1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 2001
REGISTRATION NO. 333-60182
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4/A
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARAUSTAR INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 2631 58-1388387
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
TABLE OF ADDITIONAL REGISTRANTS
EXACT NAME OF REGISTRANT AS SPECIFIED IN STATE OR OTHER PRIMARY STANDARD
ITS CHARTER; ADDRESS, INCLUDING ZIP CODE; JURISDICTION OF INDUSTRIAL IRS EMPLOYER
AND TELEPHONE NUMBER, INCLUDING AREA INCORPORATION OR CLASSIFICATION IDENTIFICATION
CODE, OF PRINCIPAL EXECUTIVE OFFICES ORGANIZATION CODE NUMBER NUMBER
- ----------------------------------------- ---------------- ---------------- --------------
Austell Box Board Corporation Georgia 2631 58-0543540
3100 Joe Jerkins Boulevard
Austell, Georgia 30106-3227
(770) 948-3100
Austell Holding Company, LLC Georgia 6719 58-2592463
3100 Joe Jerkins Boulevard
Austell, Georgia 30106-3227
(770) 948-3101
Buffalo Paperboard Corporation New York 2631 16-1422055
470 Ohio Street
Lockport, New York 14094
(716) 434-2045
Camden Paperboard Corporation New Jersey 2631 22-2906400
3100 Joe Jerkins Boulevard
Austell, Georgia 30106
(770) 948-3101
Caraustar, G.P. (a general partnership) South Carolina 6719 58-1388387
2031 Carolina Place
Fort Mill, South Carolina 29708
(803) 548-5100
Caraustar Custom Packaging Group, Inc. Delaware 2657 58-2467838
3100 Joe Jerkins Boulevard
Austell, Georgia 30106-3227
(770) 948-3101
Caraustar Custom Packaging Group Maryland 2657 52-0269940
(Maryland), Inc.
3100 Joe Jerkins Boulevard
Austell, Georgia 30106-3227
(770) 948-3101
Caraustar Industrial & Consumer Products Delaware 2655 34-1662420
Group, Inc.
2031 Carolina Place
Fort Mill, South Carolina 29708
(803) 548-5100
Caraustar Paperboard Corporation Ohio 2631 58-2260608
100 Industrial Drive
Rittman, Ohio 44270-1573
(330) 927-7230
Caraustar Recovered Fiber Group, Inc. Delaware 7389 52-2207418
531 Roselane Street, NW
Suite 650
Marietta, Georgia 30060
(770) 745-3760
Carolina Component Concepts, Inc. North Carolina 2631 56-2129326
302 Rolling Hills Road
Mooresville, North Carolina 28115
(704) 662-3080
Carolina Converting Incorporated North Carolina 2631 56-1923944
107 Tom Starling Road
Fayetteville, North Carolina 28306
(910) 424-1111
Carolina Paper Board Corporation North Carolina 2631 56-0232737
443 S. Gardner Ave.
Charlotte, North Carolina 28208
(704) 376-7474
Carotell Paper Board Corporation South Carolina 2631 57-0427763
873 Alexander Drive
Taylors, South Carolina 29687
(864) 244-6221
Chattanooga Paperboard Corporation Tennessee 2631 62-1205378
2100 Rossville Ave.
Chattanooga, Tennessee 37408
(423) 267-3801
EXACT NAME OF REGISTRANT AS SPECIFIED IN STATE OR OTHER PRIMARY STANDARD
ITS CHARTER; ADDRESS, INCLUDING ZIP CODE; JURISDICTION OF INDUSTRIAL IRS EMPLOYER
AND TELEPHONE NUMBER, INCLUDING AREA INCORPORATION OR CLASSIFICATION IDENTIFICATION
CODE, OF PRINCIPAL EXECUTIVE OFFICES ORGANIZATION CODE NUMBER NUMBER
- ----------------------------------------- ---------------- ---------------- --------------
Chicago Paperboard Corporation Illinois 2631 36-3307876
555 North Tripp Avenue
Chicago, Illinois 60624
(773) 722-0555
Cincinnati Paperboard Corporation Ohio 2631 31-1104889
5500 Wooster Road
Cincinnati, Ohio 45226
(513) 871-7112
Columbus Recycling, Inc. Georgia 2631 58-1329334
756 Lindsey Drive
Columbus, Georgia 31906
(706) 323-6306
Federal Transport, Inc. Ohio 4213 23-2187126
702 E. Main Street
Saint Paris, Ohio 43072
(937) 663-4142
Gypsum MGC, Inc. Delaware 3275 58-2592488
3100 Joe Jerkins Boulevard
Austell, Georgia 30106
(770) 948-3101
Halifax Paper Board Company, Inc. North Carolina 2631 62-1778263
440 Hwy. 48 North
Roanoke Rapids, North Carolina 27870
(252) 537-4127
McQueeney Gypsum Company Delaware 3275 76-0177025
3100 Joe Jerkins Boulevard
Austell, Georgia 30106
(770) 948-3101
McQueeney Gypsum Company, LLC Delaware 3275 58-2592489
3100 Joe Jerkins Boulevard
Austell, Georgia 30106
(770) 948-3101
New Austell Box Board Company Georgia 6719 58-2592483
3100 Joe Jerkins Boulevard
Austell, Georgia 30106-3227
(770) 948-3100
Paper Recycling, Inc. Georgia 2631 58-1382480
4069 Winters Chapel Road
Doraville, Georgia 30360
(770) 451-1334
PBL Inc. Delaware 2631 58-2475016
2585 E. 200 North
Cayuga, Indiana 47928-8153
(765) 492-3341
Reading Paperboard Corporation Pennsylvania 2631 23-2402145
3110 Papermill Rd., Rt. #5
Sinking Spring, Pennsylvania 19608
(610) 375-8404
Richmond Paperboard Corporation Virginia 2631 54-1079973
17 East 2nd Street
Richmond, Virginia 23224
(804) 233-1274
Sprague Paperboard, Inc. Connecticut 2631 06-1544472
130 Inland Road
Versailles, Connecticut 06383
(860) 823-3600
Sweetwater Paper Board Company, Inc. Georgia 2631 58-1389379
3500 Joe Jerkins Boulevard
Austell, Georgia 30106-3227
(770) 944-9350
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H. LEE THRASH, III
3100 JOE JERKINS BOULEVARD VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
AUSTELL, GEORGIA 30106-3227 CARAUSTAR INDUSTRIES, INC.
(770) 948-3101 3100 JOE JERKINS BOULEVARD
(Address, including zip code, and telephone number, AUSTELL, GEORGIA 30106-3227
including area code, of Registrant's principal (770) 948-3101
executive offices) (Name, address, including zip code, and telephone
number,
including area code, of agent for service)
---------------------
WITH A COPY TO:
PATRICK S. BRYANT
ROBINSON, BRADSHAW & HINSON, P.A.
101 NORTH TRYON STREET, SUITE 1900
CHARLOTTE, NORTH CAROLINA 28246
(704) 377-2536
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for any 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. [ ]
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. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER NOTE(1) AGGREGATE OFFERING PRICE
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7 1/4% Senior Notes due 2010... $ 29,000,000 100% $ 29,000,000
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9 7/8% Senior Subordinated Notes due 2011... $285,000,000 100% $285,000,000
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Guarantees of 7 1/4% Senior Notes due 2010... $ 29,000,000 -- --
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Guarantees of 9 7/8% Senior Subordinated Notes due
2011... $285,000,000 -- --
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AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
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7 1/4% Senior Notes due 2010... $ 7,250(2)
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9 7/8% Senior Subordinated Notes due 2011... $71,250(2)
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Guarantees of 7 1/4% Senior Notes due 2010... (3)
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Guarantees of 9 7/8% Senior Subordinated Notes due
2011... (3)
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(1) Estimated in accordance with Rule 457 under the Securities Act of 1933, as
amended, solely for the purpose of computing the registration fee.
(2) Previously paid.
(3)Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no
separate fee is payable for the Guarantees.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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3
PROSPECTUS (SUBJECT TO COMPLETION, DATED JUNE 20, 2001)
(CARAUSTAR LOGO)
CARAUSTAR INDUSTRIES, INC.
OFFER TO EXCHANGE
$29,000,000 OF OUR 7 1/4% SENIOR NOTES DUE 2010
AND
$285,000,000 OF OUR 9 7/8% SENIOR SUBORDINATED NOTES DUE 2011
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- - The terms of the exchange notes we will issue in the exchange offer will be
substantially identical to the terms of the original notes, except that
transfer restrictions and registration rights relating to the original notes
will not apply to the exchange notes.
- - The exchange offer expires at 5:00 p.m., New York City time, , 2001,
unless we extend it.
- - All original notes that are validly tendered in the exchange offer and not
withdrawn will be exchanged.
- - Tenders of original notes may be withdrawn at any time before the expiration
of the exchange offer.
- - There is no public market for the exchange notes.
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BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" BEGINNING ON PAGE 11.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE EXCHANGE NOTES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE 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 IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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THE DATE OF THIS PROSPECTUS IS JUNE , 2001.
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TABLE OF CONTENTS
PAGE
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INCORPORATION OF DOCUMENTS BY REFERENCE..................... ii
WHERE YOU CAN FIND MORE INFORMATION......................... ii
FORWARD-LOOKING STATEMENTS.................................. iii
SUMMARY..................................................... 1
RISK FACTORS................................................ 11
USE OF PROCEEDS............................................. 20
CAPITALIZATION.............................................. 21
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA............. 22
THE EXCHANGE OFFER.......................................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 36
BUSINESS.................................................... 52
MANAGEMENT.................................................. 59
DESCRIPTION OF CERTAIN INDEBTEDNESS......................... 68
DESCRIPTION OF THE SENIOR EXCHANGE NOTES.................... 71
DESCRIPTION OF THE SENIOR SUBORDINATED EXCHANGE NOTES....... 81
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS.............. 114
BOOK-ENTRY, DELIVERY AND FORM............................... 116
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS..................... 119
PLAN OF DISTRIBUTION........................................ 125
LEGAL MATTERS............................................... 126
EXPERTS..................................................... 126
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
This prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any note offered by this prospectus by any person in any
jurisdiction in which it is unlawful for that person to make an offer or
solicitation. Neither the delivery of this prospectus nor any sale made under
this prospectus will under any circumstances imply that there has been no change
in our affairs or that the information set forth in this prospectus is correct
as of any date subsequent to the date of this prospectus.
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INCORPORATION OF DOCUMENTS BY REFERENCE
Important business and financial information about our company is
"incorporated by reference" into this prospectus. This means that we are
disclosing important information to you by referring you to certain documents we
have filed with the Securities and Exchange Commission rather than including the
information in this prospectus. The information in the documents incorporated by
reference is considered to be part of this prospectus. We incorporate by
reference the documents listed below and any future filings we may make with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act prior to the termination or expiration of this exchange offer:
- our annual report on Form 10-K for the fiscal year ended December 31,
2000;
- our quarterly report on Form 10-Q for the quarter ended March 31, 2001;
and
- our current reports on Form 8-K dated April 12, 2001 and May 9, 2001.
Information contained in this prospectus supplements, modifies or
supersedes, as applicable, the information contained in earlier-dated documents
incorporated by reference. Information in documents that we file with the
Securities and Exchange Commission after the date of this prospectus will
automatically update and supersede information in this prospectus or in
earlier-dated documents incorporated by reference.
WE WILL PROVIDE A COPY OF THE DOCUMENTS WE INCORPORATE BY REFERENCE, AT NO
COST, TO ANY PERSON WHO RECEIVES THIS PROSPECTUS. TO REQUEST A COPY OF ANY OR
ALL OF THESE DOCUMENTS, YOU SHOULD WRITE OR TELEPHONE US AT: P.O. BOX 115,
AUSTELL, GEORGIA 30168-0115, (770) 948-3101, ATTENTION: INVESTOR RELATIONS. IN
ORDER TO OBTAIN TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST REQUEST THE
INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE
EXCHANGE OFFER. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 2001. SEE "THE EXCHANGE OFFER" FOR ADDITIONAL
INFORMATION.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information on file at the Securities and
Exchange Commission's public reference room at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You can request copies of those
documents upon payment of a duplicating fee to the Securities and Exchange
Commission. You may also review a copy of those documents at the Securities and
Exchange Commission's regional offices in Chicago, Illinois and New York, New
York. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. You can
review our Securities and Exchange Commission filings by accessing the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
In addition, you may request a copy of any of these filings, at no cost, by
writing or telephoning us at the following address or telephone number: P.O. Box
115, Austell, Georgia 30168-0115, (770) 948-3101, Attention: Investor Relations.
This document contains summaries of the terms of certain agreements that we
believe to be accurate in all material respects. However, we refer you to the
actual agreements for complete information relating to those agreements. All
summaries are qualified in their entirety by this reference. We will make copies
of those documents available to you upon your request to us.
We have filed with the Securities and Exchange Commission in Washington,
D.C., a registration statement on Form S-4 under the Securities Act with respect
to the exchange notes offered by this prospectus. This prospectus does not
include all of the information included in the registration statement, as
permitted by the rules and regulation of the Securities and Exchange Commission.
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FORWARD-LOOKING STATEMENTS
We have made and incorporated by reference forward-looking statements in
this prospectus. Forward-looking statements include statements regarding our
goals, beliefs, plans or current expectations, taking into account the
information currently available to our management. Forward-looking statements
are not statements of historical fact. For example, when we use words such as
"believe," "anticipate," "expect," "estimate," "intend," "should," "would,"
"could," or "may," or other words that convey uncertainty of future events or
outcome, we are making forward-looking statements. Forward-looking statements
include statements concerning:
- future results of operations;
- raw materials and energy costs;
- liquidity, cash flow and capital expenditures;
- acquisition activities and the effect of completed acquisitions;
- pending or anticipated litigation;
- debt levels and the ability to obtain additional financing or make
payments on our debt;
- the effectiveness and enforceability of the subsidiary guarantees of the
notes;
- regulatory developments, industry conditions and market conditions; and
- general economic conditions.
Our forward-looking statements are subject to risks and uncertainties. You
should note that many important factors, some of which are discussed elsewhere
in this prospectus or in the documents we have incorporated by reference, could
affect us in the future and could cause our results, performance and financial
condition to differ materially from those expressed in our forward-looking
statements. For a discussion of some of these factors, please read carefully the
information under "Risk Factors." We do not undertake any obligation to update
our forward-looking statements.
In this prospectus, unless otherwise indicated, references to the "senior
notes" mean the original 7 1/4% senior notes due May 1, 2010; references to the
"senior exchange notes" mean the 7 1/4% senior exchange notes due May 1, 2010;
references to the "senior subordinated notes" mean the original 9 7/8% senior
subordinated notes due April 1, 2011; references to the "senior subordinated
exchange notes" mean the 9 7/8% senior subordinated exchange notes due April 1,
2011; references to the "notes" mean collectively, the senior notes, the senior
exchange notes, the senior subordinated notes and the senior subordinated
exchange notes; references to the "original notes" mean collectively, the senior
notes and the senior subordinated notes; and references to the "exchange notes"
mean collectively, the senior exchange notes and the senior subordinated
exchange notes.
iii
7
SUMMARY
This summary includes selected information about us, our business and the
exchange offer and summary financial information. This summary is not complete
and may not contain all of the information that you should consider before
exchanging your original notes for exchange notes. You should read this entire
prospectus carefully, including "Risk Factors," and the documents that we have
filed with the Securities and Exchange Commission and incorporated by reference
into this prospectus.
OUR COMPANY
We were incorporated in North Carolina in 1980 through the consolidation of
six corporations in the recycled paperboard industry that were previously
related by common ownership and administration. Our company is a holding company
that currently operates its business through 34 subsidiaries. Our principal
executive offices are located at 3100 Joe Jerkins Boulevard, Austell, Georgia
30106. Our telephone number is (770) 948-3101.
We are a major manufacturer of 100% recycled paperboard and converted
paperboard products. We manufacture products primarily from recovered fiber,
which is derived from recycled paper. We operate in three business segments:
- Paperboard
- Tube, core and composite container
- Carton and custom packaging
Paperboard. Our principal manufacturing activity is the production of
uncoated and clay-coated recycled paperboard. In this manufacturing process, we
reduce paperstock to pulp, clean and refine it and then process it into various
grades of paperboard for internal consumption by our converting facilities or
sale to external customers in the following four end-use markets:
- Tube, core and composite containers
- Folding cartons
- Gypsum wallboard facing paper
- Other specialty products
We currently operate a total of 15 paperboard mills, including one owned in
a joint venture. In 2000, we produced approximately 999,100 tons of recycled
paperboard (excluding tonnage produced by the joint venture). Approximately 38%
of the recycled paperboard sold by our paperboard mills in 2000 was consumed
internally by our converting facilities, and the remainder was sold to external
customers. Three of our paperboard mills operate specialty converting facilities
that supply other specialty converted and laminated products to the bookbinding,
game, puzzleboard, printing and furniture industries. We also operate two
specialty converting facilities that supply die cut and foam laminated products
and manufacture jigsaw puzzles, coin folders and other specialty products.
Tube, Core and Composite Container. Our largest converting operation is
the production of tubes and cores. The principal applications of these products
are cloth cores, paper mill cores, yarn carriers, carpet cores and film, foil
and metal cores. In 2000, our 31 tube and core converting plants obtained
approximately 89% of their paperboard needs from our paperboard mills and the
remaining 11% from other manufacturers. Paper tubes are designed to provide
specific physical strength properties, resistance to moisture and abrasion, and
resistance to delamination at extremely high rotational speeds. Because of the
relatively high cost of shipping tubes and cores, most of our tube and core
converting plants are located close to concentrations of customers. In addition
to tube and core converting facilities, within this business segment, we operate
the following other converting facilities: four facilities that produce
specialty converted products used in industrial packaging protection
applications (edge protectors); three plants that produce composite containers
used in the adhesive, sealant, food and food service markets, as well as grease
cans,
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tubes, cartridges and other components; and three plants (one of which is 80%
owned) that produce injection-molded and extruded plastic products, including
plastic cores for the textile industry, plastic cores for the film, paper and
other industries, and other specialized products.
Carton and Custom Packaging. Our other converting operation produces
folding cartons and rigid set-up boxes at 16 plants. In 2000, these plants
obtained approximately 44% of their paperboard needs from our paperboard mills
and the remaining 56% from other manufacturers. Our cartons and boxes are used
principally as containers for hosiery, hardware, candy, sports-related items,
cosmetics, dry food, film and various other industrial applications, including
textile and apparel applications. We operate eight specialty packaging
facilities. These facilities perform contract manufacturing and custom contract
packaging for a variety of consumer product companies. In addition, we operate a
digital imaging facility and a prepress reproduction facility.
Our net sales and adjusted EBITDA (as defined herein) for the twelve months
ended December 31, 2000 were $963.4 million and $121.4 million, respectively. We
estimate that our three business segments accounted for the following
percentages of net sales for the twelve months ended December 31, 2000:
- Paperboard -- 41%
- Tube, core and composite container -- 27%
- Carton and custom packaging -- 32%
Joint Ventures. We have two joint ventures with Temple-Inland, Inc., in
which we own 50% interests. One of the joint ventures, Premier Boxboard Limited
LLC, produces a new, lightweight gypsum facing paper, along with other
containerboard grades. The other joint venture, Standard Gypsum, L.P.,
manufactures gypsum wallboard. We manage the day-to-day operations of Premier
Boxboard. Temple-Inland manages the day-to-day operations of Standard Gypsum.
Raw Materials. Recovered fiber, derived from recycled paperstock, is the
only significant raw material we use in our mill operations. Each of our
paperboard mills and most of our converting plants have onsite recovered fiber
facilities that collect and bale recycled paperstock. We also operate nine
stand-alone paperstock recycling and brokerage facilities. We purchase
approximately 69% of our paperstock requirements from independent sources, such
as major retail stores, distribution centers and manufacturing plants. We obtain
the balance from a combination of other collection activities.
We closely monitor our recovered fiber costs, which can fluctuate
significantly. Historically, we have raised the price of our products in
response to raw material price increases. However, even if we are able to
recover price increases, our operating margins and results of operations may
still be materially and adversely affected by time delays in the implementation
of price increases.
Demand for our products in our four principal end-use markets is primarily
driven by the following factors:
- Tube, core and composite containers -- industrial production,
construction spending and consumer nondurable consumption
- Folding cartons -- consumer nondurable consumption and industrial
production
- Gypsum wallboard facing paper -- single and multifamily construction,
repair and remodeling construction and commercial construction
- Other specialty products -- consumer nondurable consumption and consumer
durable consumption
2
9
SUMMARY OF THE EXCHANGE OFFER
The following summary is provided solely for your convenience. This summary
is not intended to be complete. You should read the full text and more specific
details contained in "The Exchange Offer" section of this prospectus. For a more
detailed description of the exchange notes, see "Description of the Senior
Exchange Notes" and "Description of the Senior Subordinated Exchange Notes."
On March 29, 2001, we completed the private offerings of the senior notes
and the senior subordinated notes, which we may refer to as the original notes.
In this exchange offer, we are offering to exchange, for the original notes,
exchange notes that are identical in all material respects to the original
notes, except that the exchange notes have been registered under the Securities
Act.
Any original notes that you do not tender or we do not accept will,
following the exchange offer, continue to be restricted securities. Therefore,
you may transfer or resell them only in a transaction registered under or exempt
from the Securities Act and applicable state securities laws. We will issue the
exchange notes in exchange for the original notes under the exchange offer only
following the satisfaction of the procedures and conditions described in "The
Exchange Offer."
Because we anticipate that most holders of the original notes will elect to
exchange their original notes, we expect that the liquidity of the markets, if
any, for any original notes remaining after the completion of the exchange offer
will be substantially limited. Any original notes tendered and exchanged in the
exchange offer will reduce the aggregate principal amount outstanding of the
original notes.
Registration Rights
Agreement.................. We sold the original notes on March 29, 2001 to the
initial purchasers -- Credit Suisse First Boston
Corporation, Banc of America Securities LLC,
Deutsche Banc Alex. Brown Inc. and SunTrust
Equitable Securities Corporation. In connection
with the sale of the original notes, we entered
into a registration rights agreement that provides
for the exchange offer.
You may exchange your original notes for exchange
notes that have substantially identical terms as
the original notes. The exchange offer satisfies
your rights under the registration rights
agreement. After the exchange is over, you will not
be entitled to any exchange or registration rights
with respect to your original notes.
The Exchange Offer......... We are offering to exchange:
- up to $29,000,000 aggregate principal amount of
our 7 1/4% senior notes due 2010 for up to
$29,000,000 aggregate principal amount of our
7 1/4% senior exchange notes due 2010; and
- up to $285,000,000 aggregate principal amount of
our 9 7/8% senior subordinated notes due 2011 for
up to $285,000,000 aggregate principal amount of
our 9 7/8% senior subordinated exchange notes due
2011.
Purpose and Effect......... The purpose of the exchange offer is to give you
the opportunity to exchange your original notes for
exchange notes that have been registered under the
Securities Act. We are subject to the informational
requirements of the Exchange Act and file reports
and other information with the Securities and
Exchange Commission to which each holder of
original notes, if any are outstanding after the
exchange offer, and exchange notes will have
access.
Resale..................... We believe that the exchange notes may be offered
for resale, resold and otherwise transferred by you
(unless you are our "affiliate" within the meaning
of Rule 405 under the Securities Act) without
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10
compliance with the registration or prospectus
delivery provisions of the Securities Act if:
- you are acquiring the exchange notes in the
ordinary course of your business; and
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
a distribution of the exchange notes.
Each participating broker-dealer that receives
exchange notes for its own account under the
exchange offer in exchange for original notes that
were acquired by the broker-dealer as a result of
market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes.
See "Plan of Distribution."
Any holder of original notes who:
- is our affiliate;
- does not acquire exchange notes in the ordinary
course of its business; or
- exchanges original notes in the exchange offer
with the intention to participate, or for the
purpose of participating, in a distribution of
exchange notes
must, in the absence of an exemption, comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with the resale of the exchange notes.
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on , 2001, unless we
decide to extend the expiration date. We do not
currently intend to extend the expiration of the
exchange offer.
Withdrawal Rights.......... You may withdraw the tender of your original notes
at any time before the expiration date of the
exchange offer.
Conditions to the Exchange
Offer...................... The exchange offer is subject to customary
conditions, which we may waive. Please refer to the
section in this prospectus entitled "The Exchange
Offer -- Conditions to the Exchange Offer."
Procedures for Tendering
Outstanding Notes........ To participate in the exchange offer, you must
tender your original notes following the procedures
for book-entry transfer described in "The Exchange
Offer -- The Depository Trust Company Book-Entry
Transfer."
Special Procedures for
Beneficial Owners.......... If you hold original notes registered in the name
of a broker, dealer, commercial bank, trust company
or other nominee, you should contact that person
promptly if you wish to tender original notes.
Please refer to the section in this prospectus
entitled, "The Exchange Offer -- Procedures for
Tendering Original Notes."
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Guaranteed Delivery
Procedures................. If you wish to tender your original notes and you
cannot complete the procedure for book-entry
transfer on time, you may tender your original
notes according to the guaranteed delivery
procedures described in this prospectus under the
heading "The Exchange Offer -- Procedures for
Tendering Original Notes."
Effect on Holders of
Original Notes............. If you are a holder of original notes and you do
not tender your original notes in the exchange
offer, you will continue to hold your original
notes and will be entitled to all the rights and
subject to all the limitations applicable to the
original notes in the indentures.
The trading market for original notes could be
adversely affected if some but not all of the
original notes are tendered and accepted in the
exchange offer.
Consequences of Failure to
Exchange Your Original
Notes.................... All untendered original notes will remain subject
to the restrictions on transfer provided for in the
original notes and in the indentures. Generally,
the original 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
currently anticipate that we will register the
original notes under the Securities Act.
Because we anticipate that most holders of the
original notes will elect to exchange their
original notes, we expect that the liquidity of the
markets, if any, for any original notes remaining
after the completion of the exchange offer will be
substantially limited.
Use of Proceeds............ We will not receive any cash proceeds from the
exchange offer.
Federal Income Tax
Consequences............. The exchange of the original notes for exchange
notes will not be a taxable event to you for U.S.
federal income tax purposes. Please refer to the
section in this prospectus entitled "Certain U.S.
Federal Tax Considerations."
Exchange Agent............. The Bank of New York is serving as exchange agent
in the exchange offer. Please refer to the section
in this prospectus entitled "The Exchange
Offer -- Exchange Agent."
SENIOR EXCHANGE NOTES DUE 2010
Issuer..................... Caraustar Industries, Inc.
Notes Offered.............. $29,000,000 aggregate principal amount of 7 1/4%
senior exchange notes due 2010 and registered under
the Securities Act.
Interest................... 7 1/4% per annum on the principal amount, payable
semiannually in arrears in cash on May 1 and
November 1 of each year, beginning November 1,
2001.
Maturity Date.............. May 1, 2010.
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Ranking.................... The senior exchange notes will be general senior
unsecured obligations. The senior exchange notes
will rank equally in right of payment with any
existing or future senior indebtedness, including
our new senior credit facility and our obligations
under our 7 3/8% senior notes due 2009. The senior
exchange notes will be structurally subordinated to
all present and future indebtedness of our joint
ventures and non-guarantor subsidiaries.
Guarantee.................. The senior exchange notes will be unconditionally
guaranteed on an unsecured, senior basis, jointly
and severally, by all of our domestic subsidiaries,
except for one subsidiary that is not wholly owned.
The senior guarantees will rank equally in right of
payment with any guarantees of any of our existing
and future senior indebtedness.
Optional Redemption........ We may redeem the senior exchange notes prior to
maturity, in whole or in part, at a redemption
price equal to the greater of the principal amount
of the senior exchange notes and the make-whole
price described in this prospectus. We will also
pay accrued interest to the date of redemption. See
"Description of the Senior Exchange
Notes -- Optional Redemption."
Restrictive Covenants...... The indenture governing the senior exchange notes
will contain covenants, that will, among other
things, limit our ability to:
- incur, or permit our domestic subsidiaries to
incur, secured indebtedness;
- engage, or permit our domestic subsidiaries to
engage, in certain sale-leaseback transactions;
and
- enter into certain mergers or consolidations or
dispose of stock or certain assets.
Absence of Established
Market for the Senior
Exchange Notes............. The senior exchange notes will constitute a new
class of securities with no established trading
market.
SENIOR SUBORDINATED EXCHANGE NOTES DUE 2011
Issuer..................... Caraustar Industries, Inc.
Notes Offered.............. $285,000,000 aggregate principal amount of 9 7/8%
senior subordinated exchange notes due 2011.
Interest................... 9 7/8% per annum on the principal amount, payable
semiannually in arrears in cash on April 1 and
October 1 of each year, beginning October 1, 2001.
Maturity Date.............. April 1, 2011.
Ranking.................... The senior subordinated exchange notes will be
general unsecured obligations, subordinated to all
of our existing and future senior indebtedness,
including our and our subsidiaries' obligations
under our new senior credit facility, our 7 3/8%
senior notes due 2009 and the senior exchange
notes. The senior subordinated exchange notes will
also be subordinated to our guarantees of certain
indebtedness of our joint ventures. As of March 29,
2001, as adjusted for the original note offering
and the application of estimated net proceeds
therefrom as
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described under "Use of Proceeds," we had
approximately $232.2 million of senior debt
outstanding and guarantees of approximately $43.1
million of outstanding debt of two joint ventures.
The senior subordinated exchange notes will also be
structurally subordinated to all present and future
indebtedness of our joint ventures and
non-guarantor subsidiaries. The senior subordinated
exchange notes will rank equally in right of
payment with any future senior subordinated
indebtedness.
Guarantee.................. The senior subordinated exchange notes will be
unconditionally guaranteed on an unsecured, senior
subordinated basis, jointly and severally, by all
of our domestic subsidiaries, except for one
subsidiary that is not wholly owned. The senior
subordinated guarantees will be subordinated to all
existing and future senior indebtedness of our
subsidiary guarantors, including any indebtedness
they guarantee under our new senior credit
facility, under our 7 3/8% senior notes due 2009
and under the senior exchange notes. The senior
subordinated guarantees will rank equally in right
of payment with any guarantees of any of our future
senior subordinated indebtedness.
Change of Control.......... If a change of control of our company occurs, we
must give holders of the senior subordinated notes
an opportunity to sell us their senior subordinated
exchange notes at a purchase price of 101% of the
principal amount of the senior subordinated
exchange notes, plus accrued and unpaid interest,
if any. The term "change of control" is defined in
the "Description of the Senior Subordinated
Exchange Notes" section of this prospectus.
Optional Redemption........ Prior to April 1, 2004, we can choose to redeem up
to 35% of the original principal amount of the
senior subordinated exchange notes with money we
raise in certain equity offerings, so long as:
- we pay the holders of the senior subordinated
exchange notes a redemption price of 110.50% of
the principal amount of the senior subordinated
exchange notes, plus accrued and unpaid interest,
if any, to the date of redemption; and
- at least 65% of the original aggregate principal
amount of the senior subordinated exchange notes
remains outstanding after each such redemption.
- On or after April 1, 2006, we can choose to
redeem the senior subordinated exchange notes, in
whole or in part, at the redemption prices
described in the "Description of the Senior
Subordinated Exchange Notes" section of this
prospectus, plus accrued and unpaid interest, if
any, to the date of redemption.
Restrictive Covenants...... The indenture governing the senior subordinated
exchange notes will limit what we may do in the
operation of our business. The provisions of the
indenture will limit our ability to:
- incur more debt or guarantee indebtedness;
- create liens;
- pay dividends on our capital stock, redeem,
repurchase or retire our capital stock or
subordinated indebtedness or make distributions;
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- create restrictions on the payment of dividends
or other amounts to us from our restricted
subsidiaries;
- make investments;
- merge, consolidate or sell assets;
- enter into transactions with affiliates;
- enter into sale-lease back transactions; and
- sell or issue capital stock of certain
subsidiaries.
These covenants are subject to a number of
important exceptions and qualifications that are
described in the "Description of the Senior
Subordinated Exchange Notes -- Certain Covenants"
section of this prospectus.
Absence of Established
Market for the Senior
Subordinated Exchange
Notes.................... The senior subordinated exchange notes will
constitute a new class of securities with no
established trading market.
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
We have derived the following summary consolidated historical financial
data for the years ended December 31, 1996, 1997, 1998, 1999 and 2000 from our
audited financial statements and for the three-month periods ended March 31,
2000 and March 31, 2001 from our unaudited consolidated financial statements.
You should read the summary consolidated historical financial data set forth
below in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Certain Indebtedness,"
our historical consolidated financial statements and the related notes to those
financial statements included in this prospectus, and the documents that we have
filed with the Securities and Exchange Commission and incorporated by reference
into this prospectus.
The as adjusted financial data may not reflect our capitalization or
financial condition had the offering of the original notes and the application
of proceeds from the offering of original notes actually occurred on the date
specified. Results for the three-month periods ended March 31, 2000 and March
31, 2001 are not necessarily indicative of results that may be expected for any
other interim period or for the year as a whole. In the opinion of our
management, all adjustments (which include normal recurring adjustments)
necessary to arrive at a fair statement of interim results have been included.
Finally, historical results are not necessarily indicative of future financial
condition or results of operations.
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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIO DATA)
THREE-MONTH
PERIODS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
INCOME STATEMENT DATA:
Net sales....................................... $602,695 $668,138 $736,858 $890,089 $963,431 $248,553 $220,102
Cost of sales................................... 422,783 482,964 536,925 683,576 759,572 194,416 178,437
Gross profit.................................... 179,912 185,174 199,933 206,513 203,859 54,137 41,665
Selling, general and administrative expenses.... 81,003 88,978 105,052 125,784 145,268 38,490 36,717
Restructuring and other nonrecurring costs(1)... -- -- -- -- 16,777 6,913 7,083
Operating income (loss)......................... 98,909 96,196 94,881 80,729 41,814 8,734 (2,135)
Interest expense................................ 10,698 14,111 16,072 25,456 34,063 7,787 9,210
Interest income and other (expense), net........ 4,865 (362) (99) 144 (506) 106 366
Equity in income (loss) of unconsolidated
affiliates.................................... 2,154 1,665 4,308 9,224 6,533 2,910 (1,585)
Income (loss) before minority interest, income
taxes and extraordinary loss.................. 95,230 83,388 83,018 64,641 13,778 3,963 (12,564)
Minority interest............................... (754) (1,721) (730) (356) (169) (75) (28)
Provision (benefit) for income taxes............ 36,574 30,543 30,470 23,216 5,467 1,746 (4,443)
Extraordinary loss from early extinguishment of
debt, net of tax benefit...................... 0 0 0 0 0 0 (2,695)
Net income (loss)............................... 57,902 51,124 51,818 41,069 8,142 2,142 (10,844)
OTHER DATA:
EBITDA(2)....................................... $132,242 $131,160 $137,795 $142,838 $108,699 $ 26,608 $ 12,044
Adjusted EBITDA(1)(3)........................... 132,242 131,160 137,795 142,838 121,433 32,304 16,031
Depreciation and amortization................... 26,314 33,661 38,705 52,741 60,858 14,858 15,398
Capital expenditures............................ 32,059 36,275 40,716 35,696 58,306 17,151 11,826
Ratio of adjusted EBITDA to interest expense.... 12.4x 9.3x 8.6x 5.6x 3.6x 4.2x 1.7x
Ratio of adjusted EBITDA to interest expense, as
adjusted for the offering(4).................. -- -- -- -- 2.5x -- --
Ratio of earnings to fixed charges(5)........... 8.4x 6.0x 5.3x 3.1x 1.2x 1.44x (0.45)x
AS OF DECEMBER 31, 2000 AS OF MARCH 31, 2001
---------------------------- --------------------
(AS ADJUSTED)(7) (UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents(6)................... $ 8,900 $ 36,446 $ 22,229
Working capital................................ 99,442 126,988 138,018
Total assets................................... 932,827 960,373 953,882
Total debt(6).................................. 468,072 507,238 506,494
Shareholders' equity........................... 279,050 276,801 284,436
- ---------------
(1) In 2000, we recorded restructuring and other nonrecurring costs associated
with the closing of two mills ($15.5 million) and a nonoperating litigation
settlement ($1.3 million). Of the total costs, approximately $12.7 million
represented noncash costs. During the three-month period ending March 31,
2000, we recorded restructuring costs of $6.9 million associated with the
closing of a paperboard mill. Of the total costs, approximately $5.7 million
were noncash. During the three-month period ending March 31, 2001, we
recorded restructuring costs of $7.1 million associated with the closing of
one mill and the consolidation of two folding carton facilities. Of the
total costs, approximately $4.0 million were noncash. See Notes 12 and 14 to
the consolidated financial statements.
(2) EBITDA is defined as income before income taxes and minority interests, plus
interest expense, depreciation and amortization. EBITDA is presented because
we believe it is a useful indicator of our ability to meet debt service and
capital expenditure requirements. It is not, however, intended as an
alternative measure of operating results or cash flow from operations as
determined in accordance with generally accepted accounting principles.
EBITDA is not necessarily comparable to similarly titled measures for other
companies.
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(3) Adjusted EBITDA is defined as EBITDA, as adjusted to exclude the noncash
portion of any restructuring and other nonrecurring costs.
(4) The ratio of adjusted EBITDA to interest expense, as adjusted for the
offering, means adjusted EBITDA divided by interest expense, assuming the
offering of the original notes had been completed as of January 1, 2000. For
purposes of this ratio we did not include an assumption for interest income
earned on the estimated excess funds. This ratio would have been 2.6x if we
had assumed interest income on the excess funds at a 5% return.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of net income, plus fixed charges, minus equity in income of
less-than-50%-owned entities. Fixed charges consist of interest costs
(whether expensed or capitalized), amortization of debt issuance costs and
an estimate of the interest cost in rental expense.
(6) As of March 29, 2001, the borrowings under our senior credit facility were
$210.0 million. As of March 31, 2001, as adjusted for the application of the
net proceeds from the offering of the original notes as described under "Use
of Proceeds," cash and cash equivalents were $22.2 million, and total debt
was $506.4 million. The foregoing does not give effect to our obtaining our
new senior credit facility.
(7) Adjusted to reflect consummation of the offering as of December 31, 2000 and
application of the net proceeds from the sale of the notes as described
under "Use of Proceeds."
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RISK FACTORS
You should consider the following risk factors, in addition to the other
information presented in this prospectus and the documents incorporated by
reference into this prospectus, in evaluating us, our business and an investment
in the notes. Any of the following risks, as well as other risks and
uncertainties, could harm our business and financial results and cause the value
of the notes to decline, which in turn could cause you to lose all or part of
your investment. The risks below are not the only ones facing our company.
Additional risks not currently known to us or that we currently deem immaterial
also may impair our business.
RISKS RELATED TO OUR SUBSTANTIAL INDEBTEDNESS AND THE NOTES
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR CASH FLOW AND OUR
ABILITY TO FULFILL OUR OBLIGATIONS UNDER THE NOTES.
We have a substantial amount of outstanding indebtedness. The following
chart shows some of our important credit statistics and assumes we completed the
offering as of the date or at the beginning of the period specified and applied
the proceeds as we indicate in this prospectus:
AT DECEMBER 31, 2000 AT MARCH 31, 2001
-------------------- -----------------
Total debt......................................... $507,238 $506,494
Shareholders' equity............................... $276,801 $284,436
Debt to equity ratio............................... 1.8x 1.8x
FOR THE THREE
MONTHS
FOR THE YEAR ENDED ENDED MARCH 31,
DECEMBER 31, 2000 2001
-------------------- -----------------
Ratio of earnings to fixed charges................. 1.2x (0.45)x
Our substantial level of indebtedness increases the possibility that we may
be unable to generate cash sufficient to pay when due the principal of, interest
on or other amounts due in respect of the notes and our other indebtedness. We
recently have obtained a new senior credit facility, and may obtain additional
long-term debt, increasing the risks discussed below. Our substantial leverage
could have significant consequences to you. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain additional financing;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, reducing the amount of our
cash flow available for other purposes, including capital expenditures
and other general corporate purposes;
- require us to sell debt or equity securities or to sell some of our core
assets, possibly on unfavorable terms, to meet payment obligations;
- restrict us from making strategic acquisitions, introducing new
technologies or exploiting business opportunities;
- limit our flexibility in planning for, or reacting to, changes in our
business and our industry; and
- place us at a possible competitive disadvantage compared to our
competitors that have less debt.
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DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE DEBT, WHICH COULD FURTHER EXACERBATE THE RISKS
DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indentures do not fully prohibit
our subsidiaries or us from incurring additional indebtedness. We recently
obtained a new senior credit facility under which we may incur significant
additional indebtedness and under which our subsidiaries have provided
guarantees. All such indebtedness and subsidiary guarantees under this new
senior credit facility will be senior to the senior subordinated exchange notes
and the senior subordinated subsidiary guarantees of the senior subordinated
exchange notes and will rank equally in right of payment with the senior
exchange notes and with the senior subsidiary guarantees of the senior exchange
notes. If new debt is added to our and our subsidiaries' current debt levels,
the related risks that we now face could intensify. See "Capitalization,"
"Selected Consolidated Historical Financial Data," "Description of the Senior
Exchange Notes," "Description of the Senior Subordinated Exchange Notes" and
"Description of Certain Indebtedness -- Senior Credit Facility."
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, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our new credit facility or otherwise in amounts sufficient
to enable us to pay our indebtedness, including the notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness, including our new senior credit
facility and the notes, on commercially reasonable terms or at all.
RESTRICTIVE COVENANTS IN THE NOTES AND OUR OTHER INDEBTEDNESS COULD ADVERSELY
AFFECT OUR BUSINESS BY LIMITING OUR OPERATING AND STRATEGIC FLEXIBILITY.
The senior subordinated indenture for the senior subordinated exchange
notes contains restrictive covenants that limit our ability to:
- incur more debt or guarantee indebtedness;
- create liens;
- pay dividends on our capital stock or redeem, repurchase or retire our
capital stock or subordinated indebtedness or make distributions;
- create restrictions on the payment of dividends or other amounts to us
from our restricted subsidiaries;
- make investments;
- enter into transactions with affiliates;
- enter into sale-leaseback transactions;
- merge, consolidate or sell assets; and
- sell or issue capital stock of certain subsidiaries.
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The senior indenture for the senior exchange notes contains restrictive
covenants that limit our ability to:
- create liens; and
- enter into sale-leaseback transactions.
These covenants could have an adverse effect on our business by limiting
our ability to take advantage of financing, merger and acquisition or other
corporate opportunities. In addition, our new senior credit facility contains
other and more restrictive covenants that may prohibit us from prepaying our
other indebtedness, including the notes. Our new senior credit facility requires
us to maintain specified financial ratios. These financial ratios will become
more restrictive over the life of the senior credit facility. Our ability to
meet those financial ratios can be affected by events beyond our control, and we
cannot assure you that we will meet those ratios. A breach of any of these
covenants, ratios or restrictions could result in an event of default under our
senior credit facility and any of our other indebtedness that may be cross-
defaulted to our senior credit facility. Upon the occurrence of an event of
default under the senior credit facility or such other indebtedness, the lenders
could elect to declare all amounts outstanding under such indebtedness, together
with accrued interest, to be immediately due and payable. If these lenders
accelerate the payment of that indebtedness, we cannot assure you that our
assets would be sufficient to repay in full that indebtedness and any other
debt, including the notes. See "Description of Certain Indebtedness,"
"Description of the Senior Exchange Notes -- Certain Covenants" and "Description
of the Senior Subordinated Exchange Notes -- Certain Covenants."
THE SENIOR SUBORDINATED EXCHANGE NOTES AND THE SENIOR SUBORDINATED
SUBSIDIARY GUARANTEES ARE JUNIOR TO OUR AND OUR SUBSIDIARY GUARANTORS' SENIOR
INDEBTEDNESS, AND WE MAY NOT BE PERMITTED TO PAY PRINCIPAL OR INTEREST ON THE
SENIOR SUBORDINATED NOTES WHEN IT BECOMES DUE. FURTHERMORE, CLAIMS OF CREDITORS
OF OUR NON-GUARANTOR SUBSIDIARIES WILL HAVE PRIORITY WITH RESPECT TO THE ASSETS
AND EARNINGS OF SUCH SUBSIDIARIES OVER YOUR CLAIMS.
The senior subordinated exchange notes and the senior subordinated
subsidiary guarantees will be subordinated to the prior payment in full of our
and our subsidiary guarantors', as the case may be, current and future senior
indebtedness. As of March 31, 2001, after completion of the original note
offering and application of net proceeds therefrom as described under "Use of
Proceeds," the amount of our and our subsidiary guarantors' outstanding senior
indebtedness was approximately $232.2 million. The senior subordinated indenture
relating to the senior subordinated exchange notes will permit us and our
subsidiaries to incur certain additional indebtedness, which may be senior
indebtedness.
We may not be permitted to pay principal, premium, if any, interest or
other amounts on the senior subordinated exchange notes in the event of a
payment default in respect of senior indebtedness, unless the senior
indebtedness has been paid in full or the default has been cured or waived. In
addition, if certain other defaults regarding senior indebtedness occur, we may
not be permitted to pay any amount regarding the senior subordinated exchange
notes or any senior subordinated subsidiary guarantees for a designated period
of time. If we or any of our subsidiary guarantors are declared bankrupt or
insolvent, or if there is a payment default under, or an acceleration of, any
senior indebtedness, we may be required to pay the lenders under our senior
indebtedness in full before we use any of our assets to pay holders of our
senior subordinated exchange notes. Accordingly, we may not have enough assets
to pay holders of our senior subordinated exchange notes after paying the
holders of our senior indebtedness.
Future senior indebtedness, including our new senior credit facility, may
prohibit us from repurchasing any senior subordinated exchange notes prior to
maturity, even though the indenture requires us to offer to repurchase the
senior subordinated exchange notes in some circumstances. If we consummate
restricted asset sales or if a change of control occurs when we are prohibited
from repurchasing the senior subordinated exchange notes, we could ask our
lenders under any senior indebtedness for permission to repurchase the senior
subordinated exchange notes or we could attempt to refinance the borrowings that
contain these prohibitions. If we do not obtain a consent to repurchase the
senior subordinated exchange notes or if we are unable to refinance the
borrowings, we would be unable to repurchase the senior
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subordinated exchange notes. Our failure to repurchase tendered senior
subordinated exchange notes at a time when repurchase is required by the senior
subordinated indenture would constitute an event of default under the senior
subordinated indenture, which, in turn, may constitute an event of default any
or all of our senior indebtedness. In these circumstances, the subordination
provisions in the senior subordinated indenture would restrict payments to you.
See "Description of Certain Indebtedness," "Description of the Senior
Subordinated Exchange Notes -- Subordination" and "Description of the Senior
Subordinated Exchange Notes -- Repurchase at the Option of Holders."
Neither Paragon Plastics, Inc. nor any of our foreign subsidiaries will
guarantee the notes, and the notes will be structurally subordinated to the
prior payment in full of all indebtedness and other liabilities of our
non-guarantor subsidiaries. As of March 31, 2001, our non-guarantor subsidiaries
had approximately $600,000 of third-party indebtedness outstanding. Our right to
receive assets from any of our non-guarantor subsidiaries upon the liquidation
or reorganization of those non-guarantor subsidiaries will be subordinated to
the claims of the creditors of these non-guarantor subsidiaries, including trade
creditors, except to the extent that we are recognized as a creditor of those
non-guarantor subsidiaries. The non-guarantor subsidiaries generated
approximately 2.5% of our adjusted EBITDA (as defined herein) during the year
ended December 31, 2000 and comprised approximately 1.8% of our total assets at
December 31, 2000.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
AS A RESULT, THE GUARANTEES FROM OUR SUBSIDIARIES MAY NOT BE ENFORCEABLE.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; or
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
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 occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
- if 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
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each 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. There can be no
assurance, however, as to what standard a
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court would apply in making such determinations or that a court would agree with
our conclusions in this regard.
OUR JOINT VENTURES ARE NOT SUBSIDIARIES AND ARE NOT SUBJECT TO CERTAIN
RESTRICTIVE COVENANTS IN THE INDENTURES, AND THE SENIOR SUBORDINATED EXCHANGE
NOTES WILL BE JUNIOR TO OUR GUARANTEES OF THE INDEBTEDNESS OF OUR JOINT
VENTURES. FURTHERMORE, CLAIMS OF CREDITORS OF OUR JOINT VENTURES WILL HAVE
PRIORITY WITH RESPECT TO THE ASSETS AND EARNINGS OF SUCH JOINT VENTURES OVER
YOUR CLAIMS.
Our joint ventures, including Premier Boxboard Limited LLC and Standard
Gypsum, L.P., which together accounted for approximately 5.4% of our adjusted
EBITDA (as defined herein) for the year ended December 31, 2000, are not
considered subsidiaries under the indentures for the notes because we do not
control a majority of voting power in any of them. Only subsidiaries that are
"restricted subsidiaries" are subject to various restrictive covenants in the
indentures. For example:
- the restrictions on asset sales do not apply to any sale of the capital
stock of any of our joint ventures or to asset sales by any joint
venture; and
- the restrictions on the incurrence of indebtedness do not apply to the
joint ventures.
Further, the joint ventures are not guaranteeing the notes. As such,
creditors of our joint ventures will have claims to the assets and earnings of
our joint ventures that are prior to your claims. However, our pro rata portion
of consolidated net income and consolidated cash flow of the joint ventures are
included for certain covenants of the senior subordinated exchange notes whether
or not distributions are actually paid to the partners of the joint venture. See
"Description of the Senior Subordinated Exchange Notes." In addition, our
ability to utilize cash flow from our joint ventures to pay any amounts due on
the notes will be restricted if there exist any defaults under any of the joint
ventures' indebtedness, whether or not we have guaranteed that indebtedness.
Even if any of our joint ventures were to become a subsidiary, we would have the
option (subject to certain conditions) to designate it as an "unrestricted
subsidiary," in which case it would not be subject to the restrictive covenants
in the senior subordinated indenture and would not have an obligation to
guaranty the notes. See "Description of the Senior Exchange Notes" and
"Description of the Senior Subordinated Exchange Notes" for a summary of the
covenants that apply to restricted and unrestricted subsidiaries.
As of March 31, 2001, our Premier Boxboard and Standard Gypsum joint
ventures had approximately $136.2 million in aggregate principal amount of
outstanding indebtedness, consisting of $50.0 million in senior notes, $56.2
million in undrawn letters of credit, which support industrial revenue bonds
obligations, and $30.0 million in revolving loans and undrawn letters of credit
under bank credit facilities. In addition, approximately $15.0 million in
aggregate principal amount is available to be borrowed under those credit
facilities. We have guaranteed a portion of this indebtedness totaling $43.1
million of the outstanding principal amount and $7.5 million of the principal
amount available but not yet borrowed. Our guarantees of this indebtedness rank
senior in right of payment to the senior subordinated exchange notes. In
addition, the debt that we have guaranteed is cross-defaulted to the other
outstanding debt of the joint ventures and may be cross-defaulted to additional
future debt of the joint ventures. Subject to the terms of the senior
subordinated indenture, we may also guarantee additional indebtedness of our
joint ventures, and those guarantees would also rank senior to the senior
subordinated exchange notes.
We may not be permitted to pay principal, premium, if any, interest or
other amounts on the senior subordinated exchange notes in the event of a
default in respect of our guarantees, unless the guaranteed indebtedness has
been paid in full or the default has been cured or waived.
