<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION NO. 333-34389
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
(Exact name of registrant as specified in its charter)
DELAWARE 0800 93-1217136
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
6400 HIGHWAY 66, KLAMATH FALLS, OREGON 97601 (541) 884-2240
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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U.S. TIMBERLANDS FINANCE CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 0800 91-1851612
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
6400 HIGHWAY 66, KLAMATH FALLS, OREGON 97601 (541) 884-2240
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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AS TO BOTH REGISTRANTS:
JOHN J. STEPHENS, P.O. BOX 10, 6400 HIGHWAY 66, KLAMATH FALLS, OREGON 97601
(541) 884-2240
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P.
425 LEXINGTON AVENUE 910 LOUISIANA
NEW YORK, NEW YORK 10017 HOUSTON, TEXAS 77002
(212) 850-2800 (713) 229-1234
ATTN: JONATHAN P. CRAMER ATTN: JOSHUA DAVIDSON
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuing basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 number of the earlier effective registration statement for the
same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1997
PROSPECTUS
$225,000,000
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
U.S. TIMBERLANDS FINANCE CORP.
[LOGO OF U.S. TIMBERLANDS] % SENIOR NOTES DUE 2007
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The % Senior Notes due 2007 (the "Notes") offered hereby are being issued,
jointly and severally, by U.S. Timberlands Klamath Falls, L.L.C., a Delaware
limited liability company (the "Company"), and U.S. Timberlands Finance Corp.
("Finance Corp."), a wholly owned subsidiary of the Company. The Company and
Finance Corp. are collectively referred to as the "Issuers." U.S. Timberlands
Company, L.P., a recently formed Delaware limited partnership (the "Master
Partnership"), is a 98.9899% member of the Company.
The Notes will bear interest from the date of issuance at the rate of % per
annum, payable semi-annually in arrears, on and of each year,
commencing , 1998, and will mature on , 2007, unless previously
redeemed. The Notes are redeemable at the option of the Issuers, in whole or in
part, on or after , 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest to the redemption date. In addition, at any time on
or prior to , 2000, the Issuers may redeem Notes with the net cash
proceeds of a public offering of common units or other equity interests in the
Master Partnership or equity interests in the Company, at % of the principal
amount thereof, plus accrued interest to the redemption date, provided that at
least 65% of the principal amount of Notes originally issued remain outstanding
immediately following such redemption. In the event of a Change of Control (as
defined herein), holders of the Notes will have the right to require the
Issuers to purchase each such holder's Notes at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest to the date
of purchase. There can be no assurance that the Company will have access to
sufficient funds to repurchase the Notes in the event of a Change of Control.
Further, the indenture governing the Notes will not provide protection in the
event of a highly leveraged transaction, including certain takeovers,
recapitalizations or restructurings.
The Notes will be general unsecured obligations of the Issuers, and will rank
pari passu in right of payment with all existing and future senior indebtedness
of the Issuers and senior to all existing and future subordinated indebtedness
of the Issuers and will effectively be subordinated to any secured indebtedness
of the Issuers. At the closing of this offering the Issuers will not have any
secured indebtedness.
This offering is subject to, among other things, the completion by the Master
Partnership of a public offering of common units representing limited partner
interests in the Master Partnership (the "Common Units"), and the closing by
the Company of a $25.0 million revolving credit facility to be used for working
capital purposes (the "Working Capital Facility") and a $75.0 million revolving
credit facility to be used for acquisitions and capital improvements (the
"Acquisition Facility" and, together with the Working Capital Facility, the
"Bank Credit Facility"). See "The Transactions."
Upon issuance all Notes will be represented by one or more Global Notes
registered in the name of the Depositary (as defined herein). Payment of the
principal, premium, if any, and interest on the Global Note will be made to the
Depositary and not to the beneficial owners thereof. See "Description of
Notes--Depositary."
The Notes have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance, under the symbol "TIMBZ 07".
SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE
NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC (1) COMMISSIONS (2) ISSUERS (3)
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<S> <C> <C> <C>
Per Note % % %
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Total $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from the date of issuance.
(2) For information regarding indemnification of the Underwriters, see
"Underwriting."
(3) Before deducting estimated expenses of $ , payable by the Issuers.
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The Notes are being offered by the several Underwriters named herein, subject
to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that delivery of the Notes will be made in book-
entry form through the facilities of The Depository Trust Company on or about
, 1997.
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SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
DEUTSCHE MORGAN GRENFELL
, 1997
<PAGE>
[MAP OF THE COMPANY'S TIMBERLANDS AND THREE
PHOTOGRAPHS OF THE COMPANY'S PROPERTIES,
ONE PHOTOGRAPH OF LOG HAULING OPERATIONS
AND ONE PHOTOGRAPH OF A HOUSE UNDER CONSTRUCTION]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and historical and pro forma
financial data appearing elsewhere in this Prospectus. The transactions related
to the formation of the Master Partnership, the public offering of Common Units
by the Master Partnership, the entering into by the Company of the Bank Credit
Facility and the other transactions to occur in connection with this offering
are referred to in this Prospectus as the "Transactions." See "The
Transactions." Except as the context otherwise requires, references to, or
descriptions of, assets and operations of the Company in this Prospectus
include the assets and operations of the Master Partnership and any subsidiary
and the predecessors of the Company. References to percentage ownership of the
Company reflect the approximate effective ownership interest of the Unitholders
and the Manager (as defined below) in the Master Partnership and the Company on
a combined basis. For ease of reference, a glossary of certain terms used in
this Prospectus is included as Appendix A to this Prospectus.
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
THE COMPANY
The Company's business consists of the growing of trees and the sale of logs
and standing timber. The Company owns approximately 630,000 fee acres of
timberland and cutting rights on approximately 3,000 acres of timberland
containing total merchantable timber volume estimated as of January 1, 1997 to
be approximately 2.2 billion board feet ("BBF") in Oregon east of the Cascade
Range (the "Timberlands"). Logs harvested from the Timberlands are sold to
unaffiliated domestic conversion facilities. These logs are processed for sale
as lumber, plywood and other wood products, primarily for use in new
residential home construction, home remodeling and repair and general
industrial applications. The Company also owns and operates its own seed
orchard and produces approximately five million conifer seedlings annually from
its nursery, approximately half of which are used for its own internal
reforestation programs, with the balance sold to other forest products
companies.
The Timberlands include substantial holdings of merchantable, good quality
timber. The Timberlands' merchantable timber consists of Ponderosa Pine
(approximately 42%) and Douglas Fir (approximately 14%), species which have
historically commanded premium prices over other softwood species, with the
balance consisting of Lodgepole Pine, White Fir and other softwood species. The
Timberlands have stands of varying ages and are unique in the forests east of
the Cascade Range in Oregon in that approximately 184,000 acres are actively
managed tree farms (the "Plantations"). The Plantations were first established
by Weyerhaeuser Company ("Weyerhaeuser") in the early 1960s and acreage has
been planted each year since then. Currently, the Plantations contain age
classes ranging generally from two to 35 years old. Initial thinning of the
Plantation stands, including the thinning of commercial quantities of
merchantable timber, is expected to begin within the next five years. Because
the timber on the Plantations is generally not yet considered merchantable,
volumes of timber on the Plantations are not included in the Company's
estimated merchantable timber volume. The balance of the Timberlands are
composed of natural stands.
The Company was formed in 1996. In August 1996, the Company and U.S.
Timberlands Management Company, L.L.C., formerly known as U.S. Timberlands
Services Company, L.L.C. ("Old Services"), acquired approximately 600,000 fee
acres of timberland (the "Klamath Falls Timberlands"), containing an estimated
merchantable timber volume of approximately 1.9 BBF and related assets from
Weyerhaeuser (the "Weyerhaeuser Acquisition"). Most of the Klamath Falls
Timberlands had been owned by Weyerhaeuser for more than 50 years. The Company
recently sold approximately 12,000 acres from the Klamath Falls Timberlands. On
July 15, 1997, the Company acquired approximately 42,000 fee acres of
timberland and cutting rights on approximately 3,000 acres of timberland (the
"Ochoco Timberlands"), containing an estimated merchantable timber volume of
approximately 280 million board feet ("MMBF") from Ochoco Lumber Company
("Ochoco") (the "Ochoco Acquisition"). Over 45% of the merchantable timber on
the Ochoco
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Timberlands is at least 80 years old. The Company believes that the age classes
and species mix of the Ochoco Timberlands fit well with the Klamath Falls
Timberlands and provide the Company flexibility in developing its harvest
plans. Most of the land comprising the Ochoco Timberlands had been owned by
Ochoco since the 1920s. The Company expects that during 1997, including the
five and one-half months of its operations on the Ochoco Timberlands, it will
harvest approximately 153 MMBF of timber (including the sale of harvest rights)
from the Timberlands.
During the period from January 1, 1994 through the acquisition of the Klamath
Falls Timberlands by the Company, approximately 58% of the logs harvested from
the Klamath Falls Timberlands had been delivered to a plywood mill owned by
Weyerhaeuser at Klamath Falls, Oregon. In recent years, substantially all of
the timber harvested from the Ochoco Timberlands had been delivered to Ochoco's
mills. The Company does not currently own any conversion facilities nor does it
intend in the future to own any such facilities on a long-term basis;
consequently all of the Company's sales are made to unaffiliated third parties.
Concurrent with the Company's acquisition of the Klamath Falls Timberlands, the
Company arranged for Collins Products LLC ("Collins"), a privately owned forest
products company located within the Klamath Falls Timberlands area, to purchase
Weyerhaeuser's Klamath Falls mill facilities. The Company has entered into a
10-year log supply agreement with Collins (the "Collins Supply Agreement")
providing for the purchase by the plywood mill and delivery by the Company of a
minimum of 34 MMBF of logs each year (approximately 25% of the Company's
estimated annual harvest in the next three years) at market prices. In addition
to its sales under the Collins Supply Agreement, the Company sells logs to
conversion facilities located in the area surrounding the Timberlands and
operated by third parties. There are currently more than 50 primary conversion
facilities located within a 150 mile radius of the Company's base of operations
in Klamath Falls.
The Company believes that it is well positioned to compete successfully in
the timber business for the following reasons: (i) the Company has substantial
holdings of timber properties which include over 2.2 BBF of merchantable, good
quality timber, approximately 184,000 acres of plantation timberland and a
full-scale seed orchard and nursery operation located in a region where
conversion facilities have been experiencing shortages in the supply of wood
fiber; (ii) the Company focuses on owning timberlands rather than operating
conversion facilities, which minimizes the Company's cost structure and capital
expenditures, allows the Company to seek the most favorable markets for its
timber rather than being committed to supply its own facilities, and ensures
that the Company will not compete with its customers; (iii) the Company's
senior operating management team has an average of more than 20 years of
experience in the forest products industry, including experience in
identifying, evaluating, completing and integrating acquisitions of timber
properties; (iv) the Company's lean operating structure allows it to
efficiently manage its Timberlands, and should enable it to acquire additional
timberlands without commensurate increases in overhead; and (v) the Company's
computerized geographic information system ("GIS") enables the Company to
evaluate the optimal timing and patterns of the harvest of its Timberlands and
evaluate and integrate acquisitions of additional timberlands.
BUSINESS STRATEGY
The Company's business strategy is to manage its Timberlands in a manner that
will enable the Master Partnership to pay the Minimum Quarterly Distribution
(as defined in the Glossary) on all the Units (as defined below) and to
increase the per Unit value of the Master Partnership's assets and its cash
flow. Management intends to pursue this strategy in a number of ways:
Continue to Increase Productivity of the Timberlands
The Company intends to continue to utilize and increase the use of various
modern forestry practices on its Timberlands in order to increase their
productivity. Examples of these practices include the use of the Company's GIS,
which enables it to develop optimal harvest plans; the application of selective
harvesting and thinning practices, which improve the productivity of the
remaining stand while providing merchantable timber for sale;
2
<PAGE>
and the development of genetically improved seedlings to grow trees with
desirable traits such as superior size and disease resistance. Certain members
of senior management were involved in the development of these practices while
at Weyerhaeuser, and the Company expects to benefit from their experience.
Maximize Investment in Ochoco Timberlands
In order to maximize its investment in the Ochoco Timberlands, the Company
intends to harvest the mature timber thereon over the next five to six years.
As a result, the Company will convert Ochoco's older, slower growing forests to
younger, more productive forests. In addition, by increasing the harvest on the
Ochoco Timberlands, the Company will be able to reduce the amount of timber
harvested on the Klamath Falls Timberlands, allowing these faster growing
Timberlands to continue to mature, thereby increasing their commercial value.
Pursue Accretive Acquisition Opportunities
The Company intends to identify, evaluate and acquire undervalued timberlands
in North America with the objective of increasing both the value of the Master
Partnership's Units and its cash flow. The Company believes that management's
relationships within the timber industry, as well as its focus on operating
timberlands, rather than conversion facilities, give it a competitive advantage
in developing acquisition opportunities. The Company believes that its use of
independent contractors to conduct its silviculture and harvesting activities
should enable it to operate significantly increased acreage without a
commensurate increase in fixed overhead costs. The Company intends to evaluate
and pursue those opportunities that are located within markets distinguished by
strong demand, that include ages and species that complement the Company's
existing inventory, and that fit the Company's current and long-term value
objectives. In addition, the Company may in the future acquire timberlands
located in areas, and containing timber, suitable for export. By early January
1998, it is expected that Edward J. Kobacker, the current Executive Vice
President and Chief Operating Officer of the Manager, will become the President
and Chief Executive Officer of the Manager and that John J. Stephens, the
current President and Chief Executive Officer, will become Vice Chairman of the
Board of Directors of the Manager in order to devote more time to the Company's
acquisition program.
Implement Flexible Marketing Strategies
The Company's marketing strategy emphasizes flexibility in structuring the
sales of its timber assets. Depending upon the needs of its customers and
current market conditions, the Company can either sell harvested logs or sell
harvest rights to standing timber ("stumpage") and can sell forest by-products,
such as wood chips. The Company believes that its strategy of owning
timberlands rather than conversion facilities that compete with its customers
is an important factor in developing and maintaining strong customer
relationships. Since the Weyerhaeuser Acquisition, the Company has sold logs to
22 different customers and expects to sell to a greater number in the future.
In addition to log and stumpage sales, the Company may also sell or exchange
parcels of land with other timberland owners. For example, the Company may seek
to realize the value of portions of the Plantations by exchanging them for more
mature timber owned by other timberland owners or by selling them for immediate
cash proceeds.
Sell Land for Higher and Better Uses
The Company seeks to realize the value of land that may have a higher and
better use than for timberland management or that is otherwise a candidate for
sale or exchange. For example, some of the Timberlands may have greater value
if used for ranching, farming or recreational purposes. The Company intends to
sell approximately 30,000 acres of small tracts for higher and better uses over
the next ten years. The Company recently sold approximately 12,000 acres from
the Klamath Falls Timberlands. In addition, the Company has identified a tract
of approximately 23,000 acres that it intends to sell within the next five
years. The Company
3
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will also seek to exchange lands with significant environmental sensitivity or
recreational values for lands that are more suitable for commercial timberland
management.
INDUSTRY CONDITIONS
The Company's ability to implement its business strategy over the long term
and its results of operations will depend upon a number of factors, many of
which are beyond its control. These factors include general industry
conditions, domestic and international prices and supply and demand for logs,
lumber and other wood products, seasonality and competition from other domestic
and international supplying regions and substitute products.
Supply
The supply of logs available for purchase has been most affected in recent
years by significant reductions in timber harvested from public timberlands,
principally as a result of efforts to preserve the habitat of certain
endangered species, as well as a change in the emphasis of government policy
toward habitat preservation, conservation and recreation and away from timber
management. Since the early 1970s, environmental and other similar concerns and
governmental policies have substantially reduced the volume of timber under
contract to be harvested from public lands. The pace of regulatory activity
accelerated in the late 1980s. Federal timber under contract in Washington and
Oregon decreased approximately 88% from approximately 8.4 BBF in January 1988
to approximately 1.0 BBF in January 1997. The resulting supply decrease caused
prices for logs to increase significantly, reaching peak levels during late
1993 and early 1994. Although prices have declined from these record levels,
current prices still exceed pre-1993 levels. The low supply of timber from
public lands, which is expected to continue for the foreseeable future, has
benefited private timber holders, such as the Company, through higher stumpage
and log prices.
Industry participants do not expect environmental restrictions to ease
materially within any reasonable planning horizon. Consequently, many producers
of lumber and wood products are attempting to adapt to the new supply
environment by increasing their emphasis on raw material yields, entering into
long term timber supply arrangements and value-added manufacturing, and
accessing previously untapped supplies (such as private wood lot owners, timber
with difficult access, alternative species and imports). These factors have
tended to restrict prices from even greater increases. While raw material
supply is expected to be an ongoing challenge for the lumber and wood products
industry, such conditions are likely to cause the favorable operating
environment for timber owners, such as the Company, to continue for the
foreseeable future.
In response to an increase in timber prices in the early 1990s, imports of
logs and lumber from abroad (from countries such as Canada and New Zealand)
increased. These imports, however, only partially offset the lost volume of
timber from public timberlands and did not replace the mature, high-quality
timber found in greater quantities on public timberlands. Since 1993, imports
have decreased and their impact on timber prices currently is minimal.
Demand
Changes in general economic and demographic factors, including the strength
of the economy and interest rates for home mortgages and construction loans,
have historically caused fluctuations in housing starts and, in turn, in the
demand and prices for lumber and commodity wood products. With the growth of
the home center distribution business, the repair and remodeling markets have
become a significant factor in terms of the demand for lumber and commodity
wood products and have dampened the wide fluctuations that occurred when new
housing starts were the primary factor. A large portion of the Company's
property consists of Pine species, which are used in the finishing market, for
molding trim, doors and windows. This market is more affected by repair
4
<PAGE>
and remodeling than new housing construction. Prices for these species,
primarily Ponderosa Pine, reached a peak in the spring of 1993 and as a result
attracted imports of Radiata Pine from New Zealand and Chile. The market
absorbed these relatively small quantities with little impact on prices. The
demand for logs in the United States is also affected by the level of lumber
imports. In response to increasing lumber imports from Canada, the United
States and Canada signed an agreement in 1996 which restricts the availability
of Canadian softwood lumber in the United States. The Company believes that to
date this agreement has not had a material impact on the price or demand for
logs in the United States, although its long-term effect is uncertain.
Due to transportation costs, domestic conversion facilities in the Pacific
Northwest tend to purchase raw materials within relatively confined geographic
areas, generally within a 200-mile radius. The conversion facilities in the
vicinity of the Timberlands need more wood supply to run at capacity than can
be produced by nearby timberlands. As a result, the demand from this region is
relatively steady, although prices fluctuate with market conditions.
U.S. TIMBERLANDS FINANCE CORP.
Finance Corp., a wholly-owned corporate subsidiary of the Company which has
nominal assets and will not conduct any operations, is acting as co-obligor for
the Notes. Certain institutional investors that might otherwise be limited in
their ability to invest in securities issued by limited liability companies, by
reason of the legal investment laws of their states of organization or their
charter documents, may be able to invest in the Notes because Finance Corp. is
a co-obligor.
TRANSACTIONS AT CLOSING
Concurrent with the closing of this offering, Old Services will contribute
all of its assets, including its timber operations, to U.S. Timberlands
Services Company, L.L.C., a newly formed Delaware limited liability company and
the managing member of the Company (the "Manager" or "New Services"), in
exchange for interests therein. Immediately thereafter, the Company will assume
certain indebtedness of U.S. Timberlands Holdings, L.L.C., an affiliate of the
Company ("Holdings"), and the Manager will contribute its timber operations to
the Company in exchange for the managing member interest in the Company. Then
the Manager will contribute all but a 1% member interest in the Company to the
Master Partnership in exchange for a general partner interest in the Master
Partnership, the right to receive Incentive Distributions (as defined in the
Glossary) and 1,428,571 subordinated limited partner interests in the Master
Partnership ("Subordinated Units" and, collectively with the Common Units, the
"Units") and Holdings will contribute all of its interest in the Company to the
Master Partnership in exchange for 2,978,833 Subordinated Units. The Manager
will then distribute the Subordinated Units to Old Services. Approximately
145,278 Subordinated Units will be used by Old Services to redeem interests in
Old Services held by John J. Stephens and George R. Hornig, founding directors
of the Manager. As a result of such transactions, the Company will become the
operating subsidiary of the Master Partnership and the Manager will own an
aggregate 2% interest in the Master Partnership and the Company on a combined
basis and the right to receive Incentive Distributions; Old Services will own
1,283,293 Subordinated Units; Holdings will own 2,978,833 Subordinated Units;
and Messrs. Stephens and Hornig will own an aggregate of 145,278 Subordinated
Units. The 4,407,404 Subordinated Units owned by Old Services, Holdings and
Messrs. Stephens and Hornig will represent an aggregate 36.4% interest in the
Company.
Use of Proceeds
Concurrent with the closing of this offering, (i) the Master Partnership will
issue and sell 7,458,684 Common Units through a public offering (the "MLP
Offering"), (ii) the Company will enter into the Bank Credit Facility, which
will include a $25.0 million Working Capital Facility and a $75.0 million
Acquisition Facility, and (iii) the Master Partnership will contribute to the
Company the net proceeds from the sale of the Common Units (estimated to be
approximately $143.4 million after deducting underwriting discounts and
commissions and expenses associated with the MLP Offering and assuming that the
underwriters' over-allotment
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<PAGE>
option with respect to the MLP Offering is not exercised). The net proceeds
from the sale of the Notes offered hereby (estimated to be approximately $217.8
million after deducting underwriting discounts and commissions and expenses
associated with this offering), together with the net proceeds from the sale of
Common Units, approximately $18.6 million to be borrowed by the Company under
the Acquisition Facility and cash on hand (estimated to be approximately $52.0
million), will be used by the Company to repay approximately $431.8 million of
indebtedness of the Company (including accrued interest).
For additional information regarding the terms of the Bank Credit Facility,
see "Description of Bank Credit Facility."
The following table sets forth an estimated breakdown of the sources and uses
of funds contemplated by the Transactions.
<TABLE>
<CAPTION>
AMOUNTS
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
Net Proceeds from Notes offering (a)........................... $217.8
Net Proceeds from MLP Offering (b)............................. 143.4
Drawdown on Acquisition Facility............................... 18.6
Cash on hand................................................... 52.0
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Total........................................................ $431.8
======
USES OF FUNDS
Repayment of outstanding bank indebtedness (c)................. $431.8
======
</TABLE>
- --------
(a) After approximately $7.2 million in underwriting discounts and commissions
and expenses relating to this offering.
(b) After approximately $13.2 million in underwriting discounts and commissions
and expenses relating to the MLP Offering.
(c) Represents (i) $130.0 million of bank debt incurred by Holdings in
connection with the Company's acquisition of the Klamath Falls Timberlands,
$3.6 million in loan guarantee fees payable to Weyerhaeuser (the "Guarantee
Fees") and approximately $9.9 million of accrued interest and (ii) $283.0
million of bank debt incurred by the Company to refinance indebtedness
incurred in connection with its acquisition of the Klamath Falls
Timberlands and to finance the acquisition of the Ochoco Timberlands and
approximately $5.3 million of accrued interest.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following tables set forth for the periods and at the dates indicated,
summary historical financial and operating data for the Company, and pro forma
financial and operating data after giving effect to the Weyerhaeuser
Acquisition and the Transactions. The summary historical operating statement
data for the two years ended December 31, 1995, the eight months ended August
29, 1996 and the balance sheet data as of December 31, 1995 are derived from
the historical audited financial statements of the southern Oregon timberlands
operations of Weyerhaeuser (the "Predecessor") which were prepared by the
Company and should be read in conjunction with such financial statements
included elsewhere in this Prospectus. The summary historical combined
financial data for the four months ended December 31, 1996 are derived from the
historical combined audited financial statements of the Company, and the
summary historical financial data for the one month ended September 30, 1996
and the nine months ended September 30, 1997 are derived from the historical
unaudited combined financial statements of the Company included elsewhere in
this Prospectus. In the opinion of management, each of the unaudited financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair statement of the results for the unaudited periods. The
summary pro forma financial and operating data of the Company are derived from
the unaudited pro forma consolidated financial statements and notes thereto
included elsewhere in this Prospectus and should be read in conjunction
therewith. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The dollar amounts in the table below are
in thousands.
<TABLE>
<CAPTION>
COMPANY PRO
PREDECESSOR COMPANY(A) FORMA(B)
--------------------------------------------------- ------------ ------------
JANUARY 1, AUGUST 30,
1996 1996
YEAR ENDED DECEMBER 31, THROUGH THROUGH YEAR ENDED
--------------------------------------- AUGUST 29, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1996 1996
----------- ----------- ------- ------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenues:
Logs................... $27,225 $28,609 $29,102 $29,110 $14,077 $ 13,590 $ 27,667
Timberland and property
sales................. -- 4,180 -- -- -- -- --
By-products and other.. 4,354 3,537 3,240 2,623 1,501 429 1,930
------- ------- ------- ------- ------- -------- --------
Total revenues......... 31,579 36,326 32,342 31,733 15,578 14,019 29,597
Operating costs:
Cost of products sold.. 12,830 15,697 16,351 14,951 9,225 6,179 15,404
Cost of timber and
property sales........ -- 58 -- -- -- -- --
Depreciation, depletion
and road
amortization.......... 1,531 1,443 1,455 1,486 927 3,323 8,376
Selling, general and
administrative
expenses.............. 4,069 4,034 4,454 4,235 2,730 9,284 7,079 (c)
------- ------- ------- ------- ------- -------- --------
Operating income
(loss)................ 13,149 15,094 10,082 11,061 2,696 (4,767) (1,262)
Interest expense....... -- -- -- -- -- 7,316 24,813
Amortization of
deferred financing
fees and debt
guarantee fees........ -- -- -- -- -- 1,326 725
Interest income........ -- -- -- -- -- (409) (409)
Other (income) expense,
net................... (322) 297 140 (555) 1 36 37
------- ------- ------- ------- ------- -------- --------
Net income (loss)...... $13,471 $14,797 $ 9,942 $11,616 $ 2,695 $(13,036) $(26,428)
======= ======= ======= ======= ======= ======== ========
Non-managing member's
interest in net loss.. $(26,164)
========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
COMPANY PRO
PREDECESSOR COMPANY(a) FORMA(b)
---------------------------------------------------- ------------ ------------
JANUARY 1,
1996 AUGUST 30,
YEAR ENDED DECEMBER 31, THROUGH 1996 THROUGH YEAR ENDED
---------------------------------------- AUGUST 29, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1996 1996
----------- ----------- ------- ------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS AND OTHER
DATA:
EBITDDA(d)............. $ 14,680 $16,595 $11,537 $12,547 $ 3,623 $ (1,444) $ 7,114
Capital expenditures--
Maintenance(e)........ 1,553 1,157 2,098 2,082 459 360
Ratio of earnings
(losses) to fixed
charges(f)............
Cash flow from (used
in) operations........ 16,784 15,124 13,173 11,810 5,512 (2,984)
Cash flow used in
investing............. (1,553) (1,157) (2,013) (1,859) (459) (291,450)
Cash flow from (used
in) financing......... (15,231) (13,967) (11,160) (9,951) (5,054) 311,047
BALANCE SHEET DATA (AT
PERIOD END):
Working capital........ $ 793 $ 2,068 $ 211 $ 1,304 $ 524 $ 21,459
Timber, timberlands and
logging roads, net ... 22,050 21,495 20,885 20,822 21,275 273,457
Total assets........... 30,787 32,292 29,844 30,947 27,839 310,191
Long-term debt......... -- -- -- -- -- 305,000
Excess of assets over
liabilities........... 29,220 29,643 27,745 29,155 27,839
Members' deficit....... (2,936)
OPERATING DATA
(UNAUDITED):
Harvest volumes (MBF):
Used in log and
stumpage sales(g)..... 70,982 69,291 68,208 63,614 32,760 27,389 60,149
Used in chip sales..... 33,012 18,996 10,224 18,315 5,196 -- 5,196
Total................. 103,994 88,287 78,432 81,929 37,956 27,389 65,345
Sales volumes:
Log and stumpage sales
(MBF)(g).............. 70,903 66,250 68,302 63,822 32,760 30,210 62,970
Timber and property
sales (MBF)........... -- 9,449 -- -- -- -- --
Chip sales (BDT)....... 98,802 52,278 38,380 25,702 20,568 7,174 27,742
</TABLE>
<TABLE>
<CAPTION>
COMPANY
PRO
PREDECESSOR COMPANY(a) FORMA(b)
----------- ----------------------------- -------------
JANUARY 1,
1996 AUGUST 30, 1996 NINE MONTHS NINE MONTHS
THROUGH THROUGH ENDED ENDED
AUGUST 29, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997 1997
----------- --------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenues:
Logs................... $14,077 $ 1,916 $ 36,819 $ 36,819
Timberland and property
sales................. -- -- 3,494 3,494
By-products and other.. 1,501 -- 744 744
------- -------- -------- --------
Total revenues......... 15,578 1,916 41,057 41,057
Operating costs:
Cost of products sold.. 9,225 1,404 12,101 12,101
Cost of timber and
property sales........ -- -- 1,191 1,191
Depreciation, depletion
and road
amortization.......... 927 240 10,758 10,758
Selling, general and
administrative
expenses.............. 2,730 8,040 4,300 4,300
------- -------- -------- --------
Operating income....... 2,696 (7,768) 12,707 12,707
Interest expense....... -- 1,927 17,818 18,609
Amortization of
deferred financing
fees and debt
guarantee fees........ -- 330 2,954 544
Interest income........ -- -- (1,192) (1,192)
Other (income) expense,
net................... 1 (12) (48) (48)
------- -------- -------- --------
Income (loss) before
extraordinary item.... $ 2,695 $(10,013) $ (6,825) $ (5,206)
Extraordinary item-loss
on extinguishment of
debt.................. -- -- 3,571 3,571
------- -------- -------- --------
Net income (loss)...... $ 2,695 $(10,013) $(10,396) $ (8,777)
======= ======== ======== ========
Non-managing member's
interest in net loss.. $(10,396) $ (8,689)
======== ========
CASH FLOWS AND OTHER
DATA:
EBITDDA(d)............. $ 3,623 $ (7,529) $ 24,656 $ 24,656
Capital expenditures--
Maintenance(e)........ 459 140 798
Ratio of earnings to
fixed charges(f)......
Cash flow from (used
in) operations........ 5,512 (2,714) 9,691
Cash flow from (used
in) investing......... (459) (292,396) (101,271)
Cash flow from (used
in) financing......... (5,054) 311,172 98,999
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
COMPANY
PRO
PREDECESSOR COMPANY(a) FORMA(b)
--------------- ----------------------------- -------------
JANUARY 1, 1996 AUGUST 30, 1996 NINE MONTHS NINE MONTHS
THROUGH THROUGH ENDED ENDED
AUGUST 29, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997 1997
--------------- --------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
PERIOD END):
Working capital........ $ 524 $ 21,573 $ 15 $ 4,088
Timber, timberlands and
logging roads, net.... 21,275 276,504 373,230 373,230
Total assets........... 27,839 314,898 415,227 394,154
Long-term debt......... -- 305,000 413,000 267,143
Excess of assets over
liabilities........... 27,839
Members' equity (defi-
cit).................. 86 (14,523) 120,647
OPERATING DATA
(UNAUDITED):
Harvest volumes (MBF):
Used in log and
stumpage sales(g)..... 32,760 2,065 82,693 82,693
Used in chip sales..... 5,196 -- 3,011 3,011
Total................. 37,956 2,065 85,704 85,704
Sales volumes:
Log and stumpage sales
(MBF)(g).............. 32,760 4,476 82,693 82,693
Timber and property
sales (MBF)........... -- -- 11,045 11,045
Chip sales (BDT)....... 20,568 -- 8,981 8,981
</TABLE>
- --------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the financial and
operating data after August 30, 1996 are not comparable to financial and
operating data of the Predecessor. See the financial statements of the
Company and accompanying notes included elsewhere in this Prospectus for
additional information.
(b) The Company's pro forma consolidated financial and operating data are
derived from the unaudited pro forma consolidated financial statements of
the Company included elsewhere in this Prospectus.
(c) Includes $2,800 paid to an affiliate for management services. The Company
does not intend to pay such management fees subsequent to completion of the
Transactions.
(d) EBITDDA is defined as operating income plus depreciation, depletion and
road amortization and cost of timber and property sales. EBITDDA should not
be considered as an alternative to net income, operating income, cash flows
from operating activities or any other measure of financial performance
presented in accordance with generally accepted accounting principles.
EBITDDA is not intended to represent cash flow but provides additional
information for evaluating the Company's ability to service its
indebtedness. In addition, EBITDDA does not necessarily represent funds
available for management's discretionary use as it is calculated prior to
debt service obligations and capital expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Description of Bank Credit Facility", and "Description of Notes."
(e) Maintenance capital expenditures include the replacement of property, plant
and equipment, capitalized seed orchard and nursery costs and additions to
timber, timberlands and logging roads.
(f) For purposes of calculating the ratio of earnings (losses) to fixed charges
"earnings (losses)" are net income (loss) plus fixed charges and "fixed
charges" are composed of interest on indebtedness, amortization of deferred
financing costs and debt guarantee fees. Earnings were insufficient to
cover fixed charges by $13,036, $10,396, $26,428 and $8,777, for the
historical period from August 30, 1996 through December 31, 1996, the
historical nine-month period ended September 30, 1997 and for the pro forma
year ended December 31, 1996 and nine months ended September 30, 1997,
respectively. The Predecessor participated in Weyerhaeuser's centralized
cash management system and therefore had no indebtedness or fixed charges.
(g) The Company had no stumpage sales prior to April 1997.
9
<PAGE>
COMPANY STRUCTURE AND MANAGEMENT
The Company will be the operating subsidiary of the Master Partnership. Upon
consummation of the Transactions, the Master Partnership will own a 98.9899%
member interest in the Company and the Manager will own a 1.0101% managing
member interest in the Company and a 1.0% general partner interest in the
Master Partnership. The Manager therefore will own an aggregate 2% interest in
the Company and the Master Partnership on a combined basis.
Following this offering and the MLP Offering, the senior executives who
currently manage the Company and Old Services will manage and operate the
Company's business as the senior executives of the Manager. The Manager will
not receive any management fee or other compensation in connection with its
management of the Company, but will be reimbursed for all direct and indirect
expenses incurred on behalf of the Company and all other necessary or
appropriate expenses allocable to the Company or otherwise reasonably incurred
by the Manager in connection with the operation of the Company's business.
The principal executive offices of the Company and the Master Partnership are
located at 6400 Highway 66, Klamath Falls, Oregon 97601. The telephone number
at such offices is (541) 884-2240. The principal executive offices of the
Manager are located at 625 Madison Avenue, Suite 10-B, New York, New York
10022. The telephone number at such offices is (212) 755-1100.
The following charts depict the organization and ownership of (i) the Company
and Old Services prior to the consummation of the Transactions and (ii) the
Company and the Master Partnership immediately after giving effect to the
consummation of the Transactions, including the sale of the Common Units, and
assumes that the underwriters' over-allotment option in connection therewith is
not exercised. The percentages reflected in the second chart represent the
approximate ownership interest in each of the Company and the Master
Partnership individually and not on an aggregate basis. Except in the second
chart, the ownership percentages referred to in this Prospectus reflect the
approximate effective ownership interest of the Unitholders in the Master
Partnership and the Company on a combined basis. The 2% ownership percentage of
the Manager referred to in this Prospectus reflects the approximate effective
ownership interest of the Manager in the Company and the Master Partnership on
a combined basis.
10
<PAGE>
[Current Ownership Structure]
11
<PAGE>
[Effective Aggregate Ownership of the Company
and the Master Partnership]
12
<PAGE>
THE OFFERING
Issuers..................... U.S. Timberlands Klamath Falls, L.L.C. and U.S.
Timberlands Finance Corp. (the "Issuers").
Securities Offered.......... $225.0 million aggregate principal amount of %
Senior Notes due 2007 (the "Notes").
Maturity Date............... , 2007.
Payment Dates............... The Notes will bear interest from the date of
issuance at the rate of % per annum, payable
semi-annually in arrears on , and , of
each year, commencing on , 1998.
Ranking.....................
The Notes will be senior unsecured joint and
several obligations of the Issuers. The Notes
will rank senior to all existing and future
subordinated indebtedness of the Issuers. The
Notes will rank pari passu in right of payment
with all future senior indebtedness of the
Issuers. At September 30, 1997, after giving pro
forma effect to this offering and the other
transactions described herein, the Company would
have had outstanding long-term indebtedness,
other than the Notes, of approximately $42.1
million, consisting solely of borrowings under
the Acquisition Facility. The Notes will be non-
recourse to the Manager and the Master
Partnership.
Mandatory Redemption........ The Issuers are not required to make mandatory
redemption or sinking fund payments with respect
to the Notes.
Optional Redemption......... The Notes will be redeemable, in whole or in
part, at the option of the Issuers on or after
, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon
to the redemption date. In addition, at any time
on or prior to , 2000, the Issuers may
redeem Notes with the net cash proceeds of a
public offering of Common Units or other equity
interests of the Master Partnership or of equity
interests of the Company, at % of the
principal amount hereof, plus accrued and unpaid
interest thereon to the redemption date, provided
that at least 65% of the principal amount of
Notes originally issued remain outstanding
immediately following such redemption. See
"Description of the Notes--Optional Redemption."
Change of Control........... Upon a Change of Control, each holder of the
Notes will have the right to require the Issuers
to repurchase all or any part of such holder's
Notes at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid
interest thereon to the date of purchase. There
can be no assurance that the Issuers will have
adequate funds available to repurchase the Notes.
See "Risk Factors--Risks Inherent in an
Investment in the Company--Inability to Fund a
Change of Control Offer."
Certain Covenants........... The Indenture contains covenants restricting or
limiting the ability of the Company and its
Restricted Subsidiaries (as defined herein) to,
among other things, (i) pay distributions or make
other restricted
13
<PAGE>
payments, (ii) incur additional indebtedness and
issue preferred stock, (iii) enter into sale and
leaseback transactions, (iv) create liens, (v)
incur dividend and other payment restrictions
affecting Subsidiaries, (vi) sell assets or
harvest timber in excess of certain limitations,
(vii) enter into mergers, consolidations or sales
of all or substantially all assets, (viii) enter
into transactions with affiliates or (ix) engage
in other lines of business. However, these
covenants are subject to certain exceptions.
Use of Proceeds............. The net proceeds to the Company from the sale of
the Notes offered hereby will be approximately
$217.8 million, after deducting underwriting
discounts and commissions and other expenses
associated with this offering. The net proceeds
of this offering, the net proceeds from the MLP
Offering, borrowings under the Acquisition
Facility and cash on hand will be applied to
repay indebtedness of the Company (including
accrued interest and the Guarantee Fees) upon
consummation of the Transactions. See "Use of
Proceeds."
Listing..................... The Notes have been approved for listing on the
New York Stock Exchange (the "NYSE"), subject to
official notice of issuance.
Proposed NYSE Symbol........ "TIMBZ 07."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the information
set forth in "Risk Factors" and elsewhere in this Prospectus in evaluating an
investment in the Notes.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements and information that are
based on the beliefs of the Company and the Manager, as well as assumptions
made by, and information currently available to, the Company and the Manager.
All statements, other than statements of historical fact, included in this
Prospectus are forward-looking statements, including, but not limited to,
statements identified by the words "anticipate", "believe", "estimate" and
"expect" and similar expressions and statements regarding the Company's
business strategy, plans and objectives of management of the Company for
future operations. Such statements reflect the current views of the Company
and the Manager with respect to future events, based on what they believe are
reasonable assumptions; however, such statements are subject to certain risks,
uncertainties and assumptions, including, but not limited to, the risk factors
described in this Prospectus. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, actual results may
vary materially from those in the forward-looking statements. The Company does
not intend to update these forward-looking statements and information.
RISK FACTORS
Prospective purchasers of the Notes should consider the following risk
factors in evaluating an investment in the Notes.
RISKS INHERENT IN AN INVESTMENT IN THE COMPANY
The Company's Indebtedness May Affect its Operations
On a pro forma basis at September 30, 1997, the Company's total long-term
indebtedness would have been approximately $267.1 million, representing
approximately 69% of the Company's total capitalization. As a result, the
Company will be significantly leveraged and will have indebtedness that is
substantial in relation to its equity capital. Upon consummation of the
Transactions, the Company will have outstanding $225.0 million in Notes, and
approximately $18.6 million in borrowings under the Acquisition Facility and
approximately $81.4 million of unused borrowing capacity under the Bank Credit
Facility. Future borrowings could result in a significant increase in the
Company's leverage. The ability of the Company to make principal and interest
payments depends on future performance, which performance is subject to many
factors, a number of which will be outside the Company's control. The
Company's leverage may adversely affect the ability of the Company to finance
its future operations and capital needs, limit its ability to pursue
acquisitions and other business opportunities and make its results of
operations more susceptible to adverse economic or operating conditions. See
"Description of Bank Credit Facility" and "Description of Notes."
Possible Insufficiency of Assets in the Event of a Fraudulent Conveyance
The incurrence by the Issuers of indebtedness such as the Notes for the
purposes described herein may be subject to review under relevant federal and
state fraudulent conveyance laws if a bankruptcy case or a lawsuit (including
in circumstances where bankruptcy is not involved) is commenced by or on
behalf of unpaid creditors of the Issuers. Under these laws, if a court were
to find that, at the time the Notes were issued, (a) the Issuers either
incurred indebtedness represented by the Notes with the intent of hindering,
delaying or defrauding creditors or received less than reasonably equivalent
value or fair consideration for incurring such indebtedness and (b) the
Issuers (i) were insolvent or were rendered insolvent by reason of such
transaction, (ii) were engaged in a business or transaction for which the
assets remaining with them constituted unreasonably small capital or (iii)
intended to incur, or believed that they would incur, debts beyond their
ability to pay such debts as they matured, such court may subordinate the
Notes to presently existing and future indebtedness of the Issuers, void the
issuance of the Notes and direct the repayment of any amounts paid thereunder
to the Issuers or to a fund for the benefit of the Issuers' creditors, or take
other action detrimental to the holders of the Notes.
15
<PAGE>
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, an entity would
be considered insolvent for purposes of the foregoing if the sum of its debts,
including contingent liabilities, were greater than the fair saleable value of
all of its assets at fair valuation, 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 matured.
Fraudulent Conveyance Considerations Relating to Subsidiary Guarantees
The Indenture pursuant to which the Notes will be issued (the "Indenture")
will not require any subsidiary to guarantee the Notes unless such subsidiary
guarantees other indebtedness of the Company. On the date of the Indenture,
there are expected to be no Subsidiary Guarantors (as defined herein). The
incurrence of any Subsidiary Guarantees (as defined herein) in the future may
be subject to review under relevant federal and state fraudulent conveyance
laws if a bankruptcy case or a lawsuit (including in circumstances where
bankruptcy is not involved) is commenced by or on behalf of unpaid creditors
of the Subsidiary Guarantor. Under these laws, if a court were to find that,
at the time the Subsidiary Guarantee was incurred (a) the Subsidiary Guarantor
either incurred the Subsidiary Guarantee with the intent of hindering,
delaying or defrauding creditors or received less than reasonably equivalent
value or fair consideration for incurring such Subsidiary Guarantee and (b)
the Subsidiary Guarantor (i) was insolvent or was rendered insolvent by reason
of such transaction, (ii) was engaged in a business or transaction for which
the assets remaining with it constituted unreasonably small capital or
(iii) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, such court may subordinate the
Subsidiary Guarantee to presently existing and future indebtedness of the
Subsidiary Guarantor, void the issuance of the Subsidiary Guarantee and direct
the repayment of any amounts paid thereunder to the Subsidiary Guarantor, or
to a fund for the benefit of the Subsidiary Guarantor's creditors, or take
other action detrimental to the holders of the Notes. Among other things, a
legal challenge of the Subsidiary Guarantee issued by such Subsidiary
Guarantor on fraudulent conveyance grounds may focus on the benefits, if any,
realized by such Subsidiary Guarantor as a result of the issuance by the
Issuers of the Notes. To the extent the Subsidiary Guarantee was avoided as a
fraudulent conveyance or held unenforceable for any other reason, the holders
of the Notes would cease to have any claim against such Subsidiary Guarantor
and would be creditors solely of the Company and any Subsidiary Guarantors
whose Subsidiary Guarantees were not avoided or held unenforceable. In such
event, the claims of the holders of the Notes against the issuer of an invalid
Subsidiary Guarantee would be subject to the prior payment of all liabilities
of such Subsidiary Guarantor. See "Description of Notes--Subsidiary Guarantees
of Notes."
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, a Subsidiary
Guarantor would be considered insolvent for purposes of the foregoing if the
sum of its debts, including contingent liabilities, were greater than the fair
saleable value of all of its assets at fair valuation, 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 matured.
The Company Has a Limited Operating History; Recent Losses
The Klamath Falls Timberlands and the Ochoco Timberlands, prior to their
acquisition by the Company, had been part of Weyerhaeuser and Ochoco,
respectively, and had not been operated as separate businesses or divisions.
In addition, prior to the Company's acquisition of the Timberlands, sales from
the Timberlands were generally made to affiliated conversion facilities and
not to unaffiliated customers. Although the Company has operated the Klamath
Falls Timberlands since September 1996, and sales during such period have been
made exclusively to unaffiliated customers, there can be no assurance that the
Company will be able to manage successfully the Timberlands as a separate
business on a profitable basis. For the years ended December 31, 1994 and 1995
and the eight-month period ended August 29, 1996, the Company had net income
of $9.9 million, $11.6 million and $2.7 million, respectively. Since the
Weyerhaeuser Acquisition, the Company has had net losses of $13.0 million and
$10.4 million for the four-month period ended December 31, 1996 and the nine
months ended
16
<PAGE>
September 30, 1997, respectively. On a pro forma basis, the Company would have
had net losses of $26.4 million and $8.8 million for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively.
Change of Management Provisions
Following this offering, the ownership of Subordinated Units by certain
affiliates of the Manager will effectively preclude the removal of the Manager
as managing member of the Company or as general partner of the Master
Partnership without its consent. In addition, the Amended and Restated
Agreement of Limited Partnership of the Master Partnership (the "MLP
Partnership Agreement") contains certain provisions that may have the effect
of discouraging a person or group from attempting to remove the Manager as
managing member of the Company or as general partner of the Master Partnership
or otherwise change the management of the Company.
Absence of Trading Markets
The Notes will be a new issue of securities for which there currently is no
public market. Although the Notes have been approved for listing on the NYSE,
subject to official notice of issuance, no assurance can be given as to the
liquidity of any market for the Notes. The Underwriters have informed the
Company that they currently intend to make a market in the Notes, although the
Underwriters are not obliged to do so and may discontinue such market-making
at any time. In addition, such market-making activity will be subject to
limits imposed by the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Inability to Fund a Change of Control Offer
The Company must offer to purchase the Notes upon the occurrence of certain
events. The Indenture will provide that in the event of a Change of Control,
the Issuers will be required, subject to certain conditions, to offer to
purchase all outstanding Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon to the date of
purchase. On a pro forma basis after giving effect to the Transactions, the
Issuers will not have sufficient funds available to purchase all of the
outstanding Notes were they to be tendered in response to an offer made as a
result of a change of control. See "Description of Notes--Repurchase at the
Option of Holders--Change of Control."
RISKS INHERENT IN THE COMPANY'S BUSINESS
Cyclicality of Forest Products Industry Will Affect the Company's Results of
Operations
The Company's results of operations are, and will continue to be, affected
by the cyclical nature of the forest products industry. Prices and demand for
logs have been, and in the future can be expected to be, subject to cyclical
fluctuations. The demand for logs is primarily affected by the level of new
residential construction activity, and, to a lesser extent, repair and
remodeling activity and other industrial uses, which are subject to
fluctuations due to changes in economic conditions, interest rates, population
growth, weather conditions and other factors. Decreases in the level of
residential construction activity will be reflected in reduced demand for
logs, which may result in lower revenues, profits and cash flows.
Timber Supply May Increase in the Future
Various factors, including environmental and endangered species concerns,
have limited, and are likely to continue to limit, the amount of timber
offered for sale by certain United States government agencies, which
historically have been major suppliers of timber to the United States forest
products industry. Federal timber under contract in Washington and Oregon
decreased approximately 88% from approximately 8.4 BBF in January 1988 to
approximately 1.0 BBF in January 1997.
17
<PAGE>
Although the Company believes that sales of timber by United States
government agencies are likely to remain at relatively low levels for the
foreseeable future, any reversal of policy that substantially increases such
sales could significantly reduce prices for logs, which could have a material
adverse effect on the Company. Furthermore, increased imports from Canada (due
to the expiration in 2001 of the United States-Canada lumber trade agreement
or otherwise) and other foreign countries could reduce the prices the Company
receives for its timber.
The Company's Ability to Harvest Timber Will be Subject to Limitations
Revenues, net income and cash flow from the Company's operations will be
dependent to a significant extent on its ability to harvest timber at adequate
levels. There can be no assurance that the Company will in the future achieve
harvest levels necessary to maintain or increase revenues, net income or cash
flows. Weather conditions, timber growth cycles, access limitations and
regulatory requirements associated with the protection of wildlife and water
resources or any shortage of contract loggers may restrict harvesting of the
Timberlands, as may other factors, including damage by fire, insect
infestation, disease, prolonged drought and natural disasters. For example in
1993, approximately 30,000 acres of the Timberlands had to be partially
salvaged due to an infestation of the fir engraver beetle. One or more major
fires on the Timberlands could adversely affect the Company's operating
results. Although damage from such causes usually is localized and affects
only a limited percentage of the timber, there can be no assurance that any
damage to the Timberlands will, in fact, be so limited. The risks to the
Company described above are somewhat heightened because of the concentration
of the Timberlands in central Oregon. As is typical in the forest products
industry, the Company does not maintain insurance coverage with respect to
damage to its timberlands. Even if such insurance were available, the cost
would be prohibitive.
A substantial portion of the Klamath Falls Timberlands consists of sections
of land that are intermingled with or adjacent to sections of federal land
managed by the United States Department of Agriculture--Forest Service
("USFS") and the United States Department of Interior Bureau of Land
Management ("BLM"). In many cases, access is only, or most economically,
achieved through a road or roads built across adjacent federal land. In order
to access such intermingled timberlands, the Company has in the past obtained
and will need to continue to obtain either temporary or permanent access
rights across these public lands. Although the Company currently has legal
access to substantially all of the merchantable timber included in the
Timberlands, this process has often been, and will likely continue to be,
affected by, among other things, the requirements of the Endangered Species
Act, the National Environmental Policy Act and the Clean Water Act. See
"Business and Properties--Federal and State Regulation."
The Company is Subject to Federal and State Environmental and Endangered
Species Regulation
The Company is subject to regulation under various environmental laws,
including the Endangered Species Act, as well as similar state laws and
regulations. The Endangered Species Act and state legislation protect species
threatened with possible extinction. A number of species indigenous to the
Timberlands have been and in the future may be protected under these laws,
including the northern spotted owl, bald eagle, northern goshawk and bull
trout. Protection of endangered and threatened species may include
restrictions or prohibitions on timber harvesting, road building and other
silvicultural activities on private, federal and state land containing the
affected species. See "Business and Properties--Federal and State Regulation."
Although the Company has identified bald eagle, northern spotted owl and
northern goshawk nesting areas on the Timberlands and the presence of bull
trout in certain of its streams, the Company, in cooperation with the Oregon
Department of Fish and Wildlife, has developed plans for managing such species
and does not believe that such plans will have a material adverse effect on
the Company's ability to harvest the Timberlands in accordance with current
harvest plans. There can be no assurance, however, that species on or around
the Timberlands may not subsequently receive protected status under the
Endangered Species Act or that currently protected species may not be
discovered in significant numbers on or around the Timberlands. Any such
changes could materially and adversely affect the results of operations of the
Company.
18
<PAGE>
The Federal Water Pollution Control Act authorizes the regulation of wetland
areas. Timberlands within a wetlands area may be subject to access limitations
or prohibitions, and may involve the expenditure of substantial sums for the
protection of such wetland areas. The Federal Insecticide, Fungicide, and
Rodenticide Act regulates the use of pesticides that may be used in forestry
practices. Violations of various statutory and regulatory programs that apply
to the Company's operations can result in civil penalties, remediation
expenses, natural resource damages, potential injunctions, cease and desist
orders and criminal penalties. Some environmental statutes impose strict
liability, rendering a person liable for environmental damage without regard
to negligence or fault on the part of such person. There can be no assurance
that such laws or future legislation or administrative or judicial action with
respect to protection of the environment will not adversely affect the
Company.
The Company Experiences Significant Competition
The forest products industry is highly competitive in terms of price and
quality. Many of the Company's competitors have substantially greater
financial and operating resources than the Company. Wood products are subject
to increasing competition from a variety of non-wood products, which affects
the demand for logs. In addition, competition from imported logs and end-use
wood products from foreign sources into the United States may adversely affect
the demand and prices for the Company's timber. To the extent there is a
significant increase in competitive pressures, the Company's results of
operations could be materially and adversely affected. See "Business and
Properties--The Timberlands--Competition."
Risks of Acquisition Strategy
The Company intends to pursue acquisitions as one means of increasing both
the value of the Master Partnership's Units and its cash flow. The Company
cannot predict whether it will be successful in consummating any such
acquisitions or what the consequences of any such acquisitions would be.
Moreover, there can be no assurance that general economic or industry
conditions will be conducive to the Company's acquisition strategy, that the
Company will be able to identify and acquire any such assets or businesses on
economically acceptable terms, that any acquisitions will not be dilutive to
earnings. Covenants in the Indenture and the Bank Credit Facility might
restrict the ability of the Company to incur indebtedness to finance
acquisitions. The Company currently has no commitments to acquire any material
assets.
The Company's acquisition strategy involves numerous risks, including
difficulties inherent in the integration of operations and systems, the
diversion of management's attention from other business concerns and the
potential loss of key employees of acquired businesses. In addition, future
acquisitions also may involve the expenditure of significant funds. Depending
upon the nature, size and timing of future acquisitions, the Company may be
required to secure additional financing. There is no assurance that such
additional financing will be available to the Company on acceptable terms.
The Company Will Be Dependent Upon Key Personnel
The Company believes that its success will depend to a significant extent
upon the efforts and abilities of its senior operating management team. The
failure by the Manager to retain the key members of its senior operating
management team could adversely affect the financial condition or results of
operations of the Company.
Dependence on Certain Key Customers
The Company currently derives a significant portion of its revenues from
sales of timber to certain key customers. For the nine months ended September
30, 1997, three of these customers, Collins, Boise Cascade Corporation and
Crown Pacific Partners, purchased timber representing approximately 25%, 20%
and 17%, respectively, of the Company's revenues. Collins made its purchases
pursuant to the 10-year Collins Supply Agreement, while the other purchases
were made pursuant to short-term arrangements. The loss of these or other
significant customers could materially adversely affect the Company's results
of operations.
19
<PAGE>
THE TRANSACTIONS
Concurrent with the closing of this offering, Old Services will contribute
all of its assets, including its timber operations, to the Manager in exchange
for interests therein. Immediately thereafter, the Company will assume certain
indebtedness of Holdings and the Manager will contribute its timber operations
to the Company in exchange for a managing member interest in the Company.
Then, the Manager will contribute all but a 1% member interest in the Company
to the Master Partnership in exchange for a general partner interest in the
Master Partnership, the right to receive Incentive Distributions and 1,428,571
Subordinated Units and Holdings will contribute all of its interest in the
Company to the Master Partnership in exchange for 2,978,833 Subordinated
Units. The Manager will then distribute the Subordinated Units to Old
Services. Approximately 145,278 Subordinated Units will be used by Old
Services to redeem interests in Old Services held by Messrs. Stephens and
Hornig, founding directors of the Manager. As a result of such transactions,
the Company will become the operating subsidiary of the Master Partnership and
the Manager will own an aggregate 2% interest in the Company and the Master
Partnership on a combined basis, and the right to receive Incentive
Distributions; Old Services will own 1,283,293 Subordinated Units; Holdings
will own 2,978,833 Subordinated Units; and Messrs. Stephens and Hornig will
own an aggregate of 145,278 Subordinated Units. The 4,407,404 Subordinated
Units owned by Old Services, Holdings and Messrs. Stephens and Hornig will
represent an aggregate 36.4% interest in the Company.
Concurrently with the closing of this offering, (i) the Master Partnership
will issue and sell approximately 7,458,684 Common Units through the MLP
Offering, (ii) the Company will enter into the Bank Credit Facility, which
will include a $25.0 million Working Capital Facility and a $75.0 million
Acquisition Facility, and (iii) the Master Partnership will contribute to the
Company the net proceeds from the sale of the Common Units (estimated to be
approximately $143.4 million after deducting underwriting discounts and
commissions and expenses associated with the MLP Offering and assuming that
the underwriters' over-allotment option with respect to the MLP Offering is
not exercised). The net proceeds from the sale of the Notes offered hereby
(estimated to be approximately $217.8 million after deducting underwriting
discounts and commissions and expenses associated with this offering),
together with the net proceeds from the sale of Common Units, approximately
$18.6 million to be borrowed by the Company under the Acquisition Facility and
cash on hand (estimated to be approximately $52.0 million), will be used by
the Company to repay approximately $431.8 million of indebtedness of the
Company (including accrued interest).
For additional information regarding the terms of the Bank Credit Facility,
see "Description of Bank Credit Facility."
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are expected to be approximately $217.8 million, after deducting estimated
underwriting discounts and commissions and expenses associated with this
offering. The Company will apply the net proceeds from the sale of the Notes
offered hereby, together with the net proceeds from the sale of Common Units
contributed to the Company by the Master Partnership (estimated to be
approximately $143.4 million, assuming an initial public offering price of
$21.00 per Common Unit and that the underwriters' over-allotment option with
respect to the MLP Offering is not exercised, and after deducting underwriting
discounts and commissions and expenses associated with the MLP Offering),
approximately $18.6 million borrowed under the Acquisition Facility, and cash
on hand (estimated to be approximately $52.0 million), to repay the
indebtedness assumed by the Company in connection with the Transactions and
other indebtedness of the Company. The indebtedness to be repaid consists of:
(i) $130.0 million of bank indebtedness incurred by Holdings (the "Holdings
Debt") in connection with the Company's acquisition of the Klamath Falls
Timberlands in August 1996, $3.6 million in Guarantee Fees and approximately
$9.9 million in accrued interest; and (ii) $283.0 million of bank indebtedness
incurred by the Company in July 1997 to refinance indebtedness incurred in
connection with the acquisition of the Klamath Falls Timberlands and to
finance the acquisition of the Ochoco Timberlands (the "USTK Debt") and
approximately $5.3 million in accrued interest. The Holdings Debt matures in
September 1999 and bears interest at a floating rate, adjusted monthly (6.19%
per annum at September 30, 1997). The USTK Debt consists of $83.0 million
outstanding under a revolving credit facility and $200.0 million outstanding
under a term credit facility, each of which matures in June 2004 and bears
interest at a variable rate (7.94% per annum at September 30, 1997). If the
underwriters' over-allotment option in connection with the MLP Offering is
exercised in full, the Master Partnership will issue 1,118,803 additional
Common Units at an assumed offering price of $21.00 per Common Unit. The
Company will use the net proceeds from any exercise of the Underwriters' over-
allotment option to repay indebtedness incurred by the Company under the
Acquisition Facility. No portion of the net proceeds of the Notes will be
received by, or used for the benefit of, Finance Corp.
21
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the combined capitalization of the
Company and Old Services (including the Holdings Debt) as of September 30,
1997, (ii) the pro forma adjustments required to reflect the Transactions,
including the sale of the Notes offered hereby and the MLP Offering (assuming
that the underwriters' over-allotment option with respect thereto is not
exercised) and the application of the net proceeds therefrom as described in
"Use of Proceeds," and (iii) the pro forma capitalization of the Company as of
September 30, 1997 after giving effect thereto. The table should be read in
conjunction with the historical and pro forma financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------
COMPANY
AND OLD
SERVICES
COMBINED PRO FORMA CONSOLIDATED
HISTORICAL ADJUSTMENTS(a) PRO FORMA
---------- -------------- ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Long-term debt (including current
portion):
Acquisition Facility.................. $ -- $ 42,143 $ 42,143
Prior revolving credit facility(b).... 83,000 (83,000) --
Prior term loans(b)................... 330,000 (330,000) --
Notes................................. -- 225,000 225,000
-------- -------- --------
Total indebtedness.................. 413,000 (145,857) 267,143
Members' equity (deficit):
Members' deficit prior to the
Transactions......................... (14,523) 14,523 --
Non-managing member's interest........ -- 120,647 120,647
Managing member's interest............ -- 1,219 1,219
-------- -------- --------
Total members' equity (deficit)..... (14,523) 136,389 121,866
-------- -------- --------
Total capitalization................ $398,477 $ (9,468) $389,009
======== ======== ========
</TABLE>
- --------
(a) See Notes to Pro Forma Consolidated Financial Statements of U.S.
Timberlands Klamath Falls, L.L.C.
(b) This table reflects indebtedness of the Company as of September 30, 1997.
On August 29, 1996, Holdings entered into a $130.0 million loan agreement
with several banks to finance a portion of the Weyerhaeuser Acquisition.
On July 14, 1997, the Company entered into a loan agreement with a
commercial bank to refinance a portion of the debt it incurred in
connection with the Weyerhaeuser Acquisition and to finance the Ochoco
Acquisition. This debt consists of a $200.0 million seven-year amortizing
secured facility and an $85.0 million revolving credit facility (of which
$83.0 million was outstanding as of September 30, 1997). This indebtedness
will be paid in full at the closing of this offering.
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following tables set forth for the periods and at the dates indicated,
selected historical financial and operating data for the Company, and pro
forma financial and operating data after giving effect to the Weyerhaeuser
Acquisition and the Transactions. The selected historical operating statement
data for the two years ended December 31, 1995, the eight months ended August
29, 1996 and the balance sheet data as of December 31, 1995 are derived from
the historical audited financial statements of the Predecessor which were
prepared by the Company and should be read in conjunction with such financial
statements included elsewhere in this Prospectus. The selected historical
combined financial data for the four months ended December 31, 1996 are
derived from the historical combined audited financial statements of the
Company, and the summary historical financial data for the one month ended
September 30, 1996 and for the nine months ended September 30, 1997 are
derived from the historical unaudited combined financial statements of the
Company included elsewhere in this Prospectus. In the opinion of management,
each of the unaudited financial statements include all adjustments, consisting
of normal recurring adjustments, necessary for a fair statement of the results
for the unaudited periods. The selected pro forma financial and operating data
of the Company are derived from the unaudited pro forma consolidated financial
statements and notes thereto included elsewhere in this Prospectus and should
be read in conjunction therewith. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The dollar amounts
in the table below are in thousands.
<TABLE>
<CAPTION>
COMPANY PRO
PREDECESSOR COMPANY(A) FORMA(B)
--------------------------------------------------- ------------ ------------
JANUARY 1, AUGUST 30,
1996 1996
YEAR ENDED DECEMBER 31, THROUGH THROUGH YEAR ENDED
--------------------------------------- AUGUST 29, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1996 1996
----------- ----------- ------- ------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenues:
Logs................... $27,225 $28,609 $29,102 $29,110 $14,077 $ 13,590 $ 27,667
Timberland and property
sales................. -- 4,180 -- -- -- -- --
By-products and other.. 4,354 3,537 3,240 2,623 1,501 429 1,930
------- ------- ------- ------- ------- -------- --------
Total revenues......... 31,579 36,326 32,342 31,733 15,578 14,019 29,597
Operating costs:
Cost of products sold.. 12,830 15,697 16,351 14,951 9,225 6,179 15,404
Cost of timber and
property sales........ -- 58 -- -- -- -- --
Depreciation, depletion
and road
amortization.......... 1,531 1,443 1,455 1,486 927 3,323 8,376
Selling, general and
administrative
expenses.............. 4,069 4,034 4,454 4,235 2,730 9,284 7,079 (c)
------- ------- ------- ------- ------- -------- --------
Operating income
(loss)................ 13,149 15,094 10,082 11,061 2,696 (4,767) (1,262)
Interest expense....... -- -- -- -- -- 7,316 24,813
Amortization of
deferred financing
fees and debt
guarantee fees........ -- -- -- -- -- 1,326 725
Interest income........ -- -- -- -- -- (409) (409)
Other (income) expense,
net................... (322) 297 140 (555) 1 36 37
------- ------- ------- ------- ------- -------- --------
Net income (loss)...... $13,471 $14,797 $ 9,942 $11,616 $ 2,695 $(13,036) $(26,428)
======= ======= ======= ======= ======= ======== ========
Non-managing member's
interest in net loss.. $(26,164)
========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
COMPANY PRO
PREDECESSOR COMPANY(a) FORMA(b)
----------------------------------------------------- ------------ ------------
JANUARY 1,
1996 AUGUST 30,
YEAR ENDED DECEMBER 31, THROUGH 1996 THROUGH YEAR ENDED
----------------------------------------- AUGUST 29, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1996 1996
----------- ----------- -------- ------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS AND OTHER
DATA:
EBITDDA(d)............. $ 14,680 $ 16,595 $ 11,537 $12,547 $ 3,623 $ (1,444) $ 7,114
Capital expenditures--
Maintenance(e)........ 1,553 1,157 2,098 2,082 459 360
Ratio of earnings to
fixed charges(f)......
Cash flow from (used
in) operations........ 16,784 15,124 13,173 11,810 5,512 (2,984)
Cash flow used in
investing............. (1,553) (1,157) (2,013) (1,859) (459) (291,450)
Cash flow from (used
in) financing......... (15,231) (13,967) (11,160) (9,951) (5,054) 311,047
BALANCE SHEET DATA (AT
PERIOD END):
Working capital........ $ 793 $ 2,068 $ 211 $ 1,304 $ 524 $ 21,459
Timber, timberlands and
logging roads, net.... 22,050 21,495 20,885 20,822 21,275 273,457
Total assets........... 30,787 32,292 29,844 30,947 27,839 310,191
Long-term debt......... -- -- -- -- -- 305,000
Excess of assets over
liabilities........... 29,220 29,643 27,745 29,155 27,839
Members' deficit....... (2,936)
OPERATING DATA
(UNAUDITED):
Harvest volumes (MBF):
Used in log and
stumpage sales(g)..... 70,982 69,291 68,208 63,614 32,760 27,389 60,149
Used in chip sales..... 33,012 18,996 10,224 18,315 5,196 -- 5,196
Total................. 103,994 88,287 78,432 81,929 37,956 27,389 65,345
Sales volumes:
Log and stumpage sales
(MBF)(g).............. 70,903 66,250 68,302 63,822 32,760 30,210 62,970
Timber and property
sales (MBF)........... -- 9,449 -- -- -- -- --
Chip sales (BDT)....... 98,802 52,278 38,380 25,702 20,568 7,174 27,742
</TABLE>
<TABLE>
<CAPTION>
COMPANY
PRO
PREDECESSOR COMPANY(a) FORMA(b)
--------------- ----------------------------- -------------
JANUARY 1, 1996 AUGUST 30, 1996 NINE MONTHS NINE MONTHS
THROUGH THROUGH ENDED ENDED
AUGUST 29, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997 1997
--------------- --------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenues:
Logs................... $14,077 $ 1,916 $ 36,819 $36,819
Timberland and property
sales................. -- -- 3,494 3,494
By-products and other.. 1,501 -- 744 744
------- -------- -------- -------
Total revenues......... 15,578 1,916 41,057 41,057
Operating costs:
Cost of products sold.. 9,225 1,404 12,101 12,101
Cost of timber and
property sales........ -- -- 1,191 1,191
Depreciation, depletion
and road
amortization.......... 927 240 10,758 10,758
Selling, general and
administrative
expenses.............. 2,730 (8,040) 4,300 4,300
------- -------- -------- -------
Operating income....... 2,696 (7,768) 12,707 12,707
Interest expense....... -- 1,927 17,818 18,609
Amortization of
deferred financing
fees and debt
guarantee fees........ -- 330 2,954 544
Interest income........ -- -- (1,192) (1,192)
Other (income) expense,
net................... 1 (12) (48) (48)
------- -------- -------- -------
Income (loss) before
extraordinary item.... $ 2,695 $(10,013) $ (6,825) $(5,206)
Extraordinary item-loss
on extinguishment of
debt.................. -- -- 3,571 3,571
------- -------- -------- -------
Net income (loss)...... $ 2,695 $(10,013) $(10,396) $(8,777)
======= ======== ======== =======
Non-managing member's
interest in net loss.. $(10,396) $(8,689)
======== =======
CASH FLOWS AND OTHER
DATA:
EBITDDA(d)............. $ 3,623 $ (7,529) $ 24,656 $24,656
Capital expenditures--
Maintenance(e)........ 459 140 798
Ratio of earnings to
fixed charges(f)......
Cash flow from
operations............ 5,512 (2,714) 9,691
Cash flow from (used
in) investing......... (459) (292,396) (101,271)
Cash flow used in
financing............. (5,054) 311,172 98,999
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR COMPANY(a) PRO FORMA(b)
--------------- ----------------------------- -------------
AUGUST 30, 1996 NINE MONTHS NINE MONTHS
JANUARY 1, 1996 THROUGH ENDED ENDED
THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
AUGUST 29, 1996 1996 1997 1997
--------------- --------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
PERIOD END):
Working capital (defi-
cit) ................. $ 524 $ 21,573 $ 15 $ 4,088
Timber, timberlands and
logging roads......... 21,275 276,504 373,230 373,230
Total assets........... 27,839 314,898 415,227 394,154
Long-term debt......... -- 305,000 413,000 267,143
Excess of assets over
liabilities........... 27,839
Members' equity (defi-
cit).................. 86 (14,523) 120,647
OPERATING DATA
(UNAUDITED):
Harvest volumes (MBF):
Used in log and
stumpage sales(g) .... 32,760 2,065 82,693 82,693
Used in chip sales..... 5,196 -- 3,011 3,011
Total................. 37,956 2,065 85,704 85,704
Sales volumes:
Log and stumpage sales
(MBF)(g) ............. 32,760 4,476 82,693 82,693
Timber and property
sales (MBF)........... -- -- 11,045 11,045
Chip sales (BDT)....... 20,568 -- 8,981 8,981
</TABLE>
- -------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the financial and
operating data for the period after August 30, 1996 are not comparable to
financial and operating data of the Predecessor. See the financial
statements of the Company and accompanying notes included elsewhere in
this Prospectus for additional information.
(b) The Company's pro forma consolidated financial and operating data are
derived from the unaudited pro forma consolidated financial statements of
the Company included elsewhere in this Prospectus.
(c) Includes $2,800 paid to an affiliate for management services. The Company
does not intend to pay such management fees subsequent to completion of
the Transactions.
(d) EBITDDA is defined as operating income plus depreciation, depletion and
road amortization and cost of timber and property sales. EBITDDA should
not be considered as an alternative to net income, operating income, cash
flows from operating activities or any other measure of financial
performance presented in accordance with generally accepted accounting
principles. EBITDDA is not intended to represent cash flow but provides
additional information for evaluating the Company's ability to service its
indebtedness. In addition, EBITDDA does not necessarily represent funds
available for management's discretionary use as it is calculated prior to
debt service obligations and capital expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Description of Bank Credit Facilities", and "Description of Notes."
(e) Maintenance capital expenditures include the replacement of property,
plant and equipment, capitalized seed orchard and nursery costs and
additions to timber, timberlands and logging roads.
(f) For purposes of calculating the ratio of earnings (losses) to fixed
charges, "earnings (losses)" are net income (loss) and fixed charges and
"fixed charges" are composed of interest on indebtedness, amortization of
deferred financing costs and debt guarantee fees. Earnings were
insufficient to cover fixed charges by $13,036, $10,396, $26,428 and
$8,777, for the historical period from August 30, 1996 through December
31, 1996, the historical nine-month period ended September 30, 1997 and
for the pro forma year ended December 31, 1996 and nine months ended
September 30, 1997, respectively. The Predecessor participated in
Weyerhaeuser's centralized cash management system and therefore had no
indebtedness or fixed charges.
(g) The Company had no stumpage sales prior to April 1997.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the historical financial condition and results
of operations of the Company and the Predecessor, should be read in
conjunction with the Summary Pro Forma Financial and Operating Data and notes
thereto, the Selected Historical Financial and Operating Data and notes
thereto and the historical and pro forma financial statements and notes
thereto included elsewhere in this Prospectus. The results of operations for
the nine-month period ended September 30, 1997 are not necessarily indicative
of the results to be expected for any other interim period or for the entire
year as a whole.
GENERAL
The combined financial statements for the Company represent the combined
financial position, results of operations, equity and cash flows of the
Company and Old Services. In addition, the long-term debt obligations, related
interest costs and debt guarantee fees of Holdings, the parent entity of the
Company, have been reflected in the combined financial statements as such debt
will be assumed by the Company as part of the Transactions. The comparability
of the financial results of the Company and the Predecessor is primarily
affected by (i) increased revenues resulting from increased harvest levels on
the Klamath Falls Timberlands, (ii) increased depletion charges resulting from
the step-up in asset values of the Timberlands, (iii) reduced per MBF logging
and hauling costs resulting from the use of independent contractors rather
than Company employees to conduct silvicultural activities and the harvesting
and delivery of logs due to lower hourly wage rates, the elimination of
compensation payments during seasonal down time and the reduction in
associated capital costs and (iv) a different customer base, as a majority of
the Predecessor's sales were to an affiliated customer at internally
established transfer prices whereas all of the Company's sales are to
unaffiliated conversion facilities at market based prices (although whether
the transfer prices or market-based prices were higher changed from time to
time). Following the consummation of the Transactions, the Company expects to
reduce the harvest levels on the Klamath Falls Timberlands; however, future
financial results will reflect the acquisition of the Ochoco Timberlands.
SUPPLY AND DEMAND FACTORS
The Company's results of operations are affected by various factors, many of
which are beyond its control, including general industry conditions, domestic
and international prices and supply and demand for logs, lumber and other wood
products, seasonality and competition from other domestic and international
supplying regions and substitute products.
Supply
The supply of logs available for purchase has been most affected in recent
years by significant reductions in timber harvested from public timberlands,
principally as a result of efforts to preserve the habitat of certain
endangered species, as well as a change in the emphasis of government policy
toward habitat preservation, conservation and recreation and away from timber
management. Since the early 1970s, environmental and other similar concerns
and governmental policies have substantially reduced the volume of timber
under contract to be harvested from public lands. The pace of regulatory
activity accelerated in the late 1980s. Federal timber under contract in
Washington and Oregon decreased approximately 88% from approximately 8.4 BBF
in January 1988 to approximately 1.0 BBF in January 1997. The resulting supply
decrease caused prices for logs to increase significantly, reaching peak
levels during 1993 and early 1994. Although prices have declined from these
record levels, current prices still exceed pre-1993 levels. The low supply of
timber from public lands, which is expected to continue for the foreseeable
future, has benefited private timber holders such as the Company through
higher stumpage and log prices.
Industry participants do not expect environmental restrictions to ease
materially within any reasonable planning horizon. Consequently, many
producers of lumber and wood products are attempting to adapt to the new
supply environment by increasing their emphasis on raw material yields,
entering into long term timber supply arrangements and value added
manufacturing, and accessing previously untapped supplies (such as private
wood lot owners, timber with difficult access, alternative species and
imports). These factors have tended
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to restrict prices from even greater increases. While raw material supply is
expected to be an ongoing challenge for the lumber and wood products industry,
such conditions are likely to cause the favorable operating environment for
timber owners such as the Company to continue for the foreseeable future.
In response to an increase in timber prices in the early 1990s, imports of
logs and lumber from abroad (from countries such as Canada and New Zealand)
increased. These imports, however, only partially offset the lost volume of
timber from public timberlands and did not replace the mature, high-quality
timber found in greater quantities on public timberlands. Since 1993, imports
have decreased and their impact on timber prices currently is minimal.
Demand
Changes in general economic and demographic factors, including the strength
of the economy and interest rates for home mortgages and construction loans,
have historically caused fluctuations in housing starts and, in turn, demand
and prices for lumber and commodity wood products. With the growth of the home
center distribution business, the repair and remodeling markets have become a
significant factor in terms of the demand for lumber and commodity wood
products and have dampened the wide fluctuations that occurred when new
housing starts were the primary factor. A large portion of the Company's
property consists of Pine species, which are used in the finishing market, for
molding trim, doors and windows. This market is more affected by repair and
remodeling than new housing construction. Prices for these species, primarily
Ponderosa Pine, reached a peak in the spring of 1993 and as a result attracted
imports of Radiata Pine from New Zealand and Chile. The market absorbed these
relatively small quantities with little impact on prices. The demand for logs
in the United States is also affected by the level of lumber imports. In
response to increasing lumber imports from Canada, the United States and
Canada signed an agreement in 1996 which restricts the availability of
Canadian softwood lumber in the United States. The Company believes that this
agreement has not had a material impact on the price or demand for logs in the
United States although its long-term effect is uncertain.
Due to transportation costs, domestic conversion facilities in the Pacific
Northwest tend to purchase raw materials within relatively confined geographic
areas, generally within a 200-mile radius. The conversion facilities in the
vicinity of the Timberlands need more wood supply to run at capacity than can
be produced by nearby timberlands. As a result, the demand from this region is
relatively steady, although prices fluctuate with market conditions.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 (unaudited) Compared to Nine Months
Ended September 30, 1996 (unaudited)
The results of operations for the nine months ended September 30, 1996 are
based on combining the periods of January 1, 1996 through August 29, 1996 (the
period prior to the Weyerhaeuser Acquisition) and August 30, 1996 through
September 30, 1996 both as shown in the historical financial statements
appearing elsewhere in this Prospectus. The principal effect of the
Weyerhaeuser Acquisition in 1996 was an increase in DD&A expense (due to a
higher cost basis for the Company's timber, timberlands and logging roads) and
interest expense (due to borrowings to finance the Weyerhaeuser Acquisition).
Revenues. Revenues for the first nine months of 1997 were $41.1 million, an
increase of 135% over revenues of $17.5 million for the first nine months of
1996. This increase was primarily attributable to a $20.8 million increase in
revenues from log and stumpage sales and a $3.5 million increase in timber and
property sales, partially offset by a decrease of $0.7 million in by-products
and other revenues.
Log and stumpage sales volumes for the first nine months of 1997 were 82,700
MBF, an increase of 122% over log and stumpage sales volumes of 37,200 MBF for
the first nine months of 1996. The significant increase in the volume
harvested was mainly due to the Company's aggressive harvest plan compared to
that of the Predecessor, as well as the commencement of log and stumpage sales
from the Ochoco Timberlands which were acquired on July 15, 1997. Average log
prices remained relatively constant, increasing from $430 per MBF for the
first nine months of 1996 to $431 per MBF for the first nine months of 1997.
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Revenues from a single Lodgepole Pine timber deed sale were $3.5 million
during the first nine months of 1997. There were no such timber or property
sales during the first nine months of 1996.
The reduction in revenues from by-products and other was primarily
attributable to a 56% decrease in chip sales volume. Due to low demand in the
pulp and paper industry, chip prices had decreased to a level where it was no
longer profitable for the Company to process residual fiber for use as chips
for much of 1997.
Operating Costs. Operating costs were $28.4 million for the first nine
months of 1997, an increase of 26% over operating costs of $22.6 million for
the first nine months of 1996. This increase was the result of a $1.5 million
increase in cost of products sold, a $1.2 million increase in the cost of
timber and property sales and a $9.6 million increase in depreciation,
depletion and road amortization ("DD&A") expense. These increases were
partially offset by a $6.5 million decrease in selling, general and
administrative expenses.
The increase in cost of products sold was primarily the result of a $3.3
million increase in logging costs and a $0.2 million increase in severance
taxes. Partially offsetting these increases were a $1.5 million decrease in
wood fiber processing costs and a $0.7 million decrease in outside log
purchases. Logging costs and severance taxes increased primarily as a result
of a 128% increase in the level of merchantable grade logs harvested and sold,
partially offset by a 27% decrease in the Company's logging cost per MBF from
$198 per MBF during the first nine months of 1996 to $145 per MBF during the
1997 period. The decrease in the Company's logging cost per MBF was primarily
the result of the Company's changing from a mix of Company logging crews and
outside contractors during the first eight months of 1996 to the use of
outside contractors for all its logging operations during the 1997 period.
Wood fiber processing costs decreased by 77% as a result of a 56% decrease in
volume of chips processed and sold and a writedown to fiber log inventories
during the first nine months of 1996, resulting from a decline in chip prices
during the period. During the first nine months of 1997, the Company had a
timber deed sale with a cost basis of $1.2 million, whereas no sales of tracts
of timber or timberland were made during the first nine months of 1996.
DD&A expense was $10.8 million for the first nine months of 1997, a $9.6
million increase over DD&A expense of $1.2 million in the 1996 period. This
increase was primarily due to the significant increase in the Company's
depletion rate combined with a 128% increase in the volume of logs harvested
and sold during the first nine months of 1997 compared to the 1996 period. The
increase in the depletion rate was the result of the step-up in asset values
of the Klamath Falls Timberlands upon their acquisition from Weyerhaeuser.
Selling, general and administrative expenses were $4.3 million for the first
nine months of 1997, a decrease of 60% from comparable expenses of $10.8
million for the first nine months of 1996. This decrease in selling, general
and administrative expense was primarily the result of $4.9 million in one-
time payments for advisory services paid to affiliates of the Company in
connection with the Weyerhaeuser Acquisition and $2.8 million of management
fees paid to an affiliate of the Company for management services in the 1996
period. The advisory fees were incurred in connection with the Weyerhaeuser
Acquisition and its initial financing. The management fee generally relates to
services rendered in connection with the initial formation of USTK and Old
Services. Primarily offsetting these advisory and management fees were
increases in salaries and wages as well as professional fees. Salaries and
wages increased primarily as a result of a $0.5 million payment to an incoming
member of management in consideration for having forfeited certain in-the-
money options granted to him by his prior employer. Professional fees
increased as a result of the Company operating as an independent entity rather
than as a division of Weyerhaeuser. The Company expects professional fees to
continue at such a level in the near term.
Interest Expense. Interest expense was $17.8 million during the first nine
months of 1997 and related to $215.0 million of term debt and $90.0 million of
revolving debt incurred in connection with the Weyerhaeuser Acquisition in
August 1996 and $110.0 million of debt incurred in connection with the Ochoco
Aquisition on July 15, 1997. The Company incurred $1.9 million in interest
expense during the month of September 1996. There was no interest expense and
no debt outstanding during the first eight months of 1996, as the Predecessor
participated in Weyerhaeuser's centralized cash management system.
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Amortization of Deferred Financing Fees and Debt Guarantee Fees. The Company
deferred $4.1 million of fees incurred in connection with the financing of the
Weyerhaeuser Acquisition. These costs are being amortized over the life of the
related debt. In addition, the Company is accreting $3.6 million of estimated
Guarantee Fees from August 30, 1996 through the estimated Holdings Debt
extinguishment date of November 15, 1997. The amortization of deferred
financing fees and debt guarantee fee expense during the first nine months of
1997 and 1996 were $2.8 million and $0.3 million, respectively. In addition,
the Company incurred $0.2 million in other financing fees in connection with
its efforts to obtain financing which were expensed during the first nine
months of 1997. There was no deferred financing fee amortization or debt
guarantee fee expense during the first eight months of 1996.
Interest Income. Interest income was $1.2 million during the first nine
months of 1997. There was no interest income during the first nine months of
1996, as the Predecessor participated in Weyerhaeuser's centralized cash
management system.
Loss on Extinguishment of Debt. The Company refinanced certain long-term
borrowings during the first nine months of 1997 resulting in an extraordinary
loss on extinguishment of debt of $3.6 million due to the write off of
existing unamortized deferred financing fees and other related fees.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The results of operations for 1996 are based on combining the periods
January 1, 1996 through August 29, 1996 (the period prior to the Weyerhaeuser
Acquisition) and August 30, 1996 through December 31, 1996 both as shown in
the historical financial statements appearing elsewhere in this Prospectus.
The principal effect of the Weyerhaeuser Acquisition in 1996 was an increase
in DD&A expense (due to a higher cost basis for the Company's timber,
timberlands and logging roads) and interest expense (due to borrowings to
finance the Weyerhaeuser Acquisition).
Revenues. Revenues were $29.6 million in 1996, a decrease of 7% from
revenues of $31.7 million in 1995. Revenues from the sale of logs were $27.7
million in 1996, as compared to $29.1 million in 1995 while by-products and
other revenues were $1.9 million in 1996, as compared to $2.6 million in 1995.
Log sales volumes remained relatively constant, decreasing from 63,800 MBF
in 1995 to 63,000 MBF in 1996. The majority of the revenue decrease was due to
a reduction in the average log sales price of $17 per MBF from $456 in 1995 to
$439 in 1996. Sales prices were negatively affected in 1996 by uncertainty
surrounding the possible sale of the Klamath Falls Timberlands, as some
customers obtained other sourcing commitments. The average sales price was
also reduced due to a change in the species mix of the logs sold, with a
higher percentage of lower valued White Fir and a lower percentage of higher
valued Douglas Fir logs.
The reduction in revenues from by-products and other was primarily
attributable to a 26% decrease in chip sales revenue. Due to low demand in the
pulp and paper industry, average chip prices decreased by 26% in 1996 compared
to 1995.
Operating Costs. Operating costs were $31.7 million in 1996, a 53% increase
over operating costs of $20.7 million in 1995. This increase was the result of
a $7.8 million increase in selling, general and administrative expense, a $2.8
million increase in DD&A expense and a $0.4 million increase in cost of
products sold. The increase in selling, general and administrative expense was
primarily the result of $4.9 million in one time payments for advisory
services paid to affiliates of the Company in connection with the Weyerhaeuser
Acquisition and $2.8 million of management fees paid to an affiliate of the
Company for management services. The advisory fees were incurred in connection
with the Weyerhaeuser Acquisition and its initial financing. The management
fee generally relates to services rendered in connection with the initial
formation of the Company and Old Services. The increase in DD&A was primarily
due to the significant increase in the Company's depletion rate as a result of
the step-up in asset values of the Klamath Falls Timberlands upon their
acquisition from Weyerhaeuser. The increase in cost of goods sold was
primarily due to an increase in wood fiber processing costs.
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Interest Expense. Interest expense was $7.3 million in 1996 and related to
$215.0 million of term debt and $90.0 million of revolving debt incurred in
connection with the Weyerhaeuser Acquisition in August 1996. There was no
interest expense and no debt outstanding during 1995, as the Predecessor
participated in Weyerhaeuser's centralized cash management system.
Amortization of Deferred Financing Fees and Debt Guarantee Fees. The Company
deferred $4.1 million of fees incurred in connection with the financing of the
Weyerhaeuser Acquisition. These costs are being amortized over the life of the
related debt. In addition, the Company is accreting $3.6 million of estimated
Guarantee Fees from August 30, 1996 through the estimated Holdings Debt
extinguishment date of November 15, 1997. The Guarantee Fees payable to
Weyerhaeuser relate to the Holdings Debt which was incurred in connection with
the Weyerhaeuser Acquisition. The amortization of deferred financing fees and
debt guarantee fee expense during 1996 were $0.2 million and $1.1 million,
respectively. There was no deferred financing fee amortization or debt
guarantee fee expense during 1995.
Interest Income. Interest income was $0.4 million during 1996. There was no
interest income during 1995, as the Predecessor participated in Weyerhaeuser's
centralized cash management system.
Other (Income) Expense, Net. Other (income) expense, net changed from income
of $0.6 million in 1995 to near zero in 1996. Nonrecurring income from
easements and road use permits represents $0.4 million of the 1995 other
(income) expense, net.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues were $31.7 million in 1995, a decrease of 2% from
revenues of $32.3 million in 1994. Revenues from the sale of logs remained
constant at $29.1 million, while by-products and other revenues were $2.6
million in 1995 as compared to $3.2 million in 1994.
Log sales volumes for 1995 were 63,800 MBF, a decrease of 7% from log sales
volumes of 68,300 MBF in 1994. This decrease was largely attributable to a 34%
decrease in the volume of logs sold to unaffiliated customers from 34,900 MBF
in 1994 to 23,000 MBF in 1995, partially offset by a 22% increase in the
volume of logs sold to Weyerhaeuser facilities, from 33,400 MBF in 1994 to
40,700 MBF in 1995. The higher level of sales to unaffiliated customers in
1994 was mainly attributable to accelerated harvesting by the Predecessor of
certain tracts of timberland which were susceptible to fire and insect loss in
the then-prevailing drought conditions.
The average log sales price per MBF increased by $30 per MBF, or 7%, to $456
per MBF in 1995, as compared to $426 per MBF in 1994. This increase was
primarily attributable to an increase of 12% in the average price per MBF of
log sales to unaffiliated customers from $436 per MBF in 1994 to $490 per MBF
in 1995 and a 5% increase in the price per MBF of log sales to Weyerhaeuser
facilities from $415 per MBF in 1994 to $437 per MBF in 1995. The increase in
the average unaffiliated customer selling price per MBF was primarily due to
an increase in the mix of Douglas Fir from 29% of total unaffiliated customer
sales volume in 1994 to 54% in 1995. The average sales price per MBF for
Douglas Fir was $512 and $544 in 1994 and 1995, respectively, as compared to
an average of $405 and $427, respectively, for the combined sales of all other
species. The increase in the average sales prices per MBF was consistent with
an industry-wide increase in log prices during this period. The log sales
price per MBF for sales to Weyerhaeuser facilities was based on internal
transfer prices determined by Weyerhaeuser.
Operating Costs. Operating costs were $20.7 million in 1995, a decrease of
7% from operating costs of $22.3 million in 1994. This decrease was primarily
due to a $1.4 million decrease in cost of products sold. Cost of products sold
decreased because of a $1.0 million decrease in wood fiber processing costs
due to a 34% decline in chip volume processed and sold and a $0.6 million
decrease in logging costs resulting from a decrease in the harvest levels of
merchantable grade logs, partially offset by an increase in logging costs on a
per MBF basis.
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Other Income and Expense, Net. Other income and expense, net, showed a
change from an expense of $0.1 million in 1994 to income of $0.6 million in
1995. Nonrecurring income from easements and road use permits represents $0.4
million of the 1995 income.
