the Indenture (but excluding, in each case, any accrued
dividends); |
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(6) all obligations of the type referred to in
clauses (1) through (5) of other Persons and all
dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by
means of any Guarantee; |
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(7) all obligations of the type referred to in
clauses (1) through (6) of other Persons secured by
any Lien on any property or asset of such Person (whether or not
such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the fair market
value of such property or assets and the amount of the
obligation so secured; and |
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(8) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. |
68
Notwithstanding the foregoing, in connection with the purchase
by the Company or any Restricted Subsidiary of any business, the
term Indebtedness will exclude post-closing payment
adjustments to which the seller may become entitled to the
extent such payment is determined by a final closing balance
sheet or such payment depends on the performance of such
business after the closing; provided, however,
that, at the time of closing, the amount of any such payment is
not determinable and, to the extent such payment thereafter
becomes fixed and determined, the amount is paid within
30 days thereafter.
The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all obligations as
described above; provided, however, that in the
case of Indebtedness sold at a discount, the amount of such
Indebtedness at any time will be the accreted value thereof at
such time.
Independent Qualified Party means an
investment banking firm, accounting firm or appraisal firm of
national standing; provided, however, that such
firm is not an Affiliate of the Company.
Initial Purchasers means Credit Suisse
Securities (USA) LLC, ABN AMRO Incorporated, PNC Capital Markets
LLC and SunTrust Capital Markets, Inc.
Interest Rate Agreement means any interest
rate swap agreement, interest rate cap agreement or other
financial agreement or arrangement with respect to exposure to
interest rates.
Investment in any Person means any direct or
indirect advance, loan (other than advances to customers in the
ordinary course of business that are recorded as accounts
receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. If the Company or any
Restricted Subsidiary issues, sells or otherwise disposes of any
Capital Stock of a Person that is a Restricted Subsidiary such
that, after giving effect thereto, such Person is no longer a
Restricted Subsidiary, any Investment by the Company or any
Restricted Subsidiary in such Person remaining after giving
effect thereto will be deemed to be a new Investment at such
time. The acquisition by the Company or any Restricted
Subsidiary of a Person that holds an Investment in a third
Person will be deemed to be an Investment by the Company or such
Restricted Subsidiary in such third Person at such time. Except
as otherwise provided for herein, the amount of an Investment
shall be its fair market value at the time the Investment is
made and without giving effect to subsequent changes in value.
For purposes of the definition of Unrestricted
Subsidiary, the definition of Restricted
Payment and the covenant described under
Certain Covenants Limitation on
Restricted Payments:
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(1) Investment shall include the portion
(proportionate to the Companys equity interest in such
Subsidiary) of the fair market value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as
a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent Investment in an Unrestricted
Subsidiary equal to an amount (if positive) equal to
(A) the Companys Investment in such
Subsidiary at the time of such redesignation less (B) the
portion (proportionate to the Companys equity interest in
such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and |
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(2) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined in good faith by
the Board of Directors. |
Investment Grade Rating means a rating equal
to or higher than Baa3 (or equivalent) by Moodys and
BBB (or the equivalent) by Standard and Poors, or an
equivalent rating by any other Rating Agency.
Issue Date means the date on which the
unregistered notes were originally issued.
Legal Holiday means a Saturday, a Sunday or a
day on which banking institutions are not required to be open in
the State of New York.
Lien means any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any
conditional sale or other title retention agreement or lease in
the nature thereof).
69
Moodys means Moodys Investors
Service, Inc. and any successor to its rating agency business.
Net Available Cash from an Asset Disposition
means cash payments received therefrom (including any cash
payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and
proceeds from the sale or other disposition of any securities
received as consideration, but only as and when received, but
excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in
any other non-cash form), in each case net of:
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(1) all legal, title and recording 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 GAAP, as a consequence of such
Asset Disposition; |
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(2) all payments made on any Indebtedness which is secured
by any assets subject to such Asset Disposition, in accordance
with the terms of any Lien upon or other security agreement of
any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds
from such Asset Disposition; |
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(3) all distributions and other payments required to be
made to minority interest holders in Restricted Subsidiaries as
a result of such Asset Disposition; |
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(4) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company
or any Restricted Subsidiary after such Asset
Disposition; and |
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(5) any portion of the purchase price from an Asset
Disposition placed in escrow, whether as a reserve for
adjustment of the purchase price, for satisfaction of
indemnities in respect of such Asset Disposition or otherwise in
connection with that Asset Disposition; provided,
however, that upon the termination of that escrow, Net
Available Cash will be increased by any portion of funds in the
escrow that are released to the Company or any Restricted
Subsidiary. |
Net Cash Proceeds, with respect to any
issuance or sale of Capital Stock or Indebtedness, means the
cash proceeds of such issuance or sale net of attorneys
fees, accountants fees, underwriters or placement
agents fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a
result thereof.
Obligations means, with respect to any
Indebtedness, all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, and other
amounts payable pursuant to the documentation governing such
Indebtedness.
Officer means the Chairman of the Board, the
President, any Vice President, the Treasurer or the Secretary of
the Company.
Officers Certificate means a
certificate signed by two Officers.
Opinion of Counsel means a written opinion
from legal counsel who is acceptable to the Trustee. The counsel
may be an employee of or counsel to the Company or the Trustee.
Permitted EBITDA Add-Backs means the
following cash or non-cash charges incurred after
January 1, 2006 and before March 31, 2007 which are
deducted in the computation of the net income of the Company and
its consolidated Subsidiaries and which the Company may add back
to such net income in its computation of EBITDA (as provided in
the definition of such term), with appropriate adjustments for
the tax effects of such add-backs and subject to the proviso
below: charges related to the shut-down of the Companys
Neenah, Wisconsin, production facility, the transfer of
production from such facility to assets acquired in the
Chillicothe Acquisition, and the integration costs for the
Chillicothe Acquisition; provided, however, that
(1) the total amount of such charges which may be so added
back to net income may not exceed $80.0 million, and
(2) the total amount of such cash charges which may be so
added back to net income may not exceed $40.0 million.
70
Permitted Investment means an Investment by
the Company or any Restricted Subsidiary in:
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(1) the Company, a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary
business of such Restricted Subsidiary is a Related Business; |
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(2) another Person if, as a result of such Investment, such
other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided,
however, that such Persons primary business is a
Related Business; |
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(3) cash and Temporary Cash Investments; |
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(4) receivables owing to the Company or any Restricted
Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with
customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as
the Company or any such Restricted Subsidiary deems reasonable
under the circumstances; |
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(5) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in
the ordinary course of business; |
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(6) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company
or such Restricted Subsidiary; |
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(7) stock, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to
the Company or any Restricted Subsidiary or in satisfaction of
judgments; |
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(8) any Person to the extent such Investment represents the
non-cash portion of the consideration received for (A) an
Asset Disposition as permitted pursuant to the covenant
described under Certain Covenants
Limitation on Sales of Assets and Subsidiary Stock or
(B) a disposition of assets not constituting an Asset
Disposition; |
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(9) any Person where such Investment was acquired by the
Company or any of its Restricted Subsidiaries (A) in
exchange for any other Investment or accounts receivable held by
the Company or any such Restricted Subsidiary in connection with
or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or
accounts receivable or (B) as a result of a foreclosure by
the Company or any of its Restricted Subsidiaries with respect
to any secured Investment or other transfer of title with
respect to any secured Investment in default; |
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(10) any Person to the extent such Investments consist of
prepaid expenses, negotiable instruments held for collection and
lease, utility and workers compensation, performance and
other similar deposits made in the ordinary course of business
by the Company or any Restricted Subsidiary; |
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(11) any Person to the extent such Investments consist of
Hedging Obligations otherwise permitted under the covenant
described under Certain Covenants
Limitation on Indebtedness; |
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(12) any Person to the extent such Investment exists on the
Issue Date, and any extension, modification or renewal of any
such Investments existing on the Issue Date, but only to the
extent not involving additional advances, contributions or other
Investments of cash or other assets or other increases thereof
(other than as a result of the accrual or accretion of interest
or original issue discount or the issuance of
pay-in-kind securities,
in each case, pursuant to the terms of such Investment as in
effect on the Issue Date; |
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(13) Investments in Permitted Joint Ventures, when taken
together with all other Investments made pursuant to this
clause (13), do not exceed $35.0 million; |
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(14) obligations of one or more officers, directors or
employees of the Company or any of its Restricted Subsidiaries
in connection with such individuals acquisition of shares
of Capital Stock of the Company (and refinancings of the
principal thereof and accrued interest thereon) so long as no
net cash or other assets of the Company and its Restricted
Subsidiaries are paid by the Company or any of its Restricted
Subsidiaries to such individuals in connection with the
acquisition of any such obligations; |
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(15) Investments in prepaid expenses, negotiable
instruments held for collection or deposit and lease, utility
and workers compensation, performance and similar deposits
entered into as a result of the operations of the business in
the ordinary course of business; and |
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(16) Persons to the extent such Investments, when taken
together with all other Investments made pursuant to this
clause (16) and outstanding on the date such
Investment is made, do not exceed the greater of
(i) $35 million and (ii) 3.0% of Consolidated Net
Tangible Assets. |
Permitted Joint Venture means any joint
venture in which the Company or any Subsidiary thereof holds an
equity interest and that is engaged in a Related Business.