FUTURE LIQUIDITY AND CASH FLOW DIFFICULTIES COULD PREVENT US FROM REPAYING THE
NOTES WHEN DUE OR REPURCHASING THE NOTES WHEN WE ARE REQUIRED TO DO SO.
At final maturity of the notes or in the event of acceleration of the notes
following an event of default, the entire outstanding principal amount of the
notes will become due and payable. In addition, if a change of control occurs,
holders of the notes may require us to repurchase all or a portion of their
notes.
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We may not have sufficient funds or may be unable to arrange for additional
financing to pay these amounts when they become due.
YOU WILL GENERALLY BE REQUIRED TO INCLUDE AMOUNTS IN GROSS INCOME FOR FEDERAL
INCOME TAX PURPOSES IN ADVANCE OF RECEIVING CASH.
The original notes were issued at a substantial discount from the stated
principal amount thereof and, as a result, purchasers of the original notes and
purchasers who exchange notes for exchange notes generally will be required to
include the accrued portion of such discount in gross income, as interest, for
federal tax purposes in advance of the receipt of cash payments of such
interest. See "Certain U.S. Federal Tax Considerations" for a more detailed
discussion of certain U.S. federal income tax consequences to you of the
purchase, ownership and disposition of the notes.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS AND FINANCIAL PERFORMANCE MAY BE HARMED BY FUTURE INCREASES IN RAW
MATERIAL COSTS.
Our primary raw material is recycled paper, which is known in our industry
as "recovered fiber." The cost of recovered fiber has, at times, fluctuated
greatly because of factors such as shortages or surpluses created by market or
industry conditions. Although we have historically raised the selling prices of
our products in response to raw material price increases, sometimes raw material
prices have increased so quickly or to such levels that we have been unable to
pass the price increases through to our customers on a timely basis, which has
adversely affected our operating margins. We cannot assure you that we will be
able to pass such price changes through to our customers on a timely basis and
maintain our margins in the face of raw material cost fluctuations in the
future.
OUR OPERATING MARGINS MAY BE ADVERSELY AFFECTED BY RISING ENERGY COSTS.
Excluding labor, energy is our most significant manufacturing cost. We use
energy to generate steam used in the paper making process and to operate our
paperboard machines and all of our other converting machinery. Our energy costs
increased steadily throughout 2000 due primarily to increases in natural gas and
fuel oil costs. In 1999, the average energy cost in our mill system was
approximately $45 per ton. Average energy costs increased by 15.5% to $52 per
ton in 2000, and rose to $66 per ton in the first quarter of 2001. Until
recently, our business had not been significantly affected by energy costs, and
we historically have not passed energy costs through to our customers. We were
not able to pass through to our customers all of the energy cost increases we
incurred in 2000. We continue to evaluate our energy costs and consider ways to
factor energy costs into our pricing. However, we cannot assure you that our
operating margins and results of operations will not continue to be adversely
affected by rising energy costs.
OUR BUSINESS AND FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED BY DOWNTURNS IN
INDUSTRIAL PRODUCTION, HOUSING AND CONSTRUCTION AND THE CONSUMPTION OF
NONDURABLE AND DURABLE GOODS.
Demand for our products in our four principal end use markets is primarily
driven by the following factors:
- Tube, core and composite container -- industrial production, construction
spending and consumer nondurable consumption
- Folding cartons -- consumer nondurable consumption and industrial
production
- Gypsum wallboard facing paper -- single and multifamily construction,
repair and remodeling construction and commercial construction
- Other specialty products -- consumer nondurable consumption and consumer
durable consumption
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Downturns in any of these sectors will result in decreased demand for our
products. In particular, our business has been adversely affected in recent
periods by the general slow down in industrial demand and softness in the
housing markets. These conditions are beyond our ability to control, but have
had, and will continue to have, a significant impact on our sales and results of
operations.
WE ARE ADVERSELY AFFECTED BY THE CYCLES, CONDITIONS AND PROBLEMS INHERENT IN OUR
INDUSTRY.
Our operating results tend to reflect the general cyclical nature of the
business in which we operate. In addition, our industry has suffered from excess
capacity. Our industry also is capital intensive, which leads to high fixed
costs and generally results in continued production as long as prices are
sufficient to cover marginal costs. These conditions have contributed to
substantial price competition and volatility within our industry. In the event
of a recession, demand and prices are likely to drop substantially. Our
profitability historically has been more sensitive to price changes than to
changes in volume. Future decreases in prices for our products would adversely
affect our operating results. These factors, coupled with our substantially
leveraged financial position, may adversely affect our ability to respond to
competition and to other market conditions or to otherwise take advantage of
business opportunities.
THE LINGERING EFFECTS OF OUR TENTATIVELY SETTLED DISPUTE WITH GEORGIA-PACIFIC
MAY CONTINUE TO MATERIALLY AND ADVERSELY AFFECT OUR OPERATING RESULTS AND
FINANCIAL CONDITION.
We have been in litigation with Georgia-Pacific Corporation over
Georgia-Pacific's refusal to continue purchasing its requirements of gypsum
facing paper for certain plants pursuant to the terms of a long-term supply
contract. As a result of the dispute, by the end of the third quarter of 2000,
Georgia-Pacific's purchases fell by more than 80% from an average of 7,000 tons
per month during the first half of 2000, and fell to approximately 300 tons per
month in the fourth quarter of 2000. As a result of this loss in volume, we have
closed our Camden, New Jersey paperboard mill and lost volume amounting to
approximately 40% of the capacity of our Buffalo, New York paperboard mill. As
we recently announced, however, we have reached a tentative settlement pursuant
to which we have entered into a new supply agreement with G-P Gypsum, a
subsidiary of Georgia-Pacific, which we expect will become effective upon the
completion of a transition period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Georgia-Pacific Litigation." We
can give no assurance, however, that the conditions to the new agreement will be
satisfied (or that G-P Gypsum will determine or agree that the conditions have
been satisfied), or that the new agreement will be implemented and the pending
litigation will be dismissed. Even if the new agreement is implemented, it could
be at least 45 days before we are supplying tonnage equal to at least 50% of the
7,000 tons per month levels purchased by Georgia-Pacific during the first half
of 2000 before the dispute arose. Accordingly, we believe that our operating
results and financial condition will continue to be materially and adversely
affected by the loss of contract volume from Georgia-Pacific unless and until
the new supply agreement is implemented, and until the new supply agreement has
been effective long enough to generate a substantial volume of required
purchases from Georgia-Pacific.
OUR BUSINESS MAY SUFFER FROM RISKS ASSOCIATED WITH GROWTH AND ACQUISITIONS.
Historically, we have grown our business, revenues and production capacity
to a significant degree through acquisitions. In the current difficult operating
climate facing our industry, we anticipate that the pace of our acquisition
activity will slow significantly as we focus on conserving cash and maximizing
the productivity of our existing facilities. However, we expect to continue
evaluating and pursuing acquisition opportunities on a selective basis, subject
to available funding and credit flexibility. Growth through acquisitions
involves risks, many of which may continue to affect us based on acquisitions we
have completed in the past. For example, we have suffered significant unexpected
losses at our Sprague mill in Versailles, Connecticut, which we acquired from
International Paper Company in 1999, resulting from unfavorable fixed price
contracts, low capacity utilization and higher recovered fiber costs that we
were unable to pass through to our customers. Sprague incurred operating losses
of $9.3 million in 1999, $17.2 million in 2000 and $5.1 million in the first
quarter of 2001. See "Management's Discussion and Analysis
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of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." We cannot assure you that our acquired businesses will achieve the
same levels of revenue, profit or productivity as our existing locations or
otherwise perform as we expect.
Acquisitions also involve specific risks. Some of these risks include:
- assumption of unanticipated liabilities and contingencies;
- diversion of management's attention; and
- possible reduction of our reported earnings because of:
- increased goodwill write-offs;
- increased interest costs;
- issuances of additional securities or debt; and
- difficulties in integrating acquired businesses.
As we grow, we can give no assurance that we will be able to:
- use the increased production capacity of any new or improved facilities;
- identify suitable acquisition candidates;
- complete additional acquisitions; or
- integrate acquired businesses into our operations.
IF WE CANNOT RAISE THE NECESSARY CAPITAL FOR, OR USE OUR STOCK TO FINANCE,
ACQUISITIONS, EXPANSION PLANS OR OTHER SIGNIFICANT CORPORATE OPPORTUNITIES, OUR
GROWTH MAY BE IMPAIRED.
Without additional capital, we may have to curtail any acquisition and
expansion plans or forego other significant corporate opportunities that may be
vital to our long-term success. Although we expect to use borrowed funds to
pursue these opportunities, we must continue to comply with financial and other
covenants in order to do so. If our revenues and cash flow do not meet
expectations, then we may lose our ability to borrow money or to do so on terms
that we consider favorable. Conditions in the capital markets also will affect
our ability to borrow, as well as the terms of those borrowings. In addition,
our financial performance and the conditions of the capital markets will also
affect the value of our common stock, which could make it a less attractive form
of consideration in making acquisitions. All of these factors could also make it
difficult or impossible for us to expand in the future.
WE ARE SUBJECT TO MANY ENVIRONMENTAL LAWS AND REGULATIONS THAT REQUIRE
SIGNIFICANT EXPENDITURES FOR COMPLIANCE AND REMEDIATION EFFORTS, AND CHANGES IN
THE LAW COULD INCREASE THOSE EXPENSES AND ADVERSELY AFFECT OUR OPERATIONS.
Compliance with the environmental requirements of international, federal,
state and local governments significantly affects our business. Among other
things, these requirements regulate the discharge of materials into the water,
air and land and govern the use and disposal of hazardous substances. Under
environmental laws, we can be held strictly liable if hazardous substances are
found on real property we have ever owned, operated or used as a disposal site.
In recent years, we have adopted a policy of assessing real property for
environmental risks prior to purchase. We are aware of issues regarding
hazardous substances at some facilities, and we have put into place a remedial
plan at each site where we believe such a plan is necessary. We regularly make
capital and operating expenditures to stay in compliance with environmental
laws. Despite these compliance efforts, risk of environmental liability is part
of the nature of our business. We cannot assure you that environmental
liabilities, including compliance and remediation costs, will not have a
material adverse effect on us in the future. In addition, future events may lead
to additional compliance or other costs that could have a material adverse
effect on our business. Such future
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events could include changes in, or new interpretations of, existing laws,
regulations or enforcement policies or further investigation of the potential
health hazards of certain products or business activities.
RISKS RELATED TO THE EXCHANGE OFFER
IF YOU DO NOT EXCHANGE YOUR ORIGINAL NOTES FOR EXCHANGE NOTES, YOUR NOTES WILL
CONTINUE TO HAVE RESTRICTIONS ON TRANSFER.
If you do not exchange your original notes for exchange notes in the
exchange offer, or if your original notes are tendered but not accepted, your
notes will continue to have restrictions on transfer. In general, you may offer
or sell any original notes only if the notes are registered under the Securities
Act and applicable state laws, or resold under an exemption from these laws. We
do not intend to register the original notes under the Securities Act, other
than in the limited circumstances described in the registration rights agreement
discussed in the section "Registered Exchange Offer; Registration Rights."
THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR ORIGINAL
NOTES.
If original notes are tendered for exchange, the trading market for
untendered and tendered but unaccepted original notes could be adversely
affected. See "The Exchange Offer -- Consequences of Failure to Exchange."
YOU MAY FIND IT DIFFICULT TO SELL YOUR EXCHANGE NOTES BECAUSE NO PUBLIC TRADING
MARKET FOR THE EXCHANGE NOTES EXISTS.
The exchange notes are a new issue of securities for which there is
currently no active trading market. The exchange notes will be registered under
the Securities Act, but will constitute a new issue of securities with no
established trading market. We do not intend to list the exchange notes on any
national securities exchange or to seek the admission of the exchange notes for
quotation through the Nasdaq Stock Market, Inc. In addition, the exchange notes
will not be eligible for trading in The Portal(SM) Market. If the exchange notes
are traded after their initial issuance, they may trade at a discount from their
initial offering price, depending on prevailing interest rates, the market for
similar securities and other factors, including general economic conditions and
our financial condition, performance and prospects.
Accordingly,
- a market for the exchange notes may not develop;
- you may not be able to sell your exchange notes; and
- you may not be able to sell your exchange notes at any particular price.
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USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement entered into in connection with the offering
of the original notes. We will not receive any proceeds from the exchange offer.
In consideration for issuing the exchange notes, we will receive in exchange
original notes of like principal amount, the terms of which are identical in all
material respects to the exchange notes. The original notes surrendered in
exchange for exchange notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the exchange notes will not result in any increase in
our indebtedness. We have agreed to bear the expenses of the exchange offer. No
underwriter is being used in connection with the exchange offer.
The net proceeds that we received from the sale of the original notes on
March 29, 2001 (after deduction of discounts, fees and certain other expenses
associated with the sale of the original notes) were approximately $291.2
million. We used the net proceeds to repay all amounts outstanding under our
senior credit facility due July 2002 (approximately $210.4 million) and our
7.74% senior notes due October 2004 (approximately $72.2 million). We have
cancelled all commitments associated with the repaid indebtedness and will use
the remaining proceeds for general working capital needs.
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CAPITALIZATION
The following table shows our actual historical cash and cash equivalents
and capitalization as of December 31, 2000 and as of March 31, 2001 (unaudited),
and as adjusted to give effect to the offering of the original notes issued on
March 29, 2001 and the application of the proceeds therefrom, as if we had
completed the offerings on December 31, 2000.
We believe that the assumptions used provide a reasonable basis on which to
present our as adjusted capitalization. You should read the capitalization table
below in conjunction with our consolidated financial statements and the related
notes to those financial statements and the information presented under
"Selected Consolidated Historical Financial Data" that is included in this
prospectus. The as adjusted financial information included in the capitalization
table below is not necessarily indicative of our capitalization or financial
condition had we completed the offering of the original notes and the
application of net proceeds therefrom on the date assumed. It is also not
necessarily indicative of our future capitalization or future financial
condition.
AS OF AS OF
DECEMBER 31, 2000 MARCH 31, 2001
-------------------------------- --------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
HISTORICAL
HISTORICAL AS ADJUSTED (UNAUDITED)
CASH AND CASH EQUIVALENTS(1).............. $ 8,900 $ 36,446 $ 22,229
-------- -------- --------
LONG-TERM DEBT, INCLUDING CURRENT
MATURITIES:
Senior credit facility(1)............... 194,000 -- --
7 3/8% senior notes..................... 198,791 198,791 198,817
7.74% senior notes...................... 66,200 -- --
Senior notes issued March 29, 2001...... -- 25,242 25,243
Senior subordinated notes issued March
29, 2001............................. -- 274,124 274,128
Other long-term debt.................... 9,081 9,081 8,306
-------- -------- --------
Total debt(1)................... 468,072 507,238 506,494
-------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.10 par value;
5,000,000 shares authorized; none
issued............................... -- -- --
Common stock, $0.10 par value;
60,000,000 shares authorized;
26,204,567 and 27,850,814 shares
issued and outstanding as of December
31, 2000 and March 31, 2001,
respectively......................... 2,620 2,620 2,785
Additional paid-in capital.............. 160,824 160,824 179,543
Retained earnings(2).................... 116,359 114,110 102,999
Accumulated other comprehensive loss.... (753) (753) (891)
-------- -------- --------
Total shareholders' equity...... 279,050 276,801 284,436
-------- -------- --------
Total capitalization............ $747,122 $784,039 $790,930
======== ======== ========
- ---------------
(1) As of March 29, 2001, the borrowings under our old senior credit facility
were $210.0 million. As of March 31, 2001, as adjusted for the application
of the net proceeds from the offerings of the original notes as described
under "Use of Proceeds," total debt was $506.4 million, and cash and cash
equivalents were $22.2 million. The foregoing does not give effect to our
obtaining the new senior credit facility described under "Description of
Certain Indebtedness -- Senior Credit Facility."
(2) As adjusted, retained earnings give effect to the prepayment penalty
associated with the payoff of our 7.74% senior notes, net of related income
tax benefit.
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
We have derived the following selected consolidated historical financial
data for the years ended December 31, 1996, 1997, 1998, 1999 and 2000 from our
audited consolidated financial statements and for the three-month periods ended
March 31, 2000 and March 31, 2001 from our unaudited consolidated financial
statements. You should read the selected consolidated historical financial data
in conjunction with our "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the historical consolidated financial
statements and the related notes to those financial statements included in this
prospectus, and the reports that we filed with the Securities and Exchange
Commission and incorporated by reference into this prospectus.
The as adjusted financial data may not reflect our capitalization or
financial condition had the offering of the original notes and the application
of proceeds from the offering of original notes actually occurred on the date
specified. Results for the three-month periods ended March 31, 2000 and March
31, 2001 are not necessarily indicative of results that may be expected for any
other interim period or for the year as a whole. In the opinion of our
management, all adjustments (which include normal recurring adjustments)
necessary to arrive at a fair statement of interim results have been included.
Finally, historical results are not necessarily indicative of future financial
condition or results of operations.
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CARAUSTAR INDUSTRIES, INC.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIO DATA)
THREE-MONTH
PERIODS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ ---------------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- ---------- ------------- -----------
(UNAUDITED)
INCOME STATEMENT DATA:
Sales.................................... $629,674 $696,093 $774,312 $936,928 $1,014,615 $260,850 $233,088
Freight.................................. 26,979 27,955 37,454 46,839 51,184 12,297 12,986
Net sales................................ 602,695 668,138 736,858 890,089 963,431 248,553 220,102
Cost of sales............................ 422,783 482,964 536,925 683,576 759,572 194,416 178,437
Gross profit............................. 179,912 185,174 199,933 206,513 203,859 54,137 41,665
Selling, general and administrative
expenses............................... 81,003 88,978 105,052 125,784 145,268 38,490 36,717
Restructuring and other nonrecurring
costs(1)............................... -- -- -- -- 16,777 6,913 7,083
Operating income (loss).................. 98,909 96,196 94,881 80,729 41,814 8,734 (2,135)
Interest expense......................... 10,698 14,111 16,072 25,456 34,063 7,787 9,210
Interest income and other (expense),
net..................................... 4,865 (362) (99) 144 (506) 106 366
Equity in income (loss) of unconsolidated
affiliates.............................. 2,154 1,665 4,308 9,224 6,533 2,910 (1,585)
Income (loss) before minority interest,
income taxes and extraordinary loss..... 95,230 83,388 83,018 64,641 13,778 3,963 (12,564)
Minority interest........................ (754) (1,721) (730) (356) (169) (75) (28)
Provision (benefit) for income taxes..... 36,574 30,543 30,470 23,216 5,467 1,746 (4,443)
Extraordinary loss from early
extinguishment of debt, net of tax
benefit................................. 0 0 0 0 0 0 (2,695)
Net income (loss)........................ 57,902 51,124 51,818 41,069 8,142 2,142 (10,844)
OTHER DATA:
EBITDA(2)................................ $132,242 $131,160 $137,795 $142,838 $ 108,699 $ 26,608 $ 12,044
Adjusted EBITDA(1)(3).................... 132,242 131,160 137,795 142,838 121,433 32,304 16,031
Depreciation and amortization............ 26,314 33,661 38,705 52,741 60,858 14,858 15,398
Capital expenditures..................... 32,059 36,275 40,716 35,696 58,306 17,151 11,826
Ratio of adjusted EBITDA to interest
expense................................. 12.4x 9.3x 8.6x 5.6x 3.6x 4.2x 1.7x
Ratio of adjusted EBITDA to interest
expense, adjusted for the offering(4)... -- -- -- -- 2.5x -- --
Ratio of earnings to fixed charges(5).... 8.4x 6.0x 5.3x 3.1x 1.2x 1.44x (0.45)x
AS OF DECEMBER 31, 2000 AS OF MARCH 31, 2001
---------------------------- --------------------
(AS ADJUSTED)(7) (UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents(6)................................ $ 8,900 $ 36,446 $ 22,229
Working capital............................................. 99,442 126,988 138,018
Property, plant and equipment, net.......................... 483,309 483,309 476,400
Total assets................................................ 932,827 960,373 953,882
Total debt(6)............................................... 468,072 507,238 506,494
Shareholders' equity (deficit).............................. 279,050 276,801 284,436
Total Capital............................................... 747,122 784,039 790,930
- ---------------
(1) In 2000, we recorded restructuring and other nonrecurring costs associated
with the closing of two mills ($15.5 million) and a nonoperating litigation
settlement ($1.3 million). Of the total costs, approximately $12.7 million
represented noncash costs. During the three-month period ending March 31,
2000, we recorded restructuring costs of $6.9 million associated with the
closing of a paperboard mill. Of the total costs, approximately $5.7 million
were noncash. During the three-month period ending March 31, 2001, we
recorded restructuring costs of $7.1 million associated with the closing of
one mill and the consolidation of two folding carton facilities. Of the
total costs,
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approximately $4.0 million were noncash. See Notes 12 and 14 to the
consolidated financial statements.
(2) EBITDA is defined as income before income taxes and minority interests, plus
interest expense, depreciation and amortization. EBITDA is presented because
we believe it is a useful indicator of our ability to meet debt service and
capital expenditure requirements. It is not, however, intended as an
alternative measure of operating results or cash flow from operations as
determined in accordance with generally accepted accounting principles.
EBITDA is not necessarily comparable to similarly titled measures for other
companies.
(3) Adjusted EBITDA is defined as EBITDA, as adjusted to exclude the noncash
portion of any restructuring and other nonrecurring costs.
(4) The ratio of adjusted EBITDA to interest expense, adjusted for the offering,
means adjusted EBITDA divided by interest expense, assuming the offering of
the original notes had been completed as of January 1, 2000. For purposes of
this ratio, we did not include an assumption for interest income earned on
the estimated excess funds. This ratio would have been 2.6x if we had
assumed interest income on the excess funds at a 5% return.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of net income, plus fixed charges, minus equity in income of
less-than-50%-owned entities. Fixed charges consist of interest costs
(whether expensed or capitalized), amortization of debt issuance costs and
an estimate of the interest cost in rental expense.
(6) As of March 29, 2001, the borrowings under our revolving credit facility
were $210.0 million. As of March 31, 2001, as adjusted for the application
of the net proceeds from the offering of the original notes as described
under "Use of Proceeds," cash and cash equivalents were $22.2 million, and
total debt was $506.4 million. The foregoing does not give effect to our
obtaining our new senior credit facility.
(7) As adjusted to reflect consummation of the offering of the original notes as
of December 31, 2000 and application of the estimated net proceeds from the
sale of the original notes as described under "Use of Proceeds."
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THE EXCHANGE OFFER
GENERAL
We are offering to exchange (1) up to $29,000,000 in aggregate principal
amount of senior exchange notes due 2010 for the same aggregate principal amount
of original senior notes due 2010, and (2) up to $285,000,000 in aggregate
principal amount of senior subordinated exchange notes due 2011 for the same
aggregate principal amount of original senior subordinated notes due 2011,
properly tendered before the expiration date and not withdrawn. We are making
the exchange offer for all of the original notes. Your participation in the
exchange offer is voluntary, and you should carefully consider whether to accept
this offer.
On the date of this prospectus, $29,000,000 in aggregate principal amount
of the original senior notes due 2010 are outstanding and $285,000,000 in
aggregate principal amount of the original senior subordinated notes due 2011
are outstanding. Our obligations to accept original notes for exchange pursuant
to the exchange offer are limited by the conditions listed below under
"-- Conditions to the Exchange Offer."
We currently expect that each of the conditions will be satisfied and that
no waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
We issued and sold $29,000,000 in aggregate principal amount of the
original senior notes and $285,000,000 in aggregate principal amount of the
original senior subordinated notes on March 29, 2001 in a transaction exempt
from the registration requirements of the Securities Act. The initial purchasers
of the notes subsequently resold the original notes to qualified institutional
buyers in reliance on Rule 144A and under Regulation S under the Securities Act.
Because the transaction was exempt from registration under the Securities
Act, you may reoffer, resell or otherwise transfer the original notes only if
registered under the Securities Act or if an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the original notes, we entered
into the registration rights agreement, which requires us to complete this
exchange offer on or before September 5, 2001, which is 160 days after March 29,
2001, the date of the closing of the offering of the original notes, to avoid
incurring additional interest on the original notes.
In addition, there are circumstances under which we are required to use our
best efforts to file a shelf registration statement with respect to resales of
the original notes. We have filed a copy of the registration rights agreement as
an exhibit to our Form 10-K for the year ended December 31, 2000 that has been
filed with the Securities and Exchange Commission.
We are making the exchange offer to satisfy our obligations under the
registration rights agreement. Otherwise, we are not required to file any
registration statement to register any original notes. Holders of original notes
that do not tender their original notes or whose original notes are tendered but
not accepted will have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act, if they wish to sell their
original notes.
RESALE OF EXCHANGE NOTES
We have not requested, and do not intend to request, an interpretation by
the staff of the Securities and Exchange Commission as to whether the exchange
notes issued pursuant to the exchange offer in exchange for the original notes
may be offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on an interpretation by the staff in a series of
no-action letters issued to third parties, we believe
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that exchange notes issued pursuant to the exchange offer in exchange for
original notes may be offered for sale, resold and otherwise transferred by any
holder of exchange notes if:
- the holder is not our affiliate within the meaning of Rule 405 under the
Securities Act;
- the exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in a distribution of the
exchange notes.
Any holder who exchanges original notes in the exchange offer with the
intention of participating in any manner in a distribution of the exchange notes
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
Because the Securities and Exchange Commission has not considered our
exchange offer in the context of a no-action letter, we cannot assure you that
the staff would make a similar determination with respect to the exchange offer.
Any holder that is an affiliate of ours or that tenders in the exchange offer
for the purpose of participating in a distribution of the exchange notes may be
deemed to have received restricted securities and will not be allowed to rely on
this interpretation by the staff and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
If you participate in the exchange offer, you must acknowledge, among other
things, that you are not participating in, and do not intend to participate in,
a distribution of exchange notes. If you are a broker-dealer that receives
exchange notes for your own account in exchange for original notes, and you
acquired your original notes as a result of your market-making activities or
other trading activities, you must acknowledge that you will deliver a
prospectus in connection with any resale of the exchange notes. Please refer to
the section in this prospectus entitled "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any original notes
properly tendered and not withdrawn before expiration of the exchange offer. The
date of acceptance for exchange of the original notes and completion of the
exchange offer, is the exchange date, which will be the first business day
following the expiration date unless we extend the date as described in this
prospectus. We will issue $1,000 principal amount of exchange notes in exchange
for each $1,000 principal amount of original notes surrendered under the
exchange offer. The original notes may be tendered only in integral multiples of
$1,000. The exchange notes will be delivered on the earliest practicable date
following the exchange date.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the original notes, except the exchange notes:
- will be registered under the Securities Act; and
- will not bear legends restricting their transfer.
The exchange notes will evidence the same debt as the original notes. The
exchange notes will be issued under and entitled to the benefits of the same
indentures that authorized the issuance of the original notes.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of original notes being tendered for exchange.
As of the date of this prospectus, $29,000,000 aggregate principal amount
of the original senior notes are outstanding and $285,000,000 aggregate
principal amount of the original senior subordinated notes are outstanding. This
prospectus and the letter of transmittal are being sent to all registered
holders of original notes. There will be no fixed record date for determining
registered holders of original notes entitled to participate in the exchange
offer.
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We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations of the Securities and Exchange Commission. Original notes that are
not exchanged in the exchange offer will remain outstanding and continue to
accrue interest and will be entitled to the rights and benefits their holders
have under the indentures relating to the original notes and the exchange notes.
We will be deemed to have accepted for exchange properly tendered original
notes when we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the holders of original
notes who surrender them in the exchange offer for the purposes of receiving the
exchange notes from us and delivering the exchange notes to their holders. The
exchange agent will make the exchange as promptly as practicable on or after the
date of acceptance for exchange of the original notes. The exchange date will be
the first business day following the expiration date unless it is extended as
described in this prospectus. We expressly reserve the right to amend or
terminate the exchange offer, and not to accept for exchange any original notes
not previously accepted for exchange, upon the occurrence of any of the
conditions specified below under "-- Conditions to the Exchange Offer."
Holders who tender original notes 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
original notes. We will pay all charges and expenses, other than applicable
taxes described below, in connection with the exchange offer. It is important
that you read "-- Solicitation of Tenders; Fees and Expenses" and "-- Transfer
Taxes" below for more details regarding fees and expenses incurred in the
exchange offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2001, unless we have extended the period of time that the
exchange offer is open. The expiration date will be at least 20 business days
after the beginning of the exchange offer as required by Rule 14e-1(a) under the
Exchange Act.
We reserve the right to extend the period of time that the exchange offer
is open, and delay acceptance for exchange of any original notes, by giving oral
or written notice to the exchange agent and by timely public announcement no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. During any extension, all original notes
previously tendered will remain subject to the exchange offer unless properly
withdrawn.
We also reserve the right to:
- end or amend the exchange offer and not to accept for exchange any
original notes not previously accepted for exchange upon the occurrence
of any of the events specified below under "-- Conditions to the Exchange
Offer" that have not been waived by us; and
- amend the terms of the exchange offer in any manner that, in our good
faith judgment, is advantageous to you, whether before or after any
tender of the original notes.
If any termination or amendment occurs, we will notify the exchange agent
and will either issue a press release or give oral or written notice to you as
promptly as practicable.
PROCEDURES FOR TENDERING ORIGINAL NOTES
We have forwarded to you, along with this prospectus, a letter of
transmittal relating to this exchange offer. Because all of the original notes
are held in book-entry accounts maintained by the exchange agent at The
Depository Trust Company, Euroclear or Clearstream, a holder need not submit a
letter of transmittal if the holder tenders original notes in accordance with
the procedures mandated by The Depository Trust Company's Automated Tender Offer
Program ("ATOP") or by Euroclear or Clearstream, as the case may be. To tender
original notes without submitting a letter of transmittal, the electronic
instructions sent to The Depository Trust Company, Euroclear or Clearstream and
transmitted
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to the exchange agent must contain your acknowledgment of receipt of and your
agreement to be bound by and to make all of the representations contained in the
letter of transmittal. In all other cases, a letter of transmittal must be
manually executed and delivered as described in this prospectus.
Only a holder of record of original notes may tender original notes in the
exchange offer. To tender in the exchange offer, a holder must comply with the
procedures of The Depository Trust Company, Euroclear or Clearstream, as
applicable, and either:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal, have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires and deliver the
letter of transmittal or facsimile to the exchange agent prior to the
expiration date; or
- in lieu of delivering a letter of transmittal, instruct The Depository
Trust Company, Euroclear or Clearstream, as the case may be, to transmit
on behalf of the holder a computer-generated message to the exchange
agent in which the holder of the original notes acknowledges and agrees
to be bound by the terms of the letter of transmittal, which
computer-generated message shall be received by the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date.
In addition, either:
- with respect to the original notes, the exchange agent must receive,
before expiration of the exchange offer, timely confirmation of
book-entry transfer of the original notes into the exchange agent's
account at The Depository Trust Company, according to the procedure for
book-entry transfer described below;
- with respect to the original notes, the exchange agent must receive,
before the expiration date, timely confirmation from Euroclear or
Clearstream that the securities account to which the original notes are
credited has been blocked from and including the day on which the
confirmation is delivered to the exchange agent and that no transfers
will be effected in relation to such original notes at any time after
such date; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
deliver of the letter of transmittal and other required documents at the address
set forth below under "-- Exchange Agent" before expiration of the exchange
offer. To receive confirmation of valid tender of original notes, a holder
should contact the exchange agent at the telephone number listed under
"-- Exchange Agent."
The tender by a holder that is not withdrawn before expiration of the
exchange offer will constitute an agreement between that holder and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal. Only a registered holder of
original notes may tender the original notes in the exchange offer. If a holder
completing a letter of transmittal tenders less than all of the original notes
held by this holder, this tendering holder should fill in the applicable box of
the letter transmittal. The amount of original notes delivered to the exchange
agent will be deemed to have been tendered unless otherwise indicated.
If original notes, the letter of transmittal or any other required
documents are physically delivered to the exchange agent, the method of delivery
is at the holder's election and risk. Rather than mail these items, we recommend
that holders use an overnight or hand delivery service. In all cases, holders
should allow sufficient time to assure delivery to the exchange agent before
expiration of the exchange offer. Holders should not send the letter of
transmittal or original notes to us. Holders may request their respective
brokers, dealers, commercial banks, trust companies or other nominees to effect
the above transactions for them.
Any beneficial owner whose original notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If the beneficial owner wishes to tender on its
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own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its original notes, either:
- make appropriate arrangements to register ownership of the original notes
in the owner's name; or
- obtain a properly completed bond power from the registered holder of
original notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
If the applicable letter of transmittal is signed by the record holder(s)
of the original notes tendered, the signature must correspond with the name(s)
written on the face of the original note without alteration, enlargement or any
change whatsoever. If the applicable letter of transmittal is signed by a
participant in The Depository Trust Company, or Euroclear or Clearstream, as
applicable, the signature must correspond with the name as it appears on the
security position listing as the holder of the original notes.
A signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution. Eligible guarantor institutions
include banks, brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, government securities
brokers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. The signature need not
be guaranteed by an eligible guarantor institution if the original notes are
tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any original notes, the original notes must be endorsed or
accompanied by a properly completed bond power. The bond power must be signed by
the registered holder as the registered holder's name appears on the original
notes and an eligible institution must guarantee the signature on the bond
power.
If the letter of transmittal or any original 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, these persons should so indicate when signing. Unless we waive this
requirement, they should also submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered original notes. Our determination will be final and binding. We reserve
the absolute right to reject any original notes not properly tendered or any
original notes the acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular original 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
original notes must be cured within the time that we determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
original notes, neither we, the exchange agent nor any other person will incur
any liability for failure to give notification. Tenders of original notes will
not be deemed made until those defects or irregularities have been cured or
waived. Any original 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 by the exchange agent without cost to the tendering
holder, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
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In all cases, we will issue exchange notes for original notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- original notes or a timely book-entry confirmation that original notes
have been transferred into the exchange agent's account at The Depository
Trust Company; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Holders should receive copies of the letter of transmittal with the
prospectus. A holder may obtain additional copies of the applicable letter of
transmittal for the original notes from the exchange agent at its offices listed
under "-- Exchange Agent." By signing the letter of transmittal, or causing The
Depository Trust Company, Euroclear or Clearstream, as applicable, to transmit
an agent's message to the exchange agent, each tendering holder of original
notes will represent to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes;
- if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for original notes that were acquired as a result
of market-making activities or other trading activities, that it will
deliver a prospectus, as required by law, in connection with any resale
of those exchange notes (see "Plan of Distribution"); and
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of us or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.
THE DEPOSITORY TRUST COMPANY BOOK-ENTRY TRANSFER
The exchange agent has established an account with respect to the original
notes at The Depository Trust Company for purposes of the exchange offer.
With respect to the original notes, the exchange agent and The Depository
Trust Company have confirmed that any financial institution that is a
participant in The Depository Trust Company may utilize The Depository Trust
Company ATOP procedures to tender original notes.
With respect to the original notes, any participant in The Depository Trust
Company may make book-entry delivery of original notes by causing The Depository
Trust Company to transfer the original notes into the exchange agent's account
in accordance with The Depository Trust Company's ATOP procedures for transfer.
However, the exchange for the original notes so tendered will be made only
after a book-entry confirmation of such book-entry transfer of original notes
into the exchange agent's account, and timely receipt by the exchange agent of
an agent's message and any other documents required by the letter of
transmittal. The term "agent's message" means a message, transmitted by The
Depository Trust Company and received by the exchange agent and forming part of
a book-entry confirmation, which states that The Depository Trust Company has
received an express acknowledgment from a participant tendering original notes
that are the subject of the book-entry confirmation that the participant has
received and agrees to be bound by the terms of the letter of transmittal, and
that we may enforce that agreement against the participant.
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EUROCLEAR AND CLEARSTREAM PROCEDURES FOR BLOCKING INSTRUCTIONS
The registered holder of the original notes on the records of Euroclear or
Clearstream must instruct Euroclear or Clearstream to block the securities in
the account in Euroclear or Clearstream to which such original notes are
credited. In order for the exchange offer to be accepted, the exchange agent
must have received, prior to the expiration date, a confirmation from Euroclear
or Clearstream that the securities account of original notes tendered has been
blocked from and including the day on which the confirmation is delivered to the
exchange agent and that no transfers will be effected in relation to the
original notes at any time after such date. Original notes should be blocked in
accordance with the procedures of Euroclear or Clearstream, as the case may be.
The exchange of the original notes so tendered will be made only after a timely
receipt by the exchange agent of an agent's message and any other documents
required by the letter of transmittal. The term "agent's message" means a
message, transmitted by Euroclear or Clearstream and received by the exchange
agent that states that Euroclear or Clearstream has received an express
acknowledgment from a participant tendering original notes that the participant
has received and agrees to be bound by the terms of the letter of transmittal,
and that we may enforce that agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their original notes but whose original notes are
not immediately available or who cannot deliver their original notes, the letter
of transmittal or any other required documents to the exchange agent or cannot
comply with the applicable procedures described above before expiration of the
exchange offer may tender if:
- the tender is made through an eligible guarantor institution;
- before expiration of the exchange offer, the exchange agent receives from
the eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery, by facsimile transmission, mail
or hand delivery, or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth the name and address of the holder and the registered
number(s) and the principal amount of original notes tendered;
- stating that the tender is being made by guaranteed delivery; and
- guaranteeing that, within three New York Stock Exchange trading days
after expiration of the exchange offer, the letter of transmittal, or
facsimile thereof, together with the original notes or a book-entry
transfer confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution with
the exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal, or facsimile thereof, as well as all tendered original notes
in proper form for transfer or a book-entry transfer confirmation, and
all other documents required by the letter of transmittal, within three
New York Stock Exchange trading 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 original notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL RIGHTS
You may withdraw your tender of original notes at any time before 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a
computer generated notice of withdrawal, transmitted by The Depository Trust
Company, Euroclear or Clearstream on behalf of the holder in accordance with the
standard operating procedure of The Depository Trust Company, or
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Euroclear or Clearstream, or a written notice of withdrawal, sent by facsimile
transmission, receipt confirmed by telephone, or letter, before the expiration
date.
Any notice of withdrawal must:
- specify the name of the person that tendered the original notes to be
withdrawn;
- identify the original notes to be withdrawn, including the certificate
number or numbers and principal amount of such original notes;
- specify the principal amount of original notes to be withdrawn;
- include a statement that the holder is withdrawing its election to have
the original notes exchanged;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered or as
otherwise described above, including any required signature guarantees,
or be accompanied by documents of transfer sufficient to have the trustee
under the indenture register the transfer of the original notes into the
name of the person withdrawing the tender; and
- specify the name in which any of the original notes are to be registered,
if different from that of the person that tendered the original notes.
The exchange agent will return the properly withdrawn original notes
promptly following receipt of notice of withdrawal. If original notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at The Depository
Trust Company, Euroclear or Clearstream, as applicable, to be credited with the
withdrawn original notes or otherwise comply with The Depository Trust Company's
procedures.
Any original notes withdrawn will not have been validly tendered for
exchange for purposes of the exchange offer. Any original notes that have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder without cost to the holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. In the
case of original notes tendered by book-entry transfer into the exchange agent's
account at The Depository Trust Company pursuant to its book-entry transfer
procedures, the original notes will be credited to an account with The
Depository Trust Company specified by the holder, as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn original notes may be retendered by following one of the procedures
described under "-- Procedures for Tendering Original Notes" above at any time
on or before the expiration date.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the exchange date, all original notes properly
tendered and will issue the exchange notes promptly after the acceptance. Please
refer to the section in this prospectus entitled "-- Conditions to the Exchange
Offer" below. For purposes of the exchange offer, we will be deemed to have
accepted properly tendered original notes for exchange when we give notice of
acceptance to the exchange agent.
For each original note accepted for exchange, the holder of the original
note will receive an exchange note having a principal amount at maturity equal
to that of the surrendered original note.
In all cases, we will issue exchange notes for original notes that are
accepted for exchange pursuant to the exchange offer only after the exchange
agent timely receives certificates for the original notes or a book-entry
confirmation of the original notes into the exchange agent's account at The
Depository Trust Company, a properly completed and duly executed letter of
transmittal and all other required documents.
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CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or to issue exchange notes
in exchange for, any original notes and may terminate or amend the exchange
offer, by notice to the exchange agent or by a timely press release, at any time
before accepting any of the original notes for exchange, if, in our reasonable
judgment:
- the exchange notes to be received will not be tradeable by the holder
without restriction under the Securities Act, the Exchange Act and
without material restrictions under the blue sky or securities laws of
substantially all of the states of the United States;
- the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission;
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency or regulatory authority with
respect to the exchange offer that, in our judgment, would reasonably be
expected to impair our ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the original
notes of any holder that has not made to us:
- the representations described under "-- Resale of Exchange Notes,"
"-- Procedures for Tendering Original Notes" and "Plan of Distribution";
and
- such other representations as may be reasonably necessary under
applicable Securities and Exchange Commission rules, regulations or
interpretations to make available an appropriate form for registration of
the exchanges notes under the Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any original notes by giving oral or written notice of such
extension to their holders. During any such extensions, all original notes
previously tendered will remain subject to the exchange offer, and we may accept
them for exchange. We will return any original notes that we do not accept for
exchange for any reason without expense to their tendering holders as promptly
as practicable after the expiration or termination of the exchange offer.
In addition, we expressly reserve the right to amend or terminate the
exchange offer and to reject for exchange any original notes not previously
accepted for exchange, upon the occurrence of any of the conditions of the
exchange offer specified above. We will give oral or written notice of any
extension, amendment, nonacceptance or termination to the holders of the
original notes as promptly as practicable. In the case of any extension, such
notice will be issued no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
These conditions fare for our sole benefit, and we may assert them
regardless of the circumstances that may give rise to them or waive them in
whole or in part at any or at various times in our sole discretion. If we fail
at any time to exercise any of the foregoing rights, this failure will not
constitute a waiver of such right. Each such right will be deemed an ongoing
right that we may assert at any time or at various times.
In addition, we will not accept for exchange any original notes tendered,
and will not issue exchange notes in exchange for any such original notes, if at
such time any stop order will be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
The exchange offer is not conditioned upon any minimum principal amount of
original notes being tendered for exchange.
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EXCHANGE AGENT
We have appointed The Bank of New York as the exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter for
transmittal and requests for the notice of guaranteed delivery, as well as all
executed letters of transmittal to the exchange agent at the addresses listed
below:
By Hand or Overnight Delivery:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
New York, New York 10286
Attention: Reorganization Section/Floor 7E
By Registered or Certified Mail: By Facsimile Transmission:
The Bank of New York (Eligible Institutions Only)
101 Barclay Street, 7E (212) 815-6339
New York, New York 10286
Attention: Reorganization Section/Floor 7E To Confirm by Telephone or for Information:
(212) 815-3750
DELIVERY TO AN ADDRESS OTHER THAN AS LISTED ABOVE, OR TRANSMISSIONS OF
INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT
CONSTITUTE A VALID DELIVERY.
The Bank of New York is the trustee under the indentures governing the
notes.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with the exchange offer.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, including the following:
- fees and expenses of the exchange agent and trustee;
- Securities and Exchange Commission registration fees;
- Accounting and legal fees, including fees of one counsel for the holders
of the original notes; and
- printing and mailing expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
original notes under 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:
- certificates representing original notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
original notes tendered;
- exchange notes are to be delivered to, or issued in the name of, any
person other than the registered holder of the original notes;
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- tendered original notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
original notes under the exchange offer.
If satisfactory evidence of payment of transfer taxes is not submitted with
the letter of transmittal, the amount of any transfer taxes will be billed to
the tendering holder.
ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value of the
original notes reflected in our accounting records on the date the exchange
offer is completed. Accordingly, we will not recognize any gain or loss for
accounting purposes upon the exchange of exchange notes for original notes. We
will amortize the expenses incurred in connection with the issuance of the
exchange notes over the term of the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your original notes for exchange notes pursuant to
the exchange offer, you will continue to be subject to the restrictions on
transfer of the original notes as described in the legend on the notes. In
general, the original notes may be offered or sold only if 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. We do not
currently anticipate that we will register the original notes under the
Securities Act. However, under limited circumstances we may be required to file
with the Securities and Exchange Commission a shelf registration statement to
cover resales of the original notes by the holders of notes who satisfy
conditions relating to the provision of information in connection with the shelf
registration statement. Please refer to the section in this prospectus entitled
"Registered Exchange Offer; Registration Rights."
Your participation in the exchange offer is voluntary, and you should
carefully consider whether to participate. We urge you to consult your financial
and tax advisors in making a decision whether or not to tender your original
notes. Please refer to the section in this prospectus entitled "Certain U.S.
Federal Tax Considerations."
As a result of the making of, and upon acceptance for exchange of all
validly tendered original notes pursuant to the terms of, this exchange offer,
we will have fulfilled a covenant contained in the registration rights
agreement. If you do not tender your original notes in the exchange offer, you
will be entitled to all the rights and limitations applicable to the original
notes under the indenture, except for any rights under the registration rights
agreement that by their terms end or cease to have further effectiveness as a
result of the making of this exchange offer. To the extent that original notes
are tendered and accepted in the exchange offer, the trading market for
untendered, or tendered but unaccepted, original notes could be adversely
affected. Please refer to the section in this prospectus entitled "Risk
Factors -- If you do not exchange your original notes for exchange notes, your
notes will continue to have restrictions on transfer."
We may in the future seek to acquire untendered original notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. However, we have no present plans to acquire any original notes
that are not tendered in the exchange offer or to file a registration statement
to permit resales of any untendered original notes.
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42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are a major manufacturer of recycled paperboard and converted paperboard
products. We operate in three business segments. The paperboard segment
manufactures 100% recycled uncoated and clay-coated paperboard and collects
recycled paper and brokers recycled paper and other paper rolls. The tube, core
and composite container segment produces spiral and convolute-wound tubes, cores
and cans. The carton and custom packaging segment produces printed and unprinted
folding and set-up cartons and provides contract manufacturing and packaging
services.
Our business is vertically integrated to a large extent. This means that
our converting operations consume a large portion of our own paperboard
production, approximately 38% in 2000 and 39% during the first three months of
2001. The balance of our paperboard production is sold to external customers in
any of the four recycled paperboard end-use markets: tube, core and composite
containers; folding cartons; gypsum wallboard facing paper and other specialty
products. We are the only major manufacturer to serve all four end-use markets.
As part of our strategy to maintain optimum levels of production capacity, we
regularly purchase paperboard from other manufacturers in an effort to minimize
the potential impact of demand declines on our own mill system. Additionally,
each of our mills can produce recycled paperboard for more than one end-use
market. This allows us to shift production between mills in response to customer
or market demands.
Recovered fiber, which is derived from recycled paper stock, is our most
significant raw material. Historically, the cost of recovered fiber has
fluctuated significantly due to market and industry conditions. For example, our
average recovered fiber cost per ton of paperboard produced increased from $43
per ton in 1993 to $144 per ton in 1995, an increase of 235%, before dropping to
$66 per ton in 1996. Same-mill recovered fiber cost per ton averaged $104 during
2000 and $70 during the first quarter of 2001.
We raise our selling prices in response to increases in raw material costs.
However, we often are unable to pass the full amount of these costs through to
our customers on a timely basis, and as a result often cannot maintain our
operating margins in the face of dramatic cost increases. We experience margin
shrinkage during all periods of price increases due to customary time lags in
implementing our price increases. We cannot assure you that we will be able to
recover any future increases in the cost of recovered fiber by raising the
prices of our products. Even if we are able to recover future cost increases,
our operating margins and results of operations may still be materially and
adversely affected by time delays in the implementation of price increases.
Excluding labor, energy is our most significant manufacturing cost. Energy
is used to generate steam used in the paper making process and to operate our
paperboard machines and all of our other converting machinery. Our energy costs
increased steadily throughout 2000 and the first quarter of 2001 due primarily
to increases in natural gas and fuel oil costs. In 2000, the average energy cost
in our mill system was approximately $52 per ton. In the first quarter of 2001,
average energy costs were $66 per ton compared to $47 per ton in the first
quarter of 2000 and $62 per ton in the fourth quarter of 2000. Until recently,
our business had not been significantly affected by energy costs, and we
historically have not passed energy costs through to our customers. We were not
able to pass through to our customers all of the energy cost increases we
incurred in 2000 or in the first quarter of 2001. As a result, our operating
margins were adversely affected. We continue to evaluate our energy costs and
consider ways to factor energy costs into our pricing. However, we cannot assure
you that our operating margins and results of operations will not continue to be
adversely affected by rising energy costs.
Historically, we have grown our business, revenues and production capacity
to a significant degree through acquisitions. Based on the difficult operating
climate for our industry and our financial position, we anticipate that the pace
of our acquisition activity, and accordingly, our revenue growth, will slow as
we focus on conserving cash and maximizing the productivity of our existing
facilities. We made no acquisitions during the quarter ended March 31, 2001.
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43
We are a holding company that currently operates our business through 34
subsidiaries. We also own a 50% interest in two joint ventures with
Temple-Inland, Inc. We account for these interests in our joint ventures under
the equity method of accounting.
RESULTS OF OPERATIONS THREE-MONTH PERIODS ENDED MARCH 31, 2000 -- 2001
The following table shows volume, gross paper margins and related data for
the periods indicated. The volume information shown below includes shipments of
unconverted paperboard and converted paperboard products. Tonnage volumes from
our business segments, excluding tonnage produced by our unconsolidated joint
venture, Premier Boxboard, are combined and presented along end-use market
lines. Additional financial information is reported by segment in Note 11 to the
consolidated financial statements.