LIQUIDITY AND CAPITAL RESOURCES
Since inception of operations on August 30, 1996, the Company's primary
source of liquidity has been cash and cash equivalents from borrowings under
its revolving credit facility drawn on at the closing of the Weyerhaeuser
Acquisition. On July 14, 1997, this revolving credit facility and certain term
debt was refinanced. See the further discussion of this refinancing below. As
of September 30, 1997, the Company had a cash balance of $24.0 million and
virtually no working capital and had $2.0 million of internal borrowing
capacity under its new revolving credit facility based on the terms of the
credit facility.
The following comparison of cash flows from operating, investing and
financing activities for 1996 are based on combining the periods January 1,
1996 through August 29, 1996 (the period prior to the Weyerhaeuser
Acquisition) and August 30, 1996 through September 30, 1996 for the nine-month
comparison. The 1996 12-month period is based on combining January 1, 1996
through August 29, 1996 and August 30, 1996 through December 31, 1996. Each of
such periods are shown in the historical financial statements appearing
elsewhere in this Prospectus.
Operating Activities. Cash flows provided by operating activities for the
nine months ended September 30, 1997 were $9.7 million as compared to cash
flows provided by operating activities of $2.8 million for the nine months
ended September 30, 1996. The $6.9 million increase in cash flows provided by
operating activities was primarily due to an increase in the volume of log and
stumpage sales, proceeds from a timber deed sale and $0.8 million of advance
deposits on stumpage sales contracts, as well as $4.9 million of one-time
payments to certain affiliates of the Company in connection with the
Weyerhaeuser Acquisition during the nine months ended September 30, 1996.
These increases were partially offset by a $12.9 million increase in interest
payments.
Cash flows provided by operating activities for the year ended December 31,
1996 were $2.5 million as compared to $11.8 million for the year ended
December 31, 1995. The $9.3 million decrease in cash flows from operating
activities from 1995 to 1996 is primarily attributable to $4.9 million in one
time payments to certain affiliates of the Company in connection with the
Weyerhaeuser Acquisition, $2.8 million in management fees paid to an affiliate
of the Company and $2.1 million in interest payments. The Predecessor had no
interest costs, as the Predecessor participated in Weyerhaeuser's centralized
cash management system. The increase in accounts receivable from December 31,
1995 to December 31, 1996 is attributable to the change in ownership of the
Company's Timberlands. The Predecessor reflected receivables from other
Weyerhaeuser entities as a component of Weyerhaeuser's Investment and
Advances, net rather than as accounts receivable. The decrease in inventories
from December 31, 1995 to December 31, 1996 is attributable to the build up of
fiber log inventories in 1995 due to the profitability of the chip market
during that period. As the chip market softened in 1996, these inventories
were liquidated.
Investing Activities. Cash flows used by investing activities were $101.3
million for the first nine months of 1997, as compared to cash flows used by
investing activities of $292.9 million during the 1996 period. During the
first nine months of 1997, $110.9 million was used in the Ochoco Acquisition
and a $10.0 million receivable from an affiliate was repaid. During the first
nine months of 1996, $283.5 million was used in the Weyerhaeuser Acquisition
and $10.0 million was paid to an affiliate. This was partially offset by a
$1.2 million advance from an affiliate.
Cash flows used in investing activities were $291.9 million for 1996 as
compared to $1.9 million in 1995. In 1996, $283.5 million was used in the
Weyerhaeuser Acquisition and $10.0 million was paid to an affiliate. This was
partially offset by $2.4 million in proceeds from logging equipment
dispositions as a result of the Company's discontinuance of the company
logging crews upon consummation of the Weyerhaeuser Acquisition.
Financing Activities. Cash flows provided by financing activities were $99.0
million for the first nine months of 1997, as compared to $306.1 million
during the 1996 period. During the first nine months of 1997,
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the Company refinanced $175.0 million of long-term debt incurred in connection
with the Weyerhaeuser Acquisition and incurred an additional $110.0 million of
long-term debt in connection with the Ochoco Acquisition. The Company incurred
$6.0 million of deferred financing fees in connection with the refinancing of
long-term debt and obtaining financing for the Ochoco Acquisition. In
addition, the Company distributed $1.2 million to a member related to his 1997
estimated tax liability and incurred $1.8 million of costs in connection with
this offering. Cash flows provided by financing activities during the first
nine months of 1996 principally represent borrowings under debt facilities and
equity contributions from members in connection with the Weyerhaeuser
Acquisition. These cash flows are partially offset by deferred financing fees
incurred in connection with obtaining financing for the Weyerhaeuser
Acquisition and the Predecessor's normal distributions of net operating and
investment cash flows to Weyerhaeuser.
Cash flows provided by financing activities were $306.0 million for 1996.
These cash flows principally represent borrowings under debt facilities and
equity contributions from members in connection with the Weyerhaeuser
Acquisition. Cash flows used in financing activities of $10.0 million in 1995
reflects the Predecessor's normal practice of distributing net operating and
investment cash flows to Weyerhaeuser.
On August 29, 1996, the Company entered into a $90.0 million revolving
credit facility and an $85.0 million term loan facility with several banks to
finance a portion of the Weyerhaeuser Acquisition, and Holdings incurred the
$130.0 million in Holdings Debt pursuant to an agreement with several banks to
finance the remaining portion of the Weyerhaeuser Acquisition.
On July 14, 1997, the Company refinanced the debt incurred to finance the
Weyerhaeuser Acquisition pursuant to a loan agreement with a commercial bank
and on July 15, 1997, increased its debt to finance the Ochoco Acquisition.
The refinancing resulted in an extraordinary loss on extinguishment of debt of
approximately $3.6 million in the third quarter of 1997 due to the write-off
of existing unamortized deferred financing fees and other related fees. As of
September 30, 1997, the USTK Debt consists of a $200.0 million seven-year
amortizing secured facility and $83.0 million outstanding under an $85.0
million secured revolving credit facility.
Concurrent with the closing of this offering, the Master Partnership will
issue 7,458,684 Common Units in the MLP Offering for gross proceeds of $156.6
million (assuming an initial public offering price of $21.00 per Common Unit
and that the underwriters' over-allotment option with respect to the MLP
Offering is not exercised) and the Company will enter into the Bank Credit
Facility providing for the $25.0 million Working Capital Facility and the
$75.0 million Acquisition Facility. See "Description of Bank Credit Facility"
and "Description of Notes". The Company will use the net proceeds of this
offering and the MLP Offering, approximately $18.6 million of borrowings under
the Acquisition Facility and cash on hand at the closing of the Transactions
(estimated to be approximately $52.0 million) to retire the Holdings Debt and
the USTK Debt.
Capital expenditures for the fourteen months ended September 30, 1997
totaled approximately $1.2 million. Capital expenditures incurred were mainly
in the nature of land management/silvicultural expenses and office equipment
and vehicle purchases. Capital expenditures were financed through cash flow
generated by operations. As the Company does not currently own and does not
plan to own manufacturing facilities, and all logging is subcontracted to
third parties, it is anticipated that capital expenditures in the future will
not be material and will consist mainly of land management/silvicultural
expenditures. It is not currently anticipated that the Company will either
maintain log inventories, although small log inventories may be maintained for
a short period of time, or incur material capital expenditures for machinery
and equipment. The Company anticipates that capital expenditures will be
approximately $0.8 million in 1998. Capital expenditures will consist
primarily of capitalized silvicultural expenses and miscellaneous equipment
and computer hardware and software expenses.
CONTINGENCIES
Revenues, net income and cash flow from the Company's operations will be
dependent to a significant extent on its ability to harvest timber at adequate
levels. There can be no assurance that the Company will in the future achieve
harvest levels necessary to maintain or increase revenues, net income or cash
flows.
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Weather conditions, timber growth cycles, access limitations and regulatory
requirements associated with the protection of wildlife and water resources or
any shortage of contract loggers may restrict harvesting of the Timberlands,
as may other factors, including damage by fire, insect infestation, disease,
prolonged drought and natural disasters. Although damage from such causes
usually is localized and affects only a limited percentage of the timber,
there can be no assurance that any damage to the Timberlands will, in fact, be
so limited. The risks to the Company described above are somewhat heightened
because of the concentration of the Timberlands in central Oregon. As is
typical in the forest products industry, the Company does not maintain
insurance coverage with respect to damage to its timberlands. Even if such
insurance were available, the cost would be prohibitive. The Company believes
that any losses that it has experienced from the circumstances described above
have not been significant enough to warrant maintaining such insurance.
EFFECTS OF INFLATION
Prices for the Company's stumpage and logs may be subject to sharp cyclical
fluctuations due to market or other economic conditions, including the level
of construction activity but generally do not directly follow inflationary
trends. Costs of forest operations and general and administrative expenses
generally do tend to reflect inflationary trends.
OTHER
Pursuant to an agreement dated as of July 29, 1997 between Mr. Stephens and
the Company, Old Services, Mr. Rudey and certain of his affiliates, Mr.
Stephens' interest in Old Services will be redeemed for 95,238 Subordinated
Units upon the consummation of the Transactions and $1.0 million payable in
January 1998. Pursuant to an agreement dated as of July 29, 1997 between Mr.
Hornig and the Company, Old Services, Mr. Rudey and certain of his affiliates,
Mr. Hornig's interest in Old Services will be redeemed upon the closing of the
Transactions for 50,040 Subordinated Units.
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BUSINESS AND PROPERTIES
GENERAL
The Company's business consists of the growing of trees and the sale of logs
and standing timber. The Company owns approximately 630,000 fee acres of
timberland and cutting rights on approximately 3,000 acres of timberland
containing total merchantable timber volume estimated as of January 1, 1997 to
be approximately 2.2 BBF in Oregon east of the Cascade Range. Logs harvested
from the Timberlands are sold to unaffiliated domestic conversion facilities.
These logs are processed for sale as lumber, plywood and other wood products,
primarily for use in new residential home construction, home remodeling and
repair and general industrial applications. The Company also owns and operates
its own seed orchard and produces approximately five million conifer seedlings
annually from its nursery, approximately half of which are used for its own
internal reforestation programs, with the balance sold to other forest
products companies.
The Timberlands include substantial holdings of merchantable, good quality
timber. The Timberlands' merchantable timber consists of Ponderosa Pine
(approximately 42%) and Douglas Fir (approximately 14%), species which have
historically commanded premium prices over other softwood species, with the
balance consisting of Lodgepole Pine, White Fir and other softwood species.
The Timberlands have stands of varying ages and are unique in the forests east
of the Cascade Range in Oregon in that approximately 184,000 acres are
actively managed tree farms or Plantations. The Plantations were first
established by Weyerhaeuser in the early 1960s and acreage has been planted
each year since then. Currently, the Plantations contain age classes ranging
generally from two to 35 years old. Initial thinning of the Plantation stands,
including the thinning of commercial quantities of merchantable timber, is
expected to begin within the next five years. Because the timber on the
Plantations is generally not yet considered merchantable, volumes of timber on
the Plantations are not included in the Company's estimated merchantable
timber volume. The balance of the Timberlands are composed of natural stands.
The Company was formed in 1996. In August 1996, the Company and Old Services
acquired the Klamath Falls Timberlands, containing an estimated merchantable
timber volume of approximately 1.9 BBF and related assets from Weyerhaeuser
for a cash purchase price of $281.5 million. Most of the Klamath Falls
Timberlands had been owned by Weyerhaeuser for more than 50 years. The Company
recently sold approximately 12,000 acres from the Klamath Falls Timberlands.
On July 15, 1997, the Company acquired the Ochoco Timberlands, containing an
estimated merchantable timber volume of approximately 280 MMBF and related
assets, for a cash purchase price of approximately $110.9 million. Over 45% of
the merchantable timber on the Ochoco Timberlands is at least 80 years old.
The Company believes that the age classes and species mix of the Ochoco
Timberlands fit well with the Klamath Falls Timberlands and provide the
Company flexibility in developing its harvest plans. Most of the land
comprising the Ochoco Timberlands had been owned by Ochoco since the 1920s.
The Company expects that during 1997, including the five and one-half months
of its operations on the Ochoco Timberlands, it will harvest approximately 153
MMBF of timber (including the sale of harvest rights) from the Timberlands.
The cash flows resulting from stumpage and timber deed sales will be
determined by contract; however, the timing of the actual harvests could vary
depending on the harvest plans of the buyer of such stumpage or timber deed.
During the period from January 1, 1994 through the acquisition of the
Klamath Falls Timberlands by the Company, approximately 58% of the logs
harvested from the Klamath Falls Timberlands had been delivered to a plywood
mill owned by Weyerhaeuser at Klamath Falls, Oregon. In recent years,
substantially all of the timber harvested from the Ochoco Timberlands had been
delivered to Ochoco's mills. The Company does not currently own any conversion
facilities nor does it intend in the future to own any such facilities on a
long-term basis; consequently, all of the Company's sales are made to
unaffiliated third parties. Concurrent with the Company's acquisition of the
Klamath Falls Timberlands, the Company arranged for Collins, a privately owned
forest products company located within the Klamath Falls Timberlands area, to
purchase Weyerhaeuser's Klamath Falls mill facilities. The Company has entered
into the Collins Supply Agreement, a 10-year log supply agreement with Collins
providing for the purchase by the plywood mill and delivery by the Company of
a minimum of 34 MMBF of logs each year (approximately 25% of the Company's
estimated annual harvest in the next three years) at market prices. In
addition to its sales under the Collins Supply Agreement, the Company sells
logs to conversion facilities located in the area surrounding the Timberlands
and operated by third parties. There are
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currently more than 50 primary conversion facilities located within a 150 mile
radius of the Company's base of operations in Klamath Falls.
The Company believes that it is well positioned to compete successfully in
the timber business for the following reasons: (i) the Company has substantial
holdings of timber properties which include over 2.2 BBF of merchantable, good
quality timber, approximately 184,000 acres of plantation timberland and a
full-scale seed orchard and nursery operation located in a region where
conversion facilities have been experiencing shortages in the supply of wood
fiber; (ii) the Company focuses on owning timberlands rather than operating
conversion facilities, which minimizes the Company's cost structure and
capital expenditures, allows the Company to seek the most favorable markets
for its timber rather than being committed to supply to its own facilities,
and ensures that the Company will not compete with its customers; (iii) the
Company's senior operating management team has an average of more than 20
years of experience in the forest products industry, including experience in
identifying, evaluating, completing and integrating acquisitions of timber
properties; (iv) the Company's lean operating structure allows it to
efficiently manage its Timberlands, and should enable it to acquire additional
timberlands without commensurate increases in overhead; and (v) the Company's
GIS enables the Company to evaluate the optimal timing and patterns of the
harvest of its Timberlands and evaluate and integrate acquisitions of
additional timberlands.
BUSINESS STRATEGY
The Company's business strategy is to manage its Timberlands in a manner
that will enable the Master Partnership to pay the Minimum Quarterly
Distribution on all the Units and to increase the per Unit value of the Master
Partnership's assets and its cash flow. Management intends to pursue this
strategy in a number of ways:
Continue to Increase Productivity of the Timberlands
The Company intends to continue to utilize and increase the use of various
modern forestry practices on its Timberlands in order to increase their
productivity. Examples of these practices include the use of the Company's
GIS, which enables it to develop optimal harvest plans; the application of
selective harvesting and thinning practices, which improve the productivity of
the remaining stand while providing merchantable timber for sale; and the
development of genetically improved seedlings to grow trees with desirable
traits such as superior size and disease resistance. Certain members of senior
management were involved in the development of these practices while at
Weyerhaeuser, and the Company expects to benefit from their experience.
Maximize Investment in Ochoco Timberlands
In order to maximize its investment in the Ochoco Timberlands, the Company
intends to harvest the mature timber thereon over the next five to six years.
As a result, the Company will convert Ochoco's older, slower growing forests
to younger, more productive forests. In addition, by increasing the harvest on
the Ochoco Timberlands, the Company will be able to reduce the amount of
timber harvested on the Klamath Falls Timberlands, allowing these faster
growing Timberlands to continue to mature, thereby increasing their commercial
value.
Pursue Accretive Acquisition Opportunities
The Company intends to identify, evaluate and acquire undervalued
timberlands in North America with the objective of increasing both the value
of the Master Partnership's Units and its cash flow. The Company believes that
management's relationships within the timber industry, as well as its focus on
operating timberlands, rather than conversion facilities, give it a
competitive advantage in developing acquisition opportunities. The Company
believes that its use of independent contractors to conduct its silviculture
and harvesting activities should enable it to operate significantly increased
acreage without a commensurate increase in fixed overhead costs. The Company
intends to evaluate and pursue those opportunities that are located within
markets distinguished by strong demand, that include ages and species that
complement the Company's existing inventory, and that fit the Company's
current and long-term value objectives. In addition, the Company may in the
future acquire
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timberlands located in areas, and containing timber suitable for export. By
early January 1998, it is expected that Edward J. Kobacker, the current
Executive Vice President and Chief Operating Officer of the Manager, will
become the President and Chief Executive Officer of the Manager and that John
J. Stephens, the current President and Chief Executive Officer, will become
Vice Chairman of the Board of Directors of the Manager in order to devote more
time to the Company's acquisition program.
Implement Flexible Marketing Strategies
The Company's marketing strategy emphasizes flexibility in structuring the
sales of its timber assets. Depending upon the needs of its customers and
current market conditions, the Company can either sell harvested logs or
stumpage and can sell forest by-products, such as wood chips. The Company
believes that its strategy of owning timberlands rather than conversion
facilities that compete with its customers is an important factor in
developing and maintaining strong customer relationships. Since the
Weyerhaeuser Acquisition, the Company has sold logs to 22 different customers
and expects to sell to a greater number in the future. In addition to log and
stumpage sales, the Company may also sell or exchange parcels of land with
other timberland owners. For example, the Company may seek to realize the
value of portions of the Plantations by exchanging them for more mature timber
owned by timberland owners or by selling them for immediate cash proceeds.
Sell Land for Higher and Better Uses
The Company seeks to realize the value of land that may have a higher and
better use than for timberland management or that is otherwise a candidate for
sale or exchange. For example, some of the Timberlands may have greater value
if used for ranching, farming or recreational purposes. The Company intends to
sell approximately 30,000 acres of small tracts for higher and better uses
over the next ten years. The Company recently sold approximately 12,000 acres
from the Klamath Falls Timberlands. In addition, the Company has identified a
tract of approximately 23,000 acres that it intends to sell within the next
five years. The Company will also seek to exchange lands with significant
environmental and recreational values for lands that are more suitable for
commercial timberland management.
TRANSACTION BACKGROUND
The Company and Old Services were formed in mid-1996 to own and operate the
Klamath Falls Timberlands. The Company acquired the Klamath Falls Timberlands
from Weyerhaeuser in August 1996 for consideration of $281.5 million plus
approximately $11.0 million of fees and expenses. To finance such acquisition,
the Company entered into a $90.0 million revolving credit facility and an
$85.0 million term loan facility with a group of banks. In addition, Holdings
incurred the $130.0 million in Holdings Debt pursuant to an agreement with a
group of banks and the members of Holdings contributed $10.0 million of equity
capital to Holdings. Holdings then contributed $140.0 million of equity
capital to the Company. Included among the fees incurred in connection with
the Weyerhaeuser Acquisition was a one-time $4.9 million advisory fee paid to
affiliates of the Company. In addition, Weyerhaeuser guaranteed the Holdings
Debt and will receive the Guarantee Fees in connection therewith upon the
closing of the Transactions. The Company paid $2.8 million in management fees
to an affiliate of the Company for management services rendered in connection
with the initial formation of the Company and Old Services. During the period
from August 30, 1996 through December 31, 1996, the Company paid $10.0 million
to an affiliate of the Company; however, such amount, with related interest,
was repaid to the Company in February 1997.
On July 15, 1997, the Company acquired the Ochoco Timberlands from Ochoco
for consideration of approximately $110.9 million plus approximately $6.4
million of bank fees and other expenses. Contemporaneously therewith, the
Company entered into a loan agreement with a commercial bank to refinance the
USTK Debt incurred in connection with the Weyerhaeuser Acquisition and to
finance the Ochoco Acquisition. This debt consists of a $200.0 million seven-
year amortizing facility and an $85.0 million revolving credit facility. All
of the Company's outstanding indebtedness will be paid in full at the closing
of this offering. See "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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Currently, all of the Timberlands are owned by the Company while all of the
management staff, operating equipment and systems and nursery operations
reside at Old Services. Old Services conducts all of the marketing activities
relating to the Timberlands pursuant to a cutting contract with the Company.
Following the closing of the Transactions, all of the Timberlands and related
assets will be owned, and all of the marketing activities will be conducted,
by the Company while all management will be employed by the Manager.
THE TIMBERLANDS
Timber Inventory
The Company currently owns and manages approximately 630,000 fee acres of
timberland and cutting rights on approximately 3,000 acres of timberland
containing total merchantable timber volume estimated as of January 1, 1997 to
be approximately 2.2 BBF in Oregon east of the Cascade Range. The Timberlands
include substantial holdings of merchantable, good-quality timber. A
merchantable tree is a tree that will produce a sound log 16 feet in length
and at least five inches in diameter, inside bark, at the small end. The
Company's merchantable timber inventory consists of premium species of
softwood, consisting of Ponderosa Pine (approximately 42%) and Douglas Fir
(approximately 14%), species which have historically commanded premium prices
over other softwood species, as well as Lodgepole Pine (approximately 20%),
White Fir (approximately 19%) and other species (approximately 5%).
The Timberlands have stands of varying sizes and ages and are unique in the
forests east of the Cascade Range in Oregon in that approximately 184,000
acres of the 630,000 acre total consist of actively managed pine Plantations
with stands ranging in age from two to 35 years. The Plantations are stocked
with high quality Ponderosa Pine (approximately 73%) and Lodgepole Pine
(approximately 27%). Because the timber on the Plantations is generally not
yet considered merchantable, volumes of timber on the Plantations are not
included in the Company's estimated merchantable timber volume. However,
initial thinning of the Plantation stands, including the thinning of
commercial quantities of merchantable timber, is expected to begin within the
next five years. See "--Harvest Plans."
The following table demonstrates the estimated merchantable timber inventory
by species within the Timberlands as of January 1, 1997 (all volumes are as
verified by Mason, Bruce & Girard, Inc. ("MBG") and are based, in some cases,
on information developed by Company personnel):
MERCHANTABLE TIMBER INVENTORY BY SPECIES
(MMBF)
<TABLE>
<CAPTION>
KLAMATH
FALLS
SPECIES TIMBERLANDS OCHOCO TIMBERLANDS TOTAL
------- ------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ponderosa Pine................ 732.7 37% 214.2 78% 946.9 42%
Lodgepole Pine................ 451.4 23% -- 0% 451.4 20%
White Fir..................... 424.1 21% 17.1 6% 441.2 19%
Douglas Fir................... 266.9 14% 44.3(a) 16% 311.2 14%
Other Species(b).............. 102.9 5% 0.5 (c) 103.4 5%
------- ---- --------- -------- ------- ------
Total....................... 1,978.0 100% 276.1 100% 2,254.1 100.0%
======= ==== ========= ======== ======= ======
</TABLE>
- --------
(a) Includes Grand Fir
(b) Includes Cedar, Sugar Pine, Western Larch and other species
(c) Less than 1%
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Size and Species Distribution of Merchantable Timber
The Company's Timberlands are well diversified, not only by species mix but
also by size distribution. Timber on the Timberlands generally reaches
merchantable size between 40 and 50 years in natural stands and between 25 and
35 years in the Plantations. The following table describes the estimated
volume distribution of merchantable timber on the Timberlands by species and
diameter breast height ("DBH") classes (as verified by MBG) as of January 1,
1997. Lodgepole Pine having a DBH of 6" generally considered merchantable,
while the other timber species are generally considered merchantable at a DBH
of 7 1/2". Such other species, to the extent their DBH is less than 7 1/2",
are not included in any of the tables on this page.
MERCHANTABLE TIMBER VOLUME DISTRIBUTION BY SPECIES AND BY DBH
(MMBF)
<TABLE>
<CAPTION>
KLAMATH FALLS TIMBERLANDS
-------------------------------------------------
PONDEROSA LODGEPOLE WHITE DOUGLAS OTHER
DBH PINE PINE FIR FIR SPECIES TOTAL
--- --------- --------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
6"-10"........................ 92.4 105.3 60.6 31.5 24.8 314.6
11"-15"....................... 355.8 229.5 198.3 115.6 31.8 931.0
16"-19"....................... 181.5 84.3 99.4 70.2 19.4 454.8
20"-23"....................... 52.1 23.7 29.1 24.0 9.6 138.5
24"+.......................... 50.9 8.6 36.7 25.6 17.3 139.1
----- ----- ----- ----- ----- -------
Total....................... 732.7 451.4 424.1 266.9 102.9 1,978.0
===== ===== ===== ===== ===== =======
<CAPTION>
OCHOCO TIMBERLANDS
-------------------------------------------------
PONDEROSA LODGEPOLE WHITE DOUGLAS OTHER
DBH PINE PINE FIR FIR SPECIES TOTAL
--- --------- --------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
6"-10"........................ 24.4 -- 2.1 4.7 0.0 31.2
11"-15"....................... 51.6 -- 7.3 18.6 0.4 77.9
16"-19"....................... 33.0 -- 3.4 10.8 0.1 47.3
20"-23"....................... 33.1 -- 2.1 5.9 0.0 41.1
24"+.......................... 72.1 -- 2.2 4.3 0.0 78.6
----- ----- ----- ----- ----- -------
Total....................... 214.2 -- 17.1 44.3 0.5 276.1
===== ===== ===== ===== ===== =======
</TABLE>
The following table describes the acreage distribution of timber on the
Plantations by age class (as verified by MBG) as of January 1, 1997:
ACREAGE DISTRIBUTION BY AGE CLASS ON PLANTATIONS
<TABLE>
<CAPTION>
AGE CLASS IN YEARS ACREAGE
------------------ -------
<S> <C>
1-5........................................................... 28,987
6-10.......................................................... 11,893
11-15.......................................................... 20,531
16-20.......................................................... 75,441
21-25.......................................................... 43,296
26+............................................................ 4,220
-------
Total........................................................ 184,368
=======
</TABLE>
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Timber Growth
Timber growth rates reflect timberland productivity and the rate of return
on a timber investment. Growth rate is an important factor in determining when
to harvest timber and the harvest potential of timberlands over the long term.
Merchantable timber is economically mature for harvesting when its current
growth rate falls below the desired rate of return on the investment in the
standing trees. The average growth rate from
regeneration to economic maturity measures the capacity of the land for timber
production. The Company's older and natural stands on the Timberlands that are
expected to provide the near term harvest have a current average growth rate
of approximately 160 board feet per acre per annum. The younger Plantations
are growing at a rate that is expected to average at least 315 board feet per
acre per annum to economic maturity in 60 years. This growth rate is based on
calculated volumes at the time of maturity. The Company has achieved higher
growth rates on the Plantations by planting seedlings which are able to begin
growing immediately (as compared to the slower natural regeneration process),
by eliminating competing non-timber growth from the Timberlands and by
applying modern forestry practices to assist the growth of the timber.
Management can take actions that help to enhance growth rate in the natural
stands as well. For example, selective harvesting in the slower growing
natural stands opens up the timber stand allowing for more vigorous growth of
the remaining trees. When it is no longer possible to maintain acceptable
growth rates in these stands they will be harvested entirely and converted to
faster growing plantations.
Harvest Plans
The Company strives to manage all of its Timberlands, including the
Plantations, in an economically prudent and environmentally sensitive manner
in order to maximize their value over time. Integral to this management
process are the Company's long-term harvest plans. The Company prepares its
harvest plans annually based on analyses of the size and age class
distribution of the Timberlands and the economic maturity of each harvest
tract. A tract is considered ready to be harvested when the expected value of
future tree growth on such tract falls below a target rate of return. The
factors the Company considers in determining its long-term harvest plans
include, among other things, current and expected market conditions,
competition, customer requirements, the age, size and species distribution of
the Company's timber, assumptions about timber growth rates (which improve
over time as a result of technological, biological and genetic advances that
improve forest management practices and the increasing proportion of the
Timberlands converted to Plantations), expected acquisitions and dispositions,
access to the Timberlands, availability of contractors, sales contracts and
environmental and regulatory constraints. The Company's harvest plans reflect
the Company's expectations for each year's harvest, including the sites to be
harvested, the manner of harvesting such sites, the volume of each species to
be harvested, the prices expected to be received for the Company's timber, the
amount of stumpage sales, logging and other costs, thinning operations and
other relevant information. The Company has the flexibility to update its
harvest plans during the year to take into consideration changes in these
factors. Under the current harvest plan, the Company intends to harvest 153
MMBF in 1997, 129 MMBF in 1998, 137 MMBF in 1999 and 130 MMBF in 2000 to
maximize the value of the mature, old growth timber located on the Ochoco
Timberlands. The harvest level for each such year includes stumpage and timber
deed sales. The cash flows resulting from such sales will be determined by
contract; however, the timing of the actual harvests could vary depending on
the harvest plans of the buyer of such stumpage or timber deed. From 2001
through 2009, the annual harvest level is expected to range from approximately
117 MMBF to approximately 132 MMBF, an average of approximately 123 MMBF per
annum. After 2009, the harvest level is expected to decline to an average of
approximately 110 MMBF per annum, which the Company considers to be a more
sustainable level over the long term. The Company believes this harvest plan
can be achieved; however, since harvest plans are based on certain
assumptions, many of which are beyond the Company's control, there can be no
assurance that the Company will be able to harvest the volumes projected in
its harvest plans. While the Company's debt obligations place certain
limitations on the harvest plans, the Company believes that it has sufficient
flexibility to permit modifications in response to fluctuations in the market
for logs and lumber and the other factors described above. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." If
the Company's current harvest plans are pursued unaltered for the next 12
years, if it consummates the land sales
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<PAGE>
contemplated by its strategic plan and if its other strategic assumptions prove
to be accurate, the Company expects that its timber inventory would decline to
approximately 1.7 BBF by the end of 2009 and that its more valuable species of
timber would decline as a percentage of its total timber inventory by such
date. The Company expects that its inventory would remain relatively stable
thereafter. Such harvest plans, land sales and other strategic assumptions do
not take into account any acquisition that the Company may consummate during
such period. See "--Business Strategy," "--Timber Inventory," and "--Resource
Management--"Higher and Better Use' Timberlands."
Access
The Timberlands are accessible by a system of approximately 5,000 miles of
Company-owned and established roadways or low-maintenance roads. The Company
uses third-party road crews to conduct construction and maintenance on its
timberlands. The Company regularly enters into reciprocal road-use agreements
with the USFS and the BLM and cooperates with such agencies in numerous cost-
sharing arrangements regarding jointly used roads. See "--Federal and State
Regulation--Access to Timberlands May be Limited by Federal Regulation."
Sales and Markets
Once a block of timberland is ready to be harvested, the Company solicits
offers from its customers for delivery of logs. After a price and volume have
been agreed to among the parties, the Company either (i) contracts a third
party to harvest the acreage and deliver to a roadside site on the Timberlands,
where a contracted trucking company picks up the logs and delivers them to the
customer, or (ii) sells the timber on a stumpage basis where the customer
arranges to harvest and deliver the logs. When the Company sells timber on a
stumpage basis, depending on the length of the contract, it may either receive
payment in full upon the execution of the contract, or may receive a portion of
the payment upon execution of the contract and the balance of payment when the
timber is cut. In a stumpage sale, the Company generally retains the risk of
loss on the timber until such time as it has been harvested by the buyer. The
Company may also occasionally sell timber to customers pursuant to timber
deeds. In a timber deed sale, the Company may receive a portion of the payment
for the timber at the time of execution of the contract and the balance of
payment at various intervals throughout the duration of the contract, and the
risk of loss on the timber covered by the contract passes immediately to the
buyer, regardless of when the buyer harvests the timber. The Company currently
sells its sawlogs or stumpage directly to unaffiliated wood products
manufacturers and sells its chips to unaffiliated pulp mills or hardboard
plants. The percentage of logs which are sold as sawlogs/stumpage or pulp logs
is dependent upon, among other things, the species mix and quality of the
inventory harvested and the market dynamics affecting the region. Sawlogs and
stumpage sales accounted for approximately 93% of the Company's revenues in
1996.
Most of the timber on the Timberlands is softwood which, due to its long
fiber, strength, flexibility and other characteristics, is generally preferred
over hardwood for construction lumber and plywood. Once processed, sawlogs are
suitable for use as structural grade lumber, appearance grade boards, plywood
and laminated veneer and can also be manufactured for such end uses as window
trim, molding and door jambs. Chips, which can be used to make hardboard or
pulp, accounted for approximately 6% of the Company's revenues in 1996. The
market price of chips has historically been volatile, rising and falling with
the price of pulp. Sales of seedlings accounted for the remaining 1% of the
Company's revenues in 1996.
The Company's customers include numerous unaffiliated operators of conversion
facilities. Since its acquisition of the Klamath Falls Timberlands in August
1996, the Company has sold logs from such timberlands to 22 different
customers. Concurrent with the Weyerhaeuser Acquisition, the Company arranged
for Collins, a privately owned forest products company located within the
Klamath Falls Timberlands, to purchase Weyerhaeuser's Klamath Falls mill
facilities. At such time, the Company entered into the Collins Supply
Agreement, a 10-year log supply agreement with Collins providing for purchase
by the plywood mill and delivery by the Company of a minimum of 34 MMBF of logs
each year at market prices. For the nine months ended September 30, 1997,
timber sales to Collins, Boise Cascade Corporation and Crown Pacific Partners
40
<PAGE>
accounted for approximately 25%, 20% and 17%, respectively, of the Company's
revenue. Collins made its purchases pursuant to the 10-year Collins Supply
Agreement, while the other purchases were made pursuant to short-term
arrangements. Although the loss of one or more of such customers or other
significant customers could have a material adverse effect on the Company's
results of operations, the Company believes that the capacity for processing
wood fiber in the Company's markets currently exceeds the supply and that,
therefore, such customers could readily be replaced. Prior to the Company's
acquisition of the Ochoco Timberlands, virtually all of the logs sold from
such timberlands were sold to Ochoco's own facilities. Since the Ochoco
Acquisition in July 1997, all of the sales from the Ochoco Timberlands have
been and will be made to unaffiliated customers. See "Risk Factors--Risks
Inherent in the Company's Business--Dependence on Certain Key Customers."
There are currently more than 50 primary conversion facilities located within
a 150-mile radius of the Company's base of operations in Klamath Falls,
Oregon.
Competition
Due to transportation costs, domestic conversion facilities in the Pacific
Northwest tend to purchase raw materials within relatively confined geographic
areas, generally within a 200-mile radius. It is generally recognized that log
suppliers such as the Company provide their market with a commodity product.
The Company and its competitors all benefit from the same competitive
advantages in the region--namely, excess of demand, close proximity to
numerous mills, and positive demographic trends of the Pacific Northwest and
the West Coast. Therefore, the Company and its competitors are currently able
to sell all the logs they are able to produce. Additional competitive factors
within a market area generally will include species and grade, quality,
ability to supply logs which consistently meet the customers' specifications
and ability to meet delivery requirements. The Company believes that it has a
reputation as a stable and consistent supplier of well-merchandised, high-
quality logs. The Company has no conversion facilities and therefore does not
compete with its customers for logs. The Company believes that this gives it
an advantage over certain of its competitors that also own conversion
facilities.
The Company competes with numerous private land and timber owners in the
northwestern United States and the state agencies of Oregon, as well as
immaterial amounts of foreign imports, primarily from Canada and New Zealand.
In addition, the Company competes with the USFS, the BLM and the Bureau of
Indian Affairs. Certain of the Company's competitors have significantly
greater financial resources than the Company.
RESOURCE MANAGEMENT
Timber Resource Management
All of the silvicultural activities on the Timberlands and the harvesting
and delivery of logs are conducted by independent contractors who are not
employees of the Company. The Company's operations involve intensive timber
management and harvesting operations, which include road construction and
reforestation, as well as wildlife and watershed management, all of which are
carefully monitored using the Company's GIS. See "--Geographic Information
System." The Company employs a number of traditional and recently developed
harvesting techniques on its lands based on site-specific characteristics and
other considerations. Due to the topography of the Timberlands, over 95% of
the Timberlands can be harvested using lower-cost mechanical methods as
opposed to higher-cost cable systems.
Harvesting on the Timberlands is conducted using both selective and
regeneration harvesting. In selective harvesting, a partial harvest provides
merchantable timber and opens up the stand for supplemental growth on the
remaining stand. Harvest entries are separated by approximately 10 to 15 years
and each entry is prescribed for volume to be removed, spacing to be provided,
and diameter limits to be harvested. In regeneration harvesting, which is used
to harvest approximately 30% of the Company's timber, all merchantable volume
is removed in a single harvest. After an area has been regeneration harvested,
the Company employs a reforestation contractor to plant two year old seedlings
at a density of approximately 350 trees per acre. The Company also attempts to
protect and maintain the ecosystem within the Timberlands while providing for
a reasonable harvest.
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For example, the Company typically leaves a mix of green and dead trees at the
harvest site, including some large trees, snags and downed logs to enrich and
protect the soil for successive generations of trees and to provide habitats
for a variety of wildlife species.
Particular forestry practices vary by geographic region and depend upon
factors such as soil productivity, weather, terrain, tree size, age and
stocking. The rain, site and soil conditions on the east side of the Cascade
Range, for example, permit management to harvest on an optimal rotation, or
harvest cycle, of 55 to 65 years. Forest stands are thinned periodically to
improve growth and stand quality until harvested. The Company actively
utilizes commercial thinning timber management practices. Pre-commercial
thinning, which occurs only in the Plantation stands, is utilized when the
timber harvested is not merchantable. The Company believes that such thinning
improves the overall productivity of the Timberlands by enhancing the growth
of the remaining trees. Occasionally, revenues are generated from pre-
merchantable thinning, as was the case in 1995 due to the strong markets for
wood chips.
The Company's policy is to ensure that every acre harvested is reforested in
order to enhance the long-term value of its timberlands. Based on the
geographic and climatic conditions of a given harvest site, harvested areas
may be regenerated naturally, by leaving mature trees to reseed the area, or
replanted with seedlings. Natural regeneration methods are widely used on
approximately 70% of the Company's harvested land. Approximately 29% of the
Timberlands acreage currently consist of Plantations. The Company expects to
convert approximately 3,000 to 6,000 acres of natural stands to Plantations
annually. During 1996, the Company planted approximately 2.5 million
seedlings. The Company uses genetically improved seedlings (representing
approximately 90% to 95% of seedlings planted) to grow trees with desirable
traits such as superior growth characteristics, good form and disease
resistance, resulting in greater wood volume over a rotation than that
generated by naturally regenerated seedlings. The seedlings are grown in the
Company's nursery, which uses seeds from the Company's seed orchard, which was
established in 1973. Such seeds are generated by trees that are created by
grafting selected superior genetic stock to mature root stock.
Geographic Information System
The GIS is a computer software program that the Company acquired from
Weyerhaeuser as part of the acquisition of the Klamath Falls Timberlands. The
GIS data, which has been compiled over a period of four years, includes
detailed topographical field maps for every stand within the Timberlands
(including data for the Ochoco Timberlands which was recently added by the
Company), setting forth the characteristics, including age, species, size and
other characteristics for the timber growing on each such stand. Using the
data in the GIS, the Company can use a computer model to "grow" the timber
over time, enabling it to generate long-term harvest plans and to update its
inventory annually. To maintain the integrity of the data in the GIS, the
Company performs a detailed ground survey of the remaining timber inventory on
a tract after each harvest and updates the data in the GIS for that tract.
With the aid of the GIS, the Company is able to actively manage the
Timberlands, track its inventory and develop site-specific harvest plans on
multiple scales, adding additional layers of detail, such as the location of
roadways or wildlife nesting areas, as required. The GIS also permits the
Company to analyze the impact that new legislation may have on its timberlands
by inputting the proposed constraints imposed by such legislation in light of
the particular field characteristics of its Timberlands. For example, the
Company has recently analyzed the impact on its Timberlands of the potential
listing of the bull trout as an endangered species under the Endangered
Species Act, by using the GIS to review the particular characteristics of the
streams and rivers located on its properties for suitability for bull trout
habitat, and by overlaying the proposed regulatory restraints on harvest at
the sites it determined might be suitable habitat for bull trout. The GIS will
also be used to evaluate potential acquisition opportunities.
Although GIS systems are generally available for purchase, many of the
Company's competitors do not utilize GIS systems, mainly due to the relatively
high initial cost and to the length of time necessary to collect sufficient
data to optimize its use. Thus, the Company believes the GIS gives it an
advantage over its competitors.
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"Higher and Better Use" Timberlands
The Company seeks to realize the value of land that may have a higher and
better use than for timberland management or that is otherwise a candidate for
sale or exchange. For example, some of the Timberlands may have greater value
if used for ranching, farming or recreational purposes. The Company intends to
sell approximately 30,000 acres of small tracts for higher and better uses
over the next ten years. The Company recently sold approximately 12,000 acres
from the Klamath Falls Timberlands. In addition, the Company has identified a
tract of approximately 23,000 acres that it intends to sell within the next
five years. The Company will also seek to exchange lands with significant
environmental and recreational values for lands that are more suitable for
commercial timberland management.
FEDERAL AND STATE REGULATION
Endangered Species
The federal Endangered Species Act and counterpart state legislation protect
species threatened with possible extinction. Protection of endangered species
may include restrictions on timber harvesting, road building and other
silvicultural activities in areas containing the affected species. A number of
species indigenous to the Pacific Northwest have been protected under the
Endangered Species Act, including the northern spotted owl, marbled murrelet,
Columbian white-tail deer, mountain caribou, grizzly bear, bald eagle, red
cockaded woodpecker, northern goshawk, bull trout and various anadromous fish
species. Currently, the Company has identified several spotted owl, bald eagle
and northern goshawk nesting areas affecting the Timberlands and the presence
of bull trout in certain of its streams, which may affect harvesting on
approximately 26,000 acres.
In 1990, the United States Fish and Wildlife Service (the "USFWS") listed
the northern spotted owl as a threatened species throughout its range in
Washington, Oregon and California. At the time of the listing, the USFWS
issued suggested guidelines ("Guidelines") to be followed by landowners in
order to comply with the Endangered Species Act's prohibition against harming
or harassing owls. The Guidelines recommend several measures, including the
restriction of harvest activities in areas within a certain proximity of known
owl activity centers. The USFWS also proposed a rule for the conservation of
the owl on non-federal land. Such proposed rule was subsequently withdrawn.
The Oregon Forest Practices Act and related regulations also protect
endangered species and has specific provisions governing habitat protection
for the spotted owl, the bald eagle and other threatened species.
Weyerhaeuser regularly surveyed for bald eagles on its properties and
submitted the results of its surveys and its annual site management plan for
each known eagle site to the Oregon Department of Fish and Wildlife. The
latest survey showed that there were approximately 80 eagle sites on the
Klamath Falls Timberlands. The Company observes the harvesting restrictions
around the eagle sites. In addition, commencing in 1990, Weyerhaeuser utilized
independent wildlife consultants to survey for the presence of northern
spotted owls on or affecting the Klamath Falls Timberlands. The surveys have
been conducted every year in order to (i) meet the regulatory requirements for
timber harvest and other management activities, (ii) monitor existing sites
and determine the current status of such sites, (iii) determine if areas
identified as containing suitable habitat are supporting owls and (iv)
investigate potential spotted owl sightings. The most recent of such surveys
was completed in July 1997, and identified approximately 27 northern spotted
owl sites affecting the Klamath Falls Timberlands, three of which are located
on the Klamath Falls Timberlands. The Company has continued these practices
for Klamath Fall Timberlands and is implementing such practices on the Ochoco
Timberlands.
The Company believes that it is managing its harvesting operations in the
areas affected by protected species in substantial compliance with applicable
federal and state regulations. Based on certain consultants' reports, and on
management's knowledge of the Timberlands, the Company does not believe that
there are any species protected under the Endangered Species Act or similar
state laws that, under current regulations and Court interpretation, would
materially adversely affect the Company's ability to harvest the Timberlands
in accordance with current harvest plans. There can be no assurance, however,
that species within the Timberlands may not subsequently receive protected
status under the Endangered Species Act or that currently protected species
may
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not be discovered in significant numbers within the Timberlands. Additionally,
there can be no assurance that future legislative, administrative or judicial
activities related to protected species will not adversely affect the Company
or its ability to continue its activities and operations as currently
conducted.
Timberlands
The operation of the Timberlands is subject to specialized statutes and
regulations in the State of Oregon, which has enacted laws which regulate
forestry operations, including the Forest Practices Act, which addresses many
growing, harvesting and processing activities on forest lands. Among other
requirements, these laws restrict the size and spacing of harvest units, and
impose certain reforestation obligations on the owners of forest lands. The
State of Oregon requires a company to provide prior notification before
beginning harvesting activity. The Forest Practices Act and other state laws
and regulations control timber slash burning, operations during fire hazard
periods, logging activities affecting or utilizing water courses or in
proximity to certain ocean and inland shore lines, water anti-degradation and
certain grading and road construction activities. A number of other timber
states have been considering legislation and regulations governing forest
practices, and some tightening of existing controls is expected.
Environmental Laws and Superfund
The Company's operations are subject to federal, state and local
environmental laws and regulations relating to the protection of the
environment. Although the Company believes that it is in material compliance
with these requirements, there can be no assurance that significant costs,
civil and criminal penalties, and liabilities will not be incurred, including
those relating to claims for damages to property or natural resources
resulting from the Company's operations.
Environmental laws and regulations have changed substantially and rapidly
over the last 20 years, and the Company anticipates there will be continuing
changes. The trend in environmental regulations is to place more restrictions
and limitations on activities that may affect the environment, such as
emissions of pollutants and the generation and disposal of wastes.
Increasingly strict environmental restrictions and limitations have resulted
in increased operating costs for the Company and it is possible that the costs
of compliance with environmental laws and regulations will continue to
increase.
Although the Company does not consider current laws and regulations relating
to the environment to be materially burdensome, there can be no assurance that
future legislative, administrative or judicial actions, which are becoming
increasingly stringent, will not adversely affect the Company or its ability
to continue its activities and operations as currently conducted. As of the
date of this Prospectus, the Company is not aware of any pending legislative,
administrative or judicial action relating to the protection of the
environment that could materially and adversely affect the Company.
The Federal Comprehensive Environmental Response, Compensation and Liability
Act, also known as Superfund, and comparable state laws impose liability,
without regard to fault or the legality of the original act, on certain
classes of persons that contributed to the release of a "hazardous substance"
into the environment. These persons include the owner or operator of a site
and companies that disposed or arranged for the disposal of the hazardous
substances found at a site. Those statutes also authorize government
environmental authorities such as the U.S. Environmental Protection Agency
and, in some instances, third parties, to take actions in response to threats
to the public health or the environment and to seek recovery of the costs
incurred from the responsible persons. Based on environmental compliance
auditing programs, the Company is not aware of any activities by the Company
or any conditions on the Timberlands that would be likely to result in the
Company being named a potentially responsible party.
Access to Timberlands May be Limited by Federal Regulation
A substantial portion of the Timberlands consists of sections of land that
are intermingled with or adjacent to sections of federal land managed by the
USFS and the BLM. Removal of trees from those portions of the
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Timberlands requires transportation of the logs by truck across logging and
general purpose roads. In many cases, access is only, or most economically,
achieved through a road or roads built across adjacent federal land pursuant
to a reciprocal right-of-way ("RROW"). Removal of federal timber often
requires similar access across the Timberlands. Recent litigation (not
involving the Company) before the United States Court of Appeals for the Ninth
Circuit held that the BLM was not required to consult with the USFWS, which
administers the Endangered Species Act, prior to approving a private
landowner's proposal to build an access road across federal land pursuant to
an existing RROW entered into prior to the enactment of the Endangered Species
Act wherein the BLM did not have discretion to disapprove a road segment due
to endangered species concerns. A reversal on appeal or a rehearing of that
case, or future federal law or regulation requiring the BLM to consult with
the USFWS in connection with an RROW, could materially adversely affect the
Company's ability to harvest the affected portion of the Timberlands. Certain
of the Company's RROW agreements contain provisions that require compliance
with state and federal environmental laws and regulations. To the extent that
the Company acquires new Timberlands that require access through federal
lands, the Company may enter into new RROW agreements with the BLM or other
federal agencies which would require consultation with the USFWS. In addition,
the BLM has published advance notice of its intent to revise regulations
governing RROW agreements entered into the future to, among other things,
expand the BLM's consideration of environmental and cultural factors in
granting, issuing or renewing rights-of-way, provide the BLM with regulatory
authority to object to the location of roads because of potential effects on
threatened or endangered species and allow for the abandonment of rights-of-
way under certain circumstances.
Safety and Health
The operations of the Timberlands are subject to the requirements of the
Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes relating to the health and safety of employees. The Company believes
that it is in compliance with OSHA regulations, including general industry
standards, permissible exposure levels for toxic chemicals and record-keeping
requirements.
LITIGATION
There is no pending litigation, and to the knowledge of the Company, there
is no threatened litigation, the unfavorable resolution of which could have a
material adverse effect on the business or financial condition of Company.
EMPLOYEES
As of September 30, 1997, the Company had 30 salaried employees, including
employees of the Manager that manage the business of the Company. The
employees of the Timberlands are not unionized, and the Company believes that
its employee relations are good. The Company's wage scale and benefits are
generally competitive with other forest products companies. All of the
silvicultural activities on the Timberlands and the harvesting and delivery of
logs are conducted by independent contractors who are not employees of the
Company.
The Company employee benefits include a 401(k) savings plan for all
employees, a health insurance plan (including co-payments and deductibles) for
all employees and a medical savings plan for all employees.
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MANAGEMENT
COMPANY MANAGEMENT
The Manager will manage and operate the activities of the Company. At least
two of the members of the Board of Directors of the Manager who are neither
officers, employees or security holders of the Manager nor directors,
officers, employees or security holders of any affiliate of the Manager will
serve on a conflicts committee (the "Conflicts Committee"), which will have
the authority to review specific matters as to which the Board of Directors
believes there may be a conflict of interest in order to determine if the
resolution of such conflict proposed by the Manager is fair and reasonable to
the Master Partnership. Any matters approved by the Conflicts Committee will
be conclusively deemed to be fair and reasonable to the Master Partnership,
approved by all partners of the Master Partnership and not a breach by the
Manager, in its capacity as general partner, or its Board of Directors of any
duties they may owe the Master Partnership or the Unitholders of the Master
Partnership. The Board of Directors will also have an Audit Committee,
composed of the two independent directors as well as Robert F. Wright, which
will review the external financial reporting of the Company, will recommend
engagement of the Company's independent public accountants and will review the
Company's policies and procedures for internal auditing and the adequacy of
the Company's internal accounting controls. The Board of Directors will also
have a compensation committee (the "Compensation Committee"), which will
initially consist of five directors, including the two independent directors,
which will determine the compensation of the officers of the Manager and
administer its employee benefit plans.
The Company will not directly employ any of the persons responsible for
managing or operating the Company. In general, the current management of the
Company will manage and operate the Company's business as officers and
employees of the Manager and its affiliates.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE MANAGER
The following table sets forth certain information with respect to the
members of the Board of Directors of the Manager, its executive officers and
certain key employees. Executive officers and directors are elected for one-
year terms.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH MANAGER
- ---- --- ---------------------
<S> <C> <C>
John M. Rudey.................... 54 Chairman and Director(1)
John J. Stephens................. 69 President, Chief Executive Officer and
Director(2)
Edward J. Kobacker............... 59 Executive Vice President, Chief Operating
Officer and Director(3)
Michael J. Morgan................ 41 Vice President and Chief Financial Officer
John H. Beuter................... 61 Director(4)
Aubrey L. Cole................... 73 Director(5)
George R. Hornig................. 43 Director(6)
Robert F. Wright................. 71 Director(7)
Walter L. Barnes................. 55 Harvesting Manager
Robert A. Broadhead.............. 46 Marketing Manager
Martin Lugus..................... 56 General Manager
Kurt A. Muller................... 39 Planning Manager
Christopher J. Sokol............. 48 Forestry Manager
</TABLE>
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- --------
(1) Member of the Executive (Chairman), Nominating (Chairman), Finance and
Compensation (Chairman) Committees.
(2) Member of the Executive, Nominating, Finance and Compensation Committees.
The Company expects that on or prior to January 5, 1998, Mr. Stephens will
become the Vice Chairman of the Board of Directors of the Manager and will
resign as President and Chief Executive Officer.
(3) Member of the Executive and Finance (Chairman) Committees. The Company
expects that, upon the resignation of Mr. Stephens as an officer of the
Manager and subject to the approval of the Board of Directors of the
Manager, Mr. Kobacker will become the President and Chief Executive
Officer of the Manager.
(4) Member of the Nominating and Finance Committees.
(5) Member of the Executive and Nominating Committees.
(6) Member of the Executive and Finance Committees.
(7) Member of the Nominating, Finance, Compensation and Audit (Chairman)
Committees.
Shortly after the consummation of the Transactions, the Manager will appoint
two additional directors, who will be neither members, officers nor employees
of the Manager nor members, officers, directors or employees of any affiliate
of the Manager, to the Conflicts Committee, the Audit Committee and the
Compensation Committee.
John M. Rudey will serve as Chairman and a Director of the Manager. Since
1992, Mr. Rudey has served as Chief Executive Officer of Garrin Properties
Holdings, Inc., a private investment company that manages and advises
investment portfolios principally concentrated in the timber and forest
products industries and in real estate. He has previously acquired and managed
for his family investment group a subsidiary of Westinghouse Electric Co. and
a division of Monumental Life Insurance Company. Mr. Rudey holds a B.A. from
Harvard College and an M.B.A. from Harvard Business School.
John J. Stephens will initially serve as President and Chief Executive
Officer and a Director of the Manager. Since 1991, Mr. Stephens has served as
a business advisor to a number of agricultural and forestry projects. From
1982 to 1991, Mr. Stephens was the President and Chief Executive Officer of
Roseburg Forest Products Co. (a privately owned forest products company)
("Roseburg"). From 1972 to 1982, Mr. Stephens was employed by International
Paper Company (a publicly traded forest products company), serving for his
last eight years as Vice President and Group Executive of Wood Products and
Resources. For his initial two years at International Paper Company, Mr.
Stephens served as Vice President Finance. From 1960 to 1972, Mr. Stephens was
a Principal in the Consulting Division of Arthur Andersen & Co. Mr. Stephens
holds a B.S. in civil engineering from the Virginia Military Institute and a
B.S. in Business Administration from Youngstown State University, Ohio.
Edward J. Kobacker will initially serve as Executive Vice President and
Chief Operating Officer and a Director of the Manager. From 1992 to 1997, Mr.
Kobacker was the President of IP Forest Resources Company (a subsidiary of
International Paper Company and the general partner of IP Timberlands, Ltd., a
publicly traded forest products company) and Vice President of the Forestlands
Division of International Paper Company. From 1987 to 1992, Mr. Kobacker was
the general manager and group executive of the Kraft Paper Group. Mr. Kobacker
holds a B.S. in accounting from the University of Scranton and is a former CPA
licensed in New York.
Michael J. Morgan will serve as a Vice President and the Chief Financial
Officer of the Manager. Since October 1996, Mr. Morgan has served as the Vice
President of Finance of Old Services. From 1991 to 1996 Mr. Morgan was the
Assistant Treasurer and Tax Manager of Roseburg. From 1981 to 1991, Mr. Morgan
was employed in the tax department of Arthur Andersen & Co. Mr. Morgan holds a
B.S. from Portland State University. Mr. Morgan is a CPA licensed in Oregon.
John H. Beuter will serve as a Director of the Manager. Since 1993, Dr.
Beuter has been a consulting forester with and the President of Duck Creek
Associates, Inc. (a natural resources consulting firm). From 1991 to 1993, Dr.
Beuter served as Deputy and Acting Assistant Secretary of the Department of
Agriculture overseeing
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the U.S. Forest Service and Soil Conservation Service. From 1970 to 1987, Dr.
Beuter was a professor of forest management at Oregon State University, during
which time he served as Chair of the Department of Forest Management,
Associate Dean and Director of the University Research Forests. Dr. Beuter
holds a B.S. in forestry and an M.S. in forest economics from Michigan State
University and a Ph.D. in forestry and economics from Iowa State University.
Aubrey L. Cole will serve as a Director of the Manager. Since 1989 Mr. Cole
has been a consultant for Aubrey Cole Associates, a sole proprietorship which
provides management consulting services and makes investments. From 1986 to
1989, Mr. Cole was the Vice Chairman of the Board and Director of Champion
International Corporation (a publicly traded forest products company) and from
1983 to 1993, Mr. Cole was the Chairman of Champion Realty Corporation (a land
sales subsidiary of Champion International). Mr. Cole holds a B.B.A. from the
University of Texas and serves on the Advisory Board of the Business School.
George R. Hornig will serve as a Director of the Manager. Since 1993, Mr.
Hornig has been a Managing Director of Deutsche Bank North America Holdings,
Inc. (the United States arm of Deutsche Bank, a German banking concern) and
affiliated entities. From 1991 to 1993, Mr. Hornig was the President and Chief
Operating Officer of Dubin & Swieca Holdings, Inc., an investment management
business. From 1988 to 1991, Mr. Hornig was a co-founder, Managing Director
and Chief Operating Officer of Wasserstein Perella & Co., Inc. (a mergers and
acquisitions investment bank). From 1983 to 1988, Mr. Hornig was an investment
banker in the Mergers and Acquisitions Group of The First Boston Corporation.
Prior to 1983, Mr. Hornig was an attorney with Skadden, Arps, Slate, Meagher &
Flom. Mr. Hornig holds a B.A. from Harvard College, a J.D. from Harvard Law
School and an M.B.A. from Harvard Business School. Mr. Hornig is also a
director of SL Industries, Inc. and Forrester Research, Inc.
Robert F. Wright will serve as a Director of the Manager. Since 1988, Mr.
Wright has served as President and Chief Executive Officer of Robert F. Wright
Associates, Inc., a firm making strategic investments and providing business
consulting services. Previously, Mr. Wright spent 40 years, 28 years as a
partner, at Arthur Andersen & Co. Mr. Wright holds a B.A. from Michigan State
University and an M.B.A. from New York University. Mr. Wright is a director of
the following companies: Hanover Direct Inc. (a catalog marketer), Reliance
Standard Life Insurance Co. and affiliates (life insurance companies), The
Navigators Group Inc. (a property insurance company), Norweb North America
Corporation (an Irish investment company), Rose Technology Group Limited (a
Canadian professional engineering company) and Williams Real Estate Co., Inc.
(a real estate company).
Walter L. Barnes will serve as Harvesting Manager of the Manager (the
position he currently holds with Old Services), responsible for all solid wood
logging and fiber operations. Mr. Barnes was employed by Weyerhaeuser for 28
years and has extensive experience managing different harvesting systems on
both the East and West sides of the Cascade Range. Mr. Barnes holds a B.S.
degree from the University of Wyoming.
Robert A. Broadhead will serve as Marketing Manager of the Manager (the
position he currently holds with Old Services), responsible for all log and
stumpage transactions. Mr. Broadhead was employed by Weyerhaeuser for 20 years
and gained additional experience in investing and planning while serving as
Planning Manager from 1981 to 1994. Mr. Broadhead holds a B.S. degree from
Humboldt State University.
Martin Lugus will serve as General Manager of the Manager (the position he
currently holds with Old Services), responsible for all land management and
operations on fee lands. Mr. Lugus was employed by Weyerhaeuser for 28 years,
during which time he served as Forestry Manager from 1981 to 1991 and
Timberlands Manager from 1991 to 1996. Mr. Lugus holds a B.S. from University
of Connecticut and a M.F. from Yale School of Forestry and Environmental
Studies.
Kurt A. Muller will serve as Planning Manager of the Manager (the position
he currently holds with Old Services), responsible for all short, medium and
long term harvest planning, as well as operating and developing the inventory
and GIS systems. From 1982 to 1989, Mr. Muller was President of Woodland
Consulting Services,
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<PAGE>
Inc., during which time he gained additional experience in contracting
forestry operations and forest land management as District Forester. Mr.
Muller was employed by Weyerhaeuser for eight years and holds a B.S. degree
from Oregon State University.
Christopher J. Sokol will serve as Forestry Manager of the Manager (the
position he currently holds with Old Services), responsible for forestry
operations, environmental relationships, harvest prescriptions and
nursery/orchard operations. Mr. Sokol was employed by Weyerhaeuser for 22
years and gained additional experience in forest regeneration and timber sales
while servicing as District Forester from 1982 to 1991. Mr. Sokol holds a B.S.
from Oregon State University.
REIMBURSEMENT OF EXPENSES OF THE MANAGER AND ITS AFFILIATES
The Manager will not receive any management fee or other compensation in
connection with its management of the Company. The Manager and its affiliates
performing services for the Company will be reimbursed for all expenses
incurred on behalf of the Company, including the costs of compensation
described herein properly allocable to the Company, and all other expenses
necessary or appropriate to the conduct of the business of, and allocable to,
the Company. The Amended and Restated Operating Agreement of the Company (the
"Operating Company Agreement") provides that the Manager will determine the
expenses that are allocable to the Company in any reasonable manner determined
by the Manager in its sole discretion.
EXECUTIVE COMPENSATION
The Company was formed in June 1996 but has had none of its own employees
since that time. The Master Partnership and the Manager were formed in June
1997. Accordingly, neither the Company nor the Manager paid any compensation
to its directors and officers with respect to fiscal 1996, nor did any
obligations accrue in respect of management incentive or retirement benefits
for the directors and officers with respect to such year. Officers and
employees of the Manager may participate in employee benefit plans and
arrangements sponsored by the Manager, including plans which may be
established by the Manager in the future. Under the terms of the Operating
Company Agreement and the MLP Partnership Agreement, the Company is required
to reimburse the Manager for expenses relating to the operation of the
Company, including salaries and bonuses of employees employed on behalf of the
Company, as well as the costs of providing benefits to such persons under
employee benefit plans and for the costs of health and life insurance. See
"Certain Relationships and Related Transactions."
Employment Agreements
The Manager anticipates that, on or before the closing of the Transactions,
it will enter into employment agreements with Messrs. Rudey, Stephens,
Kobacker and Morgan (the "Executives"). The summary of the Employment
Agreements which follows does not purport to be complete and is qualified in
its entirety by reference to the forms of Employment Agreement, which have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part. Each agreement will have a term of approximately five years and
will include confidentiality provisions and noncompete provisions. In each
agreement, the confidentiality provisions will continue for 18 months (12
months in the case of Mr. Stephens) following the later to occur of the
Executive's termination of employment or his resignation or removal from the
Board, and, unless the Executive is terminated without "Cause," or the
Executive terminates his employment for "good reason or due to disability" the
noncompete provisions will continue for a period of 12 months after the
termination of such employment (six months in the case of Mr. Morgan).
The agreements will provide for an annual base salary of $300,000, $450,000,
$350,000 and $126,000 for each of Messrs. Rudey, Stephens, Kobacker and
Morgan, respectively, subject to such increases as the Board of Directors of
the Manager may authorize from time to time. In addition, each of the
Executives will be eligible to receive an annual cash bonus to be determined
by the Compensation Committee not to exceed 100% of his base salary. Mr.
Kobacker will also be entitled to receive three annual payments of $150,000 in
each of 1998, 1999 and 2000 in consideration for having forfeited certain in-
the-money options granted to him by his prior employer and a 5% interest in
the Manager. Each of the Executives will participate in the Long-Term
Incentive Plan and Management Incentive Plan (as defined below) of the Manager
as described below. The Executives will also be
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<PAGE>
entitled to participate in such other benefit plans and programs as the Manager
may provide for its employees in general. Under his agreement, Mr. Stephens
may, after January 1, 1998, elect to resign as President and Chief Executive
Officer of the Manager and become Vice Chairman of the Board of Directors of
the Manager and the Company expects that Mr. Stephens will so resign. Upon such
resignation, it is expected that his responsibility for the day-to-day
operations of the Company will be assumed by Mr. Kobacker. As Vice Chairman,
Mr. Stephens will become responsible for conducting the Company's acquisition
program and his compensation will be the same as that of other non-executive
directors of the Manager plus $200 per hour (up to a maximum of $1,600 per day)
for services rendered in respect of such acquisition program.
The agreements provide that in the event an Executive's employment is
terminated without "Cause" (as defined in the Employment Agreements) or if the
Executive terminates his employment for "Good Reason" (as defined below), such
individual will be entitled to receive a severance payment in an amount equal
to his base salary for the remainder of the employment term under the
Employment Agreement or 12 months, whichever is less (in the case of Mr.
Kobacker, if his employment is terminated without "Cause" prior to July 1,
1999, he will be entitled to receive a severance payment in an amount equal to
his base salary for 24 months), plus a prorated bonus for the year of such
termination calculated based on the bonus being equal to 100% of base salary.
In the event of termination due to death or disability, the Executive will be
entitled to accrued salary and benefits up to the date of the termination. In
the event the individual's employment is terminated for "Cause," he will
receive accrued salary and benefits up to the date of termination.
Good Reason is defined in the agreements generally as: (i) in the case of
Messrs. Rudey, Stephens and Kobacker, failure of the Manager's members to elect
or re-elect the Executive to the Board of Directors (if applicable), or to vest
in him the position, duties and responsibilities contemplated by the Employment
Agreement, (ii) failure of the Manager to pay any portion of the individual's
compensation, (iii) any material breach by the Manager of any material
provision of the Employment Agreement and (iv) a material reduction in the
individual's duties, responsibilities or status upon a "change of control" as
defined in the Employment Agreement. "Cause" is defined generally as: (i) any
felony conviction, (ii) any material breach by the Executive of a material
written agreement between the Executive and the Company, (iii) any breach
caused by the Executive of the MLP Partnership Agreement, (iv) any willful
misconduct by the Executive materially injurious to the Company, (v) any
willful failure by the Executive to comply with any material policies,
procedures or directives of the Board of Directors of the Manager or (vi) any
fraud, misappropriation of funds, embezzlement or other similar acts of
misconduct with respect to the Company.
Long-Term Incentive Plan
The Manager intends to adopt the U.S. Timberlands 1997 Long-Term Incentive
Plan (the "Long-Term Incentive Plan") for key employees and directors of the
Manager which will be effective upon consummation of the Transactions. The
summary of the Long-Term Incentive Plan contained herein does not purport to be
complete and is qualified in its entirety by reference to the Long-Term
Incentive Plan, which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Long-Term Incentive Plan will
consist of two components, a unit option plan (the "Unit Option Plan") and a
restricted unit plan (the "Restricted Unit Plan"). Initially, the Long-Term
Incentive Plan will permit the grant of Restricted Units and Unit Options
covering an aggregate of 745,868 Common Units (857,749 Common Units if the
over-allotment option granted to the underwriters in connection with the MLP
Offering is exercised in full).
Unit Option Plan. Initially, the Unit Option Plan will permit the grant of
options ("Unit Options") covering 745,868 Common Units. From these, 633,987
Unit Options will be granted to key employees and directors upon the
consummation of the Transactions, subject to the vesting conditions described
below and subject to other customary terms and conditions, as follows: (i) Unit
Options covering 93,233 Common Units will be granted to each of Messrs. Rudey,
Stephens, Kobacker and Hornig and (ii) Unit Options covering 55,941 Common
Units will be granted to Mr. Morgan. Unit Options covering 205,114 Common Units
will be allocated among six other key employees of the Manager. A total of
eleven individuals are currently eligible to receive awards under the Unit
Option Plan. Unit Options covering the remaining 111,881 Common Units under the
Unit
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Option Plan will be reserved and may be granted in the future to key employees
or directors on such terms and conditions (including vesting conditions) as
are described below or as the Compensation Committee shall determine. Each of
the amounts set forth above will be adjusted upward by an amount equal to 10%
of the Common Units issued upon any exercise of the underwriters' over-
allotment option in the MLP Offering.
Unit Options granted at the closing of this offering will have an exercise
price equal to the initial public offering price for Common Units and will
become exercisable automatically upon, and in the same proportions as, the
conversion of the Subordinated Units to Common Units. If a grantee's
employment is terminated by reason of his death, disability or retirement, the
grantee's Unit Options will become immediately exercisable. In addition, a
grantee's Unit Options will become immediately exercisable in the event of a
"change of control" of the Company (as defined in the Long-Term Incentive
Plan).
Upon exercise of a Unit Option, the Manager will acquire Common Units in the
open market at a price equal to the then-prevailing price on the principal
national securities exchange upon which the Common Units are then traded, or
directly from the Company or any other person, or use Common Units already
owned by the Manager, or any combination of the foregoing. The Manager will be
entitled to reimbursement by the Company for the difference between the cost
incurred by the Manager in acquiring such Common Units and the proceeds
received by the Manager from an optionee at the time of exercise. Thus, the
cost of the Unit Options will be borne by the Company. If the Master
Partnership issues new Common Units upon exercise of the Unit Options, the
total number of Units outstanding will increase and the Manager will remit the
proceeds received from the optionee to the Company.
The Unit Option Plan has been designed to furnish additional compensation to
key executives and key directors and to increase their proprietary interest in
the future performance of the Company measured in terms of growth in the
market value of Common Units.
Restricted Unit Plan. A Restricted Unit is a "phantom" unit that entitles
the grantee to receive a Common Unit upon the vesting of the phantom unit. No
grants will initially be made under the Restricted Unit Plan. The Compensation
Committee may, in the future, determine to make grants under such plan to key
employees and directors containing such terms as the Committee shall
determine. Restricted Units granted during the Subordination Period will vest
automatically upon, and in the same proportions as, the conversion of the
Subordinated Units to Common Units. Common Units to be delivered upon the
"vesting" of rights may be Common Units acquired by the Manager in the open
market, Common Units already owned by the Manager, Common Units acquired by
the Manager directly from the Company or any other person, or any combination
of the foregoing. The Manager will be entitled to reimbursement by the Company
for the cost incurred in acquiring such Common Units. If the Master
Partnership issues new Common Units, the total number of Units outstanding
will increase and the Company will receive no remuneration.
The issuance of the Common Units pursuant to the Restricted Unit Plan is
intended to serve as a means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity appreciation in
respect of the Common Units. Therefore, no consideration will be payable by
the plan participants upon vesting and issuance of the Common Units.
The Manager's Board of Directors in its discretion may terminate the Long-
Term Incentive Plan at any time with respect to any Common Units or Unit
Options for which a grant has not theretofore been made. The Manager's Board
of Directors will also have the right to alter or amend the Long-Term
Incentive Plan or any part thereof from time to time; provided, however, that
no change in any outstanding grant may be made that would impair the rights of
the participant without the consent of such participant.
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Management Incentive Plan
The Manager intends to adopt the U.S. Timberlands Company, L.P. Management
Incentive Plan (the "Management Incentive Plan") following the consummation of
this offering and the MLP Offering. The Management Incentive Plan is designed
to enhance the financial performance of the Manager's key operating managers
by rewarding them with cash awards for achieving annual financial performance
objectives. The Management Incentive Plan will be administered by the
Compensation Committee. Individual participants and payments, if any, for each
calendar year will be determined by and in the discretion of the Compensation
Committee. In no event will incentive payments be made with respect to any
year unless (i) distributions of Available Cash from Operating Surplus (as
defined in the Glossary) on the Common Units and Subordinated Units with
respect to such year equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and Subordinated Units
during such year, (ii) the Adjusted Operating Surplus generated during such
year has equaled or exceeded the sum of the Minimum Quarterly Distribution on
all of the Common Units and Subordinated Units that were outstanding during
such year on a fully diluted basis and the related distribution on the
Manager's 2% interest during such year, and (iii) there are no outstanding
Common Unit Arrearages. Any incentive payments will be at the discretion of
the Compensation Committee, and the Manager will be able to amend or change
the Management Incentive Plan at any time.
COMPENSATION OF DIRECTORS
No additional remuneration will be paid to employees who also serve as
directors. The Company anticipates that each independent director (there are
expected to be two) will receive $50,000 annually, for which they each agree
to participate in four regular meetings of the Board of Directors and four
Audit/Conflicts Committee meetings. Each other non-employee director will
receive $50,000 annually (to be paid in cash or Subordinated Units, as
determined by each director), for which they each agree to participate in four
regular meetings of the Board of Directors. Each non-employee director will
receive $1,250 for each additional meeting in which he participates. In
addition, each non-employee director will be reimbursed for his out-of-pocket
expenses in connection with attending meetings of the Board of Directors or
committees thereof. Each director will be fully indemnified by the Company for
his actions associated with being a director to the extent permitted under
Delaware law.
ACQUISITION FEES
The Compensation Committee expects to adopt a policy to compensate
individuals, including directors of the Manager, who bring to the Company
acquisition transactions that ultimately are consummated, at levels that
reflect the market for such fees from time to time.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Units that will
be issued upon the consummation of the Transactions held by beneficial owners
of five percent or more of the Units, by directors and executive officers of
the Manager and by all directors and executive officers of the Manager as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
COMMON COMMON SUBORDINATED SUBORDINATED TOTAL UNITS
UNITS TO BE UNITS TO BE UNITS TO BE UNITS TO BE TO BE
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED OWNED
- ------------------------ ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Rudey Timber Company,
L.L.C. (1)............. - -% 2,978,833 67.6% 24.9%
U.S. Timberlands
Management Company,
L.L.C.(2).............. - - 1,283,293 29.1 10.8
U.S. Timberlands
Holdings, L.L.C.(3).... - - 2,978,833 67.6 25.1
John M. Rudey(4)........ - - 4,262,126 96.7 35.9
John J. Stephens(5)(7).. - - 95,238 2.2 *
Edward J. Kobacker...... - - - - -
Michael J. Morgan....... - - - - -
George R. Hornig(6)(7).. - - 50,040 1.1 *
Robert F. Wright........ - - - - -
Aubrey L. Cole.......... - - - - -
John H. Beuter.......... - - - - -
All directors and
executive officers as a
group (8 persons)(7)... - -% 4,407,404 100% 37.1%
</TABLE>
- --------
* Less than 1% of class.
(1) Current address is 625 Madison Avenue, Suite 10-B, New York, New York
10022. Includes all 2,978,833 of the Subordinated Units owned by Holdings.
Rudey Timber Company, L.L.C. has a 99% member interest in Holdings.
(2) Current address is 625 Madison Avenue, Suite 10-B, New York, New York
10022. Excludes 145,278 Subordinated Units to be received by Old Services
in the Transaction which will be transferred to Messrs. Stephens and
Hornig in redemption of their interests therein.
(3) Current address is 625 Madison Avenue, Suite 10-B, New York, New York
10022.
(4) Current address is 625 Madison Avenue, Suite 10-B, New York, New York
10022. Includes 1,283,293 Subordinated Units owned by Old Services and
2,978,833 Subordinated Units owned by Holdings. Mr. Rudey is attributed
100% beneficial ownership of all Subordinated Units owned by Old Services
and Holdings through his interests therein and in Rudey Timber Company,
L.L.C.
(5) Current address is P.O. Box 10 6400 Highway 66, Klamath Falls, Oregon
97601.
(6) Current address is 31 West 52nd Street, New York, New York 10019.
(7) Includes only interests directly and indirectly owned by such persons.
With respect to beneficial ownership which may be attributable to Mr.
Rudey, see footnote (4).
Upon consummation of the Transactions, all of the outstanding member
interests in the Manager will be owned by management, directors and related
persons and entities. The members of the Manager have entered into an
operating agreement, which, among other things, provides that the member
interests of management and directors who retire, resign or otherwise
terminate their relationship with the Manager will be repurchased by the
Manager. In addition, each member other than affiliates of Mr. Rudey is
provided certain "tag along" and "bring along" rights with respect to sales of
member interests in the Manager by Mr. Rudey's affiliates.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RIGHTS OF THE MANAGER
After the Common Units offering, Old Services will own 1,283,293
Subordinated Units, Holdings, an affiliate of the Manager, will own 2,978,833
Subordinated Units, and Messrs. Stephens and Hornig, founding directors and
members of the Manager, will own an aggregate of 145,278 Subordinated Units.
The 4,407,404 Subordinated Units owned by Old Services, Holdings and Messrs.
Stephens and Hornig will represent an aggregate 36.4% limited partner interest
in the Company (33.3% if the over-allotment option granted to the underwriters
in connection with the MLP Offering is exercised in full). Through the
Manager's ability to manage and operate the Company and the ownership of all
of the outstanding Subordinated Units by affiliates of the Manager
(effectively giving the Manager the ability to veto certain actions of the
Company), the Manager will have the ability to control the management of the
Company.
CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
In connection with the Transactions, the Company, the Master Partnership,
the Manager, Old Services and certain other parties will enter into the
Contribution, Conveyance and Assumption Agreement (the "Contribution
Agreement"), which will generally govern the Transactions, including the
transfer of certain assets to and the assumption of certain liabilities by the
Company. The Contribution Agreement will not be the result of arm's-length
negotiations, and there can be no assurance that it, or that any of the
transactions provided for therein, will be effected on terms at least as
favorable to the parties to such agreement as could have been obtained from
unaffiliated third parties. All of the transaction expenses incurred in
connection with the Transactions, including the expenses associated with
transferring assets into the Company, will be paid from the proceeds of the
MLP Offering.
CONSULTING AGREEMENTS
The Manager intends to enter into consulting agreements with each of Duck
Creek Associates (a consulting firm affiliated with Mr. Beuter), Aubrey Cole
Associates (a consulting firm affiliated with Mr. Cole), Robert F. Wright
Associates, Inc. (a consulting firm affiliated with Mr. Wright) and George R.
Hornig pursuant to which each such person or firm will provide consulting
services to the Manager. Each such agreement will provide for an annual
retainer of $25,000, plus $150 per hour (with a maximum per diem of $1,200)
for services rendered at the request of the Manager. In addition, Mr.
Stephens' employment agreement provides that, upon his resignation as
President and Chief Executive Officer of the Manager, he will enter into a
consulting arrangement with an annual retainer of $25,000, plus $200 per hour
(with a maximum per diem of $1,600) for services rendered at the request of
the Company. See "Management--Executive Compensation--Employment Agreements."
Each consulting agreement will be reviewed annually by a majority of the
directors who do not have consulting agreements.
RELATED PARTY TRANSACTIONS
In connection with the Weyerhaeuser Acquisition, the Company paid a fee of
approximately $4.1 million to U.S. Timberlands Management Group, L.L.C.
("TMG"), an entity 100% owned and controlled by Rudey Timber Company L.L.C.,
and a fee of $0.4 million to each of Mr. Rudey and Mr. Stephens. In addition,
for the period from August 30, 1996 to December 31, 1996, the Company paid TMG
management fees of $2.8 million.
During the period from August 30, 1996 through December 31, 1996, the
Company paid $10.0 million to TMG. Such amount, with related interest, was
repaid to the Company in February 1997.
Pursuant to an agreement dated as of July 29, 1997 between Mr. Stephens and
the Company, Old Services, Mr. Rudey and certain of his affiliates, Mr.
Stephen's interest in Old Services will be redeemed for 95,238 Subordinated
Units upon the consummation of the Transactions and $1.0 million payable in
January 1998. Pursuant to an agreement dated as of July 29, 1997 between Mr.
Hornig and the Company, Old Services, Mr. Rudey and certain of his affiliates,
Mr. Hornig's interest in Old Services will be redeemed upon the closing of the
Transactions for 50,040 Subordinated Units.
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THE OPERATING COMPANY AGREEMENT
The following paragraphs are a summary of the material provisions of the
Operating Company Agreement. The discussions presented below of the material
provisions of the Operating Company Agreement are qualified in their entirety
by reference to the Operating Company Agreement the form of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
ORGANIZATION AND DURATION
The Company was organized in 1996 to acquire the Klamath Falls Timberlands.
Following the consummation of the Transactions, the Master Partnership will
own a 98.9899% non-managing member interest in the Company and the Manager
will own a 1.0101% interest in the Company and will manage and operate the
Company's business as the managing member. The Manager will also serve as the
general partner of the Master Partnership, owning an aggregate 2% interest in
the Company and the Master Partnership on a combined basis. The Company will
continue in existence until December 31, 2087 or until the earlier dissolution
of the Company pursuant to the terms of the Operating Company Agreement.
CASH DISTRIBUTIONS
The Company will distribute to the Manager and the Master Partnership, on a
quarterly basis, all of its Available Cash. Distributions will be made 1.0101%
to the Manager and 98.9899% to the Master Partnership.
INDEMNIFICATION
The Operating Company Agreement provides that the Company will indemnify the
Manager, any Departing Manager (as defined in the Glossary), any person who is
or was an affiliate of a Manager or any Departing Manager, any person who is
or was a member, partner, officer, director, employee, agent or trustee of a
Manager or any Departing Manager or any affiliate of a Manager or any
Departing Manager, or any person who is or was serving at the request of a
Manager or any Departing Manager or any affiliate of any such person, any
affiliate of a Manager or any Departing Manager as an officer, director,
employee, member, partner, agent, fiduciary or trustee of another person
("Indemnitees"), to the fullest extent permitted by law, from and against any
and all losses, claims, damages, liabilities (joint or several), expenses
(including, without limitation, legal fees and expenses), judgments, fines,
penalties, interest, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or
is threatened to be involved, as a party or otherwise, by reason of its status
as an Indemnitee; provided that in each case the Indemnitee acted in good
faith and in a manner that such Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
proceeding, had no reasonable cause to believe its conduct was unlawful. Any
indemnification under these provisions will be only out of the assets of the
Company, and the Manager shall not be personally liable for, or have any
obligation to contribute or loan funds or assets to the Company to enable it
to effectuate, such indemnification. The Company is authorized to purchase (or
to reimburse the Manager or its affiliates for the cost of) insurance against
liabilities asserted against and expenses incurred by such persons in
connection with the Company's activities, regardless of whether the Company
would have the power to indemnify such person against such liabilities under
the provisions described above.
TERMINATION AND DISSOLUTION
The Company will continue until December 31, 2087, unless sooner terminated
pursuant to the Operating Company Agreement. The Company will be dissolved
upon (i) the election of the Manager to dissolve the Company and the approval
of all members, (ii) the sale of all or substantially all of the assets and
properties of the Company, (iii) the entry of a decree of judicial dissolution
of the Company, (iv) the dissolution of the Master Partnership, or (v) the
withdrawal or removal of the Manager or any other event that results in its
ceasing to be
55
<PAGE>
the general partner of the Master Partnership or the managing member of the
Company, as the case may be, (other than by reason of a transfer of its
general partner interest in accordance with the MLP Partnership Agreement or
its managing member interest in accordance with the Operating Company
Agreement, as the case may be, or withdrawal or removal following approval and
admission of a successor). Upon a dissolution pursuant to clause (v) the
Master Partnership may, prior to the effective date of such withdrawal, elect
a successor Manager; provided, however, that such successor shall be the same
person, if any, that is elected by the limited partners of the Master
Partnership as the successor to the Manager in its capacity as the general
partner of the Master Partnership, subject to receipt by the Company of an
opinion of counsel to the effect that (x) such action would not result in the
loss of limited liability of any limited partner of the Master Partnership or
of a member of the Company and (y) neither the Master Partnership, the
reconstituted limited partnership nor the Company would be treated as an
association taxable as a corporation or otherwise be taxable as an entity for
federal income tax purposes upon the exercise of such right to continue.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon dissolution of the Company, unless the Company is reconstituted and
continued as a new limited liability company, the person authorized to wind up
the affairs of the Company (the "Liquidator") will, acting with all of the
powers of the Manager that such Liquidator deems necessary or desirable in its
good faith judgment in connection therewith, liquidate the Company's assets
and apply the proceeds of the liquidation as follows: (i) first towards the
payment of creditors of the Company in the order of priority provided in the
Operating Company Agreement and by law and (ii) then to the Master Partnership
and the Manager in accordance with their respective capital account balances
as so adjusted. Under certain circumstances and subject to certain
limitations, the Liquidator may defer liquidation or distribution of the
Company's assets for a reasonable period of time or distribute assets to
partners in kind if it determines that a sale would be impractical or would
cause undue loss to the members.
REMOVAL AND WITHDRAWAL OF THE MANAGER
The Manager shall be removed as manager of the Company if it has been
removed as the general partner of the Master Partnership pursuant to the MLP
Partnership Agreement. The Manager may not be removed as general partner of
the Master Partnership unless such removal is approved by the vote of the
holders of not less than 66 2/3% of the outstanding Units (including Units
held by the Manager and its affiliates) and the Company receives an Opinion of
Counsel (as defined in the Glossary). The ownership of the Subordinated Units
by certain affiliates of the Manager effectively gives the Manager the ability
to prevent its removal. The Manager has agreed not to voluntarily withdraw as
managing member of the Company and general partner of the Master Partnership
prior to December 31, 2007, subject to limited exceptions, without obtaining
the approval of at least a Unit Majority and furnishing an Opinion of Counsel.
56
<PAGE>
DESCRIPTION OF BANK CREDIT FACILITY
Concurrent with the closing of this offering, the Company will enter into
the Bank Credit Facility with one or more commercial banks. The following is a
summary of the terms of the Bank Credit Facility, the form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. This summary is qualified in its entirety by reference to the Bank
Credit Facility.
The Bank Credit Facility will consist of a $75.0 million Acquisition
Facility and a $25.0 million Working Capital Facility. The Company's
obligations under the Bank Credit Facility will be unsecured general
obligations, will rank pari passu with the Notes and will be non-recourse to
the Manager. The Bank Credit Facility will bear interest at a rate based upon,
at the Company's option, either the Offshore Rate or the Base Rate (each as
defined in the Bank Credit Facility) plus, in either case, the applicable
margin. The Working Capital Facility will expire after three years and all
amounts borrowed thereunder shall be due and payable on such date. The
Acquisition Facility will revolve for three years, after which time, so long
as no Default or Event of Default (each as defined in the Bank Credit
Facility) shall exist and the representations contained in the Bank Credit
Facility are true, the Company may elect to amortize any outstanding loans
thereunder in 16 equal quarterly installments beginning one quarter after the
conversion to a term loan.
The Bank Credit Facility contains various affirmative and restrictive
covenants applicable to the Company, including limitations on the Company to,
among other things, (i) incur certain additional indebtedness, (ii) incur any
liens other than (a) liens on accounts receivable and inventory to secure
indebtedness under a refinancing facility for the Working Capital Facility and
(b) liens for purchase money financing of acquired assets up to an aggregate
$10.0 million, (ii) sell assets or harvest timber in excess of certain
limitations (which limitations are similar to those under the Indenture), and
(iv) make investments, engage in transactions with affiliates, and enter into
a merger, consolidation or sale of assets. The Bank Credit Facility requires
that the Company maintain at all times the following financial ratios: (i)
Minimum Pro Forma EBITDDA (as defined in the Bank Credit Facility) to Pro
Forma Interest Expense (as defined in the Bank Credit Facility) of 2.10 to 1.0
(calculated on a four quarter rolling basis) from the closing date through
June 30, 1998, increasing to 2.25 to 1.0 thereafter and through June 30, 1999
and further increasing to 2.35 to 1.0 thereafter, (ii) Maximum Funded Debt (as
defined in the Bank Credit Facility) to Pro Forma EBITDDA (as defined in the
Bank Credit Facility) of not more than 5.25 to 1.0 (calculated on a four
quarter rolling basis) from the closing date through June 30, 1998, reducing
to 4.75 to 1.0 thereafter and through June 30, 1999, and further reducing to
4.50 to 1.0 thereafter and (iii) Minimum Asset Value (as defined in the Bank
Credit Facility) to Funded Debt Ratio (as defined in the Bank Credit Facility)
of 175% measured on a quarterly basis based on quarter end numbers.
Under the Bank Credit Facility, so long as no Event of Default (as defined
in the Bank Credit Facility) exists or would result, the Company will be
permitted to make quarterly cash distributions to the Master Partnership in an
amount not to exceed Available Cash (as defined in the Bank Credit Facility)
in the preceding quarterly period. Available Cash shall reflect a reserve
equal to the sum of (i) the reserve required under the Indenture to meet
future interest and principal obligations under the Indenture and (ii) the
amount of reserves specified in the Bank Credit Facility to meet the interest
and principal obligations due under the Acquisition Facility and Working
Capital Facility as of the end of the fiscal quarter following the date of
which such distribution is made.
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DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture") among
the Issuers and State Street Bank & Trust Company, as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the
Notes and the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Notes and the Indenture, including the
definitions therein of certain terms used below. A copy of the proposed form
of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is available from the Company upon request
as set forth under "Available Information." The definitions of certain terms
used in the following summary are set forth below under "--Certain
Definitions."
The Notes will be unsecured general joint and several obligations of the
Issuers and will rank senior in right of payment to all existing and future
subordinated indebtedness of the Issuers and pari passu in right of payment
with all existing and future senior indebtedness of the Issuers. At September
30, 1997, after giving pro forma effect to this offering and the other
transactions described herein, the Company would have had long-term
indebtedness of approximately $267.1 million, including $42.1 million
outstanding under the Bank Credit Facility. See "Capitalization" and
"Description of Bank Credit Facility." At such date, the Company would have
had no indebtedness subordinated to the Notes.
The Notes will be effectively subordinated to any secured indebtedness of
the Company to the extent of the value of the assets securing such
Indebtedness and to claims of creditors (other than the Company) and preferred
stockholders of the Company's Subsidiaries that are not Subsidiary Guarantors.
