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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1998
REGISTRATION NO. 333-51857
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PLAINWELL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2621 38-3391489
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
200 ALLEGAN STREET
PLAINWELL, MICHIGAN 49080
TELEPHONE: (616) 685-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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WILLIAM L. NEW
200 ALLEGAN STREET
PLAINWELL, MICHIGAN 49080
TELEPHONE: (616) 685-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Unit(1) Offering Price(1) Fee(2)
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PLAINWELL INC.'s 11% Senior Subordinated
Notes due 2008........................... $130,000,000 $1,000 $130,000,000 $38,350
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* Not Applicable.
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Registration fee previously paid.
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1998
PROSPECTUS
[PLAINWELL INC. LOGO] PLAINWELL INC.
OFFER TO EXCHANGE ITS SERIES B 11% SENIOR SUBORDINATED NOTES
DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING SERIES A
11% SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
PLAINWELL INC., a Delaware corporation ("Plainwell" or the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange $1,000 principal amount of its Series
B 11% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") pursuant to a Registration Statement of which this Prospectus is a part,
for each $1,000 principal amount of its outstanding Series A 11% Senior
Subordinated Notes due 2008 (the "Notes"), of which $130,000,000 principal
amount is outstanding. The form and terms of the Exchange Notes are the same as
the form and term of the Notes (which they replace) except that the Exchange
Notes will bear a Series B designation and will have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions relating to an increase in the interest
rate which were included in the terms of the Notes in certain circumstances
relating to the timing of the Exchange Offer. The Exchange Notes will evidence
the same debt as the Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indenture dated March 6, 1998 between Plainwell
and United States Trust Company of New York (the "Indenture") governing the
Notes. See "The Exchange Offer" and "Description of Exchange Notes."
Plainwell has not issued, and does not have any current firm arrangements to
issue, any indebtedness to which the Exchange Notes would rank senior or pari
passu in right of payment. The Exchange Notes will be general unsecured
obligations of the Company and will be subordinate in right of payment to all
future Senior Debt (as defined herein) and will be senior or pari passu in right
of payment to all future subordinated indebtedness of the Company. As of June
30, 1998, which includes the effect of the Transactions (as defined), the amount
of the Company's outstanding Senior Debt was $27.9 million.
Plainwell will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended by Plainwell in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, Plainwell will not extend the Expiration Date
beyond , 1998. Tenders of Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by Plainwell on March 6, 1998 to the
Initial Purchasers (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchasers subsequently placed the Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and with a limited
number of institutional accredited investors that agreed to comply with certain
transfer restrictions and other conditions. Accordingly, the Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy the obligations of Plainwell
under the Exchange and Registration Rights Agreement entered into by Plainwell
in connection with the offering of the Notes. See "The Exchange Offer."
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission") set forth in
no-action letters issued to third parties, Plainwell believes the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of Plainwell within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. See "The Exchange Offer -- Purpose and Effect of the Exchange
Offer" and "The Exchange Offer -- Resales of the Exchange Notes." Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received in exchange for Notes where
such Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. Plainwell has agreed that,
for a period of up to one year from the consummation of the Exchange Offer, it
will make this Prospectus available to any Participating Broker-Dealer for use
in connection with any such resale. See "Plan of Distribution."
If any holder of Notes is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be acquired in the
Exchange Offer, such holder (i) cannot rely on the applicable interpretations of
the Commission and (ii) must comply with the registration requirements of the
Securities Act in connection with any resale transaction.
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and benefits
and will be subject to the limitations applicable thereto under the Indenture
and with respect to transfer under the Securities Act. Plainwell will pay all
the expenses incurred by it incident to the Exchange Offer. See "The Exchange
Offer."
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SEE "RISK FACTORS" ON PAGE 17 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
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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 COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
There has not previously been any public market for the Notes or the
Exchange Notes. Plainwell does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of Public Market."
Moreover, to the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes could
be adversely affected.
The Exchange Notes will be available initially only in book-entry form.
Plainwell expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Certificate representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Certificate, Exchange Notes in
certified form will be issued in exchange for the Global Certificate only on the
terms set forth in the Indenture. See "Description of Exchange Notes."
AVAILABLE INFORMATION
Plainwell has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus includes a discussion of all
material elements of the Exchange Offer Registration Statement, but does not
contain all of the information set forth therein. For further information with
respect to Plainwell and the Exchange Offer, reference is made to the Exchange
Offer Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549, at the Regional Offices of the Commission at 7 World Trade
Center, Suite 1300, New York, NY 10048 and at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates. Additionally,
the Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, Plainwell will become subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The obligation of Plainwell to file periodic
reports and other information with the Commission will be suspended if the
Exchange Notes are held of record by fewer than 300 holders as of the beginning
of any fiscal year of Plainwell other than the fiscal year in which the Exchange
Offer Registration Statement is declared effective. Plainwell will nevertheless
be required to continue to file reports with the Commission if the Exchange
Notes are listed on a national securities exchange. In the event Plainwell
ceases to be subject to the informational requirements of the Exchange Act,
Plainwell will be required under the Indenture to continue to file with the
Commission the annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K,
which would be required pursuant to the informational requirements of the
Exchange Act. Under the Indenture, Plainwell shall file with the Trustee such
annual, quarterly and other reports. Further, to the extent that annual,
quarterly or other financial reports are furnished by Plainwell to stockholders
generally it will mail such reports to holders of Exchange Notes. Plainwell will
furnish annual and quarterly financial reports to stockholders of Plainwell and
will mail such reports to holders of Exchange Notes pursuant to the Indenture,
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thus holders of Exchange Notes will receive financial reports every quarter.
Annual reports delivered to the Trustee and the holders of Exchange Notes will
contain financial information that has been examined and reported upon, with an
opinion expressed by an independent public or certified public accountant.
Plainwell will also furnish such other reports as may be required by law.
FORWARD LOOKING STATEMENTS
THE PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD
LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY THE MANAGEMENT
OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY
UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES
AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES WILL BE
REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF
BORROWING OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL;
(5) ADVERSE STATE OR FEDERAL LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS
IN PENDING LITIGATION; AND (6) CHANGES IN GENERAL ECONOMIC CONDITIONS AND/OR IN
THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH
FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER,
INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE
COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, contained elsewhere in this Prospectus. References
in this Prospectus to "Consumer Products Division" refer to the tissue business
of Plainwell acquired from Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc.
(collectively, "Pope & Talbot"). References to "Specialty Paper Division" refer
to the specialty paper business of Plainwell, formerly known as Plainwell Paper
Company. References to the "Company" refer to Plainwell immediately following
the consummation of the Transactions (as defined). References to 1993, 1994,
1995, 1996 and 1997 with respect to financial information for the Specialty
Paper Division refer to the fiscal year ending on the Sunday closest to December
31 for such year.
THE COMPANY
The Company is a leading U.S. producer and marketer of value-added paper
products for niche markets within the paper industry. The Company conducts its
business through two divisions: (i) the Consumer Products Division, which
produces private label consumer tissue products such as bath tissue, paper
towels, napkins and facial tissue, and (ii) the Specialty Paper Division, which
produces premium coated and uncoated printing papers and release and other
technical/specialty papers. The Company has established leading market positions
in certain of these niche markets by combining high quality products, broad
product offerings, strong customer service, efficient manufacturing and the
significant use of recycled materials. In addition, the Company believes that
operating in different niche markets provides the Company with a larger, more
diversified income stream. The Company's pro forma net sales, pro forma EBITDA
and pro forma income (loss) before extraordinary item were $222.9 million, $29.1
million and $0.7 million, respectively, for the year ended December 31, 1997 and
$108.1 million, $11.6 million and $(2.4) million, respectively, for the six
months ended June 30, 1998. Pro forma for the same periods, the Consumer
Products Division contributed 61.1% and 63.5%, respectively, of net sales, and
the Specialty Paper Division contributed 38.9% and 36.5%, respectively of net
sales of the Company.