THREE-MONTH PERIODS
ENDED MARCH 31,
-------------------- %
2000 2001 CHANGE CHANGE
-------- -------- ------ ------
PRODUCTION SOURCE OF PAPERBOARD TONS SOLD
(IN THOUSANDS):
From paperboard mill production.......................... 269.9 217.9 (52.0) -19.3%
Outside purchases........................................ 31.6 31.7 0.1 0.3%
------ ------ ------ ------
Total paperboard tonnage......................... 301.5 249.6 (51.9) -17.2%
====== ====== ====== ======
TONS SOLD BY MARKET (IN THOUSANDS):
Tube, core and composite container volume
Paperboard (internal)................................. 49.7 46.7 (3.0) -6.0%
Outside purchases..................................... 5.9 6.7 0.8 13.6%
------ ------ ------ ------
Tube, core and composite container converted products.... 55.6 53.4 (2.2) -4.0%
Unconverted paperboard................................... 9.3 7.5 (1.8) -19.4%
------ ------ ------ ------
Tube, core and composite container volume........... 64.9 60.9 (4.0) -6.2%
Folding carton volume
Paperboard (internal)................................. 19.3 20.0 0.7 3.6%
Outside purchases..................................... 23.2 23.4 0.2 0.9%
------ ------ ------ ------
Folding carton converted products........................ 42.5 43.4 0.9 2.1%
Unconverted paperboard................................... 74.9 54.9 (20.0) -26.7%
------ ------ ------ ------
Folding carton volume............................... 117.4 98.3 (19.1) -16.3%
Gypsum wallboard facing paper volume
Unconverted paperboard................................ 54.7 35.1 (19.6) -35.8%
Outside purchases (for resale)........................ 0.5 0.0 (0.5) -100.0%
------ ------ ------ ------
Gypsum wallboard facing paper volume................ 55.2 35.1 (20.1) -36.4%
Other specialty products volume
Paperboard (internal)................................. 32.1 18.7 (13.4) -41.7%
Outside purchases..................................... 2.0 1.6 (0.4) -20.0%
------ ------ ------ ------
Other specialty converted products....................... 34.1 20.3 (13.8) -40.5%
Unconverted paperboard................................... 29.9 35.0 5.1 17.1%
------ ------ ------ ------
Other specialty products volume..................... 64.0 55.3 (8.7) -13.6%
------ ------ ------ ------
Total paperboard tonnage......................... 301.5 249.6 (51.9) -17.2%
====== ====== ====== ======
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THREE-MONTH PERIODS
ENDED MARCH 31,
-------------------- %
2000 2001 CHANGE CHANGE
-------- -------- ------ ------
GROSS PAPER MARGINS ($/TON):
Paperboard mill
Average same-mill net selling price................... $ 441 $ 422 $ (19) -4.3%
Average same-mill recovered fiber cost................ 112 70 (42) -37.5%
------ ------ ------ ------
Paperboard mill gross paper margin.................. $ 329 $ 352 $ 23 7.0%
====== ====== ====== ======
Tube and core
Average net selling price............................. $ 763 $ 797 $ 34 4.5%
Average paperboard cost............................... 420 453 33 7.9%
------ ------ ------ ------
Tube and core gross paper margin.................... $ 343 $ 344 $ 1 0.3%
====== ====== ====== ======
Net Sales. Our consolidated net sales for the quarter ended March 31, 2001
decreased 11.5% to $220.1 million from $248.6 million in the same quarter of
2000. Acquisitions completed during 2000 accounted for $11.9 million of net
sales during the first quarter of 2001. These acquisitions included MilPak,
Inc., Arrow Paper Products Company and Crane Carton Company, LLC. These
acquisitions were all accounted for using the purchase method of accounting, and
their results of operations were included only from and after the date of the
acquisition. Excluding 2000 acquisitions, net sales decreased 16.2% during the
first quarter of 2001. This decrease was due to lower volume from the paperboard
segment, partially attributable to the dispute with Georgia-Pacific, and lower
sales from the carton and custom packaging segment, partially offset by higher
selling prices in the tube, core and composite container segment.
Total paperboard tonnage for the quarter decreased 17.2% to 249,615 tons
from 301,521 tons. Excluding 2000 acquisitions, total paperboard tonnage
decreased 19.7% to 242,245 tons. This decrease was primarily due to lower
shipments of unconverted paperboard to external customers in the gypsum
wallboard facing paper, folding carton and tube, core and composite container
end-use markets. The decrease in shipments to gypsum wallboard facing paper
customers was partially attributable to the dispute with Georgia-Pacific and a
general softness in industry demand. Excluding 2000 acquisitions, outside
purchases decreased 23.0% to 24,329 tons compared to prior year. Tons sold from
paperboard mill production decreased 19.3% for the quarter to 217,916 tons
compared with 269,927 tons in the first quarter of last year. Total tonnage
converted decreased 11.4% in the first quarter to 117,126 tons compared to
132,157 tons last year, and decreased 17.0% from the first quarter of last year,
excluding 2000 acquisitions. Excluding 2000 acquisitions, volumes in the folding
carton and the tube, core and composite container end-use markets decreased
22.3% and 6.6%, respectively.
Gross Margin. Gross margin for the first quarter of 2001 decreased to
18.9% of net sales from 21.8% in 2000. This margin decrease was due primarily to
lower volume and higher energy costs in the paperboard segment, combined with
lower margins in the carton and custom packaging and tube, core and composite
container segments. Margins decreased in the carton and custom packaging segment
due to lower volume and a decrease in selling prices resulting from competitive
pressures. Margins in the tube, core and composite container segment decreased
as a result of higher energy costs and lower volume.
Restructuring Costs. In January 2001, we initiated a plan to close our
paperboard mill located in Chicago, Illinois and recorded a pretax charge to
operations of approximately $4.4 million. The mill was profitable through 1998,
but declining sales resulted in losses of approximately $2.6 million and $1.5
million in 1999 and 2000, respectively. We expect the proceeds from the sale of
the real estate to more than offset the pretax charge. The $4.4 million charge
included a $2.2 million noncash asset impairment write down of fixed assets to
estimated net realizable value, a $1.2 million accrual for severance and
termination benefits for 16 salaried and 59 hourly employees terminated in
connection with this plan and a $989 thousand accrual for other exit costs. In
the first quarter of 2001, we paid $1.2 million in severance and termination
benefits and $246 thousand in other exit costs. As of March 31, 2001, three
employees
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remained to assist in the closing of the mill. The remaining severance and
termination benefits and other exit costs will be paid by December 31, 2001. We
are marketing the property and will complete the exit plan upon the sale of the
property, which we anticipate will occur prior to December 31, 2001.
In March 2001, we initiated a plan to consolidate the operations of our
Salt Lake City, Utah carton plant into our Denver, Colorado carton plant and
recorded a pretax charge to operations of approximately $2.6 million. The $2.6
million charge included a $1.8 million noncash asset impairment write down of
fixed assets to estimated net realizable value, a $464 thousand accrual for
severance and termination benefits for 5 salaried and 31 hourly employees
terminated in connection with this plan and a $422 thousand accrual for other
exit costs. In the first quarter of 2001, we paid $170 thousand in severance and
termination benefits and $134 thousand in other exit costs. As of March 31,
2001, one employee remained to assist in the closing of the plant. The remaining
severance and termination benefits and other exit costs will be paid by December
31, 2001.
Operating (Loss) Income. Operating loss for the first quarter of 2001 was
$2.1 million, a decrease of $10.9 million from the first quarter of 2000
operating income of $8.7 million. Operating income for comparable facilities,
excluding restructuring costs, decreased $11.3 million, or 72.3%, from the prior
year. This decline was due primarily to lower volume and higher energy costs in
the paperboard segment, combined with lower margins in the carton and custom
packaging and tube, core and composite container segments. Selling, general and
administrative expenses decreased by $1.8 million, or 4.6% in the first quarter
of 2001 compared to 2000 due primarily to a decrease in expenses in the
paperboard segment and lower information technology costs. The decrease in the
paperboard segment is the result of the Chesapeake, Camden and Chicago mill
closures.
Our Sprague boxboard mill, located in Versailles, Connecticut, which we
purchased from International Paper Company in April 1999, has continued to have
a significant impact on our earnings in 2000 and 2001. Sprague incurred
operating losses of $17.2 million in 2000 and $5.1 million in the first quarter
of 2001. The losses were attributable to a combination of unfavorable fixed
price contracts, low capacity utilization and higher fiber costs that we were
unable to pass through to our customers. Our primary objectives at Sprague have
been to improve quality, reduce costs and increase sales volume. Based on
improvements we made during the last year and a half, we now believe Sprague is
competitive in terms of cost and quality, and we expect Sprague's financial
performance to improve with increases in sales volume. Although we expect losses
at Sprague to decline, in light of current difficult industry conditions, we do
not expect Sprague to become profitable for the balance of 2001.
Other Income (Expense). Interest expense increased 18.3% to $9.2 million
for the first quarter of 2001 from $7.8 million in 2000. This increase was
primarily due to higher average borrowings under our former senior credit
facility combined with higher interest rates under our former senior credit
facility. See "-- Liquidity and Capital Resources."
Equity in loss from unconsolidated affiliates for the first quarter of 2001
was $1.6 million, down $4.5 million from equity income of $2.9 million in the
first quarter of 2000. This decrease was primarily due to lower operating
results for Standard Gypsum, L.P., our gypsum wallboard joint venture, and
losses at Premier Boxboard Limited LLC, our containerboard mill joint venture
that began operations in the third quarter of 2000. The lower operating results
for Standard Gypsum, L.P., were the result of excess production capacity in that
market that has lowered sales prices significantly since the first quarter of
2000. Both of these joint ventures are with Temple-Inland.
Net Income. As discussed above, our results for the first quarter of 2001
included restructuring charges recorded in conjunction with the closing of our
Chicago, Illinois paperboard mill and the consolidation of operations of our
Salt Lake City, Utah carton plant into our Denver, Colorado carton plant. These
charges were $7.0 million in the aggregate ($4.4 million, net of tax benefit, or
$0.16 per common share on a diluted basis). Also included in the results for the
first quarter of 2001 was an extraordinary loss of $4.3 million related to the
early extinguishment of debt ($2.7 million, net of tax benefit, or $0.10 per
common share on a diluted basis). Excluding the extraordinary loss and
restructuring charges, net loss for the first quarter of 2001 was $3.7 million,
or $0.13 net loss per common share
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compared to net income before restructuring costs of $6.5 million, or $0.25 net
income per common share for the same period last year. Including the
extraordinary loss and restructuring charges, net loss was $10.8 million in the
first quarter of 2001 compared with net income of $2.1 million last year.
Including the extraordinary loss and restructuring charges, diluted net loss per
common share was $0.39 in the first quarter of 2001 compared to diluted net
income per common share of $0.08 in 2000.
RESULTS OF OPERATIONS 1999 -- 2000
The following table shows volume, gross paper margins and related data for
the periods indicated. The volume information shown below includes shipments of
unconverted paperboard and converted paperboard products. Tonnage volumes from
our business segments, excluding tonnage produced by our unconsolidated joint
venture, Premier Boxboard, are combined and presented along end-use market
lines. Additional financial information is reported by segment in Note 11 to the
consolidated financial statements.
YEARS ENDED
DECEMBER 31,
------------------- %
1999 2000 CHANGE CHANGE
-------- -------- ------ ------
PRODUCTION SOURCE OF PAPERBOARD TONS SOLD
(IN THOUSANDS):
From paperboard mill production.......................... 1,064.9 999.1 (65.8) -6.2%
Outside purchases........................................ 90.6 122.4 31.8 35.1%
-------- -------- ------ -----
Total paperboard tonnage......................... 1,155.5 1,121.5 (34.0) -2.9%
======== ======== ====== =====
TONS SOLD BY MARKET (IN THOUSANDS):
Tube, core and composite container volume
Paperboard (internal)................................. 203.2 202.9 (0.3) -0.1%
Outside purchases..................................... 18.9 25.9 7.0 37.0%
-------- -------- ------ -----
Tube, core and composite container converted products.... 222.1 228.8 6.7 3.0%
Unconverted paperboard................................... 41.6 37.6 (4.0) -9.6%
-------- -------- ------ -----
Tube, core and composite container volume........... 263.7 266.4 2.7 1.0%
Folding carton volume
Paperboard (internal)................................. 65.2 67.9 2.7 4.1%
Outside purchases..................................... 58.3 86.8 28.5 48.9%
-------- -------- ------ -----
Folding carton converted products........................ 123.5 154.7 31.2 25.3%
Unconverted paperboard................................... 286.4 270.2 (16.2) -5.7%
-------- -------- ------ -----
Folding carton volume............................... 409.9 424.9 15.0 3.7%
Gypsum wallboard facing paper volume
Unconverted paperboard................................ 265.8 196.1 (69.7) -26.2%
Outside purchases (for resale)........................ 4.5 0.5 (4.0) -88.9%
-------- -------- ------ -----
Gypsum wallboard facing paper volume................ 270.3 196.6 (73.7) -27.3%
Other specialty products volume
Paperboard (internal)................................. 91.6 108.7 17.1 18.7%
Outside purchases..................................... 8.9 9.2 0.3 3.4%
-------- -------- ------ -----
Other specialty converted products....................... 100.5 117.9 17.4 17.3%
Unconverted paperboard................................... 111.1 115.7 4.6 4.1%
-------- -------- ------ -----
Other specialty products volume..................... 211.6 233.6 22.0 10.4%
-------- -------- ------ -----
Total paperboard tonnage....................... 1,155.5 1,121.5 (34.0) -2.9%
======== ======== ====== =====
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YEARS ENDED
DECEMBER 31,
------------------- %
1999 2000 CHANGE CHANGE
-------- -------- ------ ------
GROSS PAPER MARGINS ($/TON):
Paperboard mill
Average same-mill net selling price................... $ 413 $ 441 $ 28 6.8%
Average same-mill recovered fiber cost................ 84 101 17 20.2%
-------- -------- ------ -----
Paperboard mill gross paper margin.................. $ 329 $ 340 $ 11 3.3%
======== ======== ====== =====
Tube and core
Average net selling price............................. $ 730 $ 786 $ 56 7.7%
Average paperboard cost............................... 390 441 51 13.1%
-------- -------- ------ -----
Tube and core gross paper margin.................... $ 340 $ 345 $ 5 1.5%
======== ======== ====== =====
Net Sales. Our consolidated net sales for the year ended December 31, 2000
increased 8.2% to $963.4 million from $890.1 million in 1999. Acquisitions
completed during 1999 and 2000 accounted for $102.5 million of sales during
2000. These acquisitions included MilPak, Inc., Arrow Paper Products Company and
Crane Carton Company, LLC, all of which were completed in 2000. The acquisitions
of Carolina Component Concepts, Inc., International Paper Company's Sprague
boxboard mill, Halifax Paperboard Co., Inc., Tenneco Packaging, Inc.'s folding
carton division and Carolina Converting, Inc. were completed in 1999. These
acquisitions were all accounted for using the purchase method of accounting, and
their results of operations were included only from and after the date of the
acquisition. Excluding acquisitions completed during 1999 and 2000, net sales
decreased 3.3% during 2000. This decrease was due to lower volume and sales from
the paperboard segment, partially attributable to the dispute with Georgia-
Pacific, and lower sales from the carton and custom packaging segment, partially
offset by higher sales from the tube, core and composite container segment.
Total paperboard tonnage for 2000 decreased 2.9% to 1,121,500 tons from
1,155,500 tons in 1999. Excluding acquisitions completed during 1999 and 2000,
total paperboard tonnage declined 8.6% to 1,056,000 tons. This decrease was
primarily due to lower shipments of unconverted paperboard to external customers
in the gypsum wallboard facing paper and folding carton markets. This decrease
in shipments to gypsum wallboard facing paper customers was partially
attributable to the dispute with Georgia-Pacific. Excluding acquisitions,
outside purchases increased 10.3% to 99,900 tons. Tons sold from paperboard mill
production decreased 6.2% for 2000 to 999,000 tons, compared with 1,064,900 tons
for 1999, and decreased 10.4% excluding acquisitions. Total tonnage converted
increased 12.5% for 2000 to 501,400 tons compared to 445,800 tons in 1999, and
increased 1.2% over 1999, excluding acquisitions. Excluding acquisitions
completed during 1999 and 2000, volumes in the folding carton and other
specialty end-use markets decreased 9.3% and increased 4.9%, respectively.
Gross Margin. Gross margin for 2000 decreased to 21.2% of net sales from
23.2% in 1999. This margin decrease was due primarily to lower volume and higher
energy costs in the paperboard segment, combined with lower margins in the
carton and custom packaging and tube, core and composite container segments.
Margins decreased in the carton and custom packaging segment due to lower
selling prices resulting from competitive pressures. Margins in the tube, core
and composite container segment decreased as a result of higher raw material
costs and soft volume in the plastic core and composite container businesses.
Restructuring and Other Nonrecurring Costs. In February 2000, we initiated
a plan to close our paperboard mill located in Baltimore, Maryland and recorded
a pretax charge to operations of approximately $6.9 million. We adopted the plan
to close the mill in conjunction with our ongoing efforts to increase
manufacturing efficiency and reduce costs in our mill system. The $6.9 million
charge included a $5.7 million noncash asset impairment charge to write-down
machinery and equipment to net realizable value. The charge also included a $604
thousand accrual for severance and termination benefits for 21 salaried and 83
hourly employees terminated in connection with this plan and a $613 thousand
accrual for
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post-closing security and other exit costs. All severance and termination
benefits and all other post-closing exit costs were paid by December 31, 2000.
As of December 31, 2000, one employee remained to assist in marketing the land
and building. We will complete the exit plan upon the sale of the property,
which we anticipate will occur during 2001. We do not expect the mill closure to
have a material impact on future operations.
In September 2000, we initiated a plan to close our paperboard mill located
in Camden, New Jersey and recorded a pretax charge to operations of
approximately $8.6 million. The mill closing was the result of a slowdown in
gypsum facing paper shipments during the third quarter of 2000 and a contract
dispute with our largest gypsum facing paper customer, Georgia-Pacific. The $8.6
million charge included a $7.0 million noncash asset impairment write-down of
fixed assets to net realizable value, a $558 thousand accrual for severance and
termination benefits for 19 salaried and 46 hourly employees terminated in
connection with this plan, and a $968 thousand accrual for post-closing
security, leases and other exit costs. During 2000, we paid $380 thousand in
severance and termination benefits and $346 thousand in other exit costs. As of
December 31, 2000, two employees remained to collect receivables, process
payables and assist in marketing the land and building. This mill contributed
net sales of $11.6 million and operating income of $1.2 million for the nine
months ended September 30, 2000. It contributed net sales of $19.1 million and
operating income of $2.1 million for the year ended December 31, 1999. We are
marketing the land and building and will complete the exit plan upon the sale of
the property.
In December 2000, we recognized a nonrecurring cost of $1.3 million related
to the settlement of a dispute over abandoned property.
Operating Income. Operating income for 2000 was $41.8 million, a decrease
of $38.9 million, or 48.2% from 1999. Operating income for comparable
facilities, excluding restructuring and other nonrecurring costs, declined $23.3
million, or 28.9%. This decline was due primarily to lower volume and higher
energy costs in the paperboard segment, combined with lower margins in the
carton and custom packaging and tube, core and composite container segments.
Selling, general and administrative expenses increased by $19.5 million, or
15.5% in 2000 compared to 1999. Acquisitions accounted for approximately $12.5
million of the increase and information technology costs accounted for
approximately $3.2 million of the increase.
Other Income (Expense). Interest expense increased 33.8% to $34.1 million
for 2000 from $25.5 million in 1999 due to higher average borrowings under our
senior credit facility and the effect of a full year of interest expense
attributable to our $200.0 million public debt securities offering in June 1999.
Equity in income from unconsolidated affiliates was $6.5 million, down $2.7
million, or 29.2%, from 1999 primarily due to lower operating results for
Standard Gypsum, L.P., our gypsum wallboard joint venture with Temple-Inland,
Inc. and start-up costs at Premier Boxboard Limited LLC, our containerboard mill
joint venture with Temple-Inland.
Income Taxes. Our effective tax rate increased to 39.7% in 2000 from 36.1%
in 1999, due primarily to the effect of the increase in permanent nondeductible
items as a percentage of pretax income. Our effective tax rate has historically
been higher than the U.S. federal statutory rate of 35% due to state income
taxes and permanent nondeductible items.
Net Income. As discussed above, our results for 2000 included
restructuring and nonrecurring charges recorded in conjunction with the closings
of our Baltimore, Maryland and Camden, New Jersey paperboard mills and a
nonrecurring charge related to the settlement of a dispute over abandoned
property, which were $16.8 million in the aggregate ($10.5 million, net of tax
benefit, or $0.40 per common share on a diluted basis). Excluding these charges,
net income was $18.6 million, or $0.71 per common share. Including the
restructuring and other nonrecurring costs, net income decreased 80.2% to $8.1
million from $41.1 million in 1999. Diluted net income per common share,
including the restructuring and other nonrecurring costs, decreased 81.0% to
$0.31 for 2000 from $1.63 in 1999.
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RESULTS OF OPERATIONS 1998 -- 1999
The following tables show volume, gross paper margins and related data for
the periods indicated. The volume information shown below includes shipments of
unconverted paperboard and converted paperboard products. Tonnage volumes from
our business segments are combined and presented along end-use market lines.
Additional financial information is reported by segment in Note 11 to the
consolidated financial statements.
YEARS ENDED
DECEMBER 31,
------------------- %
1998 1999 CHANGE CHANGE
-------- -------- ------ ------
PRODUCTION SOURCE OF PAPERBOARD TONS SOLD
(IN THOUSANDS):
From paperboard mill production.......................... 919.8 1,064.9 145.1 15.8%
Outside purchases........................................ 84.7 90.6 5.9 7.0%
-------- -------- ------ -----
Total paperboard tonnage......................... 1,004.5 1,155.5 151.0 15.0%
======== ======== ====== =====
TONS SOLD BY MARKET (IN THOUSANDS):
Tube, core and composite container volume
Paperboard (internal)................................. 199.4 203.2 3.8 1.9%
Outside purchases..................................... 23.4 18.9 (4.5) -19.2%
-------- -------- ------ -----
Tube, core and composite container converted products.... 222.8 222.1 (0.7) -0.3%
Unconverted paperboard................................... 40.8 41.6 0.8 2.0%
-------- -------- ------ -----
Tube, core and composite container Volume............. 263.6 263.7 0.1 0.0%
Folding carton volume
Paperboard (internal)................................. 52.0 65.2 13.2 25.4%
Outside purchases..................................... 38.4 58.3 19.9 51.8%
-------- -------- ------ -----
Folding carton converted products........................ 90.4 123.5 33.1 36.6%
Unconverted paperboard................................... 202.6 286.4 83.8 41.4%
-------- -------- ------ -----
Folding carton volume................................. 293.0 409.9 116.9 39.9%
Gypsum wallboard facing paper volume
Unconverted paperboard................................ 239.1 265.8 26.7 11.2%
Outside purchases (for resale)........................ 16.1 4.5 (11.6) -72.0%
-------- -------- ------ -----
Gypsum wallboard facing paper volume................ 255.2 270.3 15.1 5.9%
Other specialty products volume
Paperboard (internal)................................. 75.5 91.6 16.1 21.3%
Outside purchases..................................... 6.8 8.9 2.1 30.9%
-------- -------- ------ -----
Other specialty converted products....................... 82.3 100.5 18.2 22.1%
Unconverted paperboard................................... 110.4 111.1 0.7 0.6%
-------- -------- ------ -----
Other specialty products volume....................... 192.7 211.6 18.9 9.8%
-------- -------- ------ -----
Total paperboard tonnage......................... 1,004.5 1,155.5 151.0 15.0%
======== ======== ====== =====
GROSS PAPER MARGINS ($/TON):
Paperboard mill
Average same-mill net selling price................... $ 412 $ 414 $ 2 0.5%
Average same-mill recovered fiber cost................ 70 78 8 11.4%
-------- -------- ------ -----
Paperboard mill gross paper margin.................. $ 342 $ 336 $ (6) -1.8%
======== ======== ====== =====
Tube and core
Average net selling price............................. $ 735 $ 730 $ (5) -0.7%
Average paperboard cost............................... 407 390 (17) -4.2%
-------- -------- ------ -----
Tube and core gross paper margin.................... $ 328 $ 340 $ 12 3.7%
======== ======== ====== =====
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Net Sales. Our consolidated net sales for the year ended December 31, 1999
increased 20.8% to $890.1 million from $736.9 million in 1998. Acquisitions
completed during 1998 and 1999 accounted for $144.2 million of sales during
1999. These acquisitions included Carolina Component Concepts, Inc.,
International Paper Company's Sprague boxboard mill, Halifax Paperboard Co.,
Inc., Tenneco Packaging, Inc.'s folding carton division and Carolina Converting,
Inc., all of which were completed in 1999. The acquisitions of Chesapeake
Paperboard Company and its wholly owned subsidiary, Chesapeake Fiber Packaging
Corporation, Etowah Recycling, Inc., Tenneco Packaging, Inc.'s 20% interest in
the CPI partnership and Boxall, Inc. were completed in 1998. These acquisitions
were all accounted for using the purchase method of accounting, and their
results of operations were included only from and after the date of the
acquisition. Excluding acquisitions, net sales increased 1.2% during 1999. This
increase was due to higher sales from the tube, core and composite container and
carton and custom packaging segments.
Total paperboard tonnage for 1999 increased 15.0% to 1,155,500 tons from
1,004,500 tons. Excluding acquisitions completed during 1998 and 1999, total
paperboard tonnage declined 1.2% to 992,300 tons. Lower shipments of converted
paperboard products and lower shipments of unconverted paperboard to external
customers in the folding carton and other specialty end-use markets were
partially offset by higher shipments of unconverted paperboard to the gypsum
wallboard facing paper market. Excluding acquisitions, outside purchases
decreased 26.3% to 62,400 tons. Tons sold from paperboard mill production
increased 15.8% for 1999 to 1,064,900 tons compared with 919,800 tons last year,
and increased 0.5% excluding acquisitions. Total tonnage converted increased
12.8% for 1999 to 446,100 tons compared to 395,500 thousand tons in 1998, but
declined 1.7% from last year excluding acquisitions. Excluding acquisitions,
volumes decreased 7.2% in the folding carton market and decreased 3.0% in the
other specialty end-use markets.
Gross Margin. Gross margin for 1999 decreased to 23.2% of net sales from
27.1% in 1998. This margin decrease was due primarily to the acquisition of
operations with lower margins, as a percentage of sales, than our other
operations, combined with lower margins in the paperboard segment, partially
offset by higher margins in the tube, core and composite container segment.
Operating Income. Operating income for 1999 was $80.7 million, a decrease
of $14.2 million, or 14.9% from 1998. Operating income at comparable facilities
declined $7.5 million, or 7.9%. This decline was due primarily to lower margins
in the paperboard segment, partially offset by improved results in the tube,
core and composite container and carton and custom packaging segments. Selling,
general and administrative expenses increased by $20.7 million in 1999 versus
1998 due primarily to acquisitions and increased information technology costs.
Other Income (Expense). Interest expense increased 58.4% to $25.5 million
for 1999 from $16.1 million in 1998 due to higher average borrowings under the
senior credit facility and the June 1, 1999 public debt securities offering.
Equity income from unconsolidated affiliates was $9.2 million, up 114.1%
from 1998 due to improved results for Standard Gypsum, our gypsum wallboard
joint venture with Temple-Inland.
Income Taxes. Our effective tax rate decreased to 36.1% in 1999 from 37.0%
in 1998, due primarily to the implementation of state tax reduction strategies.
Our effective tax rate has historically been higher than the U.S. federal
statutory rate of 35% due to state income taxes and nondeductible permanent
items.
Net Income. Net income decreased 20.7% to $41.1 million from $51.8 million
in 1998. Diluted net income per common share decreased 20.1% to $1.63 for 1999
from $2.04 in 1998.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999 and 2000 and March 31, 2000 and 2001, total debt
consisted of the following (in thousands):
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1999 2000 2000 2001
----------------- ----------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
Senior credit facility.............. $140,000 $194,000 $130,000 $ 0
9 7/8% senior subordinated notes.... 0 0 0 274,128
7 1/4% senior notes................. 0 0 0 25,243
7 3/8% senior notes................. 198,691 198,791 198,667 198,817
7.74% senior notes.................. 82,750 66,200 82,750 0
Other notes payable................. 4,913 9,081 4,919 8,306
-------- -------- -------- --------
$426,354 $468,072 $416,336 $506,494
======== ======== ======== ========
On March 29, 2001, we completed a series of financing transactions pursuant
to which we (i) issued $29.0 million in aggregate principal amount of our 7 1/4%
senior notes due May 1, 2010 and $285.0 million in aggregate principal amount of
our 9 7/8% senior subordinated notes due April 1, 2011, (ii) used the proceeds
from the sale of these notes to repay in full and terminate our former senior
credit facility and 7.74% senior notes and (iii) obtained a new $75.0 million
senior credit facility. The 7 1/4% senior notes and 9 7/8% senior subordinated
notes were issued at a discount to yield effective interest rates of 9.4% and
10.5%, respectively. Aggregate proceeds from the sale of these notes, net of
issuance costs, was approximately $291.2 million. In connection with the
repayment of the 7.74% senior notes, we incurred a prepayment penalty of
approximately $3.6 million. The difference between issue price and principal
amount at maturity of our 7 1/4% senior notes and 9 7/8% senior subordinated
notes will be accreted each year as interest expense on our financial
statements. These newly issued notes are unsecured, but are guaranteed, on a
joint and several basis, by all of our domestic subsidiaries, other than one
that is not wholly owned.
Our new credit facility provides for a revolving line of credit in the
aggregate principal amount of $75.0 million for a term of three years, including
subfacilities of $10.0 million for swingline loans and $15.0 million for letters
of credit, usage of which reduces availability under the facility. No borrowings
were outstanding under the facility as of March 31, 2001, versus $130.0 million
and $194.0 million outstanding on our former senior credit facility on March 31,
2000 and December 31, 2000, respectively; however, an aggregate of $9.5 million
in letter of credit obligations outstanding under our former senior credit
facility have been transferred to our new senior credit facility. We intend to
use the new facility for working capital, capital expenditures and other general
corporate purposes. Although the facility is unsecured, our obligations under
the facility are unconditionally guaranteed, on a joint and several basis, by
all of our existing and subsequently acquired wholly owned domestic
subsidiaries.
Borrowings under the new facility bear interest at a rate equal to, at our
option, either (i) the base rate (which is equal to the greater of the prime
rate most recently announced by Bank of America, N.A., the administrative agent
under the facility, or the federal funds rate plus one-half of 1%) or (ii) the
adjusted Eurodollar Interbank Offered Rate, in each case plus an applicable
margin determined by reference to our leverage ratio (which is defined under the
new facility as the ratio of our total debt to our total capitalization).
The initial applicable margins are 2.0% for Eurodollar rate loans and 0.75%
for base rate loans. Beginning on the date we deliver our financial statements
for the fiscal quarter ending September 30, 2001, the initial margins will be
subject to reduction based on our leverage ratio. Additionally, the undrawn
portion of the facility is subject to a facility fee at an annual rate that is
presently set at 0.5%, also subject to reduction, beginning on the date we
deliver our September 30, 2001 financial statements, based on our leverage
ratio.
The new facility contains covenants that restrict, among other things, our
ability and our subsidiaries' ability to create liens, merge or consolidate,
dispose of assets, incur indebtedness and guarantees, pay dividends, repurchase
or redeem capital stock and indebtedness, make certain investments or
acquisitions,
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enter into certain transactions with affiliates, make capital expenditures or
change the nature of our business. The facility also contains several financial
maintenance covenants, including covenants establishing a maximum leverage ratio
(as described above), minimum tangible net worth and a minimum interest coverage
ratio.
The new facility contains events of default including, but not limited to,
nonpayment of principal or interest, violation of covenants, incorrectness of
representations and warranties, cross-default to other indebtedness, bankruptcy
and other insolvency events, material judgments, certain ERISA events, actual or
asserted invalidity of loan documentation and certain changes of control of our
company.
In 1998, we registered with the Securities and Exchange Commission a total
of $300.0 million in public debt securities for issuance in one or more series
and with such specific terms as determined from time to time. On June 1, 1999,
we issued $200.0 million in aggregate principal amount of our 7 3/8% senior
notes due June 1, 2009. Our 7 3/8% senior notes were issued at a discount to
yield an effective interest rate of 7.473%, are unsecured obligations of our
company and pay interest semiannually. In connection with the offering of our
7 1/4% senior notes and 9 7/8% senior subordinated notes, our subsidiary
guarantors also guaranteed our 7 3/8% senior notes.
As noted above, on March 29, 2001, we repaid in full all outstanding
balances under our former senior credit facility and 7.74% senior notes. Our
former senior credit facility was a $400.0 million, five-year senior credit
facility with a scheduled maturity date in July 2002. Interest under the
facility was computed using our choice of: (a) the adjusted Eurodollar rate (as
defined under the facility) plus a margin; or (b) the higher of (i) the federal
funds rate plus one-half of 1% or (ii) the prime lending rate most recently
announced by the administrative agent under the facility. At December 31, 2000
and March 29, 2001, the date we repaid and terminated our former senior credit
facility, the interest margin above the adjusted Eurodollar rate was computed on
the basis of our leverage ratio. For the three months ended March 31, 2001 and
2000 and for the year ended December 31, 2000, the weighted average borrowings
outstanding under our former senior credit facility during such periods bore
interest at 6.95%, 6.45% and 7.18%, respectively.
Our 7.74% senior notes, which we originally issued on October 1, 1992 to an
insurance company in an aggregate principal amount of $82.75 million, bore
interest at a rate of 7.74% per annum, payable semiannually in April and October
of each year. In connection with the repayment of our 7.74% senior notes, we
incurred a prepayment penalty of approximately $3.6 million.
In September 2000 and February 2001, we completed amendments to our former
senior credit facility that, among other things, increased the maximum permitted
leverage ratio for the third and fourth quarters of 2000 and first quarter of
2001. We also obtained from the holder of our 7.74% senior notes a temporary
waiver, effective until March 31, 2001, of the leverage ratio covenant (which
was identical to the leverage ratio covenant contained in our former senior
credit facility) for the fourth quarter of 2000. We obtained the leverage ratio
amendments and waiver in order to avoid the occurrence of an event of default
under our senior credit agreement and our 7.74% senior note agreement, resulting
from a violation of the leverage ratio covenants contained in these agreements.
We would have needed to obtain additional amendments and waivers by March 31,
2001 to avoid further violations. Because we repaid and terminated our senior
credit facility and our 7.74% senior notes with a portion of the net proceeds
from the offerings of the original notes, we did not pursue any further
amendments or waivers beyond March 31, 2001.
We have severally and unconditionally guaranteed 50% of the obligations of
our Premier Boxboard and Standard Gypsum joint ventures under their respective
credit facilities. In addition, Premier Boxboard has issued $50.0 million in
senior notes, which are guaranteed by our joint venture partner, Temple-Inland,
and are secured by a substantial portion of the assets of Premier Boxboard. As
of March 31, 2001, approximately $86.2 million of indebtedness under the joint
venture credit agreements was outstanding, of which we have guaranteed one-half
(approximately $43.1 million). As of December 31, 2000, we were in default under
the leverage ratio covenant in these guarantees and, as a result, a
cross-default occurred under our senior credit facility and the Premier Boxboard
senior notes. We entered into agreements with the Premier Boxboard and Standard
Gypsum lenders that waived the underlying defaults and amended the
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financial maintenance covenants on a going-forward basis. We also obtained
waivers of the cross-defaults. As a result of the termination of our former
senior credit facility, the leverage ratio covenant in these guarantees is now
tied to the leverage ratio covenant in our new senior credit facility.
Cash generated from operations was $82.5 million for the year ended
December 31, 2000, compared with $91.8 million in 1999. The decrease in 2000
compared to the same period in 1999 was due primarily to lower net income and
unfavorable changes in working capital, partially offset by higher distributions
from our Standard Gypsum joint venture.
Cash generated from operations was $5.4 million for the three months ended
March 31, 2001, compared with $26.4 million for the same period last year. The
decrease in the first three months of 2001 compared to the same period last year
was due primarily to lower net income, a decrease in distributions from
unconsolidated affiliates, and unfavorable changes in working capital.
Capital expenditures, excluding acquisition costs, were $58.3 million in
2000 versus $35.7 million for the same period in 1999. Capital expenditures were
$11.8 million in the first three months of 2001 versus $17.2 million for the
same period last year. Aggregate capital expenditures of approximately $30.0
million are anticipated for 2001. To conserve cash, we intend to limit capital
expenditures in 2001 to cost reduction and productivity improvement projects. In
addition to capital expenditures, we and Temple-Inland may agree to make
additional capital contributions during the balance of 2001 to our Standard
Gypsum joint venture.
In February 2000, we acquired all of the outstanding stock of MilPak, Inc.
in exchange for 248,132 shares of our common stock valued at $4.7 million and
$4.7 million in cash. MilPak operates a facility located in Pine Brook, New
Jersey that provides blister packaging, cartoning and labeling, and other
contract packaging services.
In September 2000, we acquired all of the outstanding stock of Arrow Paper
Products Company in exchange for 342,743 shares of our common stock valued at
$5.1 million. Arrow is located in Saginaw, Michigan and operates two tube and
core converting facilities that serve customers in the automotive, film,
housewares and other specialty tube and core markets.
In October 2000, we completed the acquisition of 100% of the membership
interests in Crane Carton Company LLC in exchange for 1,659,790 shares of our
common stock valued at $19.0 million plus $5.8 million of assumed debt,
including industrial development bonds in the aggregate amount of $3.5 million.
Crane operates a single folding carton manufacturing facility located in
suburban Chicago, Illinois. Because of the cross-default under our former senior
credit facility, Bankers Trust Company, the issuer of the letter of credit
supporting the bonds, had the right to cause an event of default under the bonds
by notifying the bond trustee that an event of default existed under the senior
credit facility. The resulting event of default under the bond documents would
have permitted the trustee to accelerate the maturity of the bonds and draw
under the letter of credit to pay the bond indebtedness. Upon payment by Bankers
Trust Company under the letter of credit, we would have had an immediate
obligation to reimburse Bankers Trust Company for the amounts drawn. As
discussed above, the source of the cross-default, our former senior credit
facility, has been repaid in full and terminated.
During the second quarter of 1999, we formed a joint venture with
Temple-Inland, Inc. to own and operate Temple-Inland's Newport, Indiana
containerboard mill. The joint venture, Premier Boxboard Limited LLC, undertook
a 14-month, $82.0 million project to modify the mill to enable it to produce a
new, lightweight gypsum facing paper along with other containerboard grades. The
mill began operations as modified at the beginning of the third quarter of 2000.
Under the joint venture agreement, we contributed $50.0 million to the joint
venture during the second quarter of 2000, and Temple-Inland contributed the net
assets of the mill and received $50.0 million in notes issued by Premier
Boxboard. Each partner has a 50% interest in the joint venture, and we account
for our interest in this joint venture under the equity method. Our subsidiary,
PBL, Inc., manages the day-to-day operations of Premier Boxboard, pursuant to a
management agreement with Temple-Inland. See "Description of Certain
Indebtedness -- Premier Boxboard Guaranty."
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We paid cash dividends of $18.0 million and $18.5 million in 1999 and 2000,
respectively, and $4.7 million in the first three months of 2001 versus $4.6
million in the same period last year. In February 2001, we reduced our first
quarter dividend from $0.18 to $0.09 per issued and outstanding common share. As
described below under "-- Subsequent Events," in June 2001 we further reduced
our second quarter dividend to $0.03 per share. Although our former debt
agreements contained no specific limitations on the payment of dividends, our
new debt agreements contain certain limitations on the payment of future
dividends. We intend to continue assessing our ability to pay quarterly
dividends in light of difficult industry conditions, our need to preserve
financial flexibility and the limitations on dividends contained in our
financial covenants.
We did not purchase any shares of our common stock during 2000 or the first
three months of 2001 under our common stock purchase plan. We have cumulatively
purchased 3,169,000 shares since January 1996. Our board of directors has
authorized purchases of up to 831,000 additional shares. Our newly issued 9 7/8%
senior subordinated notes and our new credit facility will limit our future
ability to repurchase our common stock.
We believe that the remaining net proceeds from our recent sale of 7 1/4%
senior notes and 9 7/8% senior subordinated notes, together with existing cash
and cash from operations, will be adequate to fund our operations, working
capital needs and debt service obligations for the foreseeable future. If,
however, we were to undertake any significant acquisitions in the next 12
months, we could require additional funds from external sources such as our new
senior credit facility.
INFLATION
Raw material price changes have had, and continue to have, a material
effect on our operations. Energy prices had a material effect on our operations
in 2000 and the three-month period ended March 31, 2001. We do not believe that
general economic inflation is a significant determinant of our raw material
price increases or that, except as it relates to energy prices, it has a
material effect on our operations.
GEORGIA-PACIFIC LITIGATION
On May 9, 2001, we and Georgia-Pacific Corporation jointly announced a
tentative settlement regarding the litigation over the terms of the long-term
supply contract the parties entered in April 1996. Both the pending litigation
and the tentative settlement are described below.
Since August 2000, we have been litigating with Georgia-Pacific, formerly
our largest gypsum facing paper customer, over its refusal to continue
purchasing its requirements of gypsum facing paper for certain plants pursuant
to the terms of a long-term supply contract. The contract was executed in April
1996 and terminates on August 20, 2005, unless extended. We believe that the
express language of the contract requires Georgia-Pacific to purchase from us
all paper products used in wallboard manufacturing at the Georgia-Pacific
wallboard plants designated in the contract, and the parties generally had
performed their respective obligations under the contract in accordance with
this requirement since inception. In the third quarter of 2000, Georgia-Pacific
asserted the position that the contract does not include certain grades of
facing paper and that Georgia-Pacific would manufacture these grades for itself.
By the end of the third quarter, Georgia-Pacific's purchases fell by more than
80% from the 7,000 tons per month that prevailed in the first half of 2000.
Shipments to Georgia-Pacific in the fourth quarter of 2000 fell below 300 tons
per month and continued at such levels through the first quarter of 2001. As a
result of this loss in volume, we closed our Camden paperboard mill and lost
volume amounting to approximately 40% of the capacity of our Buffalo paperboard
mill.
On August 16, 2000, we filed suit against Georgia-Pacific in the General
Court of Justice, Superior Court Division, of Mecklenburg County, North Carolina
(Case No. 00-CVS-12302), asserting a claim for breach of contract based on
Georgia-Pacific's refusal to continue making purchases under the contract. The
complaint seeks damages in excess of $100.0 million. The complaint was amended
in October 2000 to request an injunction requiring Georgia-Pacific to
specifically perform its obligations under the contract,
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but the specific performance claim was dismissed on January 26, 2001. Although
the case is proceeding on the damages claim, we have agreed with Georgia-Pacific
to dismiss the case if and when the tentative settlement, as described below, is
implemented.
On September 1, 2000, Georgia-Pacific filed a separate action in the
Superior Court of Fulton County, Georgia (Case No. 2000CV-27684), seeking a
declaratory judgment in support of its interpretation of the contract that its
actions are not in breach of the contract. On December 22, 2000, this action was
stayed pending final resolution of the action we filed in North Carolina.
Georgia-Pacific has agreed with us to dismiss this case if and when the
tentative settlement, as described below, is implemented.
Under the terms of the tentative settlement, we and G-P Gypsum Corporation,
a wholly owned subsidiary of Georgia-Pacific, have entered into a new ten-year
agreement under which we will supply amounts between a minimum of 1.89 billion
and a maximum 3.78 billion square feet (between 50,000 and 100,000 tons) of
gypsum facing paper per year as G-P Gypsum may order for use in its new
ToughRock wallboard. Implementation of the new agreement, and settlement of the
pending litigation over the 1996 agreement, is subject to satisfactory
completion of a transition period of a duration to be determined in good faith
by G-P Gypsum, but not to exceed 90 days. During this period, we will supply G-P
Gypsum, as it requests, with such facing paper to enable it to evaluate the
paper's compliance with its specifications for quality and end-use suitability.
Upon G-P Gypsum's satisfaction with the paper, it will notify us that the
transition period has ended, and the term of the new agreement, including the
annual quantity requirements described above, will commence. Upon commencement
of the new agreement, the parties will dismiss all pending litigation relating
to the 1996 agreement. Under the terms of the tentative settlement, either party
may terminate its obligations under the new agreement during the transition
period without cause and without liability to the other party. Although we
believe that we will be able to satisfy G-P Gypsum's product requirements and
that the new agreement will be implemented, we can give no assurance that the
conditions to the new agreement will be satisfied (or that G-P Gypsum will
determine or agree that the conditions have been satisfied), or that the new
agreement will be implemented and the pending litigation will be dismissed. Even
if the new agreement is implemented, it could be at least 45 days following
implementation before we are supplying tonnage equal to at least 50% of the
7,000 tons per month levels purchased by Georgia-Pacific during the first half
of 2000 before the dispute arose. Accordingly, we believe that our operating
results and financial condition will continue to be materially and adversely
affected by the loss of contract volume from Georgia-Pacific unless and until
the new supply agreement is implemented, and until the new supply agreement has
been effective long enough to generate a substantial volume of required
purchases from Georgia-Pacific.
SUBSEQUENT EVENT
In May 2001, we entered into two interest rate swap agreements in notional
amounts of $185.0 million and $25.0 million. The agreements, which have payment
and expiration dates that correspond to the terms of the note obligations they
cover, effectively converted $185.0 million of our fixed rate 9 7/8% senior
subordinated notes and $25.0 million of our fixed rate 7 3/8% senior notes into
variable rate obligations. The variable rates are based on LIBOR plus a fixed
margin. Although we expect these swap agreements to lower our interest expense,
if LIBOR increases significantly, our interest expense could also increase
significantly. For example, assuming the continuation of the variable interest
rates currently in effect under the swap agreements, we would expect to save
approximately $4.6 million per year in interest expense. If, however, LIBOR were
to increase by 100 basis points, our interest expense would increase by
approximately $2.1 million.
On June 18, 2001, we announced a dividend of $0.03 per issued and
outstanding common share for the second quarter of 2001.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2000, we had outstanding borrowings of approximately $200.0
million related to an issuance of public debt securities registered with the
Securities and Exchange Commission in June of 1999. The 7 3/8% senior notes were
issued at a discount to yield an effective interest rate of 7.473%. The notes
pay interest semiannually, and are our unsecured obligations. As of December 31,
2000, we had a $400.0 million five-year senior credit facility, with interest
computed using our choice of (a) the Eurodollar rate plus a margin or (b) the
higher of the federal funds rate plus a margin or the bank's prime lending rate.
As of December 31, 2000, borrowings of $194.0 million were outstanding under the
senior credit facility at a weighted average interest rate of 7.27%. In
addition, at December 31, 2000, we had outstanding senior notes dated October 8,
1992, which were payable to an insurance company in five equal installments of
$16.55 million, the first of which was paid on October 8, 2000. As of December
31, 2000, we owed $66.2 million under these notes. Interest on the notes accrued
at 7.74% and was payable semiannually. Our senior management establishes
parameters, which are approved by the board of directors, for our financial
risk. We do not utilize derivatives for speculative purposes. We adopted SFAS
133, "Accounting for Derivative Instruments and Hedging Activities," effective
January 1, 2001, which had no material impact on our financial statements upon
adoption.
The table below provides information about our financial instruments that
are sensitive to changes in interest rates and should be read in conjunction
with the referenced notes in our consolidated financial statements. The table
below presents principal amounts and related weighted average interest rates by
year or expected maturity based on existing contractual maturity schedules for
our debt obligations as of December 31, 2000. For obligations with variable
interest rates, the table shows payout amounts based on current rates and does
not attempt to project future interest rates.
CONTRACTUAL MATURITY DATES
--------------------------------------------------------------
2001 2002 2003 2004 THEREAFTER TOTAL
------- -------- ------- ------- ---------- --------
(IN THOUSANDS)
7.74% Senior Notes(1)
Fixed rate.......................... $16,550 $ 16,550 $16,550 $16,550 $ -- $ 66,200
Average interest rate............... 7.74% 7.74% 7.74% 7.74% 7.74%
7 3/8% Senior Notes(1)
Fixed rate.......................... $200,000 $200,000
Average interest rate............... 7.47% 7.47%
Senior Credit Facility(1)
Variable rate....................... $194,000 $194,000
Average interest rate............... 7.27% 7.27%
- ---------------
(1) See Note 5 to the consolidated financial statements.
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The table below presents principal amounts and related weighted average
interest rates by year or expected maturity for our debt obligations as of March
31, 2001 (unaudited).
CONTRACTUAL MATURITY DATES
-----------------------------------------------------------------
2001 2002 2003 2004 THEREAFTER TOTAL
-------- -------- -------- -------- ---------- --------
(IN THOUSANDS)
9 7/8% Senior Subordinated Notes(1)
Fixed rate(2).................... $285,000 $285,000
Average interest rate............ 10.5% 10.5%
7 1/4% Senior Notes(1)
Fixed rate....................... $ 29,000 $ 29,000
Average interest rate............ 9.4% 9.4%
7 3/8% Senior Notes(1)(2)
Fixed rate....................... $200,000 $200,000
Average interest rate............ 7.47% 7.47%
Senior Credit Facility(1)
Variable rate.................... 0
Average interest rate............ N/A
- ---------------
(1)See Note 5 to the consolidated financial statements.
(2)In May 2001, we entered into two interest rate swap agreements in notional
amounts of $185.0 million and $25.0 million. The agreements effectively
converted portions of our fixed rate 9 7/8% senior subordinated notes and our
fixed rate 7 3/8% senior notes into variable rate obligations.
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BUSINESS
OVERVIEW
We are a major manufacturer of 100% recycled paperboard and converted
paperboard products. We manufacture products primarily from recovered fiber,
which is derived from recycled paper. We operate in three business segments:
- Paperboard
- Tube, core and composite container
- Carton and custom packaging
We report certain financial information by segment in Note 11 to the
consolidated financial statements included in this prospectus.
OPERATIONS AND PRODUCTS
Paperboard. Our principal manufacturing activity is the production of
uncoated and clay-coated recycled paperboard. In this manufacturing process, we
reduce paperstock to pulp, clean and refine it and then process it into various
grades of paperboard for internal consumption by our converting facilities or
sale in the following four end-use markets:
- Tube, core and composite containers
- Folding cartons
- Gypsum wallboard facing paper
- Other specialty products
We currently operate a total of 15 paperboard mills, including one owned in
a joint venture. These mills are located in the following states: Connecticut,
Georgia, Indiana, Iowa, New York, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee and Virginia. We ceased operations at two paperboard mills
during 2000: the Baltimore, Maryland mill in February 2000 and the Camden, New
Jersey mill in September 2000. Our Chicago, Illinois paperboard mill ceased
operations in January 2001.
In 2000, approximately 38% of the recycled paperboard sold by our
paperboard mills was consumed internally by our converting facilities; the
remaining 62% was sold to external customers. Sales of unconverted paperboard to
external customers as a percentage of total sales by end-use market were as
follows (excludes sales from the 50%-owned Premier Boxboard mill):
YEARS ENDED DECEMBER 31,
-------------------------
END-USE MARKET 1998 1999 2000
- -------------- ----- ----- -----
Tube, core and composite containers......................... 2.2% 1.8% 1.7%
Folding cartons............................................. 11.5% 12.1% 12.6%
Gypsum wallboard facing paper............................... 13.2% 13.8% 10.2%
Other specialty products(1)................................. 10.3% 10.5% 11.0%
- ---------------
(1) Includes sales of unconverted paperboard and certain specialty converted
products.
Three of our paperboard mills operate specialty converting facilities that
supply other specialty converted and laminated products to the bookbinding,
game, puzzleboard, printing and furniture industries. We also operate two
specialty converting facilities that supply die cut and foam laminated products
and manufacture jigsaw puzzles, coin folders and other specialty products.
Each of our paperboard mills and most of our converting plants have onsite
recovered fiber facilities that collect and bale recycled paperstock. In
addition, we operate nine stand-alone paperstock recycling and brokerage
facilities that collect, sale and broker recovered fiber to external customers
and to our own
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mills. Sales of paperstock to external customers accounted for 5.6% of our total
sales in 2000, 5.2% in 1999 and 4.5% in 1998.
Tube, Core and Composite Container. Our largest converting operation is
the production of tubes and cores. The principal applications of these products
are cloth cores, paper mill cores, yarn carriers, carpet cores and film, foil
and metal cores. In 2000, our 31 tube and core converting plants obtained
approximately 89% of their paperboard needs from our paperboard mills and the
remaining 11% from other manufacturers. Paper tubes are designed to provide
specific physical strength properties, resistance to moisture and abrasion, and
resistance to delamination at extremely high rotational speeds. Because of the
relatively high cost of shipping tubes and cores, tube and core converting
facilities generally serve customers within a relatively small geographic area.
Accordingly, most of our tube and core converting plants are located close to
concentrations of customers.
We are seeking to expand our presence in the markets for more sophisticated
tubes and cores, which require stronger paper grades, higher skill and new
converting technology. These markets include the yarn carrier and plastic film
markets, as well as the market for cores used in certain segments of the paper
industry. We believe these markets offer significant growth potential, as well
as potentially higher operating margins.