Claims of creditors (other than the Company) of the Company's Subsidiaries
that are not Subsidiary Guarantors, including trade creditors, secured
creditors, taxing authorities and creditors holding guarantees, and claims of
holders of preferred stock of such Subsidiaries will generally have priority
as to assets of such Subsidiaries over the claims and equity interest of the
Company and, thereby indirectly, the holders of indebtedness of the Company,
including the Notes.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $225.0 million
and will mature on , 2007. Interest on the Notes will accrue at the rate of
% per annum and will be payable semi-annually in arrears on and ,
commencing on , 1998, to holders of record on the immediately preceding
and . Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal, premium, if any, and interest on the Notes will be payable at the
office or agency of the Issuers maintained for such purpose within the City
and State of New York or, at the option of the Issuers, payment of interest
may be made by check mailed to the holders of the Notes at their respective
addresses set forth in the register of holders of Notes; provided that all
payments with respect to Global Notes will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof. Until otherwise designated by the Issuers, the Issuers'
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Notes will be issued in registered form, without coupons,
and in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable prior to , 2002. Thereafter, the Notes will
be subject to redemption at the option of the Issuers, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the
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redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the 12-month period beginning on of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. %
2003.............................. %
2004.............................. %
2005 and thereafter............... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or before , 2000, the
Company may redeem up to 35% of the original aggregate principal amount of the
Notes at a redemption price of % of the principal amount thereof, plus
accrued and unpaid interest thereon to the redemption date, with the net
proceeds of a Public Equity Offering; provided that at least 65% of the
aggregate principal amount of Notes originally issued remain outstanding
immediately after the occurrence of such redemption; provided, further, that
such redemption shall occur within 120 days of the date of the closing of such
Public Equity Offering; provided, further, that in the event of a Public
Equity Offering by the Master Partnership, the Master Partnership contributes
to the capital of the Company the portion of the net cash proceeds of such
Public Equity Offering necessary to pay the aggregate redemption price (plus
accrued and unpaid interest thereon to the redemption date) of the Notes to be
redeemed.
If less than all the Notes are to be redeemed pursuant to the optional
redemption provisions of the Indenture, the Trustee shall select the Notes to
be redeemed among the holders of Notes pro rata, by lot or in accordance with
a method which the Trustee considers to be fair and appropriate (and in such
manner as complies with applicable legal and stock exchange requirements, if
any). 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 Notes
to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and
after the redemption date, interest ceases to accrue on Notes or portions
thereof called for redemption.
SUBSIDIARY GUARANTEES OF NOTES
Although the Company currently does not conduct any business through
Subsidiaries, future operations of the Company could be conducted through
Subsidiaries. Under the circumstances described below, the Company's payment
obligations under the Notes may in the future be jointly and severally
guaranteed by future Restricted Subsidiaries of the Company as Subsidiary
Guarantors. Although the Indenture does not contain any requirement that any
Restricted Subsidiary execute and deliver a Subsidiary Guarantee, a covenant
described below requires a future Restricted Subsidiary in the future to
execute and deliver a Subsidiary Guarantee prior to its guarantee of other
Indebtedness of the Company. See "--Certain Covenants--Limitation on Non-
Guarantor Restricted Subsidiaries." However, no Subsidiary Guarantees will be
issued in connection with the initial offering and sale of the Notes.
Each Subsidiary Guarantor will guarantee, jointly and severally, to each
holder of Notes and the Trustee, the full and prompt performance of the
Company's obligations under the Indenture and the Notes, including the payment
of principal of (or premium, if any, on) and interest on the Notes pursuant to
its Subsidiary Guarantee.
Each of the Subsidiary Guarantees will be an unsecured general obligation of
the Subsidiary Guarantor and will rank senior in right of payment to all
existing and future subordinated indebtedness of the Subsidiary Guarantor and
pari passu in right of payment with all existing and future senior
indebtedness of the Subsidiary Guarantor. The Subsidiary Guarantees will be
effectively subordinated to any secured indebtedness of the Subsidiary
Guarantors to the extent of the value of the assets securing such
Indebtedness.
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The obligations of each Subsidiary Guarantor will be limited to the maximum
amount, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture, as
will result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its assets to the Company or
another Subsidiary Guarantor without limitation. Each Subsidiary Guarantor may
consolidate with or merge into or sell all or substantially all of its assets
to a Person other than the Company or another Subsidiary Guarantor (whether or
not Affiliated with the Subsidiary Guarantor), provided that (a) if the
surviving Person is not the Company or a Subsidiary Guarantor, the surviving
Person agrees to assume such Subsidiary Guarantor's Subsidiary Guarantee and
all its obligations pursuant to the Indenture (except to the extent the
following paragraph would result in the release of such Subsidiary Guarantee
and obligations) and (b) such transaction does not result in a Default or
Event of Default immediately thereafter that is continuing.
Upon (a) (i) the sale or other disposition of all of the Capital Stock of a
Subsidiary Guarantor to a Person other than the Company or another Subsidiary
Guarantor or (ii) the merger or consolidation of a Subsidiary Guarantor with
or into another Person or the sale of all or substantially all of the assets
of a Subsidiary Guarantor to another Person, in either case pursuant to a
transaction that is in compliance with the Indenture (including as described
in the foregoing paragraph) or (b) the release of all guarantees by a
Subsidiary Guarantor of Indebtedness of the Company, such Subsidiary Guarantor
shall be automatically and unconditionally released and discharged from its
Subsidiary Guarantee and all of its obligations in respect of the Indenture.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Issuers will
mail a notice to each holder stating: (a) that the Change of Control Offer is
being made pursuant to the covenant entitled "Change of Control" and that all
Notes tendered will be accepted for payment; (b) the purchase price and the
purchase date, which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date");
(c) that any Note not tendered will continue to accrue interest; (d) that,
unless the Issuers default in the payment of the Change of Control Payment,
all Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest after the Change of Control Payment Date; (e) that
holders electing to have any Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Notes, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Notes completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment
Date; (f) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the expiration
date of the Change of Control Offer, a telegram, telex, facsimile transmission
or letter setting forth the name of the holder, the principal amount of
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Notes delivered for purchase, and a statement that such holder is withdrawing
his election to have such Notes purchased; (g) that holders whose Notes are
being purchased only in part will be issued new Notes equal in principal
amount to the unpurchased portion of the Notes surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral multiple
thereof; and (h) the material circumstances and material facts regarding such
Change of Control. The Issuers will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes in connection with a Change of Control.
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 times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (a) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (b) deposit with the Paying Agent therefor an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (c) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an officers' certificate stating
the aggregate amount of the Notes or portions thereof tendered to the Issuers.
The Paying Agent will promptly mail to each holder of Notes so accepted the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail to each holder a new Note equal in principal amount to
the unpurchased portion of the Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Issuers will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
"Change of Control" means (a) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders or any Person of which one or more Permitted Holders beneficially own
in the aggregate at least a majority of the Voting Stock, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of more than 50% of the total voting power with
respect to the total Voting Stock of the Master Partnership or the Company,
(b) the sale, lease, conveyance or other disposition of all or substantially
all of the assets of the Master Partnership or the Company to any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act) other
than Permitted Holders or any Person of which one or more Permitted Holders
beneficially own in the aggregate at least a majority of the Voting Stock, (c)
the merger or consolidation of the Master Partnership or the Company with
another partnership, limited liability company or corporation other than a
Permitted Holder or any Person of which one or more Permitted Holders
beneficially own in the aggregate at least a majority of the Voting Stock, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Master Partnership or the Company, as applicable, is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Master Partnership or the Company,
as applicable, outstanding immediately prior to such transaction is converted
into or exchanged for Voting 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), (d) the liquidation or dissolution of the Master Partnership, the
Company or the Manager, or (e) the occurrence of any transaction, the result
of which is that Permitted Holders beneficially own in the aggregate, directly
or indirectly, less than a majority of the Voting Stock of the Manager.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require
that the Issuers repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
With respect to the sale of assets referred to in the definition of "Change
of Control" above, the phrase "all or substantially all" as used in the
Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which
governs the Indenture) and is subject to judicial interpretation. Accordingly,
in certain circumstances there may be a degree of uncertainty in
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ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the assets of a Person and therefore it may be
unclear whether a Change of Control has occurred and whether the Notes are
subject to a Change of Control Offer.
The Company's ability to pay cash to the holders of Notes upon a repurchase
may be limited by the Company's then existing financial resources. If the
Company does not have sufficient financial resources to repurchase the Notes,
the failure of the Company to repurchase the Notes upon a Change of Control
Offer would constitute an Event of Default under the Indenture.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, (a) sell, lease, convey or otherwise dispose of any assets (including by
way of a Sale and Leaseback Transaction) other than sales of inventory in the
ordinary course of business and consistent with past practice (provided, that
the sale, lease, conveyance or other disposition of all or substantially all
of the assets of the Company shall be governed by the provisions of the
Indenture described above under the caption "Change of Control" or the
provisions described below under the caption "Merger, Consolidation or Sale of
Assets" and not by the provisions of this covenant) or (b) issue or sell
Capital Stock of any of its Restricted Subsidiaries, in the case of either
clause (a) or (b) above, whether in a single transaction or a series of
related transactions that has a fair market value (as determined in good faith
by the Board of Directors of the Manager) in excess of $1.0 million or for net
cash proceeds of $1.0 million (each of the foregoing, an "Asset Sale"), unless
(i) 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 (as determined in good faith by the Board of Directors of the Manager)
of the assets sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash or cash equivalents; provided, however, that the amount
of (A) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or any Restricted Subsidiary that are assumed by the transferee of any such
assets and (B) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received) within 90 days of such Asset Sale, shall be deemed to be cash for
purposes of this provision; and provided further, that the 75% limitation
referred to in this clause (ii) shall not apply to any Asset Sale in which the
cash portion of the consideration received therefrom, determined in accordance
with the foregoing proviso, is equal to or greater than what the after-tax
proceeds would have been had such Asset Sale complied with the aforementioned
75% limitation. Notwithstanding the foregoing, Asset Sales shall not be deemed
to include (a) any transfer of assets or Capital Stock by the Company or any
of its Restricted Subsidiaries to a Restricted Subsidiary of the Company, (b)
any transfer of assets pursuant to a Permitted Investment, (c) the sale of
Timberlands in a like-kind exchange for a like interest in other Timberlands
having a fair market value (as determined in good faith by the Board of
Directors of the Manager) at least equal to the fair market value (as
determined in good faith by the Board of Directors of the Manager) of the
Timberlands sold, (d) the sale of not more than 10,000 acres in the aggregate
of Timberlands designated in good faith by the Board of Directors of the
Manager for a higher and better use, (e) a disposition of obsolete equipment
in the ordinary course of business, (f) any sale of Capital Stock of, or
Indebtedness or other securities of, an Unrestricted Subsidiary, and (g)
timber deed, bulk, pay-as-cut and stumpage sales in the ordinary course of
business.
In the event that the aggregate Net Proceeds received by the Company or any
of its Restricted Subsidiaries from one or more Asset Sales exceed the
Adjusted Asset Sales Amount since the Issue Date, within 270 days after the
date such aggregate Net Proceeds exceed such amount (or such longer period as
may be required to comply with any agreement in effect on the Issue Date), the
Company, at its option, shall apply the amount of such aggregate Net Proceeds
(less the amount of any such Net Proceeds previously applied during such
fiscal year for the purposes set forth in clauses (a) or (b) below) to (a)
reduce senior Indebtedness of the Company or Indebtedness of a Restricted
Subsidiary (with a permanent reduction of availability in the case of the
Working Capital Facility) or (b) make, or commit, pursuant to a binding
written contract (provided that the contract is
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consummated substantially in accordance with the terms thereof within 30 days
after the end of the 270-day period), to make, an investment in assets used or
useful in the Business. Pending the final application of any such Net
Proceeds, the Company or any Restricted Subsidiary may temporarily reduce
borrowings under the Bank Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any such Net
Proceeds that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million, the Issuers shall
make an offer to all holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the procedures set forth in the Indenture. The
Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes in
connection with an Asset Sale Offer. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company or any Restricted Subsidiary may use such deficiency for
general business purposes. If the aggregate principal amount of Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Limitation on Harvesting
In the event that the Company or any of its Restricted Subsidiaries receive
any Net Proceeds from one or more Excess Harvests, within 270 days after the
date of such receipt (or such longer period as may be required to comply with
any agreement in effect on the Issue Date), the Company, at its option, shall
apply the amount of such aggregate Net Proceeds (less the amount of any such
Net Proceeds previously applied during such fiscal year for the purposes set
forth in clauses (a) or (b) below) to (a) reduce senior Indebtedness of the
Company or Indebtedness of a Restricted Subsidiary (with a permanent reduction
of availability in the case of the Working Capital Facility) or (b) make, or
commit, pursuant to a binding written contract (provided that the contract is
consummated substantially in accordance with the terms thereof within 30 days
after the end of the 270-day period), to make, an investment in assets used or
useful in the Business. Pending the final application of any such Net
Proceeds, the Company or any Restricted Subsidiary may temporarily reduce
borrowings under the Bank Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any such Net
Proceeds that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Harvest Proceeds." When
the aggregate amount of Excess Harvest Proceeds exceeds $10 million, the
Issuers shall make an offer to all holders of Notes (an "Excess Harvest
Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Harvest Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase, in accordance with the procedures
set forth in the Indenture. The Issuers will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes in connection with an Excess
Harvest Offer. To the extent that the aggregate amount of Notes tendered
pursuant to an Excess Harvest Offer is less than the Excess Harvest Proceeds,
the Company or any Restricted Subsidiary may use such deficiency for general
business purposes. If the aggregate principal amount of Notes surrendered by
holders thereof exceeds the amount of Excess Harvest Proceeds, the Trustee
shall select the Notes to be purchased on a pro rata basis. Upon completion of
such Excess Harvest Offer, the amount of Excess Harvest Proceeds shall be
reset at zero.
CERTAIN COVENANTS
Limitation on Additional Indebtedness
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or in any
manner become directly or indirectly liable, contingently or otherwise, for
the payment of (in each case, to "incur"), any Indebtedness (including,
without limitation, any Redeemable
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Capital Stock and Acquired Indebtedness), unless at the time of such
incurrence, and after giving pro forma effect to the receipt and application
of the proceeds of such Indebtedness, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.25 to 1.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness.
Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or payment
on or in respect of Capital Stock of the Company or any of its Restricted
Subsidiaries or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company or any of its
Restricted Subsidiaries (other than (i) dividends or distributions payable
solely in Capital Stock of the Company (other than Redeemable Capital
Stock) or in options, warrants or other rights to purchase Capital Stock of
the Company (other than Redeemable Capital Stock), (ii) the declaration or
payment of dividends or other distributions to the extent declared or paid
to the Company or any Restricted Subsidiary of the Company and (iii) the
declaration or payment of dividends or other distributions by any
Restricted Subsidiary of the Company to all holders of Capital Stock of
such Restricted Subsidiary on a pro rata basis),
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Restricted Subsidiaries
(other than any such Capital Stock owned by a Wholly-Owned Restricted
Subsidiary of the Company),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any such
Indebtedness owned by the Company or a Wholly-Owned Restricted Subsidiary
of the Company), or
(d) make any Investment (other than any Permitted Investment) in any
Person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment, (A) no
Default or Event of Default shall have occurred and be continuing and (B) such
Restricted Payment, together with the aggregate of all other Restricted
Payments made by the Company and its Restricted Subsidiaries during the fiscal
quarter during which such Restricted Payment is made, shall not exceed (1) if
the Consolidated Fixed Charge Coverage Ratio of the Company shall be greater
than 1.75 to 1, an amount equal to Available Cash for the immediately
preceding fiscal quarter or (2) if the Consolidated Fixed Charge Coverage
Ratio of the Company shall be equal to or less than 1.75 to 1, an amount equal
to the sum of (x) $ 7.5 million less the aggregate amount of all Restricted
Payments made by the Company and its Restricted Subsidiaries pursuant to this
clause (2) (x) during the period ending on the last day of the fiscal quarter
of the Company immediately preceding the date of such Restricted Payment and
beginning on the later of (I) the Issue Date and (II) the first day of the
sixteenth full fiscal quarter immediately preceding the date of such
Restricted Payment, plus (y) the aggregate net cash proceeds of any
substantially concurrent (I) capital contribution to the Company from any
Person (other than a Restricted Subsidiary of the Company) or (II) issuance
and sale of shares of Capital Stock (other than Redeemable Capital Stock) of
the Company to any Person (other than to a Restricted Subsidiary of the
Company) (excluding any cash proceeds received pursuant to any transaction
occurring on or
prior to the Issue Date). The amount of any such Restricted Payment, if other
than cash, shall be the fair market value (as determined in good faith by the
Board of Directors of the Manager) on the date of such Restricted Payment of
the asset(s) proposed to be transferred by the Company or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment.
None of the foregoing provisions will prohibit: (a) the payment of any
dividend or distribution within 60 days after the date of its declaration, if
at the date of declaration such payment would be permitted by the
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foregoing paragraph; (b) the redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock of the Company or any
Restricted Subsidiary of the Company in exchange for, or out of the net cash
proceeds of, a substantially concurrent (i) capital contribution to the
Company from any Person (other than a Restricted Subsidiary of the Company) or
(ii) issue and sale of other shares of Capital Stock (other than Redeemable
Capital Stock) of the Company to any Person (other than to a Restricted
Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from the calculation of Available
Cash; or (c) any redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness by exchange for, or out of the net cash proceeds of,
a substantially concurrent (i) capital contribution to the Company from any
Person (other than a Restricted Subsidiary of the Company) or (ii) issue and
sale of (A) Capital Stock (other than Redeemable Capital Stock) of the Company
to any Person (other than to a Restricted Subsidiary of the Company) or (B)
Indebtedness of the Company issued to any Person (other than a Restricted
Subsidiary of the Company), so long as such Indebtedness is Permitted
Refinancing Indebtedness; provided, however, in each case, that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase or other acquisition or retirement shall be excluded from the
calculation of Available Cash. In computing the amount of Restricted Payments
previously made for purposes of the preceding paragraph, Restricted Payments
made under clause (a) shall be included and Restricted Payments made under
clauses (b) and (c) shall not be so included.
Limitation on Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or suffer to exist any Liens, other than Permitted
Liens, upon any of its respective property or assets, whether owned on the
Issue Date or thereafter acquired, unless the Notes and the Subsidiary
Guarantees, as applicable, are secured equally and ratably with (or prior to,
in the case of Subordinated Indebtedness) the obligations secured by such
Lien.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
transfer, disposition, purchase, exchange or lease of assets, property or
services), with, or for the benefit of, any Affiliate of the Company, unless
(a) such transaction or series of related transactions is between the Company
and its Restricted Subsidiaries or between two Restricted Subsidiaries or
(b)(i) such transaction or series of related transactions is on terms that are
no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those which would have been obtained in a comparable transaction
at such time from Persons who are not Affiliates of the Company or a
Restricted Subsidiary and (ii) with respect to (A) a transaction or series of
transactions involving aggregate payments or value equal to or greater than $5
million, the Company shall have delivered an Officers' Certificate to the
Trustee certifying that such transaction or series of transactions complies
with the preceding clause (i) and that such transaction or series of
transactions has been approved by a majority of the Board of Directors of the
Manager (including a majority of the Disinterested Directors) and (B) a
transaction or series of transactions involving aggregate payments or value
equal to or greater than $10 million, the Company delivers to the Trustee an
opinion as to the fairness to the Company or such Restricted Subsidiary from a
financial point of view issued by an accounting or investment banking firm of
national standing; provided, however, that this covenant will not apply to (i)
any employment agreement, stock option agreement, restricted stock agreement,
consulting agreement or similar agreement entered into in the ordinary course
of business, (ii) transactions permitted by the provisions of the Indenture
described under the covenant "Restricted Payments," (iii) any agreement in
effect on the Issue Date or any amendment thereto (so long as such amendment
is no less favorable to the holders of the Notes than the original agreement
as in effect on the Issue Date) and any transactions contemplated thereby,
(iv) any transaction described in "Certain Relationships and Related
Transactions" and (v) the payment of reasonable fees to, and indemnities
provided on behalf of, officers, directors, employees or consultants of the
Company, the Manager or any Restricted Subsidiary in the ordinary course of
business.
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Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any
other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans or advances to, or any investment in, the Company or any other
Restricted Subsidiary, or (d) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary (collectively, "Payment
Restrictions"), except for such encumbrances or restrictions existing under or
by reason of (i) applicable law, rules or regulations, or any order or ruling
by any governmental authority; (ii) any agreement in effect at or entered into
on the Issue Date (including, without limitation, the Credit Agreement) or any
agreement relating to any Permitted Indebtedness; provided, however, that the
encumbrances and restrictions contained in the agreements governing such
Permitted Indebtedness are no more restrictive with respect to such Payment
Restrictions than those set forth in the Credit Agreement as in effect on the
Issue Date; (iii) customary non-assignment provisions of any contract, license
or any lease governing a leasehold interest of the Company or any Restricted
Subsidiary; (iv) customary restrictions on cash or other deposits imposed by
customers under contracts entered into in the ordinary course of business; (v)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (d) above
on the property so acquired; (vi) contracts for the sale of assets, including,
without limitation, customary restrictions with respect to a Restricted
Subsidiary pursuant to an agreement that has been entered into for the sale of
all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary; (vii) any agreement or other instrument governing Indebtedness of
a Person acquired by the Company or any Restricted Subsidiary (or of a
Restricted Subsidiary of such Person) in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the properties, assets or Subsidiaries
of the Person, so acquired; (viii) provisions contained in agreements or
instruments relating to Indebtedness which prohibit the transfer of all or
substantially all of the assets of the obligor thereunder unless the
transferee shall assume the obligations of the obligor under such agreement or
instrument; or (ix) Permitted Refinancing Indebtedness, provided that the
encumbrances or restrictions of the type referred to in clause (a), (b), (c)
or (d) above, contained in agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreement
governing the Indebtedness being refinanced.
Limitation on 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 with respect to any property
of the Company or any of its Restricted Subsidiaries. Notwithstanding the
foregoing, the Company and its Restricted Subsidiaries may enter into Sale and
Leaseback Transactions with respect to property acquired or constructed after
the Issue Date; provided that (a) the Company or such Restricted Subsidiary
would be permitted under the Indenture to incur Indebtedness secured by a Lien
on such property in an amount equal to the Attributable Debt with respect to
such Sale and Leaseback Transaction, or (b) the lease in such Sale and
Leaseback Transaction is for a term not in excess of the lesser of (i) three
years and (ii) 60% of the remaining useful life of such property.
Limitation on Finance Corp.
In addition to the restrictions set forth under "--Limitation on Additional
Indebtedness" above, Finance Corp. may not incur any Indebtedness unless (a)
the Company is a co-obligor and guarantor of such Indebtedness or (b) the net
proceeds of such Indebtedness are lent to the Company, used to acquire
outstanding debt securities issued by the Company or used directly or
indirectly to refinance or discharge Indebtedness permitted under the
limitation of this paragraph. Finance Corp. may not engage in any business not
related directly or indirectly to obtaining money or arranging financing for
the Company.
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Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving Person), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions to,
another Person unless (a) the Company is the surviving Person, or the Person
formed by or surviving such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation, partnership or
limited liability company organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (b) 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, lease, conveyance or
other disposition shall have been made assumes all the obligations of the
Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes and the Indenture;
(c) immediately after such transaction no Default or Event of Default exists;
and (d) the Company or such other Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth (immediately after the transaction but prior to any
purchase accounting adjustments resulting from the transaction) equal to or
greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction 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 Consolidated Fixed Charge Coverage
Ratio test set forth in the covenant entitled "Incurrence of Additional
Indebtedness." Notwithstanding the foregoing clause (d), any Restricted
Subsidiary may consolidate or merge with or into, or dispose of all or any
part of its properties and assets to, the Company.
The Indenture will also provide that Finance Corp. may not consolidate or
merge with or into (whether or not Finance Corp. is the surviving Person), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, another Person unless (a) Finance Corp. is the surviving
Person, or the Person formed by or surviving such consolidation or merger (if
other than Finance Corp.) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia and a Wholly-Owned Restricted Subsidiary of the
Company; (b) the Person formed by or surviving any such consolidation or
merger (if other than Finance Corp.) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of Finance Corp., pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the Notes
and the Indenture; and (c) immediately after such transaction no Default or
Event of Default exists.
Line of Business
The Company and its Restricted Subsidiaries will not engage to any material
extent in any business other than the Business.
Limitation on Non-Guarantor Restricted Subsidiaries
The Indenture will provide that the Company will not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any
Indebtedness of the Company unless: (a) (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Subsidiary Guarantee of the Notes by such Restricted
Subsidiary and (ii), with respect to any guarantee of Subordinated
Indebtedness by a Subsidiary, any such guarantee shall be subordinated to such
Restricted Subsidiary's Subsidiary Guarantee at least to the same extent as
such Subordinated Indebtedness is subordinated to the Notes; and (b) such
Subsidiary waives, and agrees not to exercise any right or claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Subsidiary as a result of
any payment by such Subsidiary under its Subsidiary Guarantee until such time
as the obligations guaranteed thereby are paid in full; provided that this
covenant shall not be applicable to any guarantee of any Subsidiary that (A)
existed at the time such Person became a Subsidiary of the Company
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and (B) was not incurred in connection with, or in contemplation of, such
Person becoming a Subsidiary of the Company. Further, a pledge of assets to
secure any Indebtedness for which the pledgor is not otherwise liable shall
not be considered a guarantee.
Notwithstanding the foregoing and the other provisions of the Indenture, any
Subsidiary Guarantee shall provide by its terms that it shall be automatically
and unconditionally released upon the occurrence of the events described in
the final paragraph of the section captioned "Subsidiary Guarantee of Notes."
Reports
Whether or not required by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), so long as any Notes are outstanding,
the Issuers will furnish to the holders of Notes (a) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuers 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 thereon by the Issuers' certified independent
accountants and (b) all reports that would be required to be filed with the
Commission on Form 8-K if the Issuers were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Issuers will file a copy of all such information with the
Commission for public availability (unless the Commission will not accept such
a filing) and make such information available to investors who request it in
writing.
EVENTS OF DEFAULT AND REMEDIES
The following will be "Events of Default" under the Indenture:
(a) default by the Issuers or any Subsidiary Guarantor in the payment of
the principal of or premium, if any, on any Note when the same becomes due
and payable (upon Stated Maturity, acceleration, optional redemption,
required purchase or otherwise); or
(b) default by the Issuers or any Subsidiary Guarantor in the payment of
an installment of interest on any of the Notes, when the same becomes due
and payable, which default continues for a period of 30 days; or
(c) failure to perform or observe any other term, covenant or agreement
contained in the Notes, any Subsidiary Guarantee or the Indenture (other
than a default specified in clause (a) or (b) above) and such default
continues for a period of 60 days after written notice of such default
requiring the Issuers to remedy the same shall have been given (i) to the
Issuers or such Subsidiary Guarantor by the Trustee or (ii) to the Issuers
and the Trustee by holders of 25% in aggregate principal amount of the
Notes then outstanding; or
(d) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Restricted Subsidiary of the Company then has
outstanding Indebtedness, which default (i) is caused by a failure to pay
at its Stated Maturity or within the applicable grace period, if any,
provided with respect to such Indebtedness, principal, premium or interest
with respect to Indebtedness of the Company or a Restricted Subsidiary
(collectively, a "Payment Default") or (ii) results in the acceleration of
such Indebtedness prior to its Stated Maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal
amount of any other such
Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10 million or more; or
(e) a final judgment or judgments (which is or are non-appealable and
non-reviewable or which has or have not been stayed pending appeal or
review) shall be rendered against the Master Partnership, the Company, any
Restricted Subsidiary or the Manager for the payment of money in excess of
$10 million in the aggregate (other than that portion of a final judgment
as to which a reputable insurance company has accepted liability) and such
judgments shall not be discharged or execution thereon stayed pending
appeal
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or review within 60 days after entry of such judgment, or, in the event of
such a stay, such judgment shall not be discharged within 30 days after
such stay expires; or
(f) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to
be, in full force and effect (except pursuant to the release of any such
Subsidiary Guarantee in accordance with the Indenture); or
(g) certain events of bankruptcy, insolvency or reorganization with
respect to the Issuers or any of their respective Significant Subsidiaries
that are Restricted Subsidiaries shall have occurred.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to any Issuer, any Significant
Subsidiary that is a Restricted Subsidiary or any group of Subsidiaries that
are Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
immediately without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in principal amount of
the then outstanding 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 in good
faith that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of principal of, premium, if any, or interest on the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF MEMBERS, DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS AND
STOCKHOLDERS
No member of the Company or director, officer, employee, partner,
incorporator or stockholder of the Master Partnership, the Manager or Finance
Corp., as such, shall have any liability for any obligations of the Issuers
under the Notes or the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holder of Notes by
accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws
and it is the view of the Commission that such a waiver is against public
policy.
NON-RECOURSE
Except as provided for in any Subsidiary Guarantee, the obligations of the
Issuers under the Indenture and the Notes will be non-recourse to the Manager
and the Master Partnership (and their respective Affiliates (other than the
Issuers)), and payable only out of the cash flow and assets of the Issuers.
The Trustee has, and each holder of a Note, by accepting a Note, will be
deemed to have, agreed in the Indenture that neither the Manager nor its
assets nor the Master Partnership nor its assets (nor any of their respective
Affiliates (other than the Issuers) nor their respective assets) shall be
liable for any of the obligations of the Issuers under the Indenture or the
Notes (except as provided for by any Subsidiary Guarantee).
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of their
obligations and the obligations of any Subsidiary Guarantors discharged with
respect to the outstanding Notes and any Subsidiary Guarantees ("Legal
Defeasance") except for (a) the rights of holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due, (b) the Issuers' obligations with
respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee, and the
Issuers' obligations in connection therewith and (d) the Legal Defeasance
provisions of the Indenture. In addition, the Issuers may, at their option and
at any time, elect to have the obligations of the Issuers and all Subsidiary
Guarantors released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (a) the
Issuers or any Subsidiary Guarantor must irrevocably deposit with the Trustee,
in trust, for the benefit of the holders of the Notes, cash in U.S. dollars,
non-callable Government Securities (as defined in the Indenture), 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 outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, of
such principal or installment of principal of, premium, if any, or interest on
the outstanding Notes; (b) in the case of Legal Defeasance, the Issuers shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Issuers shall
have received from, or there shall have been published by, the Internal
Revenue Service a ruling or (ii) since the date of the Indenture, there shall
have 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 outstanding 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; (c) in the case of Covenant Defeasance, the Issuers shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding 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; (d) no Event of
Default shall have occurred and be continuing on the date of such deposit 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; (e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Issuers or any of their
Restricted Subsidiaries or Subsidiary Guarantors is a party or by which the
Issuers or any of their Restricted Subsidiaries or Subsidiary Guarantors is
bound; (f) the Issuers shall 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; (g) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers or the
Subsidiary Guarantor with the intent of preferring the holders of Notes over
the other creditors of the Issuers or the Subsidiary Guarantor with the intent
of defeating, hindering, delaying or defrauding creditors of the Issuers or
the Subsidiary Guarantor or others; and (h) the Issuers shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture or the
Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (a) reduce the
principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (b) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the
Notes (other than provisions relating to the covenants described above under
the caption "Repurchase at the Option of Holders"), (c) reduce the rate of or
change the time for payment of interest on any Note, (d) waive a Default or
Event of Default in the payment of principal of or premium, if any, or
interest on the Notes (except a rescission of acceleration of the Notes by the
holders of at least a majority in aggregate principal amount of the Notes and
a waiver of the payment default that resulted from such acceleration), (e)
make any Note payable in money other than that stated in the Notes, (f) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of holders of Notes to receive payments of principal
of, premium, if any, or interest on the Notes, (g) waive a redemption payment
with respect to any Note (other than provisions relating to the covenants
described above under the caption "Repurchase at the Option of Holders"), (h)
release any Subsidiary Guarantee other than in accordance with the Indenture
or (i) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Issuers, the Subsidiary Guarantors and the Trustee may amend or supplement
the Indenture, any Subsidiary Guarantee or the Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Issuers'
and the Subsidiary Guarantors' obligations to holders of the Notes in the case
of a merger or consolidation, to make any change that could provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, to
add or release any Subsidiary Guarantor pursuant to the terms of the Indenture
(provided that such addition or release will not adversely affect the
interests of the holders in any material respect), or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, 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 Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
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"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (b) Indebtedness encumbering any asset acquired by such specified Person.
"Acquisition Facility" means the loan facility of the Company provided for
in the Credit Agreement for the purpose of financing acquisitions.
"Acquisition Principal Amount" means $75.0 million.
"Adjusted Asset Sales Amount" means $50.0 million as increased by 10% of the
purchase price of Asset Acquisitions (other than like-kind exchanges)
subsequent to the Issue Date.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the properties and assets of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under its Subsidiary Guarantee, of such Subsidiary Guarantor at
such date.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (b) any other Person
who is a director or executive officer of (i) such specified Person or (ii)
any other Person described in the preceding clause (a). For purposes of this
definition, control shall mean the power to direct the management and
policies, whether through the ownership of voting securities, by contract or
otherwise; provided, that beneficial ownership of 10% or more of any class, or
any series of any class, of Capital Stock of a Person, whether or not Voting
Stock, shall be deemed to be control.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company, or shall be merged with
or into the Company or any Restricted Subsidiary of the Company, (b) the
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any Person (other than a Restricted Subsidiary of the Company) which
constitute all or substantially all of the assets of such Person, (c) the
acquisition by the Company or any Restricted Subsidiary of the Company of
merchantable Timber or Timberlands outside the ordinary course of business, or
(d) the acquisition by the Company or any Restricted Subsidiary of the Company
of any division or line of business of any Person (other than a Restricted
Subsidiary of the Company).
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction not involving a Capital Lease, as of any date of determination,
the total obligation (discounted to present value at the rate of interest
implicit in the lease included in such transaction) of the lessee for rental
payments (other than amounts required
to be paid on account of property taxes, maintenance, repairs, insurance,
assessments, utilities, operating and labor costs and other items which do not
constitute payments for property rights) during the remaining portion of the
term (including extensions which are at the sole option of the lessor) of the
lease included in such transaction (in the case of any lease which is
terminable by the lessee upon the payment of a penalty, such rental obligation
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon
which it may be so terminated).
"Available Cash," as to any quarter means: (a) the sum of (i) all cash and
cash equivalents of the Company and any Subsidiary of the Company, treated as
a single consolidated entity (together the "Partnership Group"), on hand at
the end of such quarter, and (ii) all additional cash and cash equivalents of
the Partnership Group on hand on the date of determination of Available Cash
with respect to such quarter resulting from borrowings for working capital
purposes subsequent to the end of such quarter, less (b) the amount of any
cash reserves that is
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necessary or appropriate in the reasonable discretion of the Manager to
(i) provide for the proper conduct of the business of the Partnership Group
(including reserves for future capital expenditures and for anticipated future
credit needs of the Partnership Group) subsequent to such quarter, (ii) comply
with applicable law or any loan agreement, security agreement, mortgage, debt
instrument or other agreement or obligation to which any member of the
Partnership Group is a party or by which it is bound or its assets are subject
or (iii) provide funds for distributions under Sections 6.4 or 6.5 of the MLP
Partnership Agreement in respect of any one or more of the next four quarters;
provided, however, that the Manager may not establish cash reserves pursuant
to (iii) above if the effect of such reserves would be that the Master
Partnership is unable to distribute the Minimum Quarterly Distribution (as
defined in the MLP Partnership Agreement) on all Common Units (as defined in
the MLP Partnership Agreement) with respect to such Quarter; provided,
further, that disbursements made by a member of the Partnership Group or cash
reserves established, increased or reduced after the end of such quarter but
before the date of determination of Available Cash with respect to such
quarter shall be deemed to have been made, established, increased or reduced,
for purposes of determining Available Cash, within such quarter if the Manager
so determines; provided, further, that Available Cash attributable to any
Restricted Subsidiary or the Company shall be excluded to the extent dividends
or distributions of such Available Cash by such Restricted Subsidiary are not
at the date of determination permitted by the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or other
regulation.
"Bank Credit Facility" means the Acquisition Facility and the Working
Capital Facility.
"Business" means the acquisition, ownership, management and harvesting of
Timber and activities reasonably related or incidental thereto.
"Capital Lease" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) by such Person (as lessee or guarantor or
other surety) which would, in accordance with GAAP, be required to be
classified and accounted for as a capital lease on a balance sheet of such
Person.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, units representing interests, participations, rights in or other
equivalents (however designated) of such Person's capital stock, including,
with respect to partnerships, partnership interests (whether general or
limited) and any other interest or participation that confers upon a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, such partnership, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Consolidated Cash Flow Available for Fixed Charges" means, with respect to
the Company and its Restricted Subsidiaries for any period, the sum of,
without duplication, the amounts for such period, taken as a single accounting
period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c)
Consolidated Interest Expense and (d) Consolidated Income Tax Expense.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company and its Restricted Subsidiaries, the ratio of the aggregate amount of
Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters for which financial information in respect thereof is available
immediately preceding the date of the transaction (the "Transaction Date")
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (such four full fiscal quarter period being referred to herein as the
"Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
Cash Flow Available for Fixed Charges" and "Consolidated Fixed Charges" shall
be calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence or repayment of any
Indebtedness of the Company or any of its Restricted Subsidiaries (and, in the
case of any incurrence, the application of the net proceeds thereof) during
the period commencing on the first day of the Four Quarter Period to and
including the Transaction Date (the "Reference Period"), including, without
limitation, the incurrence of the Indebtedness giving rise to the need to make
such calculation (and the application of the net proceeds thereof), as if such
incurrence (and application) occurred on the first day of the Reference Period
(including any
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actual interest payments made with respect to Indebtedness under the Working
Capital Facility), and (b) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Company or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the Reference Period, as if such Asset Sale or
Asset Acquisition occurred on the first day of the Reference Period; provided,
however, that (i) Consolidated Fixed Charges shall be reduced by amounts
attributable to businesses or assets that are so disposed of or discontinued
only to the extent that the obligations giving rise to such Consolidated Fixed
Charges would no longer be obligations contributing to the Consolidated Fixed
Charges subsequent to the date of determination of the Consolidated Fixed
Charge Coverage Ratio and (ii) Consolidated Cash Flow Available for Fixed
Charges generated by an acquired business or asset shall be determined by (x)
in the case of an Asset Acquisition of Timber or Timberlands by the Company or
a Restricted Subsidiary during such period, by using the projected net cash
flow of the Timber or Timberlands so acquired, based on the harvest plan
prepared in the ordinary course of business and in good faith by the Manager,
for the first 12 full months of operations of the acquired Timber or
Timberlands following the date of the Asset Acquisition; provided that such
harvest plan shall not assume the harvesting or sale of more than 10% (or, in
the case of an acquisition under a cutting contract with a term of less than
10 years, such higher percentage as shall be equal to the quotient of 100%
divided by the term of such cutting contract (expressed in years)) of the
total merchantable Timber so acquired in the first 12 full months following
the date of the Asset Acquisition; provided further, in determining projected
cash flow from acquired Timber or Timberlands, prices shall be assumed to
equal the average prices realized by the Company for comparable Timber sold
during such period; and (y) in all the cases of all other Asset Acquisitions
the actual gross profit (revenues minus cost of goods sold) of such acquired
business or asset during the immediately preceding four full fiscal quarters
in the Reference Period minus the pro forma expenses that would have been
incurred by the Company and its Restricted Subsidiaries in the operation of
such acquired business or asset during such period computed on the basis of
personnel expenses for employees retained or to be retained by the Company and
its Restricted Subsidiaries in the operation of the acquired business or asset
and non-personnel costs and expenses incurred by the Company and its
Restricted Subsidiaries in the operation of the Company's business at
similarly situated facilities. If the applicable Reference Period for any
calculation of the Consolidated Fixed Charge Coverage Ratio shall include a
portion prior to the date of the Indenture, then such Consolidated Fixed
Charge Coverage Ratio shall be calculated based upon the Consolidated Cash
Flow Available for Fixed Charges and the Consolidated Fixed Charges of the
Company on a pro forma basis for such portion of the Reference Period prior to
the Issue Date, giving effect to the transactions occurring on the Issue Date,
and the Consolidated Cash Flow Available for Fixed Charges and the
Consolidated Fixed Charges for the remaining portion of the Reference Period
on and after the Issue Date, giving pro forma effect, as described in the two
foregoing sentences, to all applicable transactions occurring on the Issue
Date or otherwise. Furthermore, in calculating "Consolidated Fixed Charges"
for purposes of determining the "Consolidated Fixed Charge Coverage Ratio,"
(i) interest on outstanding Indebtedness (other than Indebtedness referred to
in clause (ii) below) determined on a fluctuating basis as of the last day of
the Four Quarter Period and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on such date; (ii) only actual
interest payments associated with Indebtedness incurred in accordance with
clause (d) of the definition of Permitted Indebtedness and all Permitted
Refinancing Indebtedness in respect thereof, during the Four Quarter Period
shall be included in such calculation; and (iii) if interest on any
Indebtedness actually incurred on such date may optionally be determined at an
interest rate based upon a factor of a prime or similar rate, a eurocurrency
interbank offered rate, or other rates, then the interest rate in effect on
the last day of the Four Quarter Period will be deemed to have been in effect
during such period.
"Consolidated Fixed Charges" means, with respect to the Company and its
Restricted Subsidiaries for any period, the sum of, without duplication, (a)
the amounts for such period of Consolidated Interest Expense and (b) the
product of (i) the aggregate amount of dividends and other distributions paid
or accrued during such period in respect of Preferred Stock and Redeemable
Capital Stock of the Company and its Restricted Subsidiaries on a consolidated
basis and (ii) a fraction, the numerator of which is one and the denominator
of
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which is one minus the then applicable current combined federal, state and
local statutory tax rate, expressed as a percentage.
"Consolidated Income Tax Expense" means, with respect to the Company and its
Restricted Subsidiaries for any period, the provision for federal, state,
local and foreign income taxes of the Company and its Restricted Subsidiaries
for such period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company and its
Restricted Subsidiaries for any period, without duplication, the sum of (a)
the interest expense of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP,
including, without limitation, (i) any amortization of debt discount, (ii) the
net cost under Interest Rate Agreements, (iii) the interest portion of any
deferred payment obligation, (iv) all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing and (v) all accrued interest and (b) the interest component of
Capital Leases paid, accrued or scheduled to be paid or accrued by the Company
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means the net income of the Company and its
Restricted Subsidiaries, as determined on a consolidated basis in accordance
with GAAP and as adjusted to exclude (a) net after-tax extraordinary gains or
losses, (b) net after-tax gains or losses attributable to Asset Sales to the
extent the Net Proceeds therefrom result in the aggregate Net Proceeds
received by the Company or any Restricted Subsidiary from all Asset Sales
since the Issue Date exceeding the Adjusted Asset Sales Amount, (c) the net
income or loss of any Person which is not a Restricted Subsidiary and which is
accounted for by the equity method of accounting, provided that Consolidated
Net Income shall include the amount of dividends or distributions actually
paid to the Company or any Restricted Subsidiary, (d) the net income or loss
prior to the date of acquisition of any Person combined with the Company or
any Restricted Subsidiary in a pooling of interest, (e) the net income of any
Restricted Subsidiary to the extent that dividends or distributions of such
net income are not at the date of determination permitted by the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or other regulation and (f) the cumulative effect of any changes in accounting
principles.
"Consolidated Net Worth" means, with respect to the Company and its
Restricted Subsidiaries at any date, the consolidated stockholders' equity,
partners' capital or members' capital of the Company and its Restricted
Subsidiaries less the amount of such stockholders' equity, partners' capital
or members' capital attributable to Redeemable Capital Stock as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to the Company and its
Restricted Subsidiaries for any period, the aggregate depreciation, depletion,
amortization and any other non-cash charges, in each case reducing
Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP.
"Contribution Agreement" means the Contribution, Conveyance and Assumption
Agreement, dated as of the Issue Date, among the Company, the Master
Partnership, the Manager and certain other parties together with the
additional conveyance documents and instruments contemplated or referenced
thereunder.
"Credit Agreement" means the Credit Agreement, dated as of , 1997, among
the Company and Bank of America NT&SA, in its individual capacity and as
agent, and the other banks which are or become parties from time to time
thereto, evidencing the Bank Credit Facility, and as it may be amended,
supplemented or otherwise modified from time to time, including all exhibits
and schedules thereto, and any successor or replacement facility entered into
in compliance with the Indenture.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designation Amount" means, with respect to the designation of a Restricted
Subsidiary or a newly acquired or formed Subsidiary as an Unrestricted
Subsidiary, an amount equal to (a) the net book value of all assets of such
Subsidiary at the time of such designation in the case of a Restricted
Subsidiary or (b) the cost of acquisition or formation in the case of a newly
acquired or formed Subsidiary.
"Disinterested Director" means, with respect to any transaction or series of
transactions with Affiliates, a member of the Board of Directors of the
Manager who has no financial interest, and whose employer has no financial
interest, in such transaction or series of transactions.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Excess Harvest" means a harvest of Timber (including timber deed, bulk,
pay-as-cut and stumpage sales) in excess in the aggregate of the following
limitations: (a) 150% of the Planned Volume during any fiscal year of the
Company, (b) 140% of the Planned Volume during any period of two consecutive
fiscal years of the Company, (c) 130% of the Planned Volume during any period
of three consecutive fiscal years of the Company and (d) 120% of the Planned
Volume during any period of four consecutive fiscal years of the Company. In
the event that the Company or any of its Restricted Subsidiaries sells Timber
pursuant to a timber deed, bulk, pay-as-cut or stumpage contract, the Timber
shall be deemed harvested in equal monthly amounts over the life of the
contract, regardless of when the purchaser actually severs the Timber. The
Company's harvest plans set forth in "Business and Properties--The
Timberlands--Harvest Plans" do not take into account this formula. If the
Company's current and planned stumpage sales and timber deeds were deemed
harvested in equal annual amounts over the life of the contracts, the
Company's planned harvests would be approximately 144 MMBF in 1997, 142 MMBF
in 1998, 134 MMBF in 1999 and 124 MMBF in 2000.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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 may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time.
"Guaranty" as applied to any Person, any direct or indirect liability,
contingent or otherwise, of such Person with respect to any Indebtedness,
lease, cash dividend or other obligation of another, including, without
limitation (a) any such obligation directly or indirectly guaranteed or
endorsed (otherwise than for collection or deposit in the ordinary course of
business) by such Person, or in respect of which such Person is otherwise
directly or indirectly liable, (b) any other obligation under any contract
which, in economic effect, is substantially equivalent to a guaranty,
including, without limitation, any such obligation of a partnership in which
such Person is a general partner or of a joint venture in which such Person is
a joint venturer, or (c) any obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation or services regardless of the non-delivery
or nonfurnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof.
"Indebtedness" means as applied to any Person (without duplication):
(a) any indebtedness for borrowed money and all obligations evidenced by
any bond, note, debenture or other similar instrument or letter of credit
(or reimbursement agreements in respect thereof) which such Person has
directly or indirectly created, incurred or assumed (other than obligations
with respect to letters of credit securing obligations (other than
obligations described in paragraphs (a) through (c) of this definition)
entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon, or, if and to the extent
drawn upon, such drawing is reimbursed no later than the fifth Business Day
following receipt by such Person of a demand for reimbursement following
payment on the letter of credit);
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(b) any indebtedness for borrowed money and all obligations evidenced by
any bond, note, debenture or other similar instrument secured by any Lien
in respect of property owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness, provided
that the amount of such Indebtedness, if such Person has not assumed the
same or become liable therefor, shall in no event be deemed to be greater
than the fair market value from time to time (as determined in good faith
by such Person) of the property subject to such Lien;
(c) any indebtedness, whether or not for borrowed money (excluding trade
payables and accrued expenses arising in the ordinary course of business),
with respect to which such Person has become directly or indirectly liable
and which represents the deferred purchase price (or a portion thereof) or
has been incurred to finance the purchase price (or a portion thereof) of
any property or service or business acquired by such Person, whether by
purchase, consolidation, merger or otherwise;
(d) the principal component of any obligations under Capital Leases to
the extent such obligations would, in accordance with GAAP, appear on a
balance sheet of such Person;
(e) all Attributable Debt of such Person in respect of Sale and Lease-
Back Transactions not involving a Capital Lease;
(f) any indebtedness of any other Person of the character referred to in
clause (a), (b), (c), (d) or (e) of this definition with respect to which
the Person whose Indebtedness is being determined has become liable by way
of a Guaranty;
(g) all Redeemable Capital Stock of such Person valued at the greater of
its voluntary or involuntary maximum fixed repurchase price;
(h) any Preferred Stock (other than Redeemable Capital Stock) of any
Restricted Subsidiary of such Person that is not a Subsidiary Guarantor
valued at the liquidation preference thereof or any mandatory redemption
payment obligations in respect thereof; and
(i) any amendment, supplement, modification, deferral, renewal, extension
or refunding of any liability of the types referred to in clauses (a)
through (h) above.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such Redeemable
Capital Stock, such fair market value shall be determined in good faith by the
board of directors of the issuer of such Redeemable Capital Stock.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement
or arrangement designed to protect the Company or any Restricted Subsidiary
from fluctuations in interest rates.
"Investment" means as applied to any Person, any direct or indirect purchase
or other acquisition by such Person of stock or other securities of any other
Person, or any direct or indirect loan, advance or capital
contribution by such Person to any other Person, and any other item which
would be classified as an "investment" on a balance sheet of such Person
prepared in accordance with GAAP, including, without limitation, any direct or
indirect contribution by such Person of property or assets to a joint venture,
partnership or other business entity in which such Person retains an interest
(it being understood that a direct or indirect purchase or other acquisition
by such Person of assets of any other Person (other than stock or other
securities) shall not constitute an "Investment" for purposes of the
Indenture). The amount involved in Investments made during any period shall be
the aggregate cost to the Company and its Restricted Subsidiaries of all such
Investments made during such period, determined in accordance with GAAP, but
without regard to unrealized increases or decreases in value, or write-ups,
write-downs or write-offs, of such Investments and without regard to the
existence of any undistributed earnings or accrued interest with respect
thereto accrued after the respective dates on which such Investments were
made, less any net return of capital realized during such period upon the
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sale, repayment or other liquidation of such Investments (determined in
accordance with GAAP, but without regard to any amounts received during such
period as earnings (in the form of dividends not constituting a return of
capital, interest or otherwise) on such Investments or as loans from any
Person in whom such Investments have been made).
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A Person shall be deemed to own subject to a Lien any
property which such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement.
"Manager" means U.S. Timberlands Services Company, L.L.C., a Delaware
limited liability company and any successors in the capacity of managing
member of the Company (including, if applicable, more than one successor in
any such capacity at the same time).
"Maturity Date" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"MLP Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Master Partnership, as in effect on the Issue Date,
and as the same may from time to time be amended, supplemented or otherwise
modified in accordance with the terms thereof.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Amount of Unrestricted Investment" means, without duplication, the sum
of (a) the aggregate amount of all Investments made after the Issue Date
pursuant to subdivision (h) of the definition of Permitted Investments
(computed as provided in the last sentence of the definition of Investment)
and (b) the aggregate of all Designation Amounts in connection with the
designation of Unrestricted Subsidiaries less all Designation Amounts in
respect of Unrestricted Subsidiaries which have been designated as Restricted
Subsidiaries and otherwise reduced in a manner consistent with the provisions
of the last sentence of the definition of Investment.
"Net Proceeds" means, with respect to any Asset Sale or Excess Harvest, the
proceeds thereof in the form of cash or cash equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
cash equivalents (except to the extent that such deferred payment obligations
are financed or sold with recourse to the Company or any Restricted Subsidiary
of the Company) net of (a) brokerage commissions and other fees and expenses
(including, without limitation, fees and expenses of legal counsel and
accountants and fees, expenses, discounts or commissions of underwriters,
placement agents and investment bankers) related to such Asset Sale or Excess
Harvest, (b) provisions for all taxes payable as a result of such Asset Sale
or Excess Harvest, (c) amounts required to be paid to any Person (other than
the Company or any Restricted Subsidiary of the Company) owning a beneficial
interest in the assets subject to such Asset Sale or Excess Harvest, (d)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
of the Company, as the case may be, as a reserve required in accordance with
GAAP against any liabilities associated with such Asset Sale or Excess Harvest
and retained by the Company or any Restricted Subsidiary of the Company, as
the case may be, after such Asset Sale or Excess Harvest, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale or Excess Harvest and (e) amounts
required to be applied to the repayment of Indebtedness secured by a Lien on
the asset or assets sold in such Asset Sale or Excess Harvest.
"Permitted Holders" means (a) John M. Rudey, any member of Mr. Rudey's
immediate family, any of Mr. Rudey's lineal descendants and any member of such
lineal descendent's immediate family, (b) any trust (to the extent that it is
for the benefit of any of the foregoing), (c) any of Rudey Timber Company,
L.L.C., U.S.
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Timberlands Management Company, L.L.C., U.S. Timberlands Holdings, L.L.C. and
the Master Partnership, and (d) in the event of the incompetence or death of
any of the individuals described in clause (a) above, such individual's
estate, executor, administrator, committee or other personal representatives,
or beneficiaries.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company evidenced by the Notes;
(b) Indebtedness outstanding on the Issue Date;
(c) Indebtedness of the Company or a Restricted Subsidiary incurred for
any purpose permitted under the Acquisition Facility, provided that the
aggregate principal amount of such Indebtedness outstanding at any time may
not exceed the Acquisition Principal Amount;
(d) Indebtedness of the Company or a Restricted Subsidiary incurred for
any purpose permitted under the Working Capital Facility, provided that the
aggregate principal amount of such Indebtedness outstanding at any time may
not exceed the Working Capital Principal Amount;
(e) Indebtedness of the Company owing to the Master Partnership or the
Manager or an Affiliate of the Master Partnership or the Manager that is
unsecured and that is Subordinated Indebtedness; provided that the
aggregate principal amount of such Indebtedness outstanding at any time may
not exceed $10 million;
(f) Indebtedness owed by the Company or any Restricted Subsidiary to any
Restricted Subsidiary;
(g) Indebtedness under Interest Rate Agreements;
(h) Permitted Refinancing Indebtedness;
(i) Indebtedness of the Company and its Restricted Subsidiaries
represented by letters of credit supporting (i) obligations under workmen's
compensation laws and (ii) the repayment of Permitted Indebtedness;
(j) surety bonds and appeal bonds required in the ordinary course of
business or in connection with the enforcement of rights or claims of the
Company or any of its Subsidiaries or in connection with judgments that do
not result in a Default or Event of Default;
(k) the Subsidiary Guarantees of the Notes (and any assumption of the
obligations guaranteed thereby);
(l) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness in respect of Capital Leases, 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 which, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (l) (together with any
Permitted Refinancing Indebtedness with respect thereto) does not exceed $5
million at any time outstanding;
(m) the incurrence by the Company or any Restricted Subsidiary 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 other
Indebtedness incurred pursuant to this clause (m), not to exceed $10
million.
For purposes of determining compliance with the covenant captioned "--
Limitation on Additional Indebtedness," in the event that an item of
Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (a) through (m) above or is
entitled to be incurred pursuant to the first paragraph of such covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph of such covenant.
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"Permitted Investments" means any of the following:
(a) Investments made or owned by the Company or any Restricted Subsidiary
in (i) any evidence of Indebtedness with a maturity of 365 days or less
issued by or directly, fully and unconditionally guaranteed or insured by
the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) deposits, certificates of deposit or
acceptances with a maturity of 365 days or less of any institution that is
a member of the Federal Reserve System having combined capital and surplus
and undivided profits of not less than $500.0 million; (iii) commercial
paper with a maturity of 365 days or less issued by a corporation (other
than an Affiliate of the Company) incorporated or organized under the laws
of the United States or any state thereof or the District of Columbia and
rated at least "A-1" by S&P or "P-1" by Moody's; (iv) repurchase agreements
and reverse repurchase agreements relating to marketable direct obligations
issued by or directly, fully and unconditionally guaranteed or insured by
the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), in each case maturing within 365 days from the
date of acquisition, (v) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within one year from
the date of acquisition thereof and having as at such date the highest
rating obtainable from either S&P or Moody's, or (vi) money market mutual
or similar funds that invest in obligations referred to in clauses (i)
through (v) of this definition, in each case having assets in excess of
$100.0 million.
(b) the acquisition by the Company or any Restricted Subsidiary of
Capital Stock or other ownership interests, whether in a single transaction
or in a series of related transactions, of a Person engaged in
substantially the same business as the Company such that upon the
completion of such transaction or series of transactions, such Person
becomes a Restricted Subsidiary;
(c) subject to the provisions of subdivision (h) below, the making or
ownership by the Company or any Restricted Subsidiary of Investments (in
addition to Investments permitted by subdivisions (a), (b), (d), (e), (f)
and (g)) in any Person which is engaged in substantially the same business
as the Company, provided that the aggregate amount of all such Investments
made by the Company and its Restricted Subsidiaries following the Issue
Date and outstanding pursuant to this subdivision (c) and subdivision (h)
below shall not at any date of determination exceed 10% of Total Assets
(the "Investment Limit"), provided that, in addition to Investments that
would be permitted under the Investment Limit, during any fiscal year the
Company and its Restricted Subsidiaries may invest up to $11 million (the
"Annual Limit") pursuant to the provisions of this subdivision (c), but the
unused amount of the Annual Limit shall not be carried over to any future
years;
(d) the making or ownership by the Company or any Restricted Subsidiary
of Investments (i) arising out of loans and advances to employees incurred
in the ordinary course of business, (ii) arising out of extensions of trade
credit or advances to third parties in the ordinary course of business and
(iii) acquired by reason of the exercise of customary creditors' rights
upon default or pursuant to the bankruptcy, insolvency or reorganization of
a debtor;
(e) the creation or incurrence of liability by the Company or any
Restricted Subsidiary with respect to any Guaranty constituting an
obligation, warranty or indemnity, not guaranteeing Indebtedness of any
Person, which is undertaken or made in the ordinary course of business;
(f) the creation or incurrence of liability by the Company or any
Restricted Subsidiary with respect to any Interest Rate Agreements;
(g) the making by the Company or any Restricted Subsidiary of Investments
in the Company or another Restricted Subsidiary;
(h) the making or ownership by the Company or any Restricted Subsidiary
of Investments in Unrestricted Subsidiaries; provided that the Net Amount
of Unrestricted Investment shall not at any time exceed $5 million (and
subject to the limitations specified in subdivision (c) above); and
(i) the making or ownership by the Company or any Restricted Subsidiary
of Investments in Finance Corp.
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"Permitted Liens" means any of the following:
(a) Liens for taxes, assessments or other governmental charges the
payment of which is not yet due and is being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and as
to which reserves or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor and be adequate in the good
faith judgment of the obligor;
(b) Liens of lessors, landlords and carriers, vendors, warehousemen,
mechanics, materialmen, repairmen and other like Liens incurred in the
ordinary course of business for sums not yet due or the payment of which is
being contested in good faith by appropriate proceedings promptly initiated
and diligently conducted and as to which reserves or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor and be adequate in the good faith judgment of the obligor, in each
case (i) not incurred or made in connection with the borrowing of money,
the obtaining of advances or credit or the payment of the deferred purchase
price of property or (ii) incurred in the ordinary course of business
securing the unpaid purchase price of property or services constituting
current accounts payable;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social security, or
(ii) to secure (or to obtain letters of credit that secure) the performance
of tenders, statutory obligations, surety and appeal bonds, bids, leases,
performance bonds, purchase, construction or sales contracts and other
similar obligations, in each case not incurred or made in connection with
the borrowing of money;
(d) other deposits made to secure liability to insurance carriers under
insurance or self insurance arrangements;
(e) Liens securing reimbursement obligations under letters of credit,
provided in each case that such Liens cover only the title documents and
related goods (and any proceeds thereof) covered by the related letter of
credit;
(f) any attachment or judgment Lien relating to a judgment that does not
constitute an Event of Default;
(g) leases or subleases granted to others, easements, rights-of-way,
restrictions and other similar charges or encumbrances, which, in each case
either (i) are granted, entered into or created in the ordinary course of
the business of the Company or any Restricted Subsidiary or (ii) do not
materially impair the value or intended use of the property covered
thereby;
(h) Liens on property or assets of any Restricted Subsidiary securing
Indebtedness of such Restricted Subsidiary owing to the Company or a
Restricted Subsidiary;
(i) Liens on assets of the Company or any Restricted Subsidiary existing
on the Issue Date;
(j) Liens existing on any property of any Person at the time it becomes a
Subsidiary of the Company, or existing at the time of acquisition upon any
property acquired by the Company or any such Subsidiary through purchase,
merger or consolidation or otherwise, whether or not assumed by the Company
or such Subsidiary, or created to secure Indebtedness incurred to pay all
or any part of the purchase price or cost of construction or improvement (a
"Purchase Money Lien") of property (including, without limitation, Capital
Stock and other securities) acquired by the Company or a Restricted
Subsidiary; provided that (i) any such Lien shall be confined solely to
such item or items of property and other property which is an improvement
to or is acquired for use specifically in connection with such acquired
property, or, in the case of construction, related unimproved land, (ii) in
the case of a Purchase Money Lien, the principal amount of the Indebtedness
secured by such Purchase Money Lien shall at no time exceed an amount equal
to the lesser of (A) 100% of the purchase price or cost of construction or
improvement to the Company and the Restricted Subsidiaries of such
property, (iii) any such Purchase Money Lien shall be created not later
than 180 days after the acquisition of such property and (iv) any such Lien
(other than a Purchase Money Lien) shall not have been created or assumed
in contemplation of such Person's becoming a Subsidiary of the Company or
such acquisition of property by the Company or any Subsidiary;
(k) easements, exceptions or reservations in any property of the Company
or any Restricted Subsidiary granted or reserved for the purpose of
pipelines, roads, the removal of oil, gas, coal or other minerals, and
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other like purposes, or for the joint or common use of real property,
facilities and equipment, which are incidental to, and do not materially
interfere with, the ordinary conduct of the business of the Company or any
Restricted Subsidiary; or
(l) any Lien renewing or extending any Lien permitted by subdivision (i)
or (j), provided that (i) the principal amount of the Indebtedness secured
by any such Lien shall not exceed the principal amount of such Indebtedness
outstanding immediately prior to the renewal or extension of such Lien, and
(ii) no assets encumbered by any such Lien other than the assets encumbered
immediately prior to such renewal or extension shall be encumbered thereby.
"Permitted Refinancing Indebtedness" means Indebtedness incurred by the
Company or any Restricted Subsidiary to substantially concurrently (excluding
any notice period on redemptions) repay, refund, renew, replace, extend or
refinance, in whole or in part, any Permitted Indebtedness of the Company or
any Restricted Subsidiary or any other Indebtedness incurred by the Company or
any Restricted Subsidiary pursuant to the "Limitation on Additional
Indebtedness" covenant, to the extent (a) the principal amount of such
Permitted Refinancing Indebtedness does not exceed the principal or accreted
amount plus the amount of accrued and unpaid interest of the Indebtedness so
repaid, refunded or refinanced (except that, in the case of the Notes, such
Permitted Refinancing Indebtedness may include the redemption premiums set
forth above under "Optional Redemption", (b) the Permitted Refinancing
Indebtedness ranks no more favorably in right of payment with respect to the
Notes than the Indebtedness so repaid, refunded, renewed, replaced, extended
or refinanced, and (c) the Permitted Refinancing Indebtedness has a Weighted
Average Life to Stated Maturity and Stated Maturity equal to, or greater than,
the Indebtedness so repaid, refunded, renewed, replaced, extended or
refinanced; provided, however, that Permitted Refinancing Indebtedness shall
not include Indebtedness incurred by a Restricted Subsidiary to repay, refund,
renew, replace, extend or refinance Indebtedness of the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
charitable foundation, unincorporated organization, government or any agency
or political subdivision thereof or any other entity.
"Planned Volume" means, as of the Closing Date, 125 million board feet per
calendar year of Timber. In the event of the acquisition of merchantable
Timber or Timberlands (other than in a like-kind exchange of Timber or
Timberlands for other Timber or Timberlands and other than Timber or
Timberlands acquired with the Net Proceeds of an Excess Harvest) constituting
an Asset Acquisition, Planned Volume will be increased for 10 years by 10% of
the volume of merchantable Timber so acquired; provided that if such Asset
Acquisition is made under a cutting contract with a term of less than 10
years, Planned Volume will be increased for each year during the term of the
cutting contract by a number of board feet equal to the number of board feet
so acquired multiplied by the quotient of 100% divided by the number of years
in the cutting contract. In the event of a disposition of merchantable Timber
or Timberlands constituting an Asset Sale, Planned Volume will be reduced by
10% of the volume of merchantable Timber sold in such Asset Sale. In the event
of an Excess Harvest, Planned Volume will be reduced by 10% of the amount of
the Excess Harvest.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock (other than the Common Units) of any class or classes (however
designated), which is preferred as to the payment of distributions, dividends,
or upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares or units of Capital Stock of any other class of such
Person.
"Public Equity Offering" means a public offering by the Master Partnership
or the Company of its Capital Stock (other than Redeemable Capital Stock)
pursuant to a registration statement declared effective under the Securities
Act; provided that the MLP Offering (including any over-allotment option in
respect thereof) shall be excluded from the definition of Public Equity
Offering.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is
or upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any
Note or is redeemable at the option of the holder thereof at any time prior to
the Stated Maturity of the Notes, or is convertible into or exchangeable for
debt securities at any time prior to the Stated Maturity of the Notes.
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"Restricted Subsidiary" means a Subsidiary of the Company, which, as of the
date of determination, is not an Unrestricted Subsidiary of the Company.
"Sale and Leaseback Transaction" of any Person (a "Transferor") means any
arrangement (other than between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries) whereby (a) property (the "Subject Property")
has been or is to be disposed of by such Transferor to any other Person with
the intention on the part of such Transferor of taking back a lease of such
Subject Property pursuant to which the rental payments are calculated to
amortize the purchase price of such Subject Property substantially over the
useful life of such Subject Property, and (b) such Subject Property is in fact
so leased by such Transferor or an Affiliate of such Transferor.
"Significant Subsidiary" shall have the same meaning as in Rule 1.02(v) of
Regulation S-X under the Securities Act.
"S&P" means Standard & Poor's Ratings Group, and its successors.
"Stated Maturity" means, (a) when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and (b) when used with respect to any other Indebtedness,
means the date or dates specified in the instrument governing such
Indebtedness as the fixed date or dates on which each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect of such
Indebtedness, or any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Subsidiary Guarantor which is expressly subordinated in right of payment to
the Notes or the Subsidiary Guarantee, respectively.
"Subsidiary" means, with respect to any Person, (a) a corporation a majority
of whose Voting Stock (or, in the case of a partnership, a majority of the
partners' Capital Stock, considering all partners' Capital Stock as a single
class) is at the time, directly or indirectly, owned by such Person, by one or
more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof and (b) any other Person, including, without limitation,
a joint venture, in which such Person, one or more Subsidiaries thereof or
such Person and one or more Subsidiaries thereof, directly or indirectly, at
the date of determination thereof, has at least majority ownership interest
entitled to vote in the election of directors, managers, general partners or
trustees thereof (or other Person performing similar functions) or, if such
Persons are not elected, to vote on any matter that is submitted to the vote
of all Persons holding ownership interests in such entity. For purposes of
this definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Subsidiary.
"Subsidiary Guarantee" means any guarantee of the Notes by any Subsidiary
Guarantor in accordance with the provisions described under "--Subsidiary
Guarantees of Notes."
"Subsidiary Guarantor" means (i) each of the Company's Subsidiaries, if any,
executing a supplemental indenture in which such Subsidiary agrees to be bound
by the terms of the Indenture and (ii) any Person that becomes a successor
guarantor of the Notes in compliance with the provisions described under "--
Subsidiary Guarantees of Notes."
"Timber" means all crops and all trees, timber, whether severed or unsevered
and including standing and down timber, stumps and cut timber, and logs, wood
chips and other forest products, whether now located on or hereafter planted
or growing in or on the Timberlands or otherwise or now or hereafter removed
from the Timberlands or otherwise for sale or other disposition.
"Timberlands" means, at any date of determination, all real property owned
by or leased to the Company that is suitable for Timber production.
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"Total Assets" means as of any date of determination, the consolidated total
assets of the Company and the Restricted Subsidiaries as would be shown on a
consolidated balance sheet of the Company and the Restricted Subsidiaries
prepared in accordance with GAAP as of that date.
"Unrestricted Subsidiary" means any Subsidiary of the Company or a
Restricted Subsidiary that is designated as such by the Manager, provided that
no portion of the Indebtedness or any other obligation (contingent or
otherwise) of such Subsidiary (a) is guaranteed by the Company or any
Restricted Subsidiary, (b) is recourse to or obligates the Company or any
Restricted Subsidiary in any way or (c) subjects any property or assets of the
Company or any Restricted Subsidiary, directly or indirectly, contingently or
otherwise, to the satisfaction thereof. Notwithstanding the foregoing, the
Company or a Restricted Subsidiary may Guaranty or agree to provide funds for
the payment or maintenance of, or otherwise become liable with respect to
Indebtedness of an Unrestricted Subsidiary, but only to the extent that the
Company or a Restricted Subsidiary would be permitted to (a) make an
Investment in such Unrestricted Subsidiary pursuant to subdivision (h) of the
definition of Permitted Investments and (b) incur the Indebtedness represented
by such Guaranty or agreement pursuant to the covenant captioned "Limitation
on Additional Indebtedness." The Board of Directors may designate an
Unrestricted Subsidiary to be a Restricted Subsidiary, provided that
immediately after giving effect to such designation, (a) there exists no
Default or Event of Default and (b) if such Unrestricted Subsidiary has, as of
the date of such designation, outstanding Indebtedness (other than Permitted
Indebtedness), the Company could incur at least $1.00 of Indebtedness (other
than Permitted Indebtedness). Notwithstanding the foregoing, (a) no Subsidiary
may be designated an Unrestricted Subsidiary if such Subsidiary, directly or
indirectly, holds Capital Stock of a Restricted Subsidiary and (b) Finance
Corp. may not be designated an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect a least a majority of the board of directors, managers, general
partners or trustees of any Person (irrespective of whether or not, at the
time, Capital Stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency) or, with respect
to a partnership (whether general or limited), any general partner interest in
such partnership.
"Weighted Average Life to Stated Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) 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 (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness; provided, however, that with respect to
any revolving Indebtedness, the foregoing calculation of Weighted Average Life
to Stated Maturity shall be determined based upon the total available
commitments and the required reductions of commitments in lieu of the
outstanding principal amount and the required payments of principal,
respectively.
"Wholly-Owned Restricted Subsidiary" means any Subsidiary of the Company of
which 98% of the outstanding Capital Stock is owned by the Company or by one
or more Wholly-Owned Restricted Subsidiaries of the Company or by the Company
and one or more Wholly-Owned Restricted Subsidiaries of the Company. For
purposes of this definition, any directors' qualifying shares or investments
by foreign nationals mandated by applicable law shall be disregarded in
determining the ownership of a Subsidiary.
"Working Capital Facility" means the working capital facility of the Company
provided for in the Credit Agreement.
"Working Capital Principal Amount" means $25.0 million.
DEPOSITARY
Upon issuance, all Notes will be represented by one or more fully registered
Global Notes. Each such Global Note will be deposited with, or on behalf of,
The Depository Trust Company, as depositary (the "Depositary"),
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and registered in the name of the Depositary or a nominee thereof. Unless and
until it is exchanged in whole or in part for Notes in definitive form, no
Global Note may be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of such Depositary to such
Depositary or to another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
The Depositary has advised the Company as follows: the Depositary is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities of its participants
("Participants") and to facilitate the clearance and settlement of securities
transactions among its Participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the
need for physical movement of securities certificates. The Depositary's
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. The Depositary is
owned by a number of Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depositary's book-entry system is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Purchases of Notes must be made by or through Participants, which will
receive a credit on the records of the Depositary. The ownership interest of
each actual purchaser of a Note (the "Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Depositary of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Participant or Indirect Participant through which the
Beneficial Owner entered into the transaction. Ownership of beneficial
interests in Global Notes will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
(with respect to interests of Participants) and on the records of Participants
(with respect to interests of persons held through Participants). The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in Global
Notes.
So long as the Depositary, or its nominee, is the registered owner of a
Global Note, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global
Note for all purposes under the Indenture. Except as provided below,
Beneficial Owners of a Global Note will not be entitled to have the Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of the Notes in definitive form and
will not be considered the owners or holders thereof under the Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of the Depositary and, if such person is not a
Participant, on the procedures of the Participant through which such person
owns its interest, to exercise any rights of a holder under the Indenture. The
Company understands that under existing industry practices in the event that
the Company requests any action of holders of Notes or an owner of a
beneficial interest in a Global Note desires to give or take any action which
the holder of a Note is entitled to give or take under the Indenture, the
Depositary would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
Beneficial Owners owning through such Participants to give or take such action
or would otherwise act upon the instructions of Beneficial Owners. Conveyance
of notices and other communications by the Depositary to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Payment of the principal of, premium, if any, and interest on Notes
registered in the name of the Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the holder of the Global
Note or Global Notes representing such Notes. None of the Issuers, the Trustee
or any other agent of the Issuers
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or agent of the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests or for supervising or reviewing any records relating to
such beneficial ownership interests. The Company expects that the Depositary,
upon receipt of any payment of principal, premium, if any, or interest in
respect of a Global Note will credit the accounts of the Participants with
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in such Global Note as shown on the records of
the Depositary. The Company also expects that payments by Participants to
Beneficial Owners will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name," and will be the
responsibility of such Participants.
If (x) the Depositary is at any time unwilling, unable or ineligible to
continue as Depositary and a successor depositary is not appointed by the
Company within 60 days after the Company is so informed in writing or becomes
aware of the same, or (y) an Event of Default has occurred and is continuing,
the Global Notes will be exchanged for Notes in definitive form of like tenor
and of an equal aggregate principal amount, in denominations of $1,000 and
integral multiples thereof. Such definitive Notes shall be registered in such
name or names as the Depositary shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depositary
from Participants with respect to ownership of beneficial interests in Global
Notes.
No service charge will be made for the registration of transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Principal
of, premium, if any, and interest on definitive Notes (if issued) will be
payable and such Notes may be surrendered for registration of transfer or
exchange at the office or agency of the Company maintained for such purpose in
The City of New York, located initially at the corporate trust office of the
Trustee. At the option of the Company, payment of interest on definitive Notes
(if issued) may be made by check mailed to the addresses of the persons
entitled thereto as they appear on the securities register.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal of, premium, if any and interest on
the Notes will be made by the Company in immediately available funds, so long
as the Notes are maintained in book-entry form and the procedures of the
Depositary permit such payments to be made in immediately available funds.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code, prohibit certain transactions, including
extensions of credit, between persons who are "parties in interest" under
ERISA or "disqualified persons" under the Code and a plan subject to ERISA or
the Code (a "Plan"). Any person proposing to purchase the Notes using the
assets of a Plan should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and to whether any
exemption would be applicable and determine on its own whether all conditions
have been satisfied.
Accordingly, each purchaser of Notes from the Underwriters, by its
acceptance thereof, will be deemed to certify to the Company and the
Underwriters that (i) no part of the funds used to purchase the Notes
constitutes assets of an employee benefit plan or (ii) the acquisition and
continued holding of the Notes will be covered by a U.S. Department of Labor
class exemption (with respect to prohibited transactions set forth under
Section 406(a) of ERISA). Any transferee of the Notes shall also be deemed to
have made one of such representations.
Moreover, each person investing on behalf of a Plan should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Notes in appropriate, taking into
account the overall investment policy of the Plan and the composition of the
Plan's portfolio.
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UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Issuers
have agreed to sell to each of the Underwriters named below, and each of the
Underwriters has severally agreed to purchase from the Issuers, the principal
amount of Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Smith Barney Inc. .........................................
BancAmerica Robertson Stephens.............................
Deutsche Morgan Grenfell Inc. .............................
------------
Total.................................................... $225,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all Notes
offered hereby if any such Notes are taken.
Smith Barney Inc. ("Smith Barney"), BancAmerica Robertson Stephens and
Deutsche Morgan Grenfell Inc. ("DMG") (the "Underwriters") propose to offer
part of the Notes directly to the public at the offering price set forth on
the cover page of this Prospectus and part of such Notes to certain dealers at
such price less a concession not in excess of % of the principal amount. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of % of the principal amount to other Underwriters or to certain
other dealers. After the initial offering of the Notes to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters. The Underwriters have informed the Issuers that they do not
expect to confirm sales to accounts over which they exercise discretionary
authority without the prior written approval of the transaction by the
customer.
In connection with this offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Notes than the total amount shown
on the list of Underwriters that appears above) and may effect transactions
that stabilize, maintain or otherwise affect the market price of the Notes at
levels above those that might otherwise prevail in the open market. Such
transactions may include placing bids for the Notes or effecting purchases of
the Notes for the purposes of pegging, fixing or maintaining the price of the
Notes or for the purpose of reducing a syndicate short position created in
connection with this offering. In addition, the contractual arrangements among
the Underwriters include a provision whereby, if the Underwriters purchase
Notes in the open market for the account of the underwriting syndicate and the
Notes purchased can be traced to a particular Underwriter or member of the
selling group, the underwriting syndicate may impose a "penalty bid" whereby
it may require the Underwriter or selling group member in question to purchase
the Notes in question at the cost price to the syndicate or may recover from
(or decline to pay to) the Underwriter or selling group member in question the
selling concession applicable to the Notes in question. The Underwriters are
not required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
The Notes have been approved for listing on the NYSE, subject to official
notice of issuance, under the symbol "TIMBZ 07."
The Notes will be a new issue of securities for which there currently is no
public market. Although the Notes have been approved for listing on the NYSE,
subject to official notice of issuance, no assurance can be given as the
liquidity of any market for the Notes. The Underwriters have informed the
Issuers that they currently intend to make a market in the Notes, although the
Underwriters are not obligated to do so and may discontinue such market-making
at any time. In addition, such market-making activity will be subject to
limits imposed by the Securities Act and the Exchange Act.
88
<PAGE>
Smith Barney and DMG are acting as underwriters in the MLP Offering. George
R. Hornig, who will serve as a Director of the Manager, is a Managing Director
of Deutsche Bank North America Holdings, Inc. (the North American operations
of Deutsche Bank, a German banking concern and the parent company of DMG) and
an officer of DMG. DMG has performed financial advisory services in the past
for the Company, for which it is entitled to customary compensation. Smith
Barney and the Company have entered into an engagement letter pursuant to
which Smith Barney will perform certain financial advisory services in
exchange for customary compensation. On July 14, 1997, the Company entered
into a long-term financing arrangement (the "Existing Credit Agreement") with
certain banks, including Bank of America NT & SA ("Bank of America"), an
affiliate of BancAmerica Robertson Stephens to finance the Ochoco Acquisition
and to refinance borrowings under the Company's revolving credit facility and
term loan. Bank of America was paid to customary compensation for its
involvement in the Existing Credit Agreement. Concurrently with the closing of
this offering, the Company will replace the Existing Credit Agreement with the
Credit Agreement. Bank of America is a lender under the Credit Agreement and
was paid customary compensation for its involvement in connection therewith.
On August 6, 1997, an affiliate of Smith Barney made a loan to John M. Rudey
and one of his affiliates. The loan bears interest at such Smith Barney
affiliate's base rate plus 0.25%. On the earlier to occur of November 30, 1997
and 30 days after the closing of the MLP Offering, a substantial portion of
the loan becomes payable. The remaining principal amount is payable on March
31, 1998. The loan is secured by Mr. Rudey's 99% interest in Rudey Timber
Company, LLC.
The Issuers and certain other parties have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act.
VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for the Issuers by Andrews &
Kurth L.L.P., New York, New York. Certain legal matters in connection with the
Notes offered hereby are being passed upon for the Underwriters by Baker &
Botts, L.L.P., Houston, Texas.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
Information relating to the Company's timber inventory and acreage, and the
age, growth rate, size and species of the Company's timber included herein has
been reviewed by Mason, Bruce & Girard, Inc., an independent forest resource
consulting firm, and are included herein in reliance upon the authority of
such firm as an expert in timber inventory and appraisals.
89
<PAGE>
AVAILABLE INFORMATION
The Issuers have not previously been subject to the informational
requirements of the Exchange Act. The Issuers have filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-
1 (the "Registration Statement") under the Securities Act with respect to the
Notes offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in exhibits
and schedules to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Issuers and the Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto. Statements made in
this Prospectus concerning the contents of any contract, agreement or other
document are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits and schedules thereto
filed with the Commission by the Issuers may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained upon written request from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates or from the Commission's Web site
on the Internet at http://www.sec.gov.
90
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
U.S. Timberlands Klamath Falls, L.L.C. Pro Forma Consolidated Financial
Statements (Unaudited):
Pro Forma Consolidated Balance Sheet--September 30, 1997................ F-2
Pro Forma Consolidated Statement of Operations--Year Ended December 31,
1996................................................................... F-4
Pro Forma Consolidated Statement of Operations--Nine Months Ended
September 30, 1997..................................................... F-5
Notes to Pro Forma Consolidated Financial Statements.................... F-6
U.S. Timberlands Combined Financial Statements:
Report of Independent Public Accountants................................ F-11
Combined Balance Sheets--December 31, 1995 and 1996 and September 30,
1997 (unaudited)....................................................... F-12
Combined Statements of Operations--Years Ended December 31, 1994 and
1995, Period from January 1, 1996 through August 29, 1996 and Period
from August 30, 1996 through December 31, 1996......................... F-13
Combined Statements of Changes in Weyerhaeuser Investment and Advances
and Members' Deficit--Years Ended December 31, 1994 and 1995, Period
from January 1, 1996 through August 29, 1996 and Period from August 30,
1996 through December 31, 1996......................................... F-14
Combined Statements of Cash Flows--Years Ended December 31, 1994 and
1995, Period from January 1, 1996 through August 29, 1996 and Period
from August 30, 1996 through December 31, 1996......................... F-15
Notes to Combined Financial Statements.................................. F-16
Combined Statements of Operations--Period from January 1, 1996 through
August 29, 1996, Period from August 30, 1996 through September 30, 1996
(unaudited), and Nine Months Ended September 30, 1997 (unaudited)...... F-24
Combined Statement of Changes in Members' Deficit--Nine Months Ended
September 30, 1997 (unaudited)......................................... F-25
Combined Statements of Cash Flows--Period from January 1, 1996 through
August 29, 1996, Period from August 30, 1996 through September 30, 1996
(unaudited), and Nine Months Ended September 30, 1997 (unaudited)...... F-26
U.S. Timberlands Finance Corp. Financial Statements:
Report of Independent Public Accountants................................ F-27
Balance Sheet--October 17, 1997......................................... F-28
Note to Balance Sheet................................................... F-29
New Services, L.L.C. Financial Statements:
Report of Independent Public Accountants................................ F-30
Balance Sheet--July 29, 1997............................................ F-31
Note to Balance Sheet................................................... F-32
U.S. Timberlands Company, L.P. Financial Statements:
Report of Independent Public Accountants................................ F-33
Balance Sheet--July 29, 1997............................................ F-34
Note to Balance Sheet................................................... F-35
</TABLE>
F-1
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
AS OF SEPTEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
COMBINED CONSOLIDATED
ASSETS AS OF ASSETS AS OF
SEPTEMBER 30, 1997 ADJUSTMENTS SEPTEMBER 30, 1997
------------------ ----------- ------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ 24,032 $ 143,455 (A) $ 1,500
217,750 (B)
(416,575)(C)
(8,305)(C)
42,143 (C)
(1,000)(D)
Accounts receivable.... 4,557 -- 4,557
Other receivables...... 1,220 -- 1,220
Prepaid expenses....... 1,956 -- 1,956
-------- --------- --------
Total current
assets.............. 31,765 (22,532) 9,233
TIMBER, TIMBERLANDS AND
LOGGING ROADS, net...... 373,230 -- 373,230
SEED ORCHARD AND NURSERY
STOCK................... 1,723 -- 1,723
PROPERTY, PLANT AND
EQUIPMENT, at cost:
Equipment.............. 925 -- 925
Buildings and land
improvements.......... 843 -- 843
Less- Accumulated
depreciation.......... (221) -- (221)
-------- --------- --------
Total property, plant
and equipment....... 1,547 -- 1,547
LONG-TERM RECEIVABLE..... 1,171 -- 1,171
DEFERRED FINANCING FEES.. 5,791 7,250 (B) 7,250
(5,791)(C)
-------- --------- --------
Total assets............. $415,227 $ (21,073) $394,154
======== ========= ========
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
F-2
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
AS OF SEPTEMBER 30, 1997
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
COMBINED CONSOLIDATED
LIABILITIES AND LIABILITIES
MEMBERS' DEFICIT AND MEMBERS'
AS OF EQUITY AS OF
SEPTEMBER 30, 1997 ADJUSTMENTS SEPTEMBER 30, 1997
------------------ ----------- ------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....... $ 899 $ -- $ 899
Accrued liabilities.... 15,009 (3,300)(C)
(8,305)(C) 3,404
Deferred revenue....... 842 -- 842
Current portion of
long-term debt........ 15,000 (15,000)(C) --
-------- --------- --------
Total current
liabilities......... 31,750 (26,605) 5,145
ACQUISITION FACILITY..... -- 42,143 (C) 42,143
BORROWINGS UNDER
REVOLVING CREDIT
FACILITY................ 83,000 (83,000)(C) --
LONG-TERM DEBT........... 315,000 (130,000)(C)
(185,000)(C) --
NOTES.................... -- 225,000 (B) 225,000
MEMBERS' EQUITY
(DEFICIT):
Members' deficit prior
to the Transactions... (14,523) 143,455 (A) --
(275)(C) --
(5,791)(C)
(1,000)(D)
(121,866)(E)
Non-Managing member's
interest.............. -- 120,647 (E) 120,647
Managing member's
interest.............. -- 1,219 (E) 1,219
-------- --------- --------
Total members' equity
(deficit)........... (14,523) 136,389 121,866
-------- --------- --------
Total liabilities and
members' equity
(deficit)........... $415,227 $(21,073) $394,154
======== ========= ========
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
F-3
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREDECESSOR U.S. TIMBERLANDS
HISTORICAL HISTORICAL COMBINED
STATEMENT OF STATEMENT OF PRO FORMA
OPERATIONS FOR OPERATIONS FOR THE CONSOLIDATED
THE PERIOD FROM PERIOD FROM STATEMENT OF
JANUARY 1, 1996 AUGUST 30, 1996 WEYERHAEUSER OPERATIONS FOR THE
THROUGH THROUGH ACQUISITION TRANSACTION YEAR ENDED
AUGUST 29, 1996 DECEMBER 31, 1996 ADJUSTMENTS ADJUSTMENTS DECEMBER 31, 1996
--------------- ------------------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Logs.................. $14,077 $ 13,590 $ -- $ -- $ 27,667
By-products and
other................ 1,501 429 -- -- 1,930
------- -------- -------- ------ --------
Total revenues...... 15,578 14,019 -- -- 29,597
OPERATING COSTS:
Cost of products
sold................. 9,225 6,179 -- -- 15,404
Depreciation,
depletion and road
amortization......... 927 3,323 4,126 (i) -- 8,376
Selling, general and
administrative
expenses............. 2,730 9,284 (4,935)(ii) -- 7,079
------- -------- -------- ------ --------
Operating income
(loss)............. 2,696 (4,767) 809 -- (1,262)
INTEREST EXPENSE........ -- 7,316 13,664 (iii) 3,833 (F) 24,813
AMORTIZATION OF DEFERRED
FINANCING FEES AND DEBT
GUARANTEE FEES......... -- 1,326 2,649 (iv) (3,250)(G) 725
INTEREST INCOME......... -- (409) -- -- (409)
OTHER EXPENSE, net...... 1 36 -- -- 37
------- -------- -------- ------ --------
Net income (loss)... $ 2,695 $(13,036) $(15,504) $(583) (26,428)
======= ======== ======== ======
MANAGING MEMBER'S
INTEREST IN NET LOSS... 264
--------
NON-MANAGING MEMBER'S
INTEREST IN NET LOSS... $(26,164)
========
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
financial statement.
F-4
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL COMBINED PRO FORMA CONSOLIDATED
STATEMENT OF STATEMENT OF
OPERATIONS FOR THE OPERATIONS FOR THE
NINE MONTHS TRANSACTION NINE MONTHS
ENDED SEPTEMBER 30, 1997 ADJUSTMENTS ENDED SEPTEMBER 30, 1997
------------------------ ----------- ------------------------
<S> <C> <C> <C>
REVENUES:
Logs.................. $ 36,819 $ -- $36,819
Timber and property
sales................ 3,494 -- 3,494
By-products and
other................ 744 -- 744
-------- ------- -------
Total revenues...... 41,057 -- 41,057
OPERATING COSTS:
Cost of products
sold................. 12,101 -- 12,101
Cost of timber and
property sales....... 1,191 -- 1,191
Depreciation,
depletion and road
amortization......... 10,758 -- 10,758
Selling, general and
administrative
expenses............. 4,300 -- 4,300
-------- ------- -------
Operating income.... 12,707 -- 12,707
INTEREST EXPENSE........ 17,818 791 (F) 18,609
AMORTIZATION OF DEFERRED
FINANCING FEES AND DEBT
GUARANTEE FEES......... 2,954 (2,410)(G) 544
INTEREST INCOME......... (1,192) -- (1,192)
OTHER INCOME, net....... (48) -- (48)
-------- ------- -------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... (6,825) 1,619 (5,206)
EXTRAORDINARY ITEM--Loss
on Extinguishment of
Debt................... 3,571 -- 3,571
-------- ------- -------
Net income (loss)... $(10,396) $ 1,619 $(8,777)
======== ======= =======
MANAGING MEMBER'S
INTEREST IN NET LOSS... 88
-------
NON-MANAGING MEMBER'S
INTEREST IN NET LOSS... $(8,689)
=======
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
financial statement.
F-5
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(ALL AMOUNTS IN THOUSANDS UNLESS OTHERWISE NOTED)
(UNAUDITED)
The pro forma consolidated financial statements are based upon the
historical financial position and results of operations of U.S. Timberlands
Klamath Falls, L.L.C. (the "Company"). The Company will include all of the
assets and liabilities of the entities currently included in the U.S.
Timberlands historical combined financial statements, which includes U.S.
Timberlands Services Company, L.L.C. ("Old Services"). The Company also
includes long-term debt obligations and related interest and debt guarantee
costs of U.S. Timberlands Holdings, L.L.C. ("Holdings"), the parent entity of
the Company prior to the consummation of the transactions described below,
that will be assumed by the Company concurrent with the closing of the Common
Units Offering discussed below.