Permitted Liens means, with respect to any
Person:
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(1) pledges or deposits by such Person under workers
compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness)
or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of
cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment
of rent, in each case Incurred in the ordinary course of
business; |
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(2) Liens imposed by law, such as carriers,
warehousemens and mechanics Liens, in each case for
sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then
be proceeding with an appeal or other proceedings for review and
Liens arising solely by virtue of any statutory or common law
provision relating to bankers Liens, rights of set-off or
similar rights and remedies as to deposit accounts or other
funds maintained with a creditor depository institution;
provided, however, that (A) such deposit
account is not a dedicated cash collateral account and is not
subject to restrictions against access by the Company in excess
of those set forth by regulations promulgated by the Federal
Reserve Board and (B) such deposit account is not intended
by the Company or any Restricted Subsidiary to provide
collateral to the depository institution; |
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(3) Liens for taxes, assessments or governmental charges
not yet subject to penalties for non-payment or which are being
contested in good faith by appropriate proceedings; |
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(4) Liens in favor of issuers of surety bonds or letters of
credit issued pursuant to the request of and for the account of
such Person in the ordinary course of its business;
provided, however, that such letters of credit do
not constitute Indebtedness; |
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(5) minor survey exceptions, minor encumbrances, easements
or reservations of, or rights of others for, licenses,
rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real
property or Liens incidental to the conduct of the business of
such Person or to the ownership of its properties which were not
Incurred in connection with Indebtedness and which do not in the
aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of
the business of such Person; |
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(6) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or
additions to, property, plant or equipment of such Person;
provided, however, that the Lien may not extend to
any other property owned by such Person or any of its Restricted
Subsidiaries at the time the Lien is Incurred (other than assets
and property affixed or appurtenant thereto), and the
Indebtedness (other than any interest thereon) secured by the
Lien may not be Incurred more than 180 days after the later
of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the
property subject to the Lien; |
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(7) Liens to secure Indebtedness permitted under the
provisions described in clause (b)(1) under
Certain Covenants Limitation on
Indebtedness (including, during any Suspension Period,
Indebtedness of the type and in the amounts specified under such
clause); |
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(8) Liens existing on the Issue Date; |
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(9) Liens on property or shares of Capital Stock of another
Person at the time such other Person becomes a Subsidiary of
such Person; provided, however, that the Liens may
not extend to any other |
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property owned by such Person or any of its Restricted
Subsidiaries (other than assets and property affixed or
appurtenant thereto); |
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(10) Liens on property at the time such Person or any of
its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into
such Person or a Subsidiary of such Person; provided,
however, that the Liens may not extend to any other
property owned by such Person or any of its Restricted
Subsidiaries (other than assets and property affixed or
appurtenant thereto); |
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(11) Liens securing Indebtedness or other obligations of a
Subsidiary of such Person owing to such Person or a Restricted
Subsidiary of such Person; |
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(12) Liens securing Hedging Obligations so long as such
Hedging Obligations are permitted to be Incurred under the
Indenture; |
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(13) Liens to secure Indebtedness permitted under the
provisions described in clause (b)(11) under
Certain Covenants Limitation on
Indebtedness (including, during any Suspension Period,
Indebtedness of the type and in the amounts specified under such
clause); provided, however, such Liens are limited
to the assets that are the subject of such Indebtedness and the
proceeds thereof; |
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(14) Liens in favor of the Company or any Subsidiary
Guarantor; and |
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(15) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Indebtedness
secured by any Lien referred to in the foregoing
clause (6), (8), (9, (10) or (13); provided,
however, that: |
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(A) such new Lien shall be limited to all or part of the
same property and assets that secured or, under the written
agreements pursuant to which the original Lien arose, could
secure the original Lien (plus improvements and accessions to,
such property or proceeds or distributions thereof); and |
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(B) the Indebtedness secured by such Lien at such time is
not increased to any amount greater than the sum of (i) the
outstanding principal amount or, if greater, committed amount of
the Indebtedness described under clause (6), (8), (9),(10)
or (13) at the time the original Lien became a Permitted
Lien and (ii) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement. |
Notwithstanding the foregoing, Permitted Liens will
not include any Lien described in clause (6), (9) or
(10) above to the extent such Lien applies to any
Additional Assets acquired directly or indirectly from Net
Available Cash pursuant to the covenant described under
Certain Covenants Limitation on
Sale of Assets and Subsidiary Stock. For purposes of this
definition, the term Indebtedness shall be deemed to
include interest on such Indebtedness.
Person means any individual, corporation,
partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision
thereof or any other entity.
Pre-Approved Timberland Sale Initiative means
any initiative approved by the Board of Directors pursuant to
which the Company has identified timberland to be sold,
transferred or otherwise disposed and pursuant to which the
Board of Directors has authorized management of the Company to
effect the sale, transfer or disposal of such timberland.
Preferred Stock, as applied to the Capital
Stock of any Person, means Capital Stock of any class or classes
(however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of
such Person, over shares of Capital Stock of any other class of
such Person.
principal of a note means the principal of
the note plus the premium, if any, payable on the note which is
due or overdue or is to become due at the relevant time.
Rating Agencies means Moodys and
S&P or, if Moodys or S&P or both shall not make a
rating on the Notes publicly available, a nationally recognized
statistical rating agency or agencies, as the case may be,
73
selected by the Board of Directors, which shall be substituted
for Moodys or S&P or both, as the case may be.
Refinance means, in respect of any
Indebtedness, to refinance, extend, renew, refund, repay,
prepay, purchase, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness.
Refinanced and Refinancing shall have
correlative meanings.
Refinancing Indebtedness means Indebtedness
that Refinances any Indebtedness of the Company or any
Restricted Subsidiary existing on the Issue Date or Incurred in
compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided,
however, that:
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(1) such Refinancing Indebtedness has a Stated Maturity no
earlier than the Stated Maturity of the Indebtedness being
Refinanced; |
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(2) such Refinancing Indebtedness has an Average Life at
the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the Average Life of the Indebtedness being
Refinanced; |
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(3) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount,
an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding (plus
fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced; and |
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(4) if the Indebtedness being Refinanced is subordinated in
right of payment to the notes, such Refinancing Indebtedness is
subordinated in right of payment to the notes at least to the
same extent as the Indebtedness being Refinanced; |
provided further, however, that Refinancing
Indebtedness shall not include (A) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary
that Refinances Indebtedness of an Unrestricted Subsidiary.
Registration Rights Agreement means the
Registration Rights Agreement dated April 28, 2006, among
the Company, the Subsidiary Guarantors and the Initial
Purchasers.
Related Business means any business in which
the Company or any of the Restricted Subsidiaries was engaged on
the Issue Date and any business related, ancillary or
complementary to such business.
Restricted Payment with respect to any Person
means:
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(1) the declaration or payment of any dividends or any
other distributions of any sort in respect of its Capital Stock
(including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the
direct or indirect holders of its Capital Stock (other than
(A) dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock),
(B) dividends or distributions payable solely to the
Company or a Restricted Subsidiary and (C) pro rata
dividends or other distributions made by a Subsidiary that
is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)); |
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(2) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value of any Capital Stock
of the Company held by any Person (other than by a Restricted
Subsidiary) or of any Capital Stock of a Restricted Subsidiary
held by any Affiliate of the Company (other than by a Restricted
Subsidiary), including in connection with any merger or
consolidation and including the exercise of any option to
exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock); |
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(3) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment
of any Subordinated Obligations of the Company or any Subsidiary
Guarantor (other than (A) from the Company or a Restricted
Subsidiary or (B) the purchase, repurchase, redemption,
defeasance or other acquisition or retirement of Subordinated
Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in
each case due within one year of the date of such purchase,
repurchase, redemption, defeasance or other acquisition or
retirement); or |
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(4) the making of any Investment (other than a Permitted
Investment) in any Person. |
Restricted Subsidiary means any Subsidiary of
the Company that is not an Unrestricted Subsidiary.
Sale/ Leaseback Transaction means an
arrangement relating to property owned by the Company or a
Restricted Subsidiary on the Issue Date or thereafter acquired
by the Company or a Restricted Subsidiary whereby the Company or
a Restricted Subsidiary transfers such property to a Person and
the Company or a Restricted Subsidiary leases it from such
Person.
SEC means the U.S. Securities and
Exchange Commission.
Securities Act means the U.S. Securities
Act of 1933, as amended.
Senior Indebtedness means with respect to any
Person:
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(1) Indebtedness of such Person, whether outstanding on the
Issue Date or thereafter Incurred; and |
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(2) all other Obligations of such Person (including
interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such Person whether
or not post-filing interest is allowed in such proceeding) in
respect of Indebtedness described in clause (1) above |
unless, in the case of clauses (1) and (2), in the
instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such Indebtedness
or other Obligations are subordinate in right of payment to the
notes or the Subsidiary Guarantee of such Person, as the case
may be; provided, however, that Senior
Indebtedness shall not include:
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(i) any obligation of such Person to the Company or any
Subsidiary of the Company; |
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(ii) any liability for Federal, state, local or other taxes
owed or owing by such Person; |
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(iii) any accounts payable or other liability to trade
creditors arising in the ordinary course of business; |
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(iv) any Indebtedness or other Obligation of such Person
which is subordinate or junior in any respect to any other
Indebtedness or other Obligation of such Person; or |
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(v) that portion of any Indebtedness which at the time of
Incurrence is Incurred in violation of the Indenture. |
Significant Subsidiary means any Restricted
Subsidiary that would be a Significant Subsidiary of
the Company within the meaning of
Rule 1-02 under
Regulation S-X
promulgated by the SEC.