In addition to tube and core converting facilities, our tube, core and
composite container division operates four facilities that produce specialty
converted products used in industrial packaging protection applications (edge
protectors). Our tube, core and related sales to external customers accounted
for 21.3% of our total sales to external customers in 2000, 21.8% in 1999 and
26.3% in 1998.
Our tube, core and composite container division also produces composite
containers used in the adhesive, sealant, food and food service markets, as well
as grease cans, tubes, cartridges and other components. The group has three
composite container plants located in Stevens Point, Wisconsin, Saint Paris,
Ohio and Orrville, Ohio and a transportation operation in Ohio. Composite
container sales accounted for 3.9% of our total sales to external customers in
2000, 4.3% in 1999 and 4.8% in 1998.
We manufacture injection-molded and extruded plastic products, including
plastic cores for the textile industry, plastic cores for the film, paper and
other industries and other specialized products. These plastic products are, to
a large extent, complementary to our tube and core products. We have an 80%
equity interest in a plant in Union, South Carolina that produces such plastic
products. Some of this plant's customers also purchase our tubes and cores. This
plant currently has five plastic extrusion lines and 24 injection-molding
machines, using the latest available process control technology. We also produce
injection-molded plastic parts at our facility in Georgetown, Kentucky. These
parts are primarily used as components in the manufacture of our composite
containers. We produce plastic cartridges at a facility located in New Smyrna
Beach, Florida. Plastic product and related sales to external customers
accounted for 2.3% of our total sales to external customers in 2000, 2.5% in
1999 and 3.0% in 1998.
Carton and Custom Packaging. Our other converting operations produce
folding cartons and rigid set-up boxes at 16 carton plants. These plants obtain
approximately 44% of their paperboard needs from our paperboard mills and the
remaining 56% from other manufacturers. Our boxes and cartons are used
principally as containers for hosiery, hardware, candy, sports-related items,
cosmetics, dry food, film and various other industrial applications, including
textile and apparel applications.
We operate eight specialty packaging facilities: four in Ohio, two in New
Jersey and one each in Massachusetts and North Carolina. These facilities
perform contract manufacturing and custom contract packaging for a variety of
consumer product companies. Additionally, we operate a digital imaging facility
in Ohio and a prepress reproduction facility in Connecticut.
Carton and custom packaging sales accounted for 31.4% of our total sales to
external customers in 2000, 28.2% in 1999 and 24.2% in 1998.
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Our consolidated net sales and adjusted EBITDA (as defined herein) for the
twelve months ended December 31, 2000 were $963.4 million and $121.4 million,
respectively. We estimate that our three business segments accounted for the
following percentages of net sales for the twelve months ended December 31,
2000:
- Paperboard -- 41%
- Tube, core and composite container -- 27%
- Carton and custom packaging -- 32%
Joint Ventures. We also operate two joint ventures with Temple-Inland,
Inc., in which we own 50% interests. One of the joint ventures, Premier Boxboard
Limited LLC, formed in 1999, produces a new, lightweight gypsum facing paper
along with other containerboard grades. We believe that Premier is the lowest
cost mill in the industry. The other joint venture, Standard Gypsum, L.P.,
formed in 1996, manufactures gypsum wallboard. We manage the day-to-day
operations of our Premier Boxboard joint venture, and Temple-Inland manages the
day-to-day operations at our Standard Gypsum joint venture. See "Description of
Certain Indebtedness."
We also have an equity interest as the nonoperating partner in two tube
plants. One of the tube plants is located in Tacoma, Washington and manufactures
spiral-wound tubes and edge protectors. The other tube plant is located in
Scarborough, Ontario, Canada and manufactures spiral- and convolute-wound tubes.
Raw materials. Recovered fiber derived from recycled paperstock is the
only significant raw material we use in our mill operations. We purchase
approximately 69% of our paperstock requirements from independent sources, such
as major retail stores, distribution centers and manufacturing plants. We obtain
the balance from a combination of other sources. We collect some paperstock from
small collectors and waste collection businesses. Our paperstock recycling and
processing facilities sort and bale this paperstock and then either transfer it
to our mills for processing or sell it to third parties. We also obtain
paperstock from customers of our converting operations and from waste handlers
and collectors who deliver loose paperstock to our mill sites for direct use
without baling. We obtain another portion of our requirements from our small
baler program, in which we lease, sell or furnish small baling machines to
businesses that bale their own paperstock for our periodic collection.
We closely monitor our recovered fiber costs, which can fluctuate
significantly. See "Risk Factors -- Our business and financial performance may
be harmed by future increases in raw material costs." We also intend to further
increase our unbaled paperstock purchases as a percentage of our total recovered
fiber needs and to increase our reliance on purchases from our small baler
program.
Energy Costs. Excluding labor, energy is our most significant
manufacturing cost. We use energy, including electricity, natural gas, fuel oil
and coal, to generate steam used in the paper making process and to operate our
paperboard machines and our other converting machinery. We purchase energy from
local suppliers at market rates. Historically, we have not participated in any
energy hedging activities.
Product Distribution. Each of our manufacturing and converting facilities
has its own sales staff and maintains direct sales relationships with its
customers. We also employ divisional and corporate level sales personnel who
support and coordinate the sales activities of individual facilities. Divisional
and corporate sales personnel also provide sales management, marketing and
product development assistance in markets where customers are served by more
than one of our facilities. Approximately 180 of our employees are devoted
exclusively to sales and customer service activities, although many other
employees participate generally in sales efforts. We generally do not sell our
products through independent sales representatives. Our advertising is limited
to trade publications.
Customers. We manufacture most of our converted products pursuant to
customers' orders. We do, however, maintain minimal inventory levels of certain
products. Our business generally is not dependent on any single customer or upon
a small number of major customers; however, we have recently been involved in
litigation with Georgia-Pacific over its refusal to continue purchasing its
requirements of gypsum facing
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paper for certain plants pursuant to the terms of a long-term supply contract.
Our operating results and financial condition have been materially and adversely
affected by the loss of contract volume from Georgia-Pacific. See "Risk
Factors -- The lingering effects of our tentatively settled dispute with
Georgia-Pacific may continue to materially and adversely affect our operating
results and financial condition" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Georgia-Pacific Litigation."
Other than the loss of Georgia-Pacific, we do not believe that the loss of any
one customer would have a material adverse effect on our financial condition or
results of operations.
Competition. Although we compete with numerous other manufacturers and
converters, our competitive position varies greatly by geographic area and
within the various product markets of the recycled paperboard industry. In most
of our markets, our competitors are capable of supplying products that would
meet customer needs. Some of our competitors have greater financial resources
than we do. We compete in our markets on the basis of price, quality and
service. We believe that it is important in all of our markets to work closely
with our customers to develop or adapt products to meet customers' specialized
needs. We also believe that we compete favorably on the basis of all of the
above factors.
Tube, core and composite containers. In the southeastern U.S., where
we historically have marketed our tubes and cores, we believe that we and
Sonoco Products Company are the major competitors. On a national level,
Sonoco is our dominant competitor in the tube and core market. According to
industry data, Sonoco had more than 50% of the total tube and core market
in the U.S. in 1999. We also compete with several regional companies and
numerous small local companies in the tube and core market.
Carton and custom packaging. The folding carton and set-up box market
in the U.S. is served by several large national and regional companies and
numerous small local companies. Nationally, none of the major competitors
is dominant, although certain competitors may be dominant in particular
geographic areas or market niches. In the markets served by our carton and
box plants, the dominant competitor is Rock-Tenn Company.
Gypsum wallboard facing paper. The gypsum wallboard industry is
divided into independent gypsum wallboard manufacturers, which either do
not produce their own gypsum wallboard facing paper or cannot fill all of
their needs internally, and integrated wallboard manufacturers, which
supply all of their own gypsum wallboard facing paper requirements
internally. We believe that the two largest integrated gypsum wallboard
manufacturers, USG Corporation and National Gypsum Company, do not have
significant sales of gypsum wallboard facing paper to the independent
gypsum wallboard manufacturers. We believe that we have the largest market
share of the supply of gypsum wallboard facing paper to independent
wallboard manufacturers in North America.
We also compete in the gypsum wallboard industry through our joint
venture with Temple-Inland. Our joint venture, Standard Gypsum, competes
with larger integrated wallboard manufacturers such as USG Corporation and
National Gypsum, who have greater financial resources and superior
marketing strength due to their greater number of locations and national
presence. Standard Gypsum competes primarily on the basis of product
quality, dependability, timeliness of delivery and price.
Other specialty products. In our sales of specialty products and in
sales of recycled paperboard to other manufacturers for the production of
tubes, cores and composite containers, folding cartons and boxes and
miscellaneous converted products (other than gypsum wallboard facing
paper), we compete with a number of recycled paperboard manufacturers,
including Sonoco, Rock-Tenn, Smurfit-Stone Container Corporation and The
Newark Group, Inc. We believe that none of our competitors is dominant in
any of these markets.
Competitive Position. Recovered fiber costs were higher on average in
2000 compared to 1999. Our average same-mill cost for recovered fiber per
ton of recycled paperboard produced was approximately $101 during 2000,
which was up 20% from $84 per ton in 1999. Although no specific information
is available about competitors' actual recovered fiber costs, we believe
that our delivered recovered fiber costs are among the lowest in the
recycled paperboard industry. Relative to other
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competitors, we believe that our lower recovered fiber costs are
attributable in part to lower shipping costs resulting from the location of
our paperboard mills and paperstock facilities near major metropolitan
areas that generate substantial supplies of paperstock. Many of the
paperboard mills operated by our principal competitors are located away
from major metropolitan areas, and we believe, based on our knowledge of
freight rates, that these competitors incur higher freight costs associated
with their fiber recovery efforts, adding to their total cost of delivered
recovered fiber.
Our relatively low recovered fiber costs are also attributable to our
emphasis on certain recovery methods that enable us to avoid baling
operations. We believe that our competitors rely primarily on off-site,
company-owned and operated paperstock baling operations that collect and
bale paperstock for shipment and processing at the mill site. We also
operate such facilities, and our experience is that the baling operation
results in $25-$30 per ton higher recovered fiber costs. We equip most of
our paperboard mills to accept unbaled paperstock for processing directly
into its pulpers. In 2000 and 1999, unbaled paperstock represented
approximately 8% and 10%, respectively, of our total recovered fiber
purchases. We also use other fiber recovery methods -- our small baler
program and our recovery of paperstock from customers -- that result in
lower recovered fiber costs.
Environmental Matters. Our operations are subject to various
international, federal, state and local environmental laws and regulations.
These laws and regulations are administered by international, federal, state and
local agencies. Among other things, these laws and regulations regulate the
discharge of materials into the water, air and land, and govern the use and
disposal of hazardous substances. We believe that our operations are in
substantial compliance with all applicable environmental laws and regulations,
except for violations that we believe would not have a material adverse effect
on our business or financial position.
Our recycled paperboard mills use substantial amounts of water in the
papermaking process. Our mills discharge process wastewater into local sewer
systems or directly into nearby waters pursuant to wastewater discharge permits.
We use only small amounts of hazardous substances, and we believe the
concentration of these substances in our wastewater discharge generally is below
permitted maximums. From time to time, the imposition of stricter limits on the
solids, sulfides, BOD (biological oxygen demand) or metals content of a mill's
wastewater requires us to alter the content of our wastewater. We can effect
reductions by additional screening of the wastewater, by otherwise changing the
flow of process wastewater from the mill or from pretreatment ponds into the
sewer system, and by adding chemicals to the wastewater. We also are subject to
regulatory requirements related to the disposal of solid wastes and air
emissions from our facilities. We are not currently aware of any required
expenditures relating to wastewater discharge, solid waste disposal or air
emissions that we expect to have a material adverse effect on our business or
financial condition, but we are unable to assure you that we will not incur
material expenditures in these areas in the future.
In addition, under certain environmental laws, we can be held strictly
liable if hazardous substances are found on real property we have owned,
operated or used as a disposal site. In recent years, we have adopted a policy
of assessing real property for environmental risks prior to purchase. We are
aware of issues regarding hazardous substances at certain facilities, but in
each case we believe that any possible liabilities will not have a material
adverse effect on our business or financial position. See "Risk Factors -- We
are subject to many environmental laws and regulations that require significant
expenditures for compliance and remediation efforts, and changes in the law
could increase those expenses and adversely affect our operations."
Employees. As of December 31, 2000, the 97 facilities we operate had
approximately 6,255 employees, of whom 4,940 are hourly and 1,315 are salaried.
Approximately 2,453 of our hourly employees are represented by labor unions. All
principal union contracts expire during the period from 2001 through 2005. We
consider our relations with our employees to be excellent.
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Facilities. The following table sets forth certain information concerning
our facilities. Unless otherwise indicated, we own such facilities.
NUMBER
OF
TYPE OF FACILITY FACILITIES LOCATIONS
- ---------------- ---------- ---------
PAPERBOARD
Paperboard Mills(1).................... 14 Versailles, CT; Austell, GA (Mill #1);
Austell, GA (Mill #2); Austell, GA
(Sweetwater); Tama, IA; Buffalo, NY;
Charlotte, NC; Roanoke Rapids, NC;
Cincinnati, OH; Rittman, OH; Reading, PA;
Greenville, SC; Chattanooga, TN;
Richmond, VA
Specialty Converting Plants............ 5 Austell, GA; Charlotte, NC; Fayetteville,
NC; Mooresville, NC; Taylors, SC
Recovered Fiber Collection and 9 Columbus, GA; Dalton, GA; Doraville, GA;
Processing Plants(2)................ Charlotte, NC; Cleveland, OH; Rittman,
OH; Hardeeville, SC; Texarkana, TX
(leased); Richmond, VA
TUBE, CORE AND COMPOSITE CONTAINER
Tube and Core Plants................... 29 Linden, AL; Mobile, AL (leased); McGehee,
AR (leased); Phoenix, AZ (leased);
Cantonment, FL; Palatka, FL; Austell, GA;
Cedar Springs, GA; Dalton, GA; West
Monroe, LA; Mexico City, Mexico (leased);
Saginaw, MI; Corinth, MS; Kernersville,
NC; Minerva, OH; Perrysburg, OH;
Lancaster, PA (leased); Rock Hill, SC;
Taylors, SC; Amarillo, TX (leased);
Arlington, TX; Silsbee, TX; Texarkana,
TX; Leyland, Lancaster, United Kingdom;
Salt Lake City, UT (leased); Danville,
VA; Franklin, VA; West Point, VA; Weyers
Cave, VA
Composite Container Plants............. 3 Orrville, OH; Saint Paris, OH; Stevens
Point, WI
Specialty Converting Plants............ 4 Austell, GA; Mexico City, Mexico (65%
interest); Lancaster, PA; Arlington, TX
Plastics Plants........................ 3 New Smyrna Beach, FL (leased);
Georgetown, KY; Union, SC (80% interest)
Special Services and Other 2 Kernersville, NC (leased); Saint Paris,
Facilities.......................... OH
CARTON AND CUSTOM PACKAGING
Carton Plants.......................... 16 Birmingham, AL (leased); Denver, CO;
Versailles, CT; Thorndike, MA; Hunt
Valley, MD; Archdale, NC; Burlington, NC;
Charlotte, NC; Randleman, NC; Ashland,
OH; Mentor, OH; Grand Rapids, MI; St.
Louis, MO; York, PA; Kingston Springs,
TN; Chicago, IL
Contract Packaging and Contract 8 Thorndike, MA; Clifton, NJ; Pine Brook,
Manufacturing Plants................ NJ; Robersonville, NC; Bucyrus, OH;
Strasburg, OH (three facilities)
Special Services....................... 2 Versailles, CT; Cleveland, OH
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NUMBER
OF
TYPE OF FACILITY FACILITIES LOCATIONS
- ---------------- ---------- ---------
JOINT VENTURES
Gypsum Wallboard....................... 2 Cumberland, TN (50% interest); McQueeney,
TX (50% interest)
Tube and Core Plants................... 2 Scarborough, ON (Canada) (49% interest);
Tacoma, WA (50% interest)
Paperboard Mill........................ 1 Newport, IN (50% interest)
- ---------------
(1) All of our paperboard mills produce uncoated recycled paperboard with the
exceptions of our Rittman, OH, Tama, IA and Versailles, CT paperboard mills,
which produce clay-coated boxboard.
(2) Paperstock collection and/or processing also occurs at each of our mill
sites and at all of the carton plants and tube and core plants.
Legal Proceedings. From time to time, claims are asserted against us
arising out of our operations in the ordinary course of business. Other than our
litigation with Georgia-Pacific, we do not believe that we are a party to any
pending litigation that would have a material adverse effect on our financial
condition or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Georgia-Pacific Litigation."
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MANAGEMENT
The following table sets forth certain information for the persons who are
members of the board of directors or who are executive officers of our company.
The term of office for each executive officer expires on the earlier of the
appointment and qualification of a successor or such officer's death,
resignation, retirement, removal or disqualification. The directors of our
company will hold office until the 2001, 2002 or 2003 annual meeting of
shareholders, as indicated below, or until their respective successors have been
elected and qualified.
NAME AGE POSITION
---- --- --------
Thomas V. Brown............................ 60 President and Chief Executive Officer;
Director (term expires 2002); Executive
Committee
H. Lee Thrash, III......................... 50 Vice President, Planning and Development;
Chief Financial Officer; Director (term
expires 2003)
Jimmy A. Russell........................... 53 Vice President, Industrial and Consumer
Products Group
James L. Walden............................ 55 Vice President, Custom Packaging Group
William A. Nix, III........................ 49 Vice President, Treasurer and Controller
Barry A. Smedstad.......................... 54 Vice President, Human Resources and Public
Relations
John R. Foster............................. 55 Vice President, Sales and Marketing
James M. Hance, Jr......................... 56 Director (term expires 2001); Audit
Committee; Nominating Committee
James E. Rogers............................ 55 Director (term expires 2001); Chairman of
Compensation and Employee Benefits
Committee; Audit Committee
Ralph M. Holt, Jr.......................... 69 Director (term expires 2002); Nominating
Committee; Compensation and Employee
Benefits Committee; Audit Committee
Dennis M. Love............................. 45 Director (term expires 2002); Compensation
and Employee Benefits Committee
Bob M. Prillaman........................... 68 Director (term expires 2003)
Russell M. Robinson, II.................... 69 Chairman of Board of Directors; Director
(term expires 2003); Chairman of Nominating
Committee; Chairman of Executive Committee
Robert J. Clanin........................... 57 Director (term expires 2004); Chairman of
Audit Committee
Thomas V. Brown, President, Chief Executive Officer and Director. Mr.
Brown has served as President of our company since January 1991 and as Chief
Executive Officer since October 1991. Mr. Brown has been a director of our
company since April 1991. Prior to joining our company, Mr. Brown served as the
Vice President and General Manager, Industrial Packaging Division, of Jefferson
Smurfit Corporation, a packaging company, from October 1986 through December
1990.
H. Lee Thrash, III, Vice President, Planning and Development, Chief
Financial Officer and Director. Mr. Thrash has been employed by our company
since 1983 and has served as Vice President and Chief Financial Officer of our
company since 1986. Mr. Thrash has been a director since 1987.
Jimmy A. Russell, Vice President, Industrial and Consumer Products
Group. Mr. Russell has been Vice President of the Industrial and Consumer
Products Group since April 1993. Mr. Russell has also served as Chief Executive
Officer of Star Paper Tube, Inc., the predecessor of the Industrial and Consumer
Products Group, since January 1993.
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James L. Walden, Vice President, Custom Packaging Group. Mr. Walden has
been Vice President of the Custom Packaging Group since February 1993.
William A. Nix, III, Vice President, Treasurer and Controller. Mr. Nix has
been Vice President, Treasurer and Controller since April 2001. From 1995
through 2000, Mr. Nix served as a Vice President and Treasurer of Agco
Corporation, a manufacturer of agricultural equipment. From 1991 through 1995,
Mr. Nix was Director of Corporate Finance of our company.
Barry A. Smedstad, Vice President, Human Resources and Public
Relations. Mr. Smedstad has been Vice President of Human Resources and Public
Relations since January 1999. From 1997 through 1998, Mr. Smedstad was Vice
President of Human Resources at Box USA, a manufacturer of corrugated shipping
containers. From 1996 to 1997, Mr. Smedstad served as Director of Human
Resources of the Northeast Region of Baxter Healthcare Corporation, a
diversified healthcare products and technology manufacturer. From 1985 to 1996,
Mr. Smedstad was Director of Labor and Employee Relations for Federal Paper
Board Company, Inc., a paper manufacturer.
John R. Foster, Vice President, Sales and Marketing. Mr. Foster has been
Vice President of Sales and Marketing since 1996. From 1995 to 1996, Mr. Foster
was Chief Operating Officer for Pace International LP, a chemical company. From
1991 to 1994, Mr. Foster served as President and General Manager of Eagle-Gypsum
Products, a gypsum wallboard manufacturer.
James H. Hance, Jr., Director, Vice Chairman and Chief Financial Officer,
Bank of America Corporation, Charlotte, North Carolina, a bank holding
company. Mr. Hance has served as Vice Chairman of Bank of America Corporation
(formerly NationsBank Corporation) since October 1993, and as Chief Financial
Officer since August 1988. Prior to joining NationsBank Corporation (formerly
NCNB Corporation) in March 1987, Mr. Hance, a certified public accountant, spent
17 years with the public accounting firm of Price Waterhouse in Philadelphia and
Charlotte. Mr. Hance is also a director of Family Dollar Stores, Inc., Lance,
Inc. and Summit Properties, Inc. Mr. Hance has been a director of our company
since November 1995.
James E. Rogers, Director, President, SCI Investors Inc., Richmond,
Virginia, a private equity investment firm. Mr. Rogers has been President of
SCI Investors Inc. since April 1993. From 1993 to 1996, Mr. Rogers also served
as Chairman of Custom Papers Group, Inc., a paper manufacturing company. From
1991 to 1993, Mr. Rogers served as President and Chief Executive Officer of
Specialty Coatings International, Inc., a manufacturer of specialty paper and
film products. Prior to that time, Mr. Rogers was Senior Vice President, Group
Executive of James River Corporation, a paper and packaging manufacturer. Mr.
Rogers has been a director of our company since November 1993. Mr. Rogers also
serves as a director of Wellman, Inc., Owens & Minor, Inc., Chesapeake
Corporation and Cadmus Communications Corporation.
Ralph M. Holt, Jr., Director, Chairman and Chief Executive Officer, Holt
Hosiery Mills, Burlington, North Carolina, a hosiery manufacturer. Mr. Holt has
been a director of our company since April 1986, and has been the Chairman and
Chief Executive Officer of Holt Hosiery Mills since 1967. Mr. Holt also serves
as Vice Chairman of Mid Carolina Bank in Burlington, North Carolina.
Dennis M. Love, Director, President and Chief Executive Officer, Printpack
Inc., Atlanta, Georgia, a manufacturer and converter of flexible packaging
materials. Mr. Love was appointed a director of our company in February 1999.
Mr. Love also serves as a director of AGL Resources Inc. and SunTrust Banks,
Inc.
Bob M. Prillaman, Director, Senior Vice President (retired), Caraustar
Industries, Inc. Mr. Prillaman served as Senior Vice President of our company
from 1980 until his retirement effective March 1, 1998 and has served as a
director since 1980. Mr. Prillaman was employed by our company or its
predecessors from 1969 until his retirement.
Russell M. Robinson, II, Director, Attorney at law, Robinson, Bradshaw &
Hinson, P.A., Charlotte, North Carolina, a law firm. Mr. Robinson has been
engaged in the private practice of law since 1956
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and is a shareholder, officer and director of Robinson, Bradshaw & Hinson, P.A.
Mr. Robinson has been a director of our company since December 1992 and has
served as Chairman of the Board of Directors since April 1995. Mr. Robinson also
serves as a director of Cadmus Communications Corporation and Duke Energy
Corporation.
Robert J. Clanin, Director, Senior Vice President and Chief Financial
Officer (retired), United Parcel Service. Mr. Clanin served as Senior Vice
President and Chief Financial Officer of United Parcel Service from 1994 until
his retirement on January 1, 2001. Mr. Clanin has also served as a director of
United Parcel Service since 1996. Mr. Clanin also serves as chairman of the
board of directors of Overseas Partners Ltd., chairman of the Georgia Council on
Economic Education and as a director of The Annie E. Casey Foundation.
BOARD OF DIRECTORS
Our Board of Directors currently consists of 9 members and is divided into
3 classes (I, II and III). Each newly elected class of directors will serve
terms of three years.
The Board of Directors maintains an Audit Committee, on which Messrs.
Clanin (chairman), Hance, Holt and Rogers serve. The Audit Committee reviews the
results and scope of each audit, the service provided by our independent
accountants and related-party transactions.
The Board of Directors also has a Compensation and Employee Benefits
Committee, on which Messrs. Holt, Love and Rogers (chairman) serve. The
Compensation and Employee Benefits Committee establishes and reviews the
compensation criteria and policies of our company, and administers our 1998 Key
Employee Incentive Compensation Plan.
The Board of Directors also has a Nominating and Corporate Governance
Committee, on which Messrs. Robinson (chairman), Hance and Holt serve. The
Nominating and Corporate Governance Committee recommends nominees for election
to the Board of Directors and advises on other matters of organizational
structure and corporate governance.
The Board of Directors also maintains an Executive Committee on which
Messrs. Robinson (Chairman) and Brown serve. The Executive Committee is
authorized, to the extent permitted by law, to exercise the powers of the Board
of Directors between meetings to the extent deemed necessary by the Chairman of
the Board and to perform such other duties as delegated by the Board of
Directors.
Each director who is not an employee or former employee of our company is
being paid (in quarterly installments) an annual retainer fee of $20,000 for
serving as a director. A non-executive Chairman of the Board is paid an annual
retainer fee of $55,000. Under our 1996 Director Equity Plan, half of these
annual retainers are paid in Common Shares, and each such director receives an
annual grant of options to purchase 1,000 Common Shares valued at the closing
price of such shares on the last business day preceding the date of grant. The
chairmen of the Audit Committee, Compensation and Employee Benefits Committee,
the Nominating and Corporate Governance Committee and Executive Committee also
receive an annual retainer fee of $3,500. Additionally, all directors who are
not employees of our company are paid a fee of $1,500 per meeting for attending
meetings of the Board of Directors, $500 for participation in a telephonic Board
meeting, $1,000 per committee meeting attended and $250 per committee meeting by
telephone conference. All directors are reimbursed for ordinary and necessary
out-of-pocket expenses incurred in attending meetings of the Board of Directors.
None of our directors is related (as first cousin or closer) by blood,
marriage or adoption to any other director or person who may be deemed to be an
executive officer of our company.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth information
concerning the compensation for the years ended December 31, 1998, 1999 and 2000
for those persons who were, at December 31, 2000, the chief executive officer of
our company and our company's four other most highly compensated executive
officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
ANNUAL ------------------------
COMPENSATION(1) RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
SALARY BONUS AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- -------- ------- ---------- ---------- ------------
Thomas V. Brown,............ 2000 $567,000 $ 0 $77,979(2) 19,498(3) $6,600(4)
President and Chief 1999 $562,500 $ 0 $ -- 18,057(5) $4,700(4)
Executive Officer 1998 $535,000 $66,875(6) $10,017(7) 15,876(8) $4,760(4)
Edward G. Schmitt,.......... 2000(9) $338,333 $ 0 $ -- 14,645(10) $4,966(11)
Vice President 1999 $322,500 $ 0 $ -- 9,536(5) $3,200(11)
1998 $282,533 $35,317(6) $ -- 9,476(12) $3,200(11)
James L. Walden,............ 2000 $336,173 $ 0 $ -- 14,563(10) $4,966(11)
Vice President 1999 $320,673 $ 0 $ -- 10,390(5) $3,200(11)
1998 $307,840 $76,960 $ -- 7,997(13) $3,200(11)
Jimmy A. Russell,........... 2000 $299,120 $ 0 $ -- 12,820(10) $4,851(11)
Vice President 1999 $282,287 $ 0 $ -- 8,712(5) $3,200(11)
1998 $258,120 $64,530 $ -- 6,595(13) $3,033(11)
H. Lee Thrash, III,......... 2000 $246,057 $ 0 $ -- 10,410(9) $4,180(11)
Vice President 1999 $229,224 $ 0 $ -- 7,368(5) $3,200(11)
1998 $218,307 $54,577 $ -- 5,626(13) $3,200(11)
- ---------------
(1) We have expended certain amounts that may have had value as a perquisite or
personal benefit to the named officers. However, the total value of such
benefits did not exceed the lesser of $50,000 or 10% of the annual salary
and bonus of any named officer for the fiscal year reported.
(2) This amount represents the value of 4,726 shares acquired through the
exercise of restricted share rights valued at $16.50 per share. As of
December 31, 2000, Mr. Brown held a total of 10,138 restricted common
shares valued at $95,094.
(3) This amount consists of the following: (1) traditional options, priced at
100% of market value on date of grant, to purchase 6,450 shares; (2)
performance options, priced at 120% of market value on date of grant, to
purchase 6,322 shares; (3) restricted share rights to acquire 4,726 shares,
which were elected in lieu of 50% of the named officer's option
entitlement; and (4) the right, exercisable for three years from the date
of grant, to acquire 2,000 unrestricted common shares in the event that the
closing price of our common shares equals or exceeds $30.00 for any period
of five consecutive trading days.
(4) For the years 2000, 1999 and 1998, the reported amount includes $5,100,
$3,200 and $3,200, respectively, in employer matching contributions under
our 401(k) Plan, and the balance represents the portion of term life
insurance premiums we paid on terms not otherwise available to all salaried
employees.
(5) Based on the extent to which we achieved performance goals established
under the Incentive Plan, 62.5% of the options were awarded as traditional
options, priced at 100% of market value on date of grant, and 37.5% were
awarded as performance options, priced at 120% of market value on date of
grant.
(6) In accordance with the 1998 Key Employee Incentive Compensation Plan (the
"Incentive Plan"), this named officer elected to receive nonqualified stock
options, the amounts of which are reflected
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in the Securities Underlying Options column, in lieu of 50% of the cash
bonus to which he was entitled.
(7) This amount represents the value of 389 shares acquired through the
exercise of restricted share rights valued at $25.75 per share.
(8) This amount consists of the following: (1) traditional options, priced at
100% of market value on date of grant, to purchase 3,971 shares; (2)
performance options, priced at 120% of market value on date of grant, to
purchase 2,875 shares; (3) restricted share rights to acquire 2,581 shares;
and (4) options, priced at 100% of fair market value on date of grant, to
purchase 6,449 shares, which options were elected in lieu of 50% of the
named officer's 1998 cash bonus entitlement.
(9) Mr. Schmitt retired from our company effective May 1, 2001.
(10) Based on the extent to which we achieved performance goals under the
Incentive Plan, 50.5% of the options were awarded as traditional options,
priced at 100% of market value as date of grant, and 49.5% were awarded as
performance options, priced at 120% of market value on date of grant.
(11) Amount represents employer-matching contributions under our 401(k) plan.
(12) This amount consists of the following: (1) traditional options, priced at
100% of market value on date of grant, to purchase 3,521 shares; (2)
performance options, valued at 120% of market value on date of grant, to
purchase 2,549 shares; and (3) options, priced at 100% of market value on
date of grant, to purchase 3,406 shares, which options were elected in lieu
of 50% of the named officer's 1998 cash bonus entitlement.
(13) Based on the extent to which we achieved performance goals established
under the Incentive Plan, 58% of these options were awarded as traditional
options, priced at 100% of market value on date of grant, and 42% were
awarded as performance options, priced at 120% of market value on date of
grant.
Option Grants Table. The following table sets forth certain information
concerning grants of stock options to the named officers during the year ended
December 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATIONS FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ---------- ------------ ----------- ---------- --------- ---------
Thomas V. Brown............ 6,450(1) 1.9% $17.94 2010 $145,522 $368,782
6,322(2) 2.4% $21.53 2010 $ 97,274 $316,104
4,726(3) 12.8% $ 0.00 2005 $ 23,441 $ 51,797
2,000(4) 100% $ 0.00 2003 $ 36,760 $ 42,280
Edward G. Schmitt(5)....... 7,396(1) 2.2% $17.94 2010 $166,866 $422,870
7,249(2) 2.7% $21.53 2010 $111,538 $362,454
James L. Walden............ 7,354(1) 2.1% $17.94 2010 $165,918 $420,468
7,209(2) 2.7% $21.53 2010 $110,922 $360,454
Jimmy A. Russell........... 6,474(1) 1.9% $17.94 2010 $146,064 $370,154
6,346(2) 2.4% $21.53 2010 $ 97,644 $317,304
H. Lee Thrash, III......... 5,257(1) 1.5% $17.94 2010 $118,606 $300,572
5,153(2) 2.0% $21.53 2010 $ 79,288 $257,652
- ---------------
(1) These amounts represent the number of common shares underlying grants of
traditional options under the Incentive Plan, priced at 100% of market value
on date of grant. These options are, to the extent permitted under the
Internal Revenue Code (the "Code"), intended to be incentive stock options
within the meaning of Section 422 of the Code. All of these options are
currently 20% vested, and will continue to vest over 4 years beginning on
February 9, 2002 in annual increments of 20%.
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(2) These amounts represent the number of common shares underlying grants of
performance options under the Incentive Plan, priced at 120% of market value
on the date of grant. These options are, to the extent permitted under the
Code, intended to be incentive stock options within the meaning of Section
422 of the Code. All of these options are currently 20% vested, and will
continue to vest over 4 years beginning on February 9, 2002 in annual
increments of 20%.
(3) This amount represents restricted share rights granted on February 9, 2000
to acquire 4,726 shares. The potential realizable value columns for this
grant are calculated based on $17.94, the closing price of our common shares
on the date of grant. These restricted share rights were exercised on June
8, 2000 when the price of the common shares was $16.50, for an actual
realized value of $77,979.
(4) This amount represents the grant of a right to acquire 2,000 unrestricted
shares in the event that the closing price of our common shares equals or
exceeds $30.00 for any period of five consecutive trading days. The
potential realizable value columns for this grant were calculated based on
$15.88, the closing price of our common shares on the date of grant.
(5)Mr. Schmitt retired from our company effective May 1, 2001.
Option Exercises and Year-End Value Table. The following table sets forth
certain information concerning the exercise of stock options by the named
officers during 2000 and unexercised options held as of December 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUE
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE AT FY-END (#) FY-END ($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------- ----------- ------------- ----------- -------------
Thomas V. Brown.......... 84,750 $1,059,375 50,798 35,326 $0 $0
4,726 $ 77,979
Edward G. Schmitt(2)..... 0 $ 0 24,115 27,042 $0 $0
James L. Walden.......... 0 $ 0 42,650 28,800 $0 $0
Jimmy A. Russell......... 0 $ 0 23,130 24,997 $0 $0
H. Lee Thrash, III....... 0 $ 0 20,348 20,556 $0 $0
- ---------------
(1) The fair market value used for computations in this column was $9.38, which
was the closing market price of our common shares on December 29, 2000.
(2)Mr. Schmitt retired from our company effective May 1, 2001.
Retirement Plans. Substantially all of our employees participate in a
non-contributory defined benefit pension plan. The pension plan provides for
retirement, disability and death benefits. Employees who retire at the normal
retirement age of 65 and receive their benefits as a single life annuity are
entitled to annual pension benefits generally equal to .75% of average annual
compensation, multiplied by number of years of credited service. Average annual
compensation is the highest average compensation received by an employee for any
consecutive five-year period during the last 10 consecutive plan years of an
employee's participation in the plan. Average annual compensation is defined as
an employee's gross wages, excluding fringe benefits and deferred compensation
(salary and bonus columns of the Summary Compensation Table less any deferred
compensation included in the salary column). Prior to April 1, 2000, when the
annual benefit formula was changed to the formula described above, the annual
benefit was calculated as follows: 1.35% times average annual compensation,
multiplied by the number of years of credited service (not greater than 33
years), less .65% of final average annual compensation (defined as average
annual compensation for the last three consecutive calendar years preceding
retirement, up to the taxable wage base as established by the Social Security
Administration) for each year of credited service at normal retirement date (not
greater than 33 years). The new formula removed the offset to social security
and the 33-year service cap for all salaried and non-bargained employees covered
in the plan. Benefit accruals
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under the old formula through March 31, 2000 were frozen and participants age 50
with 10 or more years of service became entitled to receive the greater of the
benefit provided under the old formula or the new formula.
We also maintain a Supplemental Executive Retirement Plan ("SERP"), which
supplements our pension plan benefits by providing to certain highly compensated
employees the additional retirement benefits to which they otherwise would be
entitled under our pension plan in the absence of limitations imposed by the
Internal Revenue Code. The additional benefits payable under the SERP will be
based on the same formula as the pension plan, but without regard to the taxable
wage base established by the Social Security Administration or the 33-year
maximum limit on credited years of service.
The following table shows the estimated annual benefits payable upon
retirement to employees participating in our non-contributory defined benefit
pension plan and entitled to the greater of the benefit provided under the old
formula or the new formula, as supplemented by the SERP, at specified
compensation levels and years of service:
COMBINED RETIREMENT PLANS ESTIMATED ANNUAL BENEFITS
CREDITED YEARS OF SERVICE
AVERAGE ANNUAL -----------------------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35 40 45
- -------------- ------- ------- ------- ------- ------- ------- ------- -------
150$,000.... $17,831 $26,747 $35,662 $44,578 $53,494 $62,409 $71,325 $80,240
200,000.... 24,581 36,872 49,162 61,453 73,744 86,034 98,325 110,615
250,000.... 31,331 46,997 62,662 78,328 93,994 109,659 125,325 140,990
300,000.... 38,081 57,122 76,162 95,203 114,244 133,284 152,325 171,365
350,000.... 44,831 67,247 89,662 112,078 134,494 156,909 179,325 201,740
400,000.... 51,581 77,372 103,162 128,953 154,744 180,534 206,325 232,115
450,000.... 58,331 87,497 116,662 145,828 174,994 204,159 233,325 262,490
500,000.... 65,081 97,622 130,162 162,703 195,244 227,784 260,325 292,865
550,000.... 71,831 107,747 143,662 179,578 215,494 251,409 287,325 323,240
600,000.... 78,581 117,872 157,872 196,453 235,744 275,034 314,325 353,615
650,000.... 85,331 127,997 170,662 213,328 255,994 298,659 341,325 383,990
At December 31, 2000, the estimated credited years of service and average
annual compensation under the retirement plans for each of the named officers
were as follows: Thomas V. Brown, 38 years and $619,672 (credited years of
service include term of service with former employer in accordance with Mr.
Brown's employment agreement); Edward G. Schmitt, 26 years and $302,972
(credited years of service include term of service with former employer); James
L. Walden, 8 years and $377,110; Jimmy A. Russell, 25 years and $315,107 and H.
Lee Thrash, III, 17 years and $263,803.
Employment Agreements. We entered into an employment agreement, effective
January 1, 1991, with Thomas V. Brown. The employment agreement established Mr.
Brown's initial annual base salary at $350,000, and provides that subsequent
increases in his base salary are to be determined by the Compensation and
Employee Benefits Committee. Pursuant to the employment agreement, we granted to
Mr. Brown options to purchase 120,000 common shares at $4.00 per share, which
were to expire January 1, 2001, and which were subject to vesting at a rate of
20% per year over a five-year period. The remainder of options were exercised in
full during 2000. Pursuant to the employment agreement, we have provided Mr.
Brown with $1,000,000 in term life insurance, the initiation fee and monthly
dues for a local country club, an annual $5,000 allowance for financial planning
and tax preparation services and travel and accident insurance in the amount of
$1,000,000.
Mr. Brown's employment agreement runs for an indefinite term, but may be
terminated by us or Mr. Brown with or without cause upon 60 days' prior notice.
Certain terms of the agreement (i) providing for one year's severance pay to Mr.
Brown in the event of his termination by us without cause and (ii) prohibiting
Mr. Brown from competing with us for one year following his voluntary
termination of employment with us expired in 1996.
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We entered into an employment agreement with James L. Walden on January 25,
1993 to establish Mr. Walden's compensation during the first year of his
employment. Under the employment agreement, Mr. Walden's base salary for his
first year of employment was set at $250,000, with future increases to be
determined by the Compensation and Employee Benefits Committee. The agreement
also provided Mr. Walden with a guaranteed minimum bonus of 10% of his base
salary for the first year and provided that Mr. Walden was eligible for
immediate participation in the 1993 Key Employees' Share Ownership Plan and our
Incentive Bonus Plan. Pursuant to the employment agreement, we granted Mr.
Walden options to purchase 20,000 common shares at $17.75, the fair market value
of such shares on the date of grant. These options expire on February 5, 2003
and are subject to vesting at a rate of 20% per year over a five-year period.
Options for these 20,000 shares were fully vested as of February 5, 1998, and
4,000 have been exercised to date. Under the agreement, we also have provided
Mr. Walden with term life insurance in an amount equal to two times his annual
base salary, travel and accident insurance in the amount of $500,000, an annual
$5,000 allowance for financial planning and tax preparation services and an
allowance for local country club dues of up to $3,000 per year.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 22, 2001, the only class of voting securities we had issued and
outstanding was our common shares. On that date, there were 27,850,814 common
shares outstanding. The following table sets forth the names of, and the numbers
and percentages of common shares beneficially owned as of March 22, 2001 by: (a)
each person known to us to own beneficially 5% or more of our outstanding common
shares; (b) each director; (c) certain executive officers; and (d) all of our
executive officers and directors as a group. A "beneficial owner" of common
shares is a person who has either the voting or investment power, or both, alone
or shared with others, over such Common Shares. Each of the individuals listed
below possesses sole voting and investment power with respect to the shares
listed opposite his or her name, unless noted otherwise.
SHARES BENEFICIALLY
OWNED
-------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1) PERCENT
- ------------------------------------ --------- -------
JP Morgan Chase & Co........................................ 1,927,400 7.0%
270 Park Avenue
New York, New York 10017(2)
Capital Group International, Inc.(3)........................ 1,660,600 6.0%
Capital Guardian Trust Company
11100 Santa Monica Boulevard
Los Angeles, California 90025
Thomas V. Brown(4).......................................... 234,087 *
Bob M. Prillaman............................................ 166,149 *
Jimmy A. Russell............................................ 146,331 *
Russell M. Robinson, II(5).................................. 115,859 *
Edward G. Schmitt(6)........................................ 98,994 *
Ralph M. Holt, Jr........................................... 94,863 *
James L. Walden............................................. 90,650 *
H. Lee Thrash, III(7)....................................... 88,954 *
John D. Munford(8).......................................... 10,320 *
James H. Hance, Jr.(9)...................................... 10,091 *
James E. Rogers............................................. 10,091 *
Dennis M. Love.............................................. 4,505 *
Directors and Executive Officers as a group (14 persons).... 1,109,620 4.0%
- ---------------
+ Addresses are furnished only for each person known to us to own beneficially
5% or more of our outstanding common shares.
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(1) Includes the following shares subject to stock options exercisable within 60
days after March 22, 2001: Mr. Brown -- 60,332; Mr. Walden -- 50,363; Mr.
Schmitt -- 31,289; Mr. Russell -- 30,004; Mr. Thrash -- 25,902; Mr.
Prillaman -- 7,875; Mr. Robinson -- 6,000; Mr. Holt -- 6,000; Mr.
Munford -- 6,000; Mr. Rogers -- 6,000; Mr. Hance -- 6,000; Mr.
Love -- 3,000; Directors and Executive Officers as a group -- 258,976.
(2) Based on a Schedule 13G filed with us on or about February 13, 2001. JP
Morgan Chase & Co. is the parent company of certain subsidiaries engaged in
investment management and similar fiduciary activities that hold voting and
investment power over certain of the shares reported and the right to
receive and direct the receipt of dividends and sale proceeds from all
shares reported. Of the shares reported, JP Morgan Chase & Co. reports sole
voting power over 1,341,300, shared voting power over 483,500, sole
dispositive power over 1,440,400 and shared dispositive power over 483,500.
(3) Based on a Schedule 13G or amendment thereto filed with us on or about
February 9, 2001. Capital Group International, Inc. is the parent holding
company of a group of investment management companies that hold investment
power and, in some cases, voting power over the securities reported above.
The investment management companies provide investment advisory and
management services for their respective clients, which include registered
investment companies and institutional accounts. Capital Group
International, Inc. does not have investment power or voting power over any
of the securities reported above; however, Capital Group International, Inc.
may be deemed to "beneficially own" such securities within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, and Capital Guardian
Trust Company may be deemed to "beneficially own" certain of these
securities as the result of its service as investment manager of various
institutional accounts. Both Capital Group International, Inc. and Capital
Guardian Trust Company disclaim beneficial ownership of all reported
securities.
(4) Includes 29,200 shares registered in the name of Mr. Brown's wife.
(5) Includes 46,890 shares registered in the name of Mr. Robinson's wife.
(6)Mr. Schmitt retired from all positions with our company effective May 1,
2001.
(7) Includes 4,434 shares held by Mr. Thrash as custodian for his children and
148 shares held in his wife's Individual Retirement Account.
(8)Mr. Munford retired as a director effective May 10, 2001.
(9) Includes 2,000 shares held in a family partnership, over which Mr. Hance has
shared voting and investment power.
* Denotes ownership of less than 1% of our common shares.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
Our senior credit facility provides for a revolving line of credit in the
principal amount of $75.0 million for a term of three years, including
subfacilities of $10.0 million for swingline loans and $15.0 million for letters
of credit, usage of which reduces availability under the facility. We may use
proceeds of borrowings under the facility to refinance other indebtedness and
for working capital, capital expenditures and other general corporate purposes.
The facility is unsecured, but our obligations under the facility are
unconditionally guaranteed, on a joint and several basis, by all of our existing
and subsequently acquired domestic subsidiaries. The indebtedness under the
facility and the subsidiary guarantees of such indebtedness will (1) constitute
senior indebtedness under the senior subordinated indenture governing the senior
subordinated exchange notes and rank senior in right of payment to the senior
subordinated exchange notes and (2) rank equally in right of payment with the
senior exchange notes.
Borrowings under the facility bear interest at a rate equal to, at our
option, either (1) the base rate (which is equal to the greater of the prime
rate most recently announced by Bank of America, the administrative agent under
the facility, or the federal funds rate plus one-half of 1%) or (2) the adjusted
Eurodollar Interbank Offered Rate, in each case plus an applicable margin
determined by reference to our leverage ratio (which is defined under the
facility as the ratio of our total debt to our total capitalization). The
initial applicable margins are 2.0% for Eurodollar rate loans and 0.75% for base
rate loans. Beginning on the date we deliver our financial statements for the
fiscal quarter ending September 30, 2001, the initial margins will be subject to
reduction based on our leverage ratio. Additionally, the undrawn portion of the
facility is subject to a facility fee at an annual rate that is presently set at
0.5%, also subject to reduction, beginning on the date we deliver our September
30, 2001 financial statements, based on our leverage ratio.
The facility contains restrictive covenants that are customary for these
types of transactions, including covenants restricting, among other things, our
ability and our subsidiaries' ability to create liens, merge or consolidate,
dispose of assets, incur indebtedness and guarantees, pay dividends, repurchase
or redeem capital stock and indebtedness (including the notes), make certain
investments or acquisitions, enter into certain transactions with affiliates,
make capital expenditures or change the nature of our business.
The facility also contains financial maintenance covenants establishing a
maximum leverage ratio (as described above), a minimum interest coverage ratio,
and minimum tangible net worth. The financial maintenance covenants are measured
periodically and become more restrictive in future periods.
The facility contains events of default that are customary for these types
of transactions, including, but not limited to, nonpayment of principal or
interest, violation of covenants, incorrectness of representations and
warranties, cross-default to other indebtedness, bankruptcy and other insolvency
events, material judgments, certain ERISA events, actual or asserted invalidity
of loan documentation and certain changes of control of our company. The
occurrence of any event of default could result in the acceleration of our and
the guarantors' obligations under the facility (as well as other indebtedness
that is cross-defaulted to the facility) and could materially and adversely
affect you.
7 3/8% SENIOR NOTES DUE 2009
In 1998, we registered with the Securities and Exchange Commission a total
of $300.0 million in public debt securities for issuance in one or more series
and with specific terms to be determined from time to time. On June 1, 1999, we
issued $200.0 million in aggregate principal amount of our 7 3/8% senior notes
due 2009. The 7 3/8% senior notes mature June 1, 2009 and bear interest at a
rate of 7 3/8% per annum, payable semiannually on June 1 and December 1 of each
year. We issued the 7 3/8% senior notes at a discounted issue price of $197.4
million, to yield an effective interest rate of 7.473%. The difference between
the issue price and the principal amount at maturity of the 7 3/8% senior notes
will be accreted each year as interest expense in our financial statements.
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We may redeem the 7 3/8% senior notes prior to maturity, in whole or in
part, at a redemption price equal to the greater of the principal amount of
7 3/8% senior notes being redeemed and the make-whole price described in the
supplemental indenture governing the 7 3/8% senior notes, plus accrued interest
to the date of redemption. We are not required to make any sinking fund payments
with regard to the 7 3/8% senior notes.
The 7 3/8% senior notes are unsecured senior obligations of our company and
rank equally in right of payment with all our other unsecured and unsubordinated
indebtedness, including the senior exchange notes. Accordingly, the 7 3/8%
senior notes will (1) constitute senior indebtedness under the senior
subordinated indenture governing the senior subordinated exchange notes and will
rank senior in right of payment to the senior subordinated exchange notes and
(2) rank equally in right of payment with the senior exchange notes. In
connection with the offering of the original notes, our subsidiary guarantors
jointly and severally guaranteed our 7 3/8% senior notes.
The indenture governing the 7 3/8% senior notes provides that, subject to
certain exceptions, neither we nor any of our domestic subsidiaries may incur,
assume or guarantee any indebtedness that is secured by a lien on any of our
principal properties (as defined in the indenture) or upon any shares of stock
or indebtedness of any domestic subsidiary unless the 7 3/8% senior notes are
secured equally and ratably with such secured indebtedness. The indenture also
provides that neither we nor any of our domestic subsidiaries may enter into any
sale-leaseback transaction involving any of our principal properties (other than
any such transaction involving a lease for a term, including renewal rights, of
not more than three years) unless certain requirements specified in the
indenture are complied with. Finally, the indenture provides that we may not
merge into or consolidate with any other person or transfer our properties and
assets substantially as an entirety to any other person, or permit any person to
merge into or consolidate with us or transfer its properties and assets
substantially as an entirety to us, without complying with certain conditions
specified in the indenture.
STANDARD GYPSUM GUARANTY
Standard Gypsum, L.P. is one of our joint ventures with Temple-Inland. We
and Temple-Inland each own a 50% partnership interest in Standard Gypsum, and
Temple-Inland manages its day-to-day operations. Standard Gypsum is the obligor
under reimbursement agreements pursuant to which two direct-pay letters of
credit in the aggregate original amount of approximately $56.7 million have been
issued for its account in support of industrial development bond obligations. We
have severally and unconditionally guaranteed 50% of Standard Gypsum's
obligations under the reimbursement agreements for reimbursement of letter of
credit drawings, interest, fees and other amounts. The other Standard Gypsum
partner, Temple-Inland, has similarly guaranteed 50% of Standard Gypsum's
obligations. As of March 31, 2001, the aggregate principal amount outstanding
under the letters of credit was approximately $56.2 million, of which one-half
(approximately $28.1 million) is guaranteed by us. Obligations under the
guaranty will (1) constitute senior indebtedness under the senior subordinated
indenture governing the senior subordinated exchange notes and will rank senior
in right of payment to the senior subordinated exchange notes and (2) rank
equally in right of payment with the senior notes.