The pro forma consolidated financial statements reflect the following
transactions (the "Transactions"), in addition to the Weyerhaeuser acquisition
adjustments discussed below, to occur at the closing (the "Closing") of the
public offering of Common Units by U.S. Timberlands, L.P. (the "Master
Partnership"), the parent entity of the Company: (i) the public offering by
the Master Partnership of 7,459 Common Units at an assumed initial public
offering price of $21.00 per Common Unit resulting in aggregate gross proceeds
to the Master Partnership of $156,632 (the "Common Units Offering"), (ii) the
issuance by the Master Partnership of 4,407 Subordinated Units to New
Services, L.L.C., managing member of the Company and the general partner of
the Master Partnership (the "Manager") and its affiliates, (iii) the public
offering by the Company (the "Public Note Offering") of $225,000 of senior,
unsecured notes (the "Notes"), (iv) the entering into by the Company of a
$25,000 Working Capital Facility and a $75,000 Acquisition Facility and a
drawdown under the Acquisition Facility of $42,143, (v) the repayment of all
existing indebtedness of the Company, including indebtedness to be assumed at
the Closing, accrued interest thereon and certain loan guarantee and deferred
financing fees and (vi) the payment of underwriting discounts and commissions
and other fees and expenses associated with the Transactions. The pro forma
consolidated financial statements assume no exercise of the Underwriters'
over-allotment option.
In connection with the Common Units Offering and related formation of the
Manager, the Manager intends to issue income interests in the Manager to
certain officers and directors of the Manager at no cost. Such income
interests will participate pro rata in cash distributions from the Master
Partnership and the Company. In addition, under certain circumstances, if
these officers or directors terminate their employment, the Manager is
required to repurchase their income interests at fair market value as
determined by independent appraisal. The fair value of these income interests
will be recorded as compensation expense in the Company's post-Common Units
Offering financial statements with a corresponding increase to contributed
capital.
Upon completion of the Master Partnership's Common Units Offering, the
Company anticipates incurring incremental general and administrative costs
(e.g., costs of tax return preparation and quarterly reports to unitholders,
investor relations and registrar and transfer agent fees) at an annual rate of
approximately $1,500. The pro forma consolidated financial statements do not
reflect any adjustments for these estimated incremental costs.
Concurrent with the retirement of debt discussed in footnote (C), the
Company expects to pay estimated accrued interest of $15,264 of which $8,305
is accrued at September 30, 1997. The balance of $6,959 is the estimated
amount of additional interest expense expected to be incurred but not paid
from October 1, 1997 through the expected debt retirement date (November 15,
1997). The pro forma consolidated financial statements do not reflect any
adjustments for these additional costs to be incurred.
As discussed in Note 7 to the footnotes to the historical combined financial
statements, the Company paid an affiliate $2,800 in 1996 for management
services. The Company does not intend to provide such
F-6
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
management fees subsequent to completion of the Common Units Offering. The pro
forma consolidated financial statements do not reflect any adjustments for the
elimination of these costs.
All of the financial statements provided herein (including the financial
statements pertaining to the Predecessor) were prepared by, and are solely the
responsibility of, the Company.
WEYERHAEUSER ACQUISITION ADJUSTMENTS
In July and August 1996, respectively, the Company and Old Services were
formed and subsequently entered into an agreement with Weyerhaeuser Company on
August 30, 1996 to purchase approximately 600,000 acres of timber and
timberlands and certain other assets (the "Weyerhaeuser Acquisition"). The
following pro forma Weyerhaeuser Acquisition Adjustments were recorded to give
effect to the Weyerhaeuser Acquisition as if the acquisition occurred on
January 1, 1996. The acquisition was accounted for as a purchase.
OCHOCO ACQUISITION AND RELATED REFINANCING
The Company acquired certain timber and timberlands from Ochoco Lumber Co.
(the "Ochoco Timberlands") on July 15, 1997. In conjunction with the
acquisition, the Company refinanced certain of its existing indebtedness. As
of September 30, 1997 the effects of this acquisition are reflected in the
historical balance sheet, and historical results of operations for the nine
month period ended September 30, 1997 reflect activity on the Ochoco
Timberlands since July 15, 1997.
The Company believes that presenting the pro forma results of operations of
the Ochoco Timberlands would not be meaningful considering differences between
the past and intended future use of the Ochoco Timberlands. The accounting
related to the Ochoco Timberlands, including the recording of depletion, is
consistent with the Company's existing accounting policies as set forth in the
Notes to the Combined Financial Statements.
TRANSACTION ADJUSTMENTS
The pro forma transaction adjustments have been prepared as if the
Transactions had taken place on September 30, 1997, in the case of the pro
forma consolidated balance sheet, or as of January 1, 1996, in the case of the
pro forma consolidated statements of operations for the year ended December
31, 1996 and the nine month period ended September 30, 1997. The adjustments
are based upon currently available information and certain estimates and
assumptions, and therefore, the actual adjustments may differ from the pro
forma adjustments. However, management believes that the assumptions provide a
reasonable basis for presenting the significant effects of the transactions as
contemplated and that the pro forma adjustments give appropriate effect to
those assumptions and are properly applied in the pro forma consolidated
financial statements.
I. WEYERHAEUSER ACQUISITION ADJUSTMENTS
(i) Reflects the increase in depletion based on higher post-acquisition
depletion rates as a result of the increase in cost of timber, timberlands and
logging roads from the Weyerhaeuser Acquisition.
(ii) As discussed in Note 7 to the footnotes to the historical combined
financial statements, the Company provided certain affiliates with one-time
payments for advisory services, in connection with the Weyerhaeuser
Acquisition. Accordingly, the amount of these fees paid in 1996, $4,935, is
shown as a pro forma reduction of selling, general and administrative
expenses.
F-7
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(iii) Reflects the increase in interest expense related to the debt incurred
for the Weyerhaeuser Acquisition. This amount is computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Pro Forma Interest Expense
Interest related to $305,000 aggregate principal balance at
weighted average interest rate of 6.88%......................... $20,980
Historical Interest Expense
Interest expense for period from August 30, through December 31,
1996............................................................. 7,316
-------
Pro forma increase in interest expense........................... $13,664
=======
</TABLE>
(iv) Reflects the incremental amortization expense related to deferred
financing and debt guarantee fees associated with the acquisition. The
adjustment is computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Pro Forma Amortization of Deferred Financing Fees and Debt
Guarantee Fees
Annual amortization based on deferred financing fees at
borrowing date of $4,053, amortized over 6 years, plus
accretion of debt guarantee fee for the 12 months ended
December 31, 1996 of $3,300.................................... $3,975
Historical Amortization of Deferred Financing Fees and Debt
Guarantee Fees
Amortization expense related to deferred financing fees and debt
guarantee fees for period from August 30, through December 31,
1996........................................................... 1,326
------
Pro forma increase in amortization of deferred financing and
debt guarantee fees............................................ $2,649
======
</TABLE>
II. TRANSACTION ADJUSTMENTS
The following adjustments were made to record the pro forma effect of the
Transactions on the consolidated balance sheet and statements of operations.
TRANSACTION ADJUSTMENTS--BALANCE SHEET
(A) Reflects the net proceeds to the Company of $143,455 from the issuance
and sale of 7,459 Common Units at $21.00 per Unit in the Common Units
Offering, net of the underwriters' discounts and commissions of approximately
$10,377 and offering expenses of approximately $2,800.
(B) Reflects the net proceeds to the Company of $217,750 from the issuance
by the Company of $225,000 of the Notes at 9.5% concurrent with the Common
Units Offering and the incurrence of $7,250 of financing costs.
(C) The Company intends to use the net proceeds from the Common Units
Offering, the Public Note Offering, and a $42,143 drawdown under the
Acquisition Facility, as well as cash on hand, to repay all indebtedness of
the Company, as shown in the table below. After the completion of the
Transactions, the Company will have a cash balance of $1,500.
F-8
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The indebtedness to be retired at the Closing consists of the following:
<TABLE>
<CAPTION>
AMOUNT TO BE
DEBT FACILITY RETIRED
------------- ------------
<S> <C>
Holdings Term Loan............................................ $130,000
Revolving Credit Facility..................................... 83,000
Term Loan..................................................... 200,000
--------
Total indebtedness.......................................... 413,000
Holdings term loan guarantee fee.............................. 3,575
--------
Total debt retirement payment............................... $416,575
========
</TABLE>
The Holdings term loan guarantee fee is payable to Weyerhaeuser Company upon
retirement of the Holdings term loan. As of September 30, 1997, $3,300 of such
loan guarantee fees had been accrued. An additional $275 will be accreted
between October 1, 1997 and November 15, 1997 (the estimated date of the
Holdings debt extinguishment) on the debt guarantee fee. As of September 30,
1997, $8,305 of interest expense was accrued on the Holdings term loan.
Deferred financing costs of approximately $5,700 ($5,791 as of September 30,
1997) incurred in connection with the Ochoco Acquisition and related debt
refinancing will be written off as an extraordinary loss on the extinguishment
of debt. The extraordinary loss is a non-recurring item and is therefore not
reflected in the pro forma statement of operations.
(D) Reflects the anticipated distribution of proceeds from the offering to
Old Services for the redemption of John J. Stephens' ownership interests in
Old Services. The redemption price totals $1,000 which will be distributed in
cash in January 1998 and 95,238 Subordinated Units to be issued concurrent
with the Common Units Offering. In addition, George R. Hornig's interest in
Old Services will be redeemed for 50,040 Subordinated Units concurrent with
the Common Units Offering.
(E) Reflects the allocation of members' equity resulting from the completion
of the Transactions. The allocations are summarized as follows:
<TABLE>
<S> <C>
Net proceeds from the Common Units Offering (A)................ $143,455
Accretion of debt guarantee fees (C)........................... (275)
Write-off of deferred financing fees--Ochoco Acquisition and
related debt refinancing (C).................................. (5,791)
Redemption of John J. Stephens' interest (D)................... (1,000)
Members' deficit prior to the Transactions .................... (14,523)
--------
121,866
Pro forma allocation to 1% managing member's interest.......... 1,219
--------
Pro forma allocation to non-managing member's interest......... $120,647
========
</TABLE>
F-9
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TRANSACTION ADJUSTMENTS--STATEMENTS OF OPERATIONS
(F) Reflects the effect on interest expense for the year ended December 31,
1996 and the nine months ended September 30, 1997 as if the Notes were issued
on January 1, 1996 and borrowings under the Acquisition Facility took place on
January 1, 1996. The pro forma effect on interest expense applicable to the
Company is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Pro Forma Interest Expense
Notes ($225,000 principal balance), at an annual
interest rate of 9.5%............................ $21,376 $16,032
Acquisition Facility ($42,143 principal balance),
at an annual interest rate of 8.2%............... 3,437 2,577
Historical Interest Expense
Interest expense included in historical financial
statements for the period (plus pro forma
interest expense related to the period from
January 1, 1996 through August 29, 1996 (see
(iii))........................................... 20,980 17,818
------- -------
Pro forma increase in interest expense............ $ 3,833 $ 791
======= =======
</TABLE>
(G) Reflects the effect on amortization of deferred financing and debt
guarantee fees for the year ended December 31, 1996 and the nine months ended
September 30, 1997 as if the Notes were issued on January 1, 1996. The pro
forma effect on amortization of deferred financing and debt guarantee fees
applicable to the Company is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Pro Forma Amortization Expense
Amortization of $7,250 deferred financing fees
over 10 year term (B)............................ $ 725 $ 544
Historical Amortization Expense
Amortization of deferred financing and debt
guarantee fees included in historical financial
statements (plus pro forma amortization of
deferred financing and debt guarantee fees
related to the period from January 1, 1996
through August 29, 1996 (see (iv))............... 3,975 2,954
------- -------
Pro forma decrease in amortization of deferred
financing and debt guarantee fees................ $(3,250) $(2,410)
======= =======
</TABLE>
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Members ofU.S. Timberlands:
We have audited the accompanying combined balance sheets of U.S.
Timberlands, as described in Note 1, as of December 31, 1996, and the related
combined statements of operations, changes in members' deficit, and cash flows
for the period from inception (August 30, 1996) through December 31, 1996. We
have also audited the accompanying balance sheet of the Predecessor, as
described in Note 1, as of December 31, 1995, and the related statements of
operations, changes in Weyerhaeuser investment and advances and cash flows for
each of the two years in the period ended December 31, 1995 and the period
from January 1, 1996 through August 29, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of U.S. Timberlands as of
December 31, 1996, and the results of its operations and its cash flows for
the period from inception (August 30, 1996) through December 31, 1996, and the
financial position of the Predecessor as of December 31, 1995, and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1995 and the period from January 1, 1996 through August 29,
1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
June 10, 1997
(except for the matters
discussed in Note 6 and
Note 9, for which the
date is August 20, 1997)
F-11
<PAGE>
U.S. TIMBERLANDS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR U.S. TIMBERLANDS (A)
------------ --------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 1 $ 16,613 $ 24,032
Accounts receivable.................. 741 1,563 4,557
Other receivables.................... 75 131 1,220
Receivable from affiliate............ -- 10,121 --
Inventories.......................... 1,846 78 --
Prepaid expenses..................... 433 680 1,956
Logging equipment held for resale.... -- 400 --
-------- -------- --------
Total current assets............... 3,096 29,586 31,765
-------- -------- --------
TIMBER, TIMBERLANDS AND LOGGING ROADS,
net................................... 20,822 273,457 373,230
SEED ORCHARD AND NURSERY STOCK......... 2,443 1,901 1,723
PROPERTY, PLANT AND EQUIPMENT, at cost:
Equipment............................ 13,712 801 925
Buildings and land improvements...... 2,774 677 843
Less--Accumulated depreciation....... (11,900) (58) (221)
-------- -------- --------
Total property, plant and
equipment......................... 4,586 1,420 1,547
-------- -------- --------
LONG-TERM RECEIVABLE................... -- -- 1,171
DEFERRED FINANCING FEES................ -- 3,827 5,791
-------- -------- --------
Total assets....................... $ 30,947 $310,191 $415,227
======== ======== ========
LIABILITIES AND WEYERHAEUSER INVESTMENT AND ADVANCES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable..................... $ 561 $ 889 $ 899
Accrued liabilities.................. 1,231 7,238 15,009
Deferred revenue .................... -- -- 842
Current portion of long-term debt.... -- -- 15,000
-------- -------- --------
Total current liabilities.......... 1,792 8,127 31,750
BORROWINGS UNDER REVOLVING CREDIT FA-
CILITY................................ -- 90,000 83,000
LONG-TERM DEBT......................... -- 215,000 315,000
WEYERHAEUSER INVESTMENT AND ADVANCES
AND MEMBERS' DEFICIT:
Weyerhaeuser investment and
advances............................ 29,155 -- --
USTK--Members' deficit............... -- (1,809) (10,152)
Services--Members' deficit........... -- (1,127) (4,371)
-------- -------- --------
29,155 (2,936) (14,523)
-------- -------- --------
Total liabilities and Weyerhaeuser
investment and advances and
members' deficit.................. $ 30,947 $310,191 $415,227
======== ======== ========
</TABLE>
- --------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the combined
balance sheets as of December 31, 1996 and September 30, 1997 are not
comparable to the balance sheet of the Predecessor. See the accompanying
notes for additional information.
The accompanying notes are an integral part of these combined balance sheets.
F-12
<PAGE>
U.S. TIMBERLANDS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR U.S. TIMBERLANDS
-------------------------------- ----------------
JANUARY 1, 1996 AUGUST 30, 1996
DECEMBER 31, THROUGH THROUGH
--------------- AUGUST 29, DECEMBER 31,
1994 1995 1996 1996
------- ------- --------------- ----------------
(a)
<S> <C> <C> <C> <C>
REVENUES:
Logs...................................................................... $29,102 $29,110 $14,077 $ 13,590
By-products and other..................................................... 3,240 2,623 1,501 429
------- ------- ------- --------
Total revenues.......................................................... 32,342 31,733 15,578 14,019
OPERATING COSTS:
Cost of products sold..................................................... 16,351 14,951 9,225 6,179
Depreciation, depletion and road amortization............................. 1,455 1,486 927 3,323
Selling, general and administrative expenses.............................. 4,454 4,235 2,730 9,284
------- ------- ------- --------
Operating income (loss)................................................. 10,082 11,061 2,696 (4,767)
INTEREST EXPENSE............................................................ -- -- -- 7,316
AMORTIZATION OF DEFERRED FINANCING FEES AND DEBT GUARANTEE FEES............. -- -- -- 1,326
INTEREST INCOME............................................................. -- -- -- (409)
OTHER (INCOME) EXPENSE, net................................................. 140 (555) 1 36
------- ------- ------- --------
NET INCOME (LOSS)........................................................... $ 9,942 $11,616 $ 2,695 $(13,036)
======= ======= ======= ========
</TABLE>
- --------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the combined
statement of operations for the period from August 30, 1996 through
December 31, 1996 is not comparable to the statements of operations of the
Predecessor. See the accompanying notes for additional information.
The accompanying notes are an integral part of these combined statements.
F-13
<PAGE>
U.S. TIMBERLANDS
COMBINED STATEMENTS OF CHANGES IN
WEYERHAEUSER INVESTMENT AND ADVANCES AND MEMBERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. U.S.
TIMBERLANDS TIMBERLANDS
KLAMATH SERVICES U.S.
FALLS, COMPANY, TIMBERLANDS
PREDECESSOR L.L.C. L.L.C. (COMBINED)
------------ ----------- ----------- -----------
(a) (a) (a)
WEYERHAEUSER TOTAL
INVESTMENT MEMBERS' MEMBERS' MEMBERS'
AND ADVANCES DEFICIT DEFICIT DEFICIT
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993.................................................. $ 29,643 $ -- $ -- $ --
Net income................................................................ 9,942 -- -- --
Net distributions to Weyerhaeuser Company................................. (11,160) -- -- --
Net asset transfers to Weyerhaeuser Company............................... (680) -- -- --
-------- -------- ------- --------
BALANCE, December 31, 1994.................................................. 27,745 -- -- --
Net income................................................................ 11,616 -- -- --
Net distributions to Weyerhaeuser Company................................. (9,951) -- -- --
Net asset transfers to Weyerhaeuser Company............................... (255) -- -- --
-------- -------- ------- --------
BALANCE, December 31, 1995.................................................. 29,155 -- -- --
Net income................................................................ 2,695 -- -- --
Net distributions to Weyerhaeuser Company................................. (5,054) -- -- --
Net asset transfers from Weyerhaeuser Company............................. 1,043 -- -- --
-------- -------- ------- --------
BALANCE, August 29, 1996.................................................... $ 27,839 -- -- --
========
Members' contributions.................................................... 10,000 100 10,100
Net loss.................................................................. (11,809) (1,227) (13,036)
======== ======= ========
BALANCE, December 31, 1996.................................................. $ (1,809) $(1,127) $ (2,936)
======== ======= ========
</TABLE>
- --------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the combined
statement of changes in members' deficit for the period from August 30,
1996 through December 31, 1996 is not comparable to the combined
statements of changes in Weyerhaeuser investment and advances of the
Predecessor. See the accompanying notes for additional information.
The accompanying notes are an integral part of these combined statements.
F-14
<PAGE>
U.S. TIMBERLANDS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
U.S.
PREDECESSOR TIMBERLANDS
------------------------------- ------------
JANUARY 1, AUGUST 30,
DECEMBER 31, 1996 THROUGH 1996 THROUGH
----------------- AUGUST 29, DECEMBER 31,
1994 1995 1996 1996
-------- ------- ------------ ------------
(a)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............... $ 9,942 $11,616 $ 2,695 $ (13,036)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities--
Depreciation, depletion and
amortization................. 1,455 1,486 927 3,549
(Gain) loss on sale of
property, plant and
equipment.................... (81) (200) 6 51
Changes in operating accounts--
Accounts receivable............. 1,580 1,057 699 (1,694)
Inventories..................... 493 (1,535) 1,348 921
Prepaid expenses................ 336 (308) 371 (680)
Accounts payable................ (449) (272) (292) 889
Accrued interest and debt guar-
antee fees..................... -- -- -- 6,354
Other accrued liabilities....... (103) (34) (242) 783
Interest receivable from affili-
ate............................ -- -- -- (121)
-------- ------- ------- ---------
Net cash provided by (used in)
operating activities......... 13,173 11,810 5,512 (2,984)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Weyerhaeuser Acquisition........ -- -- -- (283,464)
Receivable from affiliate....... -- -- -- (10,000)
Purchase of property, plant and
equipment...................... (1,431) (1,124) (6) (212)
Proceeds from sales of property,
plant and equipment............ 85 223 -- 2,374
Timber and road additions....... (39) (224) (26) (12)
Capitalized seed orchard and
nursery costs.................. (628) (734) (427) (136)
-------- ------- ------- ---------
Net cash used in investing ac-
tivities..................... (2,013) (1,859) (459) (291,450)
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Long-term borrowings............ -- -- -- 305,000
Deferred financing fees......... -- -- -- (4,053)
Weyerhaeuser investment and ad-
vances, net.................... (11,160) (9,951) (5,054) --
Members' contributions.......... -- -- -- 10,100
-------- ------- ------- ---------
Net cash provided by (used in)
financing activities......... (11,160) (9,951) (5,054) 311,047
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS............. -- -- (1) 16,613
CASH AND CASH EQUIVALENTS, begin-
ning of period................... 1 1 1 --
-------- ------- ------- ---------
CASH AND CASH EQUIVALENTS, end of
period........................... $ 1 $ 1 $ -- $ 16,613
======== ======= ======= =========
SUPPLEMENTAL CASH FLOW INFORMA-
TION:
Cash paid for interest.......... $ -- $ -- $ -- $ 2,062
NONCASH ACTIVITIES:
Net asset transfers (to) from
Weyerhaeuser Company,
principally property, plant and
equipment...................... $ (680) $ (255) $ 1,043 $ --
</TABLE>
- --------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the combined
statement of cash flows for the period from August 30, 1996 through
December 31, 1996 is not comparable to statements of cash flows of the
Predecessor. See the accompanying notes for additional information.
The accompanying notes are an integral part of these combined statements.
F-15
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE NOTED)
1. SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION:
Nature of Operations
The primary activity of U.S. Timberlands (the Company) is the growing of
trees and the sale of logs and standing timber to third-party wood processors.
The logs are sold principally to wood processing companies generally within a
200-mile radius of Klamath Falls, Oregon. These logs are ultimately processed
by third-party wood processors for sale as lumber, plywood and other wood
products, primarily for use in new residential home construction, home
remodeling and repair and general industrial applications.
Basis of Presentation--U.S. Timberlands
The accompanying combined financial statements for U.S. Timberlands
represent the combined financial position, results of operations, equity and
cash flows of U.S. Timberlands Klamath Falls, L.L.C. (USTK--a Delaware limited
liability company) and U.S. Timberlands Services Company, L.L.C. (Services--a
Delaware limited liability company). The long-term debt obligations, related
interest costs and debt guarantee fees of U.S. Timberlands Holdings, L.L.C.
(Holdings), the parent entity of USTK, have been reflected in the accompanying
combined financial statements as such debt will be assumed by USTK concurrent
with the planned master limited partnership offering discussed in Note 9.
In July and August 1996, USTK and Services were formed and subsequently
entered into an agreement with Weyerhaeuser Company on August 30, 1996 to
purchase approximately 600,000 acres of timber and timberlands and certain
other assets (the Weyerhaeuser Acquisition) as discussed further in Note 3.
Because of common ownership and management of USTK and Services, the financial
statements have been presented on a combined basis. All intercompany
transactions between USTK and Services have been eliminated in the
accompanying combined financial statements.
Basis of Presentation--Predecessor
As a result of the Weyerhaeuser Acquisition, USTK acquired the Klamath Falls
Timberlands and certain related assets of Weyerhaeuser Company (as used
herein, the acquired timberlands and related assets are referred to as the
Predecessor). All of the financial statements provided herein (including the
financial statements pertaining to the Predecessor) were prepared by, and are
solely the responsibility of, U.S. Timberlands Company, L.P. The Weyerhaeuser
Acquisition was accounted for as a purchase and, therefore, the accompanying
financial statements as of and for the periods ended prior to the date of the
Weyerhaeuser Acquisition are accounted for under the pre-Weyerhaeuser
Acquisition basis of accounting. Because the Predecessor did not operate or
legally exist as a stand-alone entity, there are no separate meaningful equity
accounts of the Predecessor prior to the Weyerhaeuser Acquisition. Significant
changes could have occurred in the funding and operations of the Predecessor
were it to have operated as an independent stand-alone entity. As a result,
the financial information included herein is not necessarily indicative of the
financial position and results of operations of the Predecessor which may have
occurred if it were an independent, stand-alone company during the periods
presented.
Revenues for the Predecessor principally represent logs harvested for sale
to Weyerhaeuser's Klamath Falls wood conversion facilities at prices
determined in accordance with Weyerhaeuser's transfer pricing policy. These
transfer prices are not necessarily indicative of the prices the Predecessor
would have achieved if the logs had been sold to unaffiliated wood processors.
Revenues to Weyerhaeuser wood conversion facilities and unaffiliated wood
processors are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, 1996
--------------- THROUGH
SOURCE OF REVENUES 1994 1995 AUGUST 29, 1996
------------------ ------- ------- ---------------
<S> <C> <C> <C>
Weyerhaeuser Company......................... $16,693 $20,065 $10,157
Unaffiliated wood processors................. 15,649 11,668 5,421
------- ------- -------
Total...................................... $32,342 $31,733 $15,578
======= ======= =======
</TABLE>
F-16
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Concurrent with the Weyerhaeuser Acquisition, Collins Products L.L.C.
(Collins), an unaffiliated party, acquired Weyerhaeuser's Klamath Falls wood
conversion facilities. U.S. Timberlands has entered into a 10-year log supply
agreement with Collins providing for the delivery by U.S. Timberlands to
Collins of 34 million board feet of merchantable timber each year at market
prices as discussed in Note 8.
The Predecessor participated in Weyerhaeuser Company's centralized cash
management system and, as such, its operating and capital expenditure needs
were met by Weyerhaeuser Company. The net advances from and distributions to
Weyerhaeuser Company are presented in the accompanying combined balance sheets
as a component of Weyerhaeuser investment and advances prior to the
Weyerhaeuser Acquisition. The Weyerhaeuser investment and advances account is
noninterest bearing.
Certain costs incurred by Weyerhaeuser Company for financial services,
information systems and other indirect costs have been allocated to the
Predecessor on a revenue and volume harvested basis. The resulting charge to
the Predecessor was $738 in 1994, $622 in 1995 and $445 in the period from
January 1, 1996 through August 29, 1996, and is included in selling, general
and administrative expenses in the accompanying combined statements of
operations. Management of the Company believes the allocation methods used
provide the Predecessor with a reasonable share of such expenses.
Interim Financial Statements (Unaudited)
The unaudited interim financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the management of the Company believes that the
disclosures are adequate to make the information presented not misleading.
Interim financial statements are by necessity somewhat tentative; judgments are
used to estimate interim amounts for items that are normally determinable only
on an annual basis.
The accompanying combined balance sheet as of September 30, 1997, and the
accompanying combined statements of operations and cash flows for the period
from August 30, 1996 through September 30, 1996, the nine months ended
September 30, 1997, and the combined statement of changes in members' deficit
for the nine months ended September 30, 1997 are unaudited. In the opinion of
management, the accompanying unaudited balance sheet has been prepared on the
same basis as the audited balance sheet as of December 31, 1996. The
accompanying unaudited combined statements of operations and cash flows for the
period from August 30, 1996 through September 30, 1996, the nine months ended
September 30, 1997 and the unaudited combined statement of changes in members'
deficit for the nine months ended September 30, 1997 have been prepared on the
same basis as the audited combined statements of operations, changes in
members' deficit and cash flows for the period from August 30, 1996 through
December 31, 1996. The unaudited interim financial statements include all
adjustments which are, in the opinion of management of the Company, necessary
to present fairly the balance sheet as of September 30, 1997, the statements of
operations and cash flows for the period from August 30, 1996 through September
30, 1996, the nine months ended September 30, 1997 and the combined statement
of changes in members' deficit for the nine months ended September 30, 1997.
Operating results for the period from August 30, 1996 through September 30,
1996 and the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies summarized below include both those of
U.S. Timberlands and the Predecessor, unless otherwise noted.
F-17
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 liabilities and
disclosure of contingent 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
Revenue on delivered log sales are recognized upon delivery to the customer.
Revenue from timber sold on a stumpage basis (i.e., the customer arranges to
harvest and deliver the logs) is recognized when the timber is harvested.
Revenue on timber deeds and timberland and property sales are generally
recognized upon closing.
Concentration of Credit Risk
As of December 31, 1996, the Company had accounts receivable from three
individual customers that represented 60%, 19% and 10% of total accounts
receivable, respectively.
The majority of the Predecessor's sales were to Weyerhaeuser Company.
Receivables from Weyerhaeuser Company are reflected in Weyerhaeuser investment
and advances in the accompanying balance sheet. The Predecessor's accounts
receivable in the accompanying balance sheet represent receivables from
unaffiliated customers. As of December 31, 1995, the Predecessor had accounts
receivable from three individual customers that represented 27%, 17% and 13%
of total accounts receivable, respectively.
The Company had sales to individual customers that were greater than 10% of
total sales for the respective periods as follows:
<TABLE>
<CAPTION>
PREDECESSOR U.S. TIMBERLANDS
------------------------- -----------------
JANUARY 1, 1996 AUGUST 30, 1996
THROUGH THROUGH
1994 1995 AUGUST 29, 1996 DECEMBER 31, 1996
---- ---- --------------- -----------------
<S> <C> <C> <C> <C>
Weyerhaeuser Company............. 52% 63% 65% --
Unaffiliated customer............ 12% 14% 14% 54%
Unaffiliated customer............ -- -- 10% 14%
Unaffiliated customer............ -- -- -- 11%
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
maturities at date of purchase of 90 days or less.
Inventories
The Company maintains a log inventory which is recorded at the lower of cost
or market determined on a first-in, first-out basis.
Logging Equipment Held For Resale
Logging equipment held by the Company as of December 31, 1996, is recorded
as logging equipment held for resale in the accompanying combined balance
sheet, as the Company changed to the use of outside contractors for all of its
logging operations concurrent with the Weyerhaeuser Acquisition.
Timber, Timberlands and Logging Roads
Timber, timberlands and logging roads are stated at cost less depletion and
amortization for timber previously harvested. The depletion rate is calculated
using a single composite pool by dividing the total cost of
F-18
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
merchantable timber by its estimated net merchantable volume. Depletion in any
given year represents the net merchantable volume harvested multiplied by the
depletion rate. These estimates are subject to change based on periodic
reevaluations of merchantable volume. Logging road costs for main and spur
roads are amortized based on the net merchantable volume harvested. Costs
incurred to resurface logging roads are generally capitalized and amortized
over a seven-year period on a straight-line basis.
Seed Orchard and Nursery Stock
The Company operates and maintains a seed orchard and nursery. Costs
incurred by the orchard and nursery to produce seed and seedlings utilized in
the reforestation of the Company's timberlands are capitalized to seed orchard
and nursery stock in the accompanying combined balance sheets. A certain
amount of seed and seedling stock is sold to unaffiliated customers and is
reflected as a component of by-products and other revenues in the accompanying
combined statements of operations.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions and betterments
to buildings and equipment are capitalized as expended. Maintenance and
repairs are expensed as incurred. Depreciation is provided over the useful
lives of the assets on the straight-line method. Estimated useful lives for
buildings and land improvements is 40 years and equipment ranges from 3 to 5
years.
Deferred Financing Fees
Deferred financing fees consist of fees incurred in connection with
obtaining the related debt financing. The Company amortizes deferred financing
fees over the terms of the related debt which approximates the effective
interest method.
Income Taxes
USTK and Services are both limited liability companies (L.L.C.'s) and,
accordingly, are not liable for federal or state income taxes since the
L.L.C.'s income or loss is reported on the separate tax returns of the
members. Accordingly, no provision for current or deferred income taxes has
been reflected in the accompanying combined financial statements.
Interest Rate Collar Agreement
The Company entered into an interest rate collar agreement to reduce the
impact of changes in interest rates on its variable rate debt. The initial
cost of the interest rate collar agreement is recorded in deferred financing
fees in the accompanying combined balance sheets and is amortized over the
life of the agreement.
The Company does not utilize financial instruments for trading or other
speculative purposes. The counterparty to these contractual arrangements is a
major financial institution.
Fair Value of Financial Instruments
All of the Company's material financial instruments, except for the interest
rate collar agreement, are recognized in its combined balance sheets. The
carrying values generally approximate fair market value for these financial
assets and liabilities. Descriptions of the methods and assumptions used to
reach this conclusion are as follows:
Debt--The Company's debt includes interest rates that are tied to current
credit markets. Therefore, the recorded value for the debt approximates
fair value.
F-19
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Interest Rate Collar Agreement--The fair value of the interest rate
collar agreement is the estimated amount that the Company would receive or
pay upon termination of the agreement, taking into account the current
credit worthiness of the counterparty. As of December 31, 1996, the Company
estimates it would have paid $716 to terminate the agreement.
3. WEYERHAEUSER ACQUISITION:
The total purchase price for the Weyerhaeuser Acquisition referred to in
Note 1 was $283,464, including direct costs of the acquisition. The
Weyerhaeuser Acquisition was accounted for as a purchase with the purchase
price allocated first to current assets acquired, principally inventory, and
the remaining balance being allocated to noncurrent assets acquired, primarily
timber, timberlands and logging roads based on the relative fair market values
of the noncurrent assets as determined by an appraisal. Concurrent with the
Weyerhaeuser Acquisition, the Company changed to the use of outside
contractors for all of its logging operations. Accordingly, logging equipment
acquired was recorded at its estimated resale value.
Pro forma results of operations for the period ended December 31, 1996 had
the Weyerhaeuser Acquisition occurred on January 1, 1996 are as follows:
<TABLE>
<CAPTION>
1996
-----------
(UNAUDITED)
<S> <C>
Revenues.................................................... $ 29,597
Net loss.................................................... (25,845)
4. INVENTORIES:
The Company's inventories consist of the following:
U.S.
PREDECESSOR TIMBERLANDS
----------------- -----------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Logs.................................................................................... $1,703 $78
Other................................................................................... 143 --
------ ---
$1,846 $78
====== ===
5. ACCRUED LIABILITIES:
The Company's accrued liabilities consist of the following:
U.S.
PREDECESSOR TIMBERLANDS
----------------- -----------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Interest................................................................................ $ -- $5,254
Debt guarantee fee...................................................................... -- 1,100
Workers' compensation................................................................... 565 --
Severance and harvest tax............................................................... 290 230
Employee compensation................................................................... 192 81
Other................................................................................... 184 573
------ ------
$1,231 $7,238
====== ======
</TABLE>
F-20
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
U.S.
PREDECESSOR TIMBERLANDS
----------------- -----------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Holdings--Term loan, due September
1999.................................. $ -- $130,000
USTK--Borrowings under revolving credit
facility.............................. -- 90,000
USTK--Term loan payable quarterly, due
August 2002........................... -- 85,000
----- --------
$ -- $305,000
===== ========
</TABLE>
On August 29, 1996, Holdings entered into a $130,000 term loan with ABN-AMRO
Bank, N.V. and Deutsche Bank AG. The term loan's interest rate is variable and
fluctuates based on movements in the one-month LIBOR plus .50%. As of December
31, 1996, the term loan's interest rate equaled 6.11%. The term loan is
guaranteed by Weyerhaeuser Company. John M. Rudey, controlling shareholder of
the Company, and one of his affiliates have pledged their interests in
Holdings to Weyerhaeuser (the Pledge Agreement) for their obligations under
the guarantee if certain covenants and restrictions, as defined in the Pledge
Agreement, are not adhered to. As part of the Pledge Agreement, Holdings is
required to pay a guarantee fee to Weyerhaeuser based on a percentage of the
term loan balance outstanding. This fee increases from 1.74% to 2.75% if the
term loan is not fully repaid by August 31, 1997 and to 3.00% if not fully
repaid by February 28, 1998. This guarantee fee is being accreted as an
expense in the accompanying combined statements of operations based on an
estimated September 1997 refinancing date. Also, as part of the Pledge
Agreement, if the term loan accrues interest beyond December 30, 1997, the
Company must immediately begin acceleration of its timber harvest plans and
timberland sales. Such acceleration does not necessarily accelerate the
repayment of the Holdings' debt.
On October 18, 1996, the Company entered into an interest rate collar
agreement which effectively sets maximum and minimum interest rates on $87,500
of notional principal amount on the USTK borrowings ranging from a floor (the
rate the Company would pay even if rates fall below that level) to a maximum
during the three-year period ended October 18, 1999. The floor and maximum
rates were 7.3% and 9.0%, as of December 31, 1996.
Debt Refinancing Subsequent to Year-End
On July 14, 1997, USTK entered into a long-term financing arrangement (the
Credit Agreement) with certain banks to finance the Ochoco Acquisition
discussed in Note 9 and to refinance borrowings under the USTK revolving
credit facility and USTK term loan. The retirement of debt under existing
credit facilities will result in an extraordinary loss on extinguishment of
debt of approximately $3,600 due to the writeoff of existing unamortized
deferred financing fees and other related fees. This writeoff will be recorded
in the Company's third quarter 1997 financial statements. There were no other
gains or losses incurred in connection with this refinancing.
The Credit Agreement provides the Company an $85,000 revolving credit
facility, of which $85,000 was drawn on July 15, 1997, as well as a term loan
of $200,000. Borrowings under the new revolving credit facility are generally
limited to 50% of the value of the Company's timber, as defined in the Credit
Agreement. The revolving credit facility and the term loan both have variable
interest rates. The interest rate is calculated based on USTK's performance
against certain established leverage ratios. At the date of the Credit
Agreement, the interest rates on both the revolving credit facility and the
term loan were equal to LIBOR plus 2.25% (7.9%). Each of the loans is
collateralized by substantially all of USTK's assets and Services' members'
interests. The revolving credit facility matures on September 15, 2004. The
term loan is subject to mandatory prepayment in the event that timber and
timberland dispositions, which are not reinvested in other timber and
timberlands,
F-21
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
exceed $30,000 in the aggregate subsequent to July 15, 1997. Based on the
Company's projected operating plan, management does not believe any mandatory
prepayments will be required in 1997.
The Credit Agreement requires USTK and Services, on a combined basis, to
maintain certain financial covenants, including the maintenance of minimum
quarterly cash flows, maximum leverage and debt to asset value ratios, and
minimum fixed charge coverage ratios, and certain other restrictions as
defined in the Credit Agreement.
In accordance with the Credit Agreement, debt is scheduled to mature as
follows:
<TABLE>
<S> <C>
1997........................................................... $ --
1998........................................................... 20,000
1999........................................................... 25,000
2000........................................................... 25,000
2001........................................................... 30,000
Thereafter..................................................... 205,000
--------
$305,000
========
</TABLE>
7. MEMBERS' DEFICIT AND RELATED PARTY TRANSACTIONS:
Members' Deficit
The liability of the individual members of USTK and Services is limited to
the balances of their respective members' accounts.
The members and their respective ownership percentages are as follows:
<TABLE>
<CAPTION>
USTK SERVICES
---- --------
<S> <C> <C>
Holdings (100% owned by Rudey Timber Company L.L.C. and
affiliates)................................................ 99% -- %
Rudey Timber Company L.L.C. (100% owned by John M. Rudey and
affiliates)................................................ 1 --
John M. Rudey, Chairman..................................... -- 82.5
John J. Stephens, CEO and President......................... -- 10.0
George R. Hornig............................................ -- 7.5
--- ----
100% 100%
=== ====
</TABLE>
Related Party Transactions
In connection with the Weyerhaeuser Acquisition, the Company paid a fee of
$4,135 to Timberlands Management Group (TMG), an entity 100% owned and
controlled by Rudey Timber Company L.L.C., and a fee of $400 each to John M.
Rudey and John J. Stephens. In addition, during the period from August 30,
1996 to December 31, 1996, the Company paid TMG management fees of $2,800.
These payments have been recorded in selling, general and administrative
expenses in the accompanying combined statement of operations.
Receivable from Affiliate
During the period from August 30, 1996 through December 31, 1996, the
Company paid $10,000 to TMG. The receivable and the related interest were
repaid in February 1997 and, accordingly, have been recorded as a current
asset in the accompanying combined balance sheet as of December 31, 1996.
F-22
<PAGE>
U.S. TIMBERLANDS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS:
On August 30, 1996, the Company entered into a wood supply agreement with
Collins to supply a volume of approximately 34 million board feet of
merchantable timber to the customer at market prices. The term of the
agreement is ten years and is renewable for two additional terms of five
years, each at the option of Collins.
9. SUBSEQUENT EVENTS:
Ochoco Acquisition
On July 15, 1997, USTK acquired approximately 42,000 acres of timber and
timberlands and approximately 3,000 acres of timber cutting rights from Ochoco
Lumber Company L.P. for $110,873 (the Ochoco Acquisition). Substantially all
of the purchase price will be allocated to timber, timberlands and logging
roads. The acquisition was principally financed through $110,000 of debt
financing. See Note 6 for further discussion of the terms of the debt.
Planned MLP Common Units Offering
On July 26, 1997, the members of the Company formed a master limited
partnership (MLP) for the purpose of issuing Common Units representing limited
partner interests in a public offering (the Common Units Offering). The
expected aggregate gross proceeds from the Common Units Offering are
approximately $156,632. In addition, the Company intends that the MLP's
operating subsidiary, USTK (the Operating Company), issue $225,000 of senior
unsecured notes in a public offering (the Notes). The Company also intends
that the Operating Company will enter into a $25,000 working capital facility
and a $75,000 acquisition facility (the Acquisition Facility). The Company
intends to use the proceeds from the Common Unit Offering, the Notes, and a
drawdown of approximately $42,000 on the Acquisition Facility to repay
existing indebtedness of the Company including debt associated with the Ochoco
Acquisition and related debt financing discussed in Note 6. Also, pursuant to
an agreement dated July 29, 1997, in connection with the Common Units
Offering, John Stephens' interest in Old Services will be redeemed for $1.0
million, payable in January 1998, and 95,238 Subordinated Units. Similarly,
George Hornig's interest in Old Services will be redeemed for 50,040
Subordinated Units.
In connection with the MLP's Common Units Offering and related formation of
New Services, L.L.C., the general partner of the MLP and the managing member
of the Operating Company (the General Partner), the General Partner intends to
issue income interests in the General Partner to certain officers and
directors of the General Partner at no cost. Such income interests will
participate pro rata in cash distributions from the MLP and the Operating
Company. In addition, under certain circumstances, if these officers or
directors terminate their employment, the General Partner is required to
repurchase their income interests at fair market value as determined by
independent appraisal. The fair value of these income interests will be
recorded as compensation expense in the Company's post-Common Units Offering
financial statements with a corresponding increase to contributed capital.
U.S. Timberlands Finance Corp.
On August 20, 1997, U.S. Timberlands Finance Corp. (Finance Corp.), a wholly
owned subsidiary of the Operating Company was formed. The Operating Company
and Finance Corp. intend to offer, jointly and severally, $225,000 aggregate
principal amount of Senior Notes due 2007 (the Notes). The Operating Company
and Finance Corp. will each serve as co-obligors of the Notes.
F-23
<PAGE>
U.S. TIMBERLANDS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR U.S. TIMBERLANDS
--------------- -----------------------------
JANUARY 1, 1996 AUGUST 30, 1996 NINE MONTHS
THROUGH THROUGH ENDED
AUGUST 29, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
--------------- --------------- -------------
(a) (a)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Log and stumpage sales .................................................. $14,077 $ 1,916 $ 36,819
Timber and property sales................................................ -- -- 3,494
By-products and other.................................................... 1,501 -- 744
------- -------- --------
Total revenues......................................................... 15,578 1,916 41,057
OPERATING COSTS:
Cost of products sold.................................................... 9,225 1,404 12,101
Cost of timber and property sales........................................ -- -- 1,191
Depreciation, depletion and road amortization............................ 927 240 10,758
Selling, general and administrative expenses............................. 2,730 8,040 4,300
------- -------- --------
Operating income (loss) ............................................... 2,696 (7,768) 12,707
INTEREST EXPENSE........................................................... -- 1,927 17,818
AMORTIZATION OF DEFERRED FINANCING FEES AND DEBT GUARANTEE FEES............ -- 330 2,954
INTEREST INCOME............................................................ -- -- (1,192)
OTHER EXPENSE (INCOME), net................................................ 1 (12) (48)
------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................................... 2,695 (10,013) (6,825)
EXTRAORDINARY ITEM--loss on extinguishment of debt......................... -- -- (3,571)
------- -------- --------
NET INCOME (LOSS).......................................................... $ 2,695 $(10,013) $(10,396)
======= ======== ========
</TABLE>
- --------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the combined
statements of operations for the period from August 30, 1996 through
September 30, 1996 and the nine months ended September 30, 1997 are not
comparable to the statement of operations of the Predecessor. See the
accompanying notes for additional information.
The accompanying notes are an integral part of these combined statements.
F-24
<PAGE>
U.S. TIMBERLANDS
COMBINED STATEMENT OF CHANGES IN MEMBERS' DEFICIT
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. TIMBERLANDS U.S. TIMBERLANDS
KLAMATH FALLS, SERVICES U.S. TIMBERLANDS
L.L.C. COMPANY, L.L.C. (COMBINED)
---------------- ---------------- ----------------
TOTAL MEMBERS'
MEMBERS' DEFICIT MEMBERS' DEFICIT DEFICIT
---------------- ---------------- ----------------
<S> <C> <C> <C>
BALANCE, December 31,
1996...................... $ (1,809) $(1,127) $ (2,936)
Member's distribution.... -- (1,191) (1,191)
Net loss................. (8,343) (2,053) (10,396)
-------- ------- --------
BALANCE, September 30,
1997...................... $(10,152) $(4,371) $(14,523)
======== ======= ========
</TABLE>
The accompanying notes are an integral part of this combined statement.
F-25
<PAGE>
U.S. TIMBERLANDS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
U.S.
PREDECESSOR TIMBERLANDS
----------- -------------
JANUARY 1,
1996 AUGUST 30, NINE MONTHS
THROUGH 1996 THROUGH ENDED
AUGUST 29, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
----------- ------------- -------------
(a) (a)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $2,695 $(10,013) $(10,396)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities--
Depreciation, depletion,
amortization and cost of timber
and property sold................. 927 295 12,503
Loss on sale of property, plant and
equipment......................... 6 -- --
Write-off of deferred financing
fees.............................. -- -- 3,452
Changes in operating accounts--
Accounts receivable................ 699 (1,797) (5,254)
Inventories........................ 1,348 734 78
Prepaid expenses................... 371 (414) 564
Accounts payable................... (292) 633 10
Accrued interest and debt guarantee
fees.............................. -- 1,951 6,877
Other accrued liabilities.......... (242) 5,927 894
Interest receivable from
affiliate......................... -- (30) 121
Deferred revenue................... -- -- 842
------ -------- --------
Net cash provided by (used in)
operating activities............ 5,512 (2,714) 9,691
CASH FLOWS FROM INVESTING ACTIVITIES:
Weyerhaeuser Acquisition............. -- (283,464) --
Receivable from affiliate............ -- (10,000) 10,000
Purchase of property, plant and
equipment........................... (6) (85) (290)
Proceeds from sale of logging
equipment........................... -- 8 400
Ochoco Acquisition................... -- -- (110,873)
Advances from affiliate.............. -- 1,200 3,000
Prepayment of advance from affiliate
.................................... -- -- (3,000)
Timber and road additions............ (26) (12) (371)
Capitalized seed orchard and nursery
costs............................... (427) (43) (137)
------ -------- --------
Net cash used in investing
activities...................... (459) (292,396) (101,271)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings................. -- 305,000 285,000
Repayment of long-term borrowings.... -- -- (177,000)
Deferred financing fees.............. -- (3,928) (5,970)
Members' contributions............... -- 10,100 --
Distribution to member............... -- -- (1,191)
Deferred Common Units offering
costs............................... -- -- (1,840)
Weyerhaeuser investment and advances,
net................................. (5,054) -- --
------ -------- --------
Net cash provided by (used in)
financing activities............ (5,054) 311,172 98,999
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... (1) 16,062 7,419
CASH AND CASH EQUIVALENTS, beginning of
period................................ 1 -- 16,613
------ -------- --------
CASH AND CASH EQUIVALENTS, end of
period................................ $ -- $ 16,062 $ 24,032
====== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............... $ -- $ 251 $ 13,141
NONCASH ACTIVITIES:
Net asset transfers to Weyerhaeuser
Company, principally property, plant
and equipment....................... $1,043 $ -- $ --
</TABLE>
- --------
(a) Due to the Weyerhaeuser Acquisition on August 30, 1996, the combined
statements of cash flows for the period from August 30, 1996 through
September 30, 1996 and the nine months ended September 30, 1997 are not
comparable to the statement of cash flows of the Predecessor. See the
accompanying notes for additional information.
The accompanying notes are an integral part of these combined statements.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Timberlands Finance Corp.:
We have audited the accompanying balance sheet of U.S. Timberlands Finance
Corp. (Finance Corp.), a wholly owned subsidiary of U.S. Timberlands Klamath
Falls, L.L.C., as of October 17, 1997. This statement is the responsibility of
the Finance Corp.'s management. Our responsibility is to express an opinion on
this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Finance Corp., as of October 17,
1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
October 17, 1997
F-27
<PAGE>
U.S. TIMBERLANDS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.)
BALANCE SHEET
OCTOBER 17, 1997
<TABLE>
<S> <C>
ASSETS
CASH................................................................... $1,000
------
Total Assets......................................................... $1,000
======
STOCKHOLDER'S EQUITY
COMMON STOCK, $.01 par value, 1,000 shares authorized, issued and
outstanding........................................................... $ 10
ADDITIONAL PAID-IN CAPITAL............................................. 990
------
Total stockholder's equity........................................... $1,000
======
</TABLE>
The accompanying note is an integral part of this balance sheet.
F-28
<PAGE>
U.S. TIMBERLANDS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.)
NOTE TO BALANCE SHEET
OCTOBER 17, 1997
1. FINANCE CORP.:
U.S. Timberlands Finance Corp. (Finance Corp.), a Delaware corporation, was
formed on August 20, 1997 and is a wholly owned subsidiary of U.S. Timberlands
Klamath Falls, L.L.C. (USTK). USTK is a subsidiary of U.S. Timberlands
Company, L.P. (the MLP), a limited partnership that was formed to acquire
substantially all of the equity interests in USTK and to acquire, own and
operate the business and assets of U.S. Timberlands Services Company, L.L.C.,
which are Delaware limited liability companies engaged in the harvest and sale
of timber to third-party wood processors.
Finance Corp. and USTK intend to offer, jointly and severally, $225,000,000
aggregate principal amount of Senior Notes due 2007 (the Notes). Finance Corp.
and USTK will each serve as co-obligors for the Notes.
The MLP contributed $1,000 on August 26, 1997 for 1,000 shares of common
stock, par value $.01 per share, of Finance Corp. On October 17, 1997, all
such shares were contributed by the MLP to USTK. There have been no other
transactions involving Finance Corp. as of October 17, 1997.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Services, L.L.C.:
We have audited the accompanying balance sheet of New Services, L.L.C. (the
Company) as of July 29, 1997. This statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Company, as of July 29, 1997
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
July 29, 1997
F-30
<PAGE>
NEW SERVICES, L.L.C.
BALANCE SHEET
JULY 29, 1997
<TABLE>
<S> <C>
ASSETS
CASH.................................................................... $ 990
INVESTMENT IN U.S. TIMBERLANDS COMPANY, L.P............................. 10
------
$1,000
======
MEMBERS' EQUITY
MEMBERS' EQUITY......................................................... $1,000
------
Total members' equity................................................. $1,000
======
</TABLE>
The accompanying note is an integral part of this balance sheet.
F-31
<PAGE>
NEW SERVICES, L.L.C.
NOTE TO BALANCE SHEET
JULY 29, 1997
1. NATURE OF OPERATIONS:
New Services, L.L.C. is a Delaware limited liability company that was formed
June 24, 1997 to become the general partner of U.S. Timberlands Company, L.P.
(the MLP) and the managing member of U.S. Timberlands Klamath Falls, L.L.C.
(USTK). The MLP is a limited partnership that was formed to acquire
substantially all of the equity interests in USTK and to acquire, own and
operate the business and assets of U.S. Timberlands Services Company, L.L.C.
(Old Services), which are Delaware limited liability companies engaged in the
harvest and sale of timber to third-party wood processors. Upon completion of
the MLP's acquisition of USTK and Old Services, New Services, L.L.C. will be
renamed U.S. Timberland Services Company L.L.C., the successor entity to Old
Services.
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Timberlands Company, L.P.:
We have audited the accompanying balance sheet of U.S. Timberlands Company,
L.P. (the MLP) as of July 29, 1997. This statement is the responsibility of
the MLP's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of U.S. Timberlands Company, L.P. as
of July 29, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
July 29, 1997
F-33
<PAGE>
U.S. TIMBERLANDS COMPANY, L.P.
BALANCE SHEET
JULY 29, 1997
<TABLE>
<S> <C>
ASSET
-----
CURRENT ASSET:
Cash................................................................... $1,000
======
PARTNERS' EQUITY
----------------
LIMITED PARTNER'S EQUITY................................................. $ 990
GENERAL PARTNER'S EQUITY................................................. 10
------
Total partners' equity............................................... $1,000
======
</TABLE>
The accompanying note is an integral part of this balance sheet.
F-34
<PAGE>
U.S. TIMBERLANDS COMPANY, L.P.
NOTE TO BALANCE SHEET
JULY 29, 1997
1. THE COMPANY:
U.S. Timberlands Company, L.P. (the MLP) is a Delaware limited partnership
that was formed on June 27, 1997 to acquire substantially all of the equity
interests in U.S. Timberlands Klamath Falls, L.L.C. and to own and operate the
business and assets of U.S. Timberlands Services Company, L.L.C. (Old
Services), which are Delaware limited liability companies engaged in the
harvest and sale of timber to third-party wood processors. The MLP's general
partner is New Services, L.L.C., which will be renamed U.S. Timberlands
Services Company, L.L.C. upon the consummation of the initial public offering
of the MLP.
F-35
<PAGE>
APPENDIX A
GLOSSARY OF CERTAIN TERMS
Acquisition Facility: A $75.0 million revolving credit facility entered into
by the Company to be used for acquisitions and improvements.
Adjusted Operating Surplus: With respect to any period, Operating Surplus
generated during such period (a) less (i) any net increase in working capital
borrowings during such period and (ii) any net reduction in cash reserves for
Operating Expenditures during such period not relating to an Operating
Expenditure made during such period, and (b) plus (i) any net decrease in
working capital borrowings during such period and (ii) any net increase in
cash reserves for Operating Expenditures during such period required by any
debt instrument for the repayment of principal, interest or premium. Adjusted
Operating Surplus does not include that portion of Operating Surplus included
in clause (a)(i) of the definition of Operating Surplus.
Available Cash: With respect to any quarter prior to liquidation:
(a) the sum of (i) all cash and cash equivalents of the Partnership Group
on hand at the end of such quarter and (ii) all additional cash and cash
equivalents of the Partnership Group on hand on the date of determination
of Available Cash with respect to such quarter resulting from borrowings
for working capital purposes made subsequent to the end of such quarter,
less
(b) the amount of any cash reserves that is necessary or appropriate in
the reasonable discretion of the Manager to (i) provide for the proper
conduct of the business of the Partnership Group (including reserves for
future capital expenditures and for anticipated future credit needs of the
Partnership Group) subsequent to such quarter, (ii) comply with applicable
law or any loan agreement, security agreement, mortgage, debt instrument or
other agreement or obligation to which any member of the Partnership Group
is a party or by which it is bound or its assets are subject, or (iii)
provide funds for distributions under the MLP Partnership Agreement in
respect of any one or more of the next four quarters; provided, however,
that the Manager may not establish cash reserves pursuant to (iii) above if
the effect of such reserves would be that the Master Partnership is unable
to distribute the Minimum Quarterly Distribution on all Common Units with
respect to such quarter; and, provided further, that disbursements made by
a Partnership Group member or cash reserves established, increased or
reduced after the end of such quarter but on or before the date of
determination of Available Cash with respect to such quarter shall be
deemed to have been made, established, increased or reduced for purposes of
determining Available Cash within such quarter if the Manager so
determines. Notwithstanding the foregoing, "Available Cash" with respect to
the quarter in which the liquidation of the Company occurs and any
subsequent quarter shall equal zero.
Bank Credit Facility: The $75.0 million Acquisition Facility and the $25.0
million Working Capital Facility both entered into by the Company.
BBF: One billion board feet.
BDT: Bone Dry Ton; a ton of residuals of lumber manufacturing that is free
of moisture.
BLM: The U.S. Department of Interior Bureau of Land Management.
Board Foot (BF): A unit of lumber measurement 1 foot square and 1 inch
thick.
CERCLA and Superfund: Refer generally to the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended.
A-1
<PAGE>
Chips: Wood generated either in a whole log chip mill or as a by-product of
the manufacture of lumber and plywood and used in the manufacture of pulp and
paper and various composite panel products such as medium density fiberboard,
particle board and oriented strand board.
Closing Date: The first date on which Notes are sold by the Issuers to the
Underwriters pursuant to the provisions of the Underwriting Agreement.
Code: Internal Revenue Code of 1986, as amended.
Collins: Collins Products LLC.
Collins Supply Agreement: The 10-year log supply agreement that the Company
has entered into with Collins.
Commission: United States Securities and Exchange Commission.
Common Unit Arrearage: The amount by which the Minimum Quarterly
Distribution in respect of a quarter during the Subordination Period exceeds
the distribution of Available Cash from Operating Surplus actually made for
such quarter on a Common Unit, cumulative for such quarter and all prior
quarters during the Subordination Period.
Common Units: A Unit representing a fractional part of the partnership
interests of all limited partners and assignees and having the rights and
obligations specified with respect to Common Units in the MLP Partnership
Agreement.
Company: U.S. Timberlands Klamath Falls, L.L.C., a Delaware limited
liability company, and any successors thereto.
Compensation Committee: A committee of the board of directors of the Manager
which will initially consist of five directors, including two independent
directors, which will determine the compensation of the officers of the
Manager and administer its employee benefit plans.
Conflicts Committee: A committee of the board of directors of the Manager
composed entirely of two or more directors who are neither officers, employees
or security holders of the Manager nor officers, directors, employees or
security holders of any affiliate of the Manager.
Contribution Agreement: The Contribution, Conveyance and Assumption
Agreement to be dated the closing date of the MLP Offering among the Manager,
the Company, the Master Partnership and certain other parties governing the
Transactions pursuant to which, among other things, the assets and operations
of the Company will be transferred and the liabilities will be assumed.
Cutting Contract or Stumpage Contract: An agreement whereby a third party
purchases the right to harvest trees from a given tract of land within a given
time period, and title to the standing trees passes at the time of such
harvest. Total payment under such an agreement is tied to volume removed.
DBH: "Diameter at breast height," a term frequently used to describe a tree
measurement taken 4 1/2 feet above ground level.
DD&A: Depreciation, depletion and road amortization.
Departing Manager: A former managing member of the Company from and after
the effective date of any withdrawal or removal of such former managing member
pursuant to the Operating Company Agreement.
A-2
<PAGE>
EBITDDA: Operating income plus depreciation, depletion and amortization and
cost of timber and property sales. EBITDDA should not be considered as an
alternative to net income, operating income, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles. EBITDDA is not
intended to represent cash flow and does not represent the measure of cash
available for distribution, but provides additional information for evaluating
the Company's ability to service its indebtedness.
ERISA: Employee Retirement Income Security Act of 1974, as amended.
Exchange Act: Securities Exchange Act of 1934, as amended.
Fee Timber: Timber which is located on property owned in fee, as opposed to
timber that is located on lands owned by other parties and is acquired
pursuant to cutting contracts.
Finance Corp.: U.S. Timberlands Finance Corp., a wholly-owned subsidiary of
the Company.
GIS: The Company's computerized geographic information system.
Holdings: U.S. Timberlands Holdings, L.L.C., a Delaware limited liability
company.
Holdings Debt: The $130.0 million of bank indebtedness incurred by Holdings
in connection with the Company's acquisition of the Klamath Falls Timberlands
in August 1996.
Incentive Distribution Right: A non-voting limited partner interest in the
Master Partnership issued to the Manager in connection with the transfer of
substantially all of its member interest in the Company to the Master
Partnership pursuant to the MLP Partnership Agreement which partnership
interest will confer upon the holder thereof only the rights and obligations
specifically provided in the MLP Partnership Agreement with respect to
Incentive Distribution Rights (and no other rights otherwise available to or
other obligations of holders of a partnership interest).
Incentive Distributions: The distributions of Available Cash from Operating
Surplus initially made to the Manager that are in excess of the Manager's
aggregate 2% general partner interest.
Indenture: The indenture pursuant to which the Notes will be issued, a form
of which has been filed as an exhibit to the registration statement of which
this Prospectus is a part.
Interim Capital Transactions: The following transactions if they occur prior
to liquidation: (a) borrowings, refinancings and refundings of indebtedness
and sales of debt securities (other than for working capital purposes and
other than for items purchased on open account in the ordinary course of
business) by any Partnership Group member; (b) sales of equity interests by
any Partnership Group member (other than Common Units sold to the underwriters
in the MLP Offering pursuant to the exercise of their over-allotment option);
and (c) sales or other voluntary or involuntary dispositions of any
Partnership assets of any Partnership Group member (other than (i) sales or
other dispositions of inventory, accounts receivable and other assets in the
ordinary course of business, including the exchange of timber or real property
for other timber or real property to the extent that the timber or real
property received in exchange is of equal or greater value, or the sale of
timber or real property, to the extent the proceeds are invested within 270
days in other timber or real property, and (ii) sales or other dispositions of
assets as a part of normal retirements or replacements), in each case prior to
the liquidation date. Notwithstanding anything herein to the contrary, Interim
Capital Transactions shall not include (A) the first $50.0 million in real
property (and related timber) sales made by the Partnership Group subsequent
to the closing date and (B) stumpage, timber deed and other bulk timber sales
(which, in the case of (A) and (B) would otherwise be deemed Interim Capital
Transactions) generally of the type described in the Master Partnership's
strategic plan approved by the Board of Directors of the Manager prior to the
closing date.
A-3
<PAGE>
Issuers: The Company together with Finance Corp.
Klamath Falls Timberlands: The approximately 600,000 fee acres of timberland
acquired by the Company and Old Services in August 1996 from Weyerhaeuser.
Logs: The stem of the tree after it has been felled. The raw material from
which lumber, plywood and other wood products are processed.
Long-Term Incentive Plan: The U.S. Timberlands Company, L.P. 1997 Long-Term
Incentive Plan.
MBF: One thousand board feet. A common unit of measure for pricing standing
timber as well as lumber.
MBG: Mason, Bruce & Girard, Inc., independent forest resource consultants.
MLP Offering: The initial public offering by the Master Partnership of
Common Units.
MLP Partnership Agreement: The Amended and Restated Agreement of Limited
Partnership of the Master Partnership, as it may be amended, restated or
supplemented from time to time.
MMBF: One million board feet.
Management Incentive Plan: The U.S. Timberlands Company, L.P. 1997
Management Incentive Plan.
Manager or General Partner or New Services: New Services, L.L.C., a Delaware
limited liability company, and its successors and permitted assigns as
managing member of the Company and general partner of the Master Partnership
Master Partnership: U.S. Timberlands Company, L.P., a Delaware limited
partnership, and any successors thereto.
Merchantable Timber: A tree that will produce a sound log 16 feet in length
and at least 5" in diameter, inside bark, at the small end. Timber may be
merchantable even if it has not reached its optimum sale value.
Minimum Quarterly Distribution: $0.50 per Unit with respect to each quarter
or $2.00 per Unit on an annualized basis, subject to adjustment.
Notes: The $225.0 million aggregate principal amount of % Senior Notes due
2007 offered hereby.
NYSE: New York Stock Exchange.
Ochoco: Ochoco Lumber Company.
Ochoco Acquisition: The acquisition of the Ochoco Timberlands by the Company
from Ochoco on July 15, 1997.
Ochoco Timberlands: The approximately 42,000 fee acres of timberland and
cutting rights on approximately 3,000 acres of timberland acquired by the
Company on July 15, 1997 from Ochoco.
Old Services: U.S. Timberlands Management Company, L.L.C., formerly known as
U.S. Timberlands Services Company, L.L.C., and any successors thereto.
Operating Company: U.S. Timberlands Klamath Falls, L.L.C., a Delaware
limited liability company, and any successors thereto.
A-4
<PAGE>
Operating Company Agreement: The Amended and Restated Operating Agreement of
the Company, as it may be amended, supplemented or restated from time to time.
Opinion of Counsel: A written opinion of counsel, acceptable to the Manager
in its reasonable discretion, to the effect that the taking of a particular
action will not result in the loss of the limited liability of the limited
partners of the Master Partnership or cause the Master Partnership to be
treated as an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes.
Operating Expenditures: All Partnership Group expenditures, including, but
not limited to, taxes, reimbursements of the, Manager debt service payments
and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal and premium on
indebtedness shall not be an Operating Expenditure if the payment is (i)
required in connection with the sale or other disposition of assets or (ii)
made in connection with the refinancing or refunding of indebtedness with
the proceeds from new indebtedness or from the sale of equity interests.
For purposes of the foregoing, at the election and in the reasonable
discretion of the Manager, any payment of principal or premium shall be
deemed to be refunded or refinanced by any indebtedness incurred or to be
incurred by the Partnership Group within 180 days before or after such
payment to the extent of the principal amount of such indebtedness.
(b) Operating Expenditures shall not include (i) capital expenditures
made for acquisitions or for capital improvements, (ii) payment of
transaction expenses relating to Interim Capital Transactions or (iii)
distributions to partners. Where capital expenditures are made in part for
acquisitions or capital improvements and in part for other purposes, the
Manager's good faith allocation between the amounts paid for each shall be
conclusive.
Operating Surplus: As to any period prior to liquidation, on a cumulative
basis and without duplication:
(a) the sum of (i) $15.0 million plus all cash and cash equivalents of
the Partnership Group on hand as of the close of business on the Closing
Date, (ii) all cash receipts of the Partnership Group for the period
beginning on the Closing Date and ending with the last day of such period,
other than cash receipts from Interim Capital Transactions and (iii) all
cash receipts of the Partnership Group after the end of such period but on
or before the date of determination of Operating Surplus with respect to
such period resulting from borrowings for working capital purposes, less
(b) the sum of (i) Operating Expenditures for the period beginning on the
Closing Date and ending with the last day of such period and (ii) the
amount of cash reserves that is necessary or advisable in the reasonable
discretion of the Manager to provide funds for future Operating
Expenditures, provided however, that disbursements made (including
contributions to a member of the Partnership Group or disbursements on
behalf of a member of the Partnership Group) or cash reserves established,
increased or reduced after the end of such period but on or before the date
of determination of Available Cash with respect to such period shall be
deemed to have been made, established, increased or reduced for purposes of
determining Operating Surplus, within such period if the Manager so
determines. Notwithstanding the foregoing, "Operating Surplus" with respect
to the quarter in which the liquidation occurs and any subsequent quarter
shall equal zero.
OSHA: Federal Occupational Safety and Health Act.
Partnership Group: The Company, the Master Partnership and any subsidiary of
either such entity, treated as a single consolidated entity.
Plantations: The 184,000 acres of the Timberlands which are actively managed
tree farms.
Predecessor: The southern Oregon timberlands operations of Weyerhaeuser
acquired by the Company in the Weyerhaeuser Acquisition.
A-5
<PAGE>
Registration Statement: The Registration Statement on Form S-1, as amended
(No. 333-34389), filed by the Company and Finance Corp. with the Commission,
relating to the Notes.
RROW: Reciprocal right-of-way.
Seedling: A young tree generally less than three years of age used as
planting stock for reforestation.
Securities Act: The Securities Act of 1933, as amended.
Silviculture: The practice of cultivating forest crops based on the
knowledge of forestry; more particularly, controlling the establishment,
composition and growth of forests.
Softwoods: Coniferous trees, usually evergreen and having needles or
scalelike leaves, such as Ponderosa pine, Douglas fir, white pine and spruce.
Stand: An area of trees possessing sufficient uniformity of age, size and
composition to be distinguished from adjacent areas so as to form a management
unit. The term is usually applied to forests of commercial value.
Stumpage: Standing timber (timber as it stands uncut in the woods).
Subordinated Unit: A Unit representing a fractional part of the partnership
interests of all limited partners of the Master Partnership and assignees
(other than of holders of the Incentive Distribution Rights) and having the
rights and obligations specified with respect to Subordinated Units in the MLP
Partnership Agreement. The term "Subordinated Unit" as used herein does not
include a Common Unit.
Subordination Period: The Subordination Period will generally extend from
the closing of this offering until the first to occur of: (a) the first day of
any quarter beginning after December 31, 2002 in respect of which (i)
distributions of Available Cash from Operating Surplus on each of the
outstanding Common Units and the Subordinated Units with respect to each of
the three consecutive, non-overlapping four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and Subordinated Units
during such periods, (ii) the Adjusted Operating Surplus generated during each
of the three consecutive, non-overlapping four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the Common Units and Subordinated Units that were
outstanding during such periods on a fully diluted basis (i.e, taking into
account for purposes of such determination all Outstanding Common Units, all
Outstanding Subordinated Units, all Common Units and Subordinated Units
issuable upon exercise of employee options that have, as of the date of
determination, already vested or are scheduled to vest prior to the end of the
quarter immediately following the quarter with respect to which such
determination is made, and all Common Units and Subordinated Units that have
as of the date of determination, been earned by but not yet issued to
management of the Master Partnership in respect of incentive compensation),
plus the related distribution on the general partner interest in the Master
Partnership and the managing member interest in the Company, and (iii) there
are no outstanding Common Unit Arrearages; and (b) the date on which the
Manager is removed as general partner of the Master Partnership upon the
requisite vote by holders of Outstanding Units under circumstances where Cause
does not exist and Units held by the Manager and its Affiliates are not voted
in favor of such removal. Prior to the end of the Subordination Period, a
portion of the Subordinated Units will convert into Common Units on a one-for-
one basis on the first day after the record date established by the Manager
for any quarter ending on or after (a) December 31, 2000 with respect to one-
quarter of the Subordinated Units (1,101,851 Subordinated Units) and (b)
December 31, 2001 with respect to an additional one-quarter of the
Subordinated Units (1,101,851 Subordinated Units), on a cumulative basis, in
respect of which (i) distributions of Available Cash from Operating Surplus on
the Common Units and the Subordinated Units with respect to each of the three
consecutive, non-overlapping four-quarter periods immediately preceding such
date equaled or exceeded the sum of the Minimum Quarterly Distribution on all
of the Common Units and Subordinated Units during such periods, (ii) the
Adjusted Operating Surplus generated during each of the two consecutive, non-
overlapping four-quarter periods immediately preceding such date equaled or
exceeded the sum of the Minimum Quarterly Distribution on all of the Common
Units and Subordinated Units that were outstanding during such periods on a
fully diluted basis (i.e, taking into account for purposes of such
determination all Outstanding Common Units, all Outstanding Subordinated
Units,
A-6
<PAGE>
all Common Units and Subordinated Units issuable upon exercise of employee
options that have, as of the date of determination, already vested or are
scheduled to vest prior to the end of the quarter immediately following the
quarter with respect to which such determination is made, and all Common Units
and Subordinated Units that have as of the date of determination, been earned
by but not yet issued to management of the Master Partnership in respect of
incentive compensation), plus the related distribution on the general partner
interest in the Master Partnership and the managing member interest in the
Company, and (iii) there are no outstanding Common Unit Arrearages; provided,
however, that the early conversion of the second quarter of Subordinated Units
may not occur until at least one year following the early conversion of the
first quarter of Subordinated Units. In addition, if the Manager is removed as
general partner of the Master Partnership under circumstances where Cause does
not exist and Units held by the Manager and its affiliates are not voted in
favor of such removal (i) the Subordination Period will end and all
outstanding Subordinated Units will immediately and automatically convert into
Common Units on a one-for-one basis, (ii) any existing Common Unit Arrearages
will be extinguished and (iii) the Manager will have the right to convert
their combined 2% interest in the Master Partnership and the Company (and all
the rights to the Incentive Distribution) into Common Units or to receive cash
in exchange for such interests.
Target Distribution Levels: See "The Partnership Agreement--Cash
Distributions."
Thinning: Removal of selected trees, usually to eliminate overcrowding, to
remove dead, dying, deformed or diseased trees and to promote more rapid
growth of desired trees. "Pre-commercial thinning" refers to thinning that
does not directly produce merchantable timber. "Commercial thinning" results
directly in merchantable timber.
Timber: Standing trees not yet harvested.
Timberlands: The timber properties of the Company.
TMG: U.S. Timberlands Management Group, L.L.C., an entity 100% owned and
controlled by Rudey Timber Company L.L.C.
Transactions: The transactions related to the formation of the Company and
the Master Partnership, the issuance of the Common Units, the issuance of the
Notes, the entering into of the Bank Credit Facility and the other
transactions to occur in connection with this offering and the MLP Offering.
Unitholders: Holders of the Common Units and the Subordinated Units,
collectively.
Unit Majority: During the Subordination Period, at least a majority of the
outstanding Common Units, voting as a class, and at least a majority of the
outstanding Subordinated Units, voting as a class and, thereafter, at least a
majority of the outstanding Units.
Units: The Common Units and the Subordinated Units, collectively, but not
including the right to receive Incentive Distributions.
USFS: United States Department of Agriculture--Forest Service.
USFWS: United States Fish and Wildlife Service.
USTK Debt: The $285.0 million of bank indebtedness incurred by the Company
in July 1997 to refinance indebtedness incurred in connection with the
acquisition of the Klamath Falls Timberlands and to finance the acquisition of
the Ochoco Timberlands.
Weyerhaeuser: Weyerhaeuser Company.
Weyerhaeuser Acquisition: The acquisition by the Company and Old Services in
August 1996 of the Klamath Falls Timberlands from Weyerhaeuser.
Working Capital Facility: A $25.0 million revolving credit facility entered
into by the Company to be used for working capital purposes.
A-7
<PAGE>
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- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Forward-Looking Statements............................................... 15
Risk Factors............................................................. 15
The Transactions......................................................... 20
Use of Proceeds.......................................................... 21
Capitalization........................................................... 22
Selected Historical and Pro Forma Financial and Operating Data........... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business and Properties.................................................. 34
Management............................................................... 46
Security Ownership of Certain Beneficial Owners and Management........... 53
Certain Relationships and Related Transactions........................... 54
The Operating Company Agreement.......................................... 55
Description of Bank Credit Facility...................................... 57
Description of Notes..................................................... 58
ERISA Considerations..................................................... 87
Underwriting............................................................. 88
Validity of the Notes.................................................... 89
Experts.................................................................. 89
Available Information.................................................... 90
Index to Financial Statements............................................ F-1
Glossary of Certain Terms................................................ A-1
</TABLE>
-----------
Until , 1997 (25 calendar days after the date of this Prospectus), all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addi-
tion to the obligation of dealers to deliver a Prospectus when acting as Un-
derwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$225,000,000
U.S. TIMBERLANDS
KLAMATH FALLS, L.L.C.
U.S. TIMBERLANDS
FINANCE CORP.
[LOGO OF U.S. TIMBERLANDS]
% SENIOR NOTES DUE 2007
-------
PROSPECTUS
, 1997
-------
SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
DEUTSCHE MORGAN GRENFELL
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee, the NASD filing fee and
the NYSE filing fee, the amounts set forth below are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 68,182
NASD filing fee................................................. 23,000
NYSE filing fee................................................. 11,250
Printing and engraving expenses................................. 225,000
Legal fees and expenses......................................... 275,000
Accounting fees and expenses.................................... 75,000
Other professional fees......................................... *
Trustee fees and expenses....................................... 21,000
Miscellaneous expenses.......................................... *
--------
Total....................................................... $ *
========
</TABLE>
- --------
* To be furnished by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Section of the Prospectus entitled "The Operating Company Agreement--
Indemnification" is incorporated herein by this reference.
Reference is made to Section 7 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement.
Subject to any terms, conditions or restrictions set forth in the Operating
Company Agreement, Section 18-108 of the Delaware Limited Liability Company
Act empowers a Delaware limited liability company to indemnify and hold
harmless any member or manager or other person from and against all claims and
demands whatsoever.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
There has been no sale of securities of the Company within the past three
years.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
a. Exhibits
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement
3.1 --Form of Amended and Restated Operating Agreement of U.S.
Timberlands Klamath Falls, L.L.C.
3.2 --Certificate of Incorporation of U.S. Timberlands Finance Corp.
3.3 --By-Laws of U.S. Timberlands Finance Corp.
4.1 --Form of Indenture among U.S. Timberlands Klamath Falls, L.L.C.,
U.S. Timberlands Finance Corp. and State Street Bank & Trust
Company, as trustee
5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered
*10.1 --Form of Credit Agreement among U.S. Timberlands Klamath Falls,
L.L.C. and certain banks
+10.2 --Form of Contribution, Conveyance and Assumption Agreement among
U.S. Timberlands Klamath Falls, L.L.C. and certain other parties
+10.3 --Form of U.S. Timberlands Company, L.P. 1997 Long-Term Incentive
Plan
+10.4 --Forms of Employment Agreement for Messrs. Rudey, Stephens, Kobacker
and Morgan
10.5 --Supply Agreement between U.S. Timberlands Klamath Falls, L.L.C. and
Collins Products LLC
12.1 --Statement re computation of ratio of earnings to fixed charges
21.1 --List of Subsidiaries
23.1 --Consent of Arthur Andersen LLP
**23.2 --Consent of Mason, Bruce & Girard, Inc.
23.3 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
**24.1 --Powers of Attorney
25.1 --Statement of Eligibility of Trustee
27.1 --Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
** Previously filed
+ Incorporated by reference to an exhibit to the Registration Statement on
Form S-1 (File No. 333-32811), as amended, of U.S. Timberlands Company, L.P.
b. Financial Statement Schedules
All financial statement schedules are omitted because the information is not
required, is not material or is otherwise included in the financial statements
or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), 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.
II-2
<PAGE>
The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be a part
of this Registration Statement as of the time it was declared
effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on November 6, 1997.
U.S. Timberlands Klamath Falls,
L.L.C.
By: New Services, L.L.C.*
As Manager
By: /s/ John M. Rudey
----------------------------------
Name: John M. Rudey
Title: Chairman
- --------
* Upon the consummation of this offering, New Services, L.L.C. will change
its name to "U.S. Timberlands Services Company, L.L.C."
II-4
<PAGE>
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND DATES INDICATED BELOW.
SIGNATURE TITLE DATE
/s/ John M. Rudey Chairman and
- ------------------------------------- Director November 6,
JOHN M. RUDEY 1997
* President, Chief
- ------------------------------------- Executive Officer November 6,
JOHN J. STEPHENS and Director 1997
* Executive Vice
- ------------------------------------- President, Chief November 6,
EDWARD J. KOBACKER Operating Officer 1997
and Director
* Vice President and
- ------------------------------------- Chief Financial November 6,
MICHAEL J. MORGAN Officer 1997
* Director
- ------------------------------------- November 6,
JOHN H. BEUTER 1997
* Director
- ------------------------------------- November 6,
AUBREY L. COLE 1997
* Director
- ------------------------------------- November 6,
GEORGE R. HORNIG 1997
* Director
- ------------------------------------- November 6,
ROBERT F. WRIGHT 1997
/s/ John M. Rudey
*By:_________________________________
JOHN M. RUDEY
ATTORNEY-IN-FACT
II-5
<PAGE>
U.S. TIMBERLANDS FINANCE CORP.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on November 6, 1997.
U.S. Timberlands Finance Corp.
By: /s/ John M. Rudey
----------------------------------
Name: John M. Rudey
Title: Chairman
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ John M. Rudey Chairman and
- ------------------------------------- Director November 6,
JOHN M. RUDEY 1997
* President and Chief
- ------------------------------------- Executive Officer November 6,
JOHN J. STEPHENS 1997
* Vice President,
- ------------------------------------- Secretary, Chief November 6,
MICHAEL J. MORGAN Financial Officer 1997
and Principal
Accounting Officer
/s/ John M. Rudey
*By:_________________________________
JOHN M. RUDEY
ATTORNEY-IN-FACT
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement
3.1 --Form of Amended and Restated Operating Agreement of U.S. Timberlands
Klamath Falls, L.L.C.
3.2 --Certificate of Incorporation of U.S. Timberlands Finance Corp.
3.3 --By-Laws of U.S. Timberlands Finance Corp.
4.1 --Form of Indenture among U.S. Timberlands Klamath Falls, L.L.C., U.S.
Timberlands Finance Corp. and State Street Bank and Trust Company, as
trustee
5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered
*10.1 --Form of Credit Agreement among U.S. Timberlands Klamath Falls, L.L.C.
and certain banks
+10.2 --Form of Contribution, Conveyance and Assumption Agreement among U.S.
Timberlands Klamath Falls, L.L.C. and certain other parties
+10.3 --Form of U.S. Timberlands Company, L.P. 1997 Long-Term Incentive Plan
+10.4 --Forms of Employment Agreement for Messrs. Rudey, Stephens, Kobacker
and Morgan
10.5 --Supply Agreement between U.S. Timberlands Klamath Falls, L.L.C. and
Collins Products LLC
12.1 --Statement re computation of ratio of earnings to fixed charges
21.1 --List of Subsidiaries
23.1 --Consent of Arthur Andersen LLP
**23.2 --Consent of Mason, Bruce & Girard, Inc.
23.3 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
**24.1 --Powers of Attorney
25.1 --Statement of Eligibility of Trustee
27.1 --Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
** Previously filed
+ Incorporated by reference to an exhibit to the Registration Statement on
Form S-1 (File No. 333-32811), as amended, of U.S. Timberlands Company,
L.P.
<PAGE>
Exhibit 1.1
DRAFT OF: 11/5/97
--------
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
U.S. TIMBERLANDS FINANCE CORP.
$225,000,000 ___% SENIOR NOTES DUE 2007
UNDERWRITING AGREEMENT
----------------------
November ____, 1997
SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
DEUTSCHE MORGAN GRENFELL INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
U.S. Timberlands Klamath Falls, L.L.C., a Delaware limited liability
company (the "Company"), and U.S. Timberlands Finance Corp., a Delaware
corporation and a wholly owned subsidiary of the Company ("Finance Corp." and,
together with the Company, the "Issuers"), propose to issue and sell (the
"Offering") $225,000,000 aggregate principal amount of their ___% Senior Notes
Due 2007 (the "Notes") to the several underwriters named in Schedule I hereto
(the "Underwriters"), upon the terms and conditions set forth in Section 2
hereof. The Notes will be issued pursuant to the provisions of an Indenture to
be dated as of November __, 1997 (the "Indenture"), among the Issuers and State
Street Bank & Trust Company, as Trustee (the "Trustee").
U.S. Timberlands Company, L.P., a Delaware limited partnership (the
"Partnership"), owns a 99% member interest in the Company. New Services,
L.L.C., a recently formed Delaware limited liability company (to be renamed
"U.S. Timberlands Services Company, L.L.C.") (the "Manager" and, together with
the Partnership and the Issuers, the "U.S. Timberlands Parties"), will serve as
the managing member of the Company and as the general partner of the
Partnership.
The member interests of U.S. Timberlands Services Company, L.L.C., a
Delaware limited liability company (to be renamed "U.S. Timberlands Management
Company, L.L.C.") ("Old Services") are held by Messrs. John Rudey ("Rudey"),
John Stephens ("Stephens") and George Hornig ("Hornig") in the amounts of 82.5%,
10% and 7.5%, respectively. The member interests of the Company are held 99% by
U.S. Timberlands Holdings, L.L.C., a Delaware limited liability company
("Holdings"), and 1% by Rudey Timber Company, L.L.C., a Delaware limited
liability company ("Rudey Timber Company"). The membership interests of
Holdings are owned 1% by Rudey and 99% by Rudey Timber Company. Rudey Timber
Company is wholly owned by Rudey
<PAGE>
through a 99% directly held member interest and a 1% member interest held by
Garrin Properties Holdings, Inc., a New York corporation wholly owned by Rudey
("Garrin Holdings").
Prior to or concurrently with the execution hereof, (a) the Partnership
will enter into an underwriting agreement (the "Equity Underwriting Agreement")
with the representatives of the several underwriters thereunder, providing for
the issuance and sale to such underwriters of 7,458,684 common units (the "Firm
Units") representing limited partner interests in the Partnership (the "Common
Units") (plus up to an additional 1,118,803 Common Units (the "Additional Units"
and, together with the Firm Units, the "Units") solely to cover over-
allotments)(the "Equity Offering") and (b) the Company will enter into a bank
credit agreement (the "Bank Credit Agreement") providing for a $25 million
working capital facility and a $75 million acquisition facility.
It is further understood and agreed by all parties that the following
transactions will occur on the Closing Date (as defined in Section 4): (i)
pursuant to a Contribution, Conveyance and Assumption Agreement (the
"Contribution Agreement"), Old Services will contribute substantially all of its
assets (the "Transferred Assets") to the Manager in exchange for an additional
member interest in the Manager; (ii) the Company will assume certain
indebtedness of Holdings, as described in the Registration Statement (as defined
in Section 1) (the "Holdings Debt"); (iii) the Manager will contribute the
portion of the Transferred Assets consisting of working capital and timber
operations to the Company in exchange for an additional member interest in the
Company; (iv) Rudey Timber Company will contribute its 1% member interest in the
Company to Holdings in exchange for an additional member interest in Holdings;
(v) the Manager will contribute all but 1.0101% of its member interest in the
Company to the Partnership in exchange for (A) the continuation of its 1%
general partner interest in the Partnership, (B) the Incentive Distribution
Rights (as defined in the Agreement of Limited Partnership of the Partnership
(as the same may be amended or restated at or prior to the Closing Date, the
"Partnership Agreement") between the Manager and Rudey, as organizational
limited partner (in such capacity, the "Organizational Limited Partner")), and
(C) 1,428,571 subordinated limited partner interests in the Partnership
("Subordinated Units"); (vi) Holdings will contribute all of its member interest
in the Company to the Partnership in exchange for 2,978,833 Subordinated Units;
(vii) the public offering of Firm Units contemplated by the Equity Underwriting
Agreement will be consummated; (viii) as a capital contribution, the Partnership
will contribute the net proceeds to the Partnership of the Equity Offering to
the Company; (ix) the public offering of Notes contemplated hereby will be
consummated; (x) the closing under the Bank Credit Agreement will occur; (xi)
the Company will use cash on hand, the proceeds to it from the Offering,
borrowings under the acquisition facility of the Bank Credit Agreement and the
net proceeds of the Equity Offering contributed to it by the Partnership to (A)
repay the Holdings Debt, (B) repay all indebtedness of the Company under the
Credit Agreement dated as of July 14, 1997 among the Company, Old Services and
certain financial institutions party thereto (the "Existing Credit Agreement")
and (C) pay the expenses of each of the Offering, the Equity Offering and other
expenses; (xii) the Manager will distribute the 1,428,571 Subordinated Units
held by it to Old Services; and (xiii) Old Services will redeem Stephen's
interest in Old Services in exchange for (A) 95,238 Subordinated Units and (B)
$1 million (the latter payable in January 1998) and will redeem Hornig's
interest in Old Services in exchange for 50,040 Subordinated Units.
-2-
<PAGE>
The transactions described above in clauses (i) through (xiii) are
collectively referred to as the "Transactions." In connection with the
consummation of the Transactions, the Partnership, the Company, the Manager, Old
Services and Holdings will enter into various bills of sale, conveyances, deeds
and other assignments (collectively with the Contribution Agreement, the
"Conveyance Agreements").
The Partnership, the Company, Finance Corp., the Manager, Old Services and
Holdings (the "U.S. Timberlands Entities") wish to confirm as follows their
agreement with you in connection with the several purchases of the Notes by the
Underwriters.
1. Registration Statement and Prospectus. The Issuers have prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (Commission File No.
333-34389-02) (the "registration statement"), including a prospectus subject to
completion relating to the Notes. The term "Registration Statement" as used in
this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Notes may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If it is contemplated,
at the time this Agreement is executed, that a registration statement or a post-
effective amendment will be filed pursuant to Rule 462(b) or Rule 462(d) under
the Act before the offering of the Notes may commence, the term "Registration
Statement" as used in this Agreement includes such registration statement. The
term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the preliminary
prospectus dated October 24, 1997 relating to the Notes as such preliminary
prospectus shall have been amended from time to time prior to the date of the
Prospectus.
2. Agreements to Sell and Purchase. The Issuers hereby agree, subject to
-------------------------------
all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the U.S. Timberlands Entities herein contained and subject to all
the terms and conditions set forth herein, each Underwriter agrees, severally
and not jointly, to purchase from the Issuers, at a purchase price of ___% of
the principal amount thereof, the principal amount of Notes set forth opposite
the name of such Underwriter in Schedule I hereto (or such principal amount of
Notes increased as set forth in Section 10 hereof).
-3-
<PAGE>
3. Terms of Public Offering. The Issuers have been advised by you that
------------------------
the Underwriters propose to make a public offering of their respective portions
of the Notes as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Notes upon the terms set forth in the Prospectus.
4. Delivery of the Notes and Payment Therefor. The Notes to be purchased
------------------------------------------
hereunder will be represented by one or more definitive global Notes in book-
entry form which will be deposited by or on behalf of the Issuers with The
Depository Trust Company ("DTC") or its designated custodian.
Delivery to the Underwriters of the Notes, against payment of the purchase
price therefor in federal (same day) funds, shall be made by causing DTC to
credit the Notes to the account or accounts designated by Smith Barney on behalf
of the Underwriters at DTC. The time and date of such delivery shall be 10:00
A.M., New York City time, on _______ __, 1997 (the "Closing Date"). The other
documents to be delivered at the Closing Date by or on behalf of the parties
hereto shall be delivered at such time and date at the offices of Baker & Botts,
L.L.P. , 599 Lexington Avenue, New York, New York 10022. The place of closing
for the Notes and the Closing Date may be varied by agreement between you and
the Issuers.
The global certificates representing the Notes to be delivered to the
Underwriters shall be made available to you at the office of DTC or its
custodian for inspection not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date.