CONSUMER PRODUCTS DIVISION
The Consumer Products Division manufactures and markets a broad line of
consumer tissue products, with an estimated 21% share of the U.S. private label
consumer tissue market. Its products include bath tissue, paper towels, napkins
and facial tissue which range from economy to premium quality grades, including
premium quality paper towels and napkins with embossing and colored prints in a
variety of designs. Its product assortment is designed for the private label
consumer market. The Company believes that the private label tissue market will
continue to be an attractive niche market because of: (i) increased recognition
by consumers that private label tissue products offer quality at value prices;
(ii) increased emphasis by retailers who generally receive higher margins on
private label tissue products than on their nationally branded counterparts; and
(iii) the growth of mass merchandisers and wholesale clubs which have
traditionally emphasized private label tissue products.
The Consumer Products Division has well established relationships with its
customer base and serves as a major private label tissue supplier to many of its
customers. The division sells its products to customers located throughout the
U.S., with a concentration near its manufacturing facilities in the Midwest and
Northeast. Its customers include: (i) mass merchandisers such as Kmart
Corporation and Wal-Mart Stores, Inc.; (ii) warehouse clubs such as B.J.
Wholesale Club; (iii) supermarkets that operate under the names A&P, Giant, Tops
Markets and Stop & Shop; and (iv) other retailers and wholesalers.
The Company believes that the Consumer Products Division is currently the
only private label tissue supplier to its customers that utilizes an integrated
computer-based customer service system. Since 1992, the Consumer Products
Division has invested approximately $10 million to develop and implement its
customer service system, which includes Electronic Data Interchange ("EDI") and
Vendor Managed Inventory ("VMI") technologies. By providing the division's sales
force and customer service representatives with real-time information on
customers, orders, shipments and inventory status, the system has enabled the
division to
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monitor and replenish customer inventories, provide information on category
activity and shelf space profitability and to offer just-in-time order delivery
to its top customers. The Company believes that its system provides a
significant competitive advantage and has been an important factor in increasing
sales to mass merchandisers and wholesale clubs from approximately 4,268 tons in
1993 to approximately 29,800 tons for 1997. By focusing on these larger
accounts, which generally involve higher volume transactions and fewer Stock
Keeping Units ("SKUs"), the Consumer Products Division is able to improve
overall efficiency through longer production runs and reduced inventory.
The Consumer Products Division owns and operates two fully-integrated
tissue manufacturing and converting facilities located in Eau Claire, Wisconsin
and Ransom, Pennsylvania with converting and distributing facilities for the
Ransom facility located in nearby Pittston, Pennsylvania (collectively, the
"Consumer Products Facilities"). The Consumer Products Facilities are
strategically located in proximity to the retail distribution centers of the
Consumer Product Division's largest customers, which enables just-in-time
delivery while reducing transportation costs. The Consumer Products Division
uses primarily recycled fiber as the raw material for its tissue products.
The Consumer Products Division has recently generated significant
improvement in its operating performance. In 1997, net sales and EBITDA were
$136.2 million and $20.7 million, respectively, as compared to $104.9 million
and a $6.8 million loss, respectively, for 1994. The Company believes this
improvement was primarily due to the approximately $50 million of capital
investment over the last five years, used primarily to strategically reposition
the division. Important elements of the strategic repositioning included the
upgrade of existing facilities, including a new pulping and de-inking operation
at the Eau Claire, Wisconsin facility, the construction of the Pittston,
Pennsylvania converting facility and the development and implementation of the
integrated computer-based customer service system. Such capital expenditures
have enabled the Company to: (i) produce a brighter, softer pulp which has
improved finished product quality and allowed the Company to command higher
prices for its products; (ii) increase sales of higher margin, premium tissue
products such as two-ply bath tissue and paper towels; (iii) improve its level
of customer service; (iv) increase sales to mass merchandisers and wholesale
clubs; and (v) increase productivity and realize manufacturing efficiencies. As
a result of these improvements, the net selling price per ton realized by the
division increased 23.7% from 1994 to 1997. During the same period, market
tissue prices, as measured by the U.S. Bureau of Labor Statistics, increased by
10.8%. In addition, to address the Ransom, Pennsylvania facility's historically
high labor cost structure, the Company implemented a labor contract in 1995
which resulted in an eight-month strike. The strike was resolved in December
1995 and a new labor agreement was adopted, resulting in increased workforce
flexibility and reduced labor costs. The Company believes that the strategic
repositioning of the division has resulted in significant improvement in the
Consumer Products Division's operating performance and positions the division to
pursue future growth opportunities.
SPECIALTY PAPER DIVISION
The Specialty Paper Division produces and supplies premium coated and
uncoated printing papers and release and other technical/specialty papers
throughout the U.S. to end users which require high quality and high performance
paper. Premium printing papers are used for corporate annual reports, high-end
advertising brochures, magazines and catalogs, coffee table books, menus and
high quality, full color desktop publishing. Customers of such products include
paper merchants which market such products to graphic designers and specialty
and commercial printers. Release and other technical/specialty papers include
base papers which are silicone coated by the division's customers and used as a
protective layer or backing paper for pressure sensitive applications.
Applications include release papers for self-adhesive postage stamps, mailing
labels, bar code labels, and labels for retail food packages. Release papers are
also increasingly being used to protect industrial adhesives used as fastening
systems for certain automotive trim and aircraft assembly applications as well
as for the manufacture of sound, thermal and electrical insulating materials.
Because release and other technical/specialty paper specifications vary
depending upon their end use, the division's sales force, specialized technical
service staff and research and development team work closely with customers to
customize and develop products to meet their specific needs.
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The Specialty Paper Division owns and operates a paper mill and converting
plant for the production of specialty paper in Plainwell, Michigan (the
"Plainwell Mill"). The Plainwell Mill is strategically located to serve the
major printing centers of Chicago and New York. The Specialty Paper Division
uses a combination of technologies to produce high recycled content paper which
the Company believes is comparable to virgin fiber content paper in appearance,
performance and selling price. The Plainwell Mill is able to blend a broad range
of fibers, including a high percentage of generally lower cost recycled fibers,
into a base sheet which is then coated using a rod coating technology. The
Company believes that this technology and its capability to produce high quality
recycled content papers provide the Company with significant cost savings and
marketing advantages. In addition, the Plainwell Mill is configured to handle
frequent paper grade changes. As a result of such manufacturing flexibility, the
Company believes that the division is well positioned to produce a wide range of
paper products that meet the product requirements of many end users in the
premium printing paper and release and other technical/specialty paper niche
markets.
The Specialty Paper Division was purchased from Simpson Paper Company
("Simpson") in June 1997 by an investor group led by William L. New, the
Company's Chairman, Chief Executive Officer and President, together with
affiliates of 399 Venture Partners, Inc. The investor group believed that the
Specialty Paper Division represented an attractive investment opportunity based
on: (i) the quality and condition of the manufacturing assets which resulted
from the substantial capital expenditures made by the division's previous
owners; (ii) the investor group's knowledge of the plant and its operations;
(iii) the historical profitability of the business; (iv) the division's
reputation as a leader in the premium printing paper and release and other
technical/specialty paper niche markets; (v) the division's technical expertise;
and (vi) the opportunity to increase profitability of underutilized assets
through more focused management. In anticipation of the pending sale of the
division, beginning in 1996, Simpson began to implement the investor group's
initiatives to increase profitability of the division by: (i) reducing
headcount; (ii) reducing fiber costs by using a higher percentage of recycled
fiber; (iii) reviewing and reducing other operating costs; and (iv) increasing
production and capacity utilization.