Standard & Poors means
Standard & Poors, a division of The McGraw-Hill
Companies, Inc., and any successor to its rating agency business.
Stated Maturity means, with respect to any
security, the date specified in such security as the fixed date
on which the final payment of principal of such security is due
and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof
upon the happening of any contingency unless such contingency
has occurred).
Subordinated Obligation means, with respect
to a Person, any Indebtedness of such Person (whether
outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the notes or a
Subsidiary Guarantee of such Person, as the case may be,
pursuant to a written agreement to that effect.
Subsidiary means, with respect to any Person,
any corporation, association, partnership or other business
entity of which more than 50% of the total voting power of
shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
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(1) such Person; |
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(2) such Person and one or more Subsidiaries of such
Person; or |
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(3) one or more Subsidiaries of such Person. |
75
Subsidiary Guarantor means each Subsidiary of
the Company that executes the Indenture as a guarantor on the
Issue Date and each other Subsidiary of the Company that
thereafter guarantees the notes pursuant to the terms of the
Indenture.
Subsidiary Guarantee means a Guarantee by a
Subsidiary Guarantor of the Companys obligations with
respect to the notes.
Temporary Cash Investments means any of the
following:
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(1) any investment in direct obligations of the United
States of America or any agency thereof or obligations
guaranteed by the United States of America or any agency thereof; |
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(2) investments in demand and time deposit accounts,
certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued
by a bank or trust company which is organized under the laws of
the United States of America, any State thereof or any foreign
country recognized by the United States of America, and which
bank or trust company has capital, surplus and undivided profits
aggregating in excess of $50.0 million (or the foreign
currency equivalent thereof) and has outstanding debt which is
rated A (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor; |
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(3) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in
clause (1) above entered into with a bank meeting the
qualifications described in clause (2) above; |
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(4) investments in commercial paper, maturing not more than
90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized
and in existence under the laws of the United States of America
or any foreign country recognized by the United States of
America with a rating at the time as of which any investment
therein is made of P-1 (or higher) according to
Moodys or
A-1 (or
higher) according to Standard and Poors; |
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(5) investments in securities with maturities of six months
or less from the date of acquisition issued or fully guaranteed
by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority
thereof, and rated at least A by Standard &
Poors or A by Moodys; and |
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(6) investments in money market funds that invest
substantially all their assets in securities of the types
described in clauses (1) through (5) above. |
Trustee means SunTrust Bank until a successor
replaces it and, thereafter, means the successor.
Trust Indenture Act means the Trust Indenture
Act of 1939
(15 U.S.C. §§ 77aaa-77bbbb)
as in effect on the Issue Date.
Trust Officer means the Chairman of the
Board, the President or any other officer or assistant officer
of the Trustee assigned by the Trustee to administer its
corporate trust matters.
Unrestricted Subsidiary means:
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(1) any Subsidiary of the Company that at the time of
determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and |
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(2) any Subsidiary of an Unrestricted Subsidiary. |
The Board of Directors may designate any Subsidiary of the
Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated;
provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the covenant
described under Certain Covenants
Limitation on Restricted Payments.
76
The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided, however,
that immediately after giving effect to such designation
(A) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described
under Certain Covenants Limitation
on Indebtedness and (B) no Default shall have
occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an
Officers Certificate certifying that such designation
complied with the foregoing provisions.
U.S. Government Obligations means direct
obligations (or certificates representing an ownership interest
in such obligations) of the United States of America (including
any agency or instrumentality thereof) for the payment of which
the full faith and credit of the United States of America is
pledged and which are not callable at the issuers option.
Voting Stock of a Person means all classes of
Capital Stock of such Person then outstanding and normally
entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees
thereof.
Wholly Owned Subsidiary means a Restricted
Subsidiary all the Capital Stock of which (other than
directors qualifying shares) is owned by the Company or
one or more other Wholly Owned Subsidiaries.
77
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United
States federal income tax consequences relevant to the exchange
offer and the purchase, ownership and disposition of the notes,
but does not purport to be a complete analysis of all potential
tax effects. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the Code), United States
Treasury Regulations issued thereunder, Internal Revenue Service
(IRS) rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at
any time. Any such change may be applied retroactively in a
manner that could adversely affect a holder of the notes. This
discussion does not address all of the United States federal
income tax consequences that may be relevant to a holder in
light of such holders particular circumstances or to
holders subject to special rules, such as certain financial
institutions, U.S. expatriates, insurance companies,
dealers in securities or currencies, traders in securities,
United States Holders (as defined below) whose
functional currency is not the U.S. dollar, partnerships
and other pass through entities, tax-exempt organizations and
persons holding the notes as part of a straddle,
hedge, conversion transaction or other
integrated transaction. Moreover, the effect of any applicable
state, local or foreign tax laws is not discussed. The
discussion deals only with notes held as capital
assets within the meaning of Section 1221 of the Code.
As used in this prospectus, United States Holder
means a beneficial owner of the notes that is for United States
federal income tax purposes:
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a citizen or resident alien individual of the United States; |
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a corporation or other entity taxable as a corporation created
or organized in or under the laws of the United States, any
State thereof or the District of Columbia; |
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an estate the income of which is subject to United States
federal income tax regardless of its source; or |
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a trust, if a United States court can exercise primary
supervision over the administration of the trust and one or more
United States persons can control all substantial trust
decisions, or if the trust was in existence on August 20,
1996 and has elected to continue to be treated as a United
States person. |
A non-United States Holder is a beneficial owner of
notes that is neither a United States Holder nor a partnership
or other entity treated as a partnership for United States
federal income tax purposes. If a holder of the notes is a
partnership or other entity treated as a partnership for United
States federal income tax purposes, the tax treatment of the
partnership and each partner in such partnership generally will
depend on the activities of the partnership and the status of
the partner. Partnerships that hold notes, and partners in such
partnerships, should consult their own tax advisors.
Prospective investors should consult their own tax advisors
with regard to the application of the tax consequences discussed
below to their particular situations as well as the application
of any state, local, foreign or other tax laws, including gift
and estate tax laws.
United States Holders
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Exchange of Unregistered Notes in the Exchange
Offer |
The exchange of the unregistered notes for exchange notes in the
exchange offer will not constitute a taxable event to United
States Holders for United States federal income tax purposes.
Consequently, a United States Holder will not recognize gain or
loss upon the exchange of an unregistered note for an exchange
note, the United States Holders adjusted tax basis in the
exchange note immediately after the exchange will be the same as
its adjusted tax basis in the corresponding unregistered note
immediately before the exchange, and the United States
Holders holding period in the exchange note will include
the holding period in the unregistered note exchanged therefore.
Payments of stated interest on the notes generally will be
taxable to a United States Holder as ordinary income at the time
that such payments are received or accrued, in accordance with
such United States Holders regular method of accounting
for United States federal income tax purposes.
78
A United States Holder who purchased one or more notes at a
market discount (generally, at a cost less than its stated
principal amount) that exceeds a statutorily defined de minimis
amount will be subject to the market discount rules
of the Code. These rules, provide, in part, that gain on the
sale or other disposition of a debt instrument is treated as
ordinary income to the extent of accrued market discount not
previously included in income. The market discount rules also
provide for the deferral of interest deductions with respect to
debt incurred to purchase or carry a note that has market
discount unless a United States Holder elects to include market
discount in its income currently.
A United States Holder who purchased one or more notes at a
premium (generally, at a cost in excess of its stated principal
amount) may elect to amortize such premium as an offset to
interest income under the premium amortization rules of the Code.
A United States Holder who purchases notes at a premium or at a
discount should consult with its independent tax advisors about
the potential application of the bond premium or market discount
rules.
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Sale or Other Taxable Disposition of the Notes |
A United States Holder will recognize gain or loss on the sale,
exchange, redemption, retirement or other taxable disposition of
a note in an amount equal to the difference between the amount
realized upon the disposition (less any portion allocable to any
accrued and unpaid interest, which will be taxable as ordinary
income to the extent not previously included in gross income)
and the United States Holders adjusted tax basis in the
note. Such gain or loss generally will be a capital gain or loss
subject to the market discount rules and will be a long-term
capital gain or loss if the United States Holder has held the
note for more than one year. A United States Holders
adjusted tax basis in a note generally will be the cost of the
note, subject to adjustment for bond premium and market discount
as required by the Code. Long-term capital gains of individuals
generally are eligible for reduced rates of United States
federal income tax. The deductibility of capital losses is
subject to limitations under the Code.
A United States Holder may be subject to backup withholding tax,
currently at a 28% rate, when such United States Holder receives
interest and principal payments on the notes, or upon the
proceeds received from the sale or other disposition of such
notes. Certain United States Holders (including, among others,
corporations and certain tax-exempt organizations) generally are
exempt from backup withholding. A non-exempt United States
Holder will be subject to this backup withholding tax if such
holder:
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fails to furnish its taxpayer identification number
(TIN), which, for an individual, ordinarily is his
or her social security number; |
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furnishes an incorrect TIN; |
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is notified by the IRS that the United States Holder has failed
to properly report payments of interest or dividends; or |
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fails to certify, under penalties of perjury, that the United
States Holder is a United States person, has furnished a correct
TIN and that the IRS has not notified the United States Holder
that it is subject to backup withholding. |
United States Holders should consult their personal tax advisors
regarding their qualification for an exemption from backup
withholding and the procedures for obtaining such an exemption,
if applicable. The backup withholding tax is not an additional
tax and United States Holders may use amounts withheld as a
refund or credit against their United States federal income tax
liability so long as the requisite information is timely
furnished to the IRS.