5. Agreements of the U.S. Timberlands Entities. Each of the U.S.
-------------------------------------------
Timberlands Entities, jointly and severally, agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Notes may commence, the
Issuers and the Manager will endeavor to cause the Registration Statement or
such post-effective amendment to become effective as soon as possible and will
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective.
(b) The Issuers will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Notes for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the condition (financial or other), business, prospects,
properties, net worth or results of operations of the U.S. Timberlands Parties,
taken as a whole, or of the happening of any event which makes any statement of
a material fact made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue or which
-4-
<PAGE>
requires the making of any additions to or changes in the Registration Statement
or the Prospectus (as then amended or supplemented) in order to state a material
fact required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other applicable law. If at any time
the Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Issuers and the Manager will make every reasonable
effort to obtain the withdrawal of such order at the earliest possible time.
(c) The Issuers will furnish to you, without charge, (i) two EDGAR
versions of the registration statement as originally filed with the Commission
and of each amendment thereto, including financial statements and all exhibits
to the registration statement, (ii) two manually signed copies of the
registration statement corresponding to the EDGAR version filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement, (iii) such number of conformed copies of
the registration statement as originally filed and of each amendment thereto,
but without exhibits, as you or your counsel may request and (iv) such number of
copies of the Indenture as you may reasonably request.
(d) The Issuers will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you or your counsel shall
reasonably object in writing after being so advised or (ii) so long as, in the
opinion of counsel for the Underwriters, a Prospectus is required to be
delivered in connection with sales by any Underwriter or dealer, file any
information, documents or reports pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), without delivering a copy of such
information, documents or reports to you prior to or concurrently with such
filing.
(e) Prior to the execution and delivery of this Agreement, the Issuers
have delivered to you, without charge, in such quantities as you have reasonably
requested, copies of each form of the Prepricing Prospectus. The Issuers
consent to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Notes are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Issuers.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Issuers will
expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
you may reasonably request. At any time after nine months after the time of
issuance of the Prospectus, upon request, but at your expense, the Issuers will
deliver as many copies of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act as you may reasonably request, provided that a
-5-
<PAGE>
prospectus is required by the Act to be delivered in connection with sales of
Notes by any Underwriter or dealer. The Issuers consent to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Notes are offered by the several Underwriters and by
all dealers to whom Notes may be sold, both in connection with the offering and
sale of the Notes and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection with sales by any Underwriter
or dealer. If during such period of time any event shall occur that in the
judgment of the Issuers or in the opinion of counsel for the Underwriters is
required to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Prospectus to comply with the Act or any
other law, the Issuers will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto, and will expeditiously furnish to the Underwriters and
dealers a reasonable number of copies thereof; provided that if any such event
necessitating a supplement or amendment to the Prospectus occurs at any time
after nine months after the time of issuance of the Prospectus, such supplement
or amendment shall be prepared at your expense. In the event that the Issuers
and you agree that the Prospectus should be amended or supplemented, the
Issuers, if requested by you, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or supplement.
(g) The Issuers and the Manager will cooperate with you and with
counsel for the Underwriters in connection with the registration or
qualification of the Notes for offering and sale by the several Underwriters and
by dealers under the securities or Blue Sky laws of such jurisdictions as you
may designate and will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall the Issuers or the Manager be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to service of process in
suits, other than those arising out of the offering or sale of the Notes, in any
jurisdiction where it is not now so subject.
(h) The Issuers will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as practicable after the
end of such period, which consolidated earnings statement shall satisfy the
provisions of Section 11(a) of the Act.
(i) During the period of two years hereafter, the Issuers will furnish
to you (i) as soon as publicly available, a copy of each report of the
Partnership mailed to unitholders or filed with the Commission or the principal
national securities exchange or automated quotation system upon which the Common
Units or Notes may be listed, and (ii) from time to time such other information
concerning the Partnership and the Issuers as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10
-6-
<PAGE>
hereof or by notice given by you terminating this Agreement pursuant to Section
10 or Section 11 hereof) or if this Agreement shall be terminated by the
Underwriters because of any failure or refusal on the part of any of the U.S.
Timberlands Entities to comply with the terms or fulfill any of the conditions
of this Agreement, the U.S. Timberlands Entities, jointly and severally, agree
to reimburse you for all reasonable out-of-pocket expenses (including reasonable
fees and expenses of counsel for the Underwriters) incurred by you in connection
herewith.
(k) The Partnership will apply the net proceeds from the sale of the
Units, the Company and Finance Corp. will apply the net proceeds from the sale
of the Notes and the Company will apply any amount drawn under the Bank Credit
Agreement and all amounts contributed to it by the Partnership from the sale of
the Units, in accordance with the description set forth under the caption "Use
of Proceeds" in the Prospectus.
(l) If Rule 430A of the Act is employed, the Issuers will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(m) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the U.S. Timberlands Entities have not taken, and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Notes to facilitate the sale or resale of the Notes.
(n) Each of the U.S. Timberlands Parties will take such steps as shall
be necessary to ensure that none of them shall become an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
(o) The Issuers shall timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the Exchange
Act, including the rules and regulations thereunder, in connection with the
registration of the Notes thereunder.
(p) Each of the U.S. Timberlands Parties will cause to be accomplished
or obtained as soon as practicable all consents, recordings and filings
necessary to perfect, preserve and protect the title of the Company to the
properties and assets owned by it as a result of the Transactions.
6. Representations and Warranties of the U.S. Timberlands Entities. The
---------------------------------------------------------------
U.S. Timberlands Entities, jointly and severally (except that the
representations and warranties contained in Sections 6(k) and 6(l) are made
solely by Old Services and the representations and warranties contained in
Sections 6(m) and 6(n) are made solely by Holdings), represent and warrant to
each Underwriter that:
(a) Any Prepricing Prospectus, at the date of filing thereof with the
Commission, complied in all material respects with the requirements of the Act
and did not contain an untrue
-7-
<PAGE>
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus. The Registration Statement in the form in which it became
or becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 424(b) under the
Act complied or will comply in all material respects with the provisions of the
Act and did not or will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. Each of the statements
made by the Issuers in such documents within the coverage of Rule 175(b) of the
rules and regulations under the Act, including the size of the Company's
expected harvest, was made or will be made with a reasonable basis and in good
faith. Notwithstanding the foregoing, no representation and warranty is made as
to statements in or omissions from the Registration Statement, the Prospectus or
any Prepricing Prospectus made in reliance upon and in conformity with (i)
information furnished to the Issuers in writing by or on behalf of any
Underwriter through you expressly for use therein or (ii) the Trustee's
Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture
Act of 1939, as amended ("the Trust Indenture Act").
(b) The Partnership has been duly formed and is validly existing in
good standing as a limited partnership under the Delaware Revised Uniform
Limited Partnership Act (the "Delaware LP Act") with full partnership power and
authority to own or lease its properties to be owned or leased at the Closing
Date, to assume the liabilities being assumed by it pursuant to the Conveyance
Agreements and to conduct its business to be conducted at the Closing Date, in
each case in all material respects as described in the Registration Statement
and the Prospectus. The Partnership is, or at the Closing Date will be, duly
registered or qualified as a foreign limited partnership for the transaction of
business under the laws of each jurisdiction in which the character of the
business conducted by it or the nature or location of the properties owned or
leased by it makes such registration or qualification necessary, except where
the failure so to register or qualify would not (i) have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Partnership and the Company, taken as
a whole, or (ii) subject the limited partners of the Partnership to any material
liability or disability.
(c) The Company has been duly formed and is validly existing in good
standing as a limited liability company under the Delaware Limited Liability
Company Act (the "Delaware LLC Act") with full limited liability company power
and authority to own or lease its properties to be owned or leased at the
Closing Date, to assume the liabilities being assumed by it pursuant to the
Conveyance Agreements and to conduct its business to be conducted at the Closing
Date, in each case in all material respects as described in the Registration
Statement and the Prospectus. The Company is, or at the Closing Date will be,
duly registered or qualified as a foreign limited liability company for the
transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would
-8-
<PAGE>
not (i) have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Partnership and the Company, taken as a whole, or (ii) subject the limited
partners of the Partnership to any material liability or disability.
(d) The Manager has been duly formed and is validly existing in good
standing as a limited liability company under the Delaware LLC Act with full
limited liability company power and authority to own or lease its properties to
be owned or leased at the Closing Date, to conduct its business to be conducted
at the Closing Date and to act as general partner of the Partnership and as
managing member of the Company, in each case in all material respects as
described in the Registration Statement and the Prospectus. The Manager is duly
registered or qualified as a foreign limited liability company for the
transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Manager or (ii)
subject the limited partners of the Partnership to any material liability or
disability.
(e) Finance Corp. has been duly organized and is validly existing in
good standing as a corporation under the Delaware General Corporation Law (the
"DGCL") with full corporate power and authority to issue the Notes [Finance
Corp. is duly registered or qualified as a foreign corporation for the
transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of Finance Corp. or
(ii) subject the limited partners of the Partnership to any material liability
or disability.]
(f) None of the U.S. Timberlands Parties or Finance Corp. has any
subsidiaries, other than the Partnership and Company themselves and Finance
Corp. The Company owns all of the issued and outstanding shares of capital
stock of Finance Corp.; such shares have been duly authorized and validly issued
and are fully paid and nonassessable; and the Company owns all of such shares
free and clear of all liens, encumbrances, security interests, charges or
claims.
(g) At the Closing Date, after giving effect to the Transactions, the
Manager will be the sole general partner of the Partnership with a 1% general
partner interest in the Partnership; such general partner interest will be duly
authorized and validly issued in accordance with the Partnership Agreement; the
Manager will own all of the Incentive Distribution Rights; and the Manager will
own such general partner interest and Incentive Distribution Rights free and
clear of all liens, encumbrances, security interests, equities, charges or
claims.
(h) At the Closing Date, after giving effect to the Transactions,
Holdings, Old Services, Stephens and Hornig will own limited partner interests
in the Partnership represented by 2,978,833, 1,238,293, 95,238 and 50,040
Subordinated Units, respectively, free and clear of all liens,
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encumbrances, security interests, equities, charges or claims; and other than
the Subordinated Units owned by Holdings, Old Services, Stephens and Hornig as
set forth above and the Incentive Distribution Rights issued to the Manager, the
Units will be the only limited partner interests of the Partnership issued and
outstanding at the Closing Date.
(i) At the Closing Date, after giving effect to the Transactions, the
Manager will own a 1.0101% member interest in the Company and the Partnership
will own a 98.9899% member interest in the Company free and clear of all liens,
encumbrances, security interests, equities, charges or claims.
(j) At the Closing Date, after giving effect to the Transactions, Old
Services, Stephens and Hornig will own member interests of 70%, 10%, and 7.5%,
respectively, in the Manager, and Old Services will own its member interest free
and clear of all liens, encumbrances, security interests, equities, charges or
claims.
(k) Old Services has been duly formed and is validly existing in good
standing as a limited liability company under the Delaware LLC Act with full
limited liability company power and authority to own or lease its properties to
be owned or leased at the Closing Date, to conduct its business to be conducted
at the Closing Date and to execute and deliver this Agreement and the Operative
Agreements (as defined in Section 6(g)) to which it is a party and perform its
obligations hereunder and thereunder, in each case in all material respects as
described in the Registration Statement and the Prospectus. Old Services is
duly registered or qualified as a foreign limited liability company for the
transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not have a
material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the U.S.
Timberlands Parties, taken as a whole.
(l) At the Closing Date, after giving effect to the Transactions,
Rudey will own a 100% member interest in Old Services free and clear of all
liens, encumbrances, security interests, equities, charges or claims.
(m) Holdings has been duly formed and is validly existing in good
standing as a limited liability company under the Delaware LLC Act with full
limited liability company power and authority to own or lease its properties to
be owned or leased at the Closing Date, to conduct its business to be conducted
at the Closing Date and to execute and deliver this Agreement and the Operative
Agreements to which it is a party and perform its obligations hereunder and
thereunder, in each case, in all material respects as described in the
Registration Statement and the Prospectus. Holdings is duly registered or
qualified as a foreign limited liability company for the transaction of business
under the laws of each jurisdiction in which the character of the business
conducted by it or the nature or location of the properties owned or leased by
it makes such registration or qualification necessary, except where the failure
so to register or qualify would not have a material adverse effect
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on the condition (financial or other), business, prospects, properties, net
worth or results of operations of the U.S. Timberlands Parties, taken as a
whole.
(n) At the Closing Date, Rudey will own a 1% member interest in
Holdings and Rudey Timber Company will own a 99% member interest in Holdings
free and clear of all liens, encumbrances, security interests, equities, charges
or claims.
(o) Except as described in the Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any limited partner interests in the Partnership or
any member interests in the Company pursuant to either the Partnership Agreement
or the Limited Liability Company Agreement of the Company (as the same may be
amended and restated at or prior to the Closing Date, the "Company Agreement"),
respectively, or any agreement or other instrument to which the Partnership or
the Company is a party or by which either of them may be bound. Neither the
filing of the Registration Statement nor the offering or sale of the Notes as
contemplated by this Agreement gives rise to any rights for or relating to the
registration of any other securities of the Partnership, the Company or Finance
Corp. The Notes, when issued and delivered against payment therefor as provided
herein, and the Indenture, will conform in all material respects to the
descriptions thereof contained in the Prospectus. The Issuers have all
requisite power and authority to issue, sell and deliver the Notes in accordance
with and upon the terms and conditions set forth in this Agreement, the
Indenture and the Registration Statement and Prospectus. At the Closing Date,
all corporate, partnership and limited liability company action, as the case may
be, required to be taken by the U.S. Timberlands Entities or any of their
shareholders, partners or members for the authorization, issuance, sale and
delivery of the Notes and the consummation of the transactions (including the
Transactions) contemplated by this Agreement and the Operative Agreements shall
have been validly taken.
(p) The execution and delivery of, and the performance by, each of the
U.S. Timberlands Entities of their respective obligations under, this Agreement
have been duly and validly authorized by each of the U.S. Timberlands Entities,
and this Agreement has been duly executed and delivered by each of the U.S.
Timberlands Entities, and constitutes the valid and legally binding agreement of
each of the U.S. Timberlands Entities, enforceable against each of the U.S.
Timberlands Entities in accordance with its terms, provided that the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws relating to or affecting
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as rights to indemnity and contribution hereunder may be limited by
federal or state securities laws.
(q) At or before the Closing Date, the Partnership Agreement will have
been duly authorized, executed and delivered by the Manager and will be a valid
and legally binding agreement of the Manager and the Organizational Limited
Partner, enforceable against the Manager and the Organizational Limited Partner
in accordance with its terms; at or before the Closing Date, the Company
Agreement will have been duly authorized, executed and delivered by each of the
Manager and the Partnership and will be a valid and legally binding agreement of
the Manager and the
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Partnership, enforceable against each of them in accordance with its terms; at
or before the Closing Date, the Limited Liability Company Agreement of the
Manager (as the same may be amended and restated at or prior to the Closing
Date, the "Manager Agreement" and together with the Partnership Agreement and
the Company Agreement, the "Organization Agreements") will have been duly
authorized, executed and delivered by the parties thereto and will be a valid
and legally binding agreement of each of them enforceable against each of them
in accordance with its terms; at or before the Closing Date, each of the
Conveyance Agreements will have been duly authorized, executed and delivered by
the parties thereto and will be a valid and legally binding agreement of the
parties thereto enforceable against such parties in accordance with its terms;
at or before the Closing Date, a non-competition agreement (the "Non-Competition
Agreement") will have been duly authorized, executed and delivered by each of
the Partnership, Company, Old Services, Rudey, Stephens, Holdings, Rudey Timber
Company and Garrin Properties and will be a valid and legally binding agreement
of each of them enforceable against each of them in accordance with its terms;
at or before the Closing Date, the Bank Credit Agreement will have been duly
authorized, executed and delivered by the Company and will be a valid and
legally binding agreement of the Company enforceable against the Company in
accordance with its terms; at or before the Closing Date, the Indenture will
have been duly authorized, executed and delivered by the Issuers and the Trustee
and will be a valid and legally binding agreement of the Issuers enforceable
against the Issuers in accordance with their respective terms and will be duly
qualified under the Trust Indenture Act; at or before the Closing Date, the
Notes will have been duly authorized for issuance and sale to you by each of the
Issuers and, when issued and authenticated in accordance with the terms of the
Indenture and delivered against payment therefor in accordance with the terms
hereof, will constitute valid and binding obligations of the Issuers enforceable
against the Issuers in accordance with their terms and entitled to the benefits
of the Indenture; provided that, with respect to each agreement described in
this Section 6(q), the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
relating to or affecting creditors' rights generally and by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law); and provided, further, that the indemnity,
contribution and exoneration provisions contained in any of such agreements may
be limited by applicable laws and public policy. The Organization Agreements,
the Conveyance Agreements, the Non-Competition Agreement, the Bank Credit
Agreement, the Indenture and the Notes are herein collectively referred to as
the "Operative Agreements."
(r) None of the offering, issuance and sale by the Partnership of the
Units, the offering, issuance and sale by the Issuers of the Notes, the
execution, delivery and performance of this Agreement, the Equity Underwriting
Agreement or the Operative Agreements by the U.S. Timberlands Entities which are
parties thereto, or the consummation of the transactions
contemplated hereby and thereby (including the Transactions) (i) conflicts or
will conflict with or constitutes or will constitute a violation of the
agreement of limited partnership, limited liability company operating agreement,
certificate or articles of incorporation or bylaws or other organizational
documents of any of the U.S. Timberlands Entities, (ii) conflicts or will
conflict with or constitutes or will constitute a breach or violation of, or a
default under (or an event which, with notice or lapse of time or both, would
constitute such an event), any indenture, mortgage, deed of trust, loan
agreement, lease or
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<PAGE>
other agreement or instrument to which any of the U.S. Timberlands Entities is a
party or by which any of them or any of their respective properties may be
bound, (iii) violates or will violate any statute, law or regulation or any
order, judgment, decree or injunction of any court or governmental agency or
body directed to any of the U.S. Timberlands Entities or any of their properties
in a proceeding to which any of them or their property is a party, (iv) will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of any of the U.S. Timberlands Entities, in the case of
clauses (ii), (iii) or (iv) which conflicts, breaches, violations or defaults
would have a material adverse effect upon the condition (financial or other),
business, prospects, properties, net worth or results of operations of the U.S.
Timberlands Parties, taken as a whole.
(s) No permit, consent, approval, authorization or order of any court,
governmental agency or body is required in connection with the execution and
delivery of, or the consummation by the U.S. Timberlands Entities of the
transactions contemplated by, this Agreement, the Equity Underwriting Agreement
or the Operative Agreements, except (i) for such permits, consents, approvals
and similar authorizations required under the Securities Act, the Exchange Act,
the Trust Indenture Act and state securities or "Blue Sky" laws, (ii) for such
permits, consents, approvals and similar authorizations which have been, or
prior to the Closing Date will be, obtained, and (iii) for such permits,
consents, approvals and similar authorizations which, if not obtained, would
not, individually or in the aggregate, have a material adverse effect upon the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the U.S. Timberlands Parties, taken as a whole.
(t) None of the U.S. Timberlands Entities is in (i) violation of its
agreement of limited partnership, limited liability company operating agreement,
certificate or articles of incorporation or bylaws or other organizational
documents, or of any law, statute, ordinance, administrative or governmental
rule or regulation applicable to it or of any decree of any court or
governmental agency or body having jurisdiction over it, or (ii) breach, default
(or an event which, with notice or lapse of time or both, would constitute such
an event) or violation in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any agreement, indenture, lease or other instrument to which
it is a party or by which it or any of its properties may be bound, which
breach, default or violation would, if continued, have a material adverse effect
on the condition (financial or other), business, prospects, properties, net
worth or results of operations of the U.S. Timberlands Parties, taken as a
whole, or could materially impair the ability of any of the U.S. Timberlands
Parties to perform its obligations under this Agreement, the Equity Underwriting
Agreement or the Operative Agreements. To the knowledge of the U.S. Timberlands
Entities, no third party to any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which any of the U.S. Timberlands
Parties is a party or by which any of them is bound or to which any of their
properties are subject, is in default under any such agreement, which breach,
default or violation would, if continued, have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the U.S. Timberlands Parties, taken as a whole.
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(u) The accountants, Arthur Andersen LLP, who have certified or shall
certify the audited financial statements included in the Registration Statement,
any Prepricing Prospectus and the Prospectus (or any amendment or supplement
thereto) are independent public accountants with respect to the U.S. Timberlands
Entities as required by the Act and the applicable published rules and
regulations thereunder.
(v) At September 30, 1997, the Company and Old Services would have
had, on the consolidated pro forma basis indicated in the Prospectus (and any
amendment or supplement thereto), a capitalization as set forth therein. The
financial statements (including the related notes and supporting schedules)
included in the Registration Statement, the Prepricing Prospectus dated October
24, 1997 and the Prospectus (and any amendment or supplement thereto) present
fairly in all material respects the financial position, results of operations
and cash flows of the entities purported to be shown thereby on the basis stated
therein at the respective dates or for the respective periods which have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except to the extent
disclosed therein. The selected historical and pro forma information set forth
in the Registration Statement, the Prepricing Prospectus dated October 24, 1997
and the Prospectus (and any amendment or supplement thereto) under the caption
"Selected Historical and Pro Forma Financial and Operating Data" is accurately
presented in all material respects and prepared on a basis consistent with the
audited and unaudited historical consolidated financial statements and pro forma
financial statements from which it has been derived. The pro forma financial
statements of the Company included in the Registration Statement, the Prepricing
Prospectus dated October 24, 1997 and the Prospectus (and any amendment or
supplement thereto) have been prepared in all material respects in accordance
with the applicable accounting requirements of Article 11 of Regulation S-X of
the Commission; the assumptions used in the preparation of such pro forma
financial statements are, in the opinion of the management of the U.S.
Timberlands Entities, reasonable; and the pro forma adjustments reflected in
such pro forma financial statements have been properly applied to the historical
amounts in compilation of such pro forma financial statements.
(w) Except as disclosed in the Registration Statement, the Prepricing
Prospectus dated October 24, 1997 and the Prospectus (or any amendment or
supplement thereto), subsequent to the respective dates as of which such
information is given in the Registration Statement, the Prepricing Prospectus
dated October 24, 1997 and the Prospectus (or any amendment or supplement
thereto), (i) none of the U.S. Timberlands Entities has incurred any liability
or obligation, indirect, direct or contingent, or entered into any transactions,
not in the ordinary course of business, that, singly or in the aggregate, is
material to the U.S. Timberlands Parties, taken as a whole, (ii) there has not
been any change in the capitalization, or material increase in the short-term
debt or long-term debt, of the U.S. Timberlands Entities and (iii) there has not
been any material adverse change, or any development involving or which may
reasonably be expected to involve, singly or in the aggregate, a prospective
material adverse change, in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the U.S.
Timberlands Parties taken as a whole.
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<PAGE>
(x) There are no legal or governmental proceedings pending or, to the
knowledge of the U.S. Timberlands Entities, threatened, against any of the U.S.
Timberlands Entities, or to which any of the U.S. Timberlands Entities is a
party, or to which any of their respective properties is subject, that are
required to be described in the Registration Statement or the Prospectus but are
not described as required, and there are no agreements, contracts, indentures,
leases or other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required by the Act.
(y) Old Services and the Company have, and upon consummation of the
Transactions on the Closing Date, the Company will have, good and marketable
title in fee simple to all real property and good title to all personal property
described in the Prospectus to be owned by the Company, free and clear of all
liens, claims, security interests or other encumbrances except (i) as described
in the Prospectus and (ii) such as do not materially interfere with the use of
such properties taken as a whole as they have been used in the past and are
proposed to be used in the future as described in the Prospectus; and all real
property and buildings held under lease by Old Services and the Company are held
by Old Services and the Company, and upon consummation of the Transactions on
the Closing Date, will be held by the Company, under valid and subsisting and
enforceable leases with such exceptions as do not materially interfere with the
use of such properties taken as a whole as they have been used in the past and
are proposed to be used in the future as described in the Prospectus. The
Conveyance Agreements will be, as of the Closing Date, legally sufficient to
transfer or convey to the Company all properties not already held by it that
are, individually or in the aggregate, required to enable the Company to conduct
its operations (in all material respects as contemplated by the Prospectus),
subject to the conditions, reservations and limitations contained in the
Conveyance Agreements and those set forth in the Prospectus. The Company will,
upon execution and delivery of the Conveyance Agreements, succeed in all
material respects to the business, assets, properties, liabilities and
operations reflected by the pro forma financial statements of the Company,
except as disclosed in the Prospectus.
(z) The Issuers have not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Notes,
will not distribute, any prospectus (as defined under the Act) in connection
with the offering and sale of the Notes other than the Registration Statement,
any Prepricing Prospectus, the Prospectus or other materials, if any, permitted
by the Act, including Rule 134 of the general rules and regulations thereunder.
(aa) Each of the U.S. Timberlands Parties has, or at the Closing Date
will have, such permits, consents, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits") as are necessary to own its
properties and to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the Prospectus
and except for such permits which, if not obtained, would not have, individually
or in the aggregate, a material adverse effect upon the ability of the U.S.
Timberlands Parties considered as a whole to conduct their businesses in all
material respects as currently conducted and as contemplated by the Prospectus
to be conducted; each of the U.S. Timberlands Parties has, or at the Closing
Date will have, fulfilled and performed all its material obligations with
respect to such permits
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and no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any impairment of the
rights of the holder of any such permit, except for such revocations,
terminations and impairments that would not have a material adverse effect upon
the ability of the U.S. Timberlands Parties considered as a whole to conduct
their businesses in all material respects as currently conducted and as
contemplated by the Prospectus to be conducted, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as described in
the Prospectus, none of such permits contains any restriction that is materially
burdensome to the U.S. Timberlands Parties considered as a whole.
(bb) Each of the U.S. Timberlands Parties (i) makes and keeps books,
records and accounts, which, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of assets and (ii) maintains systems of
internal accounting controls sufficient to provide reasonable assurances that
(A) transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (C) access to
assets is permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(cc) To the knowledge of the U.S. Timberlands Entities, none of the
U.S. Timberlands Entities nor any employee or agent of any of the U.S.
Timberlands Entities has made any payment of funds of a U.S. Timberlands Entity
or received or retained any funds in either case in violation of any law, rule
or regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
(dd) Each of the U.S. Timberlands Entities has filed all material tax
returns required to be filed through the date hereof, which returns are complete
and correct in all material respects, and has timely paid all taxes shown to be
due pursuant to such returns, other than those (i) which, if not paid, would not
have a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the U.S.
Timberlands Entities, taken as a whole, or (ii) which are being contested in
good faith.
(ee) The U.S. Timberlands Entities own or possess, and at the Closing
Date the U.S. Timberlands Parties will own or possess, all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights owned by them or
necessary for the conduct of their respective businesses, and the U.S.
Timberlands Entities are not aware of any claim to the contrary or any challenge
by any other person to the rights of the U.S. Timberlands Entities with respect
to the foregoing.
(ff) None of the U.S. Timberlands Parties is now, and after sale of
the Notes to be sold by the Issuers hereunder and application of the net
proceeds from such sale as described in the Prospectus under the caption "Use of
Proceeds" will be, (i) an "investment company" or a company "controlled by" an
"investment company" within the meaning of the Investment Company
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Act of 1940, as amended, or (ii) a "public utility company," "holding company"
or a "subsidiary company" of a "holding company" or an "affiliate" thereof,
under the Public Utility Holding Company Act of 1935, as amended.
(gg) None of the U.S. Timberlands Entities has sustained since the
date of the latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion, flood or
other calamity whether or not covered by insurance, or from any labor dispute or
court or governmental action, investigation, order or decree, otherwise than as
set forth or contemplated in the Prospectus.
(hh) None of the U.S. Timberlands Entities has violated any
environmental, safety, health or similar law or regulation applicable to its
business relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), or lacks any permits, licenses or other approvals
required of them under applicable Environmental Laws to own, lease or operate
their properties and conduct their business as described in the Prospectus or is
violating any terms and conditions of any such permit, license or approval,
which in each case would have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the U.S. Timberlands Parties, taken as a whole.
(ii) Except as described in or contemplated by the Prospectus, no
material labor dispute with the employees of any of the U.S. Timberlands
Entities exists or, to the knowledge of any of the U.S. Timberlands Entities, is
imminent.
(jj) The U.S. Timberlands Entities maintain insurance covering their
properties, operations, personnel and businesses against such losses and risks
as are reasonably adequate to protect them and their businesses in a manner
consistent with other businesses similarly situated. None of the U.S.
Timberlands Entities has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will have to
be made in order to continue such insurance; and all such insurance is
outstanding and duly in force on the date hereof and will be outstanding and
duly in force on the Closing Date.
(kk) Except as described in the Prospectus, there is (i) no action,
suit or proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending or, to the knowledge of the
U.S. Timberlands Entities, threatened, to which any of the U.S. Timberlands
Entities, or any of their respective subsidiaries, is or may be a party or to
which the business or property of any of the U.S. Timberlands Entities, or any
of their respective subsidiaries, is or may be subject, (ii) no statute, rule,
regulation or order that has been enacted, adopted or issued by any governmental
agency or that has been proposed by any governmental body and (iii) no
injunction, restraining order or order of any nature issued by a federal or
state court or foreign court of competent jurisdiction to which any of the U.S.
Timberlands Entities, or any of their respective subsidiaries, is or may be
subject, that, in the case of clauses (i), (ii) and (iii) above, is reasonably
expected to (A) singly or in the aggregate have a material adverse effect on the
condition (financial
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or other), business, prospects, properties, net worth or results of operations
of the U.S. Timberlands Parties, taken as a whole, (B) prevent or result in the
suspension of the offering and issuance of the Units or the Notes or (C) in any
manner draw into question the validity of this Agreement, the Equity
Underwriting Agreement or any Operative Agreement.
(ll) The Notes have been approved for listing on the New York Stock
Exchange, subject only to official notice of issuance.
(mm) None of the transactions by the U.S. Timberlands Entities
contemplated by this Agreement (including, without limitation, the use of
proceeds from the sale of the Notes) will violate or result in a violation of
Section 7 of the Exchange Act, or any regulation promulgated thereunder,
including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System.
7. Indemnification and Contribution. (a) Each of the U.S. Timberlands
--------------------------------
Entities, jointly and severally, agree to indemnify and hold harmless each of
you and each other Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information furnished in writing to the
Issuers or the Manager by or on behalf of any Underwriter through you expressly
for use in connection therewith; provided, however, that the indemnification
contained in this paragraph (a) with respect to any Prepricing Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Notes by such Underwriter to
any person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Issuers have delivered the
Prospectus to the several Underwriters in requisite quantity and on a timely
basis to permit such delivery or sending. The foregoing indemnity agreement
shall be in addition to any liability which any U.S. Timberlands Entity may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against a U.S. Timberlands Entity, such Underwriter or
such controlling person shall promptly notify the U.S. Timberlands Entities in
writing, and the Issuers shall assume the defense thereof, including the
employment of counsel and payment of all reasonable fees and expenses. The
failure to notify the
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indemnifying party shall not relieve it from liability which it may have to an
indemnified party unless the indemnifying party is foreclosed by reason of such
delay from asserting a defense otherwise available to it. Such Underwriter or
any such controlling person shall have the right to employ separate counsel in
any such action, suit or proceeding and to participate in (but not control) the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or such controlling person unless (i) a U.S.
Timberlands Entity has agreed in writing to pay such fees and expenses, (ii) the
U.S. Timberlands Entities have failed to assume the defense and employ counsel
or (iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
a U.S. Timberlands Entity, and such Underwriter or such controlling person shall
have been advised by its counsel that representation of such indemnified party
and such U.S. Timberlands Entity by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or potential
differing interests between them (in which case the U.S. Timberlands Entities
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Underwriter or such controlling person). It is
understood, however, that the U.S. Timberlands Entities shall, in connection
with any one such action, suit or proceeding or separate but substantially
similar or related actions, suits or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of attorneys (in addition
to any local counsel) at any time for all such Underwriters and controlling
persons not having actual or potential differing interests with you or among
themselves, which firm shall be designated in writing by Smith Barney Inc., and
that all such fees and expenses shall be reimbursed as they are incurred. None
of the U.S. Timberlands Entities shall be liable for any settlement of any such
action, suit or proceeding effected without its written consent, but if settled
with such written consent, or if there be a final judgment for the plaintiff in
any such action, suit or proceeding, the U.S. Timberlands Entities agree,
jointly and severally, to indemnify and hold harmless any Underwriter, to the
extent provided in the preceding paragraph, and any such controlling person from
and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the U.S. Timberlands Entities, their respective directors and
officers who sign the Registration Statement, and any person who controls the
U.S. Timberlands Entities within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, to the same extent as the foregoing indemnity from the
U.S. Timberlands Entities to each Underwriter, but only with respect to
information furnished in writing by or on behalf of such Underwriter through you
expressly for
use in the Registration Statement, the Prospectus or any Prepricing Prospectus,
or any amendment or supplement thereto. If any action, suit or proceeding shall
be brought against a U.S. Timberlands Entity, any of such directors and officers
or any such controlling person based on the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto,
and in respect of which indemnity may be sought against any Underwriter pursuant
to this paragraph (c), such Underwriter shall have the rights and duties given
to the U.S. Timberlands Entities by paragraph (b) above (except that if a U.S.
Timberlands Entity shall have assumed the defense thereof such Underwriter shall
not be required to do so, but may employ separate counsel therein and
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participate in (but not control) the defense thereof, but the fees and expenses
of such counsel shall be at such Underwriter's expense), and the U.S.
Timberlands Entities, any of such directors and officers and any such
controlling person shall have the rights and duties given to the Underwriters by
paragraph (b) above. The foregoing indemnity agreement shall be in addition to
any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraph (a) or (c) hereof in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then an indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
U.S. Timberlands Entities on the one hand and the Underwriters on the other hand
from the offering of the Notes, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the U.S. Timberlands Entities on the one hand and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the U.S. Timberlands Entities on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the U.S. Timberlands Entities
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the U.S. Timberlands Entities on the one
hand, and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the U.S. Timberlands Entities or any other
affiliate of the U.S. Timberlands Entities on the one hand, or by the
Underwriters on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The U.S. Timberlands Entities and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
any claim or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price of the Notes
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such
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fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7 are several in proportion to the respective principal
amount of Notes set forth opposite their names in Schedule I hereto (or such
principal amount of Notes increased as set forth in Section 10 hereof) and not
joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the U.S. Timberlands Entities set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the U.S. Timberlands Entities or any of their
respective directors or officers or any person controlling the U.S. Timberlands
Entities, (ii) acceptance of any Notes and payment therefor in accordance with
the terms of this Agreement, and (iii) any termination of this Agreement. A
successor to any Underwriter or any person controlling any Underwriter, or to
the U.S. Timberlands Entities or any of their respective directors or officers
or any person controlling a U.S. Timberlands Entity shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 7.
8. Conditions of Underwriters' Obligations. The several obligations of
---------------------------------------
the Underwriters to purchase the Notes hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Notes may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall be or have
been timely made, as the case may be; no stop order suspending the effectiveness
of the registration statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of the U.S. Timberlands
Entities or any Underwriter, threatened by the Commission and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to your
reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the
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condition (financial or other), business, prospects, properties, net worth or
results of operations of any of the U.S. Timberlands Entities not contemplated
by the Prospectus, which in your opinion, would materially adversely affect the
market for the Notes, or (ii) any event or development relating to or involving
any of the U.S. Timberlands Entities or any executive officer or director of any
of such entities which makes any statement made in the Prospectus untrue or
which, in the opinion of the Issuers and their counsel or the Underwriters and
their counsel, requires the making of any addition to or change in the
Prospectus in order to state a material fact required by the Act or any other
law to be stated therein or necessary in order to make the statements therein
not misleading, if amending or supplementing the Prospectus to reflect such
event or development would, in your opinion, materially adversely affect the
market for the Notes.
(c) You shall have received on the Closing Date, an opinion of Andrews
& Kurth L.L.P., special counsel for the U.S. Timberlands Entities, dated the
Closing Date and addressed to you, to the effect that:
(i) The Partnership has been duly formed and is validly existing
in good standing as a limited partnership under the Delaware LP Act with
all necessary partnership power and authority to own or lease its
properties, assume the liabilities being assumed by it pursuant to the
Conveyance Agreements and conduct its business, in each case in all
material respects as described in the Registration Statement and the
Prospectus;
(ii) The Partnership is duly registered or qualified as a foreign
limited partnership for the transaction of business under the laws of the
State of Oregon; and, to such counsel's knowledge, such jurisdiction is the
only jurisdiction in which the character of the business conducted by the
Partnership or the nature or location of the properties owned or leased by
it make such registration or qualification necessary (except where the
failure to so register or so qualify would not (A) have a material adverse
effect on the condition (financial or other), business or results of
operations of the Partnership and the Company, taken as a whole, or (B)
subject the limited partners of the Partnership to any material liability
or disability);
(iii) The Company has been duly formed and is validly existing
in good standing as a limited liability company under the Delaware LLC Act
with all necessary limited liability company power and authority to own or
lease its properties, assume the liabilities being assumed by it pursuant
to the Conveyance Agreements and conduct its business, in each case in all
material respects as described in the Registration Statement and the
Prospectus;
(iv) The Company is duly registered or qualified as a foreign
limited liability company for the transaction of business under the laws of
the State of Oregon; and, to such counsel's knowledge, such jurisdiction is
the only jurisdiction in which the character of the business conducted by
the Company or the nature or location of the properties owned or leased by
it make such registration or qualification necessary (except where the
failure to so register or so qualify would not (A) have a material adverse
effect on the condition (financial
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or other), business or results of operations of the Partnership and the
Company, taken as a whole, or (B) subject the limited partners of the
Partnership to any material liability or disability);
(v) Finance Corp. has been duly organized and is validly existing
in good standing as a corporation under the DGCL, with full corporate power
and authority to issue the Notes;
[(vi) Finance Corp. is duly registered or qualified as a foreign
corporation for the transaction of business under the laws of the State of
Oregon; and to such counsel's knowledge, such jurisdiction is the only
jurisdiction in which the character of the business conducted by Finance
Corp. or the nature or location of the properties owned or leased by it
make such registration or qualification necessary (except where the failure
to so register or so qualify would not (A) have a material adverse effect
on the condition (financial or other), business or results of operations of
the U.S. Timberlands Parties, taken as a whole, or (B) subject the limited
partners of the Partnership to any material liability or disability);]
(vii) The Company owns all of the issued and outstanding shares
of capital stock of Finance Corp.; such shares have been duly authorized
and validly issued and are fully paid and nonassessable; and the Company
owns all of such shares free and clear of all liens, encumbrances, security
interests, charges or claims (A) in respect of which a financing statement
under the Uniform Commercial Code of the State of Oregon or Delaware naming
the Company as debtor is on file in the office of the Secretary of State of
the State of Oregon or Delaware or (B) otherwise known to such counsel,
without independent investigation, other than those created by or arising
under the DGCL;
(viii) The Manager has been duly formed and is validly existing
in good standing as a limited liability company under the Delaware LLC Act,
with all necessary limited liability company power and authority to own or
lease its properties, to conduct its business and to act as general partner
of the Partnership and as managing member of the Company, in each case in
all material respects as described in the Prospectus;
(ix) The Manager is duly registered or qualified as a foreign
limited liability company for the transaction of business under the laws of
the State of Oregon; and to such counsel's knowledge, such jurisdiction is
the only jurisdiction in which the character of the business conducted by
the Manager or the nature or location of the properties owned or leased by
it make such registration or qualification necessary (except where the
failure to so register or so qualify would not (A) have a material adverse
effect on the condition (financial or other), business or results of
operations of the U.S. Timberlands Parties, taken as a whole, or (B)
subject the limited partners of the Partnership to any material liability
or disability);
(x) The Manager is the sole general partner of the
Partnership, with a 1% general partner interest in the Partnership; such
general partner interest has been duly
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authorized and validly issued in accordance with the Partnership Agreement;
the Manager owns all of the Incentive Distribution Rights; and the Manager
owns such general partner interest and Incentive Distribution Rights free
and clear of all liens, encumbrances, security interests, charges or claims
(A) in respect of which a financing statement under the Uniform Commercial
Code of the State of New York or Delaware naming the Manager as debtor is
on file in the office of the Secretary of State of the applicable
jurisdiction or (B) otherwise known to such counsel, without independent
investigation, other than those created by or arising under the Delaware LP
Act;
(xi) After giving effect to the Transactions, Holdings, Old
Services, Mr. Stephens and Mr. Hornig will own 2,978,833, 1,238,293, 95,238
and 50,040 Subordinated Units, respectively, free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of which
a financing statement under the Uniform Commercial Code of, in the case of
Old Services, the State of Oregon or the State of Delaware, in the case of
Stephens, the State of Oregon and in the case of Holdings and Hornig, the
State of New York, naming any such owner as debtor is on file in the office
of the Secretary of State of the applicable jurisdiction or (B) otherwise
known to such counsel, without independent investigation, other than those
created by or arising under the Delaware LP Act;
(xii) Other than the Subordinated Units that will be owned by
Holdings, Old Services, Mr. Stephens and Mr. Hornig and the Incentive
Distribution Rights that will be owned by the Manager, the Units will be
the only limited partner interests of the Partnership issued and
outstanding at the Closing Date;
(xiii) The Manager owns a 1.0101% member interest in the Company
and the Partnership owns a 98.9899% member interest in the Company; and the
Manager and the Partnership own such member interests free and clear of all
liens, encumbrances, security interests, charges or claims (A) in respect
of which a financing statement under the Uniform Commercial Code of the
State of New York or the State of Delaware naming the Manager or the
Partnership as debtor is on file in the office of the Secretary of State of
the applicable jurisdiction or (B) otherwise known to such counsel, without
independent investigation, other than those created by or arising under the
Delaware LLC Act;
(xiv) Old Services, Stephens and Hornig own member interests of
70%, 10% and 7.5%, respectively, in the Manager free and clear of all
liens, encumbrances, security interests, charges or claims (A) in respect
of which a financing statement under the Uniform Commercial Code of, in the
case of Old Services, the State of Oregon or the State of Delaware, in the
case of Hornig, the State of New York, and in the case of Stephens, the
State of Oregon, naming Old Services, Stephens or Hornig, as applicable, as
debtor is on file in the office of the Secretary of State of the applicable
jurisdiction, or (B) otherwise known to such counsel, without independent
investigation, other than those created by or arising under the Delaware
LLC Act;
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(xv) Each of Old Services, Holdings and Rudey Timber Company has
been duly formed and is validly existing in good standing as a limited
liability company under the Delaware LLC Act with all necessary limited
liability company power and authority to own or lease its properties, to
conduct its business and to execute and deliver this Agreement and the
Operative Agreements to which it is a party and perform its obligations
hereunder and thereunder, in each case in all material respects as
described in the Registration Statement and the Prospectus;
(xvi) Each of Old Services, Holdings and Rudey Timber Company
are duly registered or qualified as a foreign limited liability company
under the laws of the State of Oregon; and to such counsel's knowledge,
Oregon is the only jurisdiction in which the character of the business
conducted by Old Services, Holdings and Rudey Timber Company or the nature
or location of the properties owned or leased by them make such
registration or qualification necessary (except where the failure to so
register or so qualify would not have a material adverse effect on the
condition (financial or other), business or results of operations of the
U.S. Timberlands Parties taken as a whole;
(xvii) Upon the redemption of Stephen's and Hornig's member
interests in Old Services, Rudey will own a 100% member interest in Old
Services free and clear of all liens, encumbrances, security interests,
charges or claims (A) in respect of which a financing statement under the
Uniform Commercial Code of the State of New York naming him as debtor is on
file in the office of the Secretary of State of the State of New York or
(B) otherwise known to such counsel, without independent investigation,
other than those created by or arising under the Delaware LLC Act;
(xviii) Rudey and Rudey Timber Company own 1% and 99% member
interests, respectively, in Holdings free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of which
a financing statement under the Uniform Commercial Code of, in the case of
Rudey, the State of New York, and in the case of Rudey Timber Company, the
State of Delaware, naming Rudey or Rudey Timber Company, as applicable, as
debtor is on file in the office of the Secretary of State of the applicable
jurisdiction or (B) otherwise known to such counsel, without independent
investigation, other than those created by or arising under the Delaware
LLC Act;
(xix) Rudey and Garrin Holdings own 99% and 1% member interests,
respectively, in Rudey Timber Company free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of which
a financing statement under the Uniform Commercial Code of the State of New
York, naming Rudey or Garrin Holdings as debtor is on file in the office of
the Secretary of State of the State of New York or (B) otherwise known to
such counsel, without independent investigation, other than those created
by or arising under the Delaware LLC Act;
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(xx) Except as described in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any limited partner interests
in the Partnership or member interests in the Company pursuant to any of
the Organizational Agreements or any other agreement or instrument known to
such counsel to which the Partnership or the Company is a party or by which
either of them may be bound. To such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the Notes
as contemplated by this Agreement gives rise to any rights for or relating
to the registration of any other securities of the Partnership or the
Company or Finance Corp. The Issuers have all requisite power and
authority to issue, sell and deliver the Notes in accordance with and upon
the terms and conditions set forth in this Agreement, the Indenture and the
Registration Statement and Prospectus;
(xxi) This Agreement has been duly authorized and validly
executed and delivered by each of the U.S. Timberlands Entities;
(xxii) The Indenture has been duly authorized and validly
executed and delivered by each of the Issuers and (assuming the due
authorization, execution and delivery thereof by the Trustee) constitutes a
valid and binding obligation of the Issuers enforceable against the Issuers
in accordance with its terms, subject to (A) applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws
from time to time in effect affecting creditors' rights and remedies
generally and general principles of equity (regardless of whether such
principles are considered in a proceeding at law or in equity) and (B)
public policy, applicable law relating to fiduciary duties and an implied
covenant of good faith and fair dealing. The Indenture has been duly
qualified under the Trust Indenture Act.
(xxiii) The Notes have been duly authorized for issuance and
sale by each of the Issuers and, when issued and authenticated in
accordance with the terms of the Indenture and delivered against payment
therefor in accordance with the terms hereof, will constitute a valid and
binding obligation of each Issuer enforceable against each Issuer in
accordance with their terms and entitled to the benefits of the Indenture,
subject to (A) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws from time to time in effect
affecting creditors' rights and remedies generally and general principles
of equity (regardless of whether such principles are considered in a
proceeding at law or in equity) and (B) public policy, applicable law
relating to fiduciary duties and an implied covenant of good faith and fair
dealing.
(xxiv) Each of the Operative Agreements (other than the
Indenture and the Notes) to which any of the U.S. Timberlands Entities is a
party have been duly authorized and validly executed and delivered by the
U.S. Timberlands Entities parties thereto and constitutes a valid and
binding obligation of the U.S. Timberlands Entities parties thereto,
enforceable against each such party in accordance with its respective
terms, subject to (A) applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws from time to time in
effect affecting creditors' rights and remedies generally and general
principles
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<PAGE>
of equity (regardless of whether such principles are considered in a
proceeding at law or in equity) and (B) public policy, applicable law
relating to fiduciary duties and an implied covenant of good faith and fair
dealing;
(xxv) None of the offering, issuance and sale by the Partnership
of the Units, the offering, issuance and sale by the Issuers of the Notes,
the execution, delivery and performance of this Agreement, the Equity
Underwriting Agreement or the Operative Agreements by the U.S. Timberlands
Entities party thereto, or the consummation of the transactions
contemplated hereby and thereby (including the Transactions) (A)
constitutes or will constitute a violation of the agreement of limited
partnership, limited liability company operating agreement, certificate or
articles of incorporation or bylaws or other organizational documents of
any of the U.S. Timberlands Entities or Rudey Timber Company or (B)
constitutes or will constitute a breach or violation of, or a default under
(or an event which, with notice or lapse of time or both, would constitute
such an event), any Operative Agreement or any other agreement filed as an
exhibit to the Registration Statement, (C) results or will result in any
violation of the Delaware LP Act the DGCL, or (D) results or will result in
the creation of imposition of any lien, charge or encumbrance upon any
property or assets of any of the U.S. Timberlands Entities or Rudey Timber
Company, which in the case of clauses (B), (C) or (D) would reasonably be
expected to have a material adverse effect on the financial condition,
business or results of operations of the U.S. Timberlands Parties, taken as
a whole;
(xxvi) No permit, consent, approval, authorization or order of
any Federal or Delaware court, governmental agency or body is required in
connection with the execution and delivery of, or the consummation by the
U.S. Timberlands Entities of the transactions contemplated by, this
Agreement, the Equity Underwriting Agreement or the Operative Agreements,
except (A) for such permits, consents, approvals and similar authorizations
required under the Securities Act, the Exchange Act and the Trust Indenture
Act, (B) such permits consents, approvals and similar authorizations
required under state securities or "Blue Sky" laws, as to which such
counsel need not express any opinion and (C) except as described in the
Prospectus;
(xxvii) To the knowledge of such counsel, none of the Company,
Old Services, Holdings or Rudey Timber Company is in (A) breach or
violation of the provisions of its agreement of limited liability company
or other organizational documents or (B) default (and no event has occurred
which, with notice or lapse of time or both, would constitute such a
default) in the due performance of any term, covenant or condition
contained in the Existing Credit Agreement which would reasonably be
expected to have a material adverse effect on the financial condition,
business or results of operations of the U.S. Timberland Parties taken as a
whole, or could impair the ability of the Company, Old Services, Holdings
or Rudey Timber Company to perform their obligations under the Operative
Agreements;
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(xxviii) The statements in the Registration Statement and
Prospectus under the captions "The Transactions," "Business and Properties-
-Federal and State Regulation," "Certain Relationships and Related
Transactions--Contribution, Conveyance and Assumption Agreement," "The
Company Agreement," "Description of Bank Credit Facility," and "Description
of Notes" insofar as they constitute descriptions of the Operative
Agreements or refer to statements of law or legal conclusions, are accurate
and complete in all material respects, and the Notes and the Indenture
conform in all material respects to the descriptions thereof contained in
the Registration Statement and Prospectus under the captions "Prospectus
Summary--The Offering" and "Description of Notes";
(xxix) The Registration Statement was declared effective under
the Act on _________ __, 1997; to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or
threatened by the Commission; and any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and within the time
period required by such Rule;
(xxx) The Registration Statement and the Prospectus (except for
the financial statements and the notes and the schedules thereto and the
other financial, statistical and accounting data included in the
Registration Statement or the Prospectus, as to which such counsel need not
express any opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations promulgated
thereunder;
(xxxi) To the knowledge of such counsel, (A) there is no legal
or governmental proceeding pending or threatened to which any of the U.S.
Timberlands Entities is a party or to which any of their respective
properties is subject that is required to be disclosed in the Prospectus
and is not so disclosed and (B) there are no agreements, contracts or other
documents to which any of the U.S. Timberlands Entities is a party that are
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not
described or filed as required;
(xxxii) None of the U.S. Timberlands Parties is an "investment
company" or a company "controlled by" an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended;
(xxxiii) The Notes have been approved for quotation on the New
York Stock Exchange, subject only to official notice of issuance; and
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the U.S. Timberlands
Entities and the independent public accountants of the Issuers and your
representatives, at which the contents of the Registration Statement and the
Prospectus and related matters were discussed, and although such counsel has not
independently verified, is not passing on, and is not assuming any
responsibility for the accuracy,
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<PAGE>
completeness or fairness of the statements contained in, the Registration
Statement and the Prospectus (except to the extent specified in the foregoing
opinion), no facts have come to such counsel's attention that lead such counsel
to believe that the Registration Statement (other than (i) the financial
statements included therein, including the notes and schedules thereto and the
auditors' reports thereon, (ii) the other historical, pro forma and projected
financial information and the statistical and accounting information included
therein and (iii) the exhibits thereto, as to which such counsel need not
comment), as of its effective date contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the Prospectus
(other than (i) the financial statements included therein, including the notes
and schedules thereto and the auditors' reports thereon, and (ii) the other
historical, pro forma and projected financial information and the statistical
and accounting information included therein, as to which such counsel need not
comment), as of its issue date and the Closing Date contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the U.S.
Timberlands Entities and upon information obtained from public officials, (B)
assume that all documents submitted to them as originals are authentic, that all
copies submitted to them conform to the originals thereof, and that the
signatures on all documents examined by them are genuine, (C) state that their
opinion is limited to federal laws, the Delaware LP Act, the Delaware LLC Act,
the DGCL and the laws of the State of New York, (D) with respect to the opinions
expressed in paragraphs (ii), (iv) (vi) and (xiii) above as to the due
qualification or registration as a foreign limited partnership or limited
liability company, as the case may be, of each of the U.S. Timberlands Entities,
state that such opinions are based upon the opinion of Lindsay, Hart, Neil &
Weigler, LLP provided pursuant to (e) below and upon certificates of foreign
qualification or registration provided by the Secretary of State of the State of
Oregon (each of which shall be dated as of a date not more than fourteen days
prior to the Closing Date and shall be provided to you), (E) state that they
express no opinion with respect to the title of any of the U.S. Timberlands
Entities to any of their respective real or personal property and (F) state that
they express no opinion with respect to state or local taxes or tax statutes to
which any of the limited partners of the Partnership or any of the U.S.
Timberlands Parties may be subject.
(d) You shall have received on the Closing Date, a copy of the opinion
of Andrews & Kurth L.L.P. delivered pursuant to the Equity Underwriting
Agreement, substantially in the form provided for therein, accompanied by a
letter dated the Closing Date and addressed to you from such counsel stating
that you are entitled to rely on such opinion as if it were addressed to you.
(e) You shall have received on the Closing Date, an opinion of
Lindsay, Hart, Neil & Weigler, LLP, counsel for the U.S. Timberlands Entities,
dated the Closing Date and addressed to you, to the effect that:
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(i) Each of the U.S. Timberlands Entities and Rudey Timber Company are
duly registered or qualified as a foreign limited liability company or foreign
limited partnership, as applicable, under the laws of the State of Oregon;
(ii) None of the offering, issuance and sale by the Partnership of the
Units, the offering, issuance and sale by the Issuers of the Notes, the
execution, delivery and performance of this Agreement, the Equity Underwriting
Agreement or the Operative Agreements by the U.S. Timberlands Entities which are
parties thereto, nor the consummation of the transactions contemplated hereby
and thereby (including the Transactions) (A) constitutes or will constitute a
breach or violation of, or a default under (or an event which, with notice or
lapse of time or both, would constitute such an event), any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known to such
counsel (other than the Operative Agreements and any other agreement filed as an
exhibit to the Registration Statement) to which any of the U.S. Timberlands
Entities is a party or by which any of them or any of their properties may be
bound or (B) results or will result in any violation of any statute, law or
regulation of the State of Oregon or any order, judgment, decree or injunction
of any court or governmental agency or body, in each case, known to such counsel
and directed to any of the U.S. Timberlands Entities or Rudey Timber Company or
any of their properties in a proceeding to which any of them or their property
is subject, which in either case would reasonably be expected to have a material
adverse effect on the financial condition, business or results of operations of
the U.S. Timberlands Parties, take as a whole;
(iii) No permit, consent, approval or authorization or order of
any Oregon court, governmental agency or body is required in connection with the
execution and delivery of, or the consummation by the U.S. Timberlands Entities
of the transactions contemplated by, this Agreement, the Equity Underwriting
Agreement or the Operative Agreements, except (A) as may be required under state
securities or "Blue Sky" laws, as to which such counsel need not express any
opinion, (B) for such permits, consents, approvals and similar authorizations
which have been obtained, and (C) for such permits, consents, approvals and
similar authorizations which, if not obtained, would not, individually or in the
aggregate, have a material adverse effect upon the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the U.S. Timberlands Parties, taken as a whole.
(iv) To the knowledge of such counsel, none of the Company, Old Services,
Holdings or Rudey Timber Company is in default (and no event has occurred which,
with notice or lapse of time or both, would constitute such a default) in the
due performance of any term, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its properties
are subject (other than the Existing Credit Agreement, with respect to which
such counsel need not express an opinion), which would reasonably be expected to
have a material adverse effect on the financial condition, business or results
of
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<PAGE>
operations of the U.S. Timberlands Parties, taken as a whole, or could
impair the ability of the Company, Old Services, Holdings or Rudey Timber
Company to perform their obligations under the Operative Agreements; and
(v) To the knowledge of such counsel after due inquiry, other
than as described or contemplated in the Prospectus (or any supplement
thereto), there is no litigation, proceeding or governmental investigation
pending or threatened against any of the U.S. Timberlands Entities or to
which any of the U.S. Timberlands Entities is a party or to which any of
their respective properties is subject, that relates to any of the
Transactions or which, if adversely determined, would reasonably be
expected to have a material adverse effect on the condition (financial or
other), business or results of operations of the U.S. Timberlands Parties,
taken as a whole, or would impair or call into question the validity of
this Agreement, the performance by any of the U.S. Timberlands Entities of
their obligations under this Agreement, the Equity Underwriting Agreement
or the Operative Agreements;
(vi) Except as described in the Prospectus, to the knowledge of
such counsel, each of the U.S. Timberlands Parties possess all permits,
consents, licenses, franchises and authorizations issued by the appropriate
local, state or federal regulatory agencies or bodies necessary to conduct
the business currently (or, as described or contemplated in the Prospectus,
to be) operated by them, except for such permits, consents, licenses,
franchises and authorizations which, if not obtained, would not reasonably
be expected to have, individually or in the aggregate, a material adverse
effect upon the financial condition, business or results of operations of
the U.S. Timberlands Parties, taken as a whole; and, to the knowledge of
such counsel, none of the U.S. Timberlands Parties has received any notice
of proceedings relating to the revocation or modification of any such
permits, consents, licenses, franchises and authorizations which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would reasonably be expected to have a
material adverse effect upon the financial condition, business or results
of operations of the U.S. Timberlands Parties, taken as a whole.
(vii) The Company has all requisite power and authority as a
limited liability company under the laws of the State of Oregon to own or
lease its properties and to conduct its business in the State of Oregon;
and upon the consummation of the Transactions, assuming that the
Partnership will not be liable under the laws of the State of Delaware for
the liabilities of the Company and that the Unitholders will not be liable
under the laws of the State of Delaware for liabilities of the Partnership
or the Company, the Partnership will not be liable under the laws of the
State of Oregon for the liabilities of the Company, and the Unitholders
will not be liable under the laws of the State of Oregon for the
liabilities of the Partnership or the Company, except in each case to the
same extent as under the laws of the State of Delaware;
(viii) Each of the Conveyance Agreements, assuming the due
authorization, execution and delivery thereof by the parties thereto, to
the extent it is a valid and legally
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<PAGE>
binding agreement under the applicable law as stated therein and that such
law applies thereto, is a valid and legally binding agreement of the
parties thereto under the laws of the State of Oregon, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights generally and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); each of the Conveyance
Agreements is in a form legally sufficient as between the parties thereto
to convey to the transferee thereunder all of the right, title and interest
of the transferor stated therein in and to the properties located in the
State of Oregon, as described in the Conveyance Agreements, subject to the
conditions, reservations and limitations contained in the Conveyance
Agreements, except motor vehicles or other property requiring conveyance of
certificated title as to which the Conveyance Agreements are legally
sufficient to compel delivery of such certificated title; and
(ix) Each of the deeds and assignments (including, without
limitation, the form of the exhibits and schedules thereto) is in a form
legally sufficient for recordation in the appropriate public offices of the
State of Oregon, to the extent such recordation is required, and, upon
proper recordation of any of such deeds and assignments in the State of
Oregon, will constitute notice to all third parties under the recordation
statutes of the State of Oregon concerning record title to the assets
transferred thereby; recordation in the office of the County Clerk for each
county in which the Company owns property is the appropriate public office
in the State of Oregon for the recordation of deeds and assignments of
interests in real property located in such county.
In rendering such opinion, such counsel may (A) rely in respect of matters
of fact upon certificates of officers and employees of the U.S. Timberlands
Entities and upon information obtained from public officials, (B) assume that
all documents submitted to them as originals are authentic, that all copies
submitted to them conform to the originals thereof, and that the signatures on
all documents examined by them are genuine, (C) state that such opinions are
limited to federal laws and the laws of the State of Oregon, excepting therefrom
municipal and local ordinances and regulations, (D) state that they express no
opinion with respect to state or local taxes or tax statutes, and (E) state that
they (1) express no opinion with respect to the title of any of the real or
personal property purported to be transferred by the Conveyance Agreements, (2)
have not made any review of specific properties or facilities or title files
relating to any such properties and (3) express no opinion regarding the
accuracy of the description or references to any real or personal property.
(f) You shall have received on the Closing Date an opinion of Baker &
Botts, L.L.P., counsel for the Underwriters, dated the Closing Date and
addressed to you, with respect to the issuance and sale of the Notes, the
Registration Statement and the Prospectus (together with any supplement or
amendment thereto).
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<PAGE>
(g) You shall have received letters addressed to you, and dated the
date hereof and the Closing Date from Arthur Andersen LLP, independent certified
public accountants, substantially in the forms heretofore approved by you.
(h) You shall have received a letter addressed to you and dated hereof
from Mason Bruce & Girard, Inc. substantially in the form heretofore approved by
you.
(i) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or taken or, to the knowledge of the Issuers and the Manager,
shall be threatened by the Commission at or prior to the Closing Date; (ii)
there shall not have been any change in the partners' capital, member's equity
or stockholders' equity of the Partnership, the Company, Finance Corp. or the
Manager, as the case may be, nor any material increase in the short-term or the
long-term debt of the Partnership, the Company, Finance Corp., the Manager or
Old Services (other than in the ordinary course of business) from that set forth
or contemplated in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); (iii) there shall not have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), any material adverse change in or affecting
the condition (financial or other), business, prospects, properties, net worth
or results of operations of the U.S. Timberlands Entities, taken as a whole;
(iv) the U.S. Timberlands Entities shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the U.S. Timberlands Parties taken as a whole
other than those reflected in the Registration Statement or the Prospectus (or
any amendment or supplement thereto); and (v) all the representations and
warranties of the U.S. Timberlands Entities contained in this Agreement shall be
true and correct on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date.
(j) The U.S. Timberlands Entities shall not have failed at or prior to
the Closing Date to have performed or complied in all material respects with any
of their agreements herein contained and required to be performed or complied
with by them hereunder at or prior to the Closing Date.
(k) The Notes shall have been approved for listing upon notice of
issuance on the New York Stock Exchange.
(l) The Issuers shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested.
(m) Prior to or simultaneously with the sale of the Notes on the
Closing Date, (i) the conveyance of the Transferred Assets to the Company shall
have been consummated, (ii) the closing of the offering of the Firm Units shall
have occurred on the basis set forth in the Prospectus and the Equity
Underwriting Agreement and (iii) the Bank Credit Agreement shall have been
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<PAGE>
executed and delivered and become effective in substantially the form filed as
an exhibit to the Registration Statement.
(n) There shall have been furnished to you at the Closing Date a
certificate satisfactory to you, signed on behalf of the Manager by the
President or the Executive Vice President and the Chief Financial Officer
thereof to the effect that: (A) the representations and warranties of the
Partnership, the Company and the Manager contained in this Agreement are true
and correct at and as of the Closing Date as though made at and as of the
Closing Date; (B) each of the Partnership, the Company and the Manager has in
all material respects performed all obligations required to be performed by it
pursuant to the terms of this Agreement at or prior to the Closing Date; (C) no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or taken or, to
the knowledge of any of the Partnership, the Company and the Manager, threatened
by the Commission, and all requests for additional information on the part of
the Commission have been complied with or otherwise satisfied; (D) the Notes
have been duly approved for listing, subject to official notice of issuance, on
the New York Stock Exchange; and (E) no event contemplated by subsection (i) of
this Section 8 in respect of the Partnership, the Company or the Manager shall
have occurred.
(o) There shall have been furnished to you at the Closing Date a
certificate satisfactory to you, signed on behalf of Finance Corp. by the
President or the Executive Vice President and a Vice President thereof to the
effect that: (A) the representations and warranties of Finance Corp. contained
in this Agreement are true and correct at and as of the Closing Date as though
made at and as of the Closing Date; (B) Finance Corp. has in all material
respects performed all obligations required to be performed by it pursuant to
the terms of this Agreement at or prior to the Closing Date; (C) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or taken or, to the knowledge
of Finance Corp., threatened by the Commission, and all requests for additional
information on the part of the Commission have been complied with or otherwise
satisfied; (D) the Notes have been duly approved for listing, subject to
official notice of issuance, on the New York Stock Exchange; and (E) no event
contemplated by subsection (i) of this Section 8 in respect of Finance Corp.
shall have occurred.
(p) There shall have been furnished to you at the Closing Date,
certificates satisfactory to you, signed on behalf of each of Old Services and
Holdings, respectively, by the President or a Vice President thereof,
respectively, to the effect that (A) the representations and warranties of such
party contained in this Agreement are true and correct at and as of the Closing
Date as though made at and as of the Closing Date and (B) such party has in all
material respects performed all obligations required to be performed by it
pursuant to the terms of this Agreement at or prior to the Closing Date;
(q) There shall not have been any announcement by any "nationally
recognized statistical rating organization," as defined for purposes of Rule
436(g) under the Act, that (i) it is
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<PAGE>
downgrading its rating assigned to the Notes or (ii) it is reviewing its rating
assigned to the Notes with a view to possible downgrading, or with negative
implications, or direction not determined.
All such opinions, certificates, letters and other documents referred
to in this Section 8 will be in compliance with the provisions hereof only if
they are reasonably satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Manager,
Finance Corp., Old Services or Holdings and delivered to you, or to counsel for
the Underwriters, shall be deemed a representation and warranty by the Manager,
Finance Corp., Old Services or Holdings, respectively to each Underwriter as to
the statements made therein.
9. Expenses. The Issuers agrees to pay the following costs and
--------
expenses and all other costs and expenses incident to the performance by them of
their obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them, and the Statement of
Eligibility and Qualification of the Trustee; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Notes; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Notes, including any stamp taxes in
connection with the original issuance and sale of the Notes; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda, and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Notes; (v)
the registration of the Notes under the Exchange Act and the listing of the
Notes on the New York Stock Exchange; (vi) the registration or qualification of
the Notes for offer and sale under the securities or Blue Sky laws of the
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification); (vii)
the filing fees and the reasonable fees and expenses of counsel for the
Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (viii) the fees and expenses
of the Trustee; (ix) the fees and expenses associated with obtaining ratings for
the Notes from nationally recognized statistical rating organizations; (x) the
transportation and other expenses incurred by or on behalf of officers and
employees of the Issuers in connection with presentations to prospective
purchasers of the Notes; and (xi) the fees and expenses of the Issuers'
accountants and the fees and expenses of counsel (including local and special
counsel) for the Issuers.
It is understood, however, that except as otherwise provided in this
Section 9 and Section 5(j) hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, transfer taxes on any
resale of the Notes by any Underwriter, any advertising expenses connected with
any offers they may make and the transportation and other expenses
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<PAGE>
incurred by the Underwriters on their own behalf in connection with
presentations to prospective purchasers of the Notes.
10. Effective Date of Agreement. This Agreement shall become
---------------------------
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the Registration Statement or a post-effective amendment thereto to be
declared effective before the offering of the Notes may commence, when
notification of the effectiveness of the Registration Statement or such post-
effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Issuers
by notifying you, or by you, by notifying the Issuers.
If any one or more of the Underwriters shall fail or refuse to
purchase Notes which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate principal amount of Notes which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate principal amount of the Notes which the
Underwriters are obligated to purchase on the Closing Date, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the principal
amount of Notes set forth opposite its name in Schedule I hereto bears to the
aggregate principal amount of Notes set forth opposite the names of all non-
defaulting Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Notes which such defaulting Underwriter or
Underwriters are obligated, but fail or refuse, to purchase. If any one or more
of the Underwriters shall fail or refuse to purchase Notes which it or they are
obligated to purchase on the Closing Date and the aggregate principal amount of
Notes with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of Notes which the Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to you and the
Issuers for the purchase of such Notes by one or more non-defaulting
Underwriters or other party or parties approved by you and the Issuers are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any party hereto (other than the defaulting
Underwriter). In any such case which does not result in termination of this
Agreement, either you or the Issuers have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Issuers, purchases Notes which a defaulting Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Underwriter to any U.S. Timberlands
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<PAGE>
Entity, by notice to the Issuers, if prior to the Closing Date, (i) trading in
securities generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market shall have been suspended or materially limited,
(ii) a general moratorium on commercial banking activities in New York or Oregon
shall have been declared by either federal or state authorities, or (iii) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, the effect of which on the financial markets of the United
States is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Notes at the offering price to the
public set forth on the cover page of the Prospectus or to enforce contracts for
the resale of the Notes by the Underwriters. Notice of such termination may be
given to the Issuers by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
-----------------------------------------
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first, third and fourth paragraphs
under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus, constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 6(b) and
7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10
-------------
and 11 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to any of the U.S. Timberlands
Entities, at the office of the Company at P.O. Box 10, 6400 Highway 66, Klamath
Falls, Oregon 97601, Attention: John Stephens, with a copy to John Rudey, U.S.
Timberlands Company, L.P., Suite 10-B, 625 Madison Avenue, New York, New York
10022, or (ii) if to you, care of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the U.S. Timberlands Entities, their directors and
officers, and the other controlling persons referred to in Section 7 hereof and
their respective successors and assigns, to the extent provided herein, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any Underwriter of any
of the Notes in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed
----------------------------
by and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Partnership, the Company, the Manager, Finance Corp., Old Services and
Holdings and the several Underwriters.
Very truly yours,
U.S. TIMBERLANDS COMPANY, L.P.
By: NEW SERVICES, L.L.C.
By:
--------------------------------
Name:
Title:
U.S. TIMBERLANDS KLAMATH FALLS,
L.L.C.
By: NEW SERVICES, L.L.C.
By:
-------------------------------
Name:
Title:
NEW SERVICES, L.L.C.
By:
-------------------------------
Name:
Title:
FINANCE CORP.
By:
---------------------------------
Name:
Title:
<PAGE>
U.S. TIMBERLANDS SERVICES
COMPANY, L.L.C.
By:
-------------------------------
Name:
Title:
U.S. TIMBERLANDS HOLDINGS, L.L.C.
By:
-------------------------
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
DEUTSCHE MORGAN GRENFELL INC.
By: SMITH BARNEY INC.
By:
-------------------------------
Managing Director
<PAGE>
SCHEDULE I
U.S. Timberlands Klamath Falls, L.L.C.
U.S. Timberlands Finance Corp.
Principal Amount of Notes
Underwriter to be Purchased
----------- -------------------------
Smith Barney Inc.....................
BancAmerica Robertson Stephens.......
Deutsche Morgan Grenfell Inc.........
TOTAL $225,000,000
=========================
<PAGE>
EXHIBIT 3.1
FORM OF
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.1 Definitions......................................1
Section 1.2 Construction....................................10
ARTICLE II
ORGANIZATION
Section 2.1 Formation.......................................11
Section 2.2 Name............................................11
Section 2.3 Registered Office; Registered Agent; Principal
Office; Other Offices...........................11
Section 2.4 Purpose and Business............................11
Section 2.5 Powers..........................................12
Section 2.6 Power of Attorney...............................12
Section 2.7 Term............................................13
Section 2.8 Title to Company Assets.........................14
ARTICLE III
RIGHTS OF MEMBERS
Section 3.1 Limitation of Liability.........................14
Section 3.2 Outside Activities of the Members...............14
Section 3.3 Rights of Members...............................15
ARTICLE IV
TRANSFERS OF INTERESTS
Section 4.1 Transfer Generally..............................16
Section 4.2 Transfer of Manager's Membership Interest.......16
Section 4.3 Transfer of Other Membership Interests..........16
Section 4.4 Restrictions on Transfers.......................17
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF INTERESTS
Section 5.1 Prior to Closing Date...........................17
Section 5.2 Contributions by the Manager and MLP at Closing.17
Section 5.3 Additional Capital Contributions................18
Section 5.4 Interest and Withdrawal.........................18
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Section 5.5 Capital Accounts................................18
Section 5.6 Loans from Members..............................21
Section 5.7 Limited Preemptive Rights.......................21
Section 5.8 Fully Paid and Non-Assessable Nature of
Membership Interests............................21
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes........22
Section 6.2 Allocations for Tax Purposes....................25
Section 6.3 Distributions...................................27
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management......................................28
Section 7.2 Certificate of Formation........................30
Section 7.3 Restrictions on Manager's Authority.............30
Section 7.4 Reimbursement of the Manager....................31
Section 7.5 Outside Activities..............................31
Section 7.6 Loans from the Manager; Loans or Contributions
from the Company; Contracts with Affiliates;
Certain Restrictions on the Manager.............33
Section 7.7 Indemnification.................................34
Section 7.8 Liability of Indemnitees........................36
Section 7.9 Resolution of Conflicts of Interest.............37
Section 7.10 Other Matters Concerning the Manager...........38
Section 7.11 Reliance by Third Parties......................39
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting..........................39
Section 8.2 Fiscal Year.....................................40
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information.....................40
Section 9.2 Tax Elections...................................40
Section 9.3 Tax Controversies...............................40
Section 9.4 Withholding.....................................41
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ARTICLE X
ADMISSION OF MEMBERS
Section 10.1 Admission of MLP as a Member...................41
Section 10.2 Admission of Substituted Members...............41
Section 10.3 Admission of Additional Members................42
Section 10.4 Admission of Successor or Transferee General
Partner........................................42
Section 10.5 Amendment of Agreement and Certificate of
Formation......................................42
ARTICLE XI
WITHDRAWAL OR REMOVAL OF MEMBERS
Section 11.1 Withdrawal of the Manager......................43
Section 11.2 Removal of the Manager.........................44
Section 11.3 Interest of Departing Manager..................45
Section 11.4 Withdrawal of Members Other than Manager.......45
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution....................................45
Section 12.2 Continuation of the Business of the Company
After Dissolution..............................46
Section 12.3 Liquidator.....................................47
Section 12.4 Liquidation....................................47
Section 12.5 Cancellation of Certificate of Formation.......48
Section 12.6 Return of Contributions........................48
Section 12.7 Waiver of Partition............................48
Section 12.8 Capital Account Restoration....................49
ARTICLE XIII
AMENDMENT OF AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the Manager..49
Section 13.2 Amendment Procedures...........................50
ARTICLE XIV
MERGER
Section 14.1 Authority......................................50
Section 14.2 Procedure for Merger or Consolidation..........51
Section 14.3 Approval by Members of Merger or Consolidation.52
Section 14.4 Certificate of Merger..........................52
Section 14.5 Effect of Merger...............................53
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ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices..........................53
Section 15.2 Further Action.................................53
Section 15.3 Binding Effect.................................54
Section 15.4 Integration....................................54
Section 15.5 Creditors......................................54
Section 15.6 Waiver.........................................54
Section 15.7 Counterparts...................................54
Section 15.8 Applicable Law.................................54
Section 15.9 Invalidity of Provisions.......................54
Section 15.10 Consent of Members.............................54
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SECOND AMENDED AND RESTATED OPERATING AGREEMENT
OF
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF U.S. TIMBERLANDS
KLAMATH FALLS, L.L.C., dated as of ________________________________, 1997, is
entered into by and between U.S. TIMBERLANDS SERVICES COMPANY, L.L.C., a
Delaware limited liability company, and U.S. TIMBERLANDS COMPANY, L.P., a
Delaware limited partnership, together with any other Persons who hereafter
become Members in the Company or parties hereto as provided herein.
R E C I T A L S:
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WHEREAS, U.S. Timberlands Holdings, L.L.C., a Delaware limited liability
company, and Rudey Timber Company, L.L.C. ("Rudey Timber"), a Delaware limited
liability company, were, immediately prior to the Closing Date, the sole Members
of the Company pursuant to the Amended and Restated Operating Agreement of U.S.
Timberlands Klamath Falls, L.L.C. dated as of August 30, 1996 (the "Prior
Agreement"); and
WHEREAS, upon and subject to the Closing Date, U.S. Timberlands Services
Company, L.L.C., a Delaware limited liability company, and U.S. Timberlands
Company, L.P., a Delaware limited partnership, became the sole Members of the
Company and now desire to amend the Prior Agreement to reflect their admission
as Members and certain other matters.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, the parties hereto hereby amend the Prior Agreement
and, as so amended, restate it in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
Capitalized terms used herein but not otherwise defined shall have the meaning
assigned to such term in the MLP Agreement.
"Additional Member" means a Person admitted to the Company as a Member
pursuant to Section 10.4 and who is shown as such on the books and records of
the Company.
"Adjusted Capital Account" means the Capital Account maintained for each
Member as of the end of each fiscal year of the Company, (a) increased by any
amounts that such Member is obligated to restore under the standards set by
Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or
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is deemed obligated to restore under Treasury Regulation Sections 1.704-2(g) and
1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses and deductions
that, as of the end of such fiscal year, are reasonably expected to be allocated
to such Member in subsequent years under Sections 704(e)(2) and 706(d) of the
Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of
all distributions that, as of the end of such fiscal year, are reasonably
expected to be made to such Member in subsequent years in accordance with the
terms of this Agreement or otherwise to the extent they exceed offsetting
increases to such Member's Capital Account that are reasonably expected to occur
during (or prior to) the year in which such distributions are reasonably
expected to be made (other than increases as a result of a minimum gain
chargeback pursuant to Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing
definition of Adjusted Capital Account is intended to comply with the provisions
of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii). Once an Adjusted Property
is deemed distributed by, and recontributed to, the Company for federal income
tax purposes upon a termination of the Company pursuant to Treasury Regulation
Section 1.708-(b)(1)(iv), such property shall thereafter constitute a
Contributed Property until the Carrying Value of such property is subsequently
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreed Allocation" means any allocation, other than a Required Allocation,
of an item of income, gain, loss or deduction pursuant to the provisions of
Section 6.1, including, without limitation, a Curative Allocation (if
appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the Manager using such reasonable method of valuation as it may adopt;
provided, however, that the Agreed Value of any property deemed contributed to
the Company for federal income tax purposes upon termination and reconstitution
thereof pursuant to Section 708 of the Code (whether before or after
finalization of Proposed Treasury Regulation Section 1.708-1(b)(l)(iv)) shall be
determined in accordance with Section 5.5(c)(i). Subject to Section 5.5(c)(i),
the Manager shall, in its discretion, use such method as it deems reasonable and
appropriate to allocate the aggregate Agreed Value of Contributed Properties
contributed to the Company in a single or integrated transaction among each
separate property on a basis proportional to the fair market value of each
Contributed Property.
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"Agreement" means this Second Amended and Restated Operating Agreement of
U.S. Timberlands Klamath Falls, L.L.C., as it may be amended, supplemented or
restated from time to time. The Agreement shall constitute a "limited liability
company agreement" as such term is defined in the Delaware Limited Liability
Company Act.
"Assignee" means a Person to whom one or more Membership Interests have
been transferred in a manner permitted under this Agreement, but who has not
been admitted as a Substituted Member.
"Associate" means, when used to indicate a relationship with any Person,
(a) any corporation or organization of which such Person is a director, officer
or partner or is, directly or indirectly, the owner of 20% or more of any class
of voting stock or other voting interest; (b) any trust or other estate in which
such Person has at least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same
principal residence as such Person.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the Company Group
on hand at the end of such Quarter, and (ii) all additional cash and cash
equivalents of the Company Group on hand on the date of determination of
Available Cash with respect to such Quarter resulting from borrowings for
working capital purposes made subsequent to the end of such Quarter, less
(b) the amount of any cash reserves that is necessary or appropriate
in the reasonable discretion of the Manager to (i) provide for the proper
conduct of the business of the Company Group (including reserves for future
capital expenditures and for anticipated future credit needs of the Company
Group) subsequent to such Quarter, (ii) comply with applicable law or any loan
agreement, security agreement, mortgage, debt instrument or other agreement or
obligation to which any Group Member is a party or by which it is bound or its
assets are subject or (iii) provide funds for distributions under Section 6.4 or
6.5 in respect of any one or more of the next four Quarters; provided, however,
that disbursements made by a Group Member or cash reserves established,
increased or reduced after the end of such Quarter but on or before the date of
determination of Available Cash with respect to such Quarter shall be deemed to
have been made, established, increased or reduced, for purposes of determining
Available Cash, within such Quarter if the Manager so determines.
Notwithstanding the foregoing, "Available Cash" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.
"Book-Tax Disparity" means with respect to any item of Contributed Property
or Adjusted Property, as of the date of any determination, the difference
between the Carrying Value of such Contributed Property or Adjusted Property and
the adjusted basis thereof for federal income tax purposes as of such date. A
Member's share of the Company's Book-Tax Disparities in all of its
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Contributed Property and Adjusted Property will be reflected by the difference
between such Member's Capital Account balance as maintained pursuant to Section
5.5 and the hypothetical balance of such Member's Capital Account computed as if
it had been maintained strictly in accordance with federal income tax accounting
principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Oregon shall not be regarded as a Business
Day.
"Capital Account" means the capital account maintained for a Member
pursuant to Section 5.5. The "Capital Account" of a Member in respect of a
Membership Interest shall be the amount which such Capital Account would be if
such Membership Interest were the only interest in the Company held by a Member
from and after the date on which such Membership Interest was first issued.
"Capital Contribution" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Member contributes to the Company pursuant
to this Agreement.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Members' and Assignees'
Capital Accounts in respect of such Contributed Property, and (b) with respect
to any other Company property, the adjusted basis of such property for federal
income tax purposes, all as of the time of determination. The Carrying Value of
any property shall be adjusted from time to time in accordance with Sections
5.5(d)(i) and 5.5(d)(ii) and to reflect changes, additions or other adjustments
to the Carrying Value for dispositions and acquisitions of Company properties,
as deemed appropriate by the Manager.
"Certificate of Formation" means the Certificate of Formation of the
Company filed with the Secretary of State of the State of Delaware as referenced
in Section 2.1, as such Certificate of Formation may be amended, supplemented or
restated from time to time.
"Closing Date" means the first date on which Common Units are sold by the
MLP to the Underwriters pursuant to the provisions of the Underwriting
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. Any reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any corresponding provision of
successor law.
"Commission" means the United States Securities and Exchange Commission.
"Common Unit" has the meaning assigned to such term in the MLP Agreement.
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"Company" means U.S. Timberlands Klamath Falls, L.L.C., a Delaware limited
liability company, and any successors thereto.
"Company Group" means the Company and any Subsidiary of the Company,
treated as a single consolidated entity.
"Contributed Property" means each property or other asset, in such form as
may be permitted by the Delaware Limited Liability Company Act, but excluding
cash, contributed to the Company (or deemed contributed to the Company on
termination and reconstitution thereof pursuant to Section 708 of the Code,
whether before or after finalization of Proposed Treasury Regulation Section
1.708-1(b)(1)(iv)). Once the Carrying Value of a Contributed Property is
adjusted pursuant to Section 5.5(d), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.
"Contribution and Conveyance Agreement" means the Contribution, Conveyance
and Assumption Agreement dated as of _______________________, 1997 between the
MLP, U.S. Timberlands Management Company, L.L.C., the Company, Holdings, the
Manager and Rudey Timber.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).
"Delaware Limited Liability Company Act" means the Delaware Limited
Liability Company Act, 6 Del. C. (S)18-101, et seq., as amended, supplemented or
restated from time to time, and any successor to such statute.
"Departing Member" means a former Manager from and after the effective date
of any withdrawal or removal of such former Manager pursuant to Section 11.1 or
11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation made
to 10 or more Persons) or disposing of any MLP Securities with any other Person
that beneficially owns, or whose Affiliates or Associates beneficially own,
directly or indirectly, MLP Securities.
"Group Member" means a member of the Company Group.
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"Holdings" means U.S. Timberlands Holdings, L.L.C., a Delaware limited
liability company.
"Indemnitee" means (a) the Manager, any Departing Member and any Person who
is or was an Affiliate of the Manager or any Departing Member, (b) any Person
who is or was a director, officer, employee, agent or trustee of a Group Member,
(c) any Person who is or was an officer, member, partner, director, employee,
agent or trustee of the Manager or any Departing Member or any Affiliate of the
Manager or any Departing Member, or any Affiliate of any such Person and (d) any
Person who is or was serving at the request of the Manager or any Departing
Member or any such Affiliate as a director, officer, employee, member, partner,
agent, fiduciary or trustee of another Person; provided, that a Person shall not
be an Indemnitee by reason of providing, on a fee-for-services basis, trustee,
fiduciary or custodial services.
"Initial Offering" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.
"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Company of the type described in clauses (a) and (b) of the
first sentence of Section 12.2, the date on which the applicable time period
during which the Members have the right to elect to reconstitute the Company and
continue its business has expired without such an election being made, and (b)
in the case of any other event giving rise to the dissolution of the Company,
the date on which such event occurs.
"Liquidator" means one or more Persons selected by the Manager to perform
the functions described in Section 12.3 as liquidating trustee of the Company
within the meaning of the Delaware Limited Liability Company Act.
"Manager" means U.S. Timberlands Services Company, L.L.C. and its
predecessors, successors and permitted assigns as manager of the Company.
"Membership Interest" means the ownership interest of a Member in the
Company.
"Merger Agreement" has the meaning assigned to such term in Section 14.1.
"MLP" means U.S. Timberlands Company, L.P., a Delaware limited partnership.
"MLP Agreement" means the Amended and Restated Agreement of Limited
Partnership of U.S. Timberlands Company, L.P., as it may be amended,
supplemented or restated from time to time.
"MLP Security" has the meaning assigned to the term "Partnership Security"
in the MLP Agreement.
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"Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Company upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Member by the
Company, the Company's Carrying Value of such property (as adjusted pursuant to
Section 5.5(d)(ii)) at the time such property is distributed, reduced by any
indebtedness either assumed by such Member upon such distribution or to which
such property is subject at the time of distribution, in either case, as
determined under Section 752 of the Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Company's items of income and gain (other than those items taken into account in
the computation of Net Termination Gain or Net Termination Loss) for such
taxable year over the Company's items of loss and deduction (other than those
items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Income shall be determined in accordance with Section 5.5(b) and shall
not include any items specially allocated under Section 6.1(d).
"Net Loss" means, for any taxable year, the excess, if any, of the
Company's items of loss and deduction (other than those items taken into account
in the computation of Net Termination Gain or Net Termination Loss) for such
taxable year over the Company's items of income and gain (other than those items
taken into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable year. The items included in the calculation of Net Loss
shall be determined in accordance with Section 5.5(b) and shall not include any
items specially allocated under Section 6.1(d).
"Net Termination Gain" means, for any taxable year, the sum, if positive,
of all items of income, gain, loss or deduction recognized by the Company after
the Liquidation Date. The items included in the determination of Net Termination
Gain shall be determined in accordance with Section 5.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if negative,
of all items of income, gain, loss or deduction recognized by the Company after
the Liquidation Date. The items included in the determination of Net Termination
Loss shall be determined in accordance with Section 5.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 6.1(d).
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Members pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
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"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation Section 1.704-2(b), are attributable
to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss, deduction
or expenditure (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(i), are attributable to a Partner
Nonrecourse Debt.
"Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Percentage Interest" means, (a) as to the Manager, 1.0101% and (b) as to
the MLP, 98.9899%.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
"Prior Agreement" is defined in the Recitals.
"Quarter" means, unless the context requires otherwise, a fiscal quarter of
the Company.
"Recapture Income" means any gain recognized by the Company (computed
without regard to any adjustment required by Sections 734 or 743 of the Code)
upon the disposition of any property or asset of the Company, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333- 32811) as it has been or as it may be amended or
supplemented from time to time, filed by the MLP with the Commission under the
Securities Act to register the offering and sale of the Common Units in the
Initial Offering.
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"Required Allocations" means (a) any limitation imposed on any allocation
of Net Losses or Net Termination Losses under Section 6.1(b) or 6.1(c)(ii) and
(b) any allocation of an item of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or 6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Company recognized for federal income tax purposes resulting
from a sale, exchange or other disposition of a Contributed Property or Adjusted
Property, to the extent such item of gain or loss is not allocated pursuant to
Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate Book-Tax
Disparities.
"Restricted Activities" means the (i) acquisition, exchange, operation or
sale of timber-producing real property or rights to harvest timber a principal
purpose of which is producing logs and other forest products, (ii) harvesting of
timber other than harvesting which is incidental to the ownership or operation
of real property not owned or operated for a principal purpose of producing logs
or other forest products, (iii) sale, exchange or purchase of logs other than
sales, exchanges or purchases which are incidental to the ownership or operation
of real property not owned or operated for a principal purpose of producing logs
or other forest products, and (iv) any and all other activities relating to the
United States forest products industry to the extent such activities compete
with the operations of the MLP or the Company.
"Rudy Timber" means Rudey Timber Company, L.L.C., a Delaware limited
liability company.
"Securities Act" means the Securities Act of 1933, as amended, supplemented
or restated from time to time and any successor to such statute.
"Special Approval"has the meaning assigned to such term in the MLP
Agreement.
"Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of the partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person
(other than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
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"Substituted Member" means a Person who is admitted as a Member to the
Company pursuant to Section 10.2 in place of and with all the rights of a Member
and who is shown as a Member on the books and records of the Company.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Underwriter" means each Person named as an underwriter in Schedule I to
the Underwriting Agreement who purchases Common Units pursuant thereto.
"Underwriting Agreement" means the Underwriting Agreement dated
, 1997 among the Underwriters, the MLP and certain other parties, providing for
the purchase of Common Units by such Underwriters.
"Unit Majority" has the meaning assigned to such term in the MLP Agreement.
"Unrealized Gain" attributable to any item of Company property means, as of
any date of determination, the excess, if any, of (a) the fair market value of
such property as of such date (as determined under Section 5.5(d)) over (b) the
Carrying Value of such property as of such date (prior to any adjustment to be
made pursuant to Section 5.5(d) as of such date).
"Unrealized Loss" attributable to any item of Company property means, as of
any date of determination, the excess, if any, of (a) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
5.5(d) as of such date) over (b) the fair market value of such property as of
such date (as determined under Section 5.5(d)).
"U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.
Section 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
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ARTICLE II
ORGANIZATION
Section 2.1 Formation.