BUSINESS STRATEGY
The Company's business strategy is to increase revenues and profitability
in its Consumer Products Division and Specialty Paper Division. The Company
intends to implement its strategy by: (i) capitalizing on attractive niche
markets; (ii) fully utilizing existing capacity; (iii) increasing sales of
higher margin products; (iv) enhancing its high level of customer service; (v)
reducing costs and increasing operating efficiencies; and (vi) pursuing
strategic acquisitions.
3
<PAGE> 8
THE TRANSACTIONS
Pursuant to an agreement dated as of January 22, 1998 among Pope & Talbot,
Inc., Pope & Talbot, Wis., Inc., the Company's parent, Plainwell Holding Company
("Holdings"), and the Company (the "Acquisition Agreement"), Plainwell purchased
substantially all of the assets, properties and rights and assumed certain
related liabilities of the tissue business of Pope & Talbot (the "Acquisition"
and, together with the Offering (as defined herein), the use of proceeds
thereof, the Contributions (as defined herein) and the Merger (as defined
herein), the "Transactions"). Pope & Talbot received, as part of the
consideration for the Acquisition, $121.0 million in cash, subject to
adjustments for working capital, and the Company assumed $18.8 million of
indebtedness in the form of the Eau Claire IRBs (as defined herein) and assumed
certain other liabilities. In connection with the financing of the Acquisition,
399 Venture Partners, Inc. ("399 Venture Partners") and its affiliates, and
certain members of the management of the Consumer Products Division and the
Specialty Paper Division (the "Management Stockholders") purchased common stock
and preferred stock of Holdings for an aggregate purchase price of approximately
$25.0 million. Holdings contributed the full amount of such equity investment to
the Company (the "Contributions"). In conjunction with the Acquisition, the
Company entered into an agreement with Pope & Talbot, Inc. pursuant to which
Pope & Talbot, Inc. agreed to provide certain transition services to the Company
for a period of up to 18 months after the closing of the Acquisition.
In connection with the offering of the Notes (the "Offering"), Plainwell
Paper Company merged with and into the Company and its business operates as the
Specialty Paper Division (the "Merger"). In June 1997, Holdings consummated the
acquisition of the Specialty Paper Division for $32.5 million by acquiring (i)
100% of the common stock of Plainwell Paper Company from Simpson for $22.7
million and (ii) substantially all of the inventory of Plainwell Paper Company
from Simpson for $9.8 million (the "1997 Acquisition"). In addition, Holdings
assumed certain liabilities of Plainwell Paper Company. Of the aggregate
purchase price, $4.0 million was paid by Holdings by issuing $4.0 million of its
Series A Preferred Stock to Simpson and $1.8 million was paid during the first
quarter of 1998. In conjunction with the 1997 Acquisition, an affiliate of 399
Venture Partners (Citicorp Venture Capital, Ltd.), certain members of management
of the Specialty Paper Division, and certain other investors made an equity
investment in the Specialty Paper Division by purchasing shares of common stock,
shares of preferred stock and warrants to purchase common stock of Holdings
pursuant to the terms and conditions of various securities purchase agreements.
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<PAGE> 9
The following diagram sets forth an overview of the Acquisition and the
Merger:
[diagram]
- ---------------
1. Plainwell purchased substantially all of the assets, properties and rights
and assumed certain related liabilities of the tissue business of Pope &
Talbot.
2. Plainwell Paper Company merged with and into the Company.
------------------------
The Company is a Delaware corporation. The Company's principal offices are
located at 200 Allegan Street, Plainwell, Michigan 49080, and its telephone
number is (616) 685-2500.
5
<PAGE> 10
THE OFFERING
NOTES..................
The Notes were sold by the Company on March 6, 1998 to
Bear, Stearns & Co. Inc. and Salomon Brothers Inc (the
"Initial Purchasers") pursuant to a Purchase Agreement
dated March 3, 1998 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule 144A under
the Securities Act and to a limited number of
institutional accredited investors that agreed to comply
with certain transfer restrictions and other conditions.
EXCHANGE AND
REGISTRATION RIGHTS
AGREEMENT............
Pursuant to the Purchase Agreement, the Company and the
Initial Purchasers entered into an Exchange and
Registration Rights Agreement dated March 6, 1998, which
grants the holder of the Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.....
$130,000,000 aggregate principal amount of Series B 11%
Senior Subordinated Notes due 2008.
THE EXCHANGE OFFER.....
$1,000 principal amount of the Exchange Notes in exchange
for each $1,000 principal amount of Notes. As of the date
hereof, $130,000,000 aggregate principal amount of Notes
are outstanding. The Company will issue the Exchange Notes
to holders on or promptly after the Expiration Date.
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Notes may
be offered for resale, resold and otherwise transferred by
any holder thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business
and that such holder does not intend to participate and
has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
Each Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with
any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange for
Notes where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for
a period of up to one year from the consummation of the
Exchange Offer, it will make this Prospectus available to
any Participating Broker-Dealer for use in connection with
any such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes
could
6
<PAGE> 11
not rely on the position of the staff of the Commission
enunciated in no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Failure to comply
with such requirements in such instance may result in such
holder incurring liability under the Securities Act for
which the holder is not indemnified by the Company.
MATERIAL FEDERAL INCOME
TAX CONSEQUENCES.....
The exchange of Notes for Exchange Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for
federal income tax purposes. As a result, there will be no
federal income tax consequences to holders exchanging
Notes for Exchange Notes pursuant to the Exchange Offer.
See "Material Federal Income Tax Consequences."
EXPIRATION DATE........
5:00 p.m., New York City time, on , 1998 unless
the Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to which
the Exchange Offer is extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND
THE NOTES............
Each Exchange Note will bear interest from its issuance
date. Holders of Notes that are accepted for exchange will
receive, in cash, accrued interest thereon to, but not
including, the issuance date of the Exchange Notes. Such
interest will be paid with the first interest payment on
the Exchange Notes. Interest on the Notes accepted for
exchange will cease to accrue upon issuance of the
Exchange Notes.
CONDITIONS TO THE
EXCHANGE OFFER.......
The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer -- Conditions."
PROCEDURES FOR
TENDERING NOTES......
Each holder of Notes wishing to accept the Exchange Offer
must complete, sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with the Notes and any other required
documentation to the Exchange Agent (as defined) at the
address set forth herein. By executing the Letter of
Transmittal, each holder will represent to the Company
that, among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder,
that neither the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and
that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities
Act, of the Company. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "-- Procedures for
Tendering."
UNTENDERED NOTES.......
Following the consummation of the Exchange Offer, holders
of Notes eligible to participate but who do not tender
their Notes will not have any further exchange rights and
such Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of
the market for such Notes could be adversely affected.
CONSEQUENCES OF FAILURE
TO EXCHANGE..........
The Notes that are not exchanged pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such
Notes may be resold only: (i) to the
7
<PAGE> 12
Company; (ii) pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other exemption under
the Securities Act; (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904
under the Securities Act; or (iv) pursuant to an effective
registration statement under the Securities Act. See "The
Exchange Offer -- Consequences of Failure to Exchange."
SHELF REGISTRATION
STATEMENT............