Each of the two letters of credit is issued for a term of one year and is
subject to annual renewal at the discretion of the issuing bank. The first
letter of credit, in the original amount of approximately $46.6 million, expires
in May 2002. The second letter of credit, in the original amount of
approximately $10.1 million, expires in August 2001 and will be renewed by the
issuing bank for an additional period of one year. In the event Standard Gypsum
receives notice of nonrenewal of either letter of credit, or if there is an
event of default under the reimbursement agreements prior to maturity, we could
be required under our guaranty to satisfy 50% of Standard Gypsum's outstanding
obligations with respect to the letters of credit, which could materially and
adversely affect our liquidity and our ability to pay principal and interest on
the notes. Our failure to pay under our guaranty of Standard Gypsum's
reimbursement obligations would constitute an event of default under the notes.
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In addition, our guaranty of 50% of Standard Gypsum's reimbursement
obligations contains certain financial maintenance covenants. Our default under
these covenants constitutes an event of default under Standard Gypsum's
reimbursement agreements. As of December 31, 2000, we were not in compliance
with the leverage ratio under the guaranty, which is the same leverage ratio
contained in our former senior credit facility and our 7.74% senior notes (both
of which were repaid with the proceeds from the issuance of the original notes)
as in effect prior to the September 2000 and February 2001 senior credit
facility amendments. This default would have permitted the issuer of the
Standard Gypsum letters of credit, if it so elected, to accelerate this
indebtedness. An acceleration of the Standard Gypsum indebtedness also could
result in a demand for payment under both our and Temple-Inland's guarantees of
the Standard Gypsum indebtedness. However, we have entered into an amendment of
our guaranty with the issuers of the Standard Gypsum letters of credit that
waives this default (and any related cross-default) and that amends the
financial maintenance covenants on a going-forward basis.
PREMIER BOXBOARD GUARANTY
Premier Boxboard Limited LLC is our other joint venture with Temple-Inland.
We and Temple-Inland each own a 50% membership interest in Premier Boxboard, and
we manage its day-to-day operations. Premier Boxboard is the borrower under a
credit facility providing for up to $40.0 million in revolving loans (with a
subfacility for up to $1.0 million in letters of credit). The credit facility
was originally entered into in July 1999 and matures in June 2005. We have
severally and unconditionally guaranteed 50% of Premier Boxboard's obligations
under the credit facility for principal (including reimbursement of letter of
credit drawings), interest, fees and other amounts. Temple-Inland has similarly
guaranteed 50% of Premier Boxboard's obligations. As of March 31, 2001, the
outstanding principal amount of borrowings under the facility (including
outstanding letters of credit) was approximately $30.2 million, of which
one-half (approximately $15.1 million) is guaranteed by us. Obligations under
the guaranty will (1) constitute senior indebtedness under the senior
subordinated indenture governing the senior subordinated exchange notes and will
rank senior in right of payment to the senior subordinated exchange notes and
(2) rank equally in right of payment with the senior exchange notes.
If there is an event of default under the facility, we could be required
under our guaranty to satisfy 50% of Premier Boxboard's outstanding obligations
under the facility, which could materially and adversely affect our liquidity
and our ability to pay principal and interest on the notes. Our failure to pay
under our guaranty of Premier Boxboard's credit facility would constitute an
event of default under the notes. Further, a substantial portion of the assets
of Premier Boxboard are pledged as security for $50.0 million in outstanding
principal amount of senior notes under which Premier Boxboard is the obligor.
These notes are guaranteed by Temple-Inland, but are not guaranteed by us.
However, the holders of these notes would have recourse to the assets of Premier
Boxboard that are pledged to secure these notes. As a result, to the extent such
assets are utilized to satisfy claims of the holders, they would not be
available to satisfy obligations owing to unsecured creditors of Premier
Boxboard, including the lender under the credit facility. This means that our
guaranty of the Premier Boxboard credit facility may be the primary source of
repayment under the facility in the event Premier Boxboard cannot pay, which may
materially and adversely affect you.
In addition, our guaranty of 50% of Premier Boxboard's obligations under
its credit facility contains certain financial maintenance covenants. Our
default under these covenants constitutes an event of default under Premier
Boxboard's senior notes. As of December 31, 2000, we were not in compliance with
the leverage ratio under the guaranty, which is the same leverage ratio
contained in our former senior credit facility and our 7.74% senior notes (both
of which were repaid with the proceeds from the issuance of the original notes)
as in effect prior to the September 2000 and February 2001 senior credit
facility amendments. This default would have permitted the lenders under the
Premier Boxboard credit facility and Premier Boxboard senior notes, if they so
elected, to accelerate all of this indebtedness. An acceleration of the Premier
Boxboard credit facility also could result in a demand for payment under both
our and Temple-Inland's guarantees of the Premier Boxboard credit facility. An
acceleration of the Premier Boxboard senior notes could result in a demand for
payment under Temple-Inland's guaranty of
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that debt or recourse to the mill and other assets of Premier Boxboard that are
pledged to secure those senior notes. However, we have entered into an amendment
of our guaranty with the lender under the Premier Boxboard credit facility that
waives this default (and any related cross-default) and that amends the
financial maintenance covenants on a going-forward basis.
Further, the default under the Premier Boxboard credit facility caused a
cross-default under the $50.0 million notes issued by Premier Boxboard. However,
the holders of these notes waived this cross-default.
DESCRIPTION OF THE SENIOR EXCHANGE NOTES
The original senior notes were, and the senior exchange notes will be,
issued under a senior indenture dated as of March 29, 2001, among the Company,
as issuer, the Guarantors and The Bank of New York, as trustee (the "Trustee").
The terms of the senior exchange notes are identical to the terms of the
original senior notes in all material respects, including interest rate and
maturity, except that the senior exchange notes will not be subject to:
- the restrictions on transfer; and
- the registration rights agreement's covenants regarding registration.
The following summary of certain provisions of the senior indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the senior indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. Whenever particular defined terms of
the senior indenture not otherwise defined herein are referred to, such defined
terms are incorporated herein by reference. A copy of the senior indenture is
available upon request from the company. For definitions of certain capitalized
terms used in the following summary, see "-- Definitions." In this description,
the word "company" refers only to Caraustar Industries, Inc. and not to any of
its subsidiaries.
BRIEF DESCRIPTION OF THE SENIOR EXCHANGE NOTES AND THE SENIOR SUBSIDIARY
GUARANTEES
The Senior Exchange Notes
The senior exchange notes:
- are general unsecured obligations of the company;
- rank equally with all other senior indebtedness of the company;
- are senior in right of payment to any future subordinated indebtedness of
the company; and
- are unconditionally and jointly and severally guaranteed by the
guarantors.
The Senior Subsidiary Guarantees
The senior subsidiary guarantees of the senior exchange notes:
- are general unsecured obligations of each guarantor;
- rank equally with all other senior indebtedness of each guarantor; and
- are senior in right of payment to any future subordinated indebtedness of
each guarantor.
PRINCIPAL, MATURITY AND INTEREST
The company will issue senior exchange notes with a maximum aggregate
principal amount of $29.0 million. The senior exchange notes will mature on May
1, 2010. Interest on the senior exchange notes will accrue at the rate of 7 1/4%
per annum and will be payable semi-annually in arrears on May 1 and November 1,
commencing on November 1, 2001. The company will make each interest payment to
the holders of record of the senior exchange notes on the immediately preceding
April 15 and October 15.
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Interest on the senior exchange notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Additional interest may be payable on the senior exchange notes in certain
circumstances as described in the section captioned "Registered Exchange Offer;
Registration Rights."
SENIOR SUBSIDIARY GUARANTEES
The guarantors will jointly and severally guarantee the company's
obligations under the senior exchange notes and the senior indenture. The
obligations of each guarantor under its senior subsidiary guarantee will be
limited as necessary to prevent that senior subsidiary guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors -- Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require note holders to return payments
received from guarantors. As a result, the guarantees from our subsidiaries may
not be enforceable."
The senior subsidiary guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that guarantor to a third party other
than the company or an Affiliate of the company (including by way of merger
or consolidation);
(2) in connection with any sale of all of the capital stock of a
guarantor; or
(3) upon the legal defeasance of the senior exchange notes as
described under "-- Defeasance and Discharge."
CERTAIN COVENANTS
Restrictions on Liens
So long as any senior exchange notes are outstanding, we will not be
permitted to issue, assume or guarantee, and will not permit any domestic
subsidiary to issue, assume or guarantee, any indebtedness secured by a
mortgage, pledge, security interest, lien or encumbrance (referred to in this
section as "liens") of or on any of our or a domestic subsidiary's Principal
Property, or on the shares of stock or debt of any domestic subsidiary, whether
owned now or acquired subsequently. However, this restriction will not apply if
we effectively provide that the senior exchange notes (together, if we
determine, with any of our other indebtedness ranking equally with the senior
exchange notes) are secured by a lien ranking ratably with and equal to (or at
our option, senior to) the other secured indebtedness. In any event, the
foregoing restriction will not apply to the following:
(1) liens on indebtedness existing on the date of the senior
indenture;
(2) liens on any assets of any corporation existing at the time such
corporation becomes a domestic subsidiary;
(3) liens on any assets existing at the time we or a domestic
subsidiary acquire those assets;
(4) liens to secure the payment of all or any part of the purchase
price of those assets upon the acquisition of those assets by us or a
domestic subsidiary;
(5) liens to secure any indebtedness incurred, assumed or guaranteed
by us or a domestic subsidiary prior to, at the time of, or within 180 days
after an acquisition of assets (or in the case of real property, the
completion of construction (including any improvements on an existing
asset) or commencement of full operation of the asset, whichever is later)
which indebtedness is incurred, assumed or guaranteed for the purpose of
financing all or any part of the purchase price or, in the case of real
property, construction or improvements on the asset. However, in the case
of such an acquisition, construction or improvement, the lien will not
apply to any of our or a domestic subsidiary's Principal Property or shares
of stock or debt of a domestic subsidiary owned prior to the
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acquisition, construction or improvement, other than, in the case of any
construction or improvement, any real property on which the property
constructed, or the improvement, is located;
(6) liens on any assets to secure indebtedness of a domestic
subsidiary to us or to any wholly owned domestic subsidiary;
(7) liens on any assets of a corporation existing at the time such
corporation is merged into or consolidated with us or a domestic subsidiary
or at the time we or a domestic subsidiary purchase, lease or otherwise
acquire all or substantially all of the assets of a corporation or firm;
(8) liens on any of our or a domestic subsidiary's assets in favor of
the U.S. or any State, or any department, agency or instrumentality or
political subdivision of the U.S. or any State, or in favor of any other
country, or any political subdivision of the U.S. or any State, to secure
partial, progress, advance or other payments pursuant to any contract or
statute or to secure any indebtedness incurred or guaranteed for the
purpose of financing all or any part of the purchase price (or, in the case
of real property, the cost of construction) of the assets subject to such
liens (including, but not limited to, liens incurred in connection with
pollution control, industrial revenue or similar financings);
(9) mechanics', materialmen's, carriers' or similar liens arising in
the ordinary course of business (including in the construction of
facilities) relating to obligations not due or that are being contested;
(10) liens for taxes not due or being contested, landlords' liens,
tenants' rights under leases, and similar liens not impairing the use or
value of the property involved;
(11) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any lien referred to in
the foregoing clauses of this section; provided, however, that the
principal amount of indebtedness secured by such a lien will not exceed the
principal amount of indebtedness so secured at the time of such extension,
renewal or replacement, and that such extension, renewal or replacement
will be limited to all or a part of the assets which secured the lien so
extended, renewed or replaced (plus improvements and construction on real
property); and
(12) liens not permitted by the foregoing clauses if at the time of,
and after giving effect to, the creation or assumption of any such lien,
the aggregate amount of all of our or the domestic subsidiaries'
indebtedness secured by all of those liens not permitted by the foregoing
clauses of this section, together with the Attributable Debt relating to
Sale and Lease-Back Transactions permitted by the senior indenture, does
not exceed 15% of Consolidated Net Tangible Assets, as those terms are
defined below.
The senior indenture will not restrict us or our subsidiaries from
incurring unsecured indebtedness.
Restrictions on Sale and Lease-Back Transactions
The senior indenture further provides that we will not, and will not permit
any domestic subsidiary to, lease any Principal Property, other than with a
lease for a term (including renewal rights) for three years or less, whereby we
or the domestic subsidiary sell or transfer the Principal Property (referred to
as a "Sale and Lease-Back Transaction"), unless:
(1) we or the domestic subsidiary would, at the time of entering into
a Sale and Lease-Back Transaction, be entitled to incur indebtedness
secured by a lien on the Principal Property to be leased in an amount at
least equal to the Attributable Debt in respect of such Sale and Lease-Back
Transaction without equally and ratably securing the senior exchange notes
pursuant to the senior indenture; or
(2) we promptly inform the trustee of the transaction, the proceeds of
the sale of the Principal Property to be leased are at least equal to the
fair value of the Principal Property (as determined by our board of
directors), and an amount equal to the net proceeds from the sale of the
Principal Property is applied, within 180 days of the effective date of the
Sale and Lease-Back Transaction, to the purchase or acquisition (or, in the
case of property, the construction) of property or assets or to
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the retirement (other than at maturity or pursuant to a mandatory sinking
fund or redemption provision) of debt securities or our or a consolidated
domestic subsidiary's Funded Indebtedness ranking on a parity with or
senior to the debt securities.
EVENTS OF DEFAULT
The senior indenture defines an "Event of Default" with respect to the
senior exchange notes as:
(1) default in payment of principal of or premium, if any, on any
senior exchange notes when due and payable at maturity;
(2) default for 30 days in payment of interest on the senior exchange
notes;
(3) failure or breach by us in the performance of any other of the
covenants or warranties in the senior indenture continued for 45 days after
we have been given written notice by the trustee, or we and the trustee
have been given written notice by the holders of at least 25% in aggregate
principal amount of the senior exchange notes, specifying the default or
breach and requiring it to be remedied and stating that the notice is a
notice of default under the indenture;
(4) a default under any bond, debenture, note or other evidence of our
indebtedness or under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any of
our indebtedness (including the senior indenture), whether the indebtedness
now exists or is created later, which default will constitute a failure to
pay the indebtedness in a principal amount in excess of $15 million when
due and payable at final maturity after the expiration of any applicable
grace period or will have resulted in indebtedness in a principal amount in
excess of $15 million becoming or being declared due and payable prior to
the date on which it would otherwise have become due and payable, without
the indebtedness having been discharged, or the acceleration having been
rescinded or annulled, within a period of 15 days after there has been
given, by overnight mail or other same day or overnight delivery service
which can provide evidence of delivery, to us by the trustee, or to us and
the trustee by the holders of at least 25% in aggregate principal amount of
the senior exchange notes, a written notice specifying the default and
requiring us to cause the indebtedness to be discharged or to cause the
acceleration to be rescinded or annulled and stating that the notice is a
notice of default under the indenture; and
(5) certain events of bankruptcy, insolvency or reorganization.
If any event of default with respect to senior exchange notes at the time
outstanding occurs and is continuing, either the trustee or the holders of not
less than 25% in aggregate principal amount of the senior exchange notes may
declare the principal amount of all senior exchange notes to be due and payable
immediately by a written notice to us (and to the trustee if given by holders of
senior exchange notes), and upon that declaration the aggregate principal amount
(or specified amount) will become immediately due and payable. Upon certain
conditions the declarations may be annulled and past defaults (except, unless
previously cured, a default in payment of principal of or premium, if any, or
interest, if any, on the senior exchange notes and certain other specified
defaults, which cannot be amended without the consent of the holders of the
senior exchange notes) may be waived by the holders of a majority in aggregate
principal amount of senior exchange notes on behalf of the holders of senior
exchange notes.
The trustee is required, within 90 days after the occurrence of a default
with respect to senior exchange notes at the time outstanding, to give to the
holders of senior exchange notes notice of the default actually known to it if
not cured or waived. However, except in the case of default in the payment of
principal of or premium, if any, or interest on any senior exchange notes, the
trustee will be protected in withholding the notice if the trustee in good faith
determines that the withholding of the notice is in the interest of the holders
of the senior exchange notes. In addition, the notice will not be given until at
least (a) 45 days after the occurrence of a default with respect to senior
exchange notes in the performance of a covenant or warranty in the indenture
other than for the payment of the principal of or premium, if any, or interest
on the senior exchange notes or (b) 15 days after the occurrence of a default
with respect to the
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failure to pay at maturity, or the acceleration of, indebtedness in a principal
amount in excess of $15 million.
The trustee, subject to its duty during default to act with the required
standard of care, is entitled to be offered indemnity satisfactory to the
trustee in its reasonable judgment by the holders of senior exchange notes
before exercising any right or power under the indenture at the request of the
holders of senior exchange notes. Subject to those provisions for the
indemnification of the trustee, the holders of a majority in aggregate principal
amount of senior exchange notes may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or exercising
any trust or other power conferred on the trustee, with respect to the senior
exchange notes. The trustee, however, may decline to act if that direction is
contrary to law or the senior indenture or may be unduly prejudicial to the
holder of senior exchange notes not joining in the direction. In the case of
book-entry securities, the trustee is required to establish a record date for
purposes of determining which holders are entitled to join in that direction.
No holder of a senior exchange note will have any right to institute any
proceeding with respect to the senior indenture, or for the appointment of a
receiver, assignee, trustee, liquidator or sequestrator (or other similar
official), or for any other remedy thereunder, unless:
(1) the holder has previously given to the trustee written notice of a
continuing event of default with respect to the senior exchange notes;
(2) holders of at least 25% in aggregate principal amount of the
senior exchange notes have made a written request to the trustee to
institute the proceeding and the holder or holders have offered indemnity
satisfactory to the trustee in its reasonable judgment; and
(3) the trustee has failed to institute the proceeding, and has not
received from the holders of a majority in aggregate principal amount of
the senior exchange notes a direction inconsistent with that request,
within 60 days after the notice, request and offer.
However, these limitations do not apply to a suit instituted by a holder of a
senior exchange note to enforce payment of the principal of, premium, if any, or
interest on the senior exchange note on or after the due date specified in the
senior exchange note.
We are required to file annually with the trustee a certificate of no
default.
MODIFICATION OF THE SENIOR INDENTURE AND WAIVER OF COVENANTS
We and the trustee are permitted to enter into one or more supplemental
indentures without the consent of the holders of the senior exchange notes in
order to:
(1) evidence the succession to us of another person, or successive
successions, and the assumption of our covenants, agreements and
obligations by a successor;
(2) add to our covenants for the benefit of the holders of senior
exchange notes or to surrender any of our rights or powers;
(3) add additional events of default;
(4) add or change any provisions of the senior indenture to the extent
necessary to facilitate the issuance of senior exchange notes in bearer or
uncertificated form;
(5) convey, transfer, assign, mortgage or pledge any property to or
with the trustee or to surrender any right or power conferred upon us;
(6) secure the senior exchange notes pursuant to the terms of the
senior indenture;
(7) cure any ambiguity, to correct any defect or supplement any
inconsistent provisions or to make any other provisions with respect to
matters or questions arising under the senior indenture;
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(8) supplement any provisions of the senior indenture necessary to
permit or facilitate the defeasance and discharge of the senior exchange
notes;
(9) comply with the rules or regulations of any securities exchange or
automated quotation system on which the senior exchange notes may be listed
or traded; or
(10) add, change or eliminate any provisions of the senior indenture
as is necessary or desirable in accordance with any amendments to the Trust
Indenture Act.
However, no supplemental indenture may, without the consent of the holder
of each senior exchange note:
(1) except to the extent permitted pursuant to the senior indenture,
change the stated maturity of the principal of, or any installment of
principal of or interest on, the senior exchange notes;
(2) reduce the principal amount of, the premium, if any, or interest
on, the senior exchange notes;
(3) reduce the amount of principal of the senior exchange notes
payable upon acceleration of its maturity;
(4) change the place or currency of payment of principal of, or any
premium or interest on, the senior exchange notes;
(5) impair the right to institute suit for the enforcement of any
payment on or with respect to the senior exchange notes;
(6) reduce the percentage as stated above of the holders of the senior
exchange notes whose consent is required for any supplemental indenture or
for amendment or waiver of compliance with certain provisions of the senior
indenture or certain defaults; or
(7) effect certain other changes.
We are permitted to omit compliance with certain covenants in the senior
indenture with respect to the senior exchange notes upon waiver by the holders
of not less than a majority in principal amount of the senior exchange notes.
In determining whether the holders of the requisite principal amount of the
senior exchange notes have given or taken any direction, notice, consent, waiver
or other action under the senior indenture as of any date:
(1) senior exchange notes owned by us, or any other obligor on the
senior exchange notes or any of their affiliates, will be disregarded and
deemed not to be outstanding; and
(2) certain senior exchange notes, including those for whose payment
or redemption money has been deposited or set aside in trust for the
holders of the debt securities and those that have been fully defeased
pursuant to the senior indenture, will not be deemed to be outstanding.
Except in certain limited circumstances, we are entitled to set any day as
a record date for the purpose of determining the holders of senior exchange
notes entitled to give or take any direction, notice, consent, waiver or other
action under the senior indenture, in the manner and subject to the limitations
provided in the senior indenture. In certain limited circumstances, the trustee
will be entitled to set a record date for action by holders of senior exchange
notes. If a record date is set for any action to be taken by holders of senior
exchange notes, only the persons who are holders of the senior exchange notes on
the record date may take that action. To be effective, holders of the requisite
principal amount of the senior exchange notes must take the action within a
specified period following the record date.
CONCERNING THE TRUSTEE
The Bank of New York, the Trustee under the senior indenture governing the
senior exchange notes, is also the trustee under the indentures governing our
7 3/8% senior notes and our senior subordinated
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exchange notes, and is a lender under our new senior credit facility. As such,
The Bank of New York could be faced with potential conflicts of interest and
conflicting obligations in the event of default under any or all of this
indebtedness.
If the Trustee becomes a creditor of the company or any guarantor, the
senior indenture limits its right 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; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Securities and Exchange Commission
for permission to continue, or resign.
The holders of a majority in principal amount of the then outstanding
senior exchange 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. The senior indenture provides that in case an
Event of Default shall occur and be continuing, 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 senior
indenture at the request of any holder of senior exchange notes, unless such
holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
DEFEASANCE AND DISCHARGE
Defeasance and Discharge
The terms of the senior exchange notes provide that under certain
conditions we will be discharged from any and all obligations in respect of the
senior exchange notes (except for certain obligations to register the transfer
or exchange of senior exchange notes, to replace stolen, lost or mutilated
senior exchange notes, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit with the trustee, in trust for the benefit of
the holders of senior exchange notes, of money and/or U.S. government
obligations, through the payment of interest and principal in accordance with
their terms, in an amount sufficient to pay any installment of principal (and
premium, if any) and interest on, the senior exchange notes on the stated
maturity of the payment in accordance with the terms of the senior exchange
notes.
This discharge may only occur if, among other things, we have delivered to
the trustee an opinion of counsel to the effect that we have received from, or
there has been published by, the U.S. Internal Revenue Service a ruling, or
there has been a change in tax law, in either case, to the effect that holders
of senior exchange notes will not recognize gain or loss for federal income tax
purposes as a result of the deposit, defeasance and discharge and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if the deposit, defeasance and discharge
were not to occur. This discharge will not be applicable to any senior exchange
notes then listed on any securities exchange if the provision would cause the
senior exchange notes to be delisted.
Defeasance of Certain Covenants
The terms of the senior exchange notes provide us with the option of not
complying with the restrictive covenants described above. In those
circumstances, the occurrence of certain events of default, which are described
above in clause (4) (with respect to those restrictive covenants) under "Events
of Default" will be deemed not to be or result in an event of default with
respect to the senior exchange notes. To exercise this option, we will be
required to deposit with the trustee money and/or U.S. government obligations,
which, through the payment of interest and principal in accordance with their
terms, will provide money in an amount sufficient to pay principal (and premium,
if any) and interest on, the senior exchange notes on the stated maturity of
such payments in accordance with the terms of the senior exchange notes.
We will also be required to deliver to the trustee an opinion of counsel to
the effect that the deposit and related covenant defeasance will not cause the
holders of the senior exchange notes to recognize
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income, gain or loss for federal income tax purposes and that such holders will
be subject to federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and defeasance were
not to occur. In the event we exercise this option and the senior exchange notes
are declared due and payable because of the occurrence of any event of default,
the amount of money and U.S. government obligations or foreign government
securities, as the case may be, on deposit with the trustee will be sufficient
to pay amounts due on the senior exchange notes at the time of their stated
maturity. However, the amount on deposit with the trustee may not be sufficient
to pay amounts due on the senior exchange notes at the time of the acceleration
resulting from the event of default. In that case we would remain liable for the
payments.
RESTRICTIONS ON CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of the senior exchange notes,
consolidate with or merge into any other person or transfer or lease all or
substantially all of our properties or assets to any person or to allow any
other person to consolidate with or merge into us or to transfer or lease all or
substantially all of its properties or assets to us, provided that:
(1) the successor is a corporation, partnership, trust or other entity
organized and validly existing under the laws of any U.S. domestic
jurisdiction;
(2) the successor assumes our obligations with request to the senior
exchange notes under the senior indenture;
(3) immediately after giving effect to the transaction, no default,
and no event of default, will have occurred and be continuing;
(4) we have delivered the certificates and opinions required under the
senior indenture to the trustee; and
(5) certain other conditions are met.
OPTIONAL REDEMPTION
The senior exchange notes will be redeemable, in whole or in part, at our
option at any time at a redemption price equal to the greater of (i) 100% of the
principal amount of the senior exchange notes, and (ii) as determined by the
Quotation Agent (as defined below), the sum of the present values of the
remaining scheduled payments of principal and interest on the senior exchange
notes (not including any portion of those payments of interest accrued as of the
redemption date) discounted to the redemption date on a semi-annual basis
assuming a 360 day year consisting of twelve 30 day months at the Adjusted
Treasury Rate (as defined below) plus 25 basis points plus, in each case,
accrued and unpaid interest on the senior exchange notes to the redemption date.
In the case of a partial redemption, selection of the senior exchange notes
for redemption will be made pro rata, by lot or such other method as the trustee
in its sole discretion deems appropriate and fair; however, any redemption
relating to a public equity offering of equity securities will be made on a pro
rata basis or on as nearly a pro rata basis as practicable (subject to The
Depository Trust Company procedures). No senior exchange notes of a principal
amount of $1,000 or less will be redeemed in part. Notice of any redemption will
be mailed by first class mail at least 30 days but not more than 60 days before
the redemption date to each holder of the senior exchange notes to be redeemed
at its registered address. If any senior exchange note is to be redeemed in part
only, the notice of redemption that relates to the senior exchange note will
state the portion of the principal amount of the senior exchange note to be
redeemed. A new senior exchange note in a principal amount equal to the
unredeemed portion of the senior exchange note will be issued in the name of the
holder of the senior exchange note upon surrender for cancellation of the old
senior exchange note. Unless we default in payment of the redemption price, on
and after the redemption date, interest will cease to accrue on the senior
exchange notes or the portions of the senior exchange notes called for
redemption.
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NO MANDATORY REDEMPTION
We will not be required to make any sinking fund payments with regard to
the senior exchange notes.
DEFINITIONS
Set forth below are definitions of some of the terms used in this section.
Other terms used in this section are defined in the senior indenture.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price of the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for that redemption date.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt," when used in connection with a sale and lease-back
transaction referred to herein shall mean, as of any particular time, the
aggregate of present values (discounted at a rate per annum equal to the average
interest borne by all senior exchange notes determined on a weighted average
basis and compounded semi-annually) of the obligations of the company or any
subsidiary for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended). The term "net rental payments" under any
lease of any period shall mean the sum of the rental and other payments required
to be paid in such period by the lessee thereunder, not including, however, any
amounts required to be paid by such lessee (whether or not designated as rental
or additional rental) on account of maintenance and repairs, reconstruction,
insurance, taxes, assessments, water rates or similar charges required to be
paid by such lessee thereunder or any amounts required to be paid by such lessee
thereunder contingent upon the amount of sales, maintenance and repairs,
reconstruction, insurance, taxes, assessments, water rates or similar charges.
"Comparable Treasury Issue" means the U.S. Treasury security selected by
the Quotation Agent as having a maturity comparable to the remaining term of the
senior exchange notes to be redeemed that would be utilized, at the time of a
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the senior exchange notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the Reference Treasury Dealer Quotations for that redemption
date, after excluding the highest and lowest Reference Treasury Dealer
Quotation, or (ii) if the Trustee obtains fewer than three Reference Treasury
Dealer Quotations, the average of the quotations.
"Consolidated Net Tangible Assets" means, at any date, the total assets
appearing on the most recently prepared consolidated balance sheet of the
company and its subsidiaries as of the end of a fiscal quarter of the company,
prepared in accordance with generally accepted accounting principles, less (a)
all current liabilities as shown on such balance sheet and (b) intangible
assets. "Intangible assets" means the value (net of any applicable reserves), as
shown on or reflected in such balance sheet of: (i) all trade names, trademarks,
licenses, patents, copyrights and goodwill; (ii) organizational costs; and (iii)
deferred charges (other than prepaid items such as insurance, taxes, interest,
commissions, rents and similar items and tangible assets being amortized); but
in no event shall the term "intangible assets" include product development
costs.
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"Principal Property" means any mill, manufacturing plant, building,
structure or other facility (together with the land on which it is erected and
improvements and fixtures comprising a part thereof) or other real property
interest located in the U.S. (all such facilities or interests forming an
integral part of a single development or operation being considered as one
interest), owned or leased and having a gross book value as of the date of its
determination in excess of 1% of Consolidated Net Tangible Assets, other than a
facility or portion thereof (i) financed by means of industrial revenue bonds or
(ii) which, as determined in good faith by resolution of the board of directors
of the company, is not of material importance to the total business conducted by
the company and its subsidiaries, taken as a whole.
"Quotation Agent" means the Reference Treasury Dealer appointed by us.
"Reference Treasury Dealer" means (i) each of Credit Suisse First Boston
Corporation, Banc of America Securities LLC, Deutsche Banc Alex. Brown Inc., and
SunTrust Equitable Securities Corporation and their respective successors;
however, if any of the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), we will
substitute another Primary Treasury Dealer; and (ii) any other Primary Treasury
Dealer selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
us, 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 the Reference Treasury Dealer at 5:00 p.m., New York City time, on
the third business day preceding the redemption date.
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DESCRIPTION OF THE SENIOR SUBORDINATED EXCHANGE NOTES
The original senior subordinated notes were, and the senior subordinated
exchange notes will be, issued under a senior subordinated indenture dated as of
March 29, 2001, among the Company, as issuer, the Guarantors and The Bank of New
York, as trustee (the "Trustee"). The terms of the senior subordinated exchange
notes are identical to the terms of the original senior subordinated notes in
all material respects, including interest rate and maturity, except that the
senior subordinated exchange notes will not be subject to:
- the restrictions on transfer; and
- the registration rights agreement's covenants regarding registration.
The following summary of certain provisions of the senior subordinated
indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the senior subordinated
indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. Whenever
particular defined terms of the senior subordinated indenture not otherwise
defined herein are referred to, such defined terms are incorporated herein by
reference. A copy of the senior subordinated indenture is available upon request
from the company. For definitions of certain capitalized terms used in the
following summary, see "-- Certain Definitions." In this description, the word
"company" refers only to Caraustar Industries, Inc. and not to any of its
subsidiaries.
BRIEF DESCRIPTION OF THE SENIOR SUBORDINATED EXCHANGE NOTES AND THE SENIOR
SUBORDINATED SUBSIDIARY GUARANTEES
The Senior Subordinated Exchange Notes
The senior subordinated exchange notes:
- are general unsecured obligations of the company;
- are subordinated in right of payment to all existing and future Senior
Debt;
- are senior in right of payment to any future Subordinated Indebtedness of
the company; and
- are unconditionally and jointly and severally guaranteed by the
Guarantors.
The Senior Subordinated Subsidiary Guarantees
The senior subordinated Subsidiary Guarantees of the senior subordinated
exchange notes:
- are general unsecured obligations of each Guarantor;
- are subordinated in right of payment to all existing and future Senior
Debt; and
- are senior in right of payment to any future Subordinated Indebtedness of
each Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The company will issue senior subordinated exchange notes with a maximum
aggregate principal amount of $285.0 million. The senior subordinated exchange
notes will mature on April 1, 2011. Interest on the senior subordinated exchange
notes will accrue at the rate of 9 7/8% per annum and will be payable
semi-annually in arrears on April 1 and October 1, commencing on October 1,
2001. The company will make each interest payment to the holders of record of
the senior subordinated exchange notes on the immediately preceding March 15 and
September 15. Interest on the senior subordinated exchange notes will accrue
from the date of original issuance or, if interest has already been paid, from
the date it was most recently paid. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
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Additional interest may be payable on the senior subordinated exchange
notes in certain circumstances as described in the section captioned "Registered
Exchange Offer; Registration Rights."
SENIOR SUBORDINATED SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee the company's
obligations under the senior subordinated exchange notes and the senior
subordinated indenture. Each senior subordinated Subsidiary Guarantee will be
subordinated to the prior payment in full of all Senior Debt. The obligations of
each Guarantor under its senior subordinated Subsidiary Guarantee will be
limited as necessary to prevent that senior subordinated Subsidiary Guarantee
from constituting a fraudulent conveyance under applicable law. See "Risk
Factors -- Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require note holders to return payments
received from guarantors. As a result, the guarantees from our subsidiaries may
not be enforceable."
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person (other than the company or
another Guarantor) unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the obligations of that Guarantor pursuant to a
supplemental indenture satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the senior subordinated
indenture.
The senior subordinated Subsidiary Guarantee of a Guarantor will be
released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor to a third party other
than the company or an Affiliate of the company (including by way of merger
or consolidation), if the company applies the Net Proceeds of that sale or
other disposition in accordance with the applicable provisions of the
senior subordinated indenture;
(2) in connection with any sale of all of the capital stock of a
Guarantor, if the company applies the Net Proceeds of that sale in
accordance with the applicable provisions of the senior subordinated
indenture;
(3) if the company designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the senior
subordinated indenture; or
(4) upon the legal defeasance of the senior subordinated exchange
notes as described under "-- Legal Defeasance and Covenant Defeasance."
SUBORDINATION
The payment of principal, premium, if any, interest, and other payment
obligations on, or with respect to, the senior subordinated exchange notes
(including any obligation to repurchase the senior subordinated exchange notes)
will be subordinated to the prior payment in full of all Senior Debt as set
forth in the senior subordinated indenture.
The holders of Senior Debt will be entitled to receive payment in full in
cash of all Obligations due in respect of Senior Debt (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the holders of senior subordinated exchange notes will be
entitled to receive any payment with respect to the senior subordinated exchange
notes (except that holders of senior subordinated exchange notes may receive and
retain Permitted Junior Securities and
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payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance"), in the event of any distribution to creditors of the company or
any of the Guarantors:
(1) in a total or partial liquidation or dissolution of the company or
any of the Guarantors;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the company, any of the Guarantors, or their
property;
(3) in an assignment for the benefit of creditors of the company or
any of the Guarantors; or
(4) in any marshalling of the company's or any of the Guarantors'
assets and liabilities.
Also, neither the company nor any Guarantor may make any payment in respect
of the senior subordinated exchange notes (except in Permitted Junior Securities
or from the trust described under "-- Legal Defeasance and Covenant Defeasance")
if:
(1) there is a default in the payment of any Designated Senior Debt
when due; or
(2) any other default occurs and is continuing on Designated Senior
Debt that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from a representative of the holders of any Designated
Senior Debt.
Payments on the senior subordinated exchange notes may and shall be
resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest on the
senior subordinated exchange notes that have come due have been paid in
full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
The company or the Trustee must promptly notify holders of Designated
Senior Debt if payment of the senior subordinated exchange notes is accelerated
because of an Event of Default. If any Designated Senior Debt is outstanding at
the time of such acceleration, neither the company nor any Guarantor may pay the
senior subordinated exchange notes until five business days after holders of
such Designated Senior Debt receive notice of such acceleration and, thereafter,
may pay the senior subordinated exchange notes only if the senior subordinated
indenture otherwise permits payment at that time.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the company, holders of these
senior subordinated exchange notes may recover less ratably than creditors of
the company who are holders of Senior Debt. See "Risk Factors -- The senior
subordinated exchange notes and the senior subordinated subsidiary guarantees
will be junior to our and our subsidiary guarantors' senior indebtedness, and we
may not be permitted to pay principal or interest on the senior subordinated
exchange notes when they become due. Furthermore, claims of creditors of our
non-guarantor subsidiaries will have priority with respect to the assets and
earnings of such subsidiaries over your claims."
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OPTIONAL REDEMPTION
The senior subordinated exchange notes will not be redeemable at the
company's option prior to April 1, 2006.
On or after April 1, 2006, the company may redeem all or a part of the
senior subordinated exchange notes on one or more occasions upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on April 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2006........................................................ 105.25%
2007........................................................ 103.50%
2008........................................................ 101.75%
2009 and thereafter......................................... 100.00%
Notwithstanding the foregoing, prior to April 1, 2004, the company may on
any one or more occasions redeem up to 35% of the aggregate principal amount of
senior subordinated exchange notes originally issued under the senior
subordinated indenture at a redemption price of 110.50% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net cash proceeds of one or more Public Equity Offerings;
provided that
(1) at least 65% of such aggregate principal amount of senior
subordinated exchange notes remains outstanding immediately after the
occurrence of such redemption (excluding notes held by the company and its
Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the
closing of such Public Equity Offering.
Except as set forth under "Repurchase at the Option of Holders -- Change of
Control" and "Repurchase at the Option of Holders -- Asset Sales," the company
is not required to make mandatory redemption payments or sinking fund payments
with respect to the senior subordinated exchange notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, each holder of senior subordinated exchange
notes will have the right to require the company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of that holder's senior
subordinated exchange notes pursuant to a change of control offer. In the offer,
the company will offer to make a payment (the "Change of Control Payment") in
cash equal to 101% of the aggregate principal amount of senior subordinated
exchange notes repurchased plus accrued and unpaid interest thereon, if any, to
the date of purchase. Within 30 days following any Change of Control, the
company will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
senior subordinated exchange notes on the date specified in such notice,
pursuant to the procedures required by the senior subordinated indenture and
described in such notice. The company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the senior subordinated exchange notes as a result of a
Change of Control.
On the date specified in the offer, the company will, to the extent lawful:
(1) accept for payment all senior subordinated exchange notes or
portions thereof properly tendered pursuant to the change of control offer;
(2) deposit with the paying agent specified therein an amount equal to
the Change of Control Payment in respect of all senior subordinated
exchange notes or portions thereof so tendered; and
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(3) deliver or cause to be delivered to the Trustee the senior
subordinated exchange notes so accepted together with an officers'
certificate stating the aggregate principal amount of senior subordinated
exchange notes or portions thereof being purchased by the company.
The paying agent will promptly mail to each holder of senior subordinated
exchange notes so tendered the Change of Control Payment for such senior
subordinated exchange notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each holder a new senior
subordinated exchange note equal in principal amount to any unpurchased portion
of the senior subordinated exchange notes surrendered, if any; provided that
each such new senior subordinated exchange note will be in a principal amount of
$1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
company will do one of the following: (i) repay Senior Debt, the terms of which
provide that such Senior Debt is due and payable by reason of the occurrence of
a Change of Control; (ii) make an offer to repay Senior Debt if the instrument
governing such Senior Debt contains a change of control offer provision similar
to that described herein; or (iii) obtain the requisite consents, if any, under
all agreements governing any such outstanding Senior Debt to permit the
repurchase of senior subordinated exchange notes required by this covenant. The
company will publicly announce the results of the change of control offer on or
as soon as practicable after the date the Change of Control Payment is made.
The provisions described above that require the company to make a change of
control offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the senior subordinated indenture are
applicable. Except as described above with respect to a Change of Control, the
senior subordinated indenture does not contain provisions that permit the
holders of the senior subordinated exchange notes to require that the company
repurchase or redeem the senior subordinated exchange notes in the event of a
proxy battle, recapitalization or similar transaction.
The company's outstanding Senior Debt may prohibit the company from
purchasing any senior subordinated exchange notes, and may provide that certain
change of control events with respect to the company would constitute a default
under the agreements governing the Senior Debt. Any future credit agreements or
other agreements relating to Senior Debt to which the company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the company is prohibited from purchasing senior
subordinated exchange notes, the company could seek the consent of the holders
of its Senior Debt to the purchase of senior subordinated exchange notes or
could attempt to refinance the borrowings that contain such prohibition. If the
company does not obtain such a consent or repay such borrowings, the company
will remain prohibited from purchasing senior subordinated exchange notes. In
such case, the company's failure to purchase tendered senior subordinated
exchange notes would constitute an Event of Default under the senior
subordinated indenture that would, in turn, constitute a default under such
Senior Debt. In such circumstances, the subordination provisions in the senior
subordinated indenture would likely restrict payments to the holders of senior
subordinated exchange notes.
The company will not be required to make a change of control offer upon a
Change of Control if a third party makes the change of control offer in the
manner, at the time and otherwise in compliance with the requirements set forth
in the senior subordinated indenture applicable to a change of control offer
made by the company and purchases all senior subordinated exchange notes validly
tendered and not withdrawn under such change of control offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the company and its Subsidiaries taken as a whole. 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, the ability of a holder of senior subordinated exchange notes to
require the company to repurchase such senior subordinated exchange notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the company and its Subsidiaries taken as a whole to
another Person or group may be uncertain.
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Asset Sales
The company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets issued or sold or otherwise disposed of;
(2) such fair market value is determined by the company's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an officers' certificate delivered to the Trustee (or determined by the
company and evidenced by an officers' certificate delivered to the Trustee
in the case of an Asset Sale with respect to assets having a fair market
value less than $2.5 million) and, in the case of an Asset Sale with
respect to assets having a fair market value in excess of $35.0 million,
the company shall deliver to the Trustee an opinion of an accounting,
appraisal or investment banking firm of national standing that such Asset
Sale is fair to the company or the applicable Restricted Subsidiary from a
financial point of view; and
(3) at least 90% of the consideration therefor received by the company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents.
For purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities (as shown on the company's or such Restricted
Subsidiary's most recent balance sheet), of the company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the senior subordinated exchange notes or any senior
subordinated Subsidiary Guarantee) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases
the company or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
company or any such Restricted Subsidiary from such transferee that are
promptly converted by the company or such Restricted Subsidiary into
cash (to the extent of the cash received in that conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the company may apply such Net Proceeds at its option:
(1) to repay its Senior Debt (and, in the event any such Senior Debt
constitutes revolving Indebtedness, there shall be a corresponding and
permanent reduction in the revolving commitment with respect thereto in an
amount equal to the amount of such repayment);
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in the
business of the company.
Pending the final application of any such Net Proceeds, the company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the senior subordinated
indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the company will make
an offer to all holders of senior subordinated exchange notes and all holders of
other Indebtedness designated by the company that is pari passu with the senior
subordinated exchange notes containing provisions similar to those set forth in
the senior subordinated indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
senior subordinated exchange notes and such other pari passu Indebtedness that
may be purchased out of the Excess Proceeds. The offer price in any asset sale
offer will be equal to 100% of
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principal amount plus accrued and unpaid interest, if any, to the date of
purchase (or, in respect of such other pari passu Indebtedness, such lesser
price, if any, as may be provided for by the terms of such Indebtedness), and
will be payable in cash (or, in respect of such other pari passu Indebtedness,
in cash and/or such other property, if any, as may be provided for or permitted
by the terms of such Indebtedness and the senior subordinated indenture). If any
Excess Proceeds remain after consummation of an asset sale offer, the company
may use such Excess Proceeds for any purpose not otherwise prohibited by the
senior subordinated indenture. If the aggregate principal amount of senior
subordinated exchange notes and such other pari passu Indebtedness tendered into
such asset sale offer exceeds the amount of Excess Proceeds, the Trustee shall
select the senior subordinated exchange notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of each asset
sale offer, the amount of Excess Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the senior subordinated exchange notes are to be
redeemed at any time, the Trustee will select senior subordinated exchange notes
for redemption as follows:
(1) if the senior subordinated exchange notes are listed, in
compliance with the requirements of the principal national securities
exchange on which the senior subordinated exchange notes are listed; or
(2) if the senior subordinated exchange notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate.
No senior subordinated exchange notes of $1,000 or less shall be redeemed
in part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each holder of senior
subordinated exchange notes to be redeemed at its registered address. Notices of
redemption may not be conditional.
If any senior subordinated exchange note is to be redeemed in part only,
the notice of redemption that relates to that senior subordinated exchange note
shall state the portion of the principal amount thereof to be redeemed. A new
senior subordinated exchange note in principal amount equal to the unredeemed
portion of the old senior subordinated exchange note will be issued in the name
of the holder thereof upon cancellation of the old senior subordinated exchange
note. Senior subordinated exchange notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on senior subordinated exchange notes or portions of them called for
redemption.
CERTAIN COVENANTS
Restricted Payments
The company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the company or any
of its Restricted Subsidiaries) or to the direct or indirect holders of the
company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the company or to the company
or a Restricted Subsidiary of the company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the company) any Equity Interests of (i) the
company or any Unrestricted Subsidiary or (ii) any Restricted Subsidiary
held by any Affiliate of the company (other than, in either case, any such
Equity Interests owned by the company or any of its Restricted
Subsidiaries);
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(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Subordinated
Indebtedness except (i) a payment of interest or principal at the Stated
Maturity thereof or (ii) the purchase, repurchase or other acquisition or
any such Subordinated Indebtedness 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 or other
acquisition; or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the company and its Restricted
Subsidiaries after the date of the senior subordinated indenture (excluding
Restricted Payments permitted by clauses (2) and (3) of the second
succeeding paragraph), is less than the sum, without duplication, of
(a) 50% of the Consolidated Net Income of the company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the senior subordinated
indenture to the end of the company's most recently ended fiscal quarter
for which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the company
since the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the company
(other than Disqualified Stock) or from the issue or sale of convertible
or exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the company that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of the company), plus
(c) to the extent that any Restricted Investment that was made
after the date of the senior subordinated indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (i) the cash
return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (ii) the initial amount of such
Restricted Investment, plus
(d) $5.0 million.
Notwithstanding the foregoing, the company may declare or pay a dividend
if:
(1) the dividend is declared or paid within one year of the date of
the senior subordinated indenture;
(2) the dividend relates to common stock of the company that is listed
on a national securities exchange;
(3) no Default or Event of Default has occurred and is continuing;
(4) the company could have paid the dividend pursuant to item (3) of
the immediately preceding paragraph; and
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(5) the amount of the dividend, when taken together with the aggregate
amount of all other dividends paid by the company pursuant to this
paragraph, does not exceed $10.0 million.
Further, so long as no Default or Event of Default has occurred and is
continuing or would be caused thereby, the preceding provisions will not
prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the senior subordinated indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness of the company or any
Guarantor or of any Equity Interests of the company or any Restricted
Subsidiary in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the company)
of, Equity Interests of the company (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (3)(b) of the second preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
Subordinated Indebtedness of the company or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the
company to the holders of its common Equity Interests on a pro rata basis;
and
(5) the repurchase 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 repurchases and other
acquisitions shall not exceed $1.0 million in any calendar year (with
unused amounts in any calendar year (without giving effect to any carry-
forward from any prior year) being permitted to be carried over for the
next succeeding calendar year).
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. Not later than the date of
making any Restricted Payment, the company shall deliver to the Trustee an
officers' certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this "Restricted
Payments" covenant were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the company and any Guarantor may incur Indebtedness
(including Acquired Debt), and the company may issue Disqualified Stock, if the
Fixed Charge Coverage Ratio for the company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.50 to 1.00 (if
such incurrence occurs during the period from the date of the senior
subordinated indenture to the third anniversary of the
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date of the senior subordinated indenture), and 2.75 to 1.00 (if such incurrence
occurs after the third anniversary of the date of the senior subordinated
indenture), in each case determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
So long as no Default or Event of Default shall have occurred and be
continuing or would be caused thereby, the first paragraph of this covenant will
not prohibit the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(1) the incurrence by the company and its Restricted Subsidiaries of
Indebtedness under Credit Facilities; provided that the aggregate principal
amount of all Indebtedness outstanding under all Credit Facilities after
giving effect to such incurrence (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
company and its Restricted Subsidiaries thereunder) does not exceed an
amount equal to $75.0 million less the aggregate amount of all Net Proceeds
of Asset Sales applied by the company or any of its Subsidiaries since the
date of the senior subordinated indenture to repay Indebtedness under a
Credit Facility pursuant to the covenant described above under
"-- Repurchase at the Option of Holders -- Asset Sales";
(2) the incurrence by the company and its Subsidiaries of Existing
Indebtedness;
(3) the incurrence by the company and the Guarantors of Indebtedness
represented by the senior subordinated exchange notes and the senior
subordinated Subsidiary Guarantees;
(4) the incurrence by the company or any of its Restricted
Subsidiaries of 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 or cost
of construction or improvement of property, plant or equipment used in the
business of the company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $25.0 million at any time outstanding;
(5) the incurrence by the company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that was permitted by
the senior subordinated indenture to be incurred under the first paragraph
of this covenant or clauses (2), (3), (4) or (11) of this paragraph;
(6) the incurrence by the company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the company and
any of its Restricted Subsidiaries; provided, however, that:
(a) if the company or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
senior subordinated exchange notes, in the case of the company, or the
senior subordinated Subsidiary Guarantee of such Guarantor, in the case
of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
the company or a Wholly Owned Restricted Subsidiary thereof and (ii) any
sale or other transfer of any such Indebtedness to a Person that is not
either the company or a Wholly Owned Restricted Subsidiary thereof shall
be deemed, in each case, to constitute an incurrence of such
Indebtedness by the company or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (6);
(7) the incurrence by the company or any of its Restricted
Subsidiaries of Hedging Obligations under or with respect to (a) Interest
Rate Agreements not for the purpose of speculation and (b) Currency
Agreements entered into in the ordinary course of business and not for the
purpose of speculation;
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(8) Indebtedness of the company or any Restricted Subsidiary in
respect of performance bonds and surety or appeal bonds entered into by the
company and the Restricted Subsidiaries in the ordinary course of their
business;
(9) Indebtedness of the company or any Restricted Subsidiary arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is satisfied within three
business days of incurrence;
(10) the guarantee by the company or any of the Guarantors of
Indebtedness of the company or a Restricted Subsidiary of the company that
was permitted to be incurred by another provision of this covenant;
(11) the incurrence by the company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (11), not to exceed $25.0
million;
(12) the incurrence by the company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an Incurrence of Indebtedness by a Restricted
Subsidiary of the company that was not permitted by this clause (12); and
(13) the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; provided, in each such case, that the amount thereof is
included in Fixed Charges of the company as accrued.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (13) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
company will be permitted to classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant.
No Senior Subordinated Debt
The company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the company and senior in any respect in right of
payment to the senior subordinated exchange notes. No Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to any Senior Debt of such
Guarantor and senior in any respect in right of payment to such Guarantor's
senior subordinated Subsidiary Guarantee.