The Company was previously formed as a limited liability company
pursuant to the provisions of the Delaware Limited Liability Company Act. The
Members hereby amend and restate the Prior Agreement in its entirety. This
second amendment and restatement shall become effective on the date of this
Agreement. Except as expressly provided to the contrary in this Agreement, the
rights, duties, liabilities and obligations of the Members and the
administration, dissolution and termination of the Company shall be governed by
the Delaware Limited Liability Company Act. All Membership Interests shall
constitute personal property of the owner thereof for all purposes and a Member
has no interest in specific Company property.
Section 2.2 Name.
The name of the Company shall be "U.S. Timberlands Klamath Falls,
L.L.C." The Company's business may be conducted under any other name or names
deemed necessary or appropriate by the Manager in its sole discretion, including
the name of the Manager. The words "Limited Liability Company," "L.L.C." or
"LLC" shall be included in the Company's name where necessary for the purpose of
complying with the laws of any jurisdiction that so requires. The Manager in its
discretion may change the name of the Company at any time and from time to time
and shall notify the other Member(s) of such change in the next regular
communication to the Members.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
Unless and until changed by the Manager, the registered office of the
Company in the State of Delaware shall be located at 1209 Orange Street, New
Castle County, Wilmington, Delaware 19801, and the registered agent for service
of process on the Company in the State of Delaware at such registered office
shall be The Corporation Trust Company. The principal office of the Company
shall be located at 6400 Highway 66, Klamath Falls, Oregon 97601 or such other
place as the Manager may from time to time designate by notice to the Members.
The Company may maintain offices at such other place or places within or outside
the State of Delaware as the Manager deems necessary or appropriate. The address
of the Manager shall be 625 Madison Ave., Suite 10-B, New York, New York 10022
or such other place as the Manager may from time to time designate by notice to
the Members.
Section 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Company
shall be to (a) manage, operate, lease, sell and otherwise deal with any and all
assets or properties contributed to the Company by the Members, (b) to engage
directly in, or enter into or form any corporation,
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partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any type of business or activity engaged in by the Manager
and its predecessors prior to the Closing Date and, in connection therewith, to
exercise all of the rights and powers conferred upon the Company pursuant to the
agreements relating to such business activity, (c) engage directly in, or enter
into or form any corporation, partnership, joint venture, limited liability
company or other arrangement to engage indirectly in, any business activity that
is approved by the Manager and which lawfully may be conducted by a limited
liability company organized pursuant to the Delaware Limited Liability Company
Act and, in connection therewith, to exercise all of the rights and powers
conferred upon the Company pursuant to the agreements relating to such business
activity; provided, however, that the Manager reasonably determines, as of the
date of the acquisition or commencement of such activity, that such activity (i)
generates "qualifying income" (as such term is defined pursuant to Section 7704
of the Code) or (ii) enhances the operations of an activity of the Company or a
MLP activity that generates qualifying income, and (d) do anything necessary or
appropriate to the foregoing, including the making of capital contributions or
loans to a Group Member, the MLP or any Subsidiary of the MLP or the Company.
The Manager has no obligation or duty to the Company, the Members, or the
Assignees to propose or approve, and in its discretion may decline to propose or
approve, the conduct by the Company of any business.
Section 2.5 Powers.
The Company shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Company.
Section 2.6 Power of Attorney.
(a) Each Member hereby constitutes and appoints the Manager and, if a
Liquidator shall have been selected pursuant to Section 12.3, the Liquidator,
(and any successor to the Liquidator by merger, transfer, assignment, election
or otherwise) and each of their authorized officers and attorneys-in-fact, as
the case may be, with full power of substitution, as his true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and
stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other instruments
(including this Agreement and the Certificate of Formation and all amendments or
restatements hereof or thereof) that the Manager or the Liquidator deems
necessary or appropriate to form, qualify or continue the existence or
qualification of the Company as a limited liability company in the State of
Delaware and in all other jurisdictions in which the Company may conduct
business or own property; (B) all certificates, documents and other instruments
that the Manager or the Liquidator deems necessary or appropriate to reflect, in
accordance with its terms, any amendment, change, modification or restatement of
this Agreement; (C) all certificates, documents and other instruments (including
conveyances and a certificate of cancellation) that the Manager or the
Liquidator deems necessary or appropriate to reflect
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the dissolution and liquidation of the Company pursuant to the terms of this
Agreement; (D) all certificates, documents and other instruments relating to the
admission, withdrawal, removal or substitution of any Member pursuant to, or
other events described in, Article IV, X, XI or XII; (E) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges of any class or series of Membership Interests issued
pursuant hereto; and (F) all certificates, documents and other instruments
(including agreements and a certificate of merger) relating to a merger or
consolidation of the Company pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the Manager or the
Liquidator, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action that is made or given by the Members
hereunder or is consistent with the terms of this Agreement or is necessary or
appropriate, in the discretion of the Manager or the Liquidator, to effectuate
the terms or intent of this Agreement; provided, that when required by Section
13.3 or any other provision of this Agreement that establishes a percentage of
the Members or of the Members of any class or series required to take any
action, the Manager and the Liquidator may exercise the power of attorney made
in this Section 2.6(a)(ii) only after the necessary vote, consent or approval of
the Members or of the Members of such class or series, as applicable.
Nothing contained in this Section 2.6(a) shall be construed as
authorizing the Manager to amend this Agreement except in accordance with
Article XIII or as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and, to
the maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination of
any Member and the transfer of all or any portion of such Member's Membership
Interest and shall extend to such Member's successors and assigns. Each such
Member hereby agrees to be bound by any representation made by the Manager or
the Liquidator acting in good faith pursuant to such power of attorney; and each
such Manager, to the maximum extent permitted by law, hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
Manager or the Liquidator taken in good faith under such power of attorney. Each
Member shall execute and deliver to the Manager or the Liquidator, within 15
days after receipt of the request therefor, such further designation, powers of
attorney and other instruments as the Manager or the Liquidator deems necessary
to effectuate this Agreement and the purposes of the Company.
Section 2.7 Term.
The term of the Company commenced upon the filing of the Certificate
of Formation in accordance with the Delaware Limited Liability Company Act and
shall continue in existence until
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the close of Company business on December 31, 2087 or until the earlier
dissolution of the Company in accordance with the provisions of Article XII. The
existence of the Company as a separate legal entity shall continue until the
cancellation of the Certificate of Formation as provided in the Delaware Limited
Liability Company Act.
Section 2.8 Title to Company Assets.
Title to Company assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Company as an entity,
and no Member, individually or collectively, shall have any ownership interest
in such Company assets or any portion thereof. Title to any or all of the
Company assets may be held in the name of the Company, the Manager, one or more
of its Affiliates or one or more nominees, as the Manager may determine. The
Manager hereby declares and warrants that any Company assets for which record
title is held in the name of the Manager or one or more of its Affiliates or one
or more nominees shall be held by the Manager or such Affiliate or nominee for
the use and benefit of the Company in accordance with the provisions of this
Agreement; provided, however, that the Manager shall use reasonable efforts to
cause record title to such assets (other than those assets in respect of which
the Manager determines that the expense and difficulty of conveyancing makes
transfer of record title to the Company impracticable) to be vested in the
Company as soon as reasonably practicable; provided, further, that, prior to the
withdrawal or removal of the Manager or as soon thereafter as practicable, the
Manager shall use reasonable efforts to effect the transfer of record title to
the Company and, prior to any such transfer, will provide for the use of such
assets in a manner satisfactory to the Manager. All Company assets shall be
recorded as the property of the Company in its books and records, irrespective
of the name in which record title to such Company assets is held.
ARTICLE III
RIGHTS OF MEMBERS
Section 3.1 Limitation of Liability.
The Members shall have no liability under this Agreement except as
expressly provided in this Agreement or in the Delaware Limited Liability
Company Act.
Section 3.2 Outside Activities of the Members.
Subject to the provisions of Section 7.5, which shall continue to be
applicable to the Persons referred to therein, regardless of whether such
Persons shall also be Members, any Member shall be entitled to and may have
business interests and engage in business activities in addition to those
relating to the Company, including business interests and activities in direct
competition with the Company Group. Neither the Company nor any other Member
shall have any rights by virtue of this Agreement in any business ventures of
any Member.
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Section 3.3 Rights of Members.
(a) In addition to other rights provided by this Agreement or by
applicable law, and except as limited by Section 3.3(b), each Member shall have
the right, for a purpose reasonably related to such Member's interest as a
member in the Company, upon reasonable written demand and at such Member's own
expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Company;
(ii) promptly after becoming available, to obtain a copy of the
Company's federal, state and local income tax returns for each year;
(iii) to have furnished to him a current list of the name and last
known business, residence or mailing address of each Member;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Formation and all amendments thereto, together with a copy of the
executed copies of all powers of attorney pursuant to which this Agreement, the
Certificate of Formation and all amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net Agreed Value of any other Capital
Contribution by each Member and which each Member has agreed to contribute in
the future, and the date on which each became a Member; and
(vi) to obtain such other information regarding the affairs of the
Company as is just and reasonable.
(b) The Manager may keep confidential from the Members, for such
period of time as the Manager deems reasonable, (i) any information that the
Manager reasonably believes to be in the nature of trade secrets or (ii) other
information the disclosure of which the Manager in good faith believes (A) is
not in the best interests of the Company Group, (B) could damage the Company
Group or (C) that any Group Member is required by law or by agreement with any
third party to keep confidential (other than agreements with Affiliates of the
Company the primary purpose of which is to circumvent the obligations set forth
in this Section 3.3).
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ARTICLE IV
TRANSFERS OF INTERESTS
Section 4.1 Transfer Generally.
(a) The term "transfer," when used in this Agreement with respect to a
Membership Interest, shall be deemed to refer to a transaction by which the
holder of a Membership Interest assigns such Membership Interest to another
Person who is or becomes a Member or an Assignee, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise.
(b) No Membership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Membership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent
a disposition by any member of the Manager of any or all of the issued and
outstanding membership interests of the Manager.
Section 4.2 Transfer of Manager's Membership Interest.
If the Manager transfers its interest as the general partner of the
MLP to any Person in accordance with the provisions of the MLP Agreement, the
Manager shall contemporaneously therewith transfer all, but not less than all,
of its Membership Interest herein to such Person, and the other Members hereby
expressly consent to such transfer. Except as set forth in the immediately
preceding sentence and in Section 5.2, the Manager may not transfer all or any
part of its Membership Interest herein; provided, however, that this provision
shall not preclude or limit the Manager's ability to mortgage, pledge,
hypothecate or grant a security interest in its Membership Interest and shall
not prevent any forced sale of any or all of its Membership Interest pursuant to
the foreclosure of, or other realization upon, any such encumbrance.
Section 4.3 Transfer of Other Membership Interests.
A Member, other than the Manager, may transfer all, but not less than
all, of its Membership Interest in connection with the merger, consolidation or
other combination of such Member with or into any other Person or the transfer
by such Member of all or substantially all of its assets to another Person, and
following any such transfer such Person may become a Substituted Member pursuant
to Article X. Except as set forth in the immediately preceding sentence and in
Section 5.2, or in connection with any pledge of (or any related foreclosure on)
a Member's Membership Interest solely for the purpose of securing, directly or
indirectly, indebtedness of the Company or such Member, and except for the
transfers contemplated by Sections 5.2 and 10.1, a Member may not transfer all
or any part of its Membership Interest or withdraw from the Company.
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Section 4.4 Restrictions on Transfers.
(a) Notwithstanding the other provisions of this Article IV, no
transfer of any Membership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer, (ii) terminate the
existence or qualification of the Company or the MLP under the laws of the
jurisdiction of its formation or (iii) cause the Company or the MLP to be
treated as an association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not already so treated
or taxed).
(b) The Manager may impose restrictions on the transfer of Membership
Interests if a subsequent Opinion of Counsel determines that such restrictions
are necessary to avoid a significant risk of the Company or the MLP becoming
taxable as a corporation or otherwise to be taxed as an entity for federal
income tax purposes. The restrictions may be imposed by making such amendments
to this Agreement as the Manager may determine to be necessary or appropriate to
impose such restrictions.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF INTERESTS
Section 5.1 Prior to Closing Date.
Immediately prior to the Closing Date, ninety-nine percent (99%) of
the Membership Interests in the Company were held by Holdings and one percent
(1%) of the Membership Interests in the Company were held by Rudey Timber.
Section 5.2 Contributions by the Manager and MLP at Closing.
(a) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, the Manager shall contribute to the Company, as a Capital
Contribution, all of its timber operations in exchange for a Membership
Interest. Immediately following such contribution, the Manager shall transfer
all but a 1.0101% Membership Interest to the MLP in exchange for certain
interests therein as more particularly described in the Registration Statement.
(b) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, the Company shall assume certain indebtedness of Holdings.
Immediately following such assumption, Holdings shall contribute all of its
Membership Interest to the MLP in exchange for certain interests therein as more
particularly described in the Registration Statement.
(c) On the Closing Date, the MLP shall contribute to the Company all
of the net proceeds from the sale of Common Units offered pursuant to the
Registration Statement.
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(d) Following the foregoing transactions, the Manager shall hold a
1.0101% Membership Interest and the MLP shall hold a 98.9899% Membership
Interest.
Section 5.3 Additional Capital Contributions.
With the consent of the Manager, any other Member may, but shall not
be obligated to, make additional Capital Contributions to the Company.
Contemporaneously with the making of any Capital Contributions by any such
Member, in addition to those provided in Sections 5.1 and 5.2, the Manager shall
be obligated to make an additional Capital Contribution to the Company in an
amount equal to 1.0101 / 98.9899 of the Net Agreed Value of the additional
Capital Contribution then made by any such Member. Except as set forth in the
immediately preceding sentence and Article XII, the Manager shall not be
obligated to make any additional Capital Contributions to the Company.
Section 5.4 Interest and Withdrawal.
No interest shall be paid by the Company on Capital Contributions. No
Member shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions made pursuant to
this Agreement or upon termination of the Company may be considered as such by
law and then only to the extent provided for in this Agreement. Except to the
extent expressly provided in this Agreement, no Member shall have priority over
any other Member either as to the return of Capital Contributions or as to
profits, losses or distributions. Any such return shall be a compromise to which
all Members agree within the meaning of Section 18-502(b) of the Delaware
Limited Liability Company Act.
Section 5.5 Capital Accounts.
(a) The Company shall maintain for each Member (or a beneficial owner
of Membership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Company in accordance with Section
6031(c) of the Code or any other method acceptable to the Manager in its sole
discretion) owning a Membership Interest a separate Capital Account with respect
to such Membership Interest in accordance with the rules of Treasury Regulation
Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the
amount of all Capital Contributions made to the Company with respect to such
Membership Interest pursuant to this Agreement and (ii) all items of Company
income and gain (including, without limitation, income and gain exempt from tax)
computed in accordance with Section 5.5(b) and allocated with respect to such
Membership Interest pursuant to Section 6.1, and decreased by (x) the amount of
cash or Net Agreed Value of all actual and deemed distributions of cash or
property made with respect to such Membership Interest pursuant to this
Agreement and (y) all items of Membership deduction and loss computed in
accordance with Section 5.5(b) and allocated with respect to such Membership
Interest pursuant to Section 6.1.
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(b) For purposes of computing the amount of any item of income, gain,
loss or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Members' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) Solely for purposes of this Section 5.5, the Company shall be
treated as owning directly its proportionate share (as determined by the
Manager) of all property owned by any Subsidiary that is classified as a
partnership for federal income tax purposes;
(ii) All fees and other expenses incurred by the Company to promote
the sale of (or to sell) a Membership Interest that can neither be deducted nor
amortized under Section 709 of the Code, if any, shall, for purposes of Capital
Account maintenance, be treated as an item of deduction at the time such fees
and other expenses are incurred and shall be allocated among the Members
pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of the
Code which may be made by the Company and, as to those items described in
Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact
that such items are not includable in gross income or are neither currently
deductible nor capitalized for federal income tax purposes. To the extent an
adjustment to the adjusted tax basis of any Company asset pursuant to Section
734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment in the Capital Accounts shall be treated
as an item of gain or loss.
(iv) Any income, gain or loss attributable to the taxable disposition
of any Company property shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the Company's
Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the Code,
any deductions for depreciation, cost recovery or amortization attributable to
any Contributed Property shall be determined as if the adjusted basis of such
property on the date it was acquired by the Company were equal to the Agreed
Value of such property. Upon an adjustment pursuant to Section 5.5(d) to the
Carrying Value of any Company property subject to depreciation, cost recovery or
amortization, any further deductions for such depreciation, cost recovery or
amortization attributable to such property shall be determined (A) as if the
adjusted basis of such property were equal to the Carrying Value of such
property immediately following such adjustment and (B) using a rate of
depreciation, cost recovery or amortization derived from the same method and
useful life (or, if applicable, the
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remaining useful life) as is applied for federal income tax purposes; provided,
however, that, if the asset has a zero adjusted basis for federal income tax
purposes, depreciation, cost recovery or amortization deductions shall be
determined using any reasonable method that the Manager may adopt.
(vi) If the Company's adjusted basis in a depreciable or cost recovery
property is reduced for federal income tax purposes pursuant to Section 48(q)(1)
or 48(q)(3) of the Code, the amount of such reduction shall, solely for purposes
hereof, be deemed to be an additional depreciation or cost recovery deduction in
the year such property is placed in service and shall be allocated among the
Members pursuant to Section 6.1. Any restoration of such basis pursuant to
Section 48(q)(2) of the Code shall, to the extent possible, be allocated in the
same manner to the Members to whom such deemed deduction was allocated.
(c) A transferee of a Membership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Membership
Interest so transferred.
(d) (i) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), on an issuance of additional Membership Interests for cash or
Contributed Property, the Capital Account of all Members and the Carrying Value
of each Company property immediately prior to such issuance shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company property, as if such Unrealized Gain or Unrealized
Loss had been recognized on an actual sale of each such property immediately
prior to such issuance and had been allocated to the Members at such time
pursuant to Section 6.1 in the same manner as any item of gain or loss actually
recognized during such period would have been allocated. In determining such
Unrealized Gain or Unrealized Loss, the aggregate cash amount and fair market
value of all Company assets (including, without limitation, cash or cash
equivalents) immediately prior to the issuance of additional Membership
Interests shall be determined by the Manager using such reasonable method of
valuation as it may adopt; provided, however, that the Manager, in arriving at
such valuation, must take fully into account the fair market value of the
Membership Interests of all Members at such time. The Manager shall allocate
such aggregate value among the assets of the Company (in such manner as it
determines in its discretion to be reasonable) to arrive at a fair market value
for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a
Member of any Company property (other than a distribution of cash that is not in
redemption or retirement of a Membership Interest), the Capital Accounts of all
Members and the Carrying Value of all Company property shall be adjusted upward
or downward to reflect any Unrealized Gain or Unrealized Loss attributable to
such Company property, as if such Unrealized Gain or Unrealized Loss had been
recognized in a sale of such property immediately prior to such distribution for
an amount equal to its fair market value, and had been allocated to the Members,
at such time, pursuant to Section 6.1 in the same manner as any item of gain or
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loss actually recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss the aggregate cash amount
and fair market value of all Company assets (including, without limitation, cash
or cash equivalents) immediately prior to a distribution shall (A) in the case
of an actual distribution which is not made pursuant to Section 12.4 or in the
case of a deemed contribution and/or distribution occurring as a result of a
termination of the Company pursuant to Section 708 of the Code, be determined
and allocated in the same manner as that provided in Section 5.5(d)(i) or (B) in
the case of a liquidating distribution pursuant to Section 12.4, be determined
and allocated by the Liquidator using such reasonable method of valuation as it
may adopt.
Section 5.6 Loans from Members.
Loans by a Member to the Company shall not constitute Capital
Contributions. If any Member shall advance funds to the Company in excess of
the amounts required hereunder to be contributed by it to the capital of the
Company, the making of such excess advances shall not result in any increase in
the amount of the Capital Account of such Member. The amount of any such excess
advances shall be a debt obligation of the Company to such Member and shall be
payable or collectible only out of the Company assets in accordance with the
terms and conditions upon which such advances are made.
Section 5.7 Limited Preemptive Rights.
Except as provided in Section 5.3, no Person shall have preemptive,
preferential or other similar rights with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Membership
Interests, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Company convertible into or exchangeable for, or carrying or accompanied by
any rights to receive, purchase or subscribe to, any such Membership Interests;
(d) issuance of any right of subscription to or right to receive, or any warrant
or option for the purchase of, any such Membership Interests; or (e) issuance or
sale of any other securities that may be issued or sold by the Company.
Section 5.8 Fully Paid and Non-Assessable Nature of Membership Interests.
All Membership Interests issued pursuant to, and in accordance with
the requirements of, this Article V shall be fully paid and non-assessable
Membership Interests, except as such non-assessability may be affected by
Section 18-607 of the Delaware Limited Liability Company Act.
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in determining
the rights of the Members among themselves, the Company's items of income, gain,
loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Members in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set
----------
forth in Section 6.1(d), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable year shall be allocated among the Members in accordance with their
respective Percentage Interests.
(b) Net Losses. After giving effect to the special allocations set
----------
forth in Section 6.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Losses for
such taxable period shall be allocated among the Members in accordance with
their respective Percentage Interests.
(c) Net Termination Gains and Losses. After giving effect to the
--------------------------------
special allocations set forth in Section 6.1(d), all items of income, gain, loss
and deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions of Available Cash provided under Section 6.4
have been made with respect to the taxable period ending on or before the
Liquidation Date; provided, however, that solely for purposes of this Section
6.1(c), Capital Accounts shall not be adjusted for distributions made pursuant
to Section 12.4.
(i) If a Net Termination Gain is recognized, such Net Termination Gain
shall be allocated among the Members in accordance with their respective
Percentage Interests.
(ii) If a Net Termination Loss is recognized, such Net Termination
Loss shall be allocated among the Members in accordance with their respective
Percentage Interests.
(d) Special Allocations. Notwithstanding any other provision of this
-------------------
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
-----------------------------------
provision of this Section 6.1, if there is a net decrease in Partnership Minimum
Gain during
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any Company taxable period, each Member shall be allocated items of Company
income and gain for such period (and, if necessary, subsequent periods) in the
manner and amounts provided in Treasury Regulation Sections 1.704-2(f)(6),
1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes of
this Section 6.1(d), each Member's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall be
effected, prior to the application of any other allocations pursuant to this
Section 6.1(d) with respect to such taxable period (other than an allocation
pursuant to Sections 6.1(d)(v) and 6.1(d)(vi)). This Section 6.1(d)(i) is
intended to comply with the Partnership Minimum Gain chargeback requirement in
Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently
therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
---------------------------------------------------
Notwithstanding the other provisions of this Section 6.1 (other than Section
6.1(d)(i)), except as provided in Treasury Regulation Section 1.704-2(i)(4), if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any
Company taxable period, any Member with a share of Partner Nonrecourse Debt
Minimum Gain at the beginning of such taxable period shall be allocated items of
Company income and gain for such period (and, if necessary, subsequent periods)
in the manner and amounts provided in Treasury Regulation Sections 1.704-2(i)(4)
and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section
6.1(d), each Member's Adjusted Capital Account balance shall be determined, and
the allocation of income or gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this Section 6.1(d), other
than Section 6.1(d)(i) and other than an allocation pursuant to Sections
6.1(d)(v) and 6.1(d)(vi), with respect to such taxable period. This Section
6.1(d)(ii) is intended to comply with the chargeback of items of income and gain
requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any Member unexpectedly
-----------------------
receives any adjustments, allocations or distributions described in Treasury
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-
1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations promulgated under Section 704(b) of the
Code, the deficit balance, if any, in its Adjusted Capital Account created by
such adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i) or
(ii).
(iv) Gross Income Allocations. In the event any Member has a deficit
------------------------
balance in its Capital Account at the end of any Company taxable period in
excess of the sum of (A) the amount such Member is required to restore pursuant
to the provisions of this Agreement and (B) the amount such Member is deemed
obligated to restore pursuant to Treasury Regulation Sections 1.704-2(g) and
1.704-2(i)(5), such Member shall be specially allocated items of Company gross
income and gain in the amount of such excess as quickly as possible; provided,
that an allocation pursuant to this Section 6.1(d)(iv) shall be made only
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if and to the extent that such Member would have a deficit balance in its
Capital Account as adjusted after all other allocations provided for in this
Section 6.1 have been tentatively made as if this Section 6.1(d)(iv) were not in
this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
----------------------
period shall be allocated to the Members in accordance with their respective
Percentage Interests. If the Manager determines in its good faith discretion
that the Company's Nonrecourse Deductions must be allocated in a different ratio
to satisfy the safe harbor requirements of the Treasury Regulations promulgated
under Section 704(b) of the Code, the Manager is authorized, upon notice to the
other Members, to revise the prescribed ratio to the numerically closest ratio
that does satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
------------------------------
for any taxable period shall be allocated 100% to the Member that bears the
Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable in accordance with Treasury
Regulation Section 1.704-2(i). If more than one Member bears the Economic Risk
of Loss with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or among such Members
in accordance with the ratios in which they share such Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury Regulation
-----------------------
Section 1.752-3(a)(3), the Members agree that Nonrecourse Liabilities of the
Company in excess of the sum of (A) the amount of Partnership Minimum Gain and
(B) the total amount of Nonrecourse Built-in Gain shall be allocated among the
Members in accordance with their respective Percentage Interests.
(viii) Code Section 754 Adjustments. To the extent an adjustment to
----------------------------
the adjusted tax basis of any Company asset pursuant to Section 734(b) or 743(c)
of the Code is required, pursuant to Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Treasury Regulations.
(ix) Curative Allocation.
-------------------
(A) Notwithstanding any other provision of this Section 6.1, other
than the Required Allocations, the Required Allocations shall be taken into
account in making the Agreed Allocations so that, to the extent possible, the
net amount of items of income, gain, loss and deduction allocated to each Member
pursuant to the Required Allocations and the Agreed Allocations, together, shall
be equal to the net amount
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of such items that would have been allocated to each such Member under the
Agreed Allocations had the Required Allocations and the related Curative
Allocation not otherwise been provided in this Section 6.1. Notwithstanding the
preceding sentence, Required Allocations relating to (1) Nonrecourse Deductions
shall not be taken into account except to the extent that there has been a
decrease in Partnership Minimum Gain and (2) Partner Nonrecourse Deductions
shall not be taken into account except to the extent that there has been a
decrease in Partner Nonrecourse Debt Minimum Gain. Allocations pursuant to this
Section 6.1(d)(ix)(A) shall only be made with respect to Required Allocations to
the extent the Manager reasonably determines that such allocations will
otherwise be inconsistent with the economic agreement among the Members.
Further, allocations pursuant to this Section 6.1(d)(ix)(A) shall be deferred
with respect to allocations pursuant to clauses (1) and (2) hereof to the extent
the Manager reasonably determines that such allocations are likely to be offset
by subsequent Required Allocations.
(B) The Manager shall have reasonable discretion, with respect to each
taxable period, to (1) apply the provisions of Section 6.1(d)(ix)(A) in whatever
order is most likely to minimize the economic distortions that might otherwise
result from the Required Allocations, and (2) divide all allocations pursuant to
Section 6.1(d)(ix)(A) among the Members in a manner that is likely to minimize
such economic distortions.
Section 6.2 Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Members in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Members as follows:
(i) (A) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Members in the manner provided under
Section 704(c) of the Code that takes into account the variation between the
Agreed Value of such property and its adjusted basis at the time of
contribution; and (B) any item of Residual Gain or Residual Loss attributable to
a Contributed Property shall be allocated among the Members in the same manner
as its correlative item of "book" gain or loss is allocated pursuant to Section
6.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Members in a manner consistent with the principles
of Section 704(c) of the Code
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to take into account the Unrealized Gain or Unrealized Loss attributable to such
property and the allocations thereof pursuant to Section 5.5(d)(i) or
5.5(d)(ii), and (2) second, in the event such property was originally a
Contributed Property, be allocated among the Members in a manner consistent with
Section 6.2(b)(i)(A); and (B) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the Members in the
same manner as its correlative item of "book" gain or loss is allocated pursuant
to Section 6.1.
(iii) The Manager shall apply the principles of Treasury Regulation
Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Company and for the
preservation of uniformity of the Membership Interests (or any class or classes
thereof), the Manager shall have sole discretion to (i) adopt such conventions
as it deems appropriate in determining the amount of depreciation, amortization
and cost recovery deductions; (ii) make special allocations for federal income
tax purposes of income (including, without limitation, gross income) or
deductions; and (iii) amend the provisions of this Agreement as appropriate (x)
to reflect the proposal or promulgation of Treasury Regulations under Section
704(b) or Section 704(c) of the Code or (y) otherwise to preserve or achieve
uniformity of the Membership Interests (or any class or classes thereof). The
Manager may adopt such conventions, make such allocations and make such
amendments to this Agreement as provided in this Section 6.2(c) only if such
conventions, allocations or amendments would not have a material adverse effect
on the Members and if such allocations are consistent with the principles of
Section 704 of the Code.
(d) The Manager in its discretion may determine to depreciate or
amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the Company's
common basis of such property, despite any inconsistency of such approach with
Proposed Treasury Regulation Section 1.168-2(n), Treasury Regulation Section
1.167(c)-l(a)(6) or the legislative history of Section 197 of the Code. If the
Manager determines that such reporting position cannot reasonably be taken, the
Manager may adopt depreciation and amortization conventions under which all
purchasers acquiring Membership Interests in the same month would receive
depreciation and amortization deductions, based upon the same applicable rate as
if they had purchased a direct interest in the Company's property. If the
Manager chooses not to utilize such aggregate method, the Manager may use any
other reasonable depreciation and amortization conventions to preserve the
uniformity of the intrinsic tax characteristics of any Membership Interests that
would not have a material adverse effect on the Members.
(e) Any gain allocated to the Members upon the sale or other taxable
disposition of any Company asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Members (or their predecessors in interest) have been
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allocated any deductions directly or indirectly giving rise to the treatment of
such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized
by the Company for federal income tax purposes and allocated to the Members in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Company;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) Each item of Company income, gain, loss and deduction attributable
to a transferred Company Interest, shall for federal income tax purposes, be
determined on an annual basis and prorated on a monthly basis and shall be
allocated to the Members as of the opening of the New York Stock Exchange on the
first Business Day of each month; provided, however, that (i) such items for the
period beginning on the Closing Date and ending on the last day of the month in
which the Option Closing Date or the expiration of the Over-allotment Option
occurs shall be allocated to the Members as of the opening of the New York Stock
Exchange on the first Business Day of the next succeeding month; and provided,
further, that gain or loss on a sale or other disposition of any assets of the
Company other than in the ordinary course of business shall be allocated to the
Members as of the opening of the New York Stock Exchange on the first Business
Day of the month in which such gain or loss is recognized for federal income tax
purposes. The Manager may revise, alter or otherwise modify such methods of
allocation as it determines necessary, to the extent permitted or required by
Section 706 of the Code and the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Member under the
provisions of this Article VI shall instead be made to the beneficial owner of
Membership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Company in accordance with Section
6031(c) of the Code or any other method acceptable to the Manager in its sole
discretion.
Section 6.3 Distributions.
(a) Within 45 days following the end of each Quarter commencing with
the Quarter ending on December 31, 1997, an amount equal to 100% of Available
Cash with respect to such Quarter shall, subject to Section 18-607 of the
Delaware Limited Liability Company Act, be distributed in accordance with this
Article VI by the Company to the Members in accordance with their respective
Percentage Interests. The immediately preceding sentence shall not require any
distribution of cash if and to the extent such distribution would be prohibited
by applicable law or by any loan agreement, security agreement, mortgage, debt
instrument or other agreement or obligation to which the Company is a party or
by which it is bound or its assets are subject. All distributions required to
be made under this Agreement shall be made subject to Section 18-607 of the
Delaware Limited Liability Company Act.
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(b) In the event of the dissolution and liquidation of the Company,
all receipts received during or after the Quarter in which the Liquidation Date
occurs, other than from borrowings described in (a)(ii) of the definition of
Available Cash, shall be applied and distributed solely in accordance with, and
subject to the terms and conditions of, Section 12.4.
(c) The Manager shall have the discretion to treat taxes paid by the
Company on behalf of, or amounts withheld with respect to, all or less than all
of the Members, as a distribution of Available Cash to such Members.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.
(a) The Manager shall conduct, direct and manage all activities of the
Company. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Company shall be
exclusively vested in the Manager, and no Member shall have any management power
over the business and affairs of the Company. In addition to the powers now or
hereafter granted a manager of a limited liability company under applicable law
or which are granted to the Manager under any other provision of this Agreement,
the Manager, subject to Section 7.3, shall have full power and authority to do
all things and on such terms as it, in its sole discretion, may deem necessary
or appropriate to conduct the business of the Company, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of money,
the assumption or guarantee of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of indebtedness, including indebtedness
that is convertible into a Membership Interest, and the incurring of any other
obligations;
(ii) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Company;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Company or the
merger or other combination of the Company with or into another Person (the
matters described in this clause (iii) being subject, however, to any prior
approval that may be required by Section 7.3);
(iv) the use of the assets of the Company (including cash on hand) for
any purpose consistent with the terms of this Agreement, including the financing
of the conduct of the operations of the Company Group, the lending of funds to
other Persons (including the
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Company), the repayment of obligations of the Company Group and the making of
capital contributions to any member of the Company Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the liability
of the Company under contractual arrangements to all or particular assets of the
Company, with the other party to the contract to have no recourse against the
Manager or its assets other than its interest in the Company, even if same
results in the terms of the transaction being less favorable to the Company than
would otherwise be the case);
(vi) the distribution of Company cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Company Group and the Members as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations or other relationships
subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations of
the Company, including the bringing and defending of actions at law or in equity
and otherwise engaging in the conduct of litigation and the incurring of legal
expense and the settlement of claims and litigation;
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law.
(b) Notwithstanding any other provision of this Agreement, the MLP
Agreement, the Delaware Limited Liability Company Act or any applicable law,
rule or regulation, each of the Members and each other Person who may acquire an
interest in the Company hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of the MLP Agreement,
the Underwriting Agreement, the Contribution and Conveyance Agreement, the
agreements and other documents filed as exhibits to the Registration Statement,
and the other agreements described in or filed as a part of the Registration
Statement; (ii) agrees that the Manager (on its own or through any officer or
member of the Company) is authorized to execute, deliver and perform the
agreements referred to in clause (i) of this sentence and the other agreements,
acts, transactions and matters described in or contemplated by the Registration
Statement on behalf of the
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Company without any further act, approval or vote of the Members or the other
Persons who may acquire an interest in the Company; and (iii) agrees that the
execution, delivery or performance by the Manager, any Group Member or any
Affiliate of any of them, of this Agreement or any agreement authorized or
permitted under this Agreement (including the exercise by the Manager or any
Affiliate of the Manager of the rights accorded pursuant to Article XV), shall
not constitute a breach by the Manager of any duty that the Manager may owe the
Company or the Members or any other Persons under this Agreement (or any other
agreements) or of any duty stated or implied by law or equity.
Section 7.2 Certificate of Formation.
The Manager has caused the Certificate of Formation to be filed with
the Secretary of State of the State of Delaware as required by the Delaware
Limited Liability Company Act and shall use all reasonable efforts to cause to
be filed such other certificates or documents as may be determined by the
Manager in its sole discretion to be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited liability
company in the State of Delaware or any other state in which the Company may
elect to do business or own property. To the extent that such action is
determined by the Manager in its sole discretion to be reasonable and necessary
or appropriate, the Manager shall file amendments to and restatements of the
Certificate of Formation and do all things to maintain the Company as a limited
liability company under the laws of the State of Delaware or of any other state
in which the Company may elect to do business or own property. Subject to the
terms of Section 3.4(a), the Manager shall not be required, before or after
filing, to deliver or mail a copy of the Certificate of Formation, any
qualification document or any amendment thereto to any Member.
Section 7.3 Restrictions on Manager's Authority.
(a) The Manager may not, without written approval of the specific act
by the Members or by other written instrument executed and delivered by the
Members subsequent to the date of this Agreement, take any action in
contravention of this Agreement, including, except as otherwise provided in this
Agreement, (i) committing any act that would make it impossible to carry on the
ordinary business of the Company; (ii) possessing Company property, or assigning
any rights in specific Company property, for other than a Company purpose; (iii)
admitting a Person as a Member; or (iv) amending this Agreement in any manner.
(b) Except as provided in Articles XII and XIV, the Manager may not
sell, exchange or otherwise dispose of all or substantially all of the Company's
assets in a single transaction or a series of related transactions or approve on
behalf of the Company the sale, exchange or other disposition of all or
substantially all of the assets of the Company, without the approval of the
Members; provided however that this provision shall not preclude or limit the
Manager's ability to mortgage, pledge, hypothecate or grant a security interest
in all or substantially all of the assets of the Company and shall not apply to
any forced sale of any or all of the assets of the Company pursuant to the
foreclosure of, or other realization upon, any such encumbrance. Without the
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approval of a Unit Majority, the Manager shall not, on behalf of the MLP, (i)
consent to any amendment to this Agreement or, except as expressly permitted by
Section 7.9(d) of the MLP Agreement, take any action permitted to be taken by a
Member, in either case, that would have a material adverse effect on the MLP as
a Member or (ii) except as permitted under Sections 11.1 and 11.2 of the MLP
Agreement, elect or cause the MLP to elect a successor manager of the Company.
Section 7.4 Reimbursement of the Manager.
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement, the Manager shall not be compensated for its services as general
partner of the MLP or as general partner or managing member of any Group Member.
(b) The Manager shall be reimbursed on a monthly basis, or such other
reasonable basis as the Manager may determine in its sole discretion, for (i)
all direct and indirect expenses it incurs or payments it makes on behalf of the
Company (including salary, bonus, incentive compensation and other amounts paid
to any Person including Affiliates of the Manager to perform services for the
Company or for the Manager in the discharge of its duties to the Company), and
(ii) all other necessary or appropriate expenses allocable to the Company or
otherwise reasonably incurred by the Manager in connection with operating the
Company's business (including expenses allocated to the Manager by its
Affiliates). The Manager shall determine the expenses that are allocable to the
Company in any reasonable manner determined by the Manager in its sole
discretion. Reimbursements pursuant to this Section 7.4 shall be in addition to
any reimbursement to the Manager as a result of indemnification pursuant to
Section 7.7.
(c) The Manager, in its sole discretion and without the approval of
any other Member (who shall have no right to vote in respect thereof), may
propose and adopt on behalf of the Company employee benefit plans, employee
programs and employee practices, or cause the Company to issue Company
securities, in connection with, pursuant to any employee benefit plan, employee
program or employee practice maintained or sponsored by the Manager or any of
its Affiliates, in each case for the benefit of employees of the Manager any
Group Member or any Affiliate, or any of them, in respect of services performed,
directly or indirectly, for the benefit of the Company Group. Expenses incurred
by the Manager in connection with any such plans, programs and practices shall
be reimbursed in accordance with Section 7.4(b). Any and all obligations of the
Manager under any employee benefit plans, employee programs or employee
practices adopted by the Manager as permitted by this Section 7.4(c) shall
constitute obligations of the Manager hereunder and shall be assumed by any
successor Manager approved pursuant to Section 11.1 or 11.2 or the transferee of
or successor to all of the Manager's Membership Interest pursuant to Section
4.2.
Section 7.5 Outside Activities.
(a) After the Closing Date, the Manager, for so long as it is the
Manager of the Company, (i) agrees that its sole business will be to act as the
Manager of the Company, the general
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partner of the MLP, and a general partner or managing member of any other
partnership or limited liability company of which the Partnership or the Company
is, directly or indirectly, a partner or member and to undertake activities that
are ancillary or related thereto (including being a limited partner in the MLP),
(ii) shall not engage in any business or activity or incur any debts or
liabilities except in connection with or incidental to (A) its performance as
general partner of the MLP or as general partner or managing member of one or
more Group Members or as described in or contemplated by the Registration
Statement or (B) the acquiring, owning or disposing of debt or equity securities
in any Group Member and (iii) shall not engage in the retail sale of timber to
end users in the continental United States.
(b) Except as specifically restricted by Section 7.5(a), each
Indemnitee (other than the Manager) shall have the right to engage in businesses
of every type and description and other activities for profit and to engage in
and possess an interest in other business ventures of any and every type or
description, whether in businesses engaged in or anticipated to be engaged in by
any Group Member, independently or with others, including business interests and
activities (other than Restricted Activities in North America) in direct
competition with the business and activities of any Group Member, and none of
the same shall constitute a breach of this Agreement or any duty express or
implied by law to any Group Member or any Member or Assignee. Neither any Group
Member, any Member nor any other Person shall have any rights by virtue of this
Agreement or the relationship established hereby in any business ventures of any
Indemnitee.
(c) Subject to the terms of Section 7.5(a) and 7.5(b), but otherwise
notwithstanding anything to the contrary in this Agreement, (i) the engaging in
competitive activities by any Indemnitees (other than the Manager) in accordance
with the provisions of this Section 7.5 is hereby approved by the Company and
all Members and (ii) it shall be deemed not to be a breach of the Manager's
fiduciary duty or any other obligation of any type whatsoever of the Manager for
the Indemnitees (other than the Manager) to engage in such business interests
and activities in preference to or to the exclusion of the Company (including,
without limitation, the Manager and the Indemnities shall have no obligation to
present business opportunities to the Company).
(d) The Manager and any of its Affiliates may acquire Common Units or
other MLP Securities in addition to those acquired on the Closing Date and,
except as otherwise provided in this Agreement, shall be entitled to exercise
all rights relating to such Common Units or MLP Securities.
(e) The term "Affiliates" when used in Sections 7.5(a) and 7.5(b) with
respect to the Manager shall not include any Group Member or any Subsidiary of
the Group Member.
(f) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the Manager to the Company and its Members, or to
constitute a waiver or consent by the Members to any such restriction, such
provisions shall be
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inapplicable and have no effect in determining whether the Manager has complied
with its fiduciary duties in connection with determinations made by it under
this Section 7.5.
Section 7.6 Loans from the Manager; Loans or Contributions from the
Company; Contracts with Affiliates; Certain Restrictions on the Manager.
(a) The Manager or its Affiliates may lend to any Group Member, and
any Group Member may borrow from the Manager or any of its Affiliates, funds
needed or desired by the Group Member for such periods of time and in such
amounts as the Manager may determine; provided, however, that in any such case
the lending party may not charge the borrowing party interest at a rate greater
than the rate that would be charged the borrowing party or impose terms less
favorable to the borrowing party than would be charged or imposed on the
borrowing party by unrelated lenders on comparable loans made on an arm's-length
basis (without reference to the lending party's financial abilities or
guarantees). The borrowing party shall reimburse the lending party for any costs
(other than any additional interest costs) incurred by the lending party in
connection with the borrowing of such funds. For purposes of this Section 7.6(a)
and Section 7.6(b), the term "Group Member" shall include any Affiliate of a
Group Member that is controlled by the Group Member. No Group Member may lend
funds to the Manager or any of its Affiliates (other than another Group Member).
(b) The Company may lend or contribute to any Group Member, and any
Group Member may borrow from the Company, funds on terms and conditions
established in the sole discretion of the Manager; provided, however, that the
Company may not charge the Group Member interest at a rate less than the rate
that would be charged to the Group Member (without reference to the Manager's
financial abilities or guarantees) by unrelated lenders on comparable loans. The
foregoing authority shall be exercised by the Manager in its sole discretion and
shall not create any right or benefit in favor of any Group Member or any other
Person.
(c) The Manager may itself, or may enter into an agreement with any of
its Affiliates to, render services to a Group Member or to the Manager in the
discharge of its duties as general partner of the Company. Any services rendered
to a Group Member by the Manager or any of its Affiliates shall be on terms that
are fair and reasonable to the Company; provided, however, that the requirements
of this Section 7.6(c) shall be deemed satisfied as to (i) any transaction
approved by Special Approval, (ii) any transaction, the terms of which are no
less favorable to the Company Group than those generally being provided to or
available from unrelated third parties or (iii) any transaction that, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Company Group), is equitable to the Company Group. The provisions of
Section 7.4 shall apply to the rendering of services described in this Section
7.6(c).
(d) The Company Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
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(e) Neither the Manager nor any of its Affiliates shall sell, transfer
or convey any property to, or purchase any property from, the Company, directly
or indirectly, except pursuant to transactions that are fair and reasonable to
the Company; provided, however, that the requirements of this Section 7.6(e)
shall be deemed to be satisfied as to (i) the transactions effected pursuant to
Sections 5.2 and 5.3, the Contribution and Conveyance Agreement and any other
transactions described in or contemplated by the Registration Statement, (ii)
any transaction approved by Special Approval, (iii) any transaction, the terms
of which are no less favorable to the Company than those generally being
provided to or available from unrelated third parties, or (iv) any transaction
that, taking into account the totality of the relationships between the parties
involved (including other transactions that may be particularly favorable or
advantageous to the Company), is equitable to the Company.
(f) The Manager and its Affiliates will have no obligation to permit
any Group Member to use any facilities or assets of the Manager and its
Affiliates, except as may be provided in contracts entered into from time to
time specifically dealing with such use, nor shall there be any obligation on
the part of the Manager or its Affiliates to enter into such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Members.
Section 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the Company from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest, settlements or
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
any Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided, that in each case
the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in, or (in the case of a Person other than the
Manager) not opposed to, the best interests of the Company and, with respect to
any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful; provided, further, no indemnification pursuant to this Section 7.7
shall be available to the Manager with respect to its obligations incurred
pursuant to the Underwriting Agreement or the Contribution and Conveyance
Agreement (other than obligations incurred by the Manager on behalf of the MLP
or the Company). The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that the Indemnitee acted in a manner
contrary to that specified above. Any indemnification pursuant to this Section
7.7 shall be made only out of the assets of the Company, it being agreed that
the Manager shall not be personally liable for such indemnification and shall
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have no obligation to contribute or loan any monies or property to the Company
to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Company prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Company of
any undertaking by or on behalf of the Indemnitee to repay such amount if it
shall be determined that the Indemnitee is not entitled to be indemnified as
authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Members, as a matter of law or otherwise,
both as to actions in the Indemnitee's capacity as an Indemnitee and as to
actions in any other capacity (including any capacity under the Underwriting
Agreement), and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee.
(d) The Company may purchase and maintain (or reimburse the Manager or
its Affiliates for the cost of) insurance, on behalf of the Manager, its
Affiliates and such other Persons as the Manager shall determine, against any
liability that may be asserted against or expense that may be incurred by such
Person in connection with the Company's activities or such Person's activities
on behalf of the Company, regardless of whether the Company would have the power
to indemnify such Person against such liability under the provisions of this
Agreement.
(e) For purposes of this Section 7.7, the Company shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Company also imposes duties
on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute "fines"
within the meaning of Section 7.7(a); and action taken or omitted by it with
respect to any employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is in, or
not opposed to, the best interests of the Company.
(f) In no event may an Indemnitee subject the Members to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
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(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Company, nor the
obligations of the Company to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the Company,
the Members, the Assignees or any other Persons who have acquired interests in
the Company, for losses sustained or liabilities incurred as a result of any act
or omission if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as Manager set forth in
Section 7.1(a), the Manager may exercise any of the powers granted to it by this
Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the Manager shall not be responsible
for any misconduct or negligence on the part of any such agent appointed by the
Manager in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Company or
to the Members, the Manager and any other Indemnitee acting in connection with
the Company's business or affairs shall not be liable to the Company or to any
Member for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict or otherwise
modify the duties and liabilities of an Indemnitee otherwise existing at law or
in equity, are agreed by the Members to replace such other duties and
liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Company, the Members, the Manager, and the
Company's and Manager's directors, officers and employees under this Section 7.8
as in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
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Section 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement, whenever a
potential conflict of interest exists or arises between the Manager or any of
its Affiliates, on the one hand, and the Company, any Member or any Assignee, on
the other, any resolution or course of action by the Manager or its Affiliates
in respect of such conflict of interest shall be permitted and deemed approved
by all Members, and shall not constitute a breach of this Agreement, of any
agreement contemplated herein, or of any duty stated or implied by law or
equity, if the resolution or course of action is, or by operation of this
Agreement is deemed to be, fair and reasonable to the Company. The Manager shall
be authorized but not required in connection with its resolution of such
conflict of interest to seek Special Approval of such resolution. Any conflict
of interest and any resolution of such conflict of interest shall be
conclusively deemed fair and reasonable to the Company if such conflict of
interest or resolution is (i) approved by Special Approval (as long as the
material facts known to the Manager or any of its Affiliates regarding any
proposed transaction were disclosed to the Conflicts Committee at the time it
gave its approval), (ii) on terms no less favorable to the Company than those
generally being provided to or available from unrelated third parties or (iii)
fair to the Company, taking into account the totality of the relationships
between the parties involved (including other transactions that may be
particularly favorable or advantageous to the Company). The Manager may also
adopt a resolution or course of action that has not received Special Approval.
The Manager (including the Conflicts Committee in connection with Special
Approval) shall be authorized in connection with its determination of what is
"fair and reasonable" to the Company and in connection with its resolution of
any conflict of interest to consider (A) the relative interests of any party to
such conflict, agreement, transaction or situation and the benefits and burdens
relating to such interest; (B) any customary or accepted industry practices and
any customary or historical dealings with a particular Person; (C) any
applicable generally accepted accounting practices or principles; and (D) such
additional factors as the Manager (including the Conflicts Committee) determines
in its sole discretion to be relevant, reasonable or appropriate under the
circumstances. Nothing contained in this Agreement, however, is intended to nor
shall it be construed to require the Manager (including the Conflicts Committee)
to consider the interests of any Person other than the Company. In the absence
of bad faith by the Manager, the resolution, action or terms so made, taken or
provided by the Manager with respect to such matter shall not constitute a
breach of this Agreement or any other agreement contemplated herein or a breach
of any standard of care or duty imposed herein or therein or, to the extent
permitted by law, under the Delaware Limited Liability Company Act or any other
law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the Manager or any of its Affiliates is permitted or required to
make a decision (i) in its "sole discretion" or "discretion," that it deems
"necessary or appropriate" or "necessary or advisable" or under a grant of
similar authority or latitude, except as otherwise provided herein, the Manager
or such Affiliate shall be entitled to consider only such interests and factors
as it desires and shall have no duty or obligation to give any consideration to
any interest of, or factors affecting, the Company, any Member or any Assignee,
(ii) it may make such decision in its sole discretion (regardless of whether
there is a reference to "sole discretion" or "discretion") unless another
express
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standard is provided for, or (iii) in "good faith" or under another express
standard, the Manager or such Affiliate shall act under such express standard
and shall not be subject to any other or different standards imposed by this
Agreement, the MLP Agreement, any other agreement contemplated hereby or under
the Delaware Limited Liability Company Act or any other law, rule or regulation.
In addition, any actions taken by the Manager or such Affiliate consistent with
the standards of "reasonable discretion" set forth in the definition of
Available Cash shall not constitute a breach of any duty of the Manager to the
Company or the Members. The Manager shall have no duty, express or implied, to
sell or otherwise dispose of any asset of the Company Group other than in the
ordinary course of business. No borrowing by any Group Member or the approval
thereof by the Manager shall be deemed to constitute a breach of any duty of the
Manager to the Company or the Members.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The MLP hereby authorizes the Manager, on behalf of the Company as
a partner or member of a Group Member, to approve of actions by the general
partner or managing member of such Group Member similar to those actions
permitted to be taken by the Manager pursuant to this Section 7.9.
Section 7.10 Other Matters Concerning the Manager.
(a) The Manager may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The Manager may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the Manager reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
(c) The Manager shall have the right, in respect of any of its powers
or obligations hereunder, to act through any of its duly authorized officers, a
duly appointed attorney or attorneys-in-fact or the duly authorized officers of
the Company.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Limited Liability Company Act or any applicable law, rule or
regulation shall be modified, waived or limited, to the extent permitted by law,
as required to permit the Manager to act under this Agreement or any other
agreement contemplated by this Agreement and to make any decision
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pursuant to the authority prescribed in this Agreement, so long as such action
is reasonably believed by the Manager to be in, or not inconsistent with, the
best interests of the Company.
Section 7.11 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Company shall be entitled to assume that the Manager and any
officer of the Manager authorized by the Manager to act on behalf of and in the
name of the Company has full power and authority to encumber, sell or otherwise
use in any manner any and all assets of the Company and to enter into any
authorized contracts on behalf of the Company, and such Person shall be entitled
to deal with the Manager or any such officer as if it were the Company's sole
party in interest, both legally and beneficially. Each Member hereby waives any
and all defenses or other remedies that may be available against such Person to
contest, negate or disaffirm any action of the Manager or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
Manager or any such officer or its representatives be obligated to ascertain
that the terms of the Agreement have been complied with or to inquire into the
necessity or expedience of any act or action of the Manager or any such officer
or its representatives. Each and every certificate, document or other instrument
executed on behalf of the Company by the Manager or its representatives shall be
conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Company and (c) such certificate, document or instrument was duly executed and
delivered in accordance with the terms and provisions of this Agreement and is
binding upon the Company.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting.
The Manager shall keep or cause to be kept at the principal office of
the Company appropriate books and records with respect to the Company's
business, including all books and records necessary to provide to the Members
any information required to be provided pursuant to Section 3.4(a). Any books
and records maintained by or on behalf of the Company in the regular course of
its business, including books of account and records of Company proceedings, may
be kept on, or be in the form of, computer disks, hard drives, punch cards,
magnetic tape, photographs, micrographics or any other information storage
device; provided, that the books and records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Company shall be maintained, for financial reporting purposes, on an accrual
basis in accordance with U.S. GAAP.
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Section 8.2 Fiscal Year.
The fiscal year of the Company shall be a fiscal year ending December
31.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information.
The Company shall timely file all returns of the Company that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by the Members for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Company's taxable year ends.
The classification, realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
Section 9.2 Tax Elections.
(a) The Company shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the Manager's
determination that such revocation is in the best interests of the Members.
(b) The Company shall elect to deduct expenses incurred in organizing
the Company ratably over a sixty-month period as provided in Section 709 of the
Code.
(c) Except as otherwise provided herein, the Manager shall determine
whether the Company should make any other elections permitted by the Code.
Section 9.3 Tax Controversies.
Subject to the provisions hereof, the Manager is designated as the
"tax matters partner" (as defined in the Code) and is authorized and required to
represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Company funds for
professional services and costs associated therewith. Each Member agrees to
cooperate with the Manager and to do or refrain from doing any or all things
reasonably required by the Manager to conduct such proceedings.
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Section 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the Manager is
authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Company to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Company is required or elects to withhold and
pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Member (including, without limitation, by reason
of Section 1446 of the Code), the amount withheld may at the discretion of the
Manager be treated by the Company as a distribution of cash pursuant to Section
6.3 in the amount of such withholding from such Member.
ARTICLE X
ADMISSION OF MEMBERS
Section 10.1 Admission of MLP as a Member.
Upon the transfers and conveyances described in Section 5.2, the MLP
shall be admitted to the Company as a Member.
Section 10.2 Admission of Substituted Members.
By transfer of a Membership Interest in accordance with Article IV,
the transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Member subject to the conditions of, and in the
manner permitted under, this Agreement. A transferor of a Membership Interest
shall, however, only have the authority to convey to a purchaser or other
transferee (a) the right to negotiate such Membership Interest to a purchaser or
other transferee and (b) the right to request admission as a Substituted Member
to such purchaser or other transferee in respect of the transferred Membership
Interests. Each transferee of a Membership Interest shall be an Assignee and be
deemed to have applied to become a Substituted Member with respect to the
Interests so transferred to such Person. Such Assignee shall become a
Substituted Member (x) at such time as the Members consent thereto, which
consent may be given or withheld in the Members' discretion, and (y) when any
such admission is shown on the books and records of the Company. If such consent
is withheld, such transferee shall remain an Assignee. An Assignee shall have an
interest in the Company equivalent to that of a Member with respect to
allocations and distributions, including liquidating distributions, of the
Company. With respect to voting rights attributable to Membership Interests that
are held by Assignees, the Manager shall be deemed to be the Member with respect
thereto and shall, in exercising the voting rights in respect of such Interests
on any matter, vote such Membership Interests at the written direction of the
Assignee. If no such written direction is received, such Membership Interests
will not be voted. An Assignee shall have no other rights of a Member.
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Section 10.3 Admission of Additional Members.
(a) A Person (other than an Initial Member or a Substituted Member)
who makes a Capital Contribution to the Company in accordance with this
Agreement shall be admitted to the Company as an Additional Member only upon
furnishing to the Manager (i) evidence of acceptance in form satisfactory to the
Manager of all of the terms and conditions of this Agreement, including the
power of attorney granted in Section 2.6, and (ii) such other documents or
instruments as may be required in the discretion of the Manager to effect such
Person's admission as an Additional Member.
(b) Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Member without the consent of the
Manager, which consent may be given or withheld in the Manager's discretion. The
admission of any Person as an Additional Member shall become effective on the
date upon which the name of such Person is recorded as such in the books and
records of the Company, following the consent of the Manager to such admission.
Section 10.4 Admission of Successor or Transferee General Partner.
A successor Manager approved pursuant to Section 11.1 or 11.2 or the
transferee of or successor to all of the Manager's Membership Interest pursuant
to Section 4.2 who is proposed to be admitted as a successor Manager shall,
subject to compliance with the terms of Section 11.3, if applicable, be admitted
to the Company as the Manager, effective immediately prior to the withdrawal or
removal of the predecessor or transferring Manager pursuant to Section 11.1 or
11.2 or the transfer of the Manager's Membership Interest pursuant to Section
4.2, provided, however, that no such successor shall be admitted to the Company
until compliance with the terms of Section 4.2 has occurred and such successor
has executed and delivered such other documents or instruments as may be
required to effect such admission. Any such successor shall, subject to the
terms hereof, carry on the business of the members of the Company Group without
dissolution.
Section 10.5 Amendment of Agreement and Certificate of Formation.
To effect the admission to the Company of any Member, the Manager
shall take all steps necessary and appropriate under the Delaware Limited
Liability Company Act to amend the records of the Company to reflect such
admission and, if necessary, to prepare as soon as practicable an amendment to
this Agreement and, if required by law, the Manager shall prepare and file an
amendment to the Certificate of Formation, and the Manager may for this purpose,
among others, exercise the power of attorney granted pursuant to Section 2.6.
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ARTICLE XI
WITHDRAWAL OR REMOVAL OF MEMBERS
Section 11.1 Withdrawal of the Manager.
(a) The Manager shall be deemed to have withdrawn from the Company
upon the occurrence of any one of the following events (each such event herein
referred to as an "Event of Withdrawal");
(i) The Manager voluntarily withdraws from the Company by giving
written notice to the other Members;
(ii) The Manager transfers all of its rights as Manager pursuant to
Section 4.2;
(iii) The Manager is removed pursuant to Section 11.2;
(iv) The Manager withdraws from, or is removed as the General Partner
of, the MLP;
(v) The Manager (A) makes a general assignment for the benefit of
creditors; (B) files a voluntary bankruptcy petition for relief under Chapter 7
of the United States Bankruptcy Code; (C) files a petition or answer seeking for
itself a liquidation, dissolution or similar relief (but not a reorganization)
under any law; (D) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the Manager in a
proceeding of the type described in clauses (A)-(C) of this Section 11.1(a)(v);
or (E) seeks, consents to or acquiesces in the appointment of a trustee (but not
a debtor in possession), receiver or liquidator of the Manager or of all or any
substantial part of its properties;
(vi) A final and non-appealable order of relief under Chapter 7 of the
United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against the
Manager; or
(vii) (A) in the event the Manager is a corporation, a certificate of
dissolution or its equivalent is filed for the Manager, or 90 days expire after
the date of notice to the Manager of revocation of its charter without a
reinstatement of its charter, under the laws of its state of incorporation; (B)
in the event the Manager is a partnership or limited liability company, the
dissolution and commencement of winding up of the Manager; (C) in the event the
Manager is acting in such capacity by virtue of being a trustee of a trust, the
termination of the trust; (D) in the event the Manager is a natural person, his
death or adjudication of incompetency; and (E) otherwise in the event of the
termination of the Manager.
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If an Event of Withdrawal specified in Section 11.1(a)(iv)(with
respect to withdrawal), (v), (vi) or (vii)(A), (B), (C) or (E) occurs, the
withdrawing Manager shall give notice to the other Members within 30 days after
such occurrence. The Members hereby agree that only the Events of Withdrawal
described in this Section 11.1 shall result in the withdrawal of the Manager
from the Company.
(b) Withdrawal of the Manager from the Company upon the occurrence of
an Event of Withdrawal shall not constitute a breach of this Agreement under the
following circumstances: (i) at any time during the period beginning on the
Closing Date and ending at 12:00 midnight, Eastern Standard Time, on December
31, 2007, the Manager voluntarily withdraws by giving at least 90 days' advance
notice of its intention to withdraw to the other Members; provided that prior to
the effective date of such withdrawal, the withdrawal is approved by the MLP and
the Manager delivers to the Company an Opinion of Counsel ("Withdrawal Opinion
of Counsel") that such withdrawal (following the selection of the successor
General Partner) would not result in the loss of the limited liability of any
Member or of the limited partners of the MLP or cause the Company or the MLP to
be treated as an association taxable as a corporation or otherwise to be taxed
as an entity for federal income tax purposes (to the extent not previously
treated as such); (ii) at any time after 12:00 midnight, Eastern Standard Time,
on December 31, 2007, the Manager voluntarily withdraws by giving at least 90
days' advance notice to the MLP, such withdrawal to take effect on the date
specified in such notice; (iii) at any time that the Manager ceases to be the
Manager pursuant to Section 11.1(a)(ii), (iii) or (iv). If the Manager gives a
notice of withdrawal pursuant to Section 11.1(a)(i) hereof or Section 11.1(a)(i)
of the MLP Agreement, the MLP may, prior to the effective date of such
withdrawal, elect a successor Manager; provided, however, that such successor
shall be the same person, if any, that is elected by the limited partners of the
MLP pursuant to Section 11.1 of the MLP Agreement as the successor to the
general partner of the MLP. If, prior to the effective date of the Manager's
withdrawal, a successor is not selected by the limited partners of the MLP as
provided herein or the Company does not receive a Withdrawal Opinion of Counsel,
the Company shall be dissolved in accordance with Section 12.1. Any successor
Manager elected in accordance with the terms of this Section 11.1 shall be
subject to the provisions of Section 10.3.
Section 11.2 Removal of the Manager.
The Manager shall be removed if the Manager is removed as the general
partner of the MLP pursuant to Section 11.2 of the MLP Agreement. Such removal
shall be effective concurrently with the effectiveness of the removal of the
Manager as the general partner of the MLP pursuant to the terms of the MLP
Agreement. If a successor Manager is elected in connection with the removal of
the Manager, such successor Manager shall, upon admission pursuant to Article X,
automatically become the successor Manager of the Company. The admission of any
such successor Manager to the Company shall be subject to the provisions of
Section 10.3.
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Section 11.3 Interest of Departing Manager.
(a) The Membership Interest of the Departing Manager departing as a
result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall (unless
it is otherwise required to be converted into Common Units pursuant to Section
11.3(b) of the MLP Agreement) be purchased by the successor to the Departing
Manager for cash in the manner specified in the MLP Agreement. Such purchase (or
conversion into Common Units, as applicable) shall be a condition to the
admission to the Company of the successor as the Manager. Any successor Manager
shall indemnify the Departing Manager as to all debts and liabilities of the
Company arising on or after the effective date of the withdrawal or removal of
the Departing Manager.
(b) The Departing Manager shall be entitled to receive all
reimbursements due such Departing Manager pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Manager for the benefit of the Company.
Section 11.4 Withdrawal of Members Other than Manager.
Without the prior written consent of the Manager, which may be granted
or withheld in its sole discretion, and except as provided in Section 10.1, no
Member (other than the Manger, whose rights to withdraw are governed by Sections
11.1, 11.2 and 11.3) shall have the right to withdraw from the Company.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution.
The Company shall not be dissolved by the admission of Substituted
Members or Additional Members or by the admission of a successor Manager in
accordance with the terms of this Agreement. Upon the removal or withdrawal of
the Manager, if a successor Manager is elected pursuant to Section 11.1 or 11.2,
the Company shall not be dissolved and such successor Manager shall continue the
business of the Company. The Company shall dissolve, and (subject to Section
12.2) its affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the Manager as provided in Section
11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an
Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and such
successor is admitted to the Company pursuant to Section 10.3;
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(c) an election to dissolve the Company by the Manager that is
approved by all of the Members;
(d) the entry of a decree of judicial dissolution of the Company
pursuant to the provisions of the Delaware Limited Liability Company Act;
(e) the sale of all or substantially all of the assets and properties
of the Company Group; or
(f) the dissolution of the MLP.
Section 12.2 Continuation of the Business of the Company After Dissolution.
Upon (a) dissolution of the Company following an Event of Withdrawal
caused by the withdrawal or removal of the Manager as provided in Section
11.1(a)(i) or (iii) and the failure of the Members to select a successor to such
Departing Manager pursuant to Section 11.1 or 11.2, then within 90 days
thereafter, or (b) dissolution of the Company upon an event constituting an
Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or (vi) of the MLP
Agreement, then, to the maximum extent permitted by law, within 180 days
thereafter, the Members may elect to reconstitute the Company and continue its
business on the same terms and conditions set forth in this Agreement by forming
a new limited liability company on terms identical to those set forth in this
Agreement and having as a Manager a Person approved by the Members. In
addition, upon dissolution of the Company pursuant to Section 12.1(f), if the
MLP is reconstituted pursuant to Section 12.2 of the MLP Agreement, the
reconstituted MLP may, within 180 days after such event of dissolution, acting
alone, regardless of whether there are any other Members (other than the
Manager), elect to reconstitute the Company in accordance with the immediately
preceding sentence. Upon any such election by the Members or the MLP, as the
case may be, all Members shall be bound thereby and shall be deemed to have
approved same. Unless such an election is made within the applicable time
period as set forth above, the Company shall conduct only activities necessary
to wind up its affairs. If such an election is so made, then:
(a) the reconstituted Company shall continue until the end of the term
set forth in Section 2.7 unless earlier dissolved in accordance with this
Article XII;
(b) if the successor Manager is not the former Manager, then the
interest of the former Manager shall be purchased by the successor Manager or
converted into Common Units of the MLP as provided in the MLP Agreement; and
(c) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Formation and to enter into and, as necessary, to file, a new
operating agreement and certificate of formation, and the successor Manager may
for this purpose exercise the power of attorney granted the Manager pursuant to
Section 2.6; provided, that the right of the MLP to reconstitute and to continue
the business of the Company shall not exist and may not be exercised unless the
Company
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has received an Opinion of Counsel that (x) the exercise of the right would not
result in the loss of limited liability of any Member and (y) neither the
Company, the reconstituted limited liability company, nor the MLP would be
treated as an association taxable as a corporation or otherwise be taxable as an
entity for federal income tax purposes upon the exercise of such right to
continue.
Section 12.3 Liquidator.
Upon dissolution of the Company, unless the Company is continued under
an election to reconstitute and continue the Company pursuant to Section 12.2,
the Manager shall select one or more Persons to act as Liquidator. The
Liquidator (if other than the Manager) shall be entitled to receive such
compensation for its services as may be approved by a majority of the Members.
The Liquidator (if other than the Manager) shall agree not to resign at any time
without 15 days' prior notice and may be removed at any time, with or without
cause, by notice of removal approved by a majority of the Members. Upon
dissolution, removal or resignation of the Liquidator, a successor and
substitute Liquidator (who shall have and succeed to all rights, powers and
duties of the original Liquidator) shall within 30 days thereafter be approved
by holders of at least a majority of the Members. The right to approve a
successor or substitute Liquidator in the manner provided herein shall be deemed
to refer also to any such successor or substitute Liquidator approved in the
manner herein provided. Except as expressly provided in this Article XII, the
Liquidator approved in the manner provided herein shall have and may exercise,
without further authorization or consent of any of the parties hereto, all of
the powers conferred upon the Manager under the terms of this Agreement (but
subject to all of the applicable limitations, contractual and otherwise, upon
the exercise of such powers, other than the limitation on sale set forth in
Section 7.3(b)) to the extent necessary or desirable in the good faith judgment
of the Liquidator to carry out the duties and functions of the Liquidator
hereunder for and during such period of time as shall be reasonably required in
the good faith judgment of the Liquidator to complete the winding up and
liquidation of the Company as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the Company,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Members, subject to Section 18-804 of the Delaware Limited Liability Company Act
and the following:
(a) Disposition of Assets. The assets may be disposed of by public
---------------------
or private sale or by distribution in kind to one or more Members on such terms
as the Liquidator and such Member or Members may agree. If any property is
distributed in kind, the Member receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Members. The Liquidator may, in its absolute discretion, defer
liquidation or distribution of the Company's assets for a reasonable time if it
determines that an immediate sale or distribution of all or some of the
Company's assets would be impractical or would cause undue loss to the
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Members. The Liquidator may, in its absolute discretion, distribute the
Company's assets, in whole or in part, in kind if it determines that a sale
would be impractical or would cause undue loss to the Members.
(b) Discharge of Liabilities. Liabilities of the Company include
------------------------
amounts owed to Members otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional
or unmatured or is otherwise not yet due and payable, the Liquidator shall
either settle such claim for such amount as it thinks appropriate or establish a
reserve of cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional liquidation
proceeds.
(c) Liquidation Distributions. All property and all cash in excess
-------------------------
of that required to discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Members in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Company during which the liquidation of the Company occurs (with such
date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
Section 12.5 Cancellation of Certificate of Formation.
Upon the completion of the distribution of Company cash and property
as provided in Section 12.4 in connection with the liquidation of the Company,
the Company shall be terminated and the Certificate of Formation, as well as all
qualifications of the Company as a foreign limited liability company in
jurisdictions other than the State of Delaware, shall be canceled and such other
actions as may be necessary to terminate the Company shall be taken.
Section 12.6 Return of Contributions.
The Manager shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Company to enable
it to effectuate, the return of the Capital Contributions of the Members, or any
portion thereof, it being expressly understood that any such return shall be
made solely from Company assets.
Section 12.7 Waiver of Partition.
To the maximum extent permitted by law, each Member hereby waives any
right to partition of the Company property.
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Section 12.8 Capital Account Restoration.
No Member shall have any obligation to restore any negative balance in
its Capital Account upon liquidation of the Company.
ARTICLE XIII
AMENDMENT OF AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the Manager.
Each Member agrees that the Manager, without the approval of any
Member, may amend any provision of this Agreement and execute, swear to,
acknowledge, deliver, file and record whatever documents may be required in
connection therewith, to reflect:
(a) a change in the name of the Company, the location of the principal
place of business of the Company, the registered agent of the Company or the
registered office of the Company;
(b) admission, substitution, withdrawal or removal of Members in
accordance with this Agreement;
(c) a change that, in the sole discretion of the Manager, is necessary
or advisable to qualify or continue the qualification of the Company as a
limited liability company in which the Members have limited liability under the
laws of any state or to ensure that the Company and the Company will not be
treated as an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes;
(d) a change that, in the discretion of the Manager, (i) does not
adversely affect the Members in any material respect, (ii) is necessary or
advisable to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state agency
or judicial authority or contained in any federal or state statute (including
the Delaware Limited Liability Company Act), (iii) is required to effect the
intent expressed in the Registration Statement or the intent of the provisions
of this Agreement or is otherwise contemplated by this Agreement or (iv) is
required to conform the provisions of this Agreement with the provisions of the
MLP Agreement as the provisions of the MLP Agreement may be amended,
supplemented or restated from time to time;
(e) a change in the fiscal year or taxable year of the Company and any
changes that, in the discretion of the Manager, are necessary or advisable as a
result of a change in the fiscal year or taxable year of the Company including,
if the Manager shall so determine, a change in the definition of "Quarter" and
the dates on which distributions are to be made by the Company;
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(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Company, or the Manager or its directors, officers, trustees or
agents from in any manner being subjected to the provisions of the Investment
Company Act of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
(g) subject to the terms of Section 5.7, an amendment that, in the
discretion of the Manager, is necessary or advisable in connection with the
authorization of issuance of any class or series of MLP Securities pursuant to
Section 5.6;
(h) any amendment expressly permitted in this Agreement to be made by
the Manager acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the Manager, is necessary
or advisable to reflect, account for and deal with appropriately the formation
by the Company of, or investment by the Company in, any corporation,
partnership, joint venture, limited liability company or other entity, in
connection with the conduct by the Company of activities permitted by the terms
of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
Section 13.2 Amendment Procedures.
Except with respect to amendments of he type described in Section
13.1, all amendments to this Agreement shall be made in accordance with the
following requirements: Amendments to this Agreement may be proposed only by or
with the consent of the Managing Manager which consent may be given or withheld
in its sole discretion. A proposed amendment shall be effective upon its
approval by the Member.
ARTICLE XIV
MERGER
Section 14.1 Authority.
The Company may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or
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unincorporated businesses, including a general partnership or limited
partnership, formed under the laws of the State of Delaware or any other state
of the United States of America, pursuant to a written agreement of merger or
consolidation ("Merger Agreement") in accordance with this Article XIV.
Section 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Company pursuant to this Article XIV
requires the prior approval of the Manager. If the Manager shall determine, in
the exercise of its discretion, to consent to the merger or consolidation, the
Manager shall approve the Merger Agreement, which shall set forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partner interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited partner interests,
securities or rights of any constituent business entity are not to be exchanged
or converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership or other similar charter or governing document) of the
Surviving Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be
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later than the date of the filing of the certificate of merger, the effective
time shall be fixed no later than the time of the filing of the certificate of
merger and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the Manager.
Section 14.3 Approval by Members of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the Manager, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Members, whether at a special meeting or by written
consent, in either case in accordance with the requirements of Article XIII. A
copy or a summary of the Merger Agreement shall be included in or enclosed with
the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall
be approved upon receiving the affirmative vote or consent of the Members.
(c) Except as provided in Section 14.3(d), after such approval by vote
or consent of the Members, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in
this Agreement, the Manager is permitted, in its discretion, without Member
approval, to merge the Company or any Group Member into, or convey all of the
Company's assets to, another limited liability entity which shall be newly
formed and shall have no assets, liabilities or operations at the time of such
Merger other than those it receives from the Company or other Group Member if
(i) the Manager has received an Opinion of Counsel that the merger or
conveyance, as the case may be, would not result in the loss of the limited
liability of any Member or any member in the Operating Company or cause the
Company or Operating Company to be treated as an association taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such), (ii) the sole purpose
of such merger or conveyance is to effect a mere change in the legal form of the
Company into another limited liability entity and (iii) the governing
instruments of the new entity provide the Members and the Manager with the same
rights and obligations as are herein contained.
Section 14.4 Certificate of Merger.
Upon the required approval by the Manager and the Members of a Merger
Agreement, a certificate of merger shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with the requirements
of the Delaware Limited Liability Company Act.
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Section 14.5 Effect of Merger.
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal and
mixed, and all debts due to any of those business entities and all other things
and causes of action belonging to each of those business entities, shall be
vested in the Surviving Business Entity and after the merger or consolidation
shall be the property of the Surviving Business Entity to the extent they were
of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any
of those constituent business entities shall not revert and is not in any way
impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities shall be preserved
unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had been
incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Member under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Member at the address described below. Any notice to the Company shall be
deemed given if received by the Manager at the principal office of the Company
designated pursuant to Section 2.3. The Manager may rely and shall be protected
in relying on any notice or other document from a Member, Assignee or other
Person if believed by it to be genuine.
Section 15.2 Further Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
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Section 15.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.4 Integration.
This Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
Section 15.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Company.
Section 15.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.
Section 15.7 Counterparts.
This Agreement may be executed in counterparts, all of which together
shall constitute an agreement binding on all the parties hereto, notwithstanding
that all such parties are not signatories to the original or the same
counterpart. Each party shall become bound by this Agreement immediately upon
affixing its signature hereto.
Section 15.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to the principles of conflicts
of law.
Section 15.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.10 Consent of Members.
Each Member hereby expressly consents and agrees that, whenever in
this Agreement it is specified that an action may be taken upon the affirmative
vote or consent of less than all of the
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Members, such action may be so taken upon the concurrence of less than all of
the Members and each Member shall be bound by the results of such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
U.S. TIMBERLANDS SERVICES COMPANY, L.L.C.
By:
-----------------------------------------
Name:
-----------------------------------------
Its:
-----------------------------------------
U.S. TIMBERLANDS COMPANY, L.P.
By: U.S. TIMBERLANDS SERVICES COMPANY, L.L.C.
Its General Partner
By:
-----------------------------------------
Name:
-----------------------------------------
Its:
-----------------------------------------
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EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
U.S. TIMBERLANDS FINANCE CORP.
Pursuant to (S) 102 of the General Corporation Law
of the State of Delaware
The undersigned, in order to form a corporation pursuant to Section 102 of
the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: The name of the Corporation is U.S. Timberlands Finance Corp.
-----
SECOND: The address of the Corporation's registered office in the
------
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall have
------
authority to issue is 1,000 shares of Common Stock, par value $.01 per share.
FIFTH: The name and mailing address of the Incorporator is as follows:
-----
NAME MAILING ADDRESS
- -------------------------------- --------------------------------------
L. Clair Fitzgerald Andrews & Kurth L.L.P.
425 Lexington Avenue
New York, New York 10017
SIXTH: The Board of Directors is expressly authorized to adopt, amend, or
-----
repeal the by-laws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the
-------
by-laws of the Corporation shall otherwise provide.
EIGHTH: A director of the Corporation shall not be personally liable to
------
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the foregoing shall not claim or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv)
for any transaction from which the director derived
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an improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to permit further elimination or limitation of the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended. Any repeal or modification of this
Article EIGHTH by the stockholders of the Corporation or otherwise shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
NINTH: The Corporation reserves the right to amend, alter, change, or
-----
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of August,
1997 and I affirm that the foregoing certificate is my act and deed and that the
facts stated therein are true.
/s/ L. Clair Fitzgerald
------------------------------------
L. Clair Fitzgerald, Incorporator
2
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
U.S. TIMBERLANDS FINANCE CORP.
(a Delaware corporation)
ARTICLE I
Stockholders
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Section 1.1 Annual Meetings. (a) All meetings of the Stockholders
for the election of directors shall be held at such place, within or without the
State of Delaware, as may be fixed by the Board of Directors and stated in the
notice of the meeting. Meetings of Stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
(b) Annual meetings of Stockholders shall be held on such date and at
such time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a Board of Directors, and transact such other business as may properly be
brought before the meeting.
(c) Written notice of the annual meeting stating the place, date, and
hour of the meeting shall be given to each Stockholder entitled to vote at such
meeting not less than ten days nor more than sixty days prior to the date of the
meeting.
(d) The officer who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten days before every meeting of Stockholders,
a complete list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is present. The stock
ledger shall be the only evidence as to the Stockholders entitled to examine the
stock ledger, the list required by this section or the books of the Corporation,
or to vote in person or by proxy at any meeting of Stockholders.
Section 1.2 Special Meetings. (a) Special meetings of the
Stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation of the Corporation, may be called
by the President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting.
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(b) Written notice of a special meeting stating the place, date, and
hour of the meeting and, in general terms, the purpose or purposes for which the
meeting is called, shall be given not less than ten days nor more than sixty
days prior to the date of the meeting, to each Stockholder entitled to vote at
such meeting. Whenever the directors shall fail to fix such place, the meeting
shall be held at the principal executive offices of the Corporation.
(c) Business transacted at any special meeting of Stockholders shall be
limited to the purpose or purposes stated in the notice.
Section 1.3 Quorums. (a) The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
Stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the Stockholders, the
Stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting, at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Stockholder of
record entitled to vote at the meeting. When a quorum is once present it is not
broken by the subsequent withdrawal of any Stockholder.
(b) When a quorum is present at any meeting, the vote of the holders of
a majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one on which by express provision of the Delaware General Corporation Law or
of the Certificate of Incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 1.4 Organization. Meetings of Stockholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the
President, if any, or if none or in the President's absence, by a Chairman to be
chosen by the Stockholders entitled to vote who are present in person or by
proxy at the meeting. The Secretary of the Corporation, or in the Secretary's
absence an Assistant Secretary, shall act as Secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present, the presiding
officer of the meeting shall appoint any person present to act as Secretary of
the meeting.
Section 1.5 Voting; Proxies; Required Vote. (a) At each meeting of
Stockholders, every Stockholder shall be entitled to vote in person or by proxy
appointed by an instrument in writing, subscribed by such Stockholder or by such
Stockholder's duly authorized attorney-in-fact (but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period), and, unless the Certificate of Incorporation provides otherwise,
shall have one vote for each share of stock entitled to vote registered in the
name of such Stockholder on the books of the Corporation on the applicable
record date fixed pursuant to these By-Laws. At all elections of directors the
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voting may but need not be by ballot and a plurality of the votes cast there
shall elect. Except as otherwise required by law or the Certificate of
Incorporation, any other action shall be authorized by a majority of the votes
cast.
(b) Where a separate vote by a class or classes, a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to vote on that matter, the
affirmative vote of the majority of shares of such class or classes present in
person or represented by proxy at the meeting shall be the act of such class,
unless otherwise provided in the Corporation's Certificate of Incorporation.
Section 1.6 Inspector of Elections. The Board of Directors, in
advance of any meeting, may, but need not, appoint one or more inspectors of
election to act at the meeting or any adjournment thereof. If an inspector or
inspectors are not so appointed, the person presiding at the meeting may, but
need not, appoint one or more inspectors. In case any person who may be
appointed as an inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, if any, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all Stockholders. On request of the person presiding at the
meeting, the inspector or inspectors, if any, shall make a report in writing of
any challenge, question or matter determined by such inspector or inspectors and
execute a certificate of any fact found by such inspector or inspectors.
ARTICLE II
Board of Directors
------------------
Section 2.1 General Powers. The business, property and affairs of
the Corporation shall be managed by, or under the direction of, the Board of
Directors.
Section 2.2 Qualification; Number; Term; Remuneration. (a) Each
director shall be at least 18 years of age. A director need not be a
Stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be one or
such other number not greater than ten as may be fixed from time to time by the
Board of Directors or the Stockholders. One of the directors may be selected by
the Board of Directors to be its Chairman, who shall preside at meetings of the
Stockholders and the Board of Directors and shall have such other duties, if
any, as may from time to time be assigned by the Board of Directors. In the
absence of formal selection, the President of the Corporation shall serve as
Chairman. The use of the phrase "entire Board" herein refers to the total
number of directors which the Corporation would have if there were no vacancies.
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(b) Directors who are elected at an annual meeting of Stockholders, and
directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of Stockholders
and until their successors are elected and qualified or until their earlier
death, resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
Committees may be allowed like compensation for attending Committee meetings.
Section 2.3 Quorum and Manner of Voting. Except as otherwise
provided by law, a majority of the entire Board of Directors shall constitute a
quorum. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting from time to time to another time and place
without notice. The vote of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors.
Section 2.4 Places of Meetings. Meetings of the Board of Directors
may be held at any place within or without the State of Delaware, as may from
time to time be fixed by resolution of the Board of Directors, or as may be
specified in the notice of meeting.
Section 2.5 Annual Meeting. Following the annual meeting of
Stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of Stockholders at the same place at which
such Stockholders' meeting is held.
Section 2.6 Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine.
Section 2.7 Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, President,
or by a majority of the directors then in office.
Section 2.8 Notice of Meeting. A notice of the place, date and time
and the purpose or purposes of each special meeting of the Board of Directors
shall be given to each director by mailing the same at least two days before the
meeting, or by telephoning or faxing the same or by delivering the same
personally not later than the day before the day of the meeting.
Section 2.9 Organization. At all meetings of the Board of Directors,
the Chairman or in the Chairman's absence or inability to act, the President, or
in the President's absence, a Chairman chosen by the directors, shall preside.
The Secretary of the Corporation shall act as secretary at all meetings of the
Board of Directors when present, and, in the Secretary's absence, the presiding
officer may appoint any person to act as Secretary.
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Section 2.10 Resignation. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation. Any or all of the directors may be removed, with or without cause,
by the holders of a majority of the shares of stock outstanding and entitled to
vote for the election of directors.
Section 2.11 Vacancies. Unless otherwise provided in these By-Laws,
vacancies on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director.
Section 2.12 Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
Section 2.13 Electronic Communication. Any member or members of the
Board of Directors may participate in a meeting of the Board by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear and speak to each other.
ARTICLE III
Committees
----------
Section 3.1 Appointment. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more Committees, each
Committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any Committee, who may replace any absent or disqualified member at any meeting
of the Committee. Any such Committee, to the extent provided in the resolution,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Such
Committee or Committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 3.2 Procedures; Quorum and Manner of Acting. Each Committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
Committee shall constitute a quorum for the transaction of business by that
Committee, and in every case where a quorum is present the affirmative vote of a
majority of the members of the Committee present shall be the act of the
Committee. Each Committee shall keep minutes of its proceedings, and actions
taken by a Committee shall be reported to the Board of Directors.
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Section 3.3 Action by Written Consent. Any action required or
permitted to be taken at any meeting of any Committee of the Board of Directors
may be taken without a meeting if all the members of the Committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Committee.
Section 3.4 Electronic Communication. Any member or members of a
Committee of the Board of Directors may participate in a meeting of a Committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear and speak to each other.
Section 3.5 Termination. In the event any person shall cease to be a
director of the Corporation, such person shall simultaneously therewith cease to
be a member of any Committee appointed by the Board of Directors.
ARTICLE IV
Officers
--------
Section 4.1 Election and Qualifications. The Board of Directors at
its first meeting held after each annual meeting of Stockholders shall elect the
officers of the Corporation, which shall include a President and a Secretary,
and may include, by election or appointment, one or more Vice-Presidents (any
one or more of whom may be given an additional designation of rank or function),
a Treasurer and such Assistant Secretaries, such Assistant Treasurers and such
other officers as the Board of Directors may from time to time deem proper.
Each officer shall have such powers and duties as may be prescribed by these By-
Laws and as may be assigned by the Board of Directors or the President. Any two
or more offices may he held by the same person.
Section 4.2 Term of Office and Remuneration. The term of office of
all officers shall be until their respective successors have been elected and
qualified or their earlier death, resignation or removal. The remuneration of
all officers of the Corporation may be fixed by the Board of Directors or in
such manner as the Board of Directors shall provide.
Section 4.3 Resignation; Removal. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by the Board of Directors.
Section 4.4 Powers and Duties of Officers.
(a) The Chairman of the Board of Directors, if there be one, shall
preside at all meetings of the Board of Directors and shall have such other
powers and duties as may from time to time be assigned by the Board of
Directors.
(b) The President shall be the Chief Executive Officer of the
Corporation and shall preside at all meetings of the Stockholders and, if there
is no Chairman, of the Board of Directors and shall have general management of
and supervisory authority over the property, business and affairs of the
Corporation and its other officers. The President may execute and deliver in the
name of the Corporation powers of attorney, contracts, bonds
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and other obligations and instruments, and shall have such other authority and
perform such other duties as from time to time may be assigned by the Board of
Directors. The President shall see that all orders and resolutions of the Board
of Directors are carried into effect and shall perform such additional duties
that usually pertain to this office.
(c) A Vice President may execute and deliver in the name of the
Corporation powers of attorney, contracts, bonds and other obligations and
instruments, and shall have such other authority and perform such other duties
as from time to time may be assigned by the Board of Directors or the President.
(d) The Treasurer shall in general have all duties and authority
incident to the position of Treasurer and such other duties and authority as may
be assigned by the Board of Directors or the President. The Treasurer shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by or at the direction of the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors or the President, and shall render, upon request, an account of all
such transactions.
(e) The Secretary shall in general have all the duties and authority
incident to the position of Secretary and such other duties and authority as may
be assigned by the Board of Directors or the President. The Secretary shall
attend all meetings of the Board of Directors and all meetings of Stockholders
and record all the proceedings thereat in a book or books to be kept for that
purpose. The Secretary shall give, or cause to be given, notice of all meetings
of the Stockholders and special meetings of the Board of Directors. The
Secretary shall have custody of the seal of the Corporation and any officer of
the Corporation shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by the signature of the
Secretary or any other officer.
(f) Any assistant officer shall have such duties and authority as the
officer such assistant officer assists and, in addition, such other duties and
authority as the Board of Directors or President shall from time to time assign.
ARTICLE V
Contracts, Etc.
---------------
Section 5.1 Contracts. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
Section 5.2 Proxies; Powers of Attorney; Other Instruments.
(a) The Chairman, the President, any Vice President, the Treasurer or
any other person designated by any of them shall have the power and authority to
execute and deliver proxies, powers of attorney and other instruments on behalf
of the Corporation in connection with the execution of contracts, the purchase
of real or personal property, the
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rights and powers incident to the ownership of stock by the Corporation and such
other situations as the Chairman, the President, such Vice President or the
Treasurer shall approve, such approval to be conclusively evidenced by the
execution of such proxy, power of attorney or other instrument on behalf of the
Corporation.
(b) The Chairman, the President, any Vice President, the Treasurer or
any other person authorized by proxy or power of attorney executed and delivered
by any of them on behalf of the Corporation may attend and vote at any meeting
of stockholders of any company in which the Corporation may hold stock, and may
exercise on behalf of the Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, or otherwise as
specified in the proxy or power of attorney so authorizing any such person. The
Board of Directors, from time to time, may confer like powers upon any other
person.
ARTICLE VI
Books and Records
-----------------
Section 6.1 Location. The books and records of the Corporation may
be kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
Stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the By-Laws or by such officer or agent as shall be
designated by the Board of Directors.
Section 6.2 Addresses of Stockholders. Notices of meetings and all
other corporate notices may be delivered personally or mailed to each
Stockholder at the Stockholder's address as it appears on the records of the
Corporation.
Section 6.3 Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the Stockholders
entitled to notice of or to vote at any meeting of Stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors and which record date shall not be more
than 60 days nor less than 10 days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
Stockholders entitled to notice of or to vote at a meeting of Stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of Stockholders
of record entitled to notice of or to vote at a meeting of Stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the Stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which date shall not be more than
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10 days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by the Board
of Directors, the record date for determining Stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
Stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
Stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the Stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the Stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action not contemplated by paragraph (a) or (b) of this Section 3, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted and which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining Stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
ARTICLE VII
Certificates Representing Stock
-------------------------------
Section 7.1 Certificates; Signatures. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
The name of the holder of record of the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the books of
the Corporation. The Board of Directors shall have power and
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authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the Corporation.