Non-United States Holders
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Exchange of Unregistered Notes in the Exchange
Offer |
The exchange of unregistered notes for exchange notes pursuant
to the exchange offer will not be treated as a taxable exchange
of the unregistered notes for U.S. federal income tax
purposes.
79
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Interest Payments and Gains from Dispositions |
Payments of interest on the notes generally will be exempt from
United States federal income tax and withholding tax under
the portfolio interest exemption if the
non-United States Holder properly certifies as to its
foreign status as described below, and:
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such
non-United States
Holder does not own, actually or constructively, 10% or more of
the combined voting power of all classes of our stock entitled
to vote; and |
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such non-United States Holder is not a controlled
foreign corporation that is related to us. |
The portfolio interest exemption and several of the special
rules for
non-United States
Holders described below generally apply only if such
non-United States Holders appropriately certify as to their
foreign status.
Non-United States
Holders can generally meet this certification requirement by
providing a properly executed IRS
Form W-8BEN or
appropriate substitute form to us or our paying agent certifying
under penalty of perjury that they are not UNITED STATES
persons. If a non-United States Holder holds the notes
through a financial institution or other agent acting on its
behalf, such
non-United States
Holder may be required to provide appropriate certifications to
the agent. The agent will then generally be required to provide
appropriate certifications to us or our paying agent, either
directly or through other intermediaries. Special rules apply to
foreign partnerships, estates and trusts, and in certain
circumstances certifications as to foreign status of partners,
trust owners or beneficiaries may have to be provided to us or
our paying agent. In addition, special rules apply to qualified
intermediaries that enter into withholding agreements with the
IRS.
If a non-United States Holder cannot satisfy the
requirements described above, payments of interest made to such
non-United States Holder will be subject to the 30%
United States federal withholding tax, unless such
non-United States
Holder is eligible for treaty benefits and provides us with a
properly executed IRS
Form W-8BEN (or
successor form) claiming an exemption from (or a reduction of)
withholding under the benefit of an applicable income tax
treaty, or if the payments of interest are effectively connected
with such non-United States Holders conduct of a
trade or business in the United States and such
non-United States Holder meets the certification
requirements described below. See below Income
or Gain Effectively Connected with a United States Trade or
Business.
A non-United States Holder generally will not be subject to
United States federal income tax (and generally no tax will
be withheld) on any gain realized on the sale, redemption,
exchange, retirement or other taxable disposition of a note
unless:
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the gain is effectively connected with the conduct by you of a
United States trade or business (and in the case of an
applicable income tax treaty, is attributable to your permanent
establishment in the United States); or |
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you are an individual who has been present in the
United States for 183 days or more in the taxable year
of disposition and certain other requirements are met. |
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Income or Gain Effectively Connected with a United States
Trade or Business |
If any interest on the notes or gain from the sale, redemption,
exchange, retirement or other taxable disposition of the notes
is effectively connected with a United States trade or
business conducted by a non-United States Holder (and in
the case of an applicable income tax treaty, is attributable to
such non-United States Holders permanent
establishment in the United States), then the income or
gain will be subject to United States federal income tax at
regular graduated income tax rates, but will not be subject to
withholding tax if certain certification requirements are
satisfied. A non-United States Holder can generally meet
the certification requirements by providing a properly executed
IRS Form W-8ECI or appropriate substitute form to us, or
our paying agent. If such non-United States Holder is a
corporation, the portion of its earnings and profits that is
effectively connected with its United States trade or
business (and, in the case of an applicable income tax treaty,
is attributable to its permanent establishment in the
United States) also
80
may be subject to an additional branch profits tax
at a 30% rate, although an applicable tax treaty may provide for
a lower rate.
|
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|
Backup Withholding and Information Reporting |
Backup withholding and information reporting generally will not
apply to payments made by us or our paying agents, in their
capacities as such, to a non-United States Holder of a note if
the holder has provided the required certification that it is
not a United States person as described above, provided that
neither we nor our paying agent has actual knowledge that the
holder is a United States person. Payments of the proceeds from
a disposition by a non-United States Holder of a note made to or
through a foreign office of a broker will likely not be subject
to information reporting or backup withholding, except that
information reporting will apply to those payments if the broker
is:
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|
|
a United States person; |
|
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|
a controlled foreign corporation for United States federal
income tax purposes: |
|
|
|
a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for
a specified three-year period; or |
|
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|
a foreign partnership, if at any time during its tax year, one
or more of its partners are United States persons, as defined in
Treasury regulations, who in the aggregate hold more than 50% of
the income or capital interest in the partnership or if, at any
time during its tax year, the foreign partnership is engaged in
a United States trade or business; |
unless such broker has documentary evidence in its files of the
holders foreign status and has no knowledge to the
contrary, or the owner otherwise establishes an exemption.
Payment of the proceeds from a disposition by a non-United
States Holder of a note made to or through the United States
office of a broker will be subject to information reporting and
backup withholding unless the holder or beneficial owner
certifies that it is not a United States person or
otherwise establishes an exemption from information reporting
and backup withholding.
Non-United States Holders should consult their own tax advisors
regarding application of backup withholding in their particular
circumstance and the availability of and procedure for obtaining
an exemption from backup withholding under current Treasury
Regulations. Backup withholding is not an additional tax and any
amounts withheld under the backup withholding rules from a
payment to a non-United States Holder will be allowed as a
refund or a credit against the holders United States
federal income tax liability, provided the required information
is timely furnished to the IRS.
81
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer
in connection with resales of exchange notes received in
exchange for unregistered notes where such unregistered notes
were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of
180 days after the consummation of the exchange offer, we
will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.
In addition, until 180 days after the date of this
prospectus, all dealers effecting transactions in the exchange
notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes
by broker-dealers. Exchange notes received by broker-dealers for
their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the
over-the-counter
market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers that may receive compensation in
the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by
it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such
exchange notes may be deemed to be an underwriter
within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commission or concessions
received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an underwriter within the meaning
of the Securities Act.
For a period of 180 days after the date of this prospectus, we
will promptly send additional copies of this prospectus to any
broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the
holders of the notes) other than commissions or concessions of
any brokers or dealers and will indemnify the holders of the
notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
82
LEGAL MATTERS
Certain legal matters in connection with the notes offered
hereby will be passed upon for us by Shearman &
Sterling LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31,
2005 and 2004, and for each of the three years in the period
ended December 31, 2005, and managements report on
the effectiveness of internal control over financial reporting
as of December 31, 2005, included in this prospectus and
the related financial statement schedule included elsewhere in
the registration statement have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports appearing
herein and elsewhere in the registration statement, and have
been so included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and other reports, proxy statements
and other information with the SEC. You may read and copy any
reports, statements or other information we file with the SEC at
its public reference rooms at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for
further information on the public reference rooms. Our filings
are also available to the public on the Internet, through a
database maintained by the SEC at http://www.sec.gov. In
addition, you can inspect and copy our reports, proxy statements
and other information at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
Our subsidiary guarantors do not file separate financial
statements with the SEC and do not independently publish their
financial statements. Instead, our subsidiary guarantors
financial condition, results of operations and cash flows are
consolidated into our financial statements. Condensed
consolidating financial information illustrating our subsidiary
guarantors financial condition, results of operations and
cash flows, on a combined basis, is disclosed in the notes to
our consolidated financial statements.
The SEC allows us to incorporate by reference into this document
the information we filed with it. This means that we can
disclose important business, financial and other information to
you by referring you to other documents separately filed with
the SEC. All information incorporated by reference is part of
this document, unless and until that information is updated and
superseded by the information contained in this document or any
information incorporated later.
We incorporate by reference the documents listed below:
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1. |
Our current reports on
Form 8-K, filed
February 3, 2006, February 27, 2006, March 1,
2006, March 14, 2006, April 6, 2006, April 7,
2006, May 3, 2006, May 30, 2006, June 13, 2006,
June 26, 2006 and June 29, 2006; |
|
|
2. |
Our quarterly report on Form
10-Q for the quarter
ended March 31, 2006, except for Part I,
Item 1. Financial Statements, which financial
statements are included on pages
F-43 through
F-64 of this prospectus; |
|
|
3. |
Our annual report on
Form 10-K for the
fiscal year ended December 31, 2005, except for
Item 8. Financial Statements and Supplementary
Data, which financial statements are included on
pages F-2 through
F-42 of this prospectus. |
Our filings with the SEC, including our annual report on
Form 10-K,
quarterly reports on
Form 10-Q, current
reports on
Form 8-K and
amendments to those reports, are available free of charge on our
website as soon as reasonably practicable after they are filed
with, or furnished to, the SEC. Our Internet website is located
at http://www.glatfelter.com. The contents of the website
are not incorporated by reference into this prospectus. You also
may request a copy of these filings, at no cost, by contacting
us at: P. H. Glatfelter Company, 96 South George Street,
Suite 500, York, Pennsylvania 17401 (telephone number
(717) 225-4711), Attention: Investor Relations.
83
We also incorporate by reference all future filings we make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934 prior to the termination of
the offering made hereby.
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information you should not rely on it. We are not
making an offer to sell these securities in any jurisdiction
where the offer and sale is not permitted. You should assume
that the information appearing in this prospectus and
information incorporated by reference into this prospectus, is
accurate only as of the date of the documents containing the
information. Our business, financial condition, results of
operation and prospects may have changed since that date.