If any holder of the Notes (other than any such holder
which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) is not eligible
under applicable securities laws to participate in the
Exchange Offer, and such holder has provided information
regarding such holder and the distribution of such
holder's Notes to the Company for use therein, the Company
has agreed to register the Notes on a shelf registration
statement (the "Shelf Registration Statement") and use its
best efforts to cause it to be declared effective by the
Commission as promptly as practicable on or after the
consummation of the Exchange Offer. The Company has agreed
to maintain the continuous effectiveness of the Shelf
Registration Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Notes held
by any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS....
Any beneficial owner whose Notes are registered in the
name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and delivering its
Notes, either make appropriate arrangements to register
ownership of the Notes in such owner's name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable
time. The Company will keep the Exchange Offer open for
not less than twenty days in order to provide for the
transfer of registered ownership.
GUARANTEED DELIVERY
PROCEDURES...........
Holders of Notes who wish to tender their Notes and whose
Notes are not immediately available or who cannot deliver
their Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
WITHDRAWAL RIGHTS......
Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE
NOTES................
The Company will accept for exchange any and all Notes
which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will
be delivered promptly following the Expiration Date. See
"The Exchange Offer -- Terms of the Exchange Offer."
USE OF PROCEEDS........
There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer. Substantially all
of the net proceeds from the Offering as of
8
<PAGE> 13
March 6, 1998 were used to finance the Acquisition and to
repay certain indebtedness. See "Use of Proceeds."
EXCHANGE AGENT.........
United States Trust Company of New York
THE EXCHANGE NOTES
GENERAL................
The form and terms of the Exchange Notes are the same as
the form and terms of the Notes (which they replace)
except that: (i) the Exchange Notes bear a Series B
designation; (ii) the Exchange Notes have been registered
under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof; and (iii) the
holders of Exchange Notes will not be entitled to certain
rights under the Exchange and Registration Rights
Agreement, including the provisions providing for an
increase in the interest rate on the Notes in certain
circumstances relating to the timing of the Exchange
Offer, which rights will terminate when the Exchange Offer
is consummated. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer." The Exchange Notes will
evidence the same debt as the Notes and will be entitled
to the benefits of the Indenture. See "Description of
Exchange Notes." The Notes and the Exchange Notes are
referred to herein collectively as the "Senior
Subordinated Notes."
SECURITIES OFFERED.....
$130,000,000 aggregate principal amount of Series B 11%
Senior Subordinated Notes due 2008 of the Company.
MATURITY DATE..........
March 1, 2008.
INTEREST PAYMENT
DATES................
March 1 and September 1, commencing September 1, 1998.
EVENTS OF DEFAULT......
The Indenture under which the Exchange Notes will be
issued provides that each of the following, should they
occur, constitutes an Event of Default thereunder: Such
events include the following: (i) default for 30 days in
the payment when due of interest on, or Liquidated
Damages, if any, with respect to, the Senior Subordinated
Notes (whether or not prohibited by the subordination
provisions of the Indenture), (ii) default in payment when
due of the principal of or premium, if any, on the Senior
Subordinated Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure
by the Company to comply with the provisions described
under the captions "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Asset Sales" or
"-- Certain Covenants -- Merger, Consolidation or Sale of
Assets;" (iv) failure by the Company for 30 days after
written notice by the Trustee or the Holders of at least
25% in principal amount of the then outstanding Senior
Subordinated Notes to comply with any of its other
agreements in the Indenture or the Senior Subordinated
Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), whether
such Indebtedness or guarantee now exists or is created
after the Closing Date, which default (a) is caused by a
failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date
of such default or (b) results in the acceleration of such
Indebtedness prior to its express 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 $5.0 million or more; (vi) failure by the
Company or any
9
<PAGE> 14
of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million and either (a) any
creditor commences enforcement proceedings upon any such
judgment or (b) such judgments are not paid, fully bonded
(by a financially responsible institution regularly
engaged in the issuance of security bonds) discharged or
stayed within a period of 45 days; (vii) except as
permitted by the Indenture, any guarantee of the Senior
Subordinated Notes shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any
Restricted Subsidiary, or any Person acting on behalf of
any Restricted Subsidiary, shall deny or disaffirm its
obligations under its guarantee; and (viii) certain events
of bankruptcy or insolvency with respect to the Company or
any of its Restricted Subsidiaries. See "Description of
Exchange Notes -- Events of Default."
OPTIONAL REDEMPTION....
Except as set forth below, the Exchange Notes will not be
redeemable at the option of the Company prior to March 1,
2003. Thereafter, the Exchange Notes will be subject to
redemption, at the option of the Company, in whole or in
part, at the redemption prices set forth herein plus
accrued and unpaid interest and Liquidated Damages, if
any, to the applicable redemption date. Notwithstanding
the foregoing, at any time prior to March 1, 2001, the
Company may redeem up to 35% of the Senior Subordinated
Notes at a redemption price of 111% of the principal
amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with
the net cash proceeds of a Public Offering (as defined
herein); provided that at least 65% in aggregate principal
amount of the Senior Subordinated Notes originally issued
under the Indenture remain outstanding immediately after
the occurrence of such redemption; and provided further,
that such redemption shall occur within 60 days following
the date of the consummation of each such Public Offering.
See "Description of Exchange Notes -- Optional
Redemption."
CHANGE OF CONTROL......
Upon the occurrence of a Change of Control at any time,
the Company will be obligated to make an offer to
repurchase each Holder's Exchange Notes at a price equal
to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and the board of directors
of the Company may not waive such obligation. The New
Credit Facility prohibits, and future credit agreements or
other agreements relating to Senior Debt to which the
Company becomes a party may prohibit, the Company from
purchasing any Senior Subordinated Notes following a
Change of Control and/or provide that certain change of
control events with respect to the Company would
constitute a default thereunder. There can be no assurance
that the Company will have the financial resources to
repurchase the Exchange Notes upon a Change of Control.
See "Description of Exchange Notes -- Repurchase at the
Option of Holders -- Change of Control; -- Events of
Default and Remedies."
RANKING................
The Exchange Notes will be general unsecured obligations
of the Company and will be subordinate in right of payment
to all existing and future Senior Debt, and will be senior
or pari passu in right of payment to all future
subordinated indebtedness of the Company. The Company has
not issued, and does not have any current firm
arrangements to issue, any indebtedness to which the
Exchange Notes would rank senior or pari passu in right of
payment. As of June 30, 1998, which includes the effect of
the Transactions, the amount of the Company's outstanding
Senior Debt was $27.9 million.
RESTRICTIVE
COVENANTS..............
The indenture pursuant to which the Exchange Notes will be
issued (the "Indenture") contains certain covenants that,
among other things, limit the ability of the Company to
incur additional indebtedness, issue preferred stock, pay
10
<PAGE> 15
dividends or make other distributions, repurchase Equity
Interests (as defined herein), repay subordinated
indebtedness or make other Restricted Payments (as defined
herein), create certain liens, enter into certain
transactions with affiliates, sell assets, issue or sell
Equity Interests of the Company's Restricted Subsidiaries
(as defined herein) or enter into certain mergers and
consolidations. See "Description of Exchange
Notes -- Certain Covenants."
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
Holders of Notes should carefully consider all of the information set forth
in this Prospectus and, in particular, should evaluate the specific factors
under "Risk Factors" as well as the other information and data included in this
Prospectus prior to tendering their Notes in the Exchange Offer.
11
<PAGE> 16
PLAINWELL INC.