Section 7.2 Transfers of Stock. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
Section 7.3 Fractional Shares. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a Stockholder except as therein
provided.
Section 7.4 Lost, Stolen or Destroyed Certificates. The Corporation
may issue a new certificate in place of any certificate, theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the Board of Directors
may require the owner of any lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VIII
Dividends
---------
Subject to the provisions of applicable law and the Certificate of
Incorporation, the Board of Directors shall have full power to declare and pay
dividends on its capital stock. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
may determine for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
ARTICLE IX
Ratification
------------
Any transaction, questioned in any lawsuit on the ground of lack of
authority, defective or irregular execution, adverse interest of director,
officer or Stockholder, non-disclosure, miscomputation, or the application of
improper principles or practices of accounting, may be ratified before or after
judgment, by the Board of Directors or by the Stockholders, and if so ratified
shall have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the
Corporation and its Stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
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ARTICLE X
Corporate Seal
--------------
The corporate seal shall be in the form of a circular inscription
which contains the words "Corporate Seal" and/or such additional information as
the officer inscribing such seal shall determine in such officer's sole
discretion or, in any event, in such form as may be approved by the Board of
Directors. The corporate seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise displayed or it may be
manually inscribed.
ARTICLE XI
Fiscal Year
-----------
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall commence on the
first day of January and end on the last day of December.
ARTICLE XII
Waiver of Notice
----------------
Whenever notice is required to be given by these By-Laws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XIII
Amendments
----------
The Board of Directors shall have power to adopt, amend or repeal By-
Laws.
ARTICLE XIV
Indemnification
---------------
Section 14.1 Power To Indemnify in Actions, Suits or Proceedings
Other than Those By or in the Right of the Corporation. Subject to Section 3 of
this Article XIV, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
and other professionals' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such
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person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that the conduct was unlawful.
Section 14.2 Power To Indemnify In Actions, Suits Or Proceedings By
Or In The Right Of The Corporation. Subject to Section 3 of this Article XIV,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' and
other professionals' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Corporation except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 14.3 Authorization of Indemnification. Any indemnification
under this Article XIV (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article XIV, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
those directors who were not parties to such action, suit or proceeding, whether
or not they constitute a quorum of the Board of Directors or (ii) if the Board
of Directors so directs, by the Stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' and other professionals'
fees) actually and reasonably incurred by such person in connection therewith,
without the necessity of authorization in the specific case.
Section 14.4 Good Faith Defined. For purposes of any determination
under Section 3 of this Article XIV, a person shall be deemed to have acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe the conduct was unlawful,
if the action is based on (a) the records or books of account of the Corporation
or another enterprise (as defined below in
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this Section 4), or on information supplied to such person by the officers of
the Corporation or another enterprise in the course of their duties, unless such
person had reasonable cause to believe that reliance thereon would not be
justifiable, or on (b) the advice of legal counsel for the Corporation or
another enterprise, or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant,
independent financial adviser, appraiser or other expert, as to matters
reasonably believed to be within such other person's professional or expert
competence. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article XIV, as the
case may be.
Section 14.5 Indemnification By a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article XIV,
and notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article XIV. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of this
Article XIV, as the case may be. Notice of any application for indemnification
pursuant to this Section 5 shall be given to the Corporation promptly upon the
filing of such application.
Section 14.6 Expenses Payable In Advance. Expenses (including
attorneys' and other professionals' fees) incurred by an officer or director in
defending any threatened or pending civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article XIV. Such
expenses (including attorneys' and other professionals' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
Section 14.7 Non-exclusivity and Survival of Indemnification. The
indemnification and advancement of expenses provided by or granted pursuant to
this Article XIV shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any By-Law, agreement, contract, vote of Stockholders or of disinterested
directors, or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, it being the policy of the Corporation that
indemnification of the persons specified in Sections 1 and 2 of this Article XIV
(as distinguished from advancement of funds pursuant to Section 6 of this
Article XIV) shall be made to the fullest extent permitted by law. The
provisions of this Article XIV shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 and 2 of this
Article XIV but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise. The indemnification provided by this Article XIV shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall
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inure to the benefit of the heirs, executors, administrators and other
comparable legal representatives of such person. The rights conferred in this
Article XIV shall be enforceable as contract rights, and shall continue to exist
after any rescission or restrictive modification hereof with respect to events
occurring prior thereto.
Section 14.8 Meaning of "other enterprises" in Connection with
Employee Benefit Plans. etc. For purposes of this Article XIV (including
Sections 1, 2, 4 and 9 hereof), references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; references to
"serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
has acted in good faith and in a manner reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article XIV.
Section 14.9 Insurance. The Corporation may, but shall not be
required to, purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another Corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article XIV.
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EXHIBIT 4.1
================================================================================
U.S. Timberlands Klamath Falls, L.L.C.
U.S. Timberlands Finance Corp.
_______________
$225,000,000
____% SENIOR NOTES DUE 2007
_____________
FORM OF INDENTURE
Dated as of _________ ___, 1997
_____________
State Street Bank & Trust Company
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- ------------------ ----------------------
310(a)(1)............................................ 7.10
(a)(2)......................................... 7.10
(a)(3)......................................... N.A.
(a)(4)......................................... N.A.
(a)(5)......................................... 7.10
(b)............................................ 7.8; 7.10
(c)............................................ N.A.
311(a)............................................... 7.11
(b)............................................ 7.11
(c)............................................ N.A.
312(a)............................................... 2.5
(b)............................................ 11.3
(c)............................................ 11.3
313(a)............................................... 7.6
(b)(1)......................................... N.A.
(b)(2)......................................... 7.6
(c)............................................ 7.6
(d)............................................ 7.6
314(a)............................................... 4.3; 4.4
(b)............................................ N.A.
(c)(1)......................................... 11.4
(c)(2)......................................... 11.4
(c)(3)......................................... N.A.
(d)............................................ N.A.
(e)............................................ 11.5
(f)............................................ N.A.
315(a)............................................... 7.1(2)
(b)............................................ 7.5
(c)............................................ 7.1(1)
(d)............................................ 7.1(3)
(e)............................................ 6.11
316(a)(last sentence)................................ 2.10
(a)(1)(A)...................................... 6.5
(a)(1)(B)...................................... 6.4
(a)(2)......................................... N.A.
(b)............................................ 6.7
(c)............................................ 9.4
317(a)(1)............................................ 6.8
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(a)(2)......................................... 6.9
(b)............................................ 2.3
318(a)............................................... 11.1
(b)............................................ N.A.
(c)............................................ 11.1
______________
N.A. means not applicable
*This Cross-Reference Table is not part of the Indenture.
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TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions......................................................1
Section 1.2 Other Definitions...............................................22
Section 1.3 Incorporation by Reference of Trust Indenture Act...............23
Section 1.4 Rules of Construction...........................................23
ARTICLE 2
THE NOTES
Section 2.1 Form and Dating.................................................24
Section 2.2 Execution and Authentication....................................25
Section 2.3 Registrar and Paying Agent......................................25
Section 2.4 Paying Agent to Hold Money in Trust.............................26
Section 2.5 Holder Lists....................................................26
Section 2.6 Transfer and Exchange...........................................26
Section 2.7 Replacement Notes...............................................29
Section 2.8 Outstanding Notes...............................................30
Section 2.9 Treasury Notes..................................................30
Section 2.10 Temporary Notes.................................................30
Section 2.11 Cancellation....................................................30
Section 2.12 Defaulted Interest..............................................31
ARTICLE 3
REDEMPTION AND OFFERS TO PURCHASE
Section 3.1 Notice to Trustee...............................................31
Section 3.2 Selection of Notes to Be Redeemed...............................32
Section 3.3 Notice of Redemption...........................................32
Section 3.4 Effect of Notice of Redemption..................................33
Section 3.5 Deposit of Redemption Price.....................................33
Section 3.6 Notes Redeemed in Part..........................................34
Section 3.7 Optional Redemption.............................................34
Section 3.8 Mandatory Redemption............................................34
Section 3.9 Offer to Purchase by Application of Excess Proceeds or
Excess Harvest Proceed..........................................34
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ARTICLE 4
COVENANTS
Section 4.1 Payment of Notes................................................37
Section 4.2 Maintenance of Office or Agency.................................37
Section 4.3 Reports.........................................................38
Section 4.4 Compliance Certificate..........................................38
Section 4.5 Taxes...........................................................39
Section 4.6 Stay, Extension and Usury Laws..................................39
Section 4.7 Company and Corporate Existence.................................39
Section 4.8 Limitation on Additional Indebtedness...........................39
Section 4.9 Limitation on Restricted Payments...............................40
Section 4.10 Limitation on Liens.............................................42
Section 4.11 Limitation on Transactions with Affiliates......................42
Section 4.12 Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries...............................42
Section 4.13 Limitation on Sale and Leaseback Transactions...................43
Section 4.14 Limitation on Finance Corp......................................44
Section 4.15 Line of Business................................................44
Section 4.16 Asset Sales.....................................................44
Section 4.17 Limitation on Harvesting........................................45
Section 4.18 Change of Control...............................................46
Section 4.19 Limitation on Non-Guarantor Restricted Subsidiaries.............47
ARTICLE 5
SUCCESSORS
Section 5.1 Merger, Consolidation or Sale of Assets.........................48
Section 5.2 Successor Person Substituted....................................49
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1 Events of Default...............................................49
Section 6.2 Acceleration....................................................51
Section 6.3 Other Remedies..................................................52
Section 6.4 Waiver of Past Defaults.........................................52
Section 6.5 Control by Majority.............................................52
Section 6.6 Limitation on Suits.............................................52
Section 6.7 Rights of Holders to Receive Payment............................53
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Section 6.8 Collection Suit by Trustee......................................53
Section 6.9 Trustee May File Proofs of Claim................................53
Section 6.10 Priorities......................................................54
Section 6.11 Undertaking for Costs...........................................54
ARTICLE 7
TRUSTEE
Section 7.1 Duties of Trustee...............................................55
Section 7.2 Rights of Trustee...............................................56
Section 7.3 Individual Rights of Trustee....................................56
Section 7.4 Trustee's Disclaimer............................................57
Section 7.5 Notice of Defaults..............................................57
Section 7.6 Reports by Trustee to Holders...................................57
Section 7.7 Compensation and Indemnity......................................57
Section 7.8 Replacement of Trustee..........................................58
Section 7.9 Successor Trustee by Merger, etc................................59
Section 7.10 Eligibility, Disqualification...................................59
Section 7.11 Preferential Collection of Claims Against Issuers...............60
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1 Option to Effect Legal Defeasance or Covenant Defeasance........60
Section 8.2 Legal Defeasance and Discharge..................................60
Section 8.3 Covenant Defeasance.............................................61
Section 8.4 Conditions to Legal Defeasance or Covenant Defeasance...........61
Section 8.5 Deposited Money and Government Securities to be Held in Trust,
Other Miscellaneous Provisions..................................62
Section 8.6 Repayment to Issuers............................................63
Section 8.7 Reinstatement...................................................63
Section 8.8 Discharge of Liability on Securities; Defeasance................64
ARTICLE 9
AMENDMENTS
Section 9.1 Without Consent of Holders......................................64
Section 9.2 With Consent of Holders.........................................65
Section 9.3 Compliance with Trust Indenture Act.............................66
Section 9.4 Revocation and Effect of Consents...............................66
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Section 9.5 Notation on or Exchange of Notes................................67
Section 9.6 Trustee to Sign Amendments, etc.................................67
ARTICLE 10
SUBSIDIARY GUARANTEE OF NOTES
Section 10.1 Unconditional Guarantee.........................................67
Section 10.2 Subsidiary Guarantors May Consolidate, etc., on Certain Terms...68
Section 10.3 Addition of Subsidiary Guarantors...............................68
Section 10.4 Release of a Subsidiary Guarantor...............................69
Section 10.5 Limitation of Subsidiary Guarantor's Liability..................69
Section 10.6 Contribution....................................................70
ARTICLE 11
MISCELLANEOUS
Section 11.1 Trust Indenture Act Controls....................................70
Section 11.2 Notices.........................................................70
Section 11.3 Communication by Holders with Other Holders.....................71
Section 11.4 Certificate and Opinion as to Conditions Precedent..............71
Section 11.5 Statements Required in Certificate or Opinion...................72
Section 11.6 Form of Documents Delivered to Trustee..........................73
Section 11.7 Rules by Trustee and Agents.....................................73
Section 11.8 Legal Holidays..................................................73
Section 11.9 No Recourse Against Others......................................74
Section 11.10 Duplicate Originals.............................................74
Section 11.11 Governing Law...................................................74
Section 11.12 No Adverse Interpretation of Other Agreements...................74
Section 11.13 Successors......................................................75
Section 11.14 Benefits of Indenture...........................................75
Section 11.15 Severability....................................................75
Section 11.16 Counterpart Originals...........................................75
Section 11.17 Table of Contents, Headings, etc................................75
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INDENTURE, dated as of __________ ___, 1997, among U.S. Timberlands Klamath
Falls, L.L.C., a Delaware limited liability company (the "Company"), U.S.
Timberlands Finance Corp., a Delaware corporation ("Finance Corp." and, together
with the Company, the "Issuers"), and State Street Bank & Trust Company, as
trustee ("Trustee").
The Issuers and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the ___% Senior Notes
due 2007 (the "Notes") of the Issuers, as joint and several obligors.
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions.
"Acquired Indebtedness" means, with respect to any specified Person,
(a) Indebtedness of any other Person existing at the time such other Person
merged with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (b) Indebtedness encumbering any asset acquired by such specified Person.
"Acquisition Facility" means the loan facility of the Company provided
for in the Credit Agreement for the purpose of financing acquisitions.
"Acquisition Principal Amount" means $75.0 million.
"Adjusted Asset Sales Amount" means $50.0 million as increased by 10%
of the purchase price of Asset Acquisitions (other than like-kind exchanges)
subsequent to the Issue Date.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the amount by which the fair value of the properties and assets of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under its Subsidiary Guarantee, of such Subsidiary Guarantor at such
date.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (b) any other Person who
is a director or executive officer of (i) such specified Person or (ii) any
other Person described in the preceding clause (a). For purposes of this
definition, control shall mean the power to direct the management and policies,
whether through the ownership of voting securities, by contract or otherwise;
provided, that beneficial ownership of 10% or more
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of any class, or any series of any class, of Capital Stock of a Person, whether
or not Voting Stock, shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company, or shall be merged
with or into the Company or any Restricted Subsidiary of the Company, (b) the
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any Person (other than a Restricted Subsidiary of the Company) which
constitute all or substantially all of the assets of such Person, (c) the
acquisition by the Company or any Restricted Subsidiary of the Company of
merchantable Timber or Timberlands outside the ordinary course of business, or
(d) the acquisition by the Company or any Restricted Subsidiary of the Company
of any division or line of business of any Person (other than a Restricted
Subsidiary of the Company).
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction not involving a Capital Lease, as of any date of determination, the
total obligation (discounted to present value at the rate of interest implicit
in the lease included in such transaction) of the lessee for rental payments
(other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items which do not constitute payments for property rights)
during the remaining portion of the term (including extensions which are at the
sole option of the lessor) of the lease included in such transaction (in the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such rental obligation shall also include the amount of such penalty,
but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated).
"Available Cash," as to any quarter means: (a) the sum of (i) all cash
and cash equivalents of the Company and any Subsidiary of the Company, treated
as a single consolidated entity (together the "Partnership Group"), on hand at
the end of such quarter, and (ii) all additional cash and cash equivalents of
the Partnership Group on hand on the date of determination of Available Cash
with respect to such quarter resulting from borrowings for working capital
purposes subsequent to the end of such quarter, less (b) the amount of any cash
reserves that is necessary or appropriate in the reasonable discretion of the
Manager to (i) provide for the proper conduct of the business of the Partnership
Group (including reserves for future capital expenditures and for anticipated
future credit needs of the Partnership Group) subsequent to such quarter, (ii)
comply with applicable law or any loan agreement, security agreement, mortgage,
debt instrument or other agreement or obligation to which any member of the
Partnership Group is a party or by which it is bound or its assets are subject
or (iii) provide funds for distributions under Sections 6.4 or 6.5 of the MLP
Partnership Agreement in respect of any one or more of the next four quarters;
provided, however, that the Manager may not establish cash reserves pursuant to
(iii) above if the effect of such reserves would be that the Master Partnership
is unable to distribute the Minimum Quarterly Distribution (as defined in the
MLP Partnership Agreement) on all Common Units (as defined in the
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MLP Partnership Agreement) with respect to such Quarter; provided, further, that
disbursements made by a member of the Partnership Group or cash reserves
established, increased or reduced after the end of such quarter but before the
date of determination of Available Cash with respect to such quarter shall be
deemed to have been made, established, increased or reduced, for purposes of
determining Available Cash, within such quarter if the Manager so determines;
provided, further, that Available Cash attributable to any Restricted Subsidiary
or the Company shall be excluded to the extent dividends or distributions of
such Available Cash by such Restricted Subsidiary are not at the date of
determination permitted by the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or other regulation.
"Bank Credit Facility" means the Acquisition Facility and the Working
Capital Facility.
"Board of Directors" means, as applicable, the Board of Directors of
the Manager, on behalf of the Company, or of Finance Corp., or any authorized
committee of either Board of Directors.
"Business" means the acquisition, ownership, management and harvesting
of Timber and activities reasonably related and incidental thereto.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person (as lessee or
guarantor or other surety) which would, in accordance with GAAP, be required to
be classified and accounted for as a capital lease on a balance sheet of such
Person.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, units representing interests, participations, rights in or other
equivalents (however designated) of such Person's capital stock, including, with
respect to partnerships, partnership interests (whether general or limited) and
any other interest or participation that confers upon a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
such partnership, and any rights (other than debt securities convertible into
capital stock), warrants or options exchangeable for or convertible into such
capital stock.
"Change of Control" means (a) any "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders or any Person of which one or more Permitted Holders beneficially own in
the aggregate at least a majority of the Voting Stock, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of more than 50% of the total voting power with respect
to the total Voting Stock of the Master Partnership or the Company, (b) the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Master Partnership or the Company to any Person or group (as such
term is used in Section 13(d)(3) of the Exchange Act) other than Permitted
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Holders or any Person of which one or more Permitted Holders beneficially own in
the aggregate at least a majority of the Voting Stock, (c) the merger or
consolidation of the Master Partnership or the Company with another partnership,
limited liability company or corporation other than a Permitted Holder or any
Person of which one or more Permitted Holders beneficially own in the aggregate
at least a majority of the Voting Stock, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Master Partnership or
the Company, as applicable, is converted into or exchanged for cash, securities
or other property, other than any such transaction where the Voting Stock of the
Master Partnership or the Company, as applicable, outstanding immediately prior
to such transaction is converted into or exchanged for Voting 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), (d) the liquidation or dissolution of the
Master Partnership, the Company or the Manager, or (e) the occurrence of any
transaction, the result of which is that Permitted Holders beneficially own in
the aggregate, directly or indirectly, less than a majority of the Voting Stock
of the Manager.
"Common Units" means the common units representing limited partner
interests of the Master Partnership, having the rights and obligations specified
with respect to Common Units of the Master Partnership.
"Consolidated Cash Flow Available for Fixed Charges" means, with
respect to the Company and its Restricted Subsidiaries for any period, the sum
of, without duplication, the amounts for such period, taken as a single
accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash
Charges, (c) Consolidated Interest Expense and (d) Consolidated Income Tax
Expense.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company and its Restricted Subsidiaries, the ratio of the aggregate amount of
Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters for which financial information in respect thereof is available
immediately preceding the date of the transaction (the "Transaction Date")
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (such four full fiscal quarter period being referred to herein as the
"Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated Cash Flow
Available for Fixed Charges" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence or repayment of any
Indebtedness of the Company or any of its Restricted Subsidiaries (and, in the
case of any incurrence, the application of the net proceeds thereof) during the
period commencing on the first day of the Four Quarter Period to and including
the Transaction Date (the "Reference Period"), including, without limitation,
the incurrence of the Indebtedness giving rise to the need to make such
calculation (and the application of the net proceeds thereof), as if such
incurrence (and application) occurred on the first day of the Reference Period
(including any actual interest payments made with respect to Indebtedness under
the Working Capital Facility), and (b) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving
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rise to the need to make such calculation as a result of the Company or one of
its Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the Reference
Period, as if such Asset Sale or Asset Acquisition occurred on the first day of
the Reference Period; provided, however, that (i) Consolidated Fixed Charges
shall be reduced by amounts attributable to businesses or assets that are so
disposed of or discontinued only to the extent that the obligations giving rise
to such Consolidated Fixed Charges would no longer be obligations contributing
to the Consolidated Fixed Charges subsequent to the date of determination of the
Consolidated Fixed Charge Coverage Ratio and (ii) Consolidated Cash Flow
Available for Fixed Charges generated by an acquired business or asset shall be
determined by (x) in the case of an Asset Acquisition of Timber or Timberlands
by the Company or a Restricted Subsidiary during such period, by using the
projected net cash flow of the Timber or Timberlands so acquired, based on the
harvest plan prepared in the ordinary course of business and in good faith by
the Manager, for the first 12 full months of operations of the acquired Timber
or Timberlands following the date of the Asset Acquisition; provided that such
harvest plan shall not assume the harvesting or sale of more than 10% (or, in
the case of an acquisition under a cutting contract with a term of less than 10
years, such higher percentage as shall be equal to the quotient of 100% divided
by the term of such cutting contract (expressed in years)) of the total
merchantable Timber so acquired in the first 12 full months following the date
of the Asset Acquisition; provided further, in determining projected cash flow
from acquired Timber or Timberlands, prices shall be assumed to equal the
average prices realized by the Company for comparable Timber sold during such
period; and (y) in all the cases of all other Asset Acquisitions the actual
gross profit (revenues minus cost of goods sold) of such acquired business or
asset during the immediately preceding four full fiscal quarters in the
Reference Period minus the pro forma expenses that would have been incurred by
the Company and its Restricted Subsidiaries in the operation of such acquired
business or asset during such period computed on the basis of personnel expenses
for employees retained or to be retained by the Company and its Restricted
Subsidiaries in the operation of the acquired business or asset and non-
personnel costs and expenses incurred by the Company and its Restricted
Subsidiaries in the operation of the Company's business at similarly situated
facilities. If the applicable Reference Period for any calculation of the
Consolidated Fixed Charge Coverage Ratio shall include a portion prior to the
date of this Indenture, then such Consolidated Fixed Charge Coverage Ratio shall
be calculated based upon the Consolidated Cash Flow Available for Fixed Charges
and the Consolidated Fixed Charges of the Company on
a pro forma basis for such portion of the Reference Period prior to the Issue
Date, giving effect to the transactions occurring on the Issue Date, and the
Consolidated Cash Flow Available for Fixed Charges and the Consolidated Fixed
Charges for the remaining portion of the Reference Period on and after the Issue
Date, giving pro forma effect, as described in the two foregoing sentences, to
all applicable transactions occurring on the Issue Date or otherwise.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the "Consolidated Fixed Charge Coverage Ratio," (i) interest on
outstanding Indebtedness (other than Indebtedness referred to in clause (ii)
below) determined on a fluctuating basis as of the last day of the Four Quarter
Period and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on such date; (ii) only actual interest payments
associated with Indebtedness incurred in accordance
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with clause (d) of the definition of Permitted Indebtedness and all Permitted
Refinancing Indebtedness in respect thereof, during the Four Quarter Period
shall be included in such calculation; and (iii) if interest on any Indebtedness
actually incurred on such date may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the last day of the
Four Quarter Period will be deemed to have been in effect during such period.
"Consolidated Fixed Charges" means, with respect to the Company and
its Restricted Subsidiaries for any period, the sum of, without duplication, (a)
the amounts for such period of Consolidated Interest Expense and (b) the product
of (i) the aggregate amount of dividends and other distributions paid or accrued
during such period in respect of Preferred Stock and Redeemable Capital Stock of
the Company and its Restricted Subsidiaries on a consolidated basis and (ii) a
fraction, the numerator of which is one and the denominator of which is one
minus the then applicable current combined federal, state and local statutory
tax rate, expressed as a percentage.
"Consolidated Income Tax Expense" means, with respect to the Company
and its Restricted Subsidiaries for any period, the provision for federal,
state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, with respect to the Company and
its Restricted Subsidiaries for any period, without duplication, the sum of (a)
the interest expense of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP, including,
without limitation, (i) any amortization of debt discount, (ii) the net cost
under Interest Rate Agreements, (iii) the interest portion of any deferred
payment obligation, (iv) all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing and (v)
all accrued interest and (b) the interest component of Capital Leases paid,
accrued or scheduled to be paid or accrued by the Company and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means the net income of the Company and its
Restricted Subsidiaries, as determined on a consolidated basis in accordance
with GAAP and as adjusted to exclude (a) net after-tax extraordinary gains or
losses, (b) net after-tax gains or losses attributable to Asset Sales to the
extent the Net Proceeds therefrom result in the aggregate Net Proceeds received
by the Company or any Restricted Subsidiary from all Asset Sales since the Issue
Date exceeding the Adjusted Asset Sales Amount, (c) the net income or loss of
any Person which is not a Restricted Subsidiary and which is accounted for by
the equity method of accounting, provided that Consolidated Net Income shall
include the amount of dividends or distributions actually paid to the Company or
any Restricted Subsidiary, (d) the net income or loss prior to the date of
acquisition of any Person combined with the Company or any Restricted Subsidiary
in a pooling of interest, (e) the net income of any Restricted Subsidiary to the
extent that dividends or distributions of such net income are not at the date of
determination permitted by the terms of its charter or any agreement,
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instrument, judgment, decree, order, statute, rule or other regulation and (f)
the cumulative effect of any changes in accounting principles.
"Consolidated Net Worth" means, with respect to the Company and its
Restricted Subsidiaries at any date, the consolidated stockholders' equity,
partners' capital or members' capital of the Company and its Restricted
Subsidiaries less the amount of such stockholders' equity, partners' capital or
members' capital attributable to Redeemable Capital Stock as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to the Company and
its Restricted Subsidiaries for any period, the aggregate depreciation,
depletion, amortization and any other non-cash charges, in each case reducing
Consolidated Net Income of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"Contribution Agreement" means the Contribution, Conveyance and
Assumption Agreement, dated as of the Issue Date, among the Company, the Master
Partnership, the Manager and certain other parties together with the additional
conveyance documents and instruments contemplated or referenced thereunder.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.2 hereof or such other address as to which the
Trustee may give notice to the Issuers.
"Credit Agreement" means the Credit Agreement, dated as of __________
___, 1997, among the Company and ______________________, in its individual
capacity and as agent, and the other banks which are or become parties from time
to time thereto, evidencing the Bank Credit Facility, as it may be amended,
supplemented or otherwise modified from time to time, including all exhibits and
schedules thereto, and any successor or replacement facility entered into in
compliance with this Indenture.
"Default" means any event that is, or after notice or passage of time,
or both would be, an Event of Default.
"Definitive Notes" means Notes that are in the form of Exhibit A
attached hereto (but without including the text referred to in footnote 1
thereto).
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 hereof as
the Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
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"Designation Amount" means, with respect to the designation of a
Restricted Subsidiary or a newly acquired or formed Subsidiary as an
Unrestricted Subsidiary, an amount equal to (a) the net book value of all assets
of such Subsidiary at the time of such designation in the case of a Restricted
Subsidiary or (b) the cost of acquisition or formation in the case of a newly
acquired or formed Subsidiary.
"Disinterested Director" means, with respect to any transaction or
series of transactions with Affiliates, a member of the Board of Directors of
the Manager who has no financial interest, and whose employer has no financial
interest, in such transaction or series of transactions.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"Event of Default" has the meaning set forth in Section 6.1 hereof.
"Excess Harvest" means a harvest of Timber (including timber deed,
bulk, pay-as-cut and stumpage sales) in excess in the aggregate of the following
limitations: (a) 150% of the Planned Volume during any fiscal year of the
Company, (b) 140% of the Planned Volume during any period of two consecutive
fiscal years of the Company, (c) 130% of the Planned Volume during any period of
three consecutive fiscal years of the Company and (d) 120% of the Planned Volume
during any period of four consecutive fiscal years of the Company. In the event
that the Company or any of its Restricted Subsidiaries sells Timber pursuant to
a timber deed, bulk, pay-as-cut or stumpage contract, the Timber shall be deemed
harvested in equal monthly amounts over the life of the contract, regardless of
when the purchaser actually severs the Timber.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Finance Corp." means the party named as such in this Indenture until
a successor replaces it pursuant to this Indenture and thereafter means the
successor.
"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 may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time.
"Global Note" means a Note that is issued in global form in the name
of Cede & Co. or such other name as may be requested by an authorized
representative of the Depositary, and that contains the paragraph referred to in
footnote 1 and the additional schedule referred to in the form of Note attached
hereto as Exhibit A.
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"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guaranty" as applied to any Person, any direct or indirect liability,
contingent or otherwise, of such Person with respect to any Indebtedness, lease,
cash dividend or other obligation of another, including, without limitation (a)
any such obligation directly or indirectly guaranteed or endorsed (otherwise
than for collection or deposit in the ordinary course of business) by such
Person, or in respect of which such Person is otherwise directly or indirectly
liable, (b) any other obligation under any contract which, in economic effect,
is substantially equivalent to a guaranty, including, without limitation, any
such obligation of a partnership in which such Person is a general partner or of
a joint venture in which such Person is a joint venturer, or (c) any obligation
in effect guaranteed by such Person through any agreement (contingent or
otherwise) to purchase, repurchase or otherwise acquire such obligation or any
security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), or to maintain the solvency or any balance sheet or
other financial condition of the obligor of such obligation, or to make payment
for any products, materials or supplies or for any transportation or services
regardless of the non-delivery or nonfurnishing thereof, in any such case if the
purpose or intent of such agreement is to provide assurance that such obligation
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected against
loss in respect thereof.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means as applied to any Person (without duplication):
(a) any indebtedness for borrowed money and all obligations evidenced
by any bond, note, debenture or other similar instrument or letter of credit (or
reimbursement agreements in respect thereof) which such Person has directly or
indirectly created, incurred or assumed (other than obligations with respect to
letters of credit securing obligations (other than obligations described in
paragraphs (a) through (c) of this definition) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon, or, if and to the extent drawn upon, such drawing is reimbursed no
later than the fifth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit);
(b) any indebtedness for borrowed money and all obligations evidenced
by any bond, note, debenture or other similar instrument secured by any Lien in
respect of property owned by such Person, whether or not such Person has assumed
or become liable for the payment of such indebtedness, provided that the amount
of such Indebtedness, if such Person has not assumed the same or become liable
therefor, shall in no event be deemed to be greater than the fair market value
from time to time (as determined in good faith by such Person) of the property
subject to such Lien;
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(c) any indebtedness, whether or not for borrowed money (excluding
trade payables and accrued expenses arising in the ordinary course of business),
with respect to which such Person has become directly or indirectly liable and
which represents the deferred purchase price (or a portion thereof) or has been
incurred to finance the purchase price (or a portion thereof) of any property or
service or business acquired by such Person, whether by purchase, consolidation,
merger or otherwise;
(d) the principal component of any obligations under Capital Leases to
the extent such obligations would, in accordance with GAAP, appear on a balance
sheet of such Person;
(e) all Attributable Debt of such Person in respect of Sale and Lease-
Back Transactions not involving a Capital Lease;
(f) any indebtedness of any other Person of the character referred to
in clause (a), (b), (c), (d) or (e) of this definition with respect to which the
Person whose Indebtedness is being determined has become liable by way of a
Guaranty;
(g) all Redeemable Capital Stock of such Person valued at the greater
of its voluntary or involuntary maximum fixed repurchase price;
(h) any Preferred Stock (other than Redeemable Capital Stock) of any
Restricted Subsidiary of such Person that is not a Subsidiary Guarantor valued
at the liquidation preference thereof or any mandatory redemption payment
obligations in respect thereof; and
(i) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (a)
through (h) above.
For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect the Company or any Restricted
Subsidiary from fluctuations in interest rates.
"Investment" means as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities of any
other Person, or any direct or indirect
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loan, advance or capital contribution by such Person to any other Person, and
any other item which would be classified as an "investment" on a balance sheet
of such Person prepared in accordance with GAAP, including, without limitation,
any direct or indirect contribution by such Person of property or assets to a
joint venture, partnership or other business entity in which such Person retains
an interest (it being understood that a direct or indirect purchase or other
acquisition by such Person of assets of any other Person (other than stock or
other securities) shall not constitute an "Investment" for purposes of this
Indenture). The amount involved in Investments made during any period shall be
the aggregate cost to the Company and its Restricted Subsidiaries of all such
Investments made during such period, determined in accordance with GAAP, but
without regard to unrealized increases or decreases in value, or write-ups,
write-downs or write-offs, of such Investments and without regard to the
existence of any undistributed earnings or accrued interest with respect thereto
accrued after the respective dates on which such Investments were made, less any
net return of capital realized during such period upon the sale, repayment or
other liquidation of such Investments (determined in accordance with GAAP, but
without regard to any amounts received during such period as earnings (in the
form of dividends not constituting a return of capital, interest or otherwise)
on such Investments or as loans from any Person in whom such Investments have
been made).
"Issue Date" means the date on which the Notes are originally issued.
"Issuers" means the parties named as such in this Indenture until a
successor replaces either such Issuer pursuant to this Indenture and thereafter
means the remaining Issuer and the successor.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, Capital Lease or other title retention
agreement.
"Manager" means U.S. Timberlands Services Company, L.L.C., a Delaware
limited liability company and any successors in the capacity of managing member
of the Company (including, if applicable, more than one successor in any such
capacity at the same time).
"Master Partnership" means U.S. Timberlands Company, L.P., a Delaware
limited partnership.
"Maturity Date" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
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"MLP Offering" means the public issuance and sale of Common Units of
the Master Partnership, concurrent with the issuance of Notes under this
Indenture.
"MLP Partnership Agreement" means the Amended and Restated Agreement
of Limited Partnership of the Master Partnership, as in effect on the Issue
Date, and as the same may from time to time be amended, supplemented or
otherwise modified in accordance with the terms thereof.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Amount of Unrestricted Investment" means, without duplication,
the sum of (a) the aggregate amount of all Investments made after the Issue Date
pursuant to subdivision (h) of the definition of Permitted Investment (computed
as provided in the last sentence of the definition of Investment) and (b) the
aggregate of all Designation Amounts in connection with the designation of
Unrestricted Subsidiaries less all Designation Amounts in respect of
Unrestricted Subsidiaries which have been designated as Restricted Subsidiaries
and otherwise reduced in a manner consistent with the provisions of the last
sentence of the definition of Investment.
"Net Proceeds" means, with respect to any Asset Sale or Excess
Harvest, the proceeds thereof in the form of cash or cash equivalents including
payments in respect of deferred payment obligations when received in the form of
cash or cash equivalents (except to the extent that such deferred payment
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) net of (a) brokerage commissions and other fees and
expenses (including, without limitation, fees and expenses of legal counsel and
accountants and fees, expenses, discounts or commissions of underwriters,
placement agents and investment bankers) related to such Asset Sale or Excess
Harvest, (b) provisions for all taxes payable as a result of such Asset Sale or
Excess Harvest, (c) amounts required to be paid to any person (other than the
Company or any Restricted Subsidiary of the Company) owning a beneficial
interest in the assets subject to such Asset Sale or Excess Harvest, (d)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
of the Company, as the case may be, as a reserve required in accordance with
GAAP against any liabilities associated with such Asset Sale or Excess Harvest
and retained by the Company or any Restricted Subsidiary of the Company, as the
case may be, after such Asset Sale or Excess Harvest, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale or Excess Harvest and (e) amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
asset or assets sold in such Asset Sale or Excess Harvest.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Notes" means the ___% Senior Notes due 2007.
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"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person; provided,
however, that any reference to an Officer with respect to the Company shall mean
the respective Officer of the Manager.
"Officers' Certificate" means a certificate signed on behalf of (i)
the Manager (acting on behalf of the Company) by two Officers of the Manager,
one of whom must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of the Manager, or
(ii) Finance Corp. by two Officers of Finance Corp., one of whom must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of Finance Corp., in either case that meets the
requirements of Section 11.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be an employee of or counsel to the Company, the
Manager, Finance Corp., any of their respective Subsidiaries or the Trustee.
"Permitted Holders" means (a) John M. Rudey, any member of Mr. Rudey's
immediate family, any of Mr. Rudey's lineal descendants and any member of such
lineal descendent's immediate family, (b) any trust (to the extent that it is
for the benefit of any of the foregoing), (c) any of Rudey Timber Company,
L.L.C., U.S. Timberlands Management Company, L.L.C., U.S. Timberlands Holdings,
L.L.C. and the Master Partnership, and (d) in the event of the incompetence or
death of any of the individuals described in clause (a) above, such individual's
estate, executor, administrator, committee or other personal representatives, or
beneficiaries.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company evidenced by the Notes;
(b) Indebtedness outstanding on the Issue Date;
(c) Indebtedness of the Company or a Restricted Subsidiary incurred
for any purpose permitted under the Acquisition Facility, provided that the
aggregate principal amount of such Indebtedness outstanding at any time may not
exceed the Acquisition Principal Amount;
(d) Indebtedness of the Company or a Restricted Subsidiary incurred
for any purpose permitted under the Working Capital Facility, provided that the
aggregate principal amount of such Indebtedness outstanding at any time may not
exceed the Working Capital Principal Amount;
(e) Indebtedness of the Company owing to the Master Partnership or the
Manager or an Affiliate of the Master Partnership or the Manager that is
unsecured and that is Subordinated
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Indebtedness; provided that the aggregate principal amount of such Indebtedness
outstanding at any time may not exceed $10 million;
(f) Indebtedness owed by the Company or any Restricted Subsidiary to
any Restricted Subsidiary;
(g) Indebtedness under Interest Rate Agreements;
(h) Permitted Refinancing Indebtedness;
(i) Indebtedness of the Company and its Restricted Subsidiaries
represented by letters of credit supporting (i) obligations under workmen's
compensation laws and (ii) the repayment of Permitted Indebtedness;
(j) surety bonds and appeal bonds required in the ordinary course of
business or in connection with the enforcement of rights or claims of the
Company or any of its Subsidiaries or in connection with judgments that do not
result in a Default or Event of Default;
(k) the Subsidiary Guarantees of the Notes (and any assumption of the
obligations guaranteed thereby);
(l) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness in respect of Capital Leases, 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 which, when aggregated with the principal
amount of all other Indebtedness then outstanding and incurred pursuant to this
clause (1) (together with any Permitted Refinancing Indebtedness with respect
thereto) does not exceed $5 million at any time outstanding;
(m) the incurrence by the Company or any Restricted Subsidiary 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 other Indebtedness
incurred pursuant to this clause (m), not to exceed $10 million.
For purposes of determining compliance with Section 4.8 hereof, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (a) through (m) above
or is entitled to be incurred pursuant to the first paragraph of such covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph of such covenant.
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"Permitted Investments" means any of the following:
(a) Investments made or owned by the Company or any Restricted
Subsidiary in (i) any evidence of Indebtedness with a maturity of 365 days or
less issued by or directly, fully and unconditionally guaranteed or insured by
the United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) deposits, certificates of deposit or acceptances with a
maturity of 365 days or less of any institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500.0 million; (iii) commercial paper with a maturity of 365 days or
less issued by a corporation (other than an Affiliate of the Company)
incorporated or organized under the laws of the United States or any state
thereof or the District of Columbia and rated at least "A-l" by S&P or "P-l" by
Moody's; (iv) repurchase agreements and reverse repurchase agreements relating
to marketable direct obligations issued by or directly, fully and
unconditionally guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof), in each case
maturing within 365 days from the date of acquisition, (v) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and having as at such date
the highest rating obtainable from either S&P or Moody's, or (vi) money market
mutual or similar funds that invest in obligations referred to in clauses (i)
through (v) of this definition, in each case having assets in excess of $100.0
million.
(b) the acquisition by the Company or any Restricted Subsidiary of
Capital Stock or other ownership interests, whether in a single transaction or
in a series of related transactions, of a Person engaged in substantially the
same business as the Company such that upon the completion of such transaction
or series of transactions, such Person becomes a Restricted Subsidiary;
(c) subject to the provisions of subdivision (h) below, the making or
ownership by the Company or any Restricted Subsidiary of Investments (in
addition to Investments permitted by subdivisions (a), (b), (d), (e), (f) and
(g)) in any Person which is engaged in substantially the same business as the
Company, provided that the aggregate amount of all such Investments made by the
Company and its Restricted Subsidiaries following the Issue Date and outstanding
pursuant to this subdivision (c) and subdivision (h) below shall not at any date
of determination exceed 10% of Total Assets (the "Investment Limit"), provided
that, in addition to Investments that would be permitted under the Investment
Limit, during any fiscal year the Company and its Restricted Subsidiaries may
invest up to $11 million (the "Annual Limit") pursuant to the provisions of this
subdivision (c), but the unused amount of the Annual Limit shall not be carried
over to any future years;
(d) the making or ownership by the Company or any Restricted
Subsidiary of Investments (i) arising out of loans and advances to employees
incurred in the ordinary course of business, (ii) arising out of extensions of
trade credit or advances to third parties in the ordinary course of business and
(iii) acquired by reason of the exercise of customary creditors' rights upon
default or pursuant to the bankruptcy, insolvency or reorganization of a debtor,
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(e) the creation or incurrence of liability by the Company or any
Restricted Subsidiary with respect to any Guaranty constituting an obligation,
warranty or indemnity, not guaranteeing Indebtedness of any Person, which is
undertaken or made in the ordinary course of business;
(f) the creation or incurrence of liability by the Company or any
Restricted Subsidiary with respect to any Interest Rate Agreements;
(g) the making by the Company or any Restricted Subsidiary of
Investments in the Company or another Restricted Subsidiary;
(h) the making or ownership by the Company or any Restricted
Subsidiary of Investments in Unrestricted Subsidiaries; provided that the Net
Amount of Unrestricted Investment shall not at any time exceed $5 million (and
subject to the limitations specified in subdivision (c) above); and
(i) the making or ownership by the Company or any Restricted
Subsidiary of Investments in Finance Corp.
"Permitted Liens" means any of the following:
(a) Liens for taxes, assessments or other governmental charges the
payment of which is not yet due and is being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and as to
which reserves or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor and be adequate in the good faith judgment of
the obligor;
(b) Liens of lessors, landlords and carriers, vendors, warehousemen,
mechanics, materialmen, repairmen and other like Liens incurred in the ordinary
course of business for sums not yet due or the payment of which is being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and as to which reserves or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefor and be adequate
in the good faith judgment of the obligor, in each case (i) not incurred or made
in connection with the borrowing of money, the obtaining of advances or credit
or the payment of the deferred purchase price of property or (ii) incurred in
the ordinary course of business securing the unpaid purchase price of property
or services constituting current accounts payable;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social security, or (ii)
to secure (or to obtain letters of credit that secure) the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
performance bonds, purchase, construction or sales contracts and other similar
obligations, in each case not incurred or made in connection with the borrowing
of money;
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(d) other deposits made to secure liability to insurance carriers
under insurance or self insurance arrangements;
(e) Liens securing reimbursement obligations under letters of credit,
provided in each case that such Liens cover only the title documents and related
goods (and any proceeds thereof) covered by the related letter of credit;
(f) any attachment or judgment Lien relating to a judgment that does
not constitute an Event of Default;
(g) leases or subleases granted to others, easements, rights-of-way,
restrictions and other similar charges or encumbrances, which, in each case
either (i) are granted, entered into or created in the ordinary course of the
business of the Company or any Restricted Subsidiary or (ii) do not materially
impair the value or intended use of the property covered thereby;
(h) Liens on property or assets of any Restricted Subsidiary securing
Indebtedness of such Restricted Subsidiary owing to the Company or a Restricted
Subsidiary;
(i) Liens on assets of the Company or any Restricted Subsidiary
existing on the Issue Date;
(j) Liens existing on any property of any Person at the time it
becomes a Subsidiary of the Company, or existing at the time of acquisition upon
any property acquired by the Company or any such Subsidiary through purchase,
merger or consolidation or otherwise, whether or not assumed by the Company or
such Subsidiary, or created to secure Indebtedness incurred to pay all or any
part of the purchase price or cost of construction or improvement (a "Purchase
Money Lien") of property (including, without limitation, Capital Stock and other
securities) acquired by the Company or a Restricted Subsidiary; provided that
(i) any such Lien shall be confined solely to such item or items of property and
other property which is an improvement to or is acquired for use specifically in
connection with such acquired property, or, in the case of construction, related
unimproved land, (ii) in the case of a Purchase Money Lien, the principal amount
of the Indebtedness secured by such Purchase Money Lien shall at no time exceed
an amount equal to 100% of the purchase price or cost of construction or
improvement to the Company and the Restricted Subsidiaries of such property,
(iii) any such Purchase Money Lien shall be created not later than 180 days
after the acquisition of such property and (iv) any such Lien (other than a
Purchase Money Lien) shall not have been created or assumed in contemplation of
such Person's becoming a Subsidiary of the Company or such acquisition of
property by the Company or any Subsidiary;
(k) easements, exceptions or reservations in any property of the
Company or any Restricted Subsidiary granted or reserved for the purpose of
pipelines, roads, the removal of oil, gas, coal or other minerals, and other
like purposes, or for the joint or common use of real property,
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facilities and equipment, which are incidental to, and do not materially
interfere with, the ordinary conduct of the business of the Company or any
Restricted Subsidiary; or
(l) any Lien renewing or extending any Lien permitted by subdivision
(i) or (j), provided that (i) the principal amount of the Indebtedness secured
by any such Lien shall not exceed the principal amount of such Indebtedness
outstanding immediately prior to the renewal or extension of such Lien, and (ii)
no assets encumbered by any such Lien other than the assets encumbered
immediately prior to such renewal or extension shall be encumbered thereby.
"Permitted Refinancing Indebtedness" means Indebtedness incurred by
the Company or any Restricted Subsidiary to substantially concurrently
(excluding any notice period on redemptions) repay, refund, renew, replace,
extend or refinance, in whole or in part, any Permitted Indebtedness of the
Company or any Restricted Subsidiary or any other Indebtedness incurred by the
Company or any Restricted Subsidiary pursuant to Section 4.8 hereof, to the
extent (a) the principal amount of such Permitted Refinancing Indebtedness does
not exceed the principal or accreted amount plus the amount of accrued and
unpaid interest of the Indebtedness so repaid, refunded or refinanced (except
that, in the case of the Notes, such Permitted Refinancing Indebtedness may
include the redemption premium set forth in Section 3.7 hereof), (b) the
Permitted Refinancing Indebtedness ranks no more favorably in right of payment
with respect to the Notes than the Indebtedness so repaid, refunded, renewed,
replaced, extended or refinanced, and (c) the Permitted Refinancing Indebtedness
has a Weighted Average Life to Stated Maturity and Stated Maturity equal to, or
greater than, the Indebtedness so repaid, refunded, renewed, replaced, extended
or refinanced; provided, however, that Permitted Refinancing Indebtedness shall
not include Indebtedness incurred by a Restricted Subsidiary to repay, refund,
renew, replace, extend or refinance Indebtedness of the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Planned Volume" means, as of the Closing Date, 125 million board feet
per calendar year of Timber. In the event of the acquisition of merchantable
Timber or Timberlands (other than in a like-kind exchange of Timber or
Timberlands for other Timber or Timberlands and other than Timber or Timberlands
acquired with the Net Proceeds of an Excess Harvest) constituting an Asset
Acquisition, Planned Volume will be increased for 10 years by 10% of the volume
of merchantable Timber so acquired; provided that if such Asset Acquisition is
made under a cutting contract with a term of less than 10 years, Planned Volume
will be increased for each year during the term of the cutting contract by a
number of board feet equal to the number of board feet so acquired multiplied by
the quotient of 100% divided by the number of years in the cutting contract. In
the event of a disposition of merchantable Timber or Timberlands constituting an
Asset Sale, Planned Volume will be reduced by 10% of the volume of merchantable
Timber sold in such Asset Sale. In the event of an Excess Harvest, Planned
Volume will be reduced by 10% of the amount of the Excess Harvest.
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"Preferred Stock," as applied to the Capital Stock of any Person,
means Capital Stock (other than the Common Units) of any class or classes
(however designated), which is preferred as to the payment of distributions,
dividends, or upon any voluntary or involuntary liquidation or dissolution of
such Person, over shares or units of Capital Stock of any other class of such
Person.
"Prospectus" means the Prospectus of the Issuers relating to the
offering of the Notes.
"Public Equity Offering" means a public offering by the Master
Partnership or the Company of its Capital Stock (other than Redeemable Capital
Stock) pursuant to a registration statement declared effective under the
Securities Act; provided that the MLP Offering (including any over-allotment
option in respect thereof) shall be excluded from the definition of Public
Equity Offering.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any Note
or is redeemable at the option of the holder thereof at any time prior to the
Stated Maturity of the Notes, or is convertible into or exchangeable for debt
securities at any time prior to the Stated Maturity of the Notes.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Subsidiary" means a Subsidiary of the Company, which, as
of the date of determination, is not an Unrestricted Subsidiary of the Company.
"Sale and Leaseback Transaction" of any Person (a "Transferor") means
any arrangement (other than between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries) whereby (a) property (the "Subject Property")
has been or is to be disposed of by such Transferor to any other Person with the
intention on the part of such Transferor of taking back a lease of such Subject
Property pursuant to which the rental payments are calculated to amortize the
purchase price of such Subject Property substantially over the useful life of
such Subject Property, and (b) such Subject Property is in fact so leased by
such Transferor or an Affiliate of such Transferor.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" shall have the same meaning as in Rule
1.02(w) of Regulation S-X under the Securities Act.
"S&P" means Standard & Poor's Ratings Group, and its successors.
"Stated Maturity" means, (a) when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and (b) when used with respect to any other Indebtedness, means the
date or dates specified in the instrument governing such Indebtedness as the
fixed date or dates on which each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including payment at
final maturity, in respect of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Subsidiary Guarantor which is expressly subordinated in right of payment to the
Notes or the Subsidiary Guarantee, respectively.
"Subsidiary" means, with respect to any Person, (a) a corporation a
majority of whose Voting Stock (or, in the case of a partnership, a majority of
the partners' Capital Stock, considering all partners' Capital Stock as a single
class) is at the time, directly or indirectly, owned by such Person, by one or
more Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof and (b) any other Person, including, without limitation, a joint
venture, in which such Person, one or more Subsidiaries thereof or such Person
and one or more Subsidiaries thereof, directly or indirectly, at the date of
determination thereof, has at least majority ownership interest entitled to vote
in the election of directors, managers, general partners or trustees thereof (or
other Person performing similar functions) or, if such Persons are not elected,
to vote on any matter that is submitted to the vote of all Persons holding
ownership interests in such entity. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
"Subsidiary Guarantee" means any guarantee of the Notes by any
Subsidiary Guarantor in accordance with the provisions described under Article
10.
"Subsidiary Guarantor" means (i) each of the Company's Subsidiaries,
if any, executing a supplemental indenture in which such Subsidiary agrees to be
bound by the terms of the Indenture and (ii) any Person that becomes a successor
guarantor of the Notes in compliance with the provisions described under Section
10.2.
"Timber" means all crops and all trees, timber, whether severed or
unsevered and including standing and down timber, stumps and cut timber, and
logs, wood chips and other forest products, whether not located on or hereafter
planted or growing in or on the Timberlands or
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otherwise or now or hereafter removed from the Timberlands or otherwise for sale
or other disposition.
"Timberlands" means, at any date of determination, all real property
owned by or leased to the Company that is suitable for Timber production.
"TIA" means the Trust Indenture Act of 1939, as in effect on the date
this Indenture is qualified under the TIA, except as provided in Section 9.3
hereof.
"Total Assets" means as of any date of determination, the consolidated
total assets of the Company and the Restricted Subsidiaries as would be shown on
a consolidated balance sheet of the Company and the Restricted Subsidiaries
prepared in accordance with GAAP as of that date.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"UCC" means the Uniform Commercial Code as it may be from time to time
in effect in the State of New York.
"Unrestricted Subsidiary" means any Subsidiary of the Company or a
Restricted Subsidiary that is designated as such by the Manager, provided that
no portion of the Indebtedness or any other obligation (contingent or otherwise)
of such Subsidiary (a) is guaranteed by the Company or any Restricted
Subsidiary, (b) is recourse to or obligates the Company or any Restricted
Subsidiary in any way or (c) subjects any property or assets of the Company or
any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to
the satisfaction thereof. Notwithstanding the foregoing, the Company or a
Restricted Subsidiary may Guaranty or agree to provide funds for the payment or
maintenance of, or otherwise become liable with respect to Indebtedness of an
Unrestricted Subsidiary, but only to the extent that the Company or a Restricted
Subsidiary would be permitted to (a) make an Investment in such Unrestricted
Subsidiary pursuant to subdivision (h) of the definition of Permitted
Investments and (b) incur the Indebtedness represented by such Guaranty or
agreement pursuant to Section 4.8 herein. The Board of Directors may designate
an Unrestricted Subsidiary to be a Restricted Subsidiary, provided that
immediately after giving effect to such designation, (a) there exists no Default
or Event of Default and (b) if such Unrestricted Subsidiary has, as of the date
of such designation, outstanding Indebtedness (other than Permitted
Indebtedness), the Company could incur at least $1.00 of Indebtedness (other
than Permitted Indebtedness). Notwithstanding the foregoing, (a) no Subsidiary
may be designated an Unrestricted Subsidiary if such Subsidiary, directly or
indirectly, holds Capital Stock of a Restricted Subsidiary and (b) Finance Corp.
may not be designated an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers,
general partners or trustees of any Person (irrespective
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of whether or not, at the time, Capital Stock of any other class or classes
shall have, or might have, voting power by reason of the happening of any
contingency) or, with respect to a partnership (whether general or limited), any
general partner interest in such partnership.
"Weighted Average Life to Stated Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) 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 (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness; provided, however, that with respect to any
revolving Indebtedness, the foregoing calculation of Weighted Average Life to
Stated Maturity shall be determined based upon the total available commitments
and the required reductions of commitments in lieu of the outstanding principal
amount and the required payments of principal, respectively.
"Wholly-Owned Restricted Subsidiary" means any Subsidiary of the
Company of which 98% of the outstanding Capital Stock is owned by the Company or
by one or more Wholly-Owned Restricted Subsidiaries of the Company or by the
Company and one or more Wholly-Owned Restricted Subsidiaries of the Company.
For purposes of this definition, any directors' qualifying shares or investments
by foreign nationals mandated by applicable law shall be disregarded in
determining the ownership of a Subsidiary.
"Working Capital Facility" means the working capital facility of the
Company provided for in the Credit Agreement.
"Working Capital Principal Amount" means $25.0 million.
Section 1.2 Other Definitions.
Defined in
Term Section
- ---- ----------
"Asset Sale".............................................. 4.16
"Asset Sale Offer"........................................ 4.16
"Bankruptcy Law".......................................... 6.1
"Change of Control Offer"................................. 4.18
"Change of Control Payment"............................... 4.18
"Change of Control Payment Date".......................... 4.18
"Covenant Defeasance"..................................... 8.3
"Custodian"............................................... 6.1
"Excess Harvest Proceeds"................................. 4.17
"Excess Proceeds"......................................... 4.16
"Funding Subsidiary Guarantor"............................ 10.6
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"incur"................................................... 4.8
"Legal Defeasance"........................................ 8.2
"Legal Holiday"........................................... 11.8
"Offer Amount"............................................ 3.9
"Offer Period"............................................ 3.9
"Paying Agent"............................................ 2.3
"Payment Default"......................................... 6.1
"Payment Restrictions".................................... 4.12
"Purchase Date"........................................... 3.9
"Registrar"............................................... 2.3
"Restricted Payments"..................................... 4.9
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of Notes;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Notes means the Issuers, as joint and several
obligors, or any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.4 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in the United States;
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(3) references to "generally accepted accounting principles"
shall mean generally accepted accounting principles in effect in the
United States as of the date hereof;
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the plural
include the singular;
(6) provisions apply to successive events and transactions; and
(7) references to sections of or rules under the Securities Act
or the Exchange Act shall be deemed to include substitute, replacement
or successor or rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
Section 2.1 Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, the terms of which are incorporated in
and made a part of this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Note shall be
dated the date of its authentication. The Notes shall be in denominations of
$1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture, and the Issuers and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
The Notes will initially be issued in the form of a Global Note,
substantially in the form of Exhibit A attached hereto (including the text
referred to in footnote 1 thereto). Definitive Notes shall be substantially in
the form of Exhibit A attached hereto (but without including the text referred
to in footnote 1 thereto). The Global Note shall represent such of the
outstanding Notes as shall be specified therein and shall provide that it shall
represent the aggregate amount of outstanding Notes from time to time endorsed
thereon and that the aggregate amount of outstanding Notes represented thereby
may from time to time be reduced or increased, as appropriate, to reflect
exchanges and redemptions. Any endorsement of a Global Note to reflect the
amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee in accordance with instructions
given by the Holder thereof as required by Section 2.6 hereof.
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Section 2.2 Execution and Authentication.
The Notes shall be executed on behalf of the Company by the Chief
Executive Officer, the President or any Executive Vice President or Senior Vice
President of the Manager and on behalf of Finance Corp. by its Chief Executive
Officer, its President or any of its Executive Vice Presidents or Senior Vice
Presidents, under its corporate seal reproduced or imprinted on the Notes by
facsimile or otherwise, and shall be attested by the Secretary or any Assistant
Secretary of the Manager and Finance Corp.
If an Officer of the Manager or of Finance Corp. whose signature is on
a Note no longer holds that office at the time the Note is authenticated, the
Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature of the Trustee shall be conclusive evidence that
the Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuers signed by an
Officer of each of the Manager, on behalf of the Company, and of Finance Corp.,
authenticate Notes for original issue up to $225,000,000. The aggregate
principal amount of Notes outstanding at any time may not exceed $225,000,000,
except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuers to authenticate Notes. Unless limited by the terms of such appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same right as an
Agent to deal with the Issuers or an Affiliate of the Issuers.
Section 2.3 Registrar and Paying Agent.
The Issuers shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Issuers may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agents. The Issuers may change
any Paying Agent or Registrar without notice to any Holder. The Issuers shall
notify the Trustee of the name and address of any Agent not a party to this
Indenture. If the Issuers fail to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation in accordance with Section 7.7 hereof. The Issuers
or any of their Subsidiaries may act as Paying Agent or Registrar.
The Issuers shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall
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implement the provisions of this Indenture that relate to such Agent. The
Issuers initially appoint The Depository Trust Company ("DTC") to act as
Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and
Paying Agent and agent for service of notices and demands in connection with the
Notes.
Section 2.4 Paying Agent to Hold Money in Trust.
The Issuers shall require each Paying Agent (other than the Trustee)
to agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest, on the Notes, and shall notify the
Trustee of any default by the Issuers or any Subsidiary Guarantor in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Issuers at any
time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Issuers or
a Subsidiary) shall have no further liability for the money. If an Issuer or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to an Issuer or a
Subsidiary Guarantor, the Trustee shall serve as sole Paying Agent for the
Notes.
Section 2.5 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not
the Registrar, the Issuers shall furnish to the Trustee at least seven Business
Days before each interest payment date and at such other times as the Trustee
may request in writing a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Holders, including the
aggregate principal amount of Notes held by each Holder, and the Issuers shall
otherwise comply with TIA (S) 312(a).
Section 2.6 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes
are presented to the Registrar with the request to register the transfer of the
Definitive Notes or to exchange such Definitive Notes for an equal principal
amount of Definitive Notes of other authorized denominations, the Registrar
shall register the transfer or make the exchange as requested if its requirement
for such transactions are met; provided, however, that the Definitive Notes
presented or surrendered for register of transfer or exchange shall be duly
endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar duly executed by the Holder thereof or by his
attorney, duly authorized in writing.
(b) Transfer of a Definitive Note for a Beneficial Interest in a
Global Note. A Definitive Note may not be exchanged for a beneficial interest
in a Global Note except upon
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satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Note, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Trustee, together with written
instructions from the Holder thereof directing the Trustee to make, or direct
the Note Custodian to make, an endorsement on the Global Note to reflect an
increase in the aggregate principal amount of the Notes represented by the
Global Note, then the Trustee shall cancel such Definitive Note in accordance
with Section 2.11 hereof and cause, or direct the Note Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Note Custodian, the aggregate principal amount of Notes
represented by the Global Note to be increased accordingly. If no Global Notes
are then outstanding, the Issuers shall issue and, upon receipt of an
authentication order in accordance with Section 2.2 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Note for a
Definitive Note. Any Person having a beneficial interest in a Global Note may
upon request exchange such beneficial interest for a Definitive Note. Upon
receipt by the Trustee of written instructions or such other form of
instructions as is customary for the Depositary, from the Depositary or its
nominee on behalf of any Person having a beneficial interest in a Global Note,
then the Trustee or the Note Custodian, at the direction of the Trustee, shall,
in accordance with the standing instructions and procedures existing between the
Depositary and the Note Custodian, cause the aggregate principal amount of
Global Notes to be reduced accordingly and, following such reduction, the
Issuers shall execute and, upon receipt of an authentication order in accordance
with Section 2.2 hereof, the Trustee shall authenticate and deliver to the
transferee a Definitive Note in the appropriate principal amount. Definitive
Notes issued in exchange for a beneficial interest in a Global Note pursuant to
this Section 2.6(d) shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Definitive Notes to the Persons in whose names such Notes are
so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Notes in Absence of Depositary. If
at any time (i) the Depositary for the Notes notifies the Issuers that the
Depositary is unwilling or unable to continue as Depositary for the Global Notes
and a successor Depositary for the Global Notes is not appointed by the Issuers
within 90 days after delivery of such notice or (ii) the Issuers, at their sole
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discretion, notify the Trustee in writing that they elect to cause the issuance
of Definitive Notes under this Indenture, then each of the Issuers will execute,
and the Trustee, upon receipt of an Officers' Certificate requesting the
authentication and delivery of Definitive Notes, will authenticate and deliver
Definitive Notes, in an aggregate principal amount equal to the principal amount
of the Global Notes, in exchange for such Global Notes and registered in such
names as the Depositary shall instruct the Trustee or the Issuers in writing.
(g) Cancellation and/or Adjustment of Global Note. At such time as
all beneficial interests in a Global Note have either been exchanged for
Definitive Notes, redeemed, repurchased or canceled, such Global Note shall be
returned to or retained and cancelled by the Trustee. At any time prior to such
cancellation, if any beneficial interest in a Global Note is exchanged for
Definitive Notes, redeemed, repurchased or cancelled, the principal amount of
Notes represented by such Global Note shall be reduced and an endorsement shall
be made on such Global Note, by the Trustee or the Note Custodian, at the
direction of the Trustee to reflect such reduction.
(h) General Provisions with respect to Transfer and Exchanges.
(i) To permit registrations of transfers and exchanges, each
of the Issuers shall execute and the Trustee shall
authenticate Definitive Notes and Global Notes at the
Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Issuers
may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes
or similar governmental charges payable upon exchange or
transfer pursuant to Sections 3.7, 3.9, 4.16, 4.17, 4.18
and 9.5 hereof).
(iii) The Registrar shall not be required to register the
transfer or exchange of any Note selected for redemption
in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes
or Global Notes shall be the valid obligations of each
of the Issuers, as joint and several obligors,
evidencing the same debt, and entitled to the same
benefit under this Indenture as the Definitive Notes or
Global Notes surrendered upon such registration of
transfer or exchange.
(v) The Issuers shall not be required to issue, register the
transfer of or exchange Notes during a period beginning
at the opening of business 15 days before the day of any
selection of Notes for redemption under
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Section 3.2 and ending at the close of business on the
day of selection.
(vi) Prior to due presentment for registration of transfer of
any Note, the Trustee, any Agent and the Issuers may
deem and treat the Person in whose name any Note is
registered as the absolute owner of such Note for the
purpose of receiving payment of principal of, and
premium, and interest on, such Note, and neither the
Trustee, any Agent nor the Issuers shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Definitive Notes and
Global Notes in accordance with the provisions of
Section 2.2 hereof.
(viii) None of the Issuers nor the Trustee will have any
responsibility or liability for any aspect of the
records relating to, or payments made on account of,
Notes by the Depositary, or for maintaining, supervising
or reviewing any records of the Depositary relating to
such Notes. None of the Issuers nor the Trustee shall be
liable for any delay by the related Global Note Holder
or the Depositary in identifying the beneficial owners
of the related Notes and each such Person may
conclusively rely on, and shall be protected in relying
on, instructions from such Global Note Holder or of the
Depositary for all purposes (including with respect to
the registration and delivery, and the respective
principal amounts, of the Notes to be issued).
(ix) The Registrar shall retain copies of all letters,
notices and other written communications received
pursuant to this Section 2.6. The Issuers shall have the
right to inspect and make copies of all such letters,
notices or other written communications at any
reasonable time upon the giving of reasonable written
notice to the Registrar.
Section 2.7 Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Issuers
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note, the Issuers shall issue and the Trustee, upon the written
order of the Issuers signed by an Officer of each of the Manager, on behalf of
the Company, and of Finance Corp. shall authenticate a replacement Note if the
Trustee's requirements are met. If required by the Trustee or the Issuers, an
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Trustee and the Issuers to protect the Issuers, any Subsidiary Guarantor,
the Trustee, any Agent or any authenticating agent from any loss which any of
them may suffer if a Note is replaced. The Issuers and the Trustee may charge
for their expenses in replacing a Note.
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Every replacement Note is an obligation of the Issuers and any
Subsidiary Guarantor and shall be entitled to all of the benefits of this
Indenture and any Subsidiary Guarantee equally and ratably with all other Notes
duly issued hereunder.
Section 2.8 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee hereunder, and those described in this Section as not outstanding.
Except as set forth in Section 2.9 hereof, a Note does not cease to be
outstanding because either of the Issuers or an Affiliate of the Issuers holds a
Note. If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser. If the principal amount of any
Note is considered paid under Section 4.1 hereof, it ceases to be outstanding
and interest on it ceases to accrue.
Section 2.9 Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by either
of the Issuers or any Affiliate of the Issuers shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes which a Responsible Officer of the Trustee knows are so owned shall be so
disregarded.
Section 2.10 Temporary Notes.
Until definitive Notes are ready for delivery, the Issuers may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Issuers and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, the Issuers shall prepare and the Trustee, upon receipt of
the written order of the Issuers signed by an Officer of each of the Manager, on
behalf of the Company, and of Finance Corp., shall authenticate, definitive
Notes in exchange for temporary Notes.
Until such exchange, Holders of temporary Notes shall be entitled to
all of the right, benefit and privileges of this Indenture.
Section 2.11 Cancellation.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Notes surrendered for registration of transfer or
exchange, payment, replacement or cancellation. The Issuers may not
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issue new Notes to replace Notes that have been redeemed or paid or that have
been delivered to the Trustee for cancellation. All cancelled Notes held by the
Trustee shall be destroyed and certification of their destruction delivered to
the Issuers unless by a written order, signed by one Officer of each of the
Manager, on behalf of the Company, and of Finance Corp., the Issuers shall
direct that cancelled Notes be returned to them.
Section 2.12 Defaulted Interest.
If the Issuers or any Subsidiary Guarantor defaults in a payment of
interest on the Notes, the Issuers or the Subsidiary Guarantors shall pay the
defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which date shall be at the earliest practicable
date but in all events at least five Business Days prior to the payment date, in
each case at the rate provided in the Notes and in Section 4.1 hereof. The
Issuers shall, with the consent of the Trustee, fix or cause to be fixed each
such special record date and payment date. At least 15 days before the special
record date, the Issuers (or the Trustee, in the name of and at the expense of
the Issuers) shall mail to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND OFFERS TO PURCHASE
Section 3.1 Notice to Trustee.
If the Issuers elect to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, they shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date (unless a
shorter notice period shall be satisfactory to the Trustee), an Officers'
Certificate setting forth (a) the Section of this Indenture pursuant to which
the redemption shall occur, (b) the redemption date, (c) the principal amount of
Notes to be redeemed and (iv) the redemption price.
If the Issuers are required to make an offer to purchase Notes
pursuant to the provisions of Sections 4.16, 4.17 or 4.18 hereof, they shall
furnish to the Trustee, at least 30 days before the scheduled purchase date, an
Officers' Certificate setting forth (a) the Section of this Indenture pursuant
to which the offer to purchase shall occur, (b) the terms of the offer, (c) the
purchase price, (d) the principal amount of the Notes to be purchased, and (e)
further setting forth a statement to the effect that (i) the Company or one of
its Subsidiaries has made an Asset Sale and there are Excess Proceeds
aggregating more than $10 million and the amount of such Excess Proceeds, (ii)
the Company and its Subsidiaries have had an Excess Harvest and there are Excess
Harvest Proceeds aggregating more than $10 million and the amount of such Excess
Harvest Proceeds or (iii) a Change of Control has occurred, as applicable.
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Section 3.2 Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed among the Holders of the Notes pro rata, by lot
or in accordance with a method which the Trustee considers to be fair and
appropriate (and in such manner as complies with applicable legal and stock
exchange requirements, if any). In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Issuers in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
them selected shall be in face amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
In the event the Issuers are required to make an Asset Sale Offer
pursuant to Section 3.9 and Section 4.16 or an Excess Harvest Offer pursuant to
Section 3.9 and Section 4.17, and the amount of the Net Proceeds from the Asset
Sale or Excess Harvest is not evenly divisible by $1,000, the Trustee shall
promptly refund to the Issuers the portion of such Excess Proceeds or Excess
Harvest Proceeds that is not necessary to purchase the immediately lesser
principal amount of Notes that is so divisible.
Section 3.3 Notice of Redemption.
Subject to the provisions of Section 3.9 hereof, at least 30 days but
not more than 60 days before a redemption date, the Issuers shall mail a notice
of redemption by first class mail to each Holder whose Notes are to be redeemed
at its registered address.
The notice shall identify the Notes to be redeemed (including CUSIP
number) and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion will be issued;
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(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption
payment, interest on Notes or portions of Notes called for redemption
ceases to accrue on and after the redemption date; and
(g) the paragraph of the Notes or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed.
At the Issuers' request, the Trustee shall give the notice of
redemption in the names of the Issuers and at their expense; provided, however,
that the Issuers shall deliver to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.4 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Notes called for redemption become due and payable on the redemption
date at the redemption price stated in such notice. A notice of redemption may
not be conditional.
Section 3.5 Deposit of Redemption Price.
On or before the redemption date, the Issuers shall deposit with the
Trustee (to the extent not already held by the Trustee) or with the Paying Agent
money in immediately available funds sufficient to pay the redemption price of
and accrued interest, if any, on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall return to the Issuers any money deposited with
the Trustee or the Paying Agent by the Issuers in excess of the amount necessary
to pay the redemption price of and accrued interest on all Notes to be redeemed.
If the Issuers comply with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest, if any, shall be paid to the Person in
whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Issuers to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.1 hereof.
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Section 3.6 Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Issuers shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Issuers a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
Section 3.7 Optional Redemption.
The Notes are not redeemable prior to ___________, 2002. Thereafter,
the Notes will be subject to redemption at the option of the Issuers, in whole
or in part, 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 12-month period beginning on __________
of the years indicated below:
YEAR PERCENTAGE
---- ----------
2002................................................ _______%
2003................................................ _______%
2004................................................ _______%
2005 and thereafter................................. 100.000%
Notwithstanding the foregoing, at any time on or before __________,
2000, the Company may redeem up to 35% of the original aggregate principal
amount of the Notes at a redemption price of ___% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of a Public Equity Offering; provided, however, that at least
65% of the aggregate principal amount of Notes originally issued shall be
outstanding immediately after such redemption; provided further, that such
redemption shall occur within 120 days of the date of the closing of such Public
Equity Offering; provided further, that in the event of a Public Equity Offering
by the Master Partnership, the Master Partnership contributes to the capital of
the Company the portion of the net cash proceeds of such Public Equity Offering
necessary to pay the aggregate redemption price (plus accrued and unpaid
interest thereon to the redemption date) of the Notes to be redeemed.
Section 3.8 Mandatory Redemption.
The Issuers shall have no mandatory redemption or sinking fund
obligations with respect to the Notes.
Section 3.9 Offer to Purchase by Application of Excess Proceeds or Excess
Harvest Proceeds.
Any Asset Sale Offer pursuant to Section 4.16 or Excess Harvest Offer
pursuant to Section 4.17 shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period").
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On a date within five Business Days after the termination of the Offer Period
(the "Purchase Date"), the Issuers shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.16 or Section 4.18 hereof (the
"Offer Amount") or, if less than the Offer Amount has been tendered, all Notes
tendered in response to the Asset Sale Offer or Excess Harvest Offer. Payment
for any Notes so purchased shall be made in the same manner as interest payments
are made.
The Issuers shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with any offer required to be made by the Issuers to repurchase the Notes as a
result of an Asset Sale Offer or Excess Harvest Offer. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this Section 3.9, the Issuers shall comply with the applicable securities laws
or regulations and shall not be deemed to have breached their obligations
hereunder by virtue thereof.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer or Excess Harvest
Offer.
Upon the commencement of an Asset Sale Offer or Excess Harvest Offer,
the Issuers shall send, by first class mail, a notice to the Trustee and each of
the Holders, with a copy to the Trustee. The notice shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Asset Sale Offer or Excess Harvest Offer. The Asset Sale Offer
or Excess Harvest Offer shall be made to all Holders. The notice, which shall
govern the terms of the Asset Sale Offer or Excess Harvest Offer, shall state:
(a) (i) in the case of an Asset Sale Offer, that the Asset Sale
Offer is being made pursuant to this Section 3.9 and Section 4.16 hereof
and the length of time the Asset Sale Offer shall remain open and (ii)
in the case of an Excess Harvest Offer, that the Excess Harvest Offer is
being made pursuant to this Section 3.9 and Section 4.17 hereof and the
length of time the Excess Harvest Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Issuers default in making such payments,
any Note accepted for payment pursuant to the Asset Sale Offer or Excess
Harvest Offer shall cease to accrue interest after the Purchase Date;
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(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer or Excess Harvest Offer may only elect to have all
of such Note purchased and may not elect to have only a portion of such
Note purchased;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer or Excess Harvest Offer shall be required to
surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, or transfer by book-
entry transfer, to the Issuers, a depositary, if appointed by the
Issuers, or a Paying Agent at the address specified in the notice at
least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Issuers, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Issuers shall select the Notes
to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Issuers so that only Notes in denominations of
$1,000, or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer) .
On or before the Purchase Date, the Issuers shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer or Excess Harvest Offer, or if less than the Offer Amount has been
tendered, all Notes tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Notes or portions thereof were accepted for
payment by the Issuers in accordance with the terms of this Section 3.9. The
Issuers, the Depositary or the Paying Agent, as the case may be, shall promptly
(but in any case not later than five days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by the Issuers for purchase, and the
Issuers shall promptly issue a new Note, and the Trustee, upon written request
from the Issuers shall authenticate and mail or deliver such new Note to such
Holder, in a principal amount equal to any unpurchased portion of the Note
surrendered. Any Note not so accepted shall be promptly mailed or delivered by
the Issuers to the Holder thereof. The Issuers shall publicly announce by means
of a press release the results of the Asset Sale Offer or Excess Harvest Offer
on the Purchase Date.
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Other than as specifically provided in this Section 3.9, any purchase
pursuant to this Section 3.9 shall be made pursuant to the provisions of
Sections 3.1 through 3.6 hereof.
No repurchase of Notes under this Section 3.9 shall be deemed to be a
redemption of Notes.
ARTICLE 4
COVENANTS
Section 4.1 Payment of Notes.
The Issuers shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes. Principal and interest shall
be considered paid on the date due if the Paying Agent, other than the Issuers
or any of their Subsidiaries, holds on or before that date money deposited by
the Issuers in immediately available funds and designated for and sufficient to
pay all principal, premium, if any, and interest then due.
The Issuers shall pay interest (including post-petition interest under
any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in
excess of the then applicable interest rate on the Notes to the extent lawful
and shall pay interest (including post-petition interest in any proceeding under
any Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.2 Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, The City of
New York, an office or agency (which may be an office of the Trustee, Registrar
or co-registrar) where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Issuers or Subsidiary
Guarantors in respect of the Notes and this Indenture may be served. The
Issuers shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Issuers or
Subsidiary Guarantors shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Issuers of their obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Issuers will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
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The Issuers hereby designate the Corporate Trust Office of the Trustee
as one such office or agency of the Issuers in accordance with Section 2.3.
Section 4.3 Reports.
Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Issuers shall furnish to the Holders of
Notes (a) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Issuers
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 thereon by the Issuers' certified
independent accountants and (ii) all reports that would be required to be filed
with the SEC on Form 8-K if the Issuers were required to file such reports. In
addition, whether or not required by the rules and regulations of the SEC, each
of the Issuers shall file a copy of all such information with the SEC for public
availability (unless the SEC will not accept such a filing) and make such
information available to investors who request it in writing. Each Issuer and
each Subsidiary Guarantor shall also comply with the provisions of TIA (S)
314(a).
Section 4.4 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries (including Finance Corp.)
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether each Issuer and Subsidiary
Guarantor has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his knowledge each has kept, observed,
performed and fulfilled each and every covenant contained in this Indenture, and
is not in default in the performance or observance of any of the terms,
provisions and conditions hereof or thereof (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he may have knowledge and what action each is making or proposes to
take with respect thereto).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.3 above shall be accompanied by a
written statement of the Company's independent certified public accountants that
in making the examination necessary for certification of such financial
statements nothing has come to their attention which would lead them to believe
that either the Company or any of its Subsidiaries has violated any provisions
of Article 4 or Article 5 of this Indenture or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) Each Issuer and Subsidiary Guarantor shall, so long as any of the
Notes are outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of (i) any Default
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or Event of Default or (ii) any event of default under any other mortgage,
indenture or instrument referred to in Section 6.1(d), an Officers' Certificate
specifying such Default, Event of Default or other event of default and what
action the Issuers and the Subsidiary Guarantors are taking or propose to take
with respect thereto.
Section 4.5 Taxes.
Each Issuer shall, and shall cause each of its respective Subsidiaries
to, pay prior to delinquency all material taxes, assessment, and governmental
levies except as contested in good faith and by appropriate proceedings or where
the failure to effect such payment is not adverse in any material respect to the
Holders.
Section 4.6 Stay, Extension and Usury Laws.
Each Issuer and any Subsidiary Guarantor covenants (to the extent that
each may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Indenture; and each of
the Issuers and any Subsidiary Guarantor (to the extent that each may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
Section 4.7 Company and Corporate Existence.
Subject to Section 4.16 and Article 5 hereof, each Issuer shall do or
cause to be done all things necessary to preserve and keep in full force and
effect (a) its limited liability company or corporate existence, as the case may
be, and the corporate, partnership or other existence of each of their
respective Subsidiaries, in accordance with their respective organizational
documents (as the same may be amended from time to time) and (b) its (and its
Subsidiaries') rights (charter and statutory), licenses and franchises;
provided, however, that the Issuers shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any Subsidiary, if the Board of Directors of the Manager on behalf of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Issuers and their respective Subsidiaries
taken as a whole and that the loss thereof is not adverse in any material
respect to the Holders.
Section 4.8 Limitation on Additional Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or in any manner become directly or indirectly liable, contingently or
otherwise, for the payment of (in each case, to "incur"), any
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Indebtedness (including, without limitation, any Redeemable Capital Stock and
Acquired Indebtedness), unless at the time of such incurrence, and after giving
pro forma effect to the receipt and application of the proceeds of such
Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the Company is
greater than 2.25 to 1.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may incur Permitted Indebtedness.
Section 4.9 Limitation on Restricted Payments.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution
or payment on or in respect of Capital Stock of the Company or any of
its Restricted Subsidiaries or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the
Company or any of its Restricted Subsidiaries (other than (i) dividends
or distributions payable solely in Capital Stock of the Company (other
than Redeemable Capital Stock) or in options, warrants or other rights
to purchase Capital Stock of the Company (other than Redeemable Capital
Stock), (ii) the declaration or payment of dividends or other
distributions to the extent declared or paid to the Company or any
Restricted Subsidiary of the Company and (iii) the declaration or
payment of dividends or other distributions by any Restricted Subsidiary
of the Company to all holders of Capital Stock of such Restricted
Subsidiary on a pro rata basis), (including, in the case of the Company,
to the Manager)),
(b) purchase, redeem, defease or otherwise acquire or retire for
value any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than any such Capital Stock owned by a Wholly-Owned
Restricted Subsidiary of the Company),
(c) make any principal payment on, or purchase, defease,
repurchase, redeem or otherwise acquire or retire for value, prior to
any scheduled maturity, scheduled repayment, scheduled sinking fund
payment or other Stated Maturity, any Subordinated Indebtedness (other
than any such Indebtedness owned by the Company or a Wholly-Owned
Restricted Subsidiary of the Company), or
(d) make any Investment (other than any Permitted Investment) in
any Person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment, (A) no
Default or Event of Default shall have occurred and be continuing and
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(B) such Restricted Payment, together with the aggregate of all other Restricted
Payments made by the Company and its Restricted Subsidiaries during the fiscal
quarter during which such Restricted Payment is made, shall not exceed (1) if
the Consolidated Fixed Charge Coverage Ratio of the Company shall be greater
than 1.75 to 1, an amount equal to Available Cash for the immediately preceding
fiscal quarter or (2) if the Consolidated Fixed Charge Coverage Ratio of the
Company shall be equal to or less than 1.75 to 1, an amount equal to the sum of
(x) $7.5 million less the aggregate amount of all Restricted Payments made by
the Company and its Restricted Subsidiaries pursuant to this clause (2) (x)
during the period ending on the last day of the fiscal quarter of the Company
immediately preceding the date of such Restricted Payment and beginning on the
later of (I) the Issue Date and (II) the first day of the sixteenth full fiscal
quarter immediately preceding the date of such Restricted Payment, plus (y) the
aggregate net cash proceeds of any substantially concurrent (I) capital
contribution to the Company from any Person (other than a Restricted Subsidiary
of the Company) or (II) issuance and sale of shares of Capital Stock (other than
Redeemable Capital Stock) of the Company to any Person (other than to a
Restricted Subsidiary of the Company) (excluding any cash proceeds received
pursuant to any transaction occurring on or prior to the Issue Date). The
amount of any such Restricted Payment, if other than cash, shall be the fair
market value (as determined in good faith by the Board of Directors of the
Manager) on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Restricted Subsidiary, as the case may be,
pursuant to such Restricted Payment.
None of the foregoing provisions will prohibit: (a) the payment of any
dividend or distribution within 60 days after the date of its declaration, if at
the date of declaration such payment would be permitted by the foregoing
paragraph; (b) the redemption, repurchase or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary of the Company in exchange for, or out of the net cash proceeds of, a
substantially concurrent (i) capital contribution to the Company from any Person
(other than a Restricted Subsidiary of the Company) or (ii) issue and sale of
other shares of Capital Stock (other than Redeemable Capital Stock) of the
Company to any Person (other than to a Restricted Subsidiary of the Company);
provided, however, that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase or other acquisition or retirement
shall be excluded from the calculation of Available Cash; or (c) any redemption,
repurchase or other acquisition or retirement of Subordinated Indebtedness by
exchange for, or out of the net cash proceeds of, a substantially concurrent (i)
capital contribution to the Company from any Person (other than a Restricted
Subsidiary of the Company) or (ii) issue and sale of (A) Capital Stock (other
than Redeemable Capital Stock) of the Company to any Person (other than to a
Restricted Subsidiary of the Company) or (B) Indebtedness of the Company issued
to any Person (other than a Restricted Subsidiary of the Company), so long as
such Indebtedness is Permitted Refinancing Indebtedness; provided, however, in
each case, that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase or other acquisition or retirement shall be
excluded from the calculation of Available Cash. In computing the amount of
Restricted Payments previously made for purposes of the preceding paragraph,
Restricted Payments made under clause (a) shall be included and Restricted
Payments made under clauses (b) and (c) shall not be so included.
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Section 4.10 Limitation on Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any Liens, other than
Permitted Liens, upon any of its respective property or assets, whether owned on
the Issue Date or thereafter acquired, unless the Notes and the Subsidiary
Guarantees, as applicable, are secured equally and ratably with (or prior to, in
the case of the Subordinated Indebtedness) the obligations secured by such Lien.
Section 4.11 Limitation on Transactions with Affiliates.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, transfer, disposition, purchase, exchange or lease of assets, property
or services), with, or for the benefit of, any Affiliate of the Company, unless
(a) such transaction or series of related transactions is between the Company
and its Restricted Subsidiaries or between two Restricted Subsidiaries or (b)
(i) such transaction or series of related transactions is on terms that are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those which would have been obtained in a comparable transaction at such
time from Persons who are not Affiliates of the Company or a Restricted
Subsidiary and (ii) with respect to (A) a transaction or series of transactions
involving aggregate payments or value equal to or greater than $5 million, the
Company shall have delivered an Officers' Certificate to the Trustee certifying
that such transaction or series of transactions complies with the preceding
clause (i) and that such transaction or series of transactions has been approved
by a majority of the Board of Directors of the Manager (including a majority of
the Disinterested Directors) and (B) a transaction or series of transactions
involving aggregate payments or value equal to or greater than $10 million, the
Company delivers to the Trustee an opinion as to the fairness to the Company or
such Restricted Subsidiary from a financial point of view issued by an
accounting or investment banking firm of national standing; provided, however,
that this Section 4.11 will not apply to (i) any employment agreement, stock
option agreement, restricted stock agreement, consulting agreement or similar
agreement entered into in the ordinary course of business, (ii) transactions
permitted by the provisions of the Indenture set forth in Section 4.9 hereof,
(iii) any agreement in effect on the Issue Date or any amendment thereto (so
long as such amendment is no less favorable to the holders of the Notes than the
original agreement as in effect on the Issue Date) and any transactions
contemplated thereby, (iv) any transaction described in the Prospectus under the
caption "Certain Relationships and Related Transactions" and (v) the payment of
reasonable fees to, and indemnities provided on behalf of, officers, directors,
employees or consultants of the Company, the Manager or any Restricted
Subsidiary in the ordinary course of business.
Section 4.12 Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or consensual
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restriction on the ability of any Restricted Subsidiary to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock, (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (c) make loans or advances to, or any investment in, the
Company or any other Restricted Subsidiary, or (d) transfer any of its
properties or assets to the Company or any other Restricted Subsidiary
(collectively, "Payment Restrictions"), except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, rules or
regulations, or any order or ruling by any governmental authority; (ii) any
agreement in effect at or entered into on the Issue Date (including, without
limitation, the Credit Agreement) or any agreement relating to any Permitted
Indebtedness; provided, however, that the encumbrances and restrictions
contained in the agreements governing such Permitted Indebtedness are no more
restrictive with respect to such Payment Restrictions than those set forth in
the Credit Agreement as in effect on the Issue Date; (iii) customary non-
assignment provisions of any contract, license or any lease governing a
leasehold interest of the Company or any Restricted Subsidiary; (iv) customary
restrictions on cash or other deposits imposed by customers under contracts
entered into in the ordinary course of business; (v) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (d) above on the property so
acquired; (vi) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Restricted Subsidiary pursuant to an
agreement that has been entered into for the sale of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary; (vii) any agreement
or other instrument governing Indebtedness of a Person acquired by the Company
or any Restricted Subsidiary (or of a Restricted Subsidiary of such Person) in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the
properties, assets or Subsidiaries of the Person, so acquired; (viii) provisions
contained in agreements or instruments relating to Indebtedness which prohibit
the transfer of all or substantially all of the assets of the obligor thereunder
unless the transferee shall assume the obligations of the obligor under such
agreement or instrument; or (ix) Permitted Refinancing Indebtedness, provided
that the encumbrances or restrictions of the type referred to in clause (a),
(b), (c), or (d) above, contained in agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreement governing the Indebtedness being refinanced.
Section 4.13 Limitation on 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 with respect to
any property of the Company or any of its Restricted Subsidiaries.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may
enter into Sale and Leaseback Transactions with respect to property acquired or
constructed after the Issue Date; provided that (a) the Company or such
Restricted Subsidiary would be permitted under this Indenture to incur
Indebtedness secured by a Lien on such property in an amount equal to the
Attributable Debt with respect to such Sale and Leaseback Transaction, or (b)
the lease in such Sale and Leaseback Transaction is for a term not in excess of
the lesser of (i) three years and (ii) 60% of the remaining useful life of such
property.
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Section 4.14 Limitation on Finance Corp.
In addition to the restrictions set forth under Section 4.8 hereof,
Finance Corp. may not incur any Indebtedness unless (a) the Company is a co-
obligor and guarantor of such Indebtedness or (b) the net proceeds of such
Indebtedness are lent to the Company, used to acquire outstanding debt
securities issued by the Company or used directly or indirectly to refinance or
discharge Indebtedness permitted under the limitation of this Section 4.14.
Finance Corp. may not engage in any business not related directly or indirectly
to obtaining money or arranging financing for the Company.
Section 4.15 Line of Business.
The Company and its Restricted Subsidiaries will not engage to any
material extent in any business other than the Business.
Section 4.16 Asset Sales.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, (a) sell, lease, convey or otherwise dispose of any assets
(including by way of a Sale and Leaseback Transaction) other than sales of
inventory in the ordinary course of business and consistent with past practice
(provided, that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company shall be governed by the
provisions of this Indenture set forth under Section 4.18 hereof or Article 5
hereof and not by the provisions of this Section 4.16) or (b) issue or sell
Capital Stock of any of its Restricted Subsidiaries, in the case of either
clause (a) or (b) above, whether in a single transaction or a series of related
transactions that has a fair market value (as determined in good faith by the
Board of Directors of the Manager) in excess of $1.0 million or for net cash
proceeds of $1.0 million (each of the foregoing, an "Asset Sale"), unless (i)
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 (as determined in good faith by the Board of Directors of the Manager) of
the assets sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents; provided, however, that the amount of
(A) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto) of the Company or any
Restricted Subsidiary that are assumed by the transferee of any such assets and
(B) any notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash (to the extent of the cash received) within
90 days of such Asset Sale, shall be deemed to be cash for purposes of this
provision; and provided further, that the 75% limitation referred to in this
clause (ii) shall not apply to any Asset Sale in which the cash portion of the
consideration received therefrom, determined in accordance with the foregoing
proviso, is equal to or greater than what the after-tax proceeds would have been
had such Asset Sale complied with the aforementioned 75% limitation.