Any request for documents should be made
by ,
2006 to ensure timely delivery of the documents prior to the
expiration of the exchange offer.
We also incorporate by reference all future filings we make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934 prior to the termination of
the offering made hereby.
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information you should not rely on it. We are not
making an offer to sell these securities in any jurisdiction
where the offer and sale is not permitted. You should assume
that the information appearing in this prospectus and
information incorporated by reference into this prospectus, is
accurate only as of the date of the documents containing the
information. Our business, financial condition, results of
operation and prospects may have changed since that date.
84
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of P. H.
Glatfelter Company and subsidiaries for the years ended
December 31, 2005, 2004 and 2003
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|
Managements Report on Internal Control Over Financial
Reporting
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|
F-2 |
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-3 |
|
Report of Independent Registered Public Accounting Firm
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|
|
F-4 |
|
Consolidated Statements of Income for the Years Ended
December 31, 2005, 2004 and 2003
|
|
|
F-5 |
|
Consolidated Balance Sheets as of December 31, 2005 and 2004
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|
F-6 |
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004 and 2003
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|
|
F-7 |
|
Consolidated Statements of Shareholders Equity for the
Years Ended December 31, 2005, 2004 and 2003
|
|
|
F-8 |
|
Notes to Consolidated Financial Statements
|
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|
F-9 |
|
|
Schedule II
|
|
|
F-42 |
|
Unaudited Consolidated Financial Statements of P. H.
Glatfelter Company and subsidiaries for the three months ended
March 31, 2006 and 2005
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|
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|
|
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2006 and 2005
|
|
|
F-43 |
|
Condensed Consolidated Balance Sheets as of March 31, 2006
and December 31, 2005
|
|
|
F-44 |
|
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2006 and 2005
|
|
|
F-45 |
|
Notes to Condensed Consolidated Financial Statements
|
|
|
F-46 |
|
F-1
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of P. H. Glatfelter Company (the Company)
is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys
internal control over financial reporting is a process designed
under the supervision of the chief executive and chief financial
officers to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
Companys financial statements for external reporting
purposes in accordance with accounting principles generally
accepted in the United States.
As of December 31, 2005, management conducted an assessment
of the effectiveness of the Companys internal control over
financial reporting based on the framework established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management has
determined that the Companys internal control over
financial reporting as of December 31, 2005 is effective to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Companys
financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the
United States.
Our internal control over financial reporting includes policies
and procedures that pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect transactions
and dispositions of assets; provide reasonable assurances that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles
generally accepted in the United States, and that receipts and
expenditures are being made only in accordance with
authorizations of management; and provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets
that could have a material effect on our financial statements.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005, has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their report appearing herein, which expresses
unqualified opinions on managements assessment and on the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2005.
The Companys management, including the chief executive
officer and chief financial officer, does not expect that our
internal control over financial reporting will prevent or detect
all errors and all frauds. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based, in part, on certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
policies or procedures.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
P. H. Glatfelter Company
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that P. H. Glatfelter Company and
subsidiaries (the Company) maintained effective
internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of December 31, 2005, is fairly stated, in all material
respects, based on the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2005, based on the criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2005, of
the Company and our report dated March 13, 2006, except for
Note 23, as to which the date is July 13, 2006, expressed
an unqualified opinion on those financial statements.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 13, 2006
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
P. H. Glatfelter Company
We have audited the accompanying consolidated balance sheets of
P. H. Glatfelter Company and subsidiaries (the
Company) as of December 31, 2005 and 2004, and
the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2005. Our audits
also included the financial statement schedule as listed in the
Index to Financial Statements. These financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of P.
H. Glatfelter Company and subsidiaries as of December 31,
2005 and 2004, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2005, based on the
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 13, 2006, expressed an unqualified opinion on
managements assessment of the effectiveness of the
Companys internal control over financial reporting and an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 13, 2006, except for Note 23, as to which the date is
July 13, 2006.
F-4
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share amounts) | |
Net sales
|
|
$ |
579,121 |
|
|
$ |
543,524 |
|
|
$ |
533,193 |
|
Energy sales net
|
|
|
10,078 |
|
|
|
9,953 |
|
|
|
10,040 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
589,199 |
|
|
|
553,477 |
|
|
|
543,233 |
|
Costs of products sold
|
|
|
492,023 |
|
|
|
461,063 |
|
|
|
463,687 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
97,176 |
|
|
|
92,414 |
|
|
|
79,546 |
|
Selling, general and administrative expenses
|
|
|
67,633 |
|
|
|
59,939 |
|
|
|
59,146 |
|
Restructuring charges
|
|
|
1,564 |
|
|
|
20,375 |
|
|
|
6,983 |
|
Unusual items
|
|
|
|
|
|
|
|
|
|
|
11,501 |
|
Gains on disposition of plant, equipment and timberlands, net
|
|
|
(22,053 |
) |
|
|
(58,509 |
) |
|
|
(32,334 |
) |
Insurance recoveries
|
|
|
(20,151 |
) |
|
|
(32,785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26,993 |
|
|
|
(10,980 |
) |
|
|
45,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
70,183 |
|
|
|
103,394 |
|
|
|
34,250 |
|
Other nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(13,083 |
) |
|
|
(13,385 |
) |
|
|
(14,269 |
) |
|
Interest income
|
|
|
2,012 |
|
|
|
2,012 |
|
|
|
1,820 |
|
|
Other net
|
|
|
1,028 |
|
|
|
(1,258 |
) |
|
|
(1,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total other nonoperating expense
|
|
|
(10,043 |
) |
|
|
(12,631 |
) |
|
|
(13,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
60,140 |
|
|
|
90,763 |
|
|
|
20,416 |
|
|
|
|
Income tax provision
|
|
|
21,531 |
|
|
|
34,661 |
|
|
|
7,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
38,609 |
|
|
|
56,102 |
|
|
|
12,986 |
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(513 |
) |
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
38,609 |
|
|
$ |
56,102 |
|
|
$ |
12,661 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.88 |
|
|
$ |
1.28 |
|
|
$ |
0.30 |
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.88 |
|
|
$ |
1.28 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.87 |
|
|
$ |
1.27 |
|
|
$ |
0.30 |
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.87 |
|
|
$ |
1.27 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands, | |
|
|
except par values) | |
ASSETS |
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
57,442 |
|
|
$ |
39,951 |
|
Accounts receivable (less allowance for doubtful accounts:
2005 $931; 2004 $2,364)
|
|
|
62,524 |
|
|
|
60,900 |
|
Inventories
|
|
|
81,248 |
|
|
|
78,836 |
|
Prepaid expenses and other current assets
|
|
|
22,343 |
|
|
|
18,765 |
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
223,557 |
|
|
|
198,452 |
|
Plant, equipment and timberlands net
|
|
|
478,828 |
|
|
|
520,412 |
|
Other assets
|
|
|
342,592 |
|
|
|
333,406 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,044,977 |
|
|
$ |
1,052,270 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$ |
19,650 |
|
|
$ |
446 |
|
Short-term debt
|
|
|
3,423 |
|
|
|
3,503 |
|
Accounts payable
|
|
|
31,132 |
|
|
|
30,174 |
|
Dividends payable
|
|
|
3,972 |
|
|
|
3,955 |
|
Environmental liabilities
|
|
|
7,575 |
|
|
|
7,715 |
|
Other current liabilities
|
|
|
74,126 |
|
|
|
58,214 |
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
139,878 |
|
|
|
104,007 |
|
Long-term debt
|
|
|
184,000 |
|
|
|
207,277 |
|
Deferred income taxes
|
|
|
206,269 |
|
|
|
212,074 |
|
Other long-term liabilities
|
|
|
82,518 |
|
|
|
108,542 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
612,665 |
|
|
|
631,900 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; authorized
120,000,000 shares; issued
54,361,980 shares (including shares in treasury:
2005 10,229,734 2004
10,412,222)
|
|
|
544 |
|
|
|
544 |
|
Capital in excess of par value
|
|
|
43,450 |
|
|
|
41,828 |
|
Retained earnings
|
|
|
547,810 |
|
|
|
525,056 |
|
Deferred compensation
|
|
|
(2,295 |
) |
|
|
(1,275 |
) |
Accumulated other comprehensive income (loss)
|
|
|
(5,343 |
) |
|
|
8,768 |
|
|
|
|
|
|
|
|
|
|
|
584,166 |
|
|
|
574,921 |
|
Less cost of common stock in treasury
|
|
|
(151,854 |
) |
|
|
(154,551 |
) |
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
432,312 |
|
|
|
420,370 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
1,044,977 |
|
|
$ |
1,052,270 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
38,609 |
|
|
$ |
56,102 |
|
|
$ |
12,661 |
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
38,609 |
|
|
|
56,102 |
|
|
|
12,986 |
|
Adjustments to reconcile to net cash provided by continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
50,647 |
|
|
|
51,598 |
|
|
|
56,029 |
|
|
Pension income
|
|
|
(16,517 |
) |
|
|
(17,342 |
) |
|
|
(17,149 |
) |
|
Restructuring charges and unusual items