Liens
The company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, except:
(1) Liens on the assets of the company and any Guarantor to secure
Senior Debt of the company or such Guarantor that was permitted by the
terms of the senior subordinated indenture to be incurred;
(2) Liens in favor of the company or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the company or any Restricted
Subsidiary of the company; provided that such Liens
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were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the company or the Restricted
Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
the company or any Restricted Subsidiary of the company, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering only
the assets acquired with such Indebtedness;
(7) Liens existing on the date of the senior subordinated indenture;
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens of carriers, warehousemen, mechanics, vendors (solely to the
extent arising by operation of law), laborers and materialmen incurred in
the ordinary course of business for sums not yet due or being contested in
good faith, if reserves or other appropriate provision shall have been made
therefor;
(10) Liens incurred in the ordinary course of business in connection
with workers' compensation and unemployment insurance, social security
obligations, assessments or governmental charges that are not overdue for
more than 60 days;
(11) judgment Liens that do not result in an Event of Default under
the senior subordinated indenture;
(12) Liens in connection with escrow deposits made in connection with
any acquisition of assets;
(13) Liens consisting of easements, rights-of-way, zoning
restrictions, licenses or restrictions on use and other similar
encumbrances on the use of real property that (a) are not incurred in
connection with the borrowing of money and (b) do not in the aggregate
materially detract from the value of the property or materially impair the
use thereof in the operation of business by the company or any Restricted
Subsidiary; and
(14) other Liens incurred in the ordinary course of business of the
company or any Restricted Subsidiary of the company with respect to
obligations that do not exceed $25.0 million at any one time outstanding.
If the company or any Restricted Subsidiary shall create or assume any Lien
that is not permitted, the company will make or cause to be made effective
provision whereby the senior subordinated exchange notes will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured so
long as any such other Indebtedness shall be so secured. This provision will not
be deemed a consent to any Lien or Liens not otherwise permitted nor shall it
constitute a waiver of any Event of Default arising by reason of the existence
of such unpermitted Lien.
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Dividend and Other Payment Restrictions Affecting Subsidiaries
The company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the company or any of the company's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the company or any of the company
Restricted Subsidiaries;
(2) make loans or advances to the company or any of the company's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the company or any of
the company's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Credit Facilities;
(2) Existing Indebtedness as in effect on the date of the senior
subordinated indenture and Permitted Refinancing Indebtedness, provided
that such Permitted Refinancing Indebtedness is, in the good faith judgment
of the Board of Directors, not materially less favorable, taken as a whole,
with respect to such dividend and other payment restrictions than those
contained in the Indebtedness being refinanced;
(3) the senior subordinated indenture and the senior subordinated
exchange notes;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation 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, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the senior
subordinated indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under "-- Liens"
that limit the right of the company or any of its Restricted Subsidiaries
to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
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Merger, Consolidation or Sale of Assets
The company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) the company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the company) or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the U.S., any state thereof or the District of
Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the company under the senior subordinated exchange notes
and the senior subordinated indenture pursuant to agreements reasonably
satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) the company or the Person formed by or surviving any such
consolidation or merger (if other than the company) or to whom such sale,
assignment, transfer, conveyance or other disposition shall have been made:
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
company immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and to any related financing transactions as if the same
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"; provided, that this paragraph (b) shall
not apply in the event such consolidation or merger is effected solely
for the purpose of changing the jurisdiction of incorporation of the
company.
In addition, the company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets by the company to any of its Wholly Owned Restricted
Subsidiaries that are Guarantors.
Transactions with Affiliates
The company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the company or the relevant Restricted Subsidiary than those that could
have been obtained in a comparable transaction by the company or such
Restricted Subsidiary with an unrelated Person; and
(2) the company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of
Directors; and
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(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the company and/or the
applicable Restricted Subsidiary of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the company or such Restricted Subsidiary;
(2) transactions between or among the company and/or the Guarantors;
(3) Restricted Payments that are permitted by the provisions of the
senior subordinated indenture described above under "-- Restricted
Payments";
(4) 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;
(5) the grant of stock options or similar rights to employees and
directors of the company pursuant to plans approved by the Board of
Directors;
(6) reasonable fees, compensation or employee benefit arrangements to
and indemnity provided for the benefit of directors, officers or employees
of the company or any Subsidiary in the ordinary course of business; and
(7) the issuance or sale of any Equity Interests (other than
Disqualified Stock) of the company.
Additional Senior Subordinated Subsidiary Guarantees
If the company or any of its Restricted Subsidiaries acquires or creates
another Restricted Subsidiary (other than a Foreign Subsidiary) after the date
of the senior subordinated indenture, then that newly acquired or created
Restricted Subsidiary must become a Guarantor and execute a supplemental
indenture satisfactory to the Trustee and deliver an opinion of counsel to the
Trustee within 10 business days of the date on which it was acquired or created.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default or Event
of Default. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, all outstanding Investments owned by the company and its Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under "-- Restricted Payments" or Permitted Investments, as applicable. All such
outstanding Investments will be valued at their fair market value at the time of
such designation. That designation will be permitted only if such Restricted
Payment would be permitted at that time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if the redesignation would not cause a Default or Event of Default.
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Sale and Leaseback Transactions
The company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the company or any Restricted Subsidiary of the company may enter into a sale
and leaseback transaction if:
(1) the company or that Restricted Subsidiary, as applicable, could
have incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described above
under "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(2) the gross cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors of the company (or as determined in good faith by the
company in the case of a sale and leaseback transaction resulting in gross
cash proceeds of less than $2.5 million); and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and the company applies the proceeds of such transaction in
compliance with, the covenant described above under "-- Repurchase at the
Option of Holders -- Asset Sales."
Limitation on Issuances and Sales of Equity Interests in Wholly Owned Restricted
Subsidiaries
The company will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of the company to any
Person (other than the company or a Wholly Owned Restricted Subsidiary of the
company), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described
above under "-- Repurchase at the Option of Holders -- Asset Sales."
In addition, the company will not permit any Wholly Owned Restricted Subsidiary
of the company to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the company or a Wholly Owned Restricted Subsidiary of the
company.
Limitations on Issuances of Guarantees of Indebtedness
The company will not permit any of its Restricted Subsidiaries, directly or
indirectly, to Guarantee any other Indebtedness of the company unless such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the Guarantee of the payment of the senior subordinated
exchange notes by such Restricted Subsidiary, which Guarantee shall be senior to
or pari passu with such Restricted Subsidiary's Guarantee of such other
Indebtedness, unless such other Indebtedness is Senior Debt, in which case the
Guarantee of the senior subordinated exchange notes may be subordinated to the
Guarantee of such Senior Debt to at least the same extent as the senior
subordinated exchange notes are subordinated to such Senior Debt.
Notwithstanding the preceding paragraph, any Subsidiary Guarantee of the
senior subordinated exchange notes will provide by its terms that it will be
automatically and unconditionally released and discharged under the
circumstances described above under "-- Senior Subordinated Subsidiary
Guarantees."
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Reports
Whether or not required by the Securities and Exchange Commission, so long
as any senior subordinated exchange notes are outstanding, the company will
furnish to the holders of senior subordinated exchange notes, within the time
periods specified in the Securities and Exchange Commission's rules and
regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Securities and Exchange
Commission on Forms 10-Q and 10-K if the company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by the
company's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if the company were required
to file such reports.
If the company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's 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.
In addition, whether or not required by the Securities and Exchange
Commission, the company will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the Securities and Exchange
Commission for public availability within the time periods specified in the
Securities and Exchange Commission's rules and regulations (unless the
Securities and Exchange Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the
senior subordinated exchange notes, whether or not prohibited by the
subordination provisions of the senior subordinated indenture;
(2) default in payment when due of the principal of or premium, if
any, on the senior subordinated exchange notes, whether or not prohibited
by the subordination provisions of the senior subordinated indenture;
(3) failure by the company or any of its Restricted Subsidiaries for
30 days after receipt of notice from the Trustee or holders of at least 25%
in principal amount of the senior subordinated exchange notes then
outstanding to comply with the provisions described under "-- Repurchase at
the Option of Holders -- Change of Control," "-- Repurchase at the Option
of Holders -- Asset Sales," "-- Certain Covenants -- Restricted Payments"
or "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock";
(4) failure by the company or any of its Restricted Subsidiaries for
60 days after receipt of notice from the Trustee or holders of at least 25%
in principal amount of the senior subordinated exchange notes then
outstanding to comply with any of the other agreements in the senior
subordinated indenture;
(5) Indebtedness of the company or any Restricted Subsidiary (other
than Indebtedness owed to the company or any Restricted Subsidiary) or any
Indebtedness that is Guaranteed by the company or a Restricted 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 $10.0 million;
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(6) failure by the company or any of its Restricted Subsidiaries to
pay final judgments for the payment of money (other than judgments that are
covered by enforceable insurance policies issued by reputable carriers and
as to which such insurers have acknowledged liability in writing)
aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days after notice thereof has been
delivered by the Trustee or holders of at least 25% in principal amount of
the senior subordinated exchange notes then outstanding;
(7) except as permitted by the senior subordinated indenture, any
senior subordinated Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to
be in full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
senior subordinated Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the
company or any of its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the company, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all senior
subordinated exchange notes will become due and payable immediately without
further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding senior subordinated exchange notes may declare all the
senior subordinated exchange notes to be due and payable immediately.
Holders of the senior subordinated exchange notes may not enforce the
senior subordinated indenture or the senior subordinated exchange notes except
as provided in the senior subordinated indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
senior subordinated exchange notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the senior
subordinated exchange notes then outstanding by notice to the Trustee may on
behalf of the holders of all of the senior subordinated exchange notes waive any
existing Default or Event of Default and its consequences under the senior
subordinated indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the senior subordinated exchange
notes.
The company is required to deliver to the Trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the company
or any Guarantor, as such, shall have any liability for any obligations of the
company or the Guarantors under the senior subordinated exchange notes, the
senior subordinated indenture, the senior subordinated Subsidiary Guarantees, or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of senior subordinated exchange notes by accepting a
senior subordinated exchange note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the senior
subordinated exchange notes. The waiver may not be effective to waive
liabilities under the federal securities laws.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the senior subordinated exchange notes
and all obligations of the Guarantors discharged with respect to their senior
subordinated Subsidiary Guarantees ("Legal Defeasance") except for:
(1) the rights of holders of senior subordinated exchange notes to
receive payments in respect of the principal of, premium, if any, and
interest on such senior subordinated exchange notes when such payments are
due from the trust referred to below;
(2) the company's obligations with respect to the senior subordinated
exchange notes concerning issuing temporary senior subordinated exchange
notes, registration of senior subordinated exchange notes, mutilated,
destroyed, lost or stolen senior subordinated exchange notes and the
maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the senior subordinated
indenture.
In addition, the company may, at its option and at any time, elect to have
the obligations of the company and the Guarantors released with respect to
certain covenants that are described in the senior subordinated indenture
("Covenant Defeasance") and thereafter any omission to comply with those
covenants shall not constitute a Default or Event of Default with respect to the
senior subordinated exchange notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
senior subordinated exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the senior subordinated exchange notes,
cash in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the senior subordinated
exchange notes on the stated maturity or on the applicable redemption date,
as the case may be, and the company must specify whether the senior
subordinated exchange notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, the company shall have delivered
to the Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that (a) the company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the senior subordinated indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the holders of
the senior subordinated exchange notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the company shall have
delivered to the Trustee an opinion of counsel reasonably acceptable to the
Trustee confirming that the holders of the senior subordinated exchange
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be
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applied to such deposit); or (b) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the senior subordinated indenture) to
which the company or any of its Restricted Subsidiaries is a party or by
which the company or any of its Restricted Subsidiaries is bound;
(6) the company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) the company must deliver to the Trustee an officers' certificate
stating that the deposit was not made by the company with the intent of
preferring the holders of senior subordinated exchange notes over the other
creditors of the company with the intent of defeating, hindering, delaying
or defrauding creditors of the company or others; and
(8) the company must deliver to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, senior subordinated the indenture may be
amended with the consent of holders of a majority in principal amount of the
senior subordinated exchange notes then outstanding (including consents obtained
in a purchase of, or tender offer or exchange for, the senior subordinated
exchange notes) and any past default or compliance with any provisions may also
be waived with the consent of holders of a majority in principal amount of the
senior subordinated exchange notes then outstanding. However, without the
consent of each holder affected, an amendment or waiver may not (with respect to
any senior subordinated exchange notes held by a nonconsenting holder):
(1) reduce the principal amount of senior subordinated exchange notes
whose holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the senior
subordinated exchange notes (other than provisions relating to the
covenants described above under "-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any senior subordinated exchange note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the senior subordinated exchange notes
(except a rescission of acceleration of the senior subordinated exchange
notes by the holders of at least a majority in aggregate principal amount
of the senior subordinated exchange notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any senior subordinated exchange note payable in money other
than that stated in the notes;
(6) make any change in the provisions of the senior subordinated
indenture relating to waivers of past Defaults or Events of Default or the
rights of holders of senior subordinated exchange notes to receive payments
of principal of or premium, if any, or interest on the senior subordinated
exchange notes;
(7) waive a redemption payment with respect to any senior subordinated
exchange note (other than a payment required by one of the covenants
described above under "-- Repurchase at the Option of Holders"); or
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(8) make any change in the preceding amendment and waiver provisions.
However, no amendment may be made to the Subordination, Legal Defeasance or
Covenant Defeasance provisions of the senior subordinated indenture that
adversely affects the rights of any holder of Senior Debt of the Company or any
Guarantor then outstanding unless the holders of such Senior Debt (or a
representative thereof authorized to give consent) consent to such amendment. In
addition, any amendment to, or waiver of, the provisions of the senior
subordinated indenture relating to subordination that adversely affects the
rights of the holders of the senior subordinated exchange notes will require the
consent of the holders of at least 75% in aggregate principal amount of senior
subordinated exchange notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of senior
subordinated exchange notes, the company and the Trustee may amend or supplement
the senior subordinated indenture or the senior subordinated exchange notes:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for uncertificated senior subordinated exchange notes
in addition to or in place of certificated senior subordinated exchange
notes;
(3) to provide for the assumption of the company's obligations to
holders of senior subordinated exchange notes in the case of a merger or
consolidation or sale of all or substantially all of the company's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of senior subordinated exchange notes or that does
not adversely affect the legal rights under the senior subordinated
indenture of any such holder; or
(5) to comply with requirements of the Securities and Exchange
Commission in order to effect or maintain the qualification of the
indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Bank of New York, the Trustee under the senior subordinated indenture
governing the senior subordinated exchange notes, is also the trustee under the
indentures governing our 7 3/8% senior notes and our senior exchange notes, and
is a lender under our new senior credit facility. As such, The Bank of New York
could be faced with potential conflicts of interest and conflicting obligations
in the event of default under any or all of this indebtedness.
If the Trustee becomes a creditor of the company or any Guarantor, the
senior subordinated indenture limits its right 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; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Securities and Exchange Commission
for permission to continue, or resign.
The holders of a majority in principal amount of the then outstanding
senior subordinated exchange 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. The senior subordinated
indenture provides that in case an Event of Default shall occur and be
continuing, 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 senior subordinated indenture at the request of
any holder of senior subordinated exchange notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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METHODS OF RECEIVING PAYMENTS ON THE SENIOR SUBORDINATED EXCHANGE NOTES
If a holder has given wire transfer instructions to the company, the
company will make all principal, premium and interest payments on those senior
subordinated exchange notes in accordance with those instructions. All other
payments on these senior subordinated exchange notes will be made at the office
or agency of the paying agent and registrar within the City and State of New
York unless the company elects to make interest payments by check mailed to the
holders at their address set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as paying agent and registrar. The company
may change the paying agent or registrar without prior notice to the holders of
the senior subordinated exchange notes, and the company or any of its
Subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange senior subordinated exchange notes in
accordance with the senior subordinated indenture. The registrar and the Trustee
may require a holder, among other things, to furnish appropriate endorsements
and transfer documents and the company may require a holder to pay any taxes and
fees required by law or permitted by the senior subordinated indenture. The
company is not required to transfer or exchange any senior subordinated exchange
note selected for redemption. Also, the company is not required to transfer or
exchange any senior subordinated exchange note for a period of 15 days before
the mailing of a notice of redemption of senior subordinated exchange notes to
be redeemed.
The registered holder of a senior subordinated exchange note will be
treated as the owner of it for all purposes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the senior subordinated
indenture. Reference is made to the senior subordinated indenture for a full
disclosure of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"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 purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of such Person, whether through the ownership of
voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the Voting Stock of a Person shall be deemed to
be control. For purposes of this definition, the terms "controlling,"
"controlled by" and "under common control with" shall have correlative
meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including any Equity Interest of any Person), other than sales of
inventory and dispositions of obsolete equipment in the ordinary course of
business consistent with past practices; provided that the sale, conveyance
or other disposition of all or substantially all of the assets of the
company and its Restricted Subsidiaries taken
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as a whole will be governed by the provisions of the senior subordinated
indenture described above under "-- Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under
"-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of the company's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1.0 million; or
(b) results in net proceeds to the company and its Restricted Subsidiaries
of less than $1.0 million;
(2) a transfer of assets from the company or a Restricted Subsidiary
to the company or to a Guarantor;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
company or to a Guarantor;
(4) any Permitted Investment and any Restricted Payment that is
permitted by the covenant described above under "-- Certain
Covenants -- Restricted Payments"; and
(5) the sale or disposition of the Chicago Paperboard Assets;
provided, however, that such sale or disposition must be on fair and
reasonable terms.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means the board of directors (or other body having
similar management functions) or any committee thereof duly authorized to act on
behalf of such board. Except as expressly forth herein, any reference to the
Board of Directors shall be a reference to the Board of Directors of the
company.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
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"Cash Equivalents" means:
(1) U.S. dollars;
(2) securities issued or directly and fully guaranteed or insured by
the U.S. government or any agency or instrumentality thereof (provided that
the full faith and credit of the U.S. is pledged in support thereof) having
maturities of not more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case, with any domestic commercial bank having capital
and surplus in excess of $500 million and a Thompson Bank Watch Rating of
"B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Service and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the company and
its Subsidiaries taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution
of the company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the Beneficial Owner, directly or
indirectly, of (i) more than 35% of the Voting Stock of the company,
measured by voting power rather than number of shares and/or (ii) more than
35% of the Equity Interests of the company;
(4) the first day on which a majority of the members of the Board of
Directors of the company are not Continuing Directors; or
(5) the company consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, the company, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of the company is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
Voting Stock of the company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving
or transferee Person immediately after giving effect to such issuance.
"Chicago Paperboard Assets" means all real and personal property assets (as
of the date of the indenture) relating to the company's Chicago Paperboard mill
located at Elston Avenue and the Chicago River in Chicago, Illinois.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period excluding therefrom
that portion of Consolidated Net Income
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attributable to each Significant Joint Venture of such Person whether or not
such Significant Joint Venture is consolidated with such Person for accounting
and financial reporting purposes plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent such losses were
deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations), to
the extent that any such expense was deducted in computing such
Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP; plus (or, if less than $0, minus)
(6) such Person's pro rata share (as determined in accordance with the
percentage ownership of Capital Stock or, if applicable, profit-sharing
percentage) of the Consolidated Cash Flow (as determined in accordance with
this definition) of each Significant Joint Venture of such Person to the
extent that such Significant Joint Venture is not subject to an encumbrance
or restriction on the ability of such Significant Joint Venture to pay
dividends or make other distributions (including distributions of
Consolidated Cash Flow) on its Capital Stock to such Person.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of the company shall be added to Consolidated Net Income
to compute Consolidated Cash Flow of the company only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to the company by such Restricted Subsidiary without prior approval,
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its shareholders.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary thereof; provided that in any event Consolidated Net
Income of such Person shall include the Net Income (loss) of each
Significant Joint Venture regardless of the amount of dividends or
distributions paid to such Person, if any;
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(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its shareholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(4) the cumulative effect of a change in accounting principles shall
be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common shareholders of such Person
and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the company who:
(1) was a member of such Board of Directors on the date of the senior
subordinated indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Facilities" means, with respect to the company or any Restricted
Subsidiary, the New Credit Facility or one or more replacement debt facilities
or commercial paper facilities, in each case with banks or other institutional
lenders providing for 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) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or beneficiary.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means any Senior Debt permitted under the
indenture the principal amount of which is (or the commitments to lend under
which are) $25.0 million or more and that has been designated by the company as
"Designated Senior Debt." The New Credit Facility, the 7 3/8% senior exchange
notes and the senior exchange notes shall be Designated Senior Debt.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the company to repurchase such Capital
Stock upon the occurrence of a Change of Control or an Asset Sale shall not
constitute Disqualified Stock if the terms of such Capital Stock
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provide that the company may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under "-- Certain Covenants -- Restricted
Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Existing Indebtedness" means Indebtedness of the company and its
Restricted Subsidiaries in existence on the date of the senior subordinated
indenture (including the new senior exchange notes), until such amounts are
repaid. Existing Indebtedness will include the senior exchange notes.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded;
and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of the following, but excluding from such sum that portion
of the amounts set forth in items (1) through (4) below attributable to each
Significant Joint Venture of such Person whether or not such Significant Joint
Venture is consolidated with such Person for accounting or financial reporting
purposes:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments, if any, pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
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(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividend payments, whether or not in cash,
on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the company (other than Disqualified Stock)
or to the company or a Restricted Subsidiary of the company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate
of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP; plus
(5) such Person's pro rata share (as determined in accordance with the
percentage ownership of Capital Stock or, if applicable, profit-sharing
percentage) of the Fixed Charges (as determined in accordance with this
definition) of each Significant Joint Venture of such Person.
"Foreign Subsidiary" means any Restricted Subsidiary not created or
organized in the U.S., any state thereof or the District of Columbia and that
conducts substantially all of its operations outside of the U.S.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) each of the Subsidiaries of the company (other than Foreign
Subsidiaries and Paragon Plastics, Inc.) as of the date of the senior
subordinated indenture; and
(2) any other subsidiary that executes a senior subordinated
Subsidiary Guarantee in accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Currency Agreements and Interest Rate Agreements.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) and evidenced
thereby;
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) any Hedging Obligations relating to Indebtedness,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with
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GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others
secured by a Lien on any asset of the specified Person (whether or not such
Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person. The incurrence of Indebtedness Guaranteed by the specified Person
shall, for purposes of the indenture, be the incurrence of Indebtedness by such
specified Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount;
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness;
and
(3) the amount of Indebtedness of such specified Person arising by
reason of a Guarantee of Indebtedness shall equal the outstanding principal
amount of the Guaranteed Indebtedness.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (including by means of transfer of property)
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the company or any Restricted Subsidiary of
the company sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the company such that, after giving effect to
any such sale or disposition, such Person is no longer a Restricted Subsidiary
of the company, the company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under "-- Certain Covenants -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in such asset, and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of (i) the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees,
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sales commissions, and any relocation expenses incurred as a result thereof,
(ii) taxes paid or payable as a result thereof, in each case after taking into
account any available tax credits or deductions and any tax sharing arrangements
and amounts required to be applied to the repayment of Indebtedness, other than
Senior Debt, secured by a Lien on the asset or assets that were the subject of
such Asset Sale, (iii) any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP, or against any
liabilities associated with the Asset Sale, or the assets subject thereto, and
retained by the company or any Restricted Subsidiary, and (iv) amounts required
to be applied to the repayment of Indebtedness secured by a Lien on the asset or
assets existing at the date of the indenture, or entered into after the date of
the indenture in connection with the payment of deferred purchase price of the
properties or assets that were the subject of such Asset Sale.
"New Credit Facility" means that certain credit agreement providing for a
revolving credit facility of up to $75.0 million to be entered into among the
company, as borrower, certain subsidiaries of the company from time to time a
party thereto, as guarantors, the lenders party thereto and Bank of America,
N.A., as administrative agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender; and
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the senior subordinated exchange notes)
of the company or any of its Restricted Subsidiaries to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated
or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means:
(1) Investments in the company or in a Guarantor;
(2) Investments in Cash Equivalents;
(3) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(4) Investments constituting loans, advances or extensions of credit
to employees, officers, supervisory or management board members and
directors made in the ordinary course of business which, when taken
together with all other Investments made pursuant to this clause (4) since
the date of the senior subordinated indenture, do not exceed $7.5 million
in the aggregate;
(5) Investments representing Hedging Obligations;
(6) bonds, notes, debentures, other securities or other Investments
made as a result of receipt of non-cash consideration from Asset Sales made
in compliance with the covenant under "-- Repurchase at the Option of
Holders -- Asset Sales";
(7) Investments in any Person as a result of which (a) such Person
becomes a Guarantor, or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the company or a Guarantor;
(8) Investments the payment of which consists of Capital Stock of the
company (other than Disqualified Stock);
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(9) Investments existing on the date of the senior subordinated
indenture;
(10) Investments 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;
(11) Investments consisting of the licensing or contribution of
intellectual property pursuant to joint marketing arrangements with other
Persons or otherwise in the ordinary course of business;
(12) Investments consisting of purchases and acquisitions of
inventory, supplies, materials and equipment or licenses, contributions or
leases of intellectual property, in any case, in the ordinary course of
business; and
(13) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (13) since the date of the
senior subordinated indenture, not to exceed $25.0 million.
"Permitted Junior Securities" means (1) Equity Interests in the company or
any Guarantor; or (2) debt securities of the company or any Guarantor that are
subordinated to all Senior Debt and any debt securities issued in exchange for
Senior Debt to at least the same extent as, or to a greater extent than, the
senior subordinated exchange notes and the senior subordinated Subsidiary
Guarantees are subordinated to Senior Debt pursuant to the senior subordinated
indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
no earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date no earlier
than the final maturity date of, and is subordinated in right of payment
to, the notes on terms at least as favorable to the holders of notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) the principal obligor of such Indebtedness being incurred by the
company or by the Restricted Subsidiary is the principal obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
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"Public Equity Offering" means an underwritten public offering of common
stock of the company pursuant to an effective registration statement under the
Securities Act.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securities and Exchange Commission" means the Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Senior Debt" means with respect to the company and each Guarantor:
(1) all Indebtedness outstanding under Credit Facilities and all
Hedging Obligations with respect thereto;
(2) any other Indebtedness permitted to be incurred by such Persons
under the terms of the senior subordinated indenture (including all
Existing Indebtedness), unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated
in right of payment to the senior subordinated exchange notes; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:
(1) any liability for federal, state, local or other taxes owed or
owing by such Person;
(2) any Indebtedness of such Person to any of its Subsidiaries or
other Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the senior
subordinated indenture.
"Significant Joint Venture" means each of Premier Boxboard Limited LLC, a
Delaware limited liability company ("Premier"), and Standard Gypsum, L.P., a
Delaware limited partnership ("Gypsum"), so long as, (a) in each case, 50% of
the Voting Stock is owned, directly or through one or more Wholly Owned
Restricted Subsidiaries, by the company, (b) with respect to Premier, the
company does not agree to any modifications or amendments to any provisions of
Premier's operating agreement, including Sections 5.3 and 5.4 and the definition
"cash available for distribution" therein, which modifications or amendments
limit Premier's ability to make distributions to the company in a manner that is
more restrictive than set forth in such operating agreement as of the date of
the senior subordinated indenture; provided, that the company may agree to
establish additional reserves on the cash available for distribution in an
aggregate amount not to exceed 15% of cash available for distribution and (c)
with respect to Gypsum, the company does not agree to any modifications or
amendments to any provisions of Gypsum's Limited Partnership Agreement,
including Sections 5.3 and 5.4 and the definition "net free cash flow" therein,
which modifications or amendments limit Gypsum's ability to make distributions
to the company in a manner that is more restrictive than set forth in such
Limited Partnership Agreement as of the date of the senior subordinated
indenture; provided, that the company may agree to establish reserves on the net
free cash flow in an aggregate amount not to exceed 15% of net free cash flow.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
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"Subordinated Indebtedness" means any Indebtedness of the company or any
Guarantor (whether outstanding on the date of the senior subordinated indenture
or thereafter incurred) which is subordinate or junior in right of payment to,
in the case of the company, the notes, or, in the case of such Guarantor, its
Guarantee of the senior subordinated exchange notes, pursuant to a written
agreement to that effect.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which
more than 50% of the Voting Stock is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary of the company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
board resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the company or any Restricted Subsidiary of the company
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the company;
(3) is a Person with respect to which neither the company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the board resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under
"-- Certain Covenants -- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the company as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," the company shall be in default of such
covenant. The Board of Directors of the company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
We have agreed, pursuant to a Registration Rights Agreement with the
initial purchasers for each of the original notes, for the benefit of the
holders of the original notes that we will, at our cost:
(1) within 45 days after March 29, 2001, the date of original issuance
of the original notes (the "Issue Date"), file a registration statement
(the "Exchange Offer Registration Statement") with the Securities and
Exchange Commission with respect to a registered offer to exchange the
original notes for the exchange notes having terms substantially identical
in all material respects to the original notes (except that the exchange
notes will not contain terms with respect to transfer restrictions);
(2) use our reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act
within 120 days after the Issue Date;
The registration statement of which this prospectus is a part constitutes
the registration statement to be filed pursuant to the registration rights
agreements. Upon the effectiveness of the Exchange Offer Registration Statement,
we will offer the exchange notes in exchange for surrender of the original notes
(the "Registered Exchange Offer"). We will keep the Registered Exchange Offer
open for not less than 30 days (or longer if required by applicable law) after
the date notice of the Registered Exchange Offer is mailed to the holders of the
original notes.
For each original note surrendered to us pursuant to the exchange, the
holder of the original note will receive an exchange note having a principal
amount equal to that of the surrendered note. Interest on each exchange note
will accrue from the last interest payment date on which interest was paid on
the original note surrendered in exchange thereof or, if no interest has been
paid on the original note surrendered, from the date of its original issue.
A holder of original notes (other than certain specified holders) who
wishes to exchange those notes for exchange notes in the Registered Exchange
Offer will be required to represent that any exchange notes to be received by it
will be acquired in the ordinary course of its business and that at the time of
the commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the exchange notes and that it is not an
"affiliate" of the company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. See "Plan
of Distribution" for a discussion of the transferability of the exchange notes.
In the event that:
(1) applicable interpretations of the staff of the Securities and
Exchange Commission do not permit us to effect such a Registered Exchange
Offer, or
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(2) for any other reason the Registered Exchange Offer is not
consummated within 165 days after the Issue Date; or
(3) the initial purchasers so request with respect to notes that are
not eligible to be exchanged for Exchange Notes in the Registered Exchange
Offer, or
(4) certain holders are prohibited by law or Securities and Exchange
Commission policy from participating in the Registered Exchange Offer or
may not resell the Exchange Notes acquired by them in the Registered
Exchange Offer to the public without delivering a prospectus, we will,
subject to certain exceptions:
(1) promptly file a shelf registration statement (the "Shelf
Registration Statement") covering resales of the notes or Exchange
Notes, as the case may be, on or prior to the 60th day after the date on
which the obligation to file a Shelf Registration Statement arises (such
60th day, the "Shelf Filing Date"),
(2) use our reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act on or prior
to the 60th day after the Shelf Filing Date; and
(3) keep the Shelf Registration Statement effective until the
earliest of (A) the time when the 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 effective date of the Shelf Registration Statement 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 that 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 notes or the Exchange Notes, as the case may be. A
holder selling such 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 will pay additional interest to affected holders of notes, subject to
certain exceptions:
(1) if the company fails to file an Exchange Offer Registration
Statement with the Securities and Exchange Commission on or prior to the
45th day after the Issue Date,
(2) if the Exchange Offer Registration Statement is not declared
effective by the Securities and Exchange Commission on or prior to the
120th day after the Issue Date,
(3) if the Exchange Offer is not consummated on or before the 40th day
after the Exchange Offer Registration Statement is declared effective,
(4) if obligated to file the Shelf Registration Statement, the company
fails to file the Shelf Registration Statement with the Securities and
Exchange Commission on or prior to the Shelf Filing Date,
(5) if obligated to file a Shelf Registration Statement, the Shelf
Registration Statement is not declared effective on or prior to the 60th
day after the Shelf Filing Date, or
(6) after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective, such
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"),
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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 year 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 year with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum additional interest rate of 2.0% per year. 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
notes.
BOOK-ENTRY, DELIVERY AND FORM
We will initially issue the exchange notes in the form of one or more
global notes (the "Global Exchange Note"). The Global Exchange Note will be
deposited with, or on behalf of, The Depository Trust Company and registered in
the name of The Depository Trust Company or its nominee. Except as set forth
below, the Global Exchange Note may be transferred, in whole and not in part,
only to The Depository Trust Company or another nominee of The Depository Trust
Company. You may hold your beneficial interests in the Global Exchange Note
directly through The Depository Trust Company if you have an account with The
Depository Trust Company or indirectly through organizations that have accounts
with The Depository Trust Company, including Euroclear and Clearstream. Except
as set forth below, notes will be issued in registered, global form in minimum
denominations of $1,000 and integral multiples of $1,000 in excess of $1,000.
Except as set forth below, the Exchange Global Notes may be transferred, in
whole and not in part, only to another nominee of The Depository Trust Company
or to a successor of The Depository Trust Company or its nominee. Beneficial
interests in the Exchange Global Notes may not be exchanged for notes in
certificated form except in the limited circumstances described below. See "--
Exchange of Exchange Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Exchange
Global Notes will not be entitled to receive physical delivery of notes in
certificated form.
Transfers of beneficial interests in the Exchange Global Notes will be
subject to the applicable rules and procedures of The Depository Trust Company
and its direct or indirect participants (including, if applicable, those of
Euroclear and Clearstream), which may change from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of The
Depository Trust Company, Euroclear and Clearstream are provided solely as a
matter of convenience. These operations and procedures are solely within the
control of the respective settlement systems and are subject to changes by them.
We take no responsibility for these operations and procedures and urge investors
to contact the system or their participants directly to discuss these matters.
The Depository Trust Company has advised us that it is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the initial purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to The Depository Trust Company's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of The
Depository Trust Company only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of The Depository Trust Company are
recorded on the records of the Participants and Indirect Participants.
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The Depository Trust Company has also advised us that, pursuant to
procedures established by it:
(1) upon deposit of the Exchange Global Notes, The Depository Trust
Company will credit the accounts of Participants designated by the initial
purchasers with portions of the principal amount of the Exchange Global
Notes; and
(2) ownership of these interests in the Exchange Global Notes will be
shown on, and the transfer of ownership of these interests will be effected
only through, records maintained by The Depository Trust Company (with
respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interest in the
Exchange Global Notes).
Investors in the Exchange Global Notes who are Participants in The
Depository Trust Company's system may hold their interests therein directly
through The Depository Trust Company. Investors in the Exchange Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Clearstream) that are Participants in
such system. All interests in an Exchange Global Note, including those held
through Euroclear or Clearstream, may be subject to the procedures and
requirements of The Depository Trust Company. Those interests held through
Euroclear or Clearstream may also be subject to the procedures and requirements
of such systems. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in an Exchange Global Note to such
persons will be limited to that extent. Because The Depository Trust Company can
act only on behalf of Participants, which in turn act on behalf of Indirect
Participants, the ability of a person having beneficial interests in a Exchange
Global Note to pledge such interests to persons that do not participate in The
Depository Trust Company system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing such
interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE EXCHANGE GLOBAL NOTES
WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURES FOR ANY PURPOSE.
Payments in respect of the principal of, and interest (including additional
interest) and premium, if any, on a Exchange Global Note registered in the name
of The Depository Trust Company or its nominee will be payable to The Depository
Trust Company in its capacity as the registered Holder under the indentures.
Under the terms of the indentures, we and the trustee will treat the Persons in
whose names the notes, including the Exchange Global Notes, are registered as
the owners of the notes for the purpose of receiving payments and for all other
purposes. Consequently, neither we, the trustee nor any agent of us or the
trustee has or will have any responsibility or liability for:
(1) any aspect of The Depository Trust Company's records or any
Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interest in the Exchange Global
Notes or for maintaining, supervising or reviewing any of The Depository
Trust Company's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Exchange
Global Notes; or
(2) any other matter relating to the actions and practices of The
Depository Trust Company or any of its Participants or Indirect
Participants.
The Depository Trust Company has advised us that its current practice, upon
receipt of any payment in respect of securities such as the notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date unless The Depository Trust Company has
reason to believe it will not receive payment on such payment date. Each
relevant Participant is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant security as
shown on the records of The Depository Trust Company. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of The Depository Trust Company, the trustee or us.
Neither we nor the trustee will be liable for any delay by The Depository Trust
Company or any of its Participants in
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identifying the beneficial owners of the notes, and we and the trustee may
conclusively rely on and will be protected in relying on instructions from The
Depository Trust Company or its nominee for all purposes.
Transfers between Participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same-day funds, and transfers between participants in Euroclear
and Clearstream will be effected in accordance with their respective rules and
operating procedures.
Crossmarket transfers between the Participants in The Depository Trust
Company, on the one hand, and Euroclear or Clearstream participants, on the
other hand, will be effected through The Depository Trust Company in accordance
with The Depository Trust Company's rules on behalf of Euroclear or Clearstream,
as the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Exchange Global Note in The
Depository Trust Company, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to The Depository
Trust Company. Euroclear participants and Clearstream participants may not
deliver instructions directly to the depositories for Euroclear or Clearstream.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
Participants to whose account The Depository Trust Company has credited the
interests in the Exchange Global Notes and only in respect of such portion of
the aggregate principal amount of the notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the notes, The Depository Trust Company reserves the right to
exchange the Exchange Global Notes for legended notes in certificated form, and
to distribute such notes to its Participants.
Although The Depository Trust Company, Euroclear and Clearstream have
agreed to the foregoing procedures to facilitate transfers of interests in the
Exchange Global Notes among participants in The Depository Trust Company,
Euroclear and Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such procedures at any
time. Neither we nor the trustee nor any of our respective agents will have any
responsibility for the performance by The Depository Trust Company, Euroclear or
Clearstream or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF EXCHANGE GLOBAL NOTES FOR CERTIFICATED NOTES
A Exchange Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) The Depository Trust Company (a) notifies us that it is unwilling
or unable to continue as depositary for the Exchange Global Notes, and we
fail to appoint a successor depositary or (b) has ceased to be a clearing
agency registered under the Exchange Act;
(2) at our option, we notify the trustee in writing that we elect to
cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.
In addition, beneficial interests in a Exchange Global Note may be
exchanged for Certificated Notes upon prior written notice given to the trustee
by or on behalf of The Depository Trust Company in accordance with the
indentures. In all cases, Certificated Notes delivered in exchange for any
Exchange Global Note or beneficial interests in Exchange Global Notes will be
registered in the names, and issued
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in any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
SAME-DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the notes represented by the Exchange
Global Notes (including principal, premium, if any, interest and liquidated
damages, if any) by wire transfer of immediately available funds to the accounts
specified by the Exchange Global Note holder. We will make all payments of
principal, interest and premium and liquidated damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such holder's registered
address. The notes represented by the Exchange Global Notes are expected to
trade in The Depository Trust Company's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such notes will, therefore,
be required by The Depository Trust Company to be settled in immediately
available funds. We expect that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Exchange Global Note from a
Participant in The Depository Trust Company will be credited, and any such
crediting will be reported to the relevant Euroclear or Clearstream participant,
during the securities settlement processing day (which must be a business day
for Euroclear and Clearstream) immediately following the settlement date of The
Depository Trust Company. The Depository Trust Company has advised us that cash
received in Euroclear or Clearstream as a result of sales of interests in a
Exchange Global Note by or through a Euroclear or Clearstream participant to a
Participant in The Depository Trust Company will be received with value on the
settlement date of The Depository Trust Company, but will be available in the
relevant Euroclear or Clearstream cash account only as of the business day for
Euroclear or Clearstream following The Depository Trust Company's settlement
date.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
SCOPE OF DISCUSSION
The following general discussion summarizes the material U.S. federal
income tax aspects of the exchange offer to holders of the original notes. This
discussion is a summary for general information purposes only, is limited to the
federal income tax consequences of the exchange offer and does not consider all
aspects of the original notes and exchange notes. This discussion does not
consider the impact, if any, of a holder's personal circumstances on the tax
consequences of the exchange offer to such holder. This discussion also does not
address the U.S. federal income tax consequences to holders subject to special
treatment under the U.S. federal income tax laws, such as dealers in securities
or foreign currency, tax-exempt entities, banks, thrifts, insurance companies,
persons that hold the original notes as part of a "straddle," a "hedge" against
currency risk, a "conversion transaction," or other risk reduction transaction,
or persons that have a "functional currency" other than the U.S. dollar, and
investors in pass-through entities. In addition, this discussion does not
describe any tax consequences arising out of the tax laws of any state, local or
foreign jurisdiction or any federal estate taxes.
This section is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations under the
Code, published rulings and court decisions, all as currently in effect. These
authorities are subject to change, possibly on a retroactive basis. This
discussion does not consider the effect of any applicable foreign, state, local,
or other tax laws.
THE FEDERAL TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE BENEFICIAL OWNERSHIP AND DISPOSITION OF THE NOTES,
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INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
THE EXCHANGE OFFER
The exchange of original notes for exchange notes under the terms of the
exchange offer will not constitute a taxable exchange. As a result, (1) a holder
will not recognize taxable gain or loss as a result of exchanging original notes
for exchange notes under the terms of the exchange offer, (2) the holding period
of the exchange notes will include the holding period of the original notes
exchanged for the exchange notes and (3) the adjusted tax basis of the exchange
notes will be the same as the adjusted tax basis, immediately before the
exchange, of the original notes exchanged for the exchange notes. The issue
price and other tax characteristics of the exchange notes should be identical to
the issue price and other tax characteristics of the original notes.
UNITED STATES HOLDERS
This subsection describes the tax consequences to a United States holder of
owning and disposing of the exchange notes. You are a United States holder if
you are a beneficial owner of an exchange note and you are:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized under the
laws of the United States or political subdivision thereof;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
If a partnership holds our exchange notes, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our exchange notes,
you should consult your tax advisor. If you are not a United States holder, this
section does not apply to you and you should refer to the section titled
"Foreign Holders" below.
Payments of Interest. Except as set forth below, a United States holder
will be taxed on any stated interest on its note as ordinary income at the time
such holder receives the interest or when it accrues, depending on the holder's
method of accounting for tax purposes.
Original Issue Discount. Each original note was issued with "original
issue discount" in an amount equal to the excess of (a) the "stated redemption
price at maturity" of the original note over (b) its "issue price." United
States holders should be aware that they generally must include original issue
discount in gross income in advance of the receipt of cash attributable to that
income. Under the original issue discount rules, a United States holder will
have to include in income increasingly greater amounts of original issue
discount in successive accrual periods. The "issue price" of a note is the first
price at which a substantial amount of the notes are sold, ignoring sales to
persons acting in the capacity of underwriters. The issue price of the original
notes is the price at which they were offered to the initial purchasers. The
"stated redemption price at maturity" of a note is the sum of all cash payments
required to be made on the note other than payments of "qualified stated
interest." The term "qualified stated interest" means stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer) at least annually at a single fixed rate or, subject to certain
conditions, based on one or more interest indices. The stated interest payments
on the notes are qualified stated interest. Accordingly, each note bears
original issue discount in an amount equal to the excess of its principal amount
over its issue price.
The amount of original issue discount includible in income by a United
States holder of a note is the sum of the "daily portions" for each day of the
taxable year during which the United States holder holds the note. The daily
portions of original issue discount required to be included in a United States
holder's
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gross income in a taxable year are determined under a constant yield method by
allocating to each day during the taxable year on which the United States holder
holds the note a pro rata portion of the original issue discount on the note
that is attributable to the "accrual period" in which such day is included. The
amount of the original issue discount attributable to each accrual period is an
amount equal to the excess, if any, of (a) the product of the note's "adjusted
issue price" at the beginning of the accrual period (defined below), and its
"yield to maturity" (the discount rate that, when used in computing the present
value of all principal and interest payments to be made under the note, produces
an amount equal to the note's issue price) over (b) the sum of any qualified
stated interest allocable to the accrual period. Original issue discount
allocable to a final accrual period is the difference between the amount payable
at maturity and the adjusted issue price at the beginning of the final accrual
period.
The "adjusted issue price" of the note at the beginning of the first
accrual period is its issue price. Thereafter, the adjusted issue price at the
beginning of any other accrual period will be (a) the sum of the note's issue
price, and the aggregate amount of original issue discount that accrued for all
prior accrual periods, less (b) any payments made on the note (other than
qualified stated interest), if any, on or before the first day of the accrual
period.
Market Discount. If a United States holder purchases a note for an amount
that is less than its adjusted issue price, the amount of the difference is
treated as "market discount" for United States federal income tax purposes,
unless that difference is less than a specified de minimis amount. Under the
market discount rules, a United States holder will be required to treat any
payment, other than qualified stated interest, on, or any gain on the sale,
exchange, retirement or other disposition of, a note as ordinary income to the
extent of the market discount that a United States holder has not previously
included in income and is treated as having accrued on the note at the time of
its payment or disposition. In addition, a United States holder may be required
to defer, until the maturity of the note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness attributable to the note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless a United
States holder elects to accrue on a constant interest method. A United States
holder may elect to include market discount in income currently as it accrues,
on either a ratable or constant interest method, in which case the rule
described above regarding deferral of interest deductions will not apply. A
United States holder's election to include market discount in income currently,
once made, applies to all market discount obligations acquired by the United
States holder on or after the first taxable year to which a United States
holder's election applies and may not be revoked without the consent of the
Internal Revenue Service. United States holders should consult their own tax
advisors before making this election.
Acquisition Premium, Amortizable Bond Premium. If a United States holder
purchases a note for an amount that is greater than its adjusted issue price but
equal to or less than the sum of all amounts payable on the note after the
purchase date other than payments of qualified stated interest the United States
holder is considered to have purchased that note at an "acquisition premium."
Under the acquisition premium rules, the amount of original issue discount that
a United States holder must include in gross income with respect to the note for
any taxable year will be reduced by the portion of the acquisition premium
properly allocable to that year.
If a United States holder purchases a note for an amount in excess of the
sum of all amounts payable on the note after the purchase date other than
qualified stated interest, the United States holder will be considered to have
purchased the note at a "premium" and, although it is an original issue discount
note, the United States holder will not be required to include any original
issue discount in income. The United States holder generally may elect to
amortize the premium over the remaining term of the note on a constant yield
method as an offset to interest when includible in income under its regular
accounting method. If a United States holder does not elect to amortize bond
premium, that premium will decrease the gain or increase the loss the United
States holder would otherwise recognize on disposition of the note. A United
States holder's election to amortize premium on a constant yield method will
also apply to all
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debt obligations held or subsequently acquired by the United States holder on or
after the first day of the first taxable year to which the election applies. A
United States holder may not revoke the election without the consent of the
Internal Revenue Service. United States holders should consult their own tax
advisors before making this election.
Sale, Exchange or Redemption of a Note. Upon the disposition of a note by
sale, exchange or redemption, a United States holder will generally recognize
gain or loss equal to the difference between (i) the amount of cash proceeds and
the fair market value of any property a United States holder receives on the
sale, exchange or redemption, except to the extent such amount is attributable
to accrued interest not previously included in income, which is taxable as
ordinary income, and (ii) such holder's adjusted federal income tax basis in the
note. A United States holder's initial tax basis in a note generally will be the
purchase price of the note. The initial basis in the notes will be increased by
the amount of original issue discount or market discount the United States
holder includes in income and reduced by any amortized premium in the note.
Assuming that the note is held as a capital asset, such gain or loss will
generally constitute capital gain or loss and will be long-term capital gain or
loss if the United States holder has held the note for longer than one year.
Non-corporate taxpayers are generally subject to a maximum regular federal
income tax rate of 20% on net long-term capital gains. The deductibility of
capital losses is subject to certain limitations. United States holders are
urged to consult their own tax advisors with respect to the rate of taxation of
capital gains and the ability to deduct capital losses.
FOREIGN HOLDERS
A foreign holder is a beneficial owner of a note that is not a United
States holder. The following discussion is a summary of certain United States
federal tax considerations for a foreign holder of notes. Special rules may
apply to certain foreign holders, such as "controlled foreign corporations,"
"passive foreign investment companies," "foreign personal holding companies,"
and corporations that accumulate earnings to avoid United States federal income
tax, that are subject to special treatment under the Code. These entities should
consult their own tax advisors to determine the United States federal, state,
local and other tax consequences that may be relevant to them.
Payments of Interest. Subject to the discussion below concerning backup
withholding, payments of interest on the notes (which, for purposes of this
discussion, includes original issue discount) by us or any paying agent of ours
to any foreign holder will not be subject to U.S. federal withholding tax
provided that (i) the foreign holder does not actually or constructively own 10%
or more of our voting stock, (ii) the foreign holder is not a "controlled
foreign corporation" related to us for United States federal income tax
purposes, and (iii) the certification requirement, as described below, has been
fulfilled with respect to the beneficial owner of the note.
The certification requirement referred to above will be fulfilled if the
beneficial owner of a note certifies on Internal Revenue Service Form W-8BEN (or
other appropriate substitute form) under penalties of perjury, that the
beneficial owner is not a U.S. person and provides its name and address, and (1)
such beneficial owner files such Form W-8BEN (or other appropriate substitute
form) with the withholding agent or, (2) in the case of a note held on behalf of
the beneficial owner by a securities clearing organization, bank or other
financial institution holding customers' securities in the ordinary course of
its trade or business, such financial institution files with the withholding
agent a statement that it has received the Form W-8BEN (or other appropriate
substitute form) from the foreign holder and furnishes the withholding agent
with a copy thereof. With respect to notes held by a foreign partnership, unless
a foreign partnership has entered into a withholding agreement with the Internal
Revenue Service, the foreign partnership will be required, in addition to
providing an intermediary Form W-8IMY (or other appropriate substitute form) to
attach an appropriate certification by each partner. Prospective investors,
including foreign partnerships and their partners, should consult their tax
advisors regarding possible additional reporting requirements.
The gross amount of payments of interest (including original issue
discount) that do not qualify for the exception from withholding described above
will be subject to U.S. withholding tax at a rate of 30%
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129
unless a treaty applies to reduce or eliminate withholding and the foreign
holder properly certifies to its entitlement to such treaty benefits. If the
interest on the notes (including original issue discount), however, is
effectively connected with the conduct by the foreign holder (or a partnership
in which the foreign holder is a partner, or a trust or estate of which the
foreign holder is a beneficiary) of a business within the United States (or if a
tax treaty applies, such interest is attributable to a permanent establishment
maintained in the United States by the foreign holder) then such interest
(including original issue discount) will generally be taxed to the foreign
holder in the same manner as a United States holder. In addition, such
effectively connected income received by a foreign holder which is a corporation
may in certain circumstances be subject to an additional "branch profits tax" at
a 30% rate or, if applicable, a lower treaty rate.
Sale, Exchange or Redemption of a Note. A foreign holder generally will
not be subject to U.S. federal income tax or withholding tax on gain realized on
the sale or exchange of notes unless (1) the holder is an individual who was
present in the United States for 183 days or more during the taxable year, such
gain is U.S. source and certain other conditions are met, or (2) the gain is
effectively connected with the conduct of a trade or business of the holder in
the United States and, if a treaty applies, such gain is attributable to an
office or other fixed place of business maintained in the United States by such
holder.
U.S. FEDERAL ESTATE TAX
A note held by an individual who is not a citizen or resident of the United
States at the time of death will not be includable in the decedent's gross
estate for United States estate tax purposes, provided that such holder or
beneficial owner did not at the time of death actually or constructively own 10%
or more of the combined voting power of our stock entitled to vote, and provided
that, at the time of death, payments with respect to such note would not have
been effectively connected with the conduct by such foreign holder of a trade or
business within the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31% backup
withholding tax and information reporting requirements apply to certain payments
of principal and interest made to, and to proceeds of sale before maturity by,
certain holders of the notes.