SUMMARY UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary unaudited pro forma financial data
of the Company for the year ended December 31, 1997 and the six months ended
June 30, 1998. The summary unaudited pro forma statement of operations data give
effect to the Transactions as if they had occurred on January 1, 1997. The
information contained in the following table should also be read in conjunction
with "Capitalization," "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the historical financial statements, including the notes
thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1997 1998
------------ --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $222,892 $108,096
Cost of sales............................................... 188,604 95,270
-------- --------
Gross profit................................................ 34,288 12,826
Selling, general and administrative expenses................ 16,797 8,918
-------- --------
Operating income............................................ 17,491 3,908
Interest expense............................................ 15,957 7,942
-------- --------
Income (loss) before income taxes and extraordinary item.... 1,534 (4,034)
Income tax provision (benefit).............................. 794 (1,645)
-------- --------
Income (loss) before extraordinary item..................... $ 740 $ (2,389)
======== ========
OTHER DATA:
Pro forma EBITDA (1)........................................ $ 29,119 $ 11,563
Capital expenditures........................................ 4,366 1,098
Depreciation and amortization............................... 11,628 7,655
Ratio of earnings to fixed charges(2)....................... 1.1x 0.5x
</TABLE>
- ------------------------------
(1) Pro forma EBITDA represents pro forma operating income plus pro forma
depreciation and amortization. The Company has included information
concerning EBITDA because management believes that EBITDA is generally
accepted as providing useful information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows or other income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. The Company understands
that, while EBITDA is frequently used by securities analysts in the
evaluation of companies, EBITDA, as used herein, is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, as an alternative to net income as an indicator of the
Company's operating performance or an alternative to any other measure of
performance in conformity with generally accepted accounting principles.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes and extraordinary item plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of the interest factor of the rent.
12
<PAGE> 17
THE COMPANY AND SPECIALTY PAPER DIVISION
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS)
The following table sets forth summary historical financial and other data
of the Specialty Paper Division -- Predecessor as of and for each of the fiscal
years in the four-year period ended December 29, 1996 and the period from
December 30, 1996 through June 16, 1997, of the Specialty Paper
Division -- Successor as of and for the period from June 17, 1997 through
December 31, 1997 and the period from June 17, 1997 through June 30, 1997, and
of the Company as of and for the six months ended June 30, 1998. On March 6,
1998, pursuant to the Acquisition Agreement date January 22, 1998, the Specialty
Paper Division was merged with PLAINWELL INC. and PLAINWELL INC. purchased the
Consumer Products Division. The historical financial statements of the Specialty
Paper Division are presented as the historical financial statements of the
Company and the results of operations of the Consumer Products Division are
included in the financial statements of the Company beginning on the acquisition
date. The summary historical financial and other data, with the exception of
tons sold and average selling price per ton, as of and for the years ended
December 31, 1995 and December 29, 1996, the period from December 30, 1996
through June 16, 1997 and the period from June 17, 1997 through December 31,
1997 have been derived from the financial statements of the Specialty Paper
Division, contained elsewhere herein, which have been audited by Ernst & Young
LLP, independent auditors. The summary historical financial and other data, with
the exception of tons sold and average selling price per ton, as of and for the
years ended December 31, 1993 and December 31, 1994 have been derived from the
unaudited financial statements of the Specialty Paper Division. The summary
historical financial and other data, with the exception of tons sold and average
selling price per ton, as of and for the period from June 17, 1997 through June
30, 1997 and for the six months ended June 30, 1998 have been derived from the
unaudited interim financial statements of the successor. In the opinion of
management, the interim financial statements as of and for the six months ended
June 30, 1998 reflect all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the information presented for such
periods. The results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results of operations to be expected for the
full year. The information contained in the following table should also be read
in conjunction with "Capitalization," "Unaudited Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the historical financial statements of the Specialty
Paper Division, including the notes thereto, contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR(1)
----------------------------------------------------- --------------------------------------------
PERIOD FROM PERIOD FROM PERIOD
DECEMBER 30, JUNE 17, FROM
1996 1997 JUNE 17, SIX MONTHS
FISCAL YEAR(2) THROUGH THROUGH 1997 THROUGH ENDED
-------------------------------------- JUNE 16, DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1996 1997 1997 1997 1998
------- ------- -------- ------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $86,202 $96,736 $101,049 $85,230 $40,795 $45,921 $ 3,215 $ 85,127
Cost of sales.............. 73,184 87,587 99,536 76,425 34,231 40,805 2,709 74,952
------- ------- -------- ------- ------- ------- ------- --------
Gross profit............... 13,018 9,149 1,513 8,805 6,564 5,116 506 10,175
Selling, general and
administrative expenses... 3,231 4,833 3,455 4,434 1,539 3,302 227 6,437
Corporate overhead
allocation................ 5,165 5,829 6,260 5,537 724 -- -- --
------- ------- -------- ------- ------- ------- ------- --------
Operating income
(loss).................... 4,622 (1,513) (8,202) (1,166) 4,301 1,814 279 3,738
Interest expense........... 117 146 146 144 124 1,187 72 5,644
------- ------- -------- ------- ------- ------- ------- --------
Income (loss) before income
taxes and extraordinary
item...................... 4,505 (1,659) (8,348) (1,310) 4,177 627 207 (1,906)
Income tax provision
(benefit)................. 1,945 (494) (2,777) (335) 1,655 413 74 (815)
------- ------- -------- ------- ------- ------- ------- --------
Income (loss) before
extraordinary item........ 2,560 (1,165) (5,571) (975) 2,522 214 133 (1,091)
Extraordinary item......... -- -- -- -- -- -- -- (597)
------- ------- -------- ------- ------- ------- ------- --------
Net income (loss).......... $ 2,560 $(1,165) $ (5,571) $ (975) $ 2,522 $ 214 $ 133 $ (1,688)
======= ======= ======== ======= ======= ======= ======= ========
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR(1)
----------------------------------------------------- --------------------------------------------
PERIOD FROM PERIOD FROM PERIOD
DECEMBER 30, JUNE 17, FROM
1996 1997 JUNE 17, SIX MONTHS
FISCAL YEAR(2) THROUGH THROUGH 1997 THROUGH ENDED
-------------------------------------- JUNE 16, DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1996 1997 1997 1997 1998
------- ------- -------- ------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash....................... $ -- $ 88 $ 67 $ -- $ -- $ 772 $ 18 $ 3,605
Working capital(3)......... 4,857 3,989 8,555 3,259 5,761 5,437 3,689 23,826
Total assets............... 54,769 56,842 47,786 49,619 51,591 51,892 37,854 231,535
Total debt................. 3,500 3,500 3,500 3,500 3,500 20,839 21,132 157,876
Total stockholder's
equity.................... 37,112 35,947 30,376 29,401 31,923 8,188 8,133 27,212
OTHER DATA:
Capital expenditures....... $ 1,854 $ 1,568 $ 3,878 $ 1,220 $ 66 $ 563 $ 9 $ 1,098
Depreciation and
amortization.............. 2,038 2,104 2,257 2,330 1,070 766 62 4,592
Ratio of earnings to fixed
charges(4)................ 20.2x -- -- -- 25.0x 1.5x 3.3x 0.7x
Tons sold.................. 79,627 87,764 79,662 73,019 36,594 43,736 2,926 70,452
Average selling price per
ton....................... $ 1,083 $ 1,102 $ 1,268 $ 1,167 $ 1,115 $ 1,050 $ 1,099 $ 1,208
</TABLE>
- ------------------------------
(1) The Specialty Paper Division was acquired from Simpson as of June 17, 1997
in a transaction accounted for under the purchase method of accounting.