|
|
|
1,564 |
|
|
|
16,483 |
|
|
|
17,640 |
|
|
Deferred income tax provision
|
|
|
3,020 |
|
|
|
17,364 |
|
|
|
7,779 |
|
|
Gains on dispositions of plant, equipment and timberlands, net
|
|
|
(22,053 |
) |
|
|
(58,509 |
) |
|
|
(32,334 |
) |
|
Other
|
|
|
630 |
|
|
|
655 |
|
|
|
745 |
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,876 |
) |
|
|
470 |
|
|
|
4,399 |
|
|
Inventories
|
|
|
(6,195 |
) |
|
|
(4,276 |
) |
|
|
3,060 |
|
|
Other assets and prepaid expenses
|
|
|
3,995 |
|
|
|
(12,721 |
) |
|
|
(359 |
) |
|
Liabilities
|
|
|
(4,956 |
) |
|
|
(10,240 |
) |
|
|
(5,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
42,868 |
|
|
|
39,584 |
|
|
|
46,996 |
|
|
|
Net cash used by discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
42,868 |
|
|
|
39,584 |
|
|
|
46,752 |
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of plant, equipment and timberlands
|
|
|
(31,024 |
) |
|
|
(18,587 |
) |
|
|
(66,758 |
) |
Proceeds from disposal of plant, equipment and timberlands
|
|
|
22,450 |
|
|
|
60,171 |
|
|
|
2,892 |
|
Proceeds from sale of subsidiary, net of cash divested
|
|
|
545 |
|
|
|
525 |
|
|
|
1,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by investing activities of
continuing operations
|
|
|
(8,029 |
) |
|
|
42,109 |
|
|
|
(62,367 |
) |
|
|
Net cash used by investing activities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by investing activities
|
|
|
(8,029 |
) |
|
|
42,109 |
|
|
|
(62,427 |
) |
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments from revolving credit facility
|
|
|
(733 |
) |
|
|
(44,888 |
) |
|
|
(10,124 |
) |
Proceeds from borrowing from SunTrust Financial
|
|
|
|
|
|
|
|
|
|
|
34,000 |
|
Payment of dividends
|
|
|
(15,839 |
) |
|
|
(15,782 |
) |
|
|
(26,879 |
) |
Proceeds from stock options exercised
|
|
|
1,414 |
|
|
|
917 |
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(15,158 |
) |
|
|
(59,753 |
) |
|
|
(2,462 |
) |
Effect of exchange rate changes on cash
|
|
|
(2,190 |
) |
|
|
2,445 |
|
|
|
1,484 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
17,491 |
|
|
|
24,385 |
|
|
|
(16,653 |
) |
|
|
Cash and cash equivalents at the beginning of period
|
|
|
39,951 |
|
|
|
15,566 |
|
|
|
32,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$ |
57,442 |
|
|
$ |
39,951 |
|
|
$ |
15,566 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$ |
12,378 |
|
|
$ |
11,713 |
|
|
$ |
13,767 |
|
|
Income taxes
|
|
|
17,443 |
|
|
|
3,256 |
|
|
|
(1,575 |
) |
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Years Ended December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre- | |
|
|
|
|
|
|
|
|
Capital in | |
|
|
|
Deferred | |
|
hensive | |
|
|
|
Total | |
|
|
Common | |
|
Excess of | |
|
Retained | |
|
Compen- | |
|
Income | |
|
Treasury | |
|
Shareholders | |
|
|
Stock | |
|
Par Value | |
|
Earnings | |
|
sation | |
|
(Loss) | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except shares outstanding) | |
Balance at January 1, 2003
|
|
$ |
544 |
|
|
$ |
40,798 |
|
|
$ |
495,278 |
|
|
$ |
|
|
|
$ |
(3,708 |
) |
|
$ |
(159,079 |
) |
|
$ |
373,833 |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
12,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,661 |
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,398 |
|
|
|
|
|
|
|
6,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,059 |
|
Tax effect on employee stock options exercised
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(23,183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,183 |
) |
Delivery of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance shares
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124 |
|
|
|
111 |
|
|
401(k) plans
|
|
|
|
|
|
|
(207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,188 |
|
|
|
981 |
|
|
Director compensation
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
76 |
|
|
Employee stock options exercised net
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642 |
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
544 |
|
|
|
40,469 |
|
|
|
484,756 |
|
|
|
|
|
|
|
2,690 |
|
|
|
(157,028 |
) |
|
|
371,431 |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
56,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,102 |
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,078 |
|
|
|
|
|
|
|
6,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,180 |
|
Tax effect on employee stock options exercised
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(15,802 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,802 |
) |
Issuance of restricted stock units, net
|
|
|
|
|
|
|
1,725 |
|
|
|
|
|
|
|
(1,275 |
) |
|
|
|
|
|
|
|
|
|
|
450 |
|
Delivery of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275 |
|
|
|
218 |
|
|
401(k) plans
|
|
|
|
|
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,015 |
|
|
|
845 |
|
|
Director compensation
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
93 |
|
|
Employee stock options exercised net
|
|
|
|
|
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,082 |
|
|
|
917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
544 |
|
|
|
41,828 |
|
|
|
525,056 |
|
|
|
(1,275 |
) |
|
|
8,768 |
|
|
|
(154,551 |
) |
|
|
420,370 |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
38,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,609 |
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,619 |
) |
|
|
|
|
|
|
|
|
|
|
Additional minimum pension liability, net of tax benefits of
$2,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,111 |
) |
|
|
|
|
|
|
(14,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,498 |
|
Tax effect on employee stock options exercised
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76 |
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(15,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,855 |
) |
Issuance of restricted stock units, net
|
|
|
|
|
|
|
1,894 |
|
|
|
|
|
|
|
(1,020 |
) |
|
|
|
|
|
|
|
|
|
|
874 |
|
Delivery of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plans
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
917 |
|
|
|
833 |
|
|
Director compensation
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123 |
|
|
|
102 |
|
|
Employee stock options exercised net
|
|
|
|
|
|
|
(243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,657 |
|
|
|
1,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
544 |
|
|
$ |
43,450 |
|
|
$ |
547,810 |
|
|
$ |
(2,295 |
) |
|
$ |
(5,343 |
) |
|
$ |
(151,854 |
) |
|
$ |
432,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
F-8
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
P. H. Glatfelter Company and subsidiaries
(Glatfelter) is a manufacturer of specialty papers
and engineered products. Headquartered in York, Pennsylvania,
our manufacturing facilities are located in Spring Grove,
Pennsylvania; Neenah, Wisconsin; Gernsbach, Germany; Scaër,
France and the Philippines. Our products are marketed throughout
the United States and in over 80 other countries, either through
wholesale paper merchants, brokers and agents or directly to
customers.
2. ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial
statements include the accounts of Glatfelter and its wholly
owned subsidiaries. All intercompany balances and transactions
have been eliminated.
Accounting Estimates The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingencies as of
the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Management believes the
estimates and assumptions used in the preparation of these
consolidated financial statements are reasonable, based upon
currently available facts and known circumstances, but
recognizes that actual results may differ from those estimates
and assumptions.
Cash and Cash Equivalents We classify all highly liquid
instruments with an original maturity of three months or less at
the time of purchase as cash equivalents.
Inventories Inventories are stated at the lower of cost
or market. Raw materials and in-process and finished inventories
of our domestic manufacturing operations are valued using the
last-in, first-out
(LIFO) method, and the supplies inventories are valued
principally using the average-cost method. Inventories at our
foreign operations are valued using a method that approximates
average cost.
Plant, Equipment and Timberlands For financial reporting
purposes, depreciation is computed using the straight-line
method over the estimated useful lives of the respective assets.
For income taxes purposes, depreciation is primarily calculated
using accelerated methods over lives established by statute or
U.S. Treasury Department procedures. Provision is made for
deferred income taxes applicable to this difference.
The range of estimated service lives used to calculate financial
reporting depreciation for principal items of plant and
equipment are as follows:
|
|
|
Buildings
|
|
10 45 Years |
Machinery and equipment
|
|
7 35 Years |
Other
|
|
4 40 Years |
All timber costs related to the reforestation process,
including, taxes, site preparation, planting, fertilization,
herbicide application and thinning, are capitalized. After
20 years, the timber is considered merchantable and
depletion is computed on a unit rate of usage by growing area
based on estimated quantities of recoverable material. For
purchases of land tracts with existing timber, inventoried
merchantable timber is subject to immediate depletion based upon
usage. Costs related to the purchase of pre-merchantable timber
are transferred to merchantable timber over a
10-year period,
whereupon it is eligible for depletion.
Estimated timber volume is based upon its current stage in the
growth cycle. Growth and yield data is developed through the use
of published growth and yield studies as well as our own
historical experience. This data is used to calculate volumes
for established timber stands. Timber is depleted on an actual
usage basis. For purchased timber tracts, a systematic timber
inventory is completed and volume is estimated for
F-9
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
merchantable timber. Pre-merchantable timber of purchased tracts
is estimated based upon its current stage in the growth cycle
using growth and yield data.
Maintenance and repairs are charged to income and major renewals
and betterments are capitalized. At the time property is retired
or sold, the net carrying value is eliminated and any resultant
gain or loss is included in income.
Investment Securities Investments in debt securities are
classified as
held-to-maturity and
recorded at amortized cost in the consolidated balance sheets
when we have the positive intent and ability to hold until
maturity. At December 31, 2005 and 2004, investments in
debt securities classified as
held-to-maturity
totaled $9.0 million and $9.3 million, respectively.
The non-current portion is included in Other assets
on the consolidated balance sheets.
Valuation of Long-lived Assets We evaluate long-lived
assets for impairment when a specific event indicates that the
carrying value of an asset may not be recoverable.