In the case of a United States holder, information reporting requirements
and a backup withholding tax will apply to payments of principal or interest,
and payments of the proceeds of the sale of a note if the United States holder
(i) fails to furnish or certify properly its correct taxpayer identification
number to the payer in the manner required, (ii) is notified by the Internal
Revenue Service that it has failed to report payments of interest or dividends
properly or (iii) under certain circumstances, fails to certify that he has not
been notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest or dividend payments.
Backup withholding and information reporting do not apply with respect to
payments made to certain exempt recipients, including a corporation (within the
meaning of Code Section 7701(a)). United States holders should consult their own
tax advisors regarding their qualification for exemption from backup withholding
and information reporting, and the procedure for obtaining this exemption if
applicable. The amount of any backup withholding imposed upon a payment to a
United States holder will be allowed as a credit against that holder's United
States federal income tax liability and may entitle that holder to a refund,
provided that required information is furnished to the IRS.
In the case of a foreign holder, backup withholding and information
reporting will generally not apply to payments of principal or interest
(including original issue discount) made by us or our paying agent (absent
actual knowledge that the holder is actually a United States holder), or with
respect to payments on the sale, exchange or other disposition of a note (absent
actual knowledge by the broker that the holder is actually a United States
holder), if the holder has provided the properly required certification under
penalties of perjury that it is not a United States holder or has otherwise
established an exemption. Recently promulgated Treasury Regulations provide
certain presumptions under which a foreign holder will
123
130
be subject to back up withholding and information reporting unless such holder
certifies as to its non-U.S. status or otherwise establishes an exemption. In
addition, the recent Treasury Regulations change certain procedural requirements
related to establishing a holder's non-U.S. status.
Foreign holders should consult their own tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining this exemption, if available, and the impact, if any, of the recent
Treasury Regulations. Any amounts withheld from a payment to a foreign holder
under the backup withholding rules will be allowed as a credit against that
holder's United States federal income tax liability and may entitle that holder
to a refund, provided that required information is furnished to the Internal
Revenue Service.
124
131
PLAN OF DISTRIBUTION
Based on interpretations by the Securities and Exchange Commission set
forth in no-action letters issued to third parties, we believe that a holder,
other than a person that is an affiliate of ours within the meaning of Rule 405
under the Securities Act or a broker-dealer registered under the Exchange Act
that purchases notes from us to resell pursuant to Rule 144A under the
Securities Act or any other exemption, that exchanges original notes for
exchange notes in the ordinary course of business and that is not participating,
does not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the exchange notes will be allowed
to resell the exchange notes to the public without further registration under
the Securities Act and without delivering to the purchasers of the exchange
notes a prospectus that satisfies the requirements of Section 10 of the
Securities Act. However, if any holder acquires exchange notes in the exchange
offer for the purpose of distributing or participating in a distribution of the
exchange notes, such holder cannot rely on the position of the staff enunciated
in Exxon Capital Holdings Corporation or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, and such secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K if the
resales are of exchange notes obtained by such holder in exchange for original
notes acquired by such holder directly from us or an affiliate thereof, unless
an exemption from registration is otherwise available.
As contemplated by the above no-action letters and the registration rights
agreement, each holder accepting the exchange offer is required to represent to
us in the letter of transmittal that they:
- are not an affiliate of ours;
- are not participating in, and do not intend to participate in, and
have no arrangement or understanding with any person to participate
in, a distribution of the original notes or the exchange notes;
- are acquiring the exchange notes in the ordinary course of business;
and
- if they are a broker-dealer, they will receive the exchange notes
for their own account in exchange for the original notes that were
acquired as a result of market-making activities or other trading
activities. Each broker-dealer must acknowledge that it will deliver
a prospectus in connection with any resale of such exchange notes.
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 original notes where such original 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 expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, 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 negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who 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
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132
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 expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to 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 original notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the original notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, will pass
upon certain legal matters relating to the issuance of the exchange notes.
Russell M. Robinson, II, a shareholder in the firm of Robinson, Bradshaw &
Hinson, P.A., is chairman of our board of directors. Robinson, Bradshaw &
Hinson, P.A. is our principal outside legal counsel. Certain members of such
firm beneficially owned approximately 121,000 shares of our common stock as of
the date of this prospectus.
EXPERTS
The consolidated financial statements as of December 31, 2000 and 1999 and
for each of the three years ended December 31, 2000 included in this prospectus,
and incorporated by reference in this prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
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133
CARAUSTAR INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000
and March 31, 2001 (unaudited)............................ F-3
Consolidated Statements of Income for the years ended
December 31, 1998, 1999 and 2000 and the three-month
periods ended March 31, 2000 (unaudited) and March 31,
2001 (unaudited).......................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1999 and 2000 and the
three-month period ended March 31, 2001 (unaudited)....... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 and the three-month
periods ended March 31, 2000 (unaudited) and March 31,
2001 (unaudited).......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Caraustar Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CARAUSTAR
INDUSTRIES, INC. (a North Carolina corporation) AND SUBSIDIARIES as of December
31, 2000 and 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Caraustar Industries, Inc.
and subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
(Arthur Andersen LLP Signature)
Atlanta, Georgia
February 24, 2001
(Except for the subsequent financing information discussed in Note 5 as to which
the date is March 22, 2001)
F-2
135
CARAUSTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------------- MARCH 31,
1999 2000 2001
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 18,771 $ 8,900 $ 22,229
Receivables, net of allowances for doubtful accounts,
returns, and discounts of $2,418 and $2,982 at December
31, 1999 and 2000, respectively, and $3,225 and $3,673
at March 31, 2000 and 2001, respectively................ 108,819 93,145 103,923
Inventories............................................... 89,770 110,346 105,347
Refundable income taxes................................... 1,985 3,857 3,675
Other current assets...................................... 7,777 9,438 11,992
--------- --------- ---------
Total current assets................................ 227,122 225,686 247,166
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 12,312 12,663 12,648
Buildings and improvements................................ 125,126 127,816 132,883
Machinery and equipment................................... 580,892 620,418 615,464
Furniture and fixtures.................................... 8,984 12,164 12,211
--------- --------- ---------
727,314 773,061 773,206
Less accumulated depreciation............................. (247,458) (289,752) (296,806)
--------- --------- ---------
Property, plant and equipment, net.................. 479,856 483,309 476,400
--------- --------- ---------
GOODWILL, net of accumulated amortization of $11,712 and
$16,023 at December 31, 1999 and 2000, respectively, and
$12,752 and $17,131 at March 31, 2000 and 2001,
respectively.............................................. 140,763 150,894 149,819
--------- --------- ---------
INVESTMENT IN UNCONSOLIDATED AFFILIATES..................... 22,111 65,895 64,310
--------- --------- ---------
OTHER ASSETS................................................ 8,791 7,043 16,187
--------- --------- ---------
$ 878,643 $ 932,827 953,882
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of debt (Note 5)....................... $ 16,615 $ 1,259 $ 408
Accounts payable.......................................... 62,454 63,752 64,384
Accrued liabilities....................................... 43,755 56,531 41,850
Dividends payable......................................... 4,572 4,702 2,506
--------- --------- ---------
Total current liabilities........................... 127,396 126,244 109,148
--------- --------- ---------
SENIOR CREDIT FACILITY (Note 5)............................. 140,000 194,000 0
--------- --------- ---------
OTHER LONG-TERM DEBT, less current maturities (Note 5)...... 269,739 272,813 506,086
--------- --------- ---------
DEFERRED INCOME TAXES....................................... 49,153 50,437 44,029
--------- --------- ---------
DEFERRED COMPENSATION....................................... 3,164 2,315 2,214
--------- --------- ---------
OTHER LIABILITIES........................................... 9,786 6,853 6,826
--------- --------- ---------
MINORITY INTEREST........................................... 946 1,115 1,143
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares
authorized, no shares issued in 1999 and 2000 or the
quarter ending March 31, 2001........................... 0 0 0
Common stock, $.10 par value; 60,000,000 shares
authorized, 25,488,280 and 26,204,567 shares issued and
outstanding at December 31, 1999 and 2000, respectively,
and 25,763,026 and 27,850,814 shares issued and
outstanding at March 31, 2000 and 2001, respectively.... 2,549 2,620 2,785
Additional paid-in capital................................ 149,509 160,824 179,543
Retained earnings......................................... 126,935 116,359 102,999
Accumulated other comprehensive loss...................... (534) (753) (891)
--------- --------- ---------
278,459 279,050 284,436
--------- --------- ---------
$ 878,643 $ 932,827 $ 953,882
========= ========= =========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
136
CARAUSTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE
FOR THE YEARS ENDED THREE-MONTH PERIODS
DECEMBER 31, ENDED MARCH 31,
-------------------------------- -------------------
1998 1999 2000 2000 2001
-------- -------- ---------- -------- --------
(UNAUDITED)
SALES................................................ $774,312 $936,928 $1,014,615 $260,850 $233,088
FREIGHT.............................................. 37,454 46,839 51,184 12,297 12,986
-------- -------- ---------- -------- --------
Net sales.......................................... 736,858 890,089 963,431 248,553 220,102
COST OF SALES........................................ 536,925 683,576 759,572 194,416 178,437
-------- -------- ---------- -------- --------
Gross profit....................................... 199,933 206,513 203,859 54,137 41,665
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 105,052 125,784 145,268 38,490 36,717
RESTRUCTURING AND OTHER NONRECURRING COSTS (Notes 12
and 14)............................................ -- -- 16,777 6,913 7,083
-------- -------- ---------- -------- --------
Operating income (loss)............................ 94,881 80,729 41,814 8,734 (2,135)
OTHER (EXPENSE) INCOME:
Interest expense..................................... (16,072) (25,456) (34,063) (7,787) (9,210)
Interest income...................................... 334 603 412 174 88
Equity in income (loss) of unconsolidated
affiliates......................................... 4,308 9,224 6,533 2,910 (1,585)
Other, net........................................... (433) (459) (918) (68) 278
-------- -------- ---------- -------- --------
(11,863) (16,088) (28,036) (4,771) (10,429)
-------- -------- ---------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST, INCOME TAXES
AND EXTRAORDINARY LOSS............................. 83,018 64,641 13,778 3,963 (12,564)
MINORITY INTEREST.................................... (730) (356) (169) (75) (28)
PROVISION (BENEFIT) FOR INCOME TAXES................. 30,470 23,216 5,467 1,746 (4,443)
-------- -------- ---------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS.............. $ 51,818 $ 41,069 $ 8,142 $ 2,142 $ (8,149)
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT,
NET OF TAX BENEFIT................................. 0 0 0 0 (2,695)
-------- -------- ---------- -------- --------
NET INCOME (LOSS).................................... $ 51,818 $ 41,069 $ 8,142 $ 2,142 $(10,844)
-------- -------- ---------- -------- --------
BASIC
INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY
LOSS............................................. $ 2.05 $ 1.64 $ 0.31 $ 0.08 $ (0.29)
-------- -------- ---------- -------- --------
EXTRAORDINARY LOSS PER COMMON SHARE................ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ (0.10)
-------- -------- ---------- -------- --------
INCOME (LOSS) PER COMMON SHARE..................... $ 2.05 $ 1.64 $ 0.31 $ 0.08 $ (0.39)
-------- -------- ---------- -------- --------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING...... 25,244 25,078 26,292 25,624 27,815
-------- -------- ---------- -------- --------
DILUTED
INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY
LOSS............................................. $ 2.04 $ 1.63 $ 0.31 $ 0.08 $ (0.29)
-------- -------- ---------- -------- --------
EXTRAORDINARY LOSS PER COMMON SHARE................ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ (0.10)
-------- -------- ---------- -------- --------
INCOME (LOSS) PER COMMON SHARE..................... $ 2.04 $ 1.63 $ 0.31 $ 0.08 $ (0.39)
-------- -------- ---------- -------- --------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING...... 25,423 25,199 26,301 25,649 27,815
-------- -------- ---------- -------- --------
The accompanying notes are an integral part of these consolidated statements.
F-4
137
CARAUSTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THE
THREE-MONTH PERIOD ENDED MARCH 31, 2001 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
-------------------- PAID IN RETAINED INCOME
SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
---------- ------- ---------- -------- ------------- --------
BALANCE, December 31, 1997........................... 25,330,670 $2,533 $144,442 $ 68,823 $(1,867) $213,931
Net income......................................... -- -- -- 51,818 -- 51,818
Issuance of common stock for acquisitions.......... 369,073 37 10,094 -- -- 10,131
Issuance of common stock under 1993 stock purchase
plan............................................. 21,636 2 914 -- -- 916
Issuance of common stock under 1998 stock purchase
plan............................................. 1,202 -- 34 -- -- 34
Issuance of common stock under director equity
plan............................................. 2,077 -- 65 -- -- 65
Purchase and retirement of common stock............ (1,043,300) (104) (25,309) -- -- (25,413)
Pension liability adjustment....................... -- -- -- -- (1,478) (1,478)
Foreign currency translation adjustment............ -- -- -- -- 20 20
Dividends declared of $.66 per share............... -- -- -- (16,650) -- (16,650)
---------- ------ -------- -------- ------- --------
BALANCE, December 31, 1998........................... 24,681,358 2,468 130,240 103,991 (3,325) 233,374
Net income......................................... -- -- -- 41,069 -- 41,069
Issuance of common stock for acquisitions.......... 739,565 74 17,889 -- -- 17,963
Issuance of common stock under nonqualified stock
option plan...................................... 19,000 2 252 -- -- 254
Issuance of common stock under 1993 stock purchase
plan............................................. 21,828 3 679 -- -- 682
Issuance of common stock under 1998 stock purchase
plan............................................. 20,371 2 302 -- -- 304
Issuance of common stock under director equity
plan............................................. 2,930 -- 77 -- -- 77
Pension liability adjustment....................... -- -- -- -- 2,877 2,877
Foreign currency translation adjustment............ -- -- -- -- (86) (86)
Dividends declared of $.72 per share............... 3,228 -- 70 (18,125) -- (18,055)
---------- ------ -------- -------- ------- --------
BALANCE, December 31, 1999........................... 25,488,280 2,549 149,509 126,935 (534) 278,459
Net income......................................... -- -- -- 8,142 -- 8,142
Issuance of common stock for acquisitions.......... 635,306 64 10,659 -- -- 10,723
Issuance of common stock under nonqualified stock
option plan...................................... 61,989 6 208 -- -- 214
Issuance of common stock under 1993 stock purchase
plan............................................. 338 -- 254 -- -- 254
Issuance of common stock under 1998 stock purchase
plan............................................. 10,699 1 59 -- -- 60
Issuance of common stock under director equity
plan............................................. 4,171 -- 77 -- -- 77
Foreign currency translation adjustment............ -- -- -- -- (219) (219)
Dividends declared of $.72 per share............... 3,784 -- 58 (18,718) -- (18,660)
---------- ------ -------- -------- ------- --------
BALANCE, December 31, 2000........................... 26,204,567 2,620 160,824 116,359 (753) 279,050
Net loss (unaudited)............................... -- -- -- (10,844) -- (10,844)
Issuance of common stock for acquisitions
(unaudited)...................................... 1,643,192 165 18,634 -- -- 18,799
Issuance of common stock under 1993 stock purchase
plan (unaudited)................................. (2,335) -- 11 -- -- 11
Issuance of common stock under 1998 stock purchase
plan (unaudited)................................. -- -- 21 -- -- 21
Issuance of common stock under director equity plan
(unaudited)...................................... 4,130 -- 39 -- -- 39
Foreign currency translation adjustment
(unaudited)...................................... -- -- -- -- (138) (138)
Dividends declared of $.09 per share (unaudited)... 1,260 -- 14 (2,516) -- (2,502)
---------- ------ -------- -------- ------- --------
BALANCE, March 31, 2001 (unaudited).................. 27,850,814 $2,785 $179,543 $102,999 $ (891) $284,436
========== ====== ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated
statements.
F-5
138
CARAUSTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE-MONTH
FOR THE YEARS ENDED PERIODS ENDED
DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1998 1999 2000 2000 2001
-------- --------- --------- -------- ---------
(UNAUDITED)
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 51,818 $ 41,069 $ 8,142 $ 2,142 $ (10,844)
-------- --------- --------- -------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary loss from early extinguishment of debt.... -- -- -- -- 4,305
Depreciation and amortization........................... 38,705 52,741 60,858 14,858 15,398
Equity in income of unconsolidated affiliates, net of
distributions......................................... (4,308) (8,224) 6,967 (910) 1,585
Deferred income taxes................................... 8,076 9,072 (239) 3,225 (6,405)
Provision for deferred compensation..................... 519 292 227 55 57
Minority interest....................................... 730 356 169 75 28
Restructuring costs..................................... -- -- 12,734 5,696 3,987
Changes in operating assets and liabilities, net of
acquisitions:
Receivables........................................... 1,531 (11,665) 19,508 (8,426) (10,778)
Inventories........................................... 740 2,831 (10,467) (10,538) 4,999
Other current assets.................................. (1,111) 2,303 (1,485) (513) (2,421)
Accounts payable and accrued liabilities.............. (2,866) 3,696 (12,089) 23,095 5,301
Income taxes............................................ 833 (669) (1,872) (2,334) 182
-------- --------- --------- -------- ---------
Total adjustments................................... 42,849 50,733 74,311 24,283 16,238
-------- --------- --------- -------- ---------
Net cash provided by operating activities........... 94,667 91,802 82,453 26,425 5,394
-------- --------- --------- -------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (40,716) (35,696) (58,306) (17,151) (11,826)
Acquisition of businesses, net of cash acquired........... (14,488) (177,881) (4,306) (4,071) (34)
Investment in unconsolidated affiliates................... (1,476) (80) (50,709) -- --
Cash acquired in stock acquisition........................ 81 499 1,100 -- --
Other..................................................... 1,738 (416) 2,986 380 (716)
-------- --------- --------- -------- ---------
Net cash used in investing activities............... (54,861) (213,574) (109,235) (20,842) (12,576)
-------- --------- --------- -------- ---------
FINANCING ACTIVITIES:
Distributions to CPI partner.............................. (3,100) -- -- -- --
Proceeds from note issuance............................... -- 196,733 -- -- 291,200
Proceeds from senior credit facility...................... 80,000 158,000 192,000 4,000 18,000
Repayments of senior credit facility...................... (62,000) (165,000) (138,000) (14,000) (212,000)
Repayments of other long and short-term debt.............. (11,918) (33,750) (18,196) (42) (67,051)
7.74% senior notes prepayment penalty..................... -- -- -- -- (3,565)
Dividends paid............................................ (16,227) (17,995) (18,531) (4,570) (4,698)
Proceeds from issuances of stock.......................... 755 761 460 86 --
Purchases of stock........................................ (25,275) -- -- -- --
Other..................................................... (822) (816) (822) (216) (1,375)
-------- --------- --------- -------- ---------
Net cash (used in) provided by financing
activities........................................ (38,587) 137,933 16,911 (14,742) 20,511
-------- --------- --------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................................... 1,219 16,161 (9,871) (9,159) 13,329
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 1,391 2,610 18,771 18,771 8,900
-------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 2,610 $ 18,771 $ 8,900 $ 9,612 $ 22,229
======== ========= ========= ======== =========
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest................................ $ 15,048 $ 25,480 $ 35,136 $ 1,822 $ 7,092
======== ========= ========= ======== =========
Cash payments for income taxes............................ $ 23,844 $ 16,849 $ 9,575 $ 935 $ 628
======== ========= ========= ======== =========
Stock issued for acquisitions............................. $ 10,131 $ 17,963 $ 10,723 $ 5,303 $ 18,799
======== ========= ========= ======== =========
Note payable issued for acquisition....................... $ 26,000 $ -- $ -- $ -- $ --
======== ========= ========= ======== =========
The accompanying notes are an integral part of these consolidated statements.
F-6
139
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 AND MARCH 31, 2001
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Caraustar Industries, Inc. (the "Parent Company") and subsidiaries
(collectively, the "Company") are engaged in manufacturing, converting, and
marketing paperboard and related products.
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent
Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year presentation.
Cash and Cash Equivalents
The Company considers cash on deposit and investments with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are carried at the lower of cost or market. Cost includes
materials, labor and overhead. Market, with respect to all inventories, is
replacement cost. Substantially all inventories (approximately 96 percent and 97
percent at December 31, 1999 and 2000, respectively) are valued using the
first-in, first-out method. Reserves related to inventories valued using the
last-in, first-out method are not significant.
Inventories at December 31, 1999 and 2000 were as follows (in thousands):
1999 2000
------- --------
Raw materials and supplies.................................. $40,753 $ 66,106
Finished goods and work in process.......................... 49,017 44,240
------- --------
$89,770 $110,346
======= ========
Property, Plant and Equipment
Property, plant and equipment are stated at cost. When assets are retired
or otherwise disposed of, the related costs and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in income.
Expenditures for repairs and maintenance not considered to substantially
lengthen the asset lives are charged to expense as incurred.
For financial reporting purposes, depreciation is computed using both
straight-line and accelerated methods over the following estimated useful lives
of the assets:
Buildings and improvements.................................. 10-45 years
Machinery and equipment..................................... 3-20 years
Furniture and fixtures...................................... 5-10 years
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-7
140
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
issued by the Securities and Exchange Commission. Revenue is recognized at the
time product is shipped or title passes pursuant to the terms of the agreement
with the customer when the amount due from the customer is fixed and
collectibility of the related receivable is reasonably assured. The adoption of
SAB 101 did not have a material impact on the Company's financial statements.
Self-Insurance
The Company is self-insured for the majority of its workers' compensation
costs and group health insurance costs, subject to specific retention levels.
Consulting actuaries and administrators assist the Company in determining its
liability for self-insured claims, and such liabilities are not discounted.
Foreign Currency Translation
The financial statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Net assets
of the non-U.S. subsidiaries are translated at current rates of exchange. Income
and expense items are translated at the average exchange rate for the year. The
resulting translation adjustments are recorded in shareholders' equity. Certain
other translation adjustments and transaction gains and losses continue to be
reported in net income and were not material in any year.
Goodwill
Goodwill is amortized using the straight-line method over periods ranging
up to 40 years. The Company periodically evaluates goodwill for impairment. In
completing this evaluation, the Company estimates the future undiscounted cash
flows of the businesses to which goodwill relates in order to ensure that the
carrying amount of goodwill has not been impaired.
Income Per Share
The Company computes basic and diluted earnings per share in accordance
with SFAS No. 128, "Earnings Per Share." Basic income per share excludes
dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. The dilutive effect of stock options outstanding during 1998, 1999 and
2000 added 179,000, 121,000, and 9,000, respectively, to the weighted average
shares outstanding for purposes of calculating diluted income per share.
Comprehensive Income
Total comprehensive income (loss), consisting of net income (loss) plus
other nonowner changes in equity for the years ended December 31, 1998, 1999 and
2000 and March 31, 2001 (unaudited) was $50,360,000, $43,860,000, $7,923,000 and
($10,982,000), respectively. Accumulated other comprehensive loss at December
31, 1999 and 2000 and March 31, 2001 (unaudited) consisted of foreign currency
translation adjustments of $534,000, $753,000 and $891,000, respectively.
F-8
141
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 established
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It also requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement 133." This
statement deferred the effective date of SFAS No. 133 until the fiscal year
ending December 31, 2001. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities
(an Amendment of FASB No. 133)." This statement amends the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
hedging activities. The Company adopted SFAS No. 133, as amended, on January 1,
2001. This pronouncement did not have a material impact on the Company's
financial statements upon adoption.
Interim Unaudited Financial Information
The March 31, 2001 financial information included herein is unaudited;
however, such information reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. The results of operations for
the three months ended March 31, 2001 are not necessarily indicative of the
results to be expected for the full year.
2. SHAREHOLDERS' EQUITY
Preferred Stock
The Company has authorized 5,000,000 shares of $0.10 par value preferred
stock. The preferred stock is issuable from time to time in one or more series
and with such designations and preferences for each series as shall be stated in
the resolutions providing for the designation and issue of each such series
adopted by the board of directors of the Company. The board of directors is
authorized by the Company's articles of incorporation to determine the voting,
dividend, redemption, and liquidation preferences pertaining to each such
series. No shares of preferred stock have been issued by the Company.
Common Stock Purchase Plan
During 1998, the Company purchased and retired 1,043,000 shares of its
common stock pursuant to a plan authorized and approved by its board of
directors allowing purchases of up to 4,000,000 common shares. These purchases
were made in a series of open market transactions and privately negotiated
purchases at an aggregate cost of $25,413,000 at prices ranging from $21.25 to
$33.00 per share. There were no stock purchases in 1999 or 2000. The Company has
cumulatively purchased 3,169,000 shares since January 1996. The Company's board
of directors has authorized purchases of up to 831,000 additional shares.
3. ACQUISITIONS
Each of the following acquisitions is being accounted for under the
purchase method of accounting, applying the provisions of Accounting Principles
Board ("APB") Opinion No. 16. As a result, the Company recorded the assets and
liabilities of the acquired companies at their estimated fair value with the
excess of the purchase price over these amounts being recorded as goodwill.
Actual allocations of
F-9
142
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
goodwill and other identifiable assets will be based on further studies and may
change during the allocation period, generally one year following the date of
acquisition. The financial statements for the years ended December 31, 1998,
1999 and 2000 and the three-month periods ended March 31, 2000 and March 31,
2001 reflect the operations of the acquired businesses for the periods after
their respective dates of acquisition.
In March 1999, the Company acquired 67 percent of the outstanding stock of
Carolina Component Concepts Inc. ("CCC") in exchange for 225,000 shares of the
Company's common stock valued at approximately $6,000,000. As a result of this
transaction, the Company now owns 100 percent of CCC's common stock. CCC
operates a specialty converting facility located in Mooresville, North Carolina.
Goodwill of approximately $5,400,000 was recorded in connection with the
acquisition and is being amortized over 40 years.
In April 1999, the Company acquired the operating assets of International
Paper Company's Sprague boxboard mill for approximately $103,200,000 in cash
plus $4,700,000 of assumed debt. Sprague, located in Versailles, Connecticut,
produces clay-coated recycled boxboard used primarily in the manufacture of
folding cartons. Goodwill of approximately $7,100,000 was recorded in connection
with the acquisition and is being amortized over 40 years.
Also in April 1999, the Company acquired the assets and assumed certain
liabilities of Halifax Paper Board Company, Inc. ("Halifax") in exchange for
34,256 shares of the Company's common stock valued at $802,000 and repayment of
$5,560,000 of Halifax's debt. Halifax operates a paperboard mill in Roanoke
Rapids, North Carolina, which produces specialty paperboard and a specialty
paperboard converting plant whose operations were relocated to Greenville, South
Carolina. No goodwill was recorded in connection with this acquisition.
In June 1999, the Company acquired the assets and assumed certain
liabilities of Tenneco Packaging Inc.'s folding carton division for
approximately $72,700,000 in cash. The division consists of five folding carton
plants located in Mentor, Ohio; Grand Rapids, Michigan; St. Louis, Missouri;
Denver, Colorado; and Salt Lake City, Utah, and five sales and technical support
centers. Goodwill of approximately $900,000 was recorded in conjunction with the
acquisition and is being amortized over 40 years.
In September 1999, the Company acquired all of the outstanding stock of
Carolina Converting Inc. ("CCI") in exchange for 480,309 shares of the Company's
common stock valued at approximately $11,200,000 and repayment of $2,000,000 of
CCI's debt. CCI operates a specialty converting and packaging facility located
in Fayetteville, North Carolina. Goodwill of approximately $10,000,000 was
recorded in conjunction with the acquisition and is being amortized over 40
years.
In February 2000, the Company acquired all of the outstanding stock of
MilPak, Inc. in exchange for cash of $4,700,000 and 248,132 shares of the
Company's common stock valued at $4,700,000. MilPak operates a facility located
in Pine Brook, New Jersey, that provides blister packaging, cartoning and
labeling and other contract packaging services. Goodwill of approximately
$6,100,000 was recorded in connection with the acquisition and is being
amortized over 40 years.
In September 2000, the Company acquired all of the outstanding stock of
Arrow Paper Products Company in exchange for 342,743 shares of the Company's
common stock valued at $5,100,000. Arrow is located in Saginaw, Michigan and
operates two tube and core converting facilities that serve customers in the
automotive, film, housewares and other specialty tube and core markets. Goodwill
of approximately $4,100,000 was recorded in connection with the acquisition and
is being amortized over 40 years.
In October 2000, the Company acquired 100 percent of the membership
interests in Crane Carton Company, LLC in exchange for 1,659,790 shares of the
Company's common stock valued at $19,000,000 plus $5,800,000 of assumed debt.
Crane operates a single folding carton manufacturing facility located in
F-10
143
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
suburban Chicago, Illinois. Goodwill of approximately $4,700,000 was recorded in
connection with the acquisition and is being amortized over 40 years.
The following unaudited pro forma financial information assumes that the
above acquisitions occurred on January 1, 1999. These results have been prepared
for comparative purposes only and do not purport to be indicative of what would
have resulted had the acquisitions occurred on January 1, 1999 or the results
that may occur in the future (in thousands, except per share data):
1999 2000
---------- --------
Net sales................................................... $1,013,732 $998,310
Net income.................................................. 40,158 8,878
Diluted income per common share............................. 1.44 0.33
4. EQUITY INTEREST IN UNCONSOLIDATED AFFILIATES
On April 1, 1996, the Company transferred substantially all of the
operating assets and liabilities of its wholly owned subsidiary, Standard Gypsum
Corporation, a producer of gypsum wallboard, to a newly formed limited liability
company, Standard Gypsum, L.P. ("Standard"). Simultaneous with the formation of
Standard, the Company sold a 50 percent interest in Standard to Temple-Inland
Forest Products Corporation ("Temple"), an unrelated third party, for
$10,800,000 in cash. Standard is operated as a joint venture managed by Temple.
The Company accounts for its interest in Standard under the equity method of
accounting. The Company's equity interest in the earnings of Standard for the
years ended December 31, 1998, 1999 and 2000 was $1,703,000, $4,343,000 and
$9,218,000, respectively. During April 1998, Standard entered into a loan
agreement with a financial institution for credit facilities in an amount not to
exceed $61,000,000. Proceeds of the new credit facility were used to fund the
construction of a green field gypsum wallboard plant in Cumberland City,
Tennessee, which began operation in the fourth quarter of 1999. During 1999,
Standard received financing from two industrial revenue bond issuances by
Stewart County, Tennessee, totaling $56,200,000. The proceeds of the bond
issuances were used to pay off the borrowings under the credit facility and fund
the remaining construction of the plant. The Company received distributions
based on its equity interest in Standard of $1,500,000, $1,000,000 and
$13,500,000 in 1998, 1999 and 2000, respectively. In addition, the Company
guarantees one-half of Standard's credit facility. At December 31, 2000, the
Company's portion of this guaranteed debt totaled approximately $28,100,000. The
Company's guarantee of the Standard credit facility contains financial
maintenance covenants, and the Standard credit facility contains a cross-default
to these covenants. At December 31, 2000, the Company was not in compliance with
certain financial maintenance covenants (Note 5), and the Standard credit
facility was in default based on this cross-default. Waivers for the Company's
noncompliance with the financial maintenance covenants and the related
cross-default were received from Standard's lenders, and the financial
maintenance covenants were amended on a going-forward basis.
Summarized financial information for Standard at December 31, 1999 and 2000
and for the years ended December 31, 1998, 1999 and 2000, respectively, is as
follows (in thousands):
1999 2000
------- -------
Current assets.............................................. $25,960 $16,886
Noncurrent assets........................................... 76,920 72,523
Current liabilities......................................... 7,270 6,149
Noncurrent liabilities...................................... 56,274 56,208
F-11
144
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 1999 2000
------- ------- -------
Net sales................................................. $38,711 $55,875 $84,437
Gross profit.............................................. 12,315 25,307 24,729
Operating income.......................................... 8,819 19,337 18,176
Net income................................................ 8,638 18,128 14,716
During 1999, the Company formed a joint venture with Temple to own and
operate a containerboard mill located in Newport, Indiana. Upon formation, the
joint venture, Premier Boxboard Limited LLC ("PBL"), undertook a $82,000,000
project to modify the mill to enable it to produce a new lightweight gypsum
facing paper along with other containerboard grades. PBL is operated as a joint
venture managed by the Company. The modified mill began operations on June 27,
2000. The Company and Temple each have a 50 percent interest in the joint
venture, which is being accounted for under the equity method of accounting.
There were no distributions in 1999 and 2000, respectively. Expenses related to
the joint venture were not material in 1999. The Company's equity interest in
the net loss of PBL for 2000 was approximately $740,000.
Under the joint venture agreement, the Company contributed $50,000,000 to
the joint venture during the second quarter of 2000 and Temple contributed the
net assets of the mill, and received $50,000,000 in notes issued by PBL. In
addition, the Company has guaranteed one-half of a revolving line of credit
obtained by PBL. At December 31, 2000, the Company's portion of this guaranteed
debt totaled approximately $15,000,000. The Company's guarantee of PBL's
revolving line of credit contains financial maintenance covenants, and PBL's
revolving line of credit contains a cross-default to these covenants. At
December 31, 2000, the Company was not in compliance with certain financial
maintenance covenants (Note 5), and the PBL line of credit was in default based
on this cross-default. Waivers for the Company's non-compliance with the
financial maintenance covenants and the related cross-default were received from
PBL's lender, and the financial maintenance covenants were amended on a
going-forward basis.
In addition, the default under the PBL line of credit caused a
cross-default under the $50,000,000 notes issued by PBL. The holders of these
notes have waived this cross-default.
Summarized financial information for PBL at December 31, 2000 and for the
year then ended is as follows (in thousands):
2000
--------
Current assets.............................................. $ 9,839
Noncurrent assets........................................... 174,675
Current liabilities......................................... 5,075
Noncurrent liabilities...................................... 80,000
Net sales................................................... 33,722
Gross profit................................................ 5,310
Operating income............................................ 961
Net loss.................................................... (1,481)
5. SENIOR CREDIT FACILITY AND OTHER LONG TERM DEBT
The Company has a $400,000,000 five-year bank senior credit facility that
matures in July 2002. Interest under the senior credit facility is computed
using the Company's choice of (a) the Eurodollar rate plus a margin or (b) the
higher of (i) the federal funds rate plus a margin or (ii) the bank's prime
lending rate. Currently, the interest margin above the Eurodollar rate is
computed on the basis of the Company's consolidated leverage ratio. As of
December 31, 1999 and 2000, borrowings of $140,000,000 and $194,000,000,
respectively, were outstanding under the senior credit facility at weighted
average
F-12
145
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest rates of 6.45 percent and 7.27 percent, respectively. As of December
31, 2000, the Company was not in compliance with certain covenants that the
lenders waived through the first quarter of 2001.
Additionally, at December 31, 1999 and 2000, other long-term debt consisted
of the following (in thousands):
1999 2000
-------- --------
7 3/8 percent senior notes.................................. $198,691 $198,791
7.74 percent senior notes................................... 82,750 66,200
Other notes payable......................................... 4,913 9,081
-------- --------
$286,354 $274,072
======== ========
During 1998, the Company registered with the Securities and Exchange
Commission a total of $300,000,000 in public debt securities for issuance in one
or more series and with such specific terms as to be determined from time to
time. On June 1, 1999, the Company issued $200,000,000 in aggregate principal
amount of its 7 3/8 percent notes due June 1, 2009. The 7 3/8 percent notes were
issued at a discount to yield an effective interest rate of 7.473 percent and
pay interest semiannually. The 7 3/8 percent notes are unsecured obligations of
the Company. Proceeds, net of the issuance discount and after deducting
underwriting and other costs, were $196,733,000 and were largely used to repay
revolving credit loans.
The senior notes dated October 8, 1992 (the "Notes") are payable to an
insurance company in five equal annual installments of $16,550,000, the first of
which was paid on October 8, 2000. Interest on the Notes accrues at 7.74 percent
and is payable semiannually. The Notes also provide for optional prepayments, in
whole or in part, with a penalty, as defined, during specified periods.
The Notes and senior credit facility contain certain restrictive covenants
on the part of the Company, including (but not limited to) the acquisition of or
investment in businesses, sales of assets, incurrence of additional
indebtedness, capital expenditures, maintenance of certain leverage and interest
coverage ratios (as defined), investments and minimum working capital
requirements. As of December 31, 2000, the Company was not in compliance with
certain covenants that the lenders waived through the first quarter of 2001.
On March 22, 2001, the Company obtained commitments and executed an
agreement for the issuance of $285,000,000 of 9 7/8% senior subordinated notes
due April 1, 2011 and $29,000,000 of 7 1/4% senior notes due May 1, 2010
(collectively, the "subsequent financing"). These senior subordinated notes and
senior notes will each be issued at a discount to yield effective interest rates
of 10.5 percent and 9.4 percent, respectively. Under the terms of the agreement,
the Company will receive aggregate proceeds, net of issuance costs, of
approximately $291,350,000 prior to March 31, 2001. Proceeds from the subsequent
financing will be used primarily to repay borrowings outstanding under the
senior credit facility and the Notes. In connection with the repayment of the
Notes, the Company will incur a prepayment penalty of approximately $3,600,000.
The subsequent financing will be unconditionally guaranteed, jointly and
severally, by all of the Company's subsidiaries, except for one domestic
subsidiary that is not wholly owned and the Company's foreign subsidiaries. The
non-guarantor subsidiaries, individually and in the aggregate, are deemed by
management to be minor in respect to the Company's total assets, shareholders'
equity, revenues and income from continuing operations before income taxes.
As of December 31, 2000, the Company has classified amounts due under the
senior credit facility and the Notes as long-term based on the subsequent
financing. Aggregate maturities of long-term debt at
F-13
146
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000 based upon contractual maturity schedules, adjusted for the
subsequent financing, are as follows (in thousands):
2001........................................................ $ 1,259
2002........................................................ 350
2003........................................................ 350
2004........................................................ 350
2005........................................................ 350
Thereafter.................................................. 271,413
--------
$274,072
========
6. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain buildings, machinery, and transportation
equipment under operating lease agreements expiring at various dates through
2022. Certain rental payments for transportation equipment are based on a fixed
rate plus an additional amount for mileage. Rental expense on operating leases
for the years ended December 31, 1998, 1999 and 2000 is as follows (in
thousands):
1998 1999 2000
------ ------- -------
Minimum rentals............................................. $9,209 $11,698 $13,026
Contingent rentals.......................................... 326 377 347
------ ------- -------
$9,535 $12,075 $13,373
====== ======= =======
The following is a schedule of future minimum rental payments required
under leases that have initial or remaining noncancelable lease terms in excess
of one year as of December 31, 2000 (in thousands):
2001........................................................ $12,480
2002........................................................ 9,594
2003........................................................ 6,291
2004........................................................ 4,102
2005........................................................ 3,575
Thereafter.................................................. 16,283
-------
$52,325
=======
Litigation
On August 16, 2000, the Company filed suit against a significant customer
in Mecklenburg County, North Carolina, over the customer's refusal to continue
purchasing gypsum facing paper pursuant to the terms of a long-term supply
contract between the Company and the customer. The complaint seeks damages in
excess of $100.0 million. In October 2000, the complaint was amended to request
an injunction requiring the customer to specifically perform its obligation
under the supply contract. The specific performance claim was dismissed in
January 2001, and the case is proceeding on the damages claim.
On September 1, 2000, the customer filed a separate action in the Superior
Court of Fulton County, Georgia, seeking a declaratory judgment in support of
the customer's interpretation of the contract. On December 22, 2000, the action
was stayed pending final resolution of the action filed by the Company in North
Carolina.
F-14
147
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company intends to vigorously pursue the North Carolina action, but can
give no assurance as to the timing or outcome of the litigation. Based on the
nature of litigation generally, and the course of developments to date,
management can give no assurance that a resolution will be reached in the near
future. The Company believes that the loss of the contract volume with the
customer will continue to have a material impact on the consolidated results of
operations.
See Note 14 "Subsequent Events (Unaudited)" for an update on the status of
this pending litigation.
The Company is involved in certain other litigation arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse effect on the Company's financial
condition or results of operations.
7. STOCK OPTION AND DEFERRED COMPENSATION PLANS
Director Equity Plan
During 1996, the Company's board of directors approved a director equity
plan. Under the plan, directors who are not employees or former employees of the
Company ("Eligible Directors") are paid a portion of their fees in the Company's
common stock. Additionally, each Eligible Director is granted an option to
purchase 1,000 shares of the Company's common stock at an option price equal to
the fair market value at the date of grant. These options are immediately
exercisable and expire ten years following the grant. A maximum of 100,000
shares of common stock may be granted under this plan. During 1998, 1999 and
2000, 2,077, 2,930 and 4,171 shares, respectively, of common stock and options
to purchase 6,000 shares of common stock were issued under this plan in each
year.
Incentive Stock Option and Bonus Plans
During 1992, the Company's board of directors approved a qualified
incentive stock option and bonus plan (the "1993 Plan"), which became effective
January 1, 1993 and terminated December 31, 1997. Under the provisions of the
1993 Plan, selected members of management received one share of common stock
("bonus share") for each two shares purchased at market value. In addition, the
1993 Plan provided for the issuance of options at prices not less than market
value at the date of grant. The options and bonus shares awarded under the 1993
Plan are subject to four-year and five-year respective vesting periods. The
Company's board of directors authorized 1,400,000 common shares for grant under
the 1993 Plan. During 1997, the Company issued 189,215 qualified incentive stock
options under the 1993 Plan. Compensation expense of approximately $457,000,
$336,000 and $246,000 related to bonus shares was recorded in 1998, 1999 and
2000, respectively.
During 1998, the Company's board of directors approved a qualified
incentive stock option and bonus plan (the "1998 Plan"), which became effective
March 10, 1998. Under the provisions of the 1998 Plan, selected members of
management may receive the right to acquire one share of restricted stock
contingent upon the direct purchase of two shares of unrestricted common stock
at market value. In addition, the 1998 Plan provides for the issuance of both
traditional and performance stock options at market price and 120 percent of
market price, respectively. Restricted stock and options awarded under the 1998
Plan are subject to five-year vesting periods. The Company's board of directors
authorized 3,800,000 common shares for grant under the 1998 Plan. During 1998,
1999 and 2000, the Company issued 235,404, 363,728 and 784,621 options,
respectively, under the 1998 Plan. During 1998, 1999 and 2000, the Company
issued 1,202, 9,374 and 10,699 shares, respectively, of restricted stock. The
Company recorded approximately $0, $20,000 and $105,000 of compensation expense
related to the issuance of restricted stock during 1998, 1999 and 2000,
respectively.
F-15
148
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity for the years ended December 31, 1998,
1999 and 2000 is as follows:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at December 31, 1997............................ 720,638 $19.27
Granted................................................... 241,404 35.60
Forfeited................................................. (6,215) 24.89
Exercised................................................. (34,204) 17.53
--------- ------
Outstanding at December 31, 1998............................ 921,623 23.57
Granted................................................... 369,728 27.18
Forfeited................................................. (22,450) 31.20
Exercised................................................. (45,756) 11.98
--------- ------
Outstanding at December 31, 1999............................ 1,223,145 24.95
Granted................................................... 790,621 17.06
Forfeited................................................. (46,853) 26.26
Exercised................................................. (90,420) 4.76
--------- ------
Outstanding at December 31, 2000............................ 1,876,493 $22.57
========= ======
Options exercisable at:
December 31, 1998......................................... 464,844 $16.20
December 31, 1999......................................... 566,867 19.55
December 31, 2000......................................... 833,579 20.96
Summary information about the Company's stock options outstanding at
December 31, 2000 is as follows:
OUTSTANDING EXERCISABLE
AT WEIGHTED WEIGHTED AT WEIGHTED
RANGE OF DECEMBER 31, AVERAGE AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICE 2000 REMAINING LIFE EXERCISE PRICE 2000 EXERCISE PRICE
- -------------- ------------ -------------- -------------- ------------ --------------
(IN YEARS)
$ 9.38 -- $16.88................. 325,023 6.5 $11.90 304,023 $11.89
17.75 -- 23.75................. 796,141 7.3 19.54 219,921 19.50
24.44 -- 29.75................. 276,470 7.8 25.82 74,678 25.93
30.13 -- 40.80................. 478,859 6.4 32.96 234,957 32.48
- ------------------ ------------ --------- ---------- ----------- ----------
$ 9.38 -- $40.80................. 1,876,493 7.0 $22.57 833,579 $20.96
An accrual of approximately $254,000 related to the outstanding stock
options is included in deferred compensation in the accompanying balance sheet
at December 31, 1999.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company accounts for the director equity plan and the incentive stock option
and bonus plans under APB Opinion No. 25; however, the Company has computed for
pro forma disclosure purposes the value of all options granted during 1998, 1999
and 2000 using the Black-Scholes option pricing model as prescribed by SFAS No.
123 using the following weighted average assumptions for grants in 1998, 1999
and 2000:
1998 1999 2000
------------- ------------- -------------
Risk-free interest rate............ 4.68% -- 5.76% 5.09% -- 6.18% 5.18% -- 6.84%
Expected dividend yield............ 1.87% -- 2.97% 2.72% -- 2.92% 4.01% -- 7.68%
Expected option lives.............. 8-10 years 8-10 years 8-10 years
Expected volatility................ 30% 30% 40%
F-16
149
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total values of the options granted during the years ended December 31,
1998, 1999 and 2000 were computed to be approximately $2,577,000, $2,600,000 and
$3,681,000, respectively, which would be amortized over the vesting period of
the options. If the Company had accounted for these plans in accordance with
SFAS No. 123, the Company's reported and pro forma net income and net income per
share for the years ended December 31, 1998, 1999 and 2000 would have been as
follows (in thousands, except per share data):
1998 1999 2000
------- ------- ------
Net income:
As reported.............................................. $51,818 $41,069 $8,142
Pro forma................................................ 51,022 39,975 6,595
Diluted income per common share:
As reported.............................................. $ 2.04 $ 1.63 $ 0.31
Pro forma................................................ 2.01 1.59 0.25
Deferred Compensation Plans
The Parent Company and certain of its subsidiaries have deferred
compensation plans for several of their present and former officers and key
employees. These plans provide for retirement, involuntary termination, and
death benefits. The involuntary termination and retirement benefits are accrued
over the period of active employment from the execution dates of the plans to
the normal retirement dates (age 65) of the employees covered. Deferred
compensation expense applicable to the plans was approximately $324,000,
$292,000, and $227,000 for the years ended December 31, 1998, 1999 and 2000,
respectively. Accruals of approximately $2,644,000 and $2,096,000 related to
these plans are included in deferred compensation in the accompanying balance
sheets at December 31, 1999 and 2000, respectively.
8. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Pension Plan and Supplemental Executive Retirement Plan
Substantially all of the Company's employees participate in a
noncontributory defined benefit pension plan (the "Pension Plan"). The Pension
Plan calls for benefits to be paid to all eligible employees at retirement based
primarily on years of service with the Company and compensation rates in effect
near retirement. The Pension Plan's assets consist of shares held in collective
investment funds and group annuity contracts. The Company's policy is to fund
benefits attributed to employees' service to date as well as service expected to
be earned in the future. Contributions to the Pension Plan totaled approximately
$4,784,000, $5,526,000, and $5,116,000 in 1998, 1999 and 2000, respectively.
Effective December 31, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits." The provisions of
SFAS No. 132 revise employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 does not change the measurement or
recognition of these plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits.
During 1996, the Company adopted a supplemental executive retirement plan
("SERP"), which provides benefits to participants based on average compensation.
The SERP covers certain executives of the Company commencing upon retirement.
The SERP is unfunded at December 31, 2000.
F-17
150
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense for the Pension Plan and the SERP includes the following
components for the years ended December 31, 1998, 1999 and 2000 (in thousands):
1998 1999 2000
------- ------- -------
Service cost of benefits earned........................... $ 2,569 $ 3,236 $ 3,628
Interest cost on projected benefit obligation............. 3,281 3,649 4,422
Actual loss (gain) on plan assets......................... (5,293) (8,485) 844
Net amortization and deferral............................. 2,832 5,219 (5,781)
------- ------- -------
Net pension expense....................................... $ 3,389 $ 3,619 $ 3,113
======= ======= =======
The table below represents a reconciliation of the funded status of the
Pension Plan and the SERP to prepaid (accrued) pension cost as of December 31,
1999 and 2000 (in thousands):
SERP PENSION PLAN
----------------- -----------------
1999 2000 1999 2000
------- ------- ------- -------
Change in benefit obligation:
Projected benefit obligation at end of prior year....... $ 2,320 $ 2,814 $48,558 $52,354
Service cost......................................... 123 133 3,113 3,495
Interest cost........................................ 190 236 3,459 4,187
Actuarial loss (gain)................................ 181 267 (1,738) 2,510
Plan amendments...................................... -- -- 786 --
Acquisitions......................................... -- -- 1,282 --
Benefits paid........................................ -- -- (3,106) (3,310)
------- ------- ------- -------
Projected benefit obligation at end of year............. 2,814 3,450 52,354 59,236
------- ------- ------- -------
Change in plan assets:
Fair value of plan assets at end of prior year.......... -- -- 43,196 55,106
Actual return on plan assets......................... -- -- 8,485 (844)
Employer contributions............................... -- -- 5,526 5,116
Benefits paid........................................ -- -- (3,106) (3,310)
Acquisitions......................................... -- -- 1,005 --
------- ------- ------- -------
Fair value of plan assets at end of year................ -- -- 55,106 56,068
------- ------- ------- -------
Funded status of the plans................................ (2,814) (3,450) 2,752 (3,168)
Unrecognized transition obligation........................ 1,366 1,252 -- --
Unrecognized prior service cost........................... -- -- 1,168 913
Unrecognized net loss..................................... 307 549 1,338 10,026
------- ------- ------- -------
(Accrued) prepaid pension cost before minimum pension
liability adjustment.................................... $(1,141) $(1,649) $ 5,258 $ 7,771
======= ======= ======= =======
Other comprehensive income:
Increase (decrease) in intangible asset................. $ 55 $ 55 $ (695) $ --
(Increase) decrease in additional minimum pension
liability............................................ (55) (55) 3,572 --
------- ------- ------- -------
Other comprehensive income................................ $ -- $ -- $ 2,877 $ --
======= ======= ======= =======
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability for its underfunded plans representing the excess of
unfunded accumulated benefit obligations over previously recorded pension
liabilities. The cumulative additional liability totaled $1,076,000 and
$1,130,000 at December 31, 1999 and 2000, respectively, and has been offset by
intangible assets to the extent of previously unrecognized prior service costs.
Amounts in excess of previously unrecognized prior service cost are recorded as
reductions in shareholders' equity.
F-18
151
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension expense and projected benefit obligations are calculated using
assumptions of weighted average discount rates, future compensation levels, and
expected long-term rates of return on assets. The weighted average discount rate
used to measure the projected benefit obligation at December 31, 1999 and 2000
is 7.5 percent and 7.75 percent, respectively, the rate of increase in future
compensation levels is 3.0 percent at December 31, 1999 and 2000, and the
expected long-term rate of return on assets is 9.5 percent.
Other Postretirement Benefits
The Company provides postretirement medical benefits at certain of its
subsidiaries. The Company accounts for these postretirement medical benefits in
accordance with SFAS No. 132.