(2) The Specialty Paper Division has a fiscal year ending on the Sunday closest
to December 31.
(3) Working capital represents total current assets less total current
liabilities. Throughout 1993 to June 16, 1997, Simpson performed cash
management on a centralized basis and processed related accounts receivable.
Accordingly, accounts receivable were funded immediately by Simpson and are
not included in working capital for fiscal years 1993, 1994, 1995 and 1996
and the period from December 30, 1996 through June 16, 1997.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and one-third of the expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent. For fiscal years 1994, 1995 and 1996, and
for the six months ended June 30, 1998, earnings were inadequate to cover
fixed charges by $1,659, $8,348, $1,310 and $1,906, respectively.
14
<PAGE> 19
CONSUMER PRODUCTS DIVISION
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS)
The following table sets forth summary historical financial and other data
of the Consumer Products Division as of and for each of the fiscal years in the
five-year period ended December 31, 1997. The summary historical financial and
other data, with the exception of tons sold and average selling price per ton,
as of and for each of the years in the three-year period ended December 31,
1997, have been derived from the financial statements of the Consumer Products
Division, contained elsewhere herein, which have been audited by Arthur Andersen
LLP, independent public accountants. The summary historical financial and other
data, with the exception of tons sold and average selling price per ton, as of
and for each of the years in the two-year period ended December 31, 1994 have
been derived from the unaudited financial statements of the Consumer Products
Division. The information contained in the following table should also be read
in conjunction with "Capitalization," "Unaudited Pro Forma Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial statements of
the Consumer Products Division, including the notes thereto, contained elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $105,040 $104,884 $107,013 $133,649 $136,176
Cost of sales............................... 110,619 115,713 129,483 124,052 121,751
-------- -------- -------- -------- --------
Gross profit (loss)......................... (5,579) (10,829) (22,470) 9,597 14,425
Selling, general and administrative
expenses.................................. 3,490 3,967 3,228 3,351 2,919
Corporate overhead allocation(1)............ 1,555 1,724 1,509 1,962 2,057
-------- -------- -------- -------- --------
Operating income (loss)..................... (10,624) (16,520) (27,207) 4,284 9,449
Interest expense............................ -- 89 881 812 846
-------- -------- -------- -------- --------
Income (loss) before income taxes........... (10,624) (16,609) (28,088) 3,472 8,603
Income tax provision (benefit)(2)........... (3,957) (6,187) (10,533) 1,354 3,355
-------- -------- -------- -------- --------
Net income (loss)........................... $ (6,667) $(10,422) $(17,555) $ 2,118 $ 5,248
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash........................................ $ -- $ -- $ -- $ -- $ --
Working capital............................. 10,369 18,211 18,053 19,294 15,560
Total assets................................ 113,669 139,713 139,670 129,443 116,473
Total debt(3)............................... -- 18,800 18,800 18,800 18,800
Intercompany accounts(4).................... 82,548 94,951 99,107 89,638 75,489
OTHER DATA:
Capital expenditures........................ $ 9,988 $ 14,450 $ 21,113 $ 1,922 $ 3,737
Depreciation and amortization(5)............ 8,906 9,710 11,298 11,809 11,309
Ratio of earnings to fixed charges(6)....... -- -- -- 5.3x 11.2x
Tons sold................................... 94,212 92,292 80,609 90,445 96,888
Average selling price per ton............... $ 1,115 $ 1,136 $ 1,328 $ 1,478 $ 1,405
</TABLE>
15
<PAGE> 20
- ------------------------------
(1) Corporate overhead allocation represents a pro rata (based on sales dollars)
allocation of certain Pope & Talbot, Inc. corporate administrative costs not
directly attributable to the Consumer Products Division. These costs include
such items as tax services, certain human resource services, and general
corporate administrative costs.
(2) The Consumer Products Division historically has been included in the
consolidated income tax returns of Pope & Talbot, Inc. Income taxes are
presented here as if Consumer Products Division filed its taxes on a
separate return basis.
(3) Total debt consists of a note payable to the City of Eau Claire, Wisconsin
due 2014 in connection with the issuance of the Eau Claire IRBs to finance a
wastepaper pulping improvement project at the Consumer Products Division's
Eau Claire, Wisconsin facility. The note payable is to be assumed by the
Company in connection with the Acquisition.
(4) The Consumer Products Division has historically been accounted for as a
division of Pope & Talbot, Inc. and therefore has no separate historical
equity accounts. Cash funding and distributions have been managed through
Pope & Talbot, Inc.'s corporate cash management system. Cash collected from
and distributed to the Consumer Products Division has been reflected in the
intercompany account balance. The intercompany account balance represents
the net accumulated transactions between the Consumer Products Division and
Pope & Talbot, Inc.
(5) Includes amortization of deferred financing costs of $2, $14, $14, and $13
for the years ended December 31, 1994, 1995, 1996 and 1997, respectively.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and amortization of deferred financing costs. For the years ended December
31, 1993, 1994 and 1995, earnings were inadequate to cover fixed charges by
$10,624, $16,609 and $28,088, respectively.
16
<PAGE> 21
RISK FACTORS
Holders of the Notes should carefully consider the following factors, in
addition to the other information contained in this Prospectus, before tendering
their Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE; POTENTIAL INABILITY TO SERVICE INDEBTEDNESS
As a result of the Offering, the Company is highly leveraged. As of June
30, 1998, which includes the effect of the Transactions, the Company has
approximately $157.9 million of indebtedness outstanding and had available $35.0
million of borrowing capacity under the New Credit Facility (as defined herein),
subject to borrowing base limitations. For the year ended December 31, 1997 and
the six months ended June 30, 1998, after giving pro forma effect to the
Transactions, the Company's ratio of earnings to fixed charges would have been
1.1x and 0.5x, respectively. See "Capitalization," "Unaudited Pro Forma
Consolidated Financial Information," "Selected Financial and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The significant indebtedness incurred as a result of the Offering has
several important consequences to the holders of the Exchange Notes, including,
but not limited to, the following: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to service the Company's
indebtedness, and the failure of the Company to generate sufficient cash flow to
service such indebtedness could result in a default under such indebtedness,
including under the Exchange Notes; (ii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or for other purposes may be impaired; (iii) the Company's
flexibility to expand, make capital expenditures and respond to changes in the
industry and economic conditions generally may be limited; (iv) the New Credit
Facility and the Indenture contain, and future agreements relating to the
Company's indebtedness may contain, numerous financial and other restrictive
covenants, including, among other things, limitations on the ability of the
Company to incur additional indebtedness, to create liens and other
encumbrances, to make certain payments and investments, to sell or otherwise
dispose of assets, or to merge or consolidate with another entity, the failure
to comply with which may result in an event of default, which, if not cured or
waived, could have a material adverse effect on the Company; and (v) the ability
of the Company to satisfy its obligations pursuant to such indebtedness,
including pursuant to the Exchange Notes and the Indenture, will be dependent
upon the Company's future performance which, in turn, will be subject to
management, financial, business, regulatory and other factors affecting the
business and operations of the Company, some of which are not in the Company's
control. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
If the Company is unable to generate sufficient cash flow to meet its debt
obligations, the Company may be required to renegotiate the payment terms or to
refinance all or a portion of the indebtedness under the New Credit Facility or
the Senior Subordinated Notes, to sell assets or to obtain additional financing.
If the Company could not satisfy its obligations related to such indebtedness,
substantially all of the Company's long-term debt could be in default and could
be declared immediately due and payable.
SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinate in right of payment to all existing and future Senior Debt,
and will be senior or pari passu in right of payment to all future subordinated
indebtedness of the Company. The Company has not issued, and does not have any
current firm arrangements to issue, any indebtedness to which the Exchange Notes
would rank senior or pari passu in right of payment. The Exchange Notes are not
secured by any of the assets of the Company. In addition, the payment of
principal, accrued and unpaid interest and Liquidated Damages, if any, with
respect to the Exchange Notes will be subordinated, as set forth in the
Indenture, to the prior payment in full of all present and future Senior Debt.
Therefore, in the event of the liquidation, dissolution or reorganization of, or
any similar proceeding relating to, the Company, the assets of the Company will
not be available to pay the obligations on the Exchange Notes until the holders
of the Senior Debt have been paid in full. In that event, it is likely that the
assets of the Company, a substantial portion of which are pledged to secure the
Company's obligations under the New Credit Facility, will be insufficient to pay
all or a portion of the obligations on the
17
<PAGE> 22
Exchange Notes. In addition, the Company may not pay principal, accrued and
unpaid interest and Liquidated Damages, if any, with respect to the Exchange
Notes, or defease, purchase, redeem or otherwise acquire any Exchange Notes,
under the circumstances described under "Description of Exchange Notes --
Subordination."
NEW CREDIT FACILITY AND INDENTURE RESTRICTIONS
The New Credit Facility and the Indenture impose certain operating and
financial restrictions on the Company. The New Credit Facility requires the
Company to maintain specified financial ratios, among other obligations,
including a maximum leverage ratio and a minimum fixed charge coverage ratio,
each as defined in the New Credit Facility. In addition, the New Credit Facility
restricts, among other things, the Company's ability to: (i) declare dividends
or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt;
(iii) incur liens and engage in sale/leaseback transactions; (iv) make loans and
investments; (v) incur indebtedness and contingent obligations; (vi) amend or
otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, consolidations, acquisitions and asset
sales; (ix) engage in transactions with affiliates; and (x) alter its lines of
business or accounting methods. In addition, the Indenture limits, among other
things: (i) the incurrence of additional indebtedness by the Company and its
Restricted Subsidiaries; (ii) the payment of dividends and other restricted
payments by the Company and its Restricted Subsidiaries; (iii) asset sales; (iv)
transactions with affiliates; (v) the incurrence of liens; and (vi) mergers and
consolidations. The Company's ability to comply with such covenants may be
affected by events beyond its control, including prevailing economic and
financial conditions, a breach of any of these covenants could result in a
default under the New Credit Facility and/or the Indenture. Upon the occurrence
of an event of default under the New Credit Facility or the Indenture, the
lender under the New Credit Facility could elect to declare all amounts
outstanding under the New Credit Facility, together with accrued and unpaid
interest, to be immediately due and payable. If the Company were unable to repay
any such amounts, such lender could proceed against the collateral securing such
indebtedness. If the lender under the New Credit Facility accelerates the
payment of such indebtedness, there can be no assurance that the assets of the
Company would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Exchange Notes. In addition, because
the Indenture limits the ability of the Company to engage in certain
transactions except under certain circumstances, the Company may be prohibited
from entering into transactions that could be beneficial to the Company. See
"Description of Certain Indebtedness" and "Description of Exchange Notes."
CYCLICAL INDUSTRY CONDITIONS
The markets for paper products, including the Company's, are highly
cyclical, being characterized by periods of supply and demand imbalance,
sensitivity to changes in industry capacity, overall domestic economic activity
and competitive conduct, all of which are beyond the Company's control. A number
of structural factors accentuate the cyclicality of the paper industry,
including the substantial capital investment and high fixed costs required to
manufacture paper products and the significant exit costs associated with
capacity reductions. In addition, because of the high fixed costs associated
with paper production, paper manufacturers need to maintain high levels of
capacity utilization (operating rates) to cover fixed costs and accordingly,
relatively small changes in operating rates due to changes in domestic demand,
capacity, levels of imports or otherwise, may significantly affect prices.
There can be no assurance that the current price levels of the Company's
products will be maintained, that any announced price increases will be
achieved, that the paper industry will not add incremental capacity, either from
new machines or from rebuilds of existing machines, or that imports from
overseas will not increase. Prices for the Company's products may fluctuate
substantially in the future. A significant downturn in such prices could have a
material adverse effect on the Company's results of operations.
RISKS ASSOCIATED WITH FLUCTUATIONS IN SUPPLY AND COSTS OF RAW MATERIALS
The Consumer Products Division purchases pre-consumer and post-consumer
wastepaper for the production of its products through a combination of supply
arrangements with brokers located in the Midwest
18
<PAGE> 23
and the Northeast. While these relationships have historically been stable,
supply arrangements are by purchase order and are terminable at will at the
option of either party. There can be no assurance that any of these supply
relationships will not be terminated in the future. Although the Company
believes that current sources of supply for the Consumer Products Division's raw
materials are adequate to meet its requirements, occasional periods of short
supply of certain raw materials may occur. Some of the Consumer Products
Division's competitors control collection sources of consumer wastepaper, and
may therefore have better access to such raw materials during periods of short
supply.
The Specialty Paper Division depends on pulp as a key raw material for the
manufacturing of its products. The Specialty Paper Division purchases pulp
through a broad based system of suppliers and brokers, and seeks competitive
bids on all major purchases to ensure competitive prices. While these
relationships have historically been stable, there can be no assurance that any
of these supplier relationships will continue in the future.
Prices for pulp and waste paper show considerable price volatility over the
business cycle. Prices for pulp and waste paper increased dramatically in 1995
and as a result of such increase, the 1995 results of the Consumer Products
Division and the Specialty Paper Division were adversely affected. No assurance
can be given that future price fluctuations in pulp, waste paper and other raw
materials will not have a material adverse effect on the Company. In addition,
prices for the Company's other raw materials fluctuate. The actual impact on the
Company of raw materials price changes is affected by a number of factors
including the level of inventories at the time of a price change, the specific
timing and frequency of price changes, and the lag time that generally
accompanies the implementation of both raw materials and subsequent selling
price changes. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Raw Materials and Suppliers."
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's revenues are substantially dependent upon a limited number of
large customers. For 1996 and 1997, the 10 largest customers of the Consumer
Products Division represented 73.7% and 77.5% of its net sales, respectively.
For the same periods, the 10 largest customers of the Specialty Paper Division
represented 62.7% and 67.5% of its net sales, respectively. On a pro forma
basis, for the same periods, the 10 largest customers of the Company represented
50.0% and 58.5% of the Company's net sales, respectively. In conjunction with
the 1997 Acquisition, Holdings and Simpson entered into a requirements contract
pursuant to which Simpson has the right to purchase from Plainwell Paper Company
all of Simpson's requirements, up to 20,000 tons per twelve-month period through
June 30, 1998, for coated two-sided matte paper products sold by Simpson under
the brand name EVERGREEN(R). Simpson is not obligated to make any purchases
under the contract, and each purchase is subject to the terms and conditions set
forth in the contract, including price. From June 17, 1997 to December 31, 1997,
Simpson purchased an average of 2,364 tons per month, and accounted for 36.5% of
Plainwell Paper Company's net sales during such period. The requirements
contract expires June 30, 1998, the date on which Simpson's license to use the
EVERGREEN(R) brand name expires, but may be extended at the option of Simpson.