Recoverability is assessed based on estimates of future cash
flows expected to result from the use and eventual disposition
of the asset. If the sum of expected undiscounted cash flows is
less than the carrying value of the asset, an impairment loss is
recognized. An impairment loss, if any, is recognized for the
amount by which the carrying value of the asset exceeds its fair
value.
Asset Retirement Obligations In accordance with Financial
Accounting Standards Board Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143
(FIN No. 47), we accrue asset retirement
obligations, if any, in the period in which obligations relating
to future asset retirements are incurred. Under these standards,
costs are to be accrued at estimated fair value, and a related
long-lived asset is capitalized. Over time, the liability is
accreted to its settlement value and the capitalized cost is
depreciated over the useful life of the related asset for which
the obligation exists. Upon settlement of the liability, we
recognize a gain or loss for any difference between the
settlement amount and the liability recorded. Asset retirement
obligations with indeterminate settlement dates are not recorded
until such dates can be reasonably estimated. At
December 31, 2005, we do not have any obligations required
to be accrued under FIN No. 47.
Income Taxes Income taxes are determined using asset and
the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standard
No. 109 (SFAS No. 109). Under
SFAS No. 109, tax expense includes US and
international income taxes plus the provision for US taxes on
undistributed earnings of international subsidiaries not deemed
to be permanently invested. Tax credits and other incentives
reduce tax expense in the year the credits are claimed. Certain
items of income and expense are not reported in tax returns and
financial statements in the same year. The tax effect of such
temporary differences is reported in deferred income taxes.
Deferred tax assets are recognized if it is more likely than not
that the assets will be realized in future years. The Company
establishes a valuation allowance for deferred tax assets for
which realization is not likely.
The Company accounts for income tax contingencies in accordance
with SFAS No. 5, Accounting for
Contingencies.
Treasury Stock Common stock purchased for treasury is
recorded at cost. At the date of subsequent reissue, the
treasury stock account is reduced by the cost of such stock on
the weighted-average cost basis.
Foreign Currency Translation Our subsidiaries outside the
United States use their local currency as the functional
currency. Accordingly, translation gains and losses and the
effect of exchange rate changes on transactions designated as
hedges of net foreign investments are included as a component of
other comprehensive income (loss). Transaction gains and losses
are included in income in the period in which they occur.
F-10
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Revenue Recognition We recognize revenue on product sales
when the customer takes title and assumes the risks and rewards
of ownership. We record revenue net of an allowance for customer
returns.
Revenue from energy sales is recognized when electricity is
delivered to the customer. Certain costs associated with the
production of electricity, such as fuel, labor, depreciation and
maintenance are netted against energy sales for presentation on
the Consolidated Statements of Income. Costs netted against
energy sales totaled $7.3 million, $8.3 million and
$7.7 million for the years ended December 31, 2005,
2004 and 2003, respectively. Our current contract to sell
electricity generated in excess of our own use expires in the
year 2010 and requires that the customer purchase all of our
excess electricity up to a certain level. The price for the
electricity is determined pursuant to a formula and varies
depending upon the amount sold in any given year.
Environmental Liabilities Accruals for losses associated
with environmental obligations are recorded when it is probable
that a liability has been incurred and the amount of the
liability can be reasonably estimated based on existing
legislation and remediation technologies. Costs related to
environmental remediation are charged to expense. These accruals
are adjusted periodically as assessment and remediation actions
continue and/or further legal or technical information develops.
Such undiscounted liabilities are exclusive of any insurance or
other claims against third parties. Environmental costs are
capitalized if the costs extend the life of the asset, increase
its capacity and/or mitigate or prevent contamination from
future operations. Recoveries of environmental remediation costs
from other parties, including insurance carriers, are recorded
as assets when their receipt is assured beyond a reasonable
doubt.
Stock-based Compensation We account for stock-based
compensation in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees, and
related interpretations, as permitted by SFAS No. 123,
Accounting for Stock-Based Compensation.
Compensation expense for restricted stock performance awards is
recognized ratably over the performance period based on changes
in quoted market prices of Glatfelter stock and the likelihood
of achieving the performance goals. This variable plan
accounting recognition is due to the uncertainty of achieving
performance goals and estimating the number of shares ultimately
to be issued. Compensation expense for awards of nonvested
Restricted Stock Units (RSUs) is recognized over
their graded vesting period based on the grant-date value. The
grant-date value is determined based on the grant-date closing
price of Glatfelter common stock. The exercise price of all
employee stock options is at least equal to their grant-date
market value. Accordingly, no compensation expense is recorded
for stock options granted to employees.
Pro Forma Information No compensation expense has been
recognized for the issuance of non-qualified stock options. No
stock options were granted in 2005. The weighted-average
grant-date fair value of options granted during 2004 and 2003,
was $3.31 and $2.48, respectively.
The fair value of each option on the date of grant was estimated
using the Black-Scholes option-pricing model using the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Risk-free interest rate
|
|
|
4.50 |
% |
|
|
3.47 |
% |
Expected dividend yield
|
|
|
3.17 |
|
|
|
5.74 |
|
Expected volatility
|
|
|
35.0 |
|
|
|
38.9 |
|
Expected life
|
|
|
6.5 yrs |
|
|
|
6.5 yrs |
|
F-11
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table sets forth pro forma information as if
compensation expense for all stock-based compensation had been
determined consistent with the fair value method of
SFAS No. 123.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share) | |
Net income as reported
|
|
$ |
38,609 |
|
|
$ |
56,102 |
|
|
$ |
12,661 |
|
Add: stock-based compensation expense included in reported net
income, net of tax
|
|
|
757 |
|
|
|
16 |
|
|
|
346 |
|
Less: stock-based compensation expense determined under fair
value based method for all awards, net of tax
|
|
|
(786 |
) |
|
|
(339 |
) |
|
|
(1,808 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
38,580 |
|
|
$ |
55,779 |
|
|
$ |
11,199 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$ |
0.88 |
|
|
$ |
1.28 |
|
|
$ |
0.29 |
|
|
Pro forma
|
|
|
0.88 |
|
|
|
1.27 |
|
|
|
0.26 |
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
0.87 |
|
|
|
1.27 |
|
|
|
0.29 |
|
|
Pro forma
|
|
|
0.87 |
|
|
|
1.27 |
|
|
|
0.26 |
|
Earnings Per Share Basic earnings per share are computed
by dividing net income by the weighted-average common shares
outstanding during the respective periods. Diluted earnings per
share are computed by dividing net income by the
weighted-average common shares and common share equivalents
outstanding during the period. The dilutive effect of common
share equivalents is considered in the diluted earnings per
share computation using the treasury stock method.
Fair Value of Financial Instruments The amounts reported
on the Consolidated Balance Sheets for cash and cash
equivalents, accounts receivable, other assets, and short-term
debt approximate fair value. Financial derivatives are recorded
at fair value. The following table sets forth carrying value and
fair value of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Carrying |
|
|
|
Carrying |
|
|
|
|
Value |
|
Fair Value |
|
Value |
|
Fair Value |
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$203,650 |
|
$206,652 |
|
$207,723 |
|
$215,402 |
3. RECENT PRONOUNCEMENTS
In December 2004, SFAS No. 123(R), Share-Based
Payment was issued. This standard requires employee stock
options and other stock-based compensation awards to be
accounted for under the fair value method, and eliminates the
ability to account for these instruments under the intrinsic
value method prescribed by APB Opinion No. 25, and allowed
under the original provisions of SFAS No. 123.
SFAS No. 123(R) is required to be adopted by the
company, beginning January 1, 2006. The adoption of this
standard will not have a material impact on our results of
operations or financial position.
In November 2004, SFAS No. 151, Inventory
Costs an amendment to ARB No. 43,
Chapter 4, (SFAS No. 151) was
issued. This standard, which is effective for fiscal years
beginning after June 15, 2005, clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). We do not expect
SFAS No. 151 will have a material impact on our
results of operations or financial position.
F-12
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. DISCONTINUED OPERATIONS
In July 2003, we sold our Wisches, France subsidiary for
approximately $2.0 million and the assumption of
approximately $1.1 million of debt owed to us by our
subsidiary. At closing, we received $1.7 million and the
remaining amounts were paid in two annual installments, in July
2005 and 2004. This subsidiary is reported as discontinued
operations for all periods presented. Prior to the sale, the
underlying assets were recorded at the lower of carrying amount
or fair value less cost to sell. Accordingly, loss from
discontinued operations for the year ended December 31,
2003, includes a charge of $0.5 million, after tax, to
write-down the carrying value of the assets prior to the sale.
Revenue included in determining results from discontinued
operations totaled $2.6 million for 2003. This operation
was previously reported in the Specialty Papers business unit.
5. RESTRUCTURING CHARGES
European Restructuring and Optimization Program (EURO
Program) During the fourth quarter of 2005, we began
to implement this restructuring program, a comprehensive series
of initiatives designed to improve the performance of our Long
Fiber & Overlay Papers business unit. In the fourth
quarter of 2005, we recorded restructuring charges totaling
$1.6 million associated with the related work force
efficiency plans at the Gernsbach, Germany facility. This change
reflects severance, early retirement and related costs for the
55 affected employees. We expect to incur cash out lays in this
amount over the next 24 month period.