Notwithstanding the foregoing, Asset Sales shall not be deemed to include (a)
any transfer of assets or Capital Stock by the Company or any of its Restricted
Subsidiaries to a Restricted Subsidiary of the Company, (b)
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any transfer of assets pursuant to a Permitted Investment, (c) the sale of
Timberlands in a like-kind exchange for a like interest in other Timberlands
having a fair market value (as determined in good faith by the Board of
Directors of the Manager) at least equal to the fair market value (as determined
in good faith by the Board of Directors of the Manager) of the Timberlands sold,
(d) the sale of not more than 10,000 acres in the aggregate of Timberlands
designated in good faith by the Board of Directors of the Manager for a higher
and better use, (e) a disposition of obsolete equipment in the ordinary course
of business, (f) any sale of Capital Stock of, or Indebtedness or other
securities of, an Unrestricted Subsidiary, and (g) timber deed, bulk, pay-as-cut
and stumpage sales in the ordinary course of business.
In the event that the aggregate Net Proceeds received by the Company
or any of its Restricted Subsidiaries from one or more Asset Sales exceed the
Adjusted Asset Sales Amount since the Issue Date, within 270 days after the date
such aggregate Net Proceeds exceed such amount (or such longer period as may be
required to comply with any agreement in effect on the Issue Date), the Company,
at its option, shall apply the amount of such aggregate Net Proceeds (less the
amount of any such Net Proceeds previously applied during such fiscal year for
the purposes set forth in clauses (a) or (b) below) to (a) reduce senior
Indebtedness of the Company or Indebtedness of a Restricted Subsidiary (with a
permanent reduction of availability in the case of the Working Capital Facility)
or (b) make, or commit, pursuant to a binding written contract (provided that
the contract is consummated substantially in accordance with the terms thereof
within 30 days after the end of the 270-day period), to make, an investment in
assets used or useful in the Business. Pending the final application of any
such Net Proceeds, the Company or any Restricted Subsidiary may temporarily
reduce borrowings under the Bank Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any such Net
Proceeds that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million, the Issuers shall make
an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase, in
accordance with the procedures set forth in this Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company or any Restricted Subsidiary may use such
deficiency for general business purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Section 4.17 Limitation on Harvesting.
In the event that the Company or any of its Restricted Subsidiaries
receive any Net Proceeds from one or more Excess Harvests, within 270 days after
the date of such receipt (or such longer period as may be required to comply
with any agreement in effect on the Issue Date), the Company, at its option,
shall apply the amount of such aggregate Net Proceeds (less the amount of any
such Net Proceeds previously applied during such fiscal year for the purposes
set forth in clauses
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(a) or (b) below) to (a) reduce senior Indebtedness of the Company or
Indebtedness of a Restricted Subsidiary (with a permanent reduction of
availability in the case of the Working Capital Facility) or (b) make, or
commit, pursuant to a binding written contract (provided that the contract is
consummated substantially in accordance with the terms thereof within 30 days
after the end of the 270-day period), to make, an investment in assets used or
useful in the Business. Pending the final application of any such Net Proceeds,
the Company or any Restricted Subsidiary may temporarily reduce borrowings under
the Bank Credit Facility or otherwise invest such Net Proceeds in any manner
that is not prohibited by the Indenture. Any such Net Proceeds that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Harvest Proceeds." When the aggregate amount of
Excess Harvest Proceeds exceeds $10 million, the Issuers shall make an offer to
all holders of Notes (an "Excess Harvest Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Harvest
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Notes tendered pursuant to an Excess Harvest
Offer is less than the Excess Harvest Proceeds, the Company or any Restricted
Subsidiary may use such deficiency for general business purposes. If the
aggregate principal amount of Notes surrendered by holders thereof exceeds the
amount of Excess Harvest Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such Excess Harvest Offer,
the amount of Excess Harvest Proceeds shall be reset at zero.
Section 4.18 Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment").
Within 30 days following any Change of Control, the Issuers will mail a notice
to each Holder stating: (a) that the Change of Control Offer is being made
pursuant to this Section 4.18 and that all Notes tendered will be accepted for
payment; (b) the purchase price and the purchase date, which shall be no earlier
than 30 days nor later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"); (c) that any Note not tendered will continue
to accrue interest; (d) that, unless the Issuers default in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest after the Change of Control
Payment Date; (e) that Holders electing to have any Notes purchased pursuant to
a Change of Control Offer will be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; (f) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
expiration date of the Change of Control Offer, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have such
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Notes purchased; (g) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof; and (h) the material
circumstances and material facts regarding such Change of Control.
The Issuers 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 times and otherwise in compliance with the requirements set
forth herein applicable to a Change of Control Offer made by Issuers and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (a) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (b) deposit with the Paying Agent therefor an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (c) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate amount of the Notes or portions thereof tendered to the Issuers. The
Paying Agent will promptly mail to each Holder of Notes so accepted the Change
of Control Payment for such Notes, and the Trustee will promptly authenticate
and mail to each Holder a new Note equal in principal amount to the unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The Issuers
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The Issuers shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with any offer required to be made by the Issuers to repurchase the Notes as a
result of a Change of Control. To the extent that the provisions of any
applicable securities laws or regulations conflict with provisions of this
Section 4.18, the Issuers shall comply with such securities laws and regulations
and shall not be deemed to have breached its obligations hereunder by virtue
thereof.
Section 4.19 Limitation on Non-Guarantor Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor to guarantee the payment of any Indebtedness of the Company
unless: (a) (i) such Restricted Subsidiary simultaneously executes and delivers
a supplemental indenture to the Indenture providing for a Subsidiary Guarantee
of the Notes by such Restricted Subsidiary and (ii), with respect to any
guarantee of Subordinated Indebtedness by a Subsidiary, any such guarantee shall
be subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the Notes;
and (b) such Subsidiary waives, and agrees not to exercise any right or claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Subsidiary as a
result of any payment by such Subsidiary under its Subsidiary Guarantee until
such
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time as the obligations guaranteed thereby are paid in full; provided that this
covenant shall not be applicable to any guarantee of any Subsidiary that (A)
existed at the time such Person became a Subsidiary of the Company and (B) was
not incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary of the Company. Further, a pledge of assets to secure any
Indebtedness for which the pledgor is not otherwise liable shall not be
considered a guarantee.
ARTICLE 5
SUCCESSORS
Section 5.1 Merger, Consolidation or Sale of Assets.
(a) The Company may not consolidate or merge with or into (whether or
not the Company is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another Person unless (a) the
Company is the surviving Person, or the Person formed by or surviving such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation, partnership or limited liability company organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (b) 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, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company, pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee, under the Notes and the Indenture;
(c) immediately after such transaction no Default or Event of Default exists;
and (d) the Company or such other Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Consolidated
Net Worth (immediately after the transaction but prior to any purchase
accounting adjustments resulting from the transaction) equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the transaction
and (B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction 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 Consolidated Fixed Charge Coverage Ratio test set
forth in Section 4.8 hereof. Notwithstanding the foregoing clause (d), any
Restricted Subsidiary (other than Finance Corp.) may consolidate or merge with
or into, or dispose of all or any part of its properties or assets to, the
Company.
(b) Finance Corp. may not consolidate or merge with or into (whether
or not Finance Corp. is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another Person unless (a) Finance
Corp. is the surviving Person, or the Person formed by or surviving such
consolidation or merger (if other than Finance Corp.) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia and a Wholly-
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Owned Restricted Subsidiary of the Company; (b) the Person formed by or
surviving any such consolidation or merger (if other than Finance Corp.) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of Finance Corp.,
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee, under the Notes and this Indenture; and (c) immediately after such
transaction no Default or Event of Default exists.
(c) The Company or Finance Corp., as the case may be, shall deliver to
the Trustee prior to the consummation of any proposed transaction subject to the
foregoing paragraphs (a) and (b) an Officers' Certificate to the foregoing
effect and an Opinion of Counsel stating that the proposed transaction and such
supplemental indenture comply with this Indenture. The Trustee shall be
entitled to conclusively rely upon such Officers' Certificate and Opinion of
Counsel.
Section 5.2 Successor Person Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company or Finance Corp. in accordance with Section 5.1 hereof, the
successor Person formed by such consolidation or into or with which the Company
or Finance Corp. is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted for
(so that from and after the date of such consolidation, merger, sale, lease,
conveyance or other disposition, the provisions of this Indenture referring to
the "Company," "Finance Corp." or the "Issuers," as the case may be, shall refer
to or include instead the successor Person and not the Company or Finance Corp.,
as the case may be), and may exercise every right and power of the Company or
Finance Corp., as the case may be, under this Indenture with the same effect as
if such successor Person had been named as the Company or Finance Corp., as the
case may be, herein.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1 Events of Default.
An "Event of Default" occurs if:
(a) default by the Issuers or any Subsidiary Guarantors in the
payment of the principal of or premium, if any, on any Note when the
same becomes due and payable (upon Stated Maturity, acceleration,
optional redemption, required purchase or otherwise); or
(b) default by the Issuers or any Subsidiary Guarantors default
in the payment of an installment of interest on any of the Notes, when
the same becomes due and payable, which default continues for a period
of 30 days; or
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(c) failure to perform or observe any other term, covenant or
agreement contained in the Notes, any Subsidiary Guarantee or the
Indenture (other than a default specified in clause (a) or (b) above)
and such default continues for a period of 60 days after written notice
of such default requiring the Issuers to remedy the same shall have been
given (i) to the Issuers or such Subsidiary Guarantor by the Trustee or
(ii) to the Issuers and the Trustee by Holders of 25% in aggregate
principal amount of the Notes then outstanding; or
(d) default or defaults under one or more agreements,
instruments, mortgages, bonds, debentures or other evidences of
Indebtedness under which the Company or any Restricted Subsidiary of the
Company then has outstanding Indebtedness, which default (i) is caused
by a failure to pay at its Stated Maturity or within the applicable
grace period, if any, provided with respect to such Indebtedness,
principal, premium or interest with respect to Indebtedness of the
Company or a Restricted Subsidiary (collectively, a "Payment Default")
or (ii) results in the acceleration of such Indebtedness prior to its
Stated Maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10 million or
more; or
(e) a final judgment or judgments (which is or are non-
appealable and non-reviewable or which has or have not been stayed
pending appeal or review) shall be rendered against the Master
Partnership, the Company, any Restricted Subsidiary or the Manager for
the payment of money in excess of $10 million in the aggregate (other
than that portion of a final judgment as to which a reputable insurance
company has accepted liability) and such judgments shall not be
discharged or execution thereon stayed pending appeal or review within
60 days after entry of such judgment, or, in the event of such a stay,
such judgment shall not be discharged within 30 days after such stay
expires; or
(f) any Subsidiary Guarantee shall for any reason cease to be,
or be asserted by the Company or any Subsidiary Guarantor, as
applicable, not to be, in full force and effect (except pursuant to the
release of any such Subsidiary Guarantee in accordance with this
Indenture); or
(g) the Company, Finance Corp. or any of their respective
Significant Subsidiaries that are Restricted Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it
in an involuntary case,
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(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors,
(e) admits in writing its inability to pay debts as the same
become due; or
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company, Finance Corp. or any of their
respective Significant Subsidiaries that are Restricted Subsidiaries in
an involuntary case,
(b) appoints a Custodian of the Company, Finance Corp. or any of their
respective Significant Subsidiaries that are Restricted Subsidiaries or
for all or substantially all of their property,
(c) orders the liquidation of the Company, Finance Corp. or any of
their respective Significant Subsidiaries that are Restricted
Subsidiaries,
and the order or decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
Section 6.2 Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (g) and (h) of Section 6.1) occurs and is continuing, the Trustee by
notice to the Issuers, or the Holders of at least 25% in principal amount of the
then outstanding Notes by written notice to the Issuers and the Trustee may
declare the unpaid principal of and any accrued interest on all the Notes to be
due and payable. Upon such declaration the principal and interest shall be due
and payable immediately. If an Event of Default specified in clause (g) or (h)
of Section 6.1 occurs, such an amount shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder. The Holders of a majority in principal amount of the then
outstanding Notes by written notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived. The Trustee may withhold from Holders of the Notes notice of any
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continuing Default or Event of Default (except a Default relating to the payment
of principal or interest) if it determines in good faith that withholding notice
is in their interest.
Section 6.3 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy (under this Indenture or otherwise) to collect the
payment of principal or interest on the Notes or to enforce the performance of
any provision of the Notes, or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of Notes in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.4 Waiver of Past Defaults.
Holders of a majority in principal amount of the then outstanding
Notes by notice to the Trustee may waive an existing Default or Event of Default
and its consequences, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any or interest on, the Notes. Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 6.5 Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
it. However, the Trustee may refuse to follow any direction that conflicts with
law or this Indenture that the Trustee determines may be unduly prejudicial to
the rights of other Holders of Notes, or that may involve the Trustee in
personal liability.
Section 6.6 Limitation on Suits.
A Holder of Notes may pursue a remedy with respect to this Indenture or the
Notes only if:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default or the Trustee receives such notice from either Issuer;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
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(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of Notes may not use this Indenture to prejudice the rights of another
Holder of Notes or to obtain a preference or priority over another Holder of
Notes.
Section 6.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and interest on,
if any, the Notes, on or after the respective due dates expressed in the Note
(including in connection with a Change of Control Offer, an Asset Sale Offer and
an Excess Harvest Offer), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
Section 6.8 Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Issuers for the whole amount of
principal and interest remaining unpaid on the Notes and interest on overdue
principal and, to the extent lawful, interest and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.9 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of Notes allowed in any judicial proceedings relative to the Issuers (or
any other obligor upon the Notes, including any Subsidiary Guarantor), their
creditors or their property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder of Notes to make such payments to the Trustee, and in
the event that the Trustee shall consent to the making of such payments directly
to the Holders of Notes, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements
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and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7 hereof. To the extent that the payment of any
such compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section 7.7
hereof out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties which
the Holders of the Notes may be entitled to receive in such proceeding whether
in liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder of Notes any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder of Notes in any such proceeding.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.7, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Notes for principal,
premium and interest, respectively; and
Third: to the Issuers or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by Holders of more than 10% in principal
amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
Section 7.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) The duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of this
Section.
(ii) The Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.5.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section.
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(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee may refuse to perform
any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Issuers. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.2 Rights of Trustee.
Subject to the provisions of (S)(S) 315(a) through 315(d) of the TIA:
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability, in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuers shall be sufficient if
signed by an Officer of the Manager, on behalf of the Company or by an Officer
of Finance Corp.
Section 7.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
Holder or pledgee of Notes and may otherwise deal with either the Issuer or any
Subsidiary Guarantor or an Affiliate of either the Issuer or any Subsidiary
Guarantor with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
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Section 7.4 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuers' use of the proceeds from the Notes or any money
paid to the Issuers or upon the Issuers' direction under any provision hereof,
it shall not be responsible for the use or application of any money received by
any Paying Agent other than the Trustee and it shall not be responsible for any
statement or recital herein or any statement in the Notes or any other document
in connection with the sale of the Notes or pursuant to this Indenture other
than its certificate of authentication and that it is duly authorized to execute
and deliver this Indenture, authenticate the Notes and perform its obligations
hereunder and that the statements made by it in a Statement of Eligibility and
Qualification on Form T-1, if any, supplied to the Issuers are true and accurate
subject to the qualifications set forth therein.
Section 7.5 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment on any
Note pursuant to Section 6.1 (a) or (b), the Trustee may withhold the notice if
it determines in good faith that withholding the notice is in the interests of
Holders of Notes.
Section 7.6 Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall mail to Holders of Notes a brief
report dated as of such reporting date that complies with TIA (S) 313(a) (but if
no event described in TIA (S) 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA (S) 313(b). The Trustee shall also transmit by mail all
reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to Holders of Notes
shall be filed with the SEC and each stock exchange on which the Notes are
listed.
Section 7.7 Compensation and Indemnity.
The Issuers and any Subsidiary Guarantor shall pay to the Trustee from
time to time reasonable compensation for its acceptance of this Indenture and
services hereunder. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Issuers and the
Subsidiary Guarantors shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel, except such disbursements, advances and expenses as may be attributable
to its negligence or bad faith.
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The Issuers and the Subsidiary Guarantors shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it without
negligence or bad faith on its part arising out of or in connection with the
acceptance or administration of its duties under this Indenture, except as set
forth below. The Trustee shall notify the Issuers and the Subsidiary Guarantors
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Issuers shall not relieve the Issuers and the Subsidiary
Guarantors of their obligations hereunder. The Issuers shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Issuers and the Subsidiary Guarantors shall pay the reasonable
fees and expenses of such counsel. Neither the Issuers and the Subsidiary
Guarantors need pay for any settlement made without their consent, which consent
shall not be unreasonably withheld.
The obligations of the Issuers and the Subsidiary Guarantors under
this Section 7.7 shall survive the satisfaction and discharge of this Indenture.
The Issuers and the Subsidiary Guarantors need not reimburse any
expense or indemnify against any loss or liability incurred by the Trustee
through its own negligence or bad faith.
To secure the Issuers' and the Subsidiary Guarantors' payment
obligations in this Section, the Issuers and the Subsidiary Guarantors hereby
grant to the Trustee a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(a) or (b) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign at any time and be discharged from the trust
hereby created by so notifying the Issuers. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Issuers. The Issuers may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
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(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, the
Subsidiary Guarantors or the Holders of at least 10% in principal amount of the
then outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee after written request by any Holder of Notes who has
been a Holder of Notes for at least six months fails to comply with Section
7.10, such Holder of Notes may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.7. Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Issuers' obligations under Section 7.7 hereof shall continue
for the benefit of the retiring Trustee.
Section 7.9 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10 Eligibility, Disqualification.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trust powers, shall be subject to supervision or examination by Federal or state
authority and shall have a combined capital and surplus of at least $100,000,000
as set forth in its most recent published annual report of condition.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S)(S) 310(a)(1) and 310(a)(5). The Trustee is subject to
TIA (S) 310(b).
Section 7.11 Preferential Collection of Claims Against Issuers.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1 Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at their option and at any time, in each case
evidenced by a resolution set forth in an Officers' Certificate, elect to apply
either Section 8.2 or 8.3 hereof to all outstanding Notes upon compliance with
the conditions set forth below in this Article 8.
Section 8.2 Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Issuers and any Subsidiary Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.4 hereof,
have all of their obligations discharged with respect to all outstanding Notes
and any Subsidiary Guarantees on the date the conditions set forth below are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance
means that the Issuers shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all their other obligations under such Notes and this Indenture (and
the Trustee, on demand of and at the expense of the Issuers, shall execute
proper instruments acknowledging the same), except for the following provisions
which shall survive until otherwise terminated or discharged hereunder: (a) the
rights of Holders of outstanding Notes to receive solely from the trust fund
described in Section 8.4 hereof, and as more fully set forth in such Section,
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (b) the Issuers' obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Issuers' and
Subsidiary Guarantors' obligations in connection therewith and (d) this Article
8. Subject to compliance with this Article 8, the Issuers may exercise their
option under this Section 8.2 notwithstanding the prior exercise of their option
under Section 8.3 hereof.
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Section 8.3 Covenant Defeasance.
Upon the Issuers' exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, each of the Issuers and Subsidiary Guarantors
shall, subject to the satisfaction of the conditions set forth in Section 8.4
hereof, be released from their obligations under the covenants contained in
Sections 4.3(a), 4.4, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15,
4.16, 4.17, 4.18 and 4.19 and Article 5 hereof with respect to the outstanding
Notes and Subsidiary Guarantors on and after the date the conditions set forth
below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Issuers may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein or in any
other document, and such omission to comply shall not constitute a Default under
Section 6.1 hereof, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Issuers' exercise under Section 8.1 hereof of the option applicable to this
Section 8.3 hereof, subject to the satisfaction of the conditions set forth in
Section 8.4 hereof, Sections 6.1(c), 6.1(d) and 6.1(e) hereof, and Sections
6.1(g) and 6.1(h) hereof with respect to any Restricted Subsidiary that is a
Significant Subsidiary, shall not constitute Events of Default.
Section 8.4 Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance,
as applicable:
(a) the Issuers must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States 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
certified public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes on the stated date for payment thereof or on
the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.2 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel in the United States
not unacceptable to the Trustee in its reasonable discretion confirming that (A)
the Issuers have received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this 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
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Holders of the outstanding 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;
(c) in the case of an election under Section 8.3 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel in the United States
not unacceptable to the Trustee in its reasonable discretion confirming that the
Holders of the outstanding 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;
(d) no Default shall have occurred and be continuing on the date of
such deposit or insofar as Section 6.1(g) or 6.1(h) hereof are concerned, at any
time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violations of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which either of the Issuers or any
of their respective Restricted Subsidiaries or Subsidiary Guarantors is a party
or by which either of the Issuers or any of their respective Restricted
Subsidiaries or Subsidiary Guarantors is bound;
(f) on or prior to the 91st day following the deposit, the Issuers
shall have delivered to the Trustee an Opinion of Counsel to the effect that on
the 91st day following the deposit, the trust funds are not subject to any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers or the
Subsidiary Guarantors with the intent of preferring the Holders over any other
creditors of the Issuers or the Subsidiary Guarantors or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the Issuers
or the Subsidiary Guarantors or others; and
(h) the Issuers shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.5 Deposited Money and Government Securities to be Held in Trust,
Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively
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for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.4 hereof
in respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Issuers
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
The Issuers shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.4. hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Section 8.6 Repayment to Issuers.
(a) Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon the request
of the Issuers any money or non-callable Government Securities held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent certified public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.4(a) hereof), are in excess of the amount thereof that
would then be required to be deposited to effect an equivalent Legal Defeasance
or Covenant Defeasance.
(b) Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Issuers upon request any money held by them
for the payment of principal, interest or premium, if any, that remains
unclaimed for one year after such principal, interest or premium, if any, became
due and payable, and, thereafter, Holders entitled to the money must look to the
Issuers for payment of such money as secured creditors and all liability of the
Trustee and the Paying Agent with respect to such money shall cease.
Section 8.7 Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.2 or
8.3 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' and Subsidiary Guarantors' obligations under this
Indenture, the Subsidiary Guarantors and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3
hereof until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.2 or 8.3 hereof, as the case may,
provided that, if the Issuers or the Subsidiary Guarantors make any payment of
principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Issuers shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
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Section 8.8 Discharge of Liability on Securities; Defeasance.
When (a)(i) the Issuers deliver to the Trustee all outstanding Notes
for cancellation or (ii) all outstanding Notes have become due and payable,
whether at maturity or on a specified redemption date as a result of the mailing
of a notice of redemption pursuant to Article 3 hereof, (b) the Issuers
irrevocably deposit with the Trustee money sufficient to pay at maturity or upon
redemption all outstanding Notes, including interest and premium thereon to
maturity or such redemption date, and if in either case the Issuers pay all
other sums payable hereunder by the Issuers, and (c) if the Notes have been
called for redemption and the redemption date has not occurred, the Issuers
deliver to the Trustee an Opinion of Counsel in the United States not
unacceptable to the Trustee in its reasonable discretion confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such actions 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 actions had not occurred, then this
Indenture shall cease to be of further effect except for (i) the provisions set
forth in Article 2, Sections 4.2, 7.7 and 8.6 hereof and (ii) if the Notes have
been called for redemption and the redemption date has not occurred, the
Issuers' obligation to pay the redemption price on such redemption date. The
Trustee shall acknowledge satisfaction and discharge of this Indenture on demand
of the Issuers accompanied by an Officers' Certificate and an Opinion of Counsel
and at the cost and expense of the Issuers.
ARTICLE 9
AMENDMENTS
Section 9.1 Without Consent of Holders.
The Issuers, the Subsidiary Guarantors and the Trustee may amend this
Indenture any Subsidiary Guarantee or the Notes without the consent of any
Holder of Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for the assumption of the Issuers' and Subsidiary
Guarantors' obligations to the Holders of the Notes in the case of
a merger or consolidation pursuant to Article 5 or Article 10;
(c) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(d) to add or release any Subsidiary Guarantor pursuant to the terms
hereunder (provided that such addition or release will not adversely
affect the interests of the Holders in any material respect);
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(e) to make any change that could provide additional rights or
benefits to the Holders of the Notes or that does not adversely affect
the legal rights hereunder of any Holder of the Notes; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Issuers, accompanied by a resolution of the
Board of Directors of the Manager on behalf of the Company and the Board of
Directors of Finance Corp., authorizing the execution of any such supplemental
indenture or amendment, and upon receipt by the Trustee of the documents
described in Section 9.6 hereof required or requested by the Trustee, the
Trustee shall join with the Issuers and any Subsidiary Guarantor in the
execution of any supplemental indenture or amendment authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such supplemental indenture or amendment which affects
its own rights, duties or immunities under this Indenture or otherwise.
Section 9.2 With Consent of Holders.
The Issuers, the Subsidiary Guarantors and the Trustee, as applicable,
may amend this Indenture, any Subsidiary Guarantee or the Notes with the
written consent of the Holders of at least a majority in principal amount of the
then outstanding Notes and, subject to Sections 6.4 and 6.7 hereof, the Holders
of a majority in principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Issuers or any Subsidiary Guarantor
with any provision of this Indenture, any Subsidiary Guarantee or the Notes.
Upon the request of the Issuers, accompanied by a resolution of the
Board of Directors of the Manager on behalf of the Company and the Board of
Directors of Finance Corp., authorizing the execution of any such supplemental
indenture, amendment or waiver, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.6
hereof, the Trustee shall join with the Issuers and any Subsidiary Guarantor in
the execution of such supplemental indenture or amendment unless such
supplemental indenture, amendment or waiver affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such
supplemental indenture, amendment or waiver.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed supplemental indenture,
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After a supplemental indenture, amendment or waiver under this Section
becomes effective, the Issuers shall mail to the Holders of each Note affected
thereby a notice briefly
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describing the supplemental indenture, amendment or waiver. Any failure of the
Issuers to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture, amendment
or waiver. Without the consent of each Holder of Notes affected, an amendment
or waiver under this Section may not (with respect to any Notes held by a non-
consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note,
alter the optional redemption provisions of any Note or reduce the prices at
which the Issuers shall offer to purchase such Notes pursuant to Sections 3.9,
4.16, 4.17 and 4.18 hereof, provided, however, that such Sections 3.9, 4.16,
4.17 and 4.18 may otherwise be amended or deleted in accordance with the
requirements of this Section 9.2;
(c) reduce the rate of or change the time for payment of interest on
any Notes;
(d) waive a Default in the payment of principal or premium, if any, or
interest (except a rescission of acceleration of the Notes by the holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in Section 6.4 or 6.7 hereof;
(g) waive a redemption payment with respect to any Note (other than an
offer to purchase Notes under Section 4.16, 4.17 or 4.18);
(h) release any Subsidiary Guarantee other than in accordance
hereunder; or
(i) make any change in this sentence of Section 9.2.
Section 9.3 Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Notes shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 9.4 Revocation and Effect of Consents.
Until a supplemental indenture, an amendment or waiver becomes
effective, a consent to it by a Holder of a Note is a continuing consent by the
Holder and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if
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notation of the consent is not made on any Note. A supplemental indenture,
amendment or waiver becomes effective in accordance with its terms and
thereafter binds every Holder of Notes.
The Issuers may fix a record date for determining which Holders must
consent to such supplemental indenture, amendment or waiver. If the Issuers fix
a record date, the record date shall be fixed at (a) the later of 30 days prior
to the first solicitation of such consent or the date of the most recent list of
Holders furnished to the Trustee prior to such solicitation pursuant to Section
2.5, or (b) such other date as the Issuers shall designate.
Section 9.5 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about a supplemental
indenture, amendment or waiver on any Note thereafter authenticated. The
Issuers in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment or waiver.
Section 9.6 Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment, supplemental indenture or waiver
authorized pursuant to this Article 9 if the amendment, supplemental indenture
or waiver does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not, sign it.
In signing or refusing to sign such amendment, supplemental indenture or waiver,
the Trustee shall be entitled to receive, if requested, an indemnity reasonably
satisfactory to it and to receive and, subject to Section 7.1, shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that such amendment, supplemental indenture or waiver is
authorized or permitted by this Indenture, that it is not inconsistent herewith
or therewith, and that it will be valid and binding upon the Issuers in
accordance with its terms. The Issuers and the Subsidiary Guarantors may not
may sign an amendment, supplemental indenture or waiver until the Board of
Directors of the Manager on behalf of the Company or the Board of Directors of
Finance Corp. approves it.
ARTICLE 10
SUBSIDIARY GUARANTEE OF NOTES
Section 10.1 Unconditional Guarantee.
Each Subsidiary Guarantor hereby unconditionally, jointly and
severally, guarantees to each Holder and to the Trustee the full and prompt
payment of the principal of, premium, if any, and interest on the Notes and all
other amounts due and payable under this Indenture and the Notes by the Issuers
whether at maturity, by acceleration, redemption, repurchase or otherwise,
including,
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without limitation, interest on the overdue principal of, premium, if any, and
interest on the Notes, to the extent lawful, all in accordance with the terms
hereof and thereof(; subject, however, to the limitations set forth in Section
10.5).
Each Subsidiary Guarantee shall be an unsecured general obligation of
the Subsidiary Guarantor and rank senior in right of payment to all existing and
future subordinated indebtedness of the Subsidiary Guarantor and pari passu in
right of payment to all existing and future senior indebtedness of the
Subsidiary Guarantor.
Section 10.2 Subsidiary Guarantors May Consolidate, etc., on Certain Terms.
(a) Except as set forth in Article 5, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of a
Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or
shall prevent any disposition of assets to the Company or another Subsidiary.
(b) Except as set forth in Article 5, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger or
sale of a Subsidiary Guarantor with or into a Person other than an Issuer or a
Subsidiary Guarantor (regardless of whether an Affiliate of such Subsidiary
Guarantor), or successive consolidations or mergers in which a Subsidiary
Guarantor or its successor or successors shall be a party or parties, or shall
prevent any sale, assignment, transfer, lease, conveyance or other disposition
of all or substantially all of the assets of a Subsidiary Guarantor to a Person
other than an Issuer or another Subsidiary Guarantor (regardless of whether an
Affiliate of such Subsidiary Guarantor) authorized to acquire and operate the
same; provided, however, (a) that if such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition results in a
surviving Person who is not a Subsidiary Guarantor, then the Person surviving
such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or disposition has been made agrees to assume such Subsidiary
Guarantor's Guarantee and all its obligations arising under this Indenture
(except to the extent that Section 10.4 would result in the release of such
Subsidiary Guarantee and obligations) and (b) immediately after such
transaction, and giving effect thereto, no Default or Event of Default has
occurred and is continuing. Upon any consolidation or merger, or any sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the assets of a Subsidiary Guarantor in accordance with
this paragraph (b) of Section 10.2, the successor Person formed by such
consolidation or into which such Subsidiary Guarantor is merged or to which such
sale, assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for, and may exercise every right and power of, a
Subsidiary Guarantor under this Indenture with the same effect as if such
successor had been named as a Subsidiary Guarantor herein.
Section 10.3 Addition of Subsidiary Guarantors.
(a) Any Restricted Subsidiary may become a Subsidiary Guarantor by
executing and delivering to the Trustee (i) a supplemental indenture in form and
substance satisfactory to the
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Trustee, which subjects such Restricted Subsidiary to the provisions of this
Indenture as a Subsidiary Guarantor and (ii) a guarantee in the form set forth
in Exhibit B. In addition, in order to become a Subsidiary Guarantor, such
Restricted Subsidiary (i) shall obtain any registration, permit, consent,
approval, authorization or order of any court, governmental agency or body or
financial institution that may be required in connection with such Restricted
Subsidiary becoming a Subsidiary Guarantor and (ii) shall provide the Trustee
with an Officers' Certificate to the effect that (A) such supplemental indenture
has been duly authorized and executed by such Restricted Subsidiary and
constitutes the legal, valid, binding and enforceable obligation of such
Restricted Subsidiary (subject to such customary exceptions concerning
creditors' rights and equitable principles as may be acceptable to the Trustee
in its discretion) and (B) except for any registrations, permits, consents,
approvals and similar authorizations or orders that may have been obtained prior
to the time that such Restricted Subsidiary becomes a Subsidiary Guarantor, no
registration, permit, consent, approval, authorization or order of any court,
governmental agency or body or financial institution is required in connection
with such Restricted Subsidiary becoming a Subsidiary Guarantor.
Section 10.4 Release of a Subsidiary Guarantor.
Except as provided in this Section 10.4, a Subsidiary Guarantor may
not otherwise be released from its Subsidiary Guarantee and its related
obligations hereunder. The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a request by the Company accompanied by
an Officer's Certificate and an Opinion of Counsel certifying that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition was made in accordance with the provisions of this Indenture. Any
Subsidiary Guarantor not so released remains liable for all amounts due on the
Notes as provided in this Article 10.
Section 10.5 Limitation of Subsidiary Guarantor's Liability.
By becoming a Subsidiary Guarantor, each Subsidiary Guarantor shall be
deemed to confirm, and by its acceptance of any Note, each Holder, confirms that
it is the intention of all Holders and all parties to this Indenture that the
Subsidiary Guarantee of such Subsidiary Guarantor not constitute a fraudulent
transfer or conveyance for purposes of any federal or state law. To effectuate
the foregoing intention, the obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee shall be limited to the maximum amount, after giving effect
to all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to Section 10.6,
as will result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. This Section 10.5 is for the benefit of
the creditors of each Subsidiary Guarantor, and, for purposes of applicable
fraudulent transfer and fraudulent conveyance law, any Indebtedness of a
Subsidiary Guarantor pursuant to the Bank Credit Facility shall be deemed to
have been incurred prior to the incurrence by such Subsidiary Guarantor of its
liability under its Subsidiary Guarantee.
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Section 10.6 Contribution.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, in the event any payment or distribution is made by any
Subsidiary Guarantor (a "Funding Subsidiary Guarantor") under its Subsidiary
Guarantee, such Funding Subsidiary Guarantor shall be entitled to a contribution
from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted
Net Assets of each Subsidiary Guarantor (including the Funding Subsidiary
Guarantor) for all payments, distributions, damages and expenses incurred by the
Funding Subsidiary Guarantor in discharging the Company's obligations with
respect to the Notes or any other Subsidiary Guarantor's obligations with
respect to any Subsidiary Guarantee.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control. If any
provision of this Indenture modifies or excludes any provision of the TIA that
may be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
Section 11.2 Notices.
Any notice or communication by the Issuers or the Trustee to the
others is duly given if in writing and delivered in person or mailed by first-
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' addresses:
If to the Issuers:
U.S. Timberlands Klamath Falls, L.L.C.
U.S. Timberlands Finance Corp.
6400 Highway 66
Klamath Falls, Oregon 97601
Attention: President
Telecopier No.: _________________
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If to the Trustee:
State Street Bank & Trust Company
___________________________
___________________________
___________________________
Attn: _____________________
Telecopier No.: ______________
The Issuers, the Subsidiary Guarantors or the Trustee by notice to the
others may designate additional or different addresses of subsequent notices or
communications.
All notices and communications (other than those sent to Holders of
Notes) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of Notes shall be mailed by
first-class mail, certified or registered, return receipt requested, to his
address shown on the register kept by the Registrar. Failure to mail a notice
or communication to a Holder of Notes or any defect in it shall not affect its
sufficiency with respect to other Holders of Notes. If a notice or
communication is mailed in the manner provided above within the time prescribed,
it is duly given, whether or not the addressee receives it.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
If the Issuers mail a notice or communication to Holders of Notes, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 11.3 Communication by Holders with Other Holders.
Holders of Notes may communicate pursuant to TIA (S) 312(b) with other
Holders of Notes with respect to their rights under this Indenture or the Notes.
The Issuers, the Subsidiary Guarantors, the Trustee, the Registrar and anyone
else shall have the protection of TIA (S) 312(c).
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Section 11.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by an Issuer or a Subsidiary Guarantor
to the Trustee to take any action under this Indenture, such Issuer or
Subsidiary Guarantor shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.5) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.5) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been complied with; and
provided, however, in the case of any such application or request as to which
the furnishing of such certificates and/or opinions is specifically required by
any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Section 11.5 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with; provided, however, that with
respect to matters of fact, an Opinion of Counsel may rely upon an Officers'
Certificate or a certificate of a public official.
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Section 11.6 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Issuers, may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows that the certificate or
opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Issuers stating
that the information with respect to such factual matters is in the possession
of the Issuers, unless such counsel knows that the certificate or opinion or
representations with respect to such matters are erroneous. Opinions of Counsel
required to be delivered to the Trustee may have qualifications customary for
opinions of the type required and counsel delivering such Opinions of Counsel
may rely on certificates of the Company or government or other officials
customary for opinions of the type required, including certificates certifying
as to matters of fact, including that various financial covenants have been
complied with.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 11.7 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 11.8 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York, in the city in which the Corporate Trust
Office of the Trustee is located or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
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Section 11.9 No Recourse Against Others.
(a) No member of the Company or director, officer, employee, partner
or stockholder of the Master Partnership, the Manager, Finance Corp. or any
Subsidiary Guarantor, as such, shall have any liability for any obligations of
the Issuers and the Subsidiary Guarantors under the Notes, the Subsidiary
Guarantors or this Indenture or for any claim based on, in respect of or by
reason of such obligations. Each Holder of Notes, by accepting a Note, waives
and releases all such liability. The waiver and release shall be part of the
consideration for the issuance of the Notes.
(b) Except as provided for in any Subsidiary Guarantee, the
obligations of the Issuers under this Indenture and the Notes will be non-
recourse to the Manager and the Master Partnership (and their respective
affiliates (other than the Issuers)) and payable only out of the cash flow and
assets of the Issuers. The Trustee agrees, and each Holder of a Note, by
accepting a Note, will be deemed to have agreed in this Indenture that neither
the Manager nor its assets nor the Master Partnership nor its assets (nor any of
their respective affiliates (other than the Issuers) nor their respective
assets) shall be liable for any of the obligations of the Issuers under this
Indenture or the Notes (except as provided for by any Subsidiary Guarantee). In
addition, neither the Manager nor the Holders of Notes will have any right to
require the Company to make distributions to the Master Partnership.
(c) Notwithstanding the foregoing, nothing in this provision shall be
construed as a waiver or release of any claims under the federal securities
laws.
Section 11.10 Duplicate Originals.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
Section 11.11 Governing Law.
This Indenture, the Notes and the Subsidiary Guarantees shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
Section 11.12 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Issuers or their respective Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
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Section 11.13 Successors.
All agreements of the Issuers and the Subsidiary Guarantors in this
Indenture, the Notes and the Subsidiary Guarantees shall bind their successors.
All agreements of the Trustee in this Indenture shall bind its successor.
Section 11.14 Benefits of Indenture.
Nothing in this Indenture, the Notes or the Subsidiary Guarantees,
expressed or implied, shall give to any Person (other than the parties hereto
and their successors hereunder, any Paying Agent and the Holders) any benefit or
any legal or equitable right, remedy or claim under this Indenture.
Section 11.15 Severability.
In case any provision in this Indenture, the Notes or the Subsidiary
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 11.16 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 11.17 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[signatures on following page]
-75-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the undersigned have caused this Indenture to be
executed as of the date first above written.
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
By: U.S. Timberlands Services Company, L.L.C.
as Managing Member
By:
-------------------------------------------
Name:
Title:
U.S. TIMBERLANDS FINANCE CORP.
By:
-------------------------------------------
Name:
Title:
STATE STREET BANK & TRUST COMPANY
By:
-------------------------------------------
Name:
Title:
-76-
<PAGE>
EXHIBIT A
[Face of Note]
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
U.S. TIMBERLANDS FINANCE CORP.
_______% SENIOR NOTE DUE 2007 -
No. $225,000,000.00
CUSIP NO.____________
U.S. Timberlands Klamath Falls, L.L.C., a Delaware limited liability
company, and U.S. Timberlands Finance Corp., a Delaware corporation, jointly and
severally, promise to pay to __________________or registered assigns the
principal sum of $225,000,000.00 Dollars on __________, 2007.
Interest Payment Dates: ____________ and _____________
Record Dates: ____________ and _____________
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Issuers have caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
Dated:
[Seal] U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
Attest: BY: U.S. TIMBERLANDS SERVICES
COMPANY, L.L.C.,
By: its Managing Member
------------------------
By:
-------------------------
By:
-------------------------
Certificate of Authentication: U.S. TIMBERLANDS FINANCE CORP.
State Street Bank & Trust Company, as
Trustee, certifies that this is one of the By:
Notes referred to in the Indenture. ------------------------------
By:
------------------------------
By
-----------------------
Authorized Signature
Additional provisions of this Note are set forth on the other side of this Note.
A-1
<PAGE>
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the Issuers or their
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]/1/
- ----------
/1/ This paragraph should be included only if the Note is issued in global
form.
A-2
<PAGE>
[Reverse of Note]
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
U.S. TIMBERLANDS FINANCE CORP.
______% SENIOR NOTE DUE 2007
1. Interest. U.S. Timberlands Klamath Falls, L.L.C., a Delaware limited
liability company (the "Company"), and U.S. Timberlands Finance Corp., a
Delaware corporation ("Finance Corp." and, together with the Company, the
"Issuers"), jointly and severally promise to pay interest on the principal
amount of this Note at ____% per annum from _________, 1997 until maturity. The
Issuers will pay interest semiannually on __________ and __________ of each year
(each an "Interest Payment Date"), or if any such day is not a Business Day, on
the next succeeding Business Day. Interest on the Notes will accrue from the
most recent Interest Payment Date on which interest has been paid or, if no
interest has been paid, from __________, 1998; provided, that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
___________, 1998. The Issuers shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1% per annum in
excess of the interest rate then in effect; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Issuers will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on the record date immediately preceding the Interest Payment
Date, except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Notes will be payable as to principal, premium,
interest, if any, at the office or agency of the Issuers maintained for such
purpose within or without the City and State of New York, or, at the option of
the Issuers, payment of interest may be made by check mailed to the Holders at
their respective addresses set forth in the register of Holders; provided that
payment by wire transfer of immediately available/same day funds will be
required with respect to principal of an interest and premium, if any, on, the
Global Note. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
3. Paying Agent and Registrar. Initially, the Trustee will act as Paying
Agent and Registrar. The Issuers may change any Paying Agent, Registrar or co-
registrar without notice. The Issuers or any of their Subsidiaries may act as
Paying Agent or Registrar.
A-3
<PAGE>
4. Indenture. The Issuers issued the Notes under an Indenture, dated as
of November __, 1997 (the "Indenture"), among the Issuers and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code (S)(S) 77aaa-77bbb) as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of such terms. The Notes are unsecured senior general
obligations of the Issuers limited to $225,000,000 aggregate principal amount.
Under certain circumstances, the Notes may become obligations of the Subsidiary
Guarantees.
5. Optional Redemption. The Notes are not redeemable prior to _________,
2002. Thereafter, the Notes will be subject to redemption at the option of the
Issuers, in whole or in part, 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 to the applicable
redemption date, if redeemed during the 12-month period beginning on ________ of
the years indicated below:
Year Percentage
---- ----------
2002................ _______%
2003................ _______%
2004................ _______%
2005 and thereafter. 100.000%
Notwithstanding the foregoing, at any time on or before __________, 2000,
the Company may redeem up to 35% of the original aggregate principal amount of
the Notes at a redemption price of ___% of the principal amount thereof, plus
accrued and unpaid interest thereon to the redemption date, with the net
proceeds of a Public Equity Offering; provided, however, that at least 65% of
the aggregate principal amount of Notes originally issued shall be outstanding
immediately after such redemption; provided further, that such redemption shall
occur within 120 days of the date of the closing of such Public Equity Offering;
provided further, that in the event of a Public Equity Offering by the Master
Partnership, the Master Partnership contributes to the capital of the Company
the portion of the net cash proceeds of such Public Equity Offering necessary to
pay the aggregate redemption price (plus accrued and unpaid interest thereon to
the redemption date) of the Notes to be redeemed.
6. Notice of Redemption. Notice of redemption will be mailed by first
class mail to the Holder's registered address at least 30 days but not more than
60 days before the redemption date to each Holder of Notes to be redeemed. If
less than all Notes are to be redeemed, the Trustee shall select the Notes to be
redeemed among the Holders of Notes pro rata, by lot or in accordance with a
method which the Trustee considers to be fair and appropriate (and in such
manner as complies with applicable legal and stock exchange requirements, if
any). If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount
A-4
<PAGE>
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date interest
ceases to accrue on Notes or portions of them called for redemption (unless the
Issuers shall default in the payment of the redemption price or accrued
interest).
7. Change of Control. In the event of a Change of Control of the Company,
the Issuers shall be required to make an offer to purchase all or any portion of
each Holder's Notes, at 101% of the principal amount thereof, plus accrued
interest to the Change of Control Payment Date.
8. Asset Sale Offer. In the event of certain Asset Sales, the Issuers may
be required to make an Asset Sale Offer to purchase all or any portion of each
Holder's Notes, at 100% of the principal amount of the Notes plus accrued
interest, if any, to the Purchase Date.
9. In the event of an Excess Harvest the Issuers may be required to make
an Excess Harvest, offer to purchase the maximum principal amount of Notes that
may be purchased out of Excess Harvest Proceeds, at 100% of the principal amount
thereof plus accrued interest, if any, to the Purchase Date.
10. Restrictive Covenants. The Indenture imposes certain limitations on,
among other things, the ability of the Company and Finance to merge or
consolidate with any other Person or sell, lease or otherwise transfer all or
substantially all of their respective properties or assets, the ability of the
Company or its Restricted Subsidiaries to dispose of certain assets, to pay
dividends and make certain other distributions and payments, to make certain
investments or redeem, retire, repurchase or acquire for value shares of Capital
Stock, to incur additional Indebtedness or incur encumbrances against certain
property, to harvest Timber and to enter into certain transactions with
Affiliates, all subject to certain limitations described in the Indenture.
11. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any Notes selected for redemption. Also, it need not transfer or exchange any
Notes for a period of 15 days before a selection of Notes to be redeemed.
12. Persons Deemed Owners. The registered Holder of a Note may be treated
as the owner of it for all purposes and neither the Issuers, the Trustee nor any
Agent shall be affected by notice to the contrary.
13. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee or Paying Agent will pay the money
back to the Issuers at its request. After that, all liability of the Trustee
and such Paying Agent with respect to such money shall cease.
A-5
<PAGE>
14. Amendment, Supplement, Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for Notes), and any existing default or noncompliance with any provision may be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for Notes). Without the consent of any Holder, the
Issuers may amend or supplement the Indenture, any Subsidiary Guarantee or the
Notes to, among other things, cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Issuer's obligations to holders of
the Notes in the case of merger or consideration, to add or release any
Subsidiary Guarantor pursuant to the terms of the Indenture or to make any
change that does not adversely affect the rights of any Holder.
15. Defaults and Remedies. An event of default generally is: default by
the Issuers or any Subsidiary Guarantor for 30 days in payment of interest on
the Notes; default by the Issuers or any Subsidiary Guarantor in payment of
principal of or premium, if any, on the Notes; defaults resulting in
acceleration prior to maturity of certain other Indebtedness or resulting from
payment defaults under certain other Indebtedness; failure by the Issuers for 60
days after notice to comply with any of its other agreements in the Indenture;
certain final judgments against the Issuers; the cessation, or assertion of
cessation by the Issuers or any Subsidiary Guarantor, of any Subsidiary
Guarantee; and certain events of bankruptcy or insolvency. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately,
except that in the case of an Event of Default arising from certain events of
bankruptcy, insolvency or reorganization relating to either of the Issuers or
any Significant Subsidiaries, all outstanding Notes shall become due and payable
immediately without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of a majority in principal
amount of the Notes may direct the Trustee in its exercise of any trust or
power. The Issuers must furnish an annual compliance certificate to the
Trustee.
16. Trustee Dealings with Issuers. State Street Bank & Trust Company, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Notes and may otherwise deal with the Issuers or their
respective Subsidiaries or Affiliates with the same rights it would have if it
were not Trustee.
17. No Recourse Against Others. No member of the Company, director,
officer, employee, or stockholder of the Master Partnership, the Manager,
Finance Corp. or any Subsidiary Guarantor, as such, shall have any liability for
any obligations of the Issuers and the Subsidiary Guarantors under the Notes,
the Subsidiary Guarantees or the Indenture or for any claim based on, in respect
of or by reason of such obligations. Each Holder of Notes, by accepting a Note,
waives
A-6
<PAGE>
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
The obligations of the Issuers under the Indenture and the Notes will be
non-recourse to the Manager and the Master Partnership (and their respective
Affiliates (other than the Issuers)), and payable only out of the cash flow and
assets of the Issuers. The Trustee has, and each Holder of a Note, by accepting
a Note, will be deemed to have agreed in the Indenture that neither the Manager
nor its assets nor Master Partnership nor its assets (nor any of their
respective affiliates (other than the Issuers)) nor their respective assets,
shall be liable for any of the obligations of the Issuers under the Indenture or
the Notes (except as provided in the Subsidiary Guarantee). In addition,
neither the Issuers nor the Holders of Notes will have any right to require the
Company to make distributions to the Master Partnership.
17. Authentication. This Note shall not be valid until the Trustee or an
authenticating agent signs the certificate of authentication on the other side
of this Note.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Securities Identification Procedures, the Issuers will
cause CUSIP numbers to be printed on the Notes as a convenience to Holder of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to U.S. Timberlands
Klamath Falls, L.L.C., 6400 Highway 66, Klamath Falls, Oregon 97601, Attention:
Secretary.
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to:
---------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint as agent to transfer this Note on the books of
---------
the Issuers. The agent may substitute another to act for him.
Your Signature:
-----------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Date:
--------------------
Signature Guarantee:
--------------------
A-8
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.16, Section 4.17 or Section 4.18 of the Indenture, check the
appropriate box:
Section 4.16 [ ] Section 4.17 [ ] Section 4.18 [ ]
If you want to have only part of this Note purchased by the Issuers
pursuant to Section 4.16, Section 4.17 or Section 4.18 of the Indenture, state
the amount (in integral multiples of $1,000):
$
----------------
Date: Signature:
------------ ----------------------
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
------------------------------------------------------------
A-9
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE/*/
The following exchanges of a part of this Global Note for Definitive Notes have
been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of of this Global Note Signature of
decrease in increase in following such authorized officer
Principal Amount Principal Amount decrease of Trustee or
Date of Exchange of this Global Note of this Global Note (or increase) Note Custodian
- ---------------- ------------------- ------------------- -------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------
/*/ This should be included only if the Note is issued in global form.
A-10
<PAGE>
EXHIBIT B
SUBSIDIARY GUARANTEE
This Subsidiary Guarantee, dated as of ___________________, (this
"Subsidiary Guarantee" and together with all such guarantees delivered from time
to time under Article 11 of the Indenture referred to below being referred to
herein as the "Subsidiary Guarantees") is made by ______________ and
______________ (each a "Subsidiary Guarantor" and collectively, the "Subsidiary
Guarantors") in favor of STATE STREET BANK & TRUST COMPANY as Trustee (together
with its successors and assigns in such capacity, the "Trustee") under the
Indenture (as amended or modified from time to time, the "Indenture") dated as
of November __, 1997 made by U.S. Timberlands Klamath Falls, L.L.C., a Delaware
limited liability (the "Company"), and U.S. Timberlands Finance Corp. ("Finance
Corp."), a Delaware corporation (together, the "Issuers") pursuant to which the
Issuers issued _______% Senior Notes due 2007 (the "Notes"). Unless otherwise
defined herein, capitalized terms used herein have the meanings assigned to such
terms in the Indenture.
WHEREAS, pursuant to Section 4.18 of the Indenture, each Subsidiary
Guarantor is prohibited from incurring certain Indebtedness without executing
and delivering a Subsidiary Guarantee; and
WHEREAS, the Subsidiary Guarantor wishes to incur such Indebtedness;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subsidiary Guarantor agrees as follows:
SECTION 1. Unconditional Guarantee.
-----------------------
Each Subsidiary Guarantor hereby unconditionally, jointly and
severally, guarantees to each Holder and to the Trustee the full and prompt
payment of the principal of, premium, if any, and interest on the Notes and all
other amounts due and payable under the Indenture and the Notes by the Issuers,
whether at maturity, by acceleration, redemption, repurchase or otherwise,
including, without limitation, interest on the overdue principal of, premium, if
any, and interest on the Notes, to the extent lawful, all in accordance with the
terms hereof and thereof; subject, however, to the limitations set forth in
Section 2 herein.
Failing payment when due of any amount so guaranteed for whatever
reason, the Subsidiary Guarantors will be jointly and severally obligated to pay
the same immediately. Each Subsidiary Guarantor hereby agrees that its
obligations hereunder shall be unconditional irrespective of the validity,
regularity or enforceability of the Notes, the Indenture or any other Subsidiary
Guarantee, the absence of any action to enforce the same, any waiver or consent
by any Holder of the Notes with respect to any provisions hereof or thereof, the
recovery of any judgment against the
B-1
<PAGE>
Issuers or any other Subsidiary Guarantor, any action to enforce the same or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of any Subsidiary Guarantor. Each Subsidiary Guarantor, to
the extent permitted by law, hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of an Issuer, any right to require a proceeding first against the Issuers or any
other Subsidiary Guarantor, protest, notice, notice of intent to accelerate,
notice of acceleration and all demands whatsoever and covenants that this
Subsidiary Guarantee will not be discharged except by complete performance of
the obligations contained in the Notes, this Indenture and in this Subsidiary
Guarantee. If any Holder or the Trustee is required by any court or otherwise
to return to the Issuers, any Subsidiary Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Issuers or any
Subsidiary Guarantor, any amount paid by the Issuers or any Subsidiary Guarantor
to the Trustee or such Holder, this Subsidiary Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Subsidiary Guarantor agrees it shall not be entitled to any right of subrogation
in relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby. Each Subsidiary Guarantor
further agrees that, as between each Subsidiary Guarantor, on the one hand, and
the Holders and the Trustee, on the other hand, (a) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 of the
Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (b) in the event of any acceleration of
such obligations as provided in Article 6 of the Indenture and subject to the
rescission thereof as provided therein, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Subsidiary Guarantor for
the purpose of this Subsidiary Guarantee.
SECTION 2. Amendments. The provisions of this Subsidiary Guarantee
----------
shall not be amended or modified except in accordance with Article 9 of the
Indenture.
SECTION 3. Representations and Warranties. Each Subsidiary Guarantor
------------------------------
hereby represents and warrants as follows:
(a) Such Subsidiary Guarantor is (i) a duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (ii) has all requisite power and authority to own or lease and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted; and (iii) is duly qualified or licensed to do business
as a foreign [corporation] and is in good standing in all jurisdictions in which
it owns or leases assets and property or in which the conduct of its business
requires it to so qualify or be licensed except where the failure to so qualify
or be licensed would not have a material adverse effect on the operations,
business, prospects, assets, properties or condition (financial or other) of the
Company and its Subsidiaries, including such Guarantor, considered as one
enterprise.
(b) The execution, delivery and performance by such Subsidiary
Guarantor of this Subsidiary Guarantee, have been duly authorized by all
necessary corporate or other action on the part of such Subsidiary Guarantor and
do not and will not violate any provision of the articles or
B-2
<PAGE>
certificate of incorporation or by-laws or other charter documents of such
Subsidiary Guarantor and do not and will not violate, or be in conflict with, or
constitute a default under, or permit the termination of, or result in the
creation of any Lien (other than a Permitted Lien) upon any property of such
Subsidiary Guarantor under (i) any statute or law or any judgment, decree,
order, regulation or rule of any court or governmental authority to which such
Subsidiary Guarantor or any of its properties may be subject, or (ii) any
contract, indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which such Subsidiary Guarantor is a party or by which it may be
bound, or to which any of its properties may be subject, which conflict,
default, termination or Lien would have a material adverse effect upon the
operations, business, prospects, assets, properties or condition (financial or
other) of the Company and its Subsidiaries, including such Subsidiary Guarantor,
considered as one enterprise. This Subsidiary Guarantee is the legal, valid and
binding obligation of such Subsidiary Guarantor, enforceable against such
Subsidiary Guarantor in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting enforcement of creditors rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(c) No authorization, consent, approval or other action by, and no
notice to or filing with, any court, governmental, administrative or judicial
authority or regulatory body (domestic or foreign) is required for the due
execution, delivery or performance by such Subsidiary Guarantor of this
Subsidiary Guarantee.
SECTION 4. Addresses for Notices. All notices, requests, demands and
---------------------
other communications provided for or permitted hereunder shall be in writing
(including telegraphic communication) and, if to any Subsidiary Guarantor,
mailed or telegraphed or delivered to it, addressed to it at the address of the
Company specified in the Indenture, if to Trustee, addressed to it at the
address specified in the Indenture, or as to each party at such other address as
shall be designated by such party in a written notice to each other party
complying as to delivery with the terms of this section.
SECTION 5. No Waiver; Remedies. No failure on the part of the
-------------------
Trustee or any Holder, to exercise, and no delay in exercising, an right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law or any other agreement.
SECTION 6. Continuing Guaranty; Transfer of Notes; Termination
---------------------------------------------------
of Guaranty.
-----------
(a) This Subsidiary Guarantee is a continuing guaranty and, subject
to the provisions of subsection (b) below, shall (i) remain in full force and
effect until payment in full of the Notes and all other amounts payable under
this Subsidiary Guarantee, (ii) be binding upon each Subsidiary Guarantor, its
successors and assigns, and (iii) inure to the benefit of and be enforceable by
the Trustee and its successors, transferees and assigns.
B-3
<PAGE>
(b) All obligations of a particular Subsidiary Guarantor hereunder
shall automatically terminate as set forth in Section 10.04 of the Indenture
enforceable in such jurisdiction and such illegal, invalid or unenforceable
provision shall be legal, valid and enforceable in all other jurisdictions.
SECTION 7. Indenture Obligations. Each Subsidiary Guarantor agrees
---------------------
to perform the obligations of a Subsidiary Guarantor under the Indenture.
SECTION 8. GOVERNING LAW. THIS SUBSIDIARY GUARANTEE SHALL BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
UNITED STATES.
SECTION 9. Severability. In case any provision of this Subsidiary
------------
Guarantee shall be invalid, illegal or unenforceable, that portion of such
provision that is not invalid, illegal or unenforceable shall remain in effect,
and the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
B-4
<PAGE>
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused this
Subsidiary Guarantee to be duly executed and delivered by its officer thereunto
duly authorized as of the date first above written.
[LIST OF SUBSIDIARY GUARANTORS]
By:
------------------------------
Name and Title:
<PAGE>
EXHIBIT 5.1
[Andrews & Kurth L.L.P. Letterhead]
November 5, 1997
U.S. Timberlands Klamath Falls, L.L.C.
6400 Highway 66
Klamath Falls, Oregon 97601
U.S. Timberlands Finance Corp.
6400 Highway 66
Klamath Falls, Oregan 97601
Gentlemen:
We have acted as counsel to U.S. Timberlands Klamath Falls, L.L.C., a
Delaware limited liability company (the "Company"), and U.S. Timberlands Finance
Corp., a Delaware corporation ("Finance Corp.", and together with the Company
the "Registrants") in connection with the Registrants' Registration Statement on
Form S-1 (the "Registration Statement") relating to the registration under the
Securities Act of 1933, as amended, of the offering and sale of up to
$225,000,000 aggregate principal amount of the Registrants' % Senior Notes
due 2007 (the "Notes") to be offered in a public offering. The Notes are
proposed to be issued in accordance with the provisions of an indenture (the
"Indenture") substantially in the form filed as an exhibit to the Registrants'
Registration Statement on Form S-1 (No. 333-34389).
In arriving at the opinions expressed below, we have examined the
Registration Statement, the Prospectus, the form of Indenture filed as an
exhibit to the Registration Statement and the originals or copies certified or
otherwise identified to our satisfaction of such other instruments and other
certificates of public officials and officers and representatives of the
Company, and we have made such investigations of law, as we have deemed
appropriate as a basis for the opinions expressed below. In rendering the
opinions expressed below, we have assumed and have not verified that the
signatures on all documents that we have examined are genuine, the authenticity
of all documents submitted to us as originals, the conformity with the authentic
originals of all documents submitted to us as certified, photostatic or faxed
copies, and that all documents in respect of which forms were filed with the
Commission as exhibits to the Registration Statement will conform in all
material respects to the forms thereof that we have examined.
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U.S. Timberlands Klamath Falls, L.L.C.
U.S. Timberlands Finance Corp.
November 5, 1997
Page 2
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that:
1. The Notes have been duly and validly authorized by all necessary
action by the Company and Finance Corp., respectively.
2. Assuming (i) due authorization, execution and delivery of the Indenture
governing the Notes and the qualification thereof under the Trust Indenture Act
of 1939, as amended, (ii) due execution and authentication of the Notes as
specified in the Indenture and delivery of the Notes against payment therefor as
described in the Registration Statement, (iii) due authorization, execution and
delivery of the underwriting agreement pursuant to which the Notes are proposed
to be sold and (iv) that the trustee is a corporation validly existing and in
good standing under the law of its jurisdiction of incorporation, the Notes will
constitute valid and legally binding obligations of the Company and Finance
Corp., respectively.
The opinions expressed above with respect to the Notes may be limited
by applicable bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfer), reorganization, moratorium and other similar
laws affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law), including reasonableness, materiality, good faith and fair dealing. Such
opinions are also subject to the qualification that the remedy of specific
performance and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which proceedings may be
brought.
In rendering the foregoing, we express no opinion as to the validity,
binding effect or enforceability of any choice of law provision or the
enforceability of the waiver of rights under any usury laws.
This opinion is limited in all respects to federal laws, the Delaware
Limited Liability Company Act, the Delaware General Corporation Law and the laws
of the State of New York. We hereby consent to the use of this opinion as an
exhibit to the Registration Statement and to the reference to our firm under the
caption "Legal Matters" therein.
Very truly yours,
Andrews & Kurth L.L.P.
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EXHIBIT 10.5
WOOD SUPPLY AGREEMENT
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DATED: AUGUST 30, 1996
BETWEEN: U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY UST
AND: COLLINS PRODUCTS LLC,
AN OREGON LIMITED LIABILITY COMPANY COLLINS
WHEREAS, Collins has purchased a group of forest products mills in Klamath
Falls, Oregon from U.S. Timberlands Holdings Company, L.L.C. (the "Mills")
pursuant to a Plant Asset Purchase Agreement (the "Plant Purchase Agreement").
UST owns timberlands in Jackson, Lake and Klamath Counties, Oregon which were
formerly under common ownership with the Mills. Such timberlands are described
in the attached Exhibit A (the "Timberlands").
WHEREAS, as part of the transaction to purchase the Mills, UST has agreed
to supply Collins with a minimum of thirty-four million (34,000,000) board feet
of logs meeting the standards set forth on Exhibit B annually including a
minimum of eight million (8,000,000) board feet of white fir. It is understood
that the wood supply is an essential part of the transaction for sale of the
Mills.
NOW, THEREFORE, UST hereby sells to Collins the wood supply referenced
herein subject to the terms and conditions of this Agreement.
Section 1. Volume of Timber.
The volume of merchantable timber which is sold to Collins pursuant to this
Agreement is 34 million board feet ("mmbf"), of which at least 8 mmbf will be
white fir, per contract year during the term hereof. "Contract year" herein
means a twelve-month period commencing September 1 and ending on the following
August 30. The timber to be cut and removed by or for Collins pursuant to this
Agreement, including the white fir referred to in this paragraph and paragraph
6, is referred to herein as the "Timber." The Timber is to be supplied from the
Timberlands except that UST may supply from other lands which it owns or in
which it has timber cutting rights of at least two (2) years duration. Should
market conditions dictate, mutually agreeable other sources of timber may be
used.
Section 2. Logging and Delivery by UST.
All logs shall be delivered to the log yard at the Mill complex at Klamath
Falls, Oregon or other destination designated by Collins and all logs shall be
scaled with duplicates of scaling documents going to both Collins and UST. Logs
shall be produced according to Exhibit B (the
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"Specifications"). If Collins specifies a delivery location other than the Mill
complex at Klamath Falls, the price for the logs will be adjusted to reflect the
actual difference in transportation costs incurred by UST in delivering logs to
the alternative location.
Section 3. Logging and Delivery by Collins.
From time to time the parties may agree to allow Collins to cut the Timber
for purposes of supplying wood under this Agreement in which event the price
shall be adjusted for the cost of logging, and Collins shall be given the right
subject to the conditions of Exhibit F to enter UST's land to log the stumpage.
Section 4. Term of Agreement.
This Agreement shall be for a term of 10 years. Collins shall have the
right to extend the Agreement for two (2) additional terms of 5 years each by
giving UST written notice of its intention to extend at least six (6) months in
advance of the termination of the then current term. If Collins extends this
Agreement, the base prices set forth in section 5.1 shall be adjusted, effective
as of the first day of the renewal term, to fair market value as agreed upon by
the parties or as determined by arbitration if the parties fail to agree. In
addition, after exercising the two renewal terms, Collins shall have the right
to three (3) additional 5-year extensions upon giving of notice as provided
herein and obtaining the agreement of UST to each of such extensions, including
the pricing during such additional extension periods.
Section 5. Payment.
So long as Timber is being logged and delivered by UST to Collins, the
following payment provisions shall apply:
5.1 Base Prices. The base prices F.O.B. the Mills shall be as
follows:
$435 per mbf for white fir
$400 per mbf for lodge pole pine
$270 per mbf for Ponderosa pine 7" and less in diameter (top
diameter measurement inside bark)
$360 per mbf for Ponderosa pine over 7" in diameter (top
diameter measurement inside bark)
$495 per mbf for Douglas fir
5.2 Payment. Payment for Timber shall be due and payable twice
monthly on the 10th and 25th days of each month based upon scaling documents
indicating volumes delivered as of the last day of the preceding month and the
15th day of the current month.
5.3 Price Adjustments.
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5.3.1 White Fir. Prices for white fir shall be adjusted at
the end of each three (3) month period during the
contract year, retroactive to the beginning of such 3-
month period. The white fir price shall be increased
or decreased according to the adjustment formula set
forth on the attached Exhibit C.
5.3.2 Other Species. Prices for species other than white fir
shall be adjusted at the end of each 3-month period
during the contract year, retroactive to the beginning
of such 3-month period, so that the amount paid by
Collins to UST for each species shall equal the
average net delivered price for logs of that species
(and of similar diameter and grade as logs being sold
to Collins) sold by UST from the UST lands to
unaffiliated third parties in arm's-length
transactions during such calendar quarter. In
computing the average net delivered price, the
difference in haul distances as compared to hauling to
the Mills shall be taken into consideration. If UST
sales are not sufficient to establish price
adjustments for any quarter, then the parties may rely
on the best evidence available to them to establish a
fair market value price for logs during the quarter in
question. Any disputes over application of this
paragraph shall be resolved by arbitration according
to the arbitration procedures set forth on Exhibit D
attached hereto, and the decision in such arbitration
shall be final and binding upon the parties.
5.3.3 Base Price Adjustment. Effective as of the first day
of the third contract year, and biennially as of the
first day of each second contract year thereafter
(i.e., once every two years), the base prices for
delivered logs as described in paragraph 4.1 shall be
reset to equal the fair market value. The parties
shall meet three (3) months prior to the effective
date and attempt to agree upon such values. If no
agreement is reached by a date which is sixty (60)
days prior to the adjustment date, then either party
may initiate arbitration according to the arbitration
procedures set forth on Exhibit D attached hereto, and
the decision in such arbitration shall be final and
binding upon the parties.
5.4 Disputes. Any disputes arising between the parties with
regard to the application or interpretation of this Section 5 shall be resolved
according to the arbitration procedures set forth on Exhibit D hereto.
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Section 6. Collins' Rights to White Fir.
During periods when UST is harvesting for its own account or permitting
harvesting of timber for other parties besides Collins, UST shall include in
deliveries to Collins at least eighty percent (80%) of the white fir harvested
from the Timberlands in any given contract year, such volume to apply against
the 34 mmbf annual supply to Collins.
Section 7. Collins' Right to Purchase Extra Timber or Other Products.
7.1 Purchase of Chips. Collins shall have the first right of
refusal to purchase any chipable materials such as tops and thinnings which UST
wishes to sell from the Timberlands and the first right to purchase any chips
produced by or for the account of UST for sale to third parties. UST shall
advise Collins in writing of the quantity of such materials it has for sale, the
location, anticipated date of production and desired price. Collins shall have
fifteen (15) days following receipt of such notice in which to elect to purchase
such material. If it does not elect to purchase such material, UST may sell it
to a third party on terms and conditions not materially different than the terms
and conditions offered to Collins.
7.2 Purchase of Other Timber Products. If UST offers stumpage,
cutting rights or log sales to third parties from the Timberlands, Collins will
be provided with notice and an opportunity to bid to acquire the same.
Section 8. Covenants of UST.
At all times while this Agreement is in effect, UST covenants and agrees as
follows:
8.1 UST will continue to own at least 400,000 acres of the
Timberlands and will maintain on such Timberlands at least 1.1 billion board
feet of merchantable timber. Lands and timber which are subject to timber deeds
or timber sale contracts in favor of third parties shall be excluded from the
computation of acreage and merchantable timber under this Section 8.1.
8.2 UST will report to Collins, within 30 days after the end of
each calendar quarter, the acreage and merchantable volume, by species, of the
Timberlands then owned by UST as of the end of such calendar quarter.
8.3 UST will notify Collins at least ten (10) days in advance of
each sale of stumpage from the Timberlands and each sale of any portion of the
Timberlands.
8.4 UST will maintain a net worth, computed in accordance with
generally accepted accounting principles, of at least $50,000,000.
8.5 UST will deliver to Collins, contemporaneously with delivery
to UST's lenders, true and complete copies of all reports required by UST's
lenders, and will deliver, within
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ninety (90) days after the end of the fiscal year, a copy of UST's balance sheet
and financial statements for such fiscal year.
8.6 UST will provide to Collins, prior to commencing its annual
harvest, UST's harvest plan for the Timberlands for each calendar year.
Section 9. Default and Remedies.
9.1 Default by UST. A default shall occur if (i) UST fails to
make delivery sufficient to satisfy the required annual delivery to Collins,
(ii) UST should sell any portion of the Timberlands or timber thereon in
violation of, or without complying with, the provisions of this Agreement, (iii)
UST fails to comply with the decision of any arbitrator made pursuant to Exhibit
D hereto, (iv) any warranty by UST herein proves to have been false when made,
or (v) any other term or condition stated herein is not met and UST fails to
correct such noncompliance within thirty (30) days after written notice from
Collins specifying the noncompliance. If more than thirty (30) days would be
required to correct the noncompliance, then there shall be no default if UST
commences correction within the 30-day period and diligently pursues corrective
action.
9.2 Remedies of Collins. In the event of default by UST, Collins
shall have the following remedies, in addition to any other remedies available
under applicable law, which remedies may be exercised individually or in
combination to the extent permitted by applicable law:
9.2.1 The right to enjoin any activities by UST which are in
breach of the covenants contained herein.
9.2.2 The right to perform any obligation which UST has
failed to perform (including logging and delivery of
Timber) and to charge the costs of such performance to
UST, together with interest at the greater of twelve
percent (12%) per annum or the USNB prime rate plus
two percent on all amounts so expended until
reimbursed by UST.
9.2.3 The right to recover damages caused by the default.
9.2 4 The right to obtain specific performance.
9.2 5 The right to terminate this Agreement.
9.3 Default by Collins. A default by Collins shall occur if (i)
Collins fails to accept delivery of logs as required hereby (unless the failure
is due to a good faith dispute regarding the compliance with the log
Specifications, in which event Collins will not be in default if Collins accepts
a disputed delivery within ten (10) days of a determination under Paragraph D of
Exhibit B that such logs meet the Specifications) or (ii) fails to make timely
payment for logs within ten (10) days of when due or (iii) Collins fails to
comply with any other material provision of this Agreement
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within thirty (30) days after notice from UST specifying the non-compliance and
demanding its cure. If more than thirty (30) days wo would be required to
correct the noncompliance, then there shall be no default if Collins commences
correction within the thirty (30) day period and diligently pursues corrective
action.
9.4 Remedies of UST. In the event of default by Collins, UST
shall have the following remedies in addition to any other remedies available
under applicable law, which remedies may be exercised individually or in
combination to the extent permitted by applicable law:
9.4.1 The right to recover damages caused by Collins'
default.
9.4.2 The right to perform the obligation of Collins and to
charge the cost of such performance to Collins,
together with interest at the greater of twelve
percent (12%) per annum or the USNB prime rate plus
two percent (2%) on all amounts so expended until
reimbursed by Collins.
9.4.3 The right to obtain specific enforcement.
9.4.4 The right to enjoin any activities of Collins which
are in breach of the covenants contained herein.
9.4.5 The right to terminate this Agreement, provided,
however, that (i) if the default is the failure to pay
for logs, UST may terminate this Agreement only if
Collins fails within 7 business days after notice from
UST specifying the failure to make payment, to make
the payment or advise UST of any good faith dispute
which exists with respect to the payment and (ii) if
the default is the failure to accept logs when there
is not a good faith dispute regarding compliance with
the log Specifications, this Agreement may be only
terminated pursuant to Section 10.11 below.
Section 10. General Provisions.
10.1 Force Majeure. If the Timberlands are damaged by fire,
windstorms, insects or other casualty to the extent that, or if for any other
reason not within Collins' control, 34 mmbf per year cannot be cut on a
sustained yield basis from the Timberlands, then the annual volume subject to
this Agreement shall be reduced to equal the actual sustained yield capacity of
the Timberlands after the casualty or other cause. If the parties disagree over
this issue, it may be determined by arbitration at the request of either party.
10.2 Assignability. Collins shall have the right to assign this
Agreement (as security or otherwise) without UST's consent or sell Timber to
third parties. If requested by Collins,
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UST shall make deliveries to third parties of all or part of the 34 mmbf.
Collins shall pay or receive credit, as appropriate, for any hauling cost
differential.
10.3 Recordability. This Agreement shall not be recorded.
10.4 Liens, Severance and Harvest Taxes. UST shall pay for all
severance and harvest taxes on the Timber, and logs from the Timber shall be
delivered free of liens or security interests of third parties.
10.5 Lender Protection. Collins shall make payments due to UST to
any lender who forecloses on the Timberlands or who acquires the Timberlands in
lieu of foreclosure. If Collins is informed of the address of a lender holding
all or any part of the Timberlands as security, Collins will give duplicate
copies of all notices in connection with this Agreement to such lender. If
Collins receives a demand from any lender to make payments due hereunder
directly to such lender, Collins shall have the right to do so without liability
to UST. If requested by a lender for either party, the other party shall
promptly deliver a signed statement for the benefit of a lender as to whether
this Agreement is in good standing, or specifying any alleged defaults, and
furnishing such other information as a lender may reasonably request.
10.6 Attorneys' Fees. In the event suit, action, arbitration or
other proceeding of any nature whatsoever (including, without limitation, any
proceeding under the U.S. Bankruptcy Code) is instituted in connection with any
controversy arising out of this Agreement or to interpret or enforce any rights
under this Agreement, the prevailing party shall be entitled to recover its
attorneys', paralegals', accountants' and other experts' fees and all other
fees, costs and expenses actually incurred and reasonably necessary in
connection therewith, as determined by the arbitrator or by the court at trial
or on any appeal or petition for review, in addition to all other sums provided
by law.
10.7 Notices. Notices under this Agreement shall be in writing and
shall be effective when actually delivered by mail, private courier service,
facsimile transmission, or other accepted means of business communication. If
mailed, a notice shall be deemed effective on the third day after being
deposited in the U.S. mails, postage prepaid, directed to the other party at the
address shown below. The addresses and facsimile numbers for notices are set
forth below:
If to UST: U.S. Timberlands Klamath Falls, L.L.C.
6400 Highway 66
Klamath Falls, OR 97601
With a copy to: Robert W. Palmer
Lindsay, Hart, Neil & Weigler, LLP
1300 SW Fifth Avenue, Suite 3400
Portland, OR 97201-5696
Facsimile No.: (503) 226-7697
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If to Collins: Collins Products LLC
Attention: President
1618 SW First Street, Suite 300
Portland, OR 97201
Facsimile No.: (503) 227-5349
with a copy to: Mark A. Norby
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, OR 97204
Facsimile No.: (503) 220-2480
Either party may change its address or facsimile number for notices by
written notice to the other.
10.8 Waiver. Failure of either party at any time to require
performance of any provision of this Agreement shall not limit the party's right
to enforce the provision. Waiver of any breach of any provision shall not be a
waiver of any succeeding breach of the provision or a waiver of the provision
itself or any other provision.
10.9 Arbitration. The arbitration provisions contained in Exhibit
D hereto shall apply only to matters which are specifically made subject to
arbitration according to this Agreement.
10.10 Volume Production; Curtailment.
10.10.1 Collins shall have the right to reduce the volume
of Timber taken in any contract year by ten
percent (10%), provided notice is given not less
than one hundred twenty (120) days prior to the
end of the contract year. If such reduction is
elected, Collins will accept extra volume in the
next contract year equal to the reduction in the
prior contract year.
10.10.2 If Collins is not operating the plywood mill due
to strikes, casualty or other causes beyond its
control (not including adverse economic
conditions), then Collins may, at its option, give
notice electing to totally or partially curtail
its taking of Timber during such time. If such
curtailment is elected, Collins shall lose all
rights to the Timber that would have been
delivered but for the curtailment.
10.11 Termination by UST. If for any reason other than those
specified in Sections 10.1 or 10.10, Collins fails to accept a total of 57.8
mmbf of Timber meeting the Specifications during any two (2) consecutive
contract years, then UST may terminate this Agreement as of the end of the
second contract year. Termination shall be by notice from UST given ninety (90)
days prior
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to expiration of the contract year stating that unless a total of 57.8 mmbf is
accepted by the end of the contract year in question, the Agreement shall
terminate as of the last day of such contract year.
10.12 Net Worth Warranty by UST. UST warrants that as of the
commencement of this Agreement, it will have a net worth computed in accordance
with generally accepted accounting principles of not less than $75,000,000.
10.13 Collins Financial Statements. While this Agreement is in
effect, Collins will deliver to UST, within ninety (90) days after the ending of
its fiscal year, a copy of Collins balance sheet and financial statements for
such fiscal year.
10.14 Exhibits. The following exhibits are attached to and
incorporated as part of this Agreement:
Exhibit A - Description of Timberlands [omitted]
Exhibit B - Logging Terms and Conditions
Exhibit C - White Fir Price Adjustment
Exhibit D - Arbitration Procedures
Exhibit E - [Intentionally deleted]
Exhibit F - Logging By Collins
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IN WITNESS WHEREOF, the parties have executed this Grant as of the date
first above written.
UST: U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
By: /s/ George R. Hornig
------------------------------------
By: George R. Hornig
Its: Vice President
COLLINS: COLLINS PRODUCTS LLC
By: Ostrander Resources Company, Member
By: /s/ James E. Quinn
------------------------------------
By: James E. Quinn
Its: President
By: Fremont Lumber Company, Member
By: /s/ James E. Quinn
------------------------------------
By: James E. Quinn
Its: President
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EXHIBIT B TO WOOD SUPPLY AGREEMENT
Logging Terms and Conditions
The following provisions shall apply for logging by UST in connection with
UST's logging and delivery of the Timber pursuant to the grant to Collins:
A. Log Lengths. Logs shall be bucked and manufactured according to
accepted industry standards with a minimum top diameter inside the bark of six
(6) inches and the following acceptable lengths: 104 inches, 17 feet 6 inches,
27 feet, 35 feet, 43 feet 6 inches.
B. Deliveries. Log deliveries shall occur evenly over the logging season
unless the parties agree in writing to a different schedule. The parties shall
communicate with regard to the scheduling of deliveries.
C. Scaling. All logs shall be scaled according to the rules of the
Southern Oregon Log Scaling and Grading Bureau unless otherwise agreed. The
logs shall be scaled by an independent scaling bureau selected by Collins and
reasonably acceptable to UST, the cost of which shall be shared by the parties.
Collins may use weight scaling according to a formula approved by UST, which
approval shall not be unreasonably withheld.
D. Rejected Logs. If any logs do not meet the Specifications contained
herein, Collins may reject the logs by notice to UST and UST will replace any
rejected logs with logs meeting the Specifications herein. If there is a
dispute as to whether logs rejected by Collins meet the Specifications herein,
the parties shall have the independent scaling bureau selected under Paragraph C
above inspect the logs and determine whether the logs meet the Specifications,
which decision shall be binding upon the parties. If the logs are determined to
meet the Specifications, Collins shall pay the fees of the independent scaling
bureau in connection with such dispute. If the logs are determined not to meet
the Specifications, UST shall pay the fees of the independent scaling bureau in
connection with such dispute.
B-1
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EXHIBIT C TO WOOD SUPPLY AGREEMENT
White Fir Price Adjustment
White fir log prices shall be adjusted as of the first day of each three
(3) month period during a contract year based upon the average of the weekly
Random Lengths "for 1,000 square feet of 1/2" CDX plywood, Inland 4/5 Ply"
during the preceding 3-month period (the "RL Average"). The white fir price
shall be adjusted upward by $2.50 per mbf for each $1 increase in the RL Average
over the base period average and adjusted downward by $2.50 per mbf for each $1
decrease in the RL Average below the base period average. The base period
average shall be the 3-month period ending with the commencement of the first
contract year under this Agreement.
C-1
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EXHIBIT D TO WOOD SUPPLY AGREEMENT
Arbitration Procedures
Any arbitration called for by this Agreement shall take place in Portland,
Oregon according to the commercial arbitration rules of the American Arbitration
Association using as arbitrator a person with experience in the forest products
industry in relation to the subject matter in question. If the parties are
unable to agree upon an arbitrator, each party will designate a reputable,
knowledgeable forest consultant, and the two consultants so designated will
select as arbitrator a person with experience in the forest products industry in
relation to the subject matter in question. If the consultants so designated are
unable to agree upon an arbitrator, the parties shall request the presiding
judge of the Circuit Court of the State of Oregon for Multnomah County to select
as arbitrator a person with experience in the forest products industry in
relation to the subject matter in question.
In addition to deciding the dispute, the arbitrator shall have the
authority to allocate the costs of the arbitration between the parties in
proportion to which the position of one party was followed as opposed to the
position of the other party, and to award attorneys' fees to the prevailing
party, if in the arbitrator's opinion such an award is justified.
D-1
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EXHIBIT F TO WOOD SUPPLY AGREEMENT
Logging by Collins
In performing any logging pursuant to the foregoing Agreement, Collins and
any independent contractors employed by Collins to perform such logging shall be
subject to the following:
1. Collins may use all existing roads on the Timberlands in connection
with its logging and shall have the right to construct spurs as needed to access
Timber. Collins shall repair any damage to existing roads caused by its use and
shall pay proportionately for the repair of any weather damage or the cost of
performing normal maintenance to the road, such payment to be in proportion to
the use which Collins is making of such road for the period in question compared
to the total uses of such road.
2. Collins shall submit an annual plan for logging which shall be subject
to the approval of UST which will not be unreasonably withheld, delayed or
conditioned. If no approval is received within two (2) weeks after submission
of such plan, it shall be deemed approved.
3. Collins shall use appropriate, good logging methods for the type of
timber and terrain in question and shall comply in all respects with the Forest
Practices Act. Collins shall obtain all necessary licenses or permits for any
logging which is performed by it or on its behalf.
4. Collins shall indemnify and hold UST harmless from any claims for
trespass as a result of Collins' logging operations or from any claims by third
parties for injuries to persons or property arising out of Collins' operations
on the Timberlands, except to the extent that negligence or intentional
misconduct of UST is the cause of such claim.
5. Collins shall carry and cause any of its contractors to carry
liability insurance, including Loggers Broad Form B property damage insurance
with third-party fire fighting expense endorsements with combined single limit
coverage of $3 million naming UST as an additional insured as its interest
appears.
6. Collins shall conduct its operations so as to minimize fire hazard and
shall promptly report any fires that it observes on the Timberlands. Collins
shall use reasonable care to avoid damage to any reproduction areas.
F-1
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EXHIBIT 12.1
U.S. TIMBERLANDS COMPANY, L.P.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
(DOLLAR AMOUNTS IN THOUSANDS)
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<CAPTION>
HISTORICAL PRO FORMA(b) HISTORICAL PRO FORMA(b)
--------------- ------------ ---------- ------------
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
AUGUST 30, 1996
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1996 1997 1997
--------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net loss................. $(13,036) $(26,428) $(10,396) $(8,777)
Fixed charges............ 8,642 25,538 20,772 19,153
-------- -------- -------- -------
Earnings (loss).......... $ (4,394) $ (890) $ 10,376 $10,376
======== ======== ======== =======
Interest expense......... $ 7,316 $ 24,813 $ 17,818 $18,609
Amortization of deferred
financing fees and debt
guarantee fees.......... 1,326 725 2,954 544
-------- -------- -------- -------
Fixed charges............ $ 8,642 $ 25,538 $ 20,772 $19,153
======== ======== ======== =======
Ratio of earnings (loss)
to fixed charges........ (.51)x (.03)x .50x .54x
======== ======== ======== =======
</TABLE>
- --------
(a) No computation of ratio of earnings to fixed charges is shown for the
periods ended prior to August 30, 1996 as the Predecessor participated in
Weyerhaeuser's centralized cash management system and therefore had no
indebtedness or fixed charges.
(b) Gives effect to the Weyerhaeuser Acquisition, the Ochoco Acquisition and
related refinancing, and the Transactions as if these events were
consummated as of the beginning of the periods presented. The pro forma
results of operations are not necessarily indicative of the results that
would have occurred had these events been consummated as of January 1, 1996
or that might be attained in the future.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
U.S. Timberlands Finance Corp., a Delaware corporation.
SUBSIDIARIES OF U.S. TIMBERLANDS FINANCE CORP.
None.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Portland, Oregon
November 6, 1997
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
_____________________
U. S. TIMBERLANDS KLAMATH FALLS, L.L.C.
(Exact name of obligor as specified in its charter)
DELAWARE 93-1217136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6400 HIGHWAY 66
KLAMATH FALLS, OREGON 97601
(Address of principal executive offices) (Zip Code)
SENIOR NOTES DUE 2007
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence business
was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Eastern Edison Company (File No.
33-37823) and is incorporated herein by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published pursuant
to law or the requirements of its supervising or examining authority is
annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and The
State of Connecticut, on the 23rd of October 1997.
STATE STREET BANK AND TRUST COMPANY
By:/s/ MICHAEL M. HOPKINS
--------------------------------------
NAME: MICHAEL M. HOPKINS
TITLE: VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by U. S.
TIMBERLANDS KLAMATH FALLS, L.L.C. of its SENIOR NOTES DUE 2007, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By:/s/ MICHAEL M. HOPKINS
-------------------------------------
NAME: MICHAEL M. HOPKINS
TITLE: VICE PRESIDENT
DATED: OCTOBER 23, 1997
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1997,
--------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........................... 1,665,142
Interest-bearing balances.................................................... 8,193,292
Securities.................................................................... 10,238,113
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary.......................................... 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income..................................... 4,936,454
Allowance for loan and lease losses.......................................... 70,307
Allocated transfer risk reserve.............................................. 0
Loans and leases, net of unearned income and allowances...................... 4,866,147
Assets held in trading accounts............................................... 957,478
Premises and fixed assets..................................................... 380,117
Other real estate owned....................................................... 884
Investments in unconsolidated subsidiaries.................................... 25,835
Customers' liability to this bank on acceptances outstanding.................. 45,548
Intangible assets............................................................. 158,080
Other assets.................................................................. 1,066,957
----------
Total assets.................................................................. 33,450,737
==========
LIABILITIES
Deposits:
In domestic offices.......................................................... 8,270,845
Noninterest-bearing......................................................... 6,318,360
Interest-bearing............................................................ 1,952,485
In foreign offices and Edge subsidiary....................................... 12,760,086
Noninterest-bearing......................................................... 53,052
Interest-bearing............................................................ 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary.......................................... 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities.............. 926,821
Other borrowed money.......................................................... 671,164
Subordinated notes and debentures............................................. 0
Bank's liability on acceptances executed and outstanding...................... 46,137
Other liabilities............................................................. 745,529
Total liabilities............................................................. 31,637,223
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................................. 0
Common stock.................................................................. 29,931
Surplus....................................................................... 360,717
Undivided profits and capital reserves/Net unrealized holding gains (losses).. 1,426,881
Cumulative foreign currency translation adjustments........................... (4,015)
Total equity capital.......................................................... 1,813,514
----------
Total liabilities and equity capital.......................................... 33,450,737
==========
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S.
TIMBERLANDS KLAMATH FALLS, L.L.C. SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
COMBINED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CIK> 0001047739
<NAME> U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
<S> <C> <C>
<PERIOD-TYPE> 6-MOS OTHER <F1>
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 AUG-30-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 24,032 16,613
<SECURITIES> 0 0
<RECEIVABLES> 5,777 1,694
<ALLOWANCES> 0 0
<INVENTORY> 0 78
<CURRENT-ASSETS> 31,765 29,586
<PP&E> 1,768 1,478
<DEPRECIATION> 221 58
<TOTAL-ASSETS> 415,227 310,191
<CURRENT-LIABILITIES> 31,750 8,127
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (14,523) (2,936)
<TOTAL-LIABILITY-AND-EQUITY> 415,227 310,191
<SALES> 41,057 14,019
<TOTAL-REVENUES> 41,057 14,019
<CGS> 12,101 6,179
<TOTAL-COSTS> 28,350 18,786
<OTHER-EXPENSES> (48) 36
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17,818 7,316
<INCOME-PRETAX> (6,825) (13,036)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,825) (13,036)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (3,571) 0
<CHANGES> 0 0
<NET-INCOME> (10,396) (13,036)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1> The income statement data for the period ended December 31, 1996
represents only four months of operations as the Company was formed on August
30, 1996.
</FN>
</TABLE>