Net periodic postretirement benefit cost for the years ended December 31,
1998, 1999 and 2000 included the following components (in thousands):
1998 1999 2000
---- ---- ----
Service cost of benefits earned............................. $ 94 $107 $108
Interest cost on accumulated postretirement benefit
obligation................................................ 291 306 389
---- ---- ----
Net periodic postretirement benefit cost.................... $385 $413 $497
==== ==== ====
Postretirement benefits totaling $544,000, $550,000 and $683,000 were paid
during 1998, 1999 and 2000, respectively.
The accrued postretirement benefit cost as of December 31, 1999 and 2000
consists of the following (in thousands):
1999 2000
------- -------
Change in benefit obligation:
Projected benefit obligation at end of prior year......... $ 3,898 $ 4,656
Service cost........................................... 107 108
Interest cost.......................................... 306 389
Actuarial loss......................................... 611 189
Acquisition............................................ -- 575
Special termination benefits........................... 284 --
Benefits paid.......................................... (550) (683)
------- -------
Projected benefit obligation at end of year............... $ 4,656 $ 5,234
======= =======
Funded status............................................... $(4,656) $(5,234)
Unrecognized net loss....................................... 830 966
------- -------
Net amount recognized....................................... $(3,826) $(4,268)
======= =======
The accumulated postretirement benefit obligations at December 31, 1999 and
2000 were determined using a weighted average discount rate of 7.5 percent. The
rate of increase in the costs of covered health care benefits is assumed to be
6.0 percent in 2001, gradually decreasing to 5.0 percent by the year 2002.
Increasing the assumed health care costs trend rate by one percentage point
would increase the accumulated postretirement benefit obligation as of December
31, 2000 by approximately $970,000 and would increase net periodic
postretirement benefit cost by approximately $86,000 for the year ended December
31, 2000.
F-19
152
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method of
accounting for deferred income taxes.
The provision for income taxes for the years ended December 31, 1998, 1999
and 2000 consisted of the following (in thousands):
1998 1999 2000
------- ------- ------
Current:
Federal.................................................. $19,444 $11,063 $2,650
State.................................................... 2,950 3,081 3,056
------- ------- ------
22,394 14,144 5,706
Deferred................................................... 8,076 9,072 (239)
------- ------- ------
$30,470 $23,216 $5,467
======= ======= ======
The principal differences between the federal statutory tax rate and the
provision for income taxes for the years ended December 31, 1998, 1999 and 2000
are as follows:
1998 1999 2000
---- ---- ----
Federal statutory tax rate.................................. 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit..................... 2.7 2.7 2.4
Other....................................................... (0.7) (1.6) 2.3
---- ---- ----
Effective tax rate.......................................... 37.0% 36.1% 39.7%
==== ==== ====
Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1999 and 2000 are summarized as follows (in
thousands):
1999 2000
-------- --------
Deferred income tax assets:
Deferred employee benefits................................ $ 1,258 $ 1,258
Postretirement benefits other than pension................ 1,084 879
Accounts receivable....................................... 602 602
Insurance................................................. 2,121 2,121
Tax loss carry forwards and credits....................... 4,936 15,484
Inventories............................................... 1,636 2,010
Other..................................................... 3,006 3,006
-------- --------
Total deferred income tax assets.................. 14,643 25,360
-------- --------
Deferred income tax liabilities:
Depreciation and amortization............................. (54,439) (63,866)
Asset revaluation......................................... (3,846) (3,846)
Postemployment benefits................................... (1,441) (2,190)
Losses on contractual sales commitments................... (428) (1,578)
Other..................................................... (9) (9)
-------- --------
Total deferred income tax liabilities............. (60,163) (71,489)
-------- --------
Valuation allowance......................................... (3,633) (4,308)
-------- --------
$(49,153) $(50,437)
======== ========
F-20
153
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2000, the Company has a federal tax loss of
approximately $4,112,000, which will be carried back to the 1998 tax year. The
Company also has state net operating losses of $6,282,000, which will expire in
varying amounts between 2004 and 2020. The Company has a valuation allowance of
$2,057,000 at December 31, 2000 for estimated future impairment related to the
state net operating losses. The Company also has a federal alternative minimum
tax credit carryforward of $2,650,000, which has an unlimited carryforward life.
The Company also has state tax credit carryforwards of approximately $2,440,000,
which will expire in varying amounts between 2004 and 2015. The Company recorded
a valuation allowance of $2,251,000 at December 31, 2000 for estimated future
impairment related to the state tax credits.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data for the
periods indicated (in thousands, except per share data):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
2000:
Net sales................................... $248,553 $255,079 $236,731 $223,068
Gross profit................................ 54,137 56,796 47,822 45,104
Net income (loss)........................... 2,142 9,467 (2,561) (906)
Diluted income (loss) per common share...... $ 0.08 $ 0.37 $ (0.10) $ (0.03)
1999:
Net sales................................... $187,565 $212,456 $241,292 $248,776
Gross profit................................ 48,776 51,305 53,277 53,155
Net income.................................. 11,415 10,316 10,055 9,283
Diluted income per common share............. $ 0.46 $ 0.41 $ 0.40 $ 0.36
11. SEGMENT INFORMATION
The Company operates principally in three business segments organized by
products. The paperboard segment consists of facilities that manufacture 100
percent recycled uncoated and clay-coated paperboard and facilities that collect
recycled paper and broker recycled paper and other paper rolls. The tube, core,
and composite container segment is principally made up of facilities that
produce spiral and convolute-wound tubes, cores, and cans. The carton and custom
packaging segment consists of facilities that produce printed and unprinted
folding and set-up cartons and facilities that provide contract manufacturing
and contract packaging services. Intersegment sales are recorded at prices that
approximate market prices. Sales to external customers located in foreign
countries accounted for approximately 7.8 percent, 6.7 percent, and 6.7 percent
of the Company's sales for 1998, 1999 and 2000, respectively.
Operating income includes all costs and expenses directly related to the
segment involved. Corporate expenses include corporate, general, administrative,
and unallocated information systems expenses.
Identifiable assets are accumulated by facility within each business
segment. Corporate assets consist primarily of cash and cash equivalents;
refundable income taxes; property, plant, and equipment; and investments in
unconsolidated affiliates.
F-21
154
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents certain business segment information for the
years ended December 31, 1998, 1999 and 2000 (in thousands):
1998 1999 2000
-------- ---------- ----------
Net sales (aggregate):
Paperboard........................................ $419,421 $ 505,608 $ 532,732
Tube, core, and composite container............... 254,096 257,642 269,322
Carton and custom packaging....................... 178,464 251,672 303,553
-------- ---------- ----------
Total..................................... $851,981 $1,014,922 $1,105,607
======== ========== ==========
Less net sales (intersegment):
Paperboard........................................ $112,581 $ 120,465 $ 136,796
Tube, core, and composite container............... 2,315 3,877 4,389
Carton and custom packaging....................... 227 491 991
-------- ---------- ----------
Total..................................... $115,123 $ 124,833 $ 142,176
======== ========== ==========
Net sales (external customers):
Paperboard........................................ $306,840 $ 385,143 $ 395,936
Tube, core, and composite container............... 251,781 253,765 264,933
Carton and custom packaging....................... 178,237 251,181 302,562
-------- ---------- ----------
Total..................................... $736,858 $ 890,089 $ 963,431
======== ========== ==========
Operating income:
Paperboard (A).................................... $ 79,281 $ 58,882 $ 28,477
Tube, core, and composite container............... 18,477 20,715 18,483
Carton and custom packaging....................... 8,053 13,010 8,622
-------- ---------- ----------
105,811 92,607 55,582
Corporate expense (B)............................... (10,930) (11,878) (13,768)
-------- ---------- ----------
Operating income.................................... 94,881 80,729 41,814
Interest expense.................................... (16,072) (25,456) (34,063)
Interest income..................................... 334 603 412
Equity in income of unconsolidated affiliates....... 4,308 9,224 6,533
Other, net.......................................... (433) (459) (918)
-------- ---------- ----------
Income before income taxes and minority interest.... 83,018 64,641 13,778
Minority interest................................... (730) (356) (169)
Provision for income taxes.......................... 30,470 23,216 5,467
-------- ---------- ----------
Net income..................................... $ 51,818 $ 41,069 $ 8,142
======== ========== ==========
Identifiable assets:
Paperboard........................................ $294,480 $ 456,343 $ 429,646
Tube, core, and composite container............... 127,852 126,994 134,069
Carton and custom packaging....................... 171,244 241,688 274,138
Corporate......................................... 25,221 53,618 94,974
-------- ---------- ----------
Total..................................... $618,797 $ 878,643 $ 932,827
======== ========== ==========
F-22
155
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 1999 2000
-------- ---------- ----------
Depreciation and amortization:
Paperboard........................................ $ 21,185 $ 31,410 $ 36,623
Tube, core, and composite container............... 7,808 7,580 7,196
Carton and custom packaging....................... 9,250 12,657 15,531
Corporate......................................... 462 1,094 1,508
-------- ---------- ----------
Total..................................... $ 38,705 $ 52,741 $ 60,858
======== ========== ==========
Capital expenditures, excluding acquisitions of
businesses:
Paperboard........................................ $ 26,382 $ 23,745 $ 28,953
Tube, core, and composite container............... 6,966 4,550 12,274
Carton and custom packaging....................... 6,415 5,305 15,495
Corporate......................................... 953 2,096 1,584
-------- ---------- ----------
Total..................................... $ 40,716 $ 35,696 $ 58,306
======== ========== ==========
- ---------------
(A) Results for 2000 include charges to operations of $6,913,000 and $8,564,000
for restructuring costs related to the closing of the Baltimore, Maryland
and Camden, New Jersey paperboard mills, respectively. Both of these were
related to the paperboard segment and are reflected in the segment's
operating income. (Note 12)
(B) Results for 2000 include a nonrecurring charge of $1,300,000 related to the
settlement of a dispute over abandoned property.
F-23
156
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents certain business segment information for the
three-month periods ended March 31, 2000 and 2001 (in thousands, unaudited):
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 2001
-------- --------
Net sales (external customers):
Paperboard................................................ $107,078 $ 74,552
Tube, core and composite container........................ 64,981 64,951
Carton and custom packaging............................... 76,494 80,599
-------- --------
Total............................................. $248,553 $220,102
======== ========
Net sales (intersegment):
Paperboard................................................ $ 33,329 $ 35,643
Tube, core and composite container........................ 1,046 1,002
Carton and custom packaging............................... 167 135
-------- --------
Total............................................. $ 34,542 $ 36,780
======== ========
Operating (loss) income:
Paperboard (A)............................................ $ 5,074 $ (212)
Tube, core and composite container........................ 4,387 3,028
Carton and custom packaging (B)........................... 2,519 (1,008)
-------- --------
Total............................................. $ 11,980 $ 1,808
======== ========
Corporate expense........................................... $ (3,246) $ (3,943)
-------- --------
Operating (loss) income..................................... 8,734 (2,135)
Interest expense.......................................... (7,787) (9,210)
Interest income........................................... 174 88
Equity in (loss) income of unconsolidated affiliates...... 2,910 (1,585)
Other (net)............................................... (68) 278
-------- --------
(Loss) income before income taxes, minority interest and
extraordinary loss........................................ $ 3,963 $(12,564)
======== ========
- ---------------
(A)Results for 2000 include charges to operations of $6,913,000 for
restructuring costs related to the closing of the Baltimore, Maryland
paperboard mill. Results for 2001 include charges to operations of $4,447,000
for restructuring costs related to the closing of the Chicago, Illinois
paperboard mill. Both of these were related to the paperboard segment and are
reflected in the segment's operating (loss) or income. (Notes 12 and 14)
(B)Results for 2001 include charges to operations of $2,636,000 related to the
consolidation of the operations of the Salt Lake City, Utah carton plant into
the Denver, Colorado carton plant. These costs were related to the carton and
custom packaging segment and are reflected in the segment's operating (loss)
or income. (Note 14)
12. RESTRUCTURING AND OTHER NONRECURRING COSTS
In February 2000, the Company initiated a plan to close its paperboard mill
located in Baltimore, Maryland and recorded a charge to operations of
approximately $6,913,000. The plan to close the mill was adopted in conjunction
with the Company's ongoing efforts to increase manufacturing efficiency and
reduce costs in its mill system. The $6,913,000 charge included a $5,696,000
noncash asset impairment charge to write down machinery and equipment to net
realizable value. The charge also included a $604,000 accrual
F-24
157
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for severance and termination benefits for 21 salaried and 83 hourly employees
terminated in connection with this plan and a $613,000 accrual for post closing
exit costs. As of December 31, 2000, one employee remained to assist in
marketing the land and building. The Company will complete the exit plan upon
the sale of the property, which is anticipated to occur during 2001. The Company
does not expect the mill closure to have a material impact on future operations.
The following is a summary of this restructuring activity from plan
adoption to December 31, 2000:
SEVERANCE
AND OTHER
ASSET TERMINATION OTHER EXIT
IMPAIRMENT BENEFITS COSTS TOTAL
---------- ----------- ---------- -----------
2000 provision.......................... $5,696,000 $ 604,000 $ 613,000 $ 6,913,000
Noncash............................... 5,696,000 0 0 5,696,000
---------- --------- --------- -----------
Cash.................................. 0 604,000 613,000 1,217,000
2000 cash activity...................... 0 (604,000) (613,000) (1,217,000)
---------- --------- --------- -----------
Balance as of December 31, 2000......... $ 0 $ 0 $ 0 $ 0
========== ========= ========= ===========
In September 2000, the Company initiated a plan to close its paperboard
mill located in Camden, New Jersey and recorded a pretax charge of approximately
$8,564,000. The mill experienced a slowdown in gypsum facing paper shipments
during the third quarter of 2000, and the shut down was precipitated by the
refusal of the Company's largest gypsum facing paper customer to continue
purchasing facing paper under a long-term supply agreement. The $8,564,000
charge included a $7,038,000 noncash asset impairment write down of fixed assets
to estimated net realizable value and a $558,000 accrual for severance and
termination benefits for 19 salaried and 46 hourly employees terminated in
connection with this plan as well as a $968,000 accrual for postclosing leases
and other exit costs. As of December 31, 2000, two employees remained to collect
receivables, process payables and assist in marketing the land and building. The
remaining severance and termination benefits will be paid by December 31, 2001.
This mill contributed net sales and operating income of $11,600,000 and
$1,200,000, respectively, for the nine months ended September 30, 2000 and
contributed net sales and operating income of $19,100,000 and $2,101,000,
respectively, for the year ended December 31, 1999.
The following is a summary of this restructuring activity from plan
adoption through December 31, 2000 and to March 31, 2001 (unaudited):
SEVERANCE
AND OTHER
ASSET TERMINATION OTHER EXIT
IMPAIRMENT BENEFITS COSTS TOTAL
---------- ----------- ---------- ----------
2000 provision........................... $7,038,000 $ 558,000 $ 968,000 $8,564,000
Noncash................................ 7,038,000 0 0 7,038,000
---------- --------- --------- ----------
Cash................................... 0 558,000 968,000 1,526,000
2000 cash activity....................... 0 (380,000) (346,000) (726,000)
---------- --------- --------- ----------
Balance as of December 31, 2000.......... $ 0 $ 178,000 $ 622,000 $ 800,000
First quarter 2001 cash activity
(unaudited)............................ 0 (31,000) (266,000) (297,000)
---------- --------- --------- ----------
Balance as of March 31, 2001
(unaudited)............................ $ 0 $ 147,000 $ 356,000 $ 503,000
========== ========= ========= ==========
In December 2000, the Company recognized nonrecurring costs of $1,300,000
related to the settlement of a dispute over abandoned property.
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CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments as of December 31, 2000:
- Cash and Cash Equivalents. The carrying amount approximates fair value
because of the short maturity of these instruments.
- Long-Term Debt. The fair values of the Company's senior notes are based
on the current rates available to the Company for debt of the same
remaining maturity and, as of December 31, 2000, approximate the carrying
amounts. The carrying amounts of the other notes payable are assumed to
approximate fair value due to the short maturity and variable rate
structure of the instruments.
14. SUBSEQUENT EVENTS (UNAUDITED)
RESTRUCTURING COSTS
In January 2001, the Company initiated a plan to close its paperboard mill
located in Chicago, Illinois and recorded a pretax charge to operations of
approximately $4,447,000. The mill was profitable through 1998, but declining
sales resulted in losses of approximately $2,600,000 and $1,500,000 in 1999 and
2000, respectively. The $4,447,000 charge included a $2,237,000 noncash asset
impairment write down of fixed assets to estimated net realizable value and a
$1,221,000 accrual for severance and termination benefits for 16 salaried and 59
hourly employees terminated in connection with this plan as well as a $989,000
accrual for other exit costs. As of March 31, 2001, three employees remained to
assist in the closing of the mill. The remaining severance and termination
benefits and other exit costs will be paid by December 31, 2001. The Company is
marketing the property and will complete the exit plan upon the sale of the
property, which it anticipates will occur prior to December 31, 2001.
The following is a summary of this restructuring activity from plan
adoption to March 31, 2001 (unaudited):
SEVERANCE
AND OTHER
ASSET TERMINATION OTHER EXIT
IMPAIRMENT BENEFITS COSTS TOTAL
---------- ----------- ---------- -----------
First quarter 2001 provision.......... $2,237,000 $ 1,221,000 $ 989,000 $ 4,447,000
Noncash............................. 2,237,000 0 0 2,237,000
---------- ----------- --------- -----------
Cash................................ 0 1,221,000 989,000 2,210,000
First quarter 2001 cash activity...... 0 (1,172,000) (246,000) (1,418,000)
---------- ----------- --------- -----------
Balance as of March 31, 2001.......... $ 0 $ 49,000 $ 743,000 $ 792,000
========== =========== ========= ===========
In March 2001, the Company initiated a plan to consolidate the operations
of the Salt Lake City, Utah carton plant into the Denver, Colorado carton plant
and recorded a pretax charge to operations of approximately $2,636,000. The
$2,636,000 charge included a $1,750,000 noncash asset impairment write down of
fixed assets to estimated net realizable value and a $464,000 accrual for
severance and termination benefits for 5 salaried and 31 hourly employees
terminated in connection with this plan as well as a $422,000 accrual for other
exit costs. As of March 31, 2001, one employee remained to assist in the closing
of the plant. The remaining severance and termination benefits and other exit
costs will be paid by December 31, 2001.
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CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of this restructuring activity from plan
adoption to March 31, 2001 (unaudited):
SEVERANCE
AND OTHER
ASSET TERMINATION OTHER EXIT
IMPAIRMENT BENEFITS COSTS TOTAL
---------- ----------- ---------- ----------
First quarter 2001 provision............. $1,750,000 $ 464,000 $ 422,000 $2,636,000
Noncash................................ 1,750,000 0 0 1,750,000
---------- --------- --------- ----------
Cash................................... 0 464,000 422,000 886,000
First quarter 2001 cash activity......... 0 (170,000) (134,000) (304,000)
---------- --------- --------- ----------
Balance as of March 31, 2001............. $ 0 $ 294,000 $ 288,000 $ 582,000
========== ========= ========= ==========
LITIGATION
As discussed in Note 6, on August 16, 2000, the Company filed suit against
a significant customer over the customer's refusal to continue purchasing gypsum
facing paper pursuant to the terms of a long-term supply contract. On May 9,
2001, the Company and the customer jointly announced that a tentative settlement
has been reached regarding the litigation over the terms of the long-term supply
contract the parties entered in April 1996. The Company and a wholly owned
subsidiary of the customer have entered into a new ten-year agreement under
which the Company will supply amounts between a minimum of 1.89 billion and a
maximum of 3.78 billion square feet (between 50,000 and 100,000 tons) of gypsum
facing paper per year as the customer may order for use in its recently
introduced wall board product. Implementation of the new agreement, and
settlement of the pending litigation over the 1996 agreement, is subject to
satisfactory completion of a transition period of a duration to be determined in
good faith by the customer, but not to exceed 90 days. During this period, the
Company will supply the customer, as it requests, with such facing paper to
enable it to evaluate the paper's compliance with its specifications for quality
and end-use suitability. Upon the customer's satisfaction with the paper, it
will notify the Company that the transition period has ended, and the term of
the new agreement, including the annual quantity requirements described above,
will commence. Upon commencement of the new agreement, the parties will dismiss
all pending litigation relating to the 1996 agreement. Under the terms of the
tentative settlement, either party may terminate its obligations under the new
agreement during the transition period without cause and without liability to
the other party. Although the Company believes that it will be able to satisfy
the customer's product requirements and that the new agreement will be
implemented, the Company can give no assurance that the conditions to the new
agreement will be satisfied (or that the customer will determine or agree that
the conditions have been satisfied), or that the new agreement will be
implemented and the pending litigation will be dismissed. Even if the new
agreement is implemented, it could be at least 45 days following implementation
before the Company is supplying tonnage equal to at least 50% of the 7,000 tons
per month levels purchased by the customer during the first half of 2000 before
the dispute arose. Accordingly, the Company believes that its operating results
and financial condition will continue to be materially and adversely affected by
the loss of contract volume from the customer unless and until the new supply
agreement is implemented, and until the new supply agreement has been effective
long enough to generate a substantial volume of required purchases from the
customer.
INTEREST RATE SWAP AGREEMENT
In May 2001, the Company entered into two interest rate swap agreements in
notional amounts of $185.0 million and $25.0 million. The agreements effectively
converted portions of the Company's fixed rate 9 7/8% senior subordinated notes
and fixed rate 7 3/8% senior notes into variable rate obligations. The variable
rates are based on LIBOR plus a fixed margin.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 55-2-02 of the North Carolina Business Corporation Act (the
"Business Corporation Act") enables a corporation in its articles of
incorporation to eliminate or limit, with certain exceptions, the personal
liability of a director for monetary damages for breach of duty as a director.
No such provision is effective to eliminate or limit a director's liability for
(i) acts or omissions that the director at the time of the breach knew or
believed to be clearly in conflict with the best interests of the corporation,
(ii) improper distributions as described in Section 55-8-33 of the Business
Corporation Act, (iii) any transaction from which the director derived an
improper personal benefit or (iv) acts or omissions occurring prior to the date
the exculpatory provision became effective. Our articles of incorporation limit
the personal liability of its directors to the fullest extent permitted by the
Business Corporation Act. Sections 55-8-50 through 55-8-58 of the Business
Corporation Act permit a corporation to indemnify its directors, officers,
employees or agents under either or both a statutory or nonstatutory scheme of
indemnification. Under the statutory scheme, a corporation may, with certain
exceptions, indemnify a director, officer, employee or agent of the corporation
who was, is, or is threatened to be made, a party to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative, or investigative because of the fact that such person was or is
a director, officer, agent or employee of the corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. This indemnity may include the obligation to
pay any judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan) or reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, employee or agent
(i) conducted himself in good faith, (ii) reasonably believed (1) that any
action taken in his official capacity with the corporation was in the best
interests of the corporation or (2) that in all other cases his conduct was not
opposed to the corporation's best interests, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of directors,
a committee of directors, special legal counsel or the shareholders in
accordance with Section 55-8-55 of the Business Corporation Act. A corporation
may not indemnify a director under the statutory scheme in connection with a
proceeding by or in the right of the corporation in which a director was
adjudged liable to the corporation or in connection with any other proceeding in
which a director was adjudged liable on the basis of having received an improper
personal benefit. In addition to, and notwithstanding the conditions of and
limitations on, the indemnification described above under the statutory scheme,
Section 55-8-57 of the Business Corporation Act permits a corporation to
indemnify, or agree to indemnify, any of its directors, officers, employees or
agents against liability and expenses (including counsel fees) in any proceeding
(including proceedings brought by or on behalf of the corporation) arising out
of their status as such or their activities in such capacities, except for any
liabilities or expenses incurred on account of activities that were, at the time
taken, known or believed by the person to be clearly in conflict with the best
interests of the corporation. Because our bylaws provide for indemnification to
the fullest extent permitted under the Business Corporation Act, we may
indemnify its directors, officers, employees an d agents in accordance with
either the statutory or nonstatutory standard. Sections 55-8-52 and 55-8-56 of
the Business Corporation Act require a corporation, unless its articles of
incorporation provide otherwise, to indemnify a director or officer who has been
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which such director or officer was, or was threatened to be, made a party
because he is or was a director or officer of the corporation. Unless prohibited
by the articles of incorporation, a director or officer also may make
application and obtain court-ordered indemnification if the court determines
that such director or officer is fairly and reasonably entitled to such
indemnification as provided in Sections 55-8-54 and 55-8-56 of the Business
Corporation Act. Additionally, Section 55-8-57 of the Business Corporation Act
authorizes a corporation to purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of
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the corporation against certain liabilities incurred by such a person, whether
or not the corporation is otherwise authorized by the Business Corporation Act
to indemnify that person. We have purchased and maintain such insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed herewith or incorporated herein by
reference.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
3.01 -- Amended and Restated Articles of Incorporation of the
Company (Incorporated by reference -- Exhibit 3.01 to Annual
Report for 1992 on Form 10-K [Securities and Exchange
Commission File No. 0-20646])
3.02 -- Second Amended and Restated Bylaws of the Company
(Incorporated by reference -- Exhibit 3.02 to Registration
Statement on Form S-4 [Securities and Exchange Commission
File No. 333-29937])
4.01 -- Specimen Common Stock Certificate (Incorporated by
reference -- Exhibit 4.01 to Registration Statement on Form
S-1 [Securities and Exchange Commission File No. 33-50582])
4.02 -- Articles 3 and 4 of the Company's Amended and Restated
Articles of Incorporation (included in Exhibit 3.01)
4.03 -- Article II of the Company's Second Amended and Restated
Bylaws (included in Exhibit 3.02)
4.04 -- Amended and Restated Rights Agreement, dated as of May 24,
1999, between Caraustar Industries, Inc. and The Bank of New
York as Rights Agent (Incorporated by reference -- Exhibit
10.1 to current report on Form 8-K dated June 1, 1999
[Securities and Exchange Commission File No. 020646])
4.05 -- Indenture, dated as of June 1, 1999, between Caraustar
Industries, Inc. and The Bank of New York, as Trustee,
regarding the Company's 7 3/8% Notes due 2009 (Incorporated
by reference -- Exhibit 4.05 to report on Form 10-Q for the
quarter ended June 30, 1999 [Securities and Exchange
Commission File No. 0-20646])
4.06 -- First Supplemental Indenture, dated as of June 1, 1999,
between Caraustar Industries, Inc. and The Bank of New York,
as Trustee, regarding the Company's 7 3/8% Notes due 2009
(Incorporated by reference -- Exhibit 4.06 to report on Form
10-Q for the quarter ended June 30, 1999 [Securities and
Exchange Commission File No. 0-20646])
4.07 -- Second Supplemental Indenture, dated as of March 29, 2001,
between the Company, the Subsidiary Guarantors and The Bank
of New York, as Trustee, regarding the Company's 7 3/8%
Notes due 2009 (Incorporated by reference -- Exhibit 4.07 to
report on Form 10-K for the year ended December 31, 2000
[Securities and Exchange Commission File No. 0-20646])
4.08 -- Indenture, dated as of March 29, 2001, between the Company,
the Guarantors and The Bank of New York, as Trustee,
regarding the Company's 7 1/4% Senior Notes due 2010
(Incorporated by reference -- Exhibit 10.01 to report on
Form 10-K for the year ended December 31, 2000 [Securities
and Exchange Commission File No. 0-20646])
4.09 -- Indenture, dated as of March 29, 2001, between the Company,
the Guarantors and The Bank of New York, as Trustee,
regarding the Company's 9 7/8% Senior Subordinated Exchange
Notes due 2011 (Incorporated by reference -- Exhibit 10.02
to report on Form 10-K for the year ended December 31, 2000
[Securities and Exchange Commission File No. 0-20646])
5.01* -- Opinion of Robinson, Bradshaw & Hinson, P.A.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.01 -- Credit Agreement, dated as of March 29, 2001, among the
Company, certain subsidiaries of the Company, various
lenders, Bank of America, N.A., as Administrative Agent,
Banc of America Securities LLC and Deutsche Banc Alex. Brown
Inc. as Joint Lead Arrangers and Joint Book Managers and
Credit Suisse, First Boston and Credit Lyonnais New York
Branch as Co-Documentation Agents (Incorporated by
reference -- Exhibit 10.03 to report on Form 10-K for the
year ended December 31, 2000 [Securities and Exchange
Commission File No. 0-20646])
10.02 -- Purchase Agreement, dated as of March 22, 2001, between the
Company and Credit Suisse First Boston Corporation, Banc of
America Securities LLC, Deutsche Banc Alex. Brown Inc. and
SunTrust Equitable Securities Corporation (Incorporated by
reference -- Exhibit 10.04 to report on Form 10-K for the
year ended December 31, 2000 [Securities and Exchange
Commission File No. 0-20646])
10.03 -- Registration Rights Agreement, dated as of March 22, 2001,
between the Company, certain subsidiaries of the Company and
Credit Suisse First Boston Corporation, Banc of America
Securities LLC, Deutsche Banc Alex. Brown Inc. and SunTrust
Equitable Securities Corporation (Incorporated by
reference -- Exhibit 10.05 to report on Form 10-K for the
year ended December 31, 2000 [Securities and Exchange
Commission File No. 0-20646])
10.04** -- Employment Agreement, dated December 31, 1990, between the
Company and Thomas V. Brown (Incorporated by
reference -- Exhibit 10.06 to Registration Statement on Form
S-1 [Securities and Exchange Commission File No. 33-50582])
10.05** -- Deferred Compensation Plan, together with copies of existing
individual deferred compensation agreements (Incorporated by
reference -- Exhibit 10.08 to Registration Statement on Form
S-1 [Securities and Exchange Commission File No. 33-50582])
10.06** -- 1987 Executive Stock Option Plan (Incorporated by
reference -- Exhibit 10.09 to Registration Statement on Form
S-1 [Securities and Exchange Commission File No. 33-50582])
10.07** -- 1993 Key Employees' Share Ownership Plan (Incorporated by
reference -- Exhibit 10.10 to Registration Statement on Form
S-1 [Securities and Exchange Commission File No. 33-50582])
10.08** -- Incentive Bonus Plan of the Company (Incorporated by
reference -- Exhibit 10.10 to Annual Report for 1993 on Form
10-K [Securities and Exchange Commission File No. 0-20646])
10.09** -- 1996 Director Equity Plan of the Company (Incorporated by
reference -- Exhibit 10.12 to report on Form 10-Q for the
quarter ended March 31, 1996 [Securities and Exchange
Commission File No. 0-20646])
10.10** -- Amendment No. 1 to the Company's 1996 Director Equity Plan,
dated July 16, 1998 (Incorporated by reference -- Exhibit
10.2 to Current Report on Form 8-K dated June 1, 1999
[Securities and Exchange Commission File No. 0-20646])
10.11** -- Second Amended and Restated 1998 Key Employee Incentive
Compensation Plan (Incorporated by reference -- Exhibit
10.13 to report on Form 10-Q for the quarter ended March 31,
2001 [Securities and Exchange Commission File No. 0-20646])
10.12 -- Asset Purchase Agreement between Caraustar Industries, Inc.,
Sprague Paperboard, Inc. and International Paper Company,
dated as of March 4, 1999 (Incorporated by reference --
Exhibit 10.17 to report on Form 10-Q for the quarter ended
March 31, 1999 [Securities and Exchange Commission File No.
0-20646])
10.13 -- Paperboard Agreement, dated as of April 10, 1996 between the
Company and Georgia-Pacific Corporation (Incorporated by
reference -- Exhibit 10.06 to report on Form 10-Q for the
quarter ended September 30, 2000 [Securities and Exchange
Commission File No. 0-20646])
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
12.01 -- Computation of Ratio of Earnings to Fixed Charges
(Incorporated by reference -- Exhibit 12.01 to report on
Form 10-K for the year ended December 31, 2000 [Securities
and Exchange Commission File No. 0-20646])
21.01 -- Subsidiaries of the Company (Incorporated by
reference -- Exhibit 21.01 to report on Form 10-K for the
year ended December 31, 2000 [Securities and Exchange
Commission File No. 0-20646])
23.01* -- Consent of Arthur Andersen LLP
23.02* -- Consent of Robinson, Bradshaw & Hinson, P.A. (included in
Exhibit 5.01)
24.01* -- Powers of Attorney (included on the signature pages of the
registration statement)
25.01+ -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York relating to the Senior
Indenture and the issuance of the Company's 7 1/4% Senior
Notes due 2010
25.02+ -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York relating to the Senior
Subordinated Indenture and the issuance of the Company's
9 7/8% Senior Subordinated Notes due 2011
99.01* -- Form of Letter of Transmittal
99.02* -- Form of Notice of Guaranteed Delivery
99.03* -- Form of Instruction to Registered Holder and/or Depository
Trust Company Participant from Beneficial Owner
- ---------------
+ Filed previously.
* Filed herewith.
** Management contract or compensatory plan required to be filed under Item
14(c) of Form 10-K and Item 601 of Regulation S-K of the Securities and
Exchange Commission.
ITEM 22. UNDERTAKINGS
1. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change in such information in the Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
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therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
5. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
6. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Caraustar Industries, Inc., has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CARAUSTAR INDUSTRIES, INC.
(Registrant)
By: /s/ H. LEE THRASH, III
------------------------------------
H. Lee Thrash, III
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
THOMAS V. BROWN* President and Chief Executive Officer;
- --------------------------------------------- Director
Thomas V. Brown
/s/ H. LEE THRASH, III Vice President, Planning and Development;
- --------------------------------------------- Chief Financial Officer; Director
H. Lee Thrash, III
BOB M. PRILLAMAN* Director
- ---------------------------------------------
Bob M. Prillaman
JAMES M. HANCE, JR.* Director
- ---------------------------------------------
James M. Hance, Jr.
RUSSELL M. ROBINSON, II* Director
- ---------------------------------------------
Russell M. Robinson, II
RALPH M. HOLT, JR.* Director
- ---------------------------------------------
Ralph M. Holt, Jr.
JAMES E. ROGERS* Director
- ---------------------------------------------
James E. Rogers
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SIGNATURE TITLE
--------- -----
DENNIS M. LOVE* Director
- ---------------------------------------------
Dennis M. Love
ROBERT J. CLANIN* Director
- ---------------------------------------------
Robert J. Clanin
*By: /s/ H. LEE THRASH, III
- ---------------------------------------------
H. Lee Thrash, III, as Attorney-in-Fact
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Austell Box Board Corporation, has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
AUSTELL BOX BOARD CORPORATION
(Registrant)
By: /s/ THOMAS C. DAWSON, JR.
------------------------------------
Thomas C. Dawson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS C. DAWSON, JR. President (principal executive officer);
- --------------------------------------------- Director
Thomas C. Dawson, Jr.
/s/ H. LEE THRASH, III Vice President (principal financial and
- --------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- ---------------------------------------------
Thomas V. Brown
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Austell Holding Company, LLC, has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
AUSTELL HOLDING COMPANY, LLC
(Registrant)
By:CARAUSTAR INDUSTRIES, INC., its
sole member
------------------------------------
By: /s/ H. LEE THRASH, III
------------------------------------
H. Lee Thrash, III
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS V. BROWN Chief Executive Officer; Director of Caraustar
- ----------------------------------------------------- Industries, Inc. (principal executive
Thomas V. Brown officer)
/s/ H. LEE THRASH, III Vice President; Director of Caraustar
- ----------------------------------------------------- Industries, Inc.
H. Lee Thrash, III
/s/ RUSSELL M. ROBINSON, II Director of Caraustar Industries, Inc.
- -----------------------------------------------------
Russell M. Robinson, II
/s/ ROBERT J. CLANIN Director of Caraustar Industries, Inc.
- -----------------------------------------------------
Robert J. Clanin
/s/ JAMES H. HANCE, JR. Director of Caraustar Industries, Inc.
- -----------------------------------------------------
James H. Hance, Jr.
/s/ RALPH M. HOLT, JR. Director of Caraustar Industries, Inc.
- -----------------------------------------------------
Ralph M. Holt, Jr.
II-9
169
SIGNATURE TITLE
--------- -----
/s/ DENNIS M. LOVE Director of Caraustar Industries, Inc.
- -----------------------------------------------------
Dennis M. Love
/s/ BOB M. PRILLAMAN Director of Caraustar Industries, Inc.
- -----------------------------------------------------
Bob M. Prillaman
/s/ JAMES E. ROGERS Director of Caraustar Industries, Inc.
- -----------------------------------------------------
James E. Rogers
II-10
170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Buffalo Paperboard Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
BUFFALO PAPERBOARD CORPORATION
(Registrant)
By: /s/ THOMAS C. DAWSON, JR.
------------------------------------
Thomas C. Dawson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS C. DAWSON, JR. President (principal executive officer);
- ----------------------------------------------------- Director
Thomas C. Dawson, Jr.
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer)
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ JOHN R. FOSTER Director
- -----------------------------------------------------
John R. Foster
II-11
171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Camden Paperboard Corporation, has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CAMDEN PAPERBOARD CORPORATION
(Registrant)
By: /s/ THOMAS C. DAWSON, JR.
------------------------------------
Thomas C. Dawson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS C. DAWSON, JR. President (principal executive officer);
- ----------------------------------------------------- Director
Thomas C. Dawson, Jr.
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ JOHN R. FOSTER Director
- -----------------------------------------------------
John R. Foster
II-12
172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Caraustar Custom Packaging Group, Inc., has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CARAUSTAR CUSTOM PACKAGING GROUP, INC.
(Registrant)
By: /s/ JAMES L. WALDEN
------------------------------------
James L. Walden
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ JAMES L. WALDEN President (principal executive officer);
- ----------------------------------------------------- Director
James L. Walden
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
II-13
173
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Caraustar Custom Packaging Group (Maryland), Inc., has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CARAUSTAR CUSTOM PACKAGING GROUP
(MARYLAND), INC.
(Registrant)
By: /s/ HOWARD S. FELDMAN
------------------------------------
Howard S. Feldman
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ HOWARD S. FELDMAN President (principal executive officer);
- --------------------------------------------- Director
Howard S. Feldman
/s/ H. LEE THRASH, III Vice President (principal financial and
- --------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ JAMES L. WALDEN Vice President; Director
- ---------------------------------------------
James L. Walden
II-14
174
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Caraustar G.P., has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austell,
State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CARAUSTAR G.P.
(Registrant)
By:CARAUSTAR INDUSTRIES, INC.
------------------------------------
By: /s/ H. LEE THRASH, III
------------------------------------
H. Lee Thrash, III
Vice President and Chief Financial
Officer
By:CARAUSTAR INDUSTRIAL AND
CONSUMER PRODUCTS GROUP, INC.
By: /s/ H. LEE THRASH, III
------------------------------------
H. Lee Thrash, III
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ RUSSELL M. ROBINSON, II Director of Caraustar Industries, Inc.
- ---------------------------------------------
Russell M. Robinson, II
/s/ THOMAS V. BROWN Director of Caraustar Industries, Inc.;
- --------------------------------------------- Director of Caraustar Industrial & Consumer
Thomas V. Brown Products Group, Inc.
/s/ ROBERT J. CLANIN Director of Caraustar Industries, Inc.
- ---------------------------------------------
Robert J. Clanin
II-15
175
SIGNATURE TITLE
--------- -----
/s/ JAMES H. HANCE, JR. Director of Caraustar Industries, Inc.
- ---------------------------------------------
James H. Hance, Jr.
/s/ RALPH M. HOLT, JR. Director of Caraustar Industries, Inc.
- ---------------------------------------------
Ralph M. Holt, Jr.
/s/ DENNIS M. LOVE Director of Caraustar Industries, Inc.
- ---------------------------------------------
Dennis M. Love
/s/ BOB M. PRILLAMAN Director of Caraustar Industries, Inc.
- ---------------------------------------------
Bob M. Prillaman
/s/ JAMES E. ROGERS Director of Caraustar Industries, Inc.
- ---------------------------------------------
James E. Rogers
/s/ H. LEE THRASH, III Director of Caraustar Industries, Inc.
- ---------------------------------------------
H. Lee Thrash, III
/s/ FRED GARRISON Director of Caraustar Industrial & Consumer
- --------------------------------------------- Products Group, Inc.
Fred Garrison
/s/ ROBERT G. PENDER, JR. Director of Caraustar Industrial & Consumer
- --------------------------------------------- Products Group, Inc.
Robert G. Pender, Jr.
/s/ NORMAN F. PFEIFER Director of Caraustar Industrial & Consumer
- --------------------------------------------- Products Group, Inc.
Norman F. Pfeifer
/s/ JIMMY A. RUSSELL Director of Caraustar Industrial & Consumer
- --------------------------------------------- Products Group, Inc.
Jimmy A. Russell
/s/ JOHN D. SNYDER, II Director of Caraustar Industrial & Consumer
- --------------------------------------------- Products Group, Inc.
John D. Snyder, II
II-16
176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Caraustar Industrial & Consumer Products Group, Inc., has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CARAUSTAR INDUSTRIAL & CONSUMER
PRODUCTS GROUP, INC.
(Registrant)
By: /s/ JIMMY A. RUSSELL
------------------------------------
Jimmy A. Russell
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ JIMMY A. RUSSELL President (principal executive officer);
- --------------------------------------------- Director
Jimmy A. Russell
/s/ H. LEE THRASH, III Vice President (principal financial and
- --------------------------------------------- accounting officer)
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- ---------------------------------------------
Thomas V. Brown
/s/ FRED E. GARRISON Vice President; Director
- ---------------------------------------------
Fred E. Garrison
/s/ ROBERT G. PENDER, JR. Vice President; Director
- ---------------------------------------------
Robert G. Pender, Jr.
/s/ NORMAN F. PFEIFER Vice President; Director
- ---------------------------------------------
Norman F. Pfeifer
/s/ JOHN D. SNYDER, II Vice President; Director
- ---------------------------------------------
John D. Snyder, II
II-17
177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Caraustar Paperboard Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CARAUSTAR PAPERBOARD CORPORATION
(Registrant)
By: /s/ JERRY LOWE
------------------------------------
Jerry Lowe
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ JERRY LOWE President (principal executive officer)
- -----------------------------------------------------
Jerry Lowe
/s/ H. LEE THRASH, III Treasurer (principal financial and accounting
- ----------------------------------------------------- officer)
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ GREG B. COTTRELL Director
- -----------------------------------------------------
Greg B. Cottrell
II-18
178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Caraustar Recovered Fiber Group, Inc., has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CARAUSTAR RECOVERED FIBER GROUP, INC.
(Registrant)
By: /s/ GREGORY B. COTTRELL
------------------------------------
Gregory B. Cottrell
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ GREGORY B. COTTRELL President (principal executive officer);
- ----------------------------------------------------- Director
Gregory B. Cottrell
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer)
H. Lee Thrash, III
II-19
179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Carolina Component Concepts, Inc., has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CAROLINA COMPONENT CONCEPTS, INC.
(Registrant)
By: /s/ RICHARD HOWARD
------------------------------------
Richard Howard
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ RICHARD HOWARD President (principal executive officer)
- -----------------------------------------------------
Richard Howard
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer)
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ DOUGLAS F. MONROE Vice President; Director
- -----------------------------------------------------
Douglas F. Monroe
II-20
180
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Carolina Converting, Inc., has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CAROLINA CONVERTING INCORPORATED
(Registrant)
By: /s/ DOUGLAS F. MONROE
------------------------------------
Douglas F. Monroe
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ DOUGLAS F. MONROE Chief Executive Officer; President; Director
- -----------------------------------------------------
Douglas F. Monroe
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer)
H. Lee Thrash, III
II-21
181
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Carolina Paper Board Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CAROLINA PAPER BOARD CORPORATION
(Registrant)
By: /s/ GARY L. DRINNON
------------------------------------
Gary L. Drinnon
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ GARY L. DRINNON President; Director
- -----------------------------------------------------
Gary L. Drinnon
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ DOUGLAS F. MONROE Vice President; Director
- -----------------------------------------------------
Douglas F. Monroe
II-22
182
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Carotell Paper Board Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CAROTELL PAPER BOARD CORPORATION
(Registrant)
By: /s/ DOUGLAS F. MONROE
------------------------------------
Douglas F. Monroe
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ DOUGLAS F. MONROE President (principal executive officer);
- ----------------------------------------------------- Director
Douglas F. Monroe
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ DONALD R. MASON Vice President; Director
- -----------------------------------------------------
Donald R. Mason
II-23
183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Chattanooga Paperboard Corporation, has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CHATTANOOGA PAPERBOARD
CORPORATION
(Registrant)
By: /s/ MICHAEL J. MCMAHON
------------------------------------
Michael J. McMahon
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ MICHAEL J. MCMAHON President (principal executive officer);
- ----------------------------------------------------- Director
Michael J. McMahon
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
II-24
184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Chicago Paperboard Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CHICAGO PAPERBOARD CORPORATION
(Registrant)
By: /s/ MICHAEL J. MCMAHON
------------------------------------
Michael J. McMahon
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ MICHAEL J. MCMAHON President (principal executive officer);
- --------------------------------------------- Director
Michael J. McMahon
/s/ H. LEE THRASH, III Vice President (principal financial and
- --------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- ---------------------------------------------
Thomas V. Brown
/s/ STEVENS J. SMITH, JR. Vice President; Director
- ---------------------------------------------
Stevens J. Smith, Jr.
II-25
185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Cincinnati Paperboard Corporation, has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
CINCINNATI PAPERBOARD CORPORATION
(Registrant)
By: /s/ MICHAEL J. MCMAHON
------------------------------------
Michael J. McMahon
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ MICHAEL J. MCMAHON President (principal executive officer);
- ----------------------------------------------------- Director
Michael J. McMahon
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ JAMES M. SULLIVAN Vice President; Director
- -----------------------------------------------------
James M. Sullivan
II-26
186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Columbus Recycling, Inc., has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
COLUMBUS RECYCLING, INC.
(Registrant)
By: /s/ GREGORY B. COTTRELL
------------------------------------
Gregory B. Cottrell
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ GREGORY B. COTTRELL President (principal executive officer);
- ----------------------------------------------------- Director
Gregory B. Cottrell
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
II-27
187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Federal Transport, Inc., has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
FEDERAL TRANSPORT, INC.
(Registrant)
By: /s/ NORMAN F. PFEIFER
------------------------------------
Norman F. Pfeifer
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ NORMAN F. PFEIFER President (principal executive officer);
- --------------------------------------------- Director
Norman F. Pfeifer
/s/ H. LEE THRASH, III Vice President (principal financial and
- --------------------------------------------- accounting officer)
H. Lee Thrash, III
/s/ JIMMY A. RUSSELL Director
- ---------------------------------------------
Jimmy A. Russell
II-28
188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Gypsum MGC, Inc., has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
GYPSUM MGC, INC.
(Registrant)
By: /s/ THOMAS V. BROWN
------------------------------------
Thomas V. Brown
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS V. BROWN President (principal executive officer);
- ----------------------------------------------------- Director
Thomas V. Brown
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer)
H. Lee Thrash, III
II-29
189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Halifax Paper Board Company, Inc., has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
HALIFAX PAPER BOARD COMPANY, INC.
(Registrant)
By: /s/ DOUGLAS F. MONROE
------------------------------------
Douglas F. Monroe
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ DOUGLAS F. MONROE President (principal executive officer);
- ----------------------------------------------------- Director
Douglas F. Monroe
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer)
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
II-30
190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
McQueeney Gypsum Company, has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
MCQUEENEY GYPSUM COMPANY
(Registrant)
By: /s/ THOMAS V. BROWN
------------------------------------
Thomas V. Brown
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS V. BROWN President (principal executive officer);
- --------------------------------------------- Director
Thomas V. Brown
/s/ H. LEE THRASH, III Vice President (principal financial and
- --------------------------------------------- accounting officer)
H. Lee Thrash, III
II-31
191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
McQueeny Gypsum Company, LLC, has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
MCQUEENY GYPSUM COMPANY, LLC
(Registrant)
By:McQUEENEY GYPSUM COMPANY, its sole
member
By: /s/ THOMAS V. BROWN
------------------------------------
Thomas V. Brown
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS V. BROWN Chief Executive Officer; Sole Director of
- --------------------------------------------- McQueeney Gypsum Company
Thomas V. Brown
/s/ H. LEE THRASH, III Vice President
- ---------------------------------------------
H. Lee Thrash, III
II-32
192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
New Austell Box Board Company, has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
NEW AUSTELL BOX BOARD COMPANY
(Registrant)
By: /s/ THOMAS C. DAWSON, JR.
------------------------------------
Thomas C. Dawson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS C. DAWSON, JR. President (principal executive officer);
- ----------------------------------------------------- Director
Thomas C. Dawson, Jr.
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
II-33
193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Paper Recycling, Inc., has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
PAPER RECYCLING, INC.
(Registrant)
By: /s/ GREGORY B. COTTRELL
------------------------------------
Gregory B. Cottrell
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ GREGORY B. COTTRELL President (principal executive officer);
- ----------------------------------------------------- Director
Gregory B. Cottrell
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
II-34
194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
PBL, Inc., has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austell,
State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
PBL, INC.
(Registrant)
By: /s/ THOMAS V. BROWN
------------------------------------
Thomas V. Brown
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS V. BROWN President (principal executive officer);
- ----------------------------------------------------- Director
Thomas V. Brown
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
II-35
195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Reading Paperboard Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
READING PAPERBOARD CORPORATION
(Registrant)
By: /s/ DOUGLAS F. MONROE
------------------------------------
Douglas F. Monroe
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ DOUGLAS F. MONROE President (principal executive officer);
- ----------------------------------------------------- Director
Douglas F. Monroe
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Director
- -----------------------------------------------------
Thomas V. Brown
/s/ MARK A. HAMPSON Plant Manager; Director
- -----------------------------------------------------
Mark A. Hampson
/s/ DOUGLAS R. WIEDER Secretary; Treasurer; Director
- -----------------------------------------------------
Douglas R. Wieder
II-36
196
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Richmond Paperboard Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
RICHMOND PAPERBOARD CORPORATION
(Registrant)
By: /s/ DOUGLAS F. MONROE
------------------------------------
Douglas F. Monroe
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ DOUGLAS F. MONROE President (principal executive officer);
- ----------------------------------------------------- Director
Douglas F. Monroe
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer)
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
II-37
197
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Sprague Paperboard, Inc., has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
SPRAGUE PAPERBOARD, INC.
(Registrant)
By: /s/ DAVID J. BRIERE
------------------------------------
David J. Briere
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ DAVID J. BRIERE President (principal executive officer)
- -----------------------------------------------------
David J. Briere
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
II-38
198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Sweetwater Paper Board Company, Inc., has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austell, State of Georgia, on June 15, 2001.
Each of the undersigned hereby constitutes and appoints H. Lee Thrash, III
and Thomas V. Brown, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign on his behalf any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
(and any amendments thereto) under the Securities Act of 1933, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the commission, and grants unto said attorney-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
SWEETWATER PAPER BOARD COMPANY, INC.
(Registrant)
By: /s/ THOMAS C. DAWSON, JR.
-------------------------------------
Thomas C. Dawson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 15, 2001.
SIGNATURE TITLE
--------- -----
/s/ THOMAS C. DAWSON, JR. President (principal executive officer);
- ----------------------------------------------------- Director
Thomas C. Dawson, Jr.
/s/ H. LEE THRASH, III Vice President (principal financial and
- ----------------------------------------------------- accounting officer); Director
H. Lee Thrash, III
/s/ THOMAS V. BROWN Vice President; Director
- -----------------------------------------------------
Thomas V. Brown
/s/ JOHN R. FOSTER Director
- -----------------------------------------------------
John R. Foster
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