North American Restructuring Program The North American
Restructuring Program, which was initiated in the second quarter
of 2004, was designed to improve operating results by enhancing
product and service offerings in Specialty Papers book
publishing markets, growing revenue from uncoated specialty
papers, reducing our workforce at our Spring Grove facility by
approximately 20%, and implementing improved supply chain
management processes. In conjunction with this initiative, we
negotiated a new labor agreement that enables us to achieve
targeted workforce reduction levels at our Spring Grove, PA
facility. As part of the new labor agreement, we offered a
voluntary early retirement benefits package to eligible
employees. These special termination benefits resulted in a
charge of $16.5 million in 2004, substantially all of which
was for enhanced pension benefits, post-retirement medical
benefits and other related employee severance costs. In
addition, we recorded restructuring charges totaling
$0.7 million, for severance and related pension and other
post employment benefits (OPEB) associated with the
elimination of certain non-represented positions. The following
table sets forth activity in the North American Restructuring
Program restructuring reserve.
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Beginning balance
|
|
$ |
60 |
|
|
$ |
|
|
Amounts accrued
|
|
|
|
|
|
|
17,187 |
|
Payments made
|
|
|
(60 |
) |
|
|
(644 |
) |
To be paid:
|
|
|
|
|
|
|
|
|
|
From pension plan assets
|
|
|
|
|
|
|
(11,255 |
) |
|
As OPEB benefits
|
|
|
|
|
|
|
(5,228 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
|
|
|
$ |
60 |
|
|
|
|
|
|
|
|
Amounts representing enhanced pension benefits will be paid from
our pension plan assets and are recorded as a reduction to the
carrying value of our prepaid pension assets. The amounts for
OPEB benefits were recorded as Other long-term
liabilities in the accompanying condensed Consolidated
Balance Sheets.
F-13
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We will pay the OPEB benefits as they are incurred over the
course of the affected employees benefit period, which
could range up to 8 years.
Neenah Restructuring In September 2003, we announced the
decision to permanently shut down a paper making machine and the
deinking process at our Neenah, WI facility. This initiative
resulted in the elimination of approximately 190 positions and
the modification of a long-term steam supply contract. The
machines and processes abandoned had supported our Specialty
Papers business unit. The results for 2003 include related
pre-tax charges of $13.5 million, of which
$6.5 million are reflected in the consolidated income
statement as components of cost of products sold, and
$7.0 million are reflected as restructuring
charges. The results of operations in 2004 include
$3.2 million of Neenah related restructuring charges, of
which $3.0 million represents a fee paid to modify a steam
supply contract at the Neenah facility in connection with the
restructuring initiative. The remaining amount represents
adjustments to estimated benefit continuation costs. There were
no charges in 2005 related to Neenah Restructuring.
The following table sets forth information with respect to
Neenah restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Contract modification fee
|
|
$ |
3,000 |
|
|
$ |
|
|
Depreciation on abandoned equipment
|
|
|
|
|
|
|
5,974 |
|
Severance and benefit continuation
|
|
|
188 |
|
|
|
1,874 |
|
Pension and other retirement benefits
|
|
|
|
|
|
|
4,878 |
|
Other
|
|
|
|
|
|
|
768 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,188 |
|
|
$ |
13,494 |
|
|
|
|
|
|
|
|
As of December 31, 2005 and 2004, the Neenah restructuring
reserve totaled $0.5 million and $0.7 million,
respectively. All such amounts primarily relate to accrued
workers compensation costs.
6. UNUSUAL ITEMS
Unusual items in 2003 reflect an $11.5 million charge
relating to our former Ecusta Division, which was sold in 2001.
Under the Ecusta Division acquisition agreement, we are
indemnified for certain liabilities that have been assumed by
the buyers. We had previously accrued liabilities related to
certain post-retirement benefits, workers compensation claims
and vendor payables and established a corresponding receivable
due from the buyers. We paid the portion of these liabilities
that became due and sought reimbursement from the buyers, which,
to date, they have refused.
F-14
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
7. |
GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS |
During 2005, 2004 and 2003, we completed sales of timberlands
and, in 2004, the corporate aircraft. The following table
summarizes these transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres | |
|
Proceeds | |
|
Gain/(Loss) | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands
|
|
|
2,488 |
|
|
$ |
21,000 |
|
|
$ |
20,327 |
|
Other
|
|
|
n/a |
|
|
|
1,778 |
|
|
|
1,726 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
22,778 |
|
|
$ |
22,053 |
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands
|
|
|
4,482 |
|
|
$ |
56,586 |
|
|
$ |
55,355 |
|
Corporate Aircraft
|
|
|
n/a |
|
|
|
2,861 |
|
|
|
2,554 |
|
Other
|
|
|
n/a |
|
|
|
724 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
60,171 |
|
|
$ |
58,509 |
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands
|
|
|
25,500 |
|
|
$ |
37,850 |
|
|
$ |
31,234 |
|
Other
|
|
|
n/a |
|
|
|
2,892 |
|
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
40,742 |
|
|
$ |
32,334 |
|
|
|
|
|
|
|
|
|
|
|
All property sales completed in 2005 and 2004 were sold for
cash. As consideration for the timberlands sold in 2003, we
received a 10-year note
from a subsidiary of The Conservation Fund in the principal
amount of $37.9 million (the Note), which is
included in Other assets in the Condensed
Consolidated Balance Sheet.
F-15
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. EARNINGS PER SHARE
The following table sets forth the details of basic and diluted
earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share) | |
Income from continuing operations
|
|
$ |
38,609 |
|
|
$ |
56,102 |
|
|
$ |
12,986 |
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
38,609 |
|
|
$ |
56,102 |
|
|
$ |
12,661 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in basic EPS
|
|
|
44,013 |
|
|
|
43,856 |
|
|
|
43,731 |
|
Common shares issuable upon exercise of dilutive stock options,
restricted stock awards and performance awards
|
|
|
330 |
|
|
|
167 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share
equivalents used in diluted EPS
|
|
|
44,343 |
|
|
|
44,023 |
|
|
|
43,760 |
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.88 |
|
|
$ |
1.28 |
|
|
$ |
0.30 |
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.88 |
|
|
$ |
1.28 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.87 |
|
|
$ |
1.27 |
|
|
$ |
0.30 |
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.87 |
|
|
$ |
1.27 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the potential common shares
outstanding for options to purchase shares of common stock that
were outstanding but were not included in the computation of
diluted EPS for the period indicated, because their effect would
be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 |
|
2003 |
|
|
| |
|
|
|
|
|
|
(In thousands) |
Potential common shares
|
|
|
758 |
|
|
1,664 |
|
1,846 |
9. GAIN ON INSURANCE
RECOVERIES
During 2005 and 2004, we reached successful resolution of
certain claims under insurance policies related to the Fox River
environmental matter. Insurance recoveries included in the
results of operations totaled $20.2 and $32.8 million in
2005 and 2004, respectively, and were received in cash.
10. INCOME TAXES
Income taxes are recognized for the amount of taxes payable or
refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been
recognized in our consolidated financial statements or tax
returns. The effects of income taxes are measured based on
enacted tax laws and rates.
F-16
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The provision for income taxes from continuing operations
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Current taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
14,881 |
|
|
$ |
8,982 |
|
|
$ |
(723 |
) |
|
State
|
|
|
3,145 |
|
|
|
5,262 |
|
|
|
27 |
|
|
Foreign
|
|
|
485 |
|
|
|
3,053 |
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,511 |
|
|
|
17,297 |
|
|
|
(349 |
) |
Deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,239 |
|
|
|
14,292 |
|
|
|
1,562 |
|
|
State
|
|
|
(1,905 |
) |
|
|
101 |
|
|
|
2,950 |
|
|
Foreign
|
|
|
1,686 |
|
|
|
2,971 |
|
|
|
3,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,020 |
|
|
|
17,364 |
|
|
|
7,779 |
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes from continuing operations
|
|
$ |
21,531 |
|
|
$ |
34,661 |
|
|
$ |
7,430 |
|
|
|
|
|
|
|
|
|
|
|
The following are domestic and foreign components of pretax
income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
United States
|
|
$ |
55,865 |
|
|
$ |
78,627 |
|
|
$ |
16,968 |
|
Foreign
|
|
|
4,275 |
|
|
|
12,136 |
|
|
|
3,448 |
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax income
|
|
$ |
60,140 |
|
|
$ |
90,763 |
|
|
$ |
20,416 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between the income tax provision, computed by
applying the statutory federal income tax rate of 35% to income
before income taxes from continuing operations, and the actual
income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Federal income tax provision at statutory rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal income tax benefit
|
|
|
1.3 |
|
|
|
3.9 |
|
|
|
3.7 |
|
Tax effect of bargain sale
|
|
|
|
|
|
|
|
|
|
|
(19.6 |
) |
Tax effect of tax credits
|
|
|
(2.2 |
) |
|
|
(4.1 |
) |
|
|
(7.3 |
) |
Valuation allowance
|
|
|
(0.8 |
) |
|
|
3.4 |
|
|
|
29.7 |
|
Provision for (resolution of) tax matters
|
|
|
2.2 |
|
|
|
|
|
|
|
(2.7 |
) |
Other
|
|
|
0.3 |
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes from continuing operations
|
|
|
35.8 |
% |
|
|
38.2 |
% |
|
|
36.4 |
% |
|
|
|
|
|
|
|
|
|
|
F-17
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The sources of deferred income taxes were as follows at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Non- | |
|
|
|
Non- | |
|
|
Current | |
|
current | |
|
Current | |
|
current | |
|
|
Asset | |
|
Asset | |
|
Asset | |
|
Asset | |
|
|
(Liability) | |
|
(Liability) | |
|
(Liability) | |
|
(Liability) | |
|
|
| |
|
| |
|