If the term of the requirements contract is extended by Simpson, Simpson has the
right to purchase from Plainwell Paper Company all of Simpson's requirements, up
to 20,000 tons per twelve-month period through June 30, 2000, for sheets and
rolls of matte paper of the same grade and quality as EVERGREEN(R). There can be
no assurance that Simpson will continue to make purchases from the Company under
this contract or that it will be extended beyond its current term. The loss of,
or significant decrease or interruption in business from, one or more of the
Company's significant customers, including Simpson, could have a material
adverse effect on the Company. See "Business -- Marketing and Sales," and
"Business -- Customers."
INTEGRATION OF ACQUISITIONS; MANAGEMENT INFORMATION SYSTEMS
Part of the Company's business strategy is to actively pursue strategic
acquisition candidates. The Company has been in, and expects to continue to be
in, discussions with potential acquisition candidates. The integration of the
Consumer Products Division and future acquired business could be affected by a
number of factors, some of which are not in the Company's control. Such factors
include the response of competition,
19
<PAGE> 24
general economic conditions, the ability of the Company's existing management
and systems infrastructure to absorb increased operations and the integration of
new operations and inventory procedures into the Company's management
information systems and operations. The Company has determined that the
Specialty Paper Division's management information systems are inadequate and
intends to upgrade such systems over the next two years. No assurance can be
given that such upgrade will be accomplished, or will not interfere with the
Company's operations. In connection with the 1997 Acquisition, Plainwell Paper
Company and Simpson entered into a Transition Services Agreement pursuant to
which Simpson agreed to provide certain transition services to Plainwell Paper
Company for a period ending not later than the second anniversary of the 1997
Acquisition. The Company is dependent upon the continued services of Simpson
under such agreement, and the early termination of such agreement could have a
material adverse effect on the Company. Acquisitions may also increase the
Company's leverage and debt service requirements. While growth through
acquisitions is part of the Company's business strategy, there can be no
assurance that suitable additional acquisitions will be available to the Company
on acceptable terms, that financing for future acquisitions will be available on
acceptable terms, that future acquisitions will be advantageous to the Company
or that anticipated benefits of such acquisitions will be realized. The pursuit,
timing and integration of possible future acquisitions may cause substantial
fluctuations in operating results. See "Business -- Business Strategy."
COMPETITION
The Consumer Products Division participates in the highly competitive
private label consumer tissue market. The division's competitors include large,
vertically integrated, multinational companies and smaller, regional companies
including Fort James Corporation, Georgia-Pacific Corporation, Shepherd Tissue
Inc., American Tissue Corporation, Orchids Paper Products Co. and Potlach
Corporation. Many of the division's competitors are larger and have equal or
greater access to financial and other resources than the Company.
The Specialty Paper Division sells products in the highly competitive
premium coated printing paper and release and other technical/specialty paper
markets. The division's products compete directly with those of a number of
companies, some which are significantly larger than the Company and which have
integrated pulp supplies at their mill sites. Such companies may manufacture a
significant amount of their pulp requirements which may reduce their exposure to
fluctuations in the market price of pulp compared to the Company. See "-- Risks
Associated with Fluctuations in Supply and Costs of Raw Materials." In addition,
certain of the mills operated by the division's competitors may be lower cost
producers of pulp and coated paper than the Plainwell Mill. The Specialty Paper
Division's main competitors in premium coated printing paper and release and
other technical/specialty paper markets include Champion International
Corporation, Consolidated Papers Inc., Potlach Corporation and S.D. Warren Co.,
the Nicolet Division of International Paper Company, and Rhinelander Paper
Company, Inc. and Otis Specialty Papers, units of Wausau-Mosinee Paper
Corporation. See "Business -- Competition."
CONTROLLING STOCKHOLDERS
The Management Stockholders and 399 Venture Partners beneficially own
substantially all of the outstanding common stock of Holdings and collectively
control the affairs and policies of the Company. Circumstances may occur in
which the interests of these stockholders could be in conflict with the
interests of the Holders of the Exchange Notes. In addition, these stockholders
may have an interest in pursuing acquisitions, divestitures or other
transactions that, in their judgment, could enhance their equity investment,
even though such transactions might involve risks to the Holders of the Exchange
Notes. See "Principal Stockholders."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team, including William L. New, its Chairman, Chief Executive Officer and
President. The Company believes that the loss of the services of any of its
senior management team could have a material adverse effect on the Company. See
"Management."
20
<PAGE> 25
LABOR MATTERS
As of June 30, 1998, 100% of the Company's hourly production employees were
covered by collective bargaining agreements. The collective bargaining
agreements covering employees at the Consumer Products Division expire in
September 1999 and March 2000. The collective bargaining agreement covering
employees at the Specialty Paper Division expires in November 2000. There can be
no assurance that the Company will be successful in renegotiating such
agreements or that the Company will not incur increased costs as a result of
such negotiations. The Consumer Products Division experienced an eight-month
work strike at its Ransom, Pennsylvania facility from May 1995 through December
1995 which had a material adverse effect on the Consumer Products Division.
Extended interruption of operations at the Consumer Products Facilities or the
Plainwell Mill could have a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Employees."
ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and evolving federal, state and
local environmental and occupational health and safety requirements, including
laws and regulations relating to air emissions, wastewater management, the
handling and disposal of solid and hazardous waste and related financial
responsibility requirements, and the cleanup of properties affected by hazardous
substances. Certain environmental laws impose significant penalties for
noncompliance, and others impose strict, retroactive, joint and several
liability on persons responsible for releases of hazardous substances.
The Company believes that its operations have been and are in substantial
compliance with environmental requirements, and that it has no liabilities
arising under environmental requirements, except as would not be expected to
have a material adverse effect on the Company's operations, financial condition
or competitive position. Some risk of environmental liability is inherent in the
Company's business, however, and there can be no assurance that material
environmental costs will not arise in the future.
The Company will continue to incur capital and operating expenditures to
achieve and maintain compliance with current environmental laws and new
requirements. Such new requirements include rules promulgated by the U.S.
Environmental Protection Agency ("U.S. EPA") that may require more stringent
controls on air emissions and wastewater discharges from pulp and paper mills
(generally referred to as the "Cluster Rules"). U.S. EPA has also promulgated
regulations implementing the Great Lakes Initiative ("GLI"), which affects the
control of water quality in certain Midwest states. The Company's future
spending on environmental matters may be significantly influenced by the Cluster
Rules and the state-adopted regulations implementing the GLI. The Company
estimates that future capital spending to comply with the Cluster Rules and the
GLI could be up to $5 million, depending on the timing and specific requirements
imposed. The Company cannot predict if or when such rules will be promulgated in
a form that will require the Company to make such expenditures. The Company
believes that the costs of compliance with the Cluster Rules, the GLI and other
environmental requirements will not have an material adverse effect on the
Company's liquidity, operations or financial condition.
Certain environmental laws, such as the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA," or "Superfund")
provide in particular instances for strict, joint and several liability for
investigation and cleanup of contaminated sites. Such laws impose liability on
several classes of persons (and their successors), including current and former
owners and operators of contaminated sites and others responsible for the
arrangement and disposal of contaminants. The Company is currently considered a
potentially responsible party for costs associated with five sites. The Company
is also a party to various indemnification agreements with respect to most of
these known sites, and the Company believes such agreements should cover most of
the Company's associated liabilities. There can be no assurance, however, that
the indemnifying parties will perform under the indemnification agreements or
that the Company will not incur material liabilities with respect to the known
sites or others under Superfund or other laws. Based on information currently
available and the contractual rights to indemnification, management believes
that the
21
<PAGE> 26
costs associated with these sites will not have a material adverse effect on the
liquidity, operations or financial condition of the Company. See
"Business -- Environmental Matters."
Additionally, there can be no assurance that the Company will not be
involved in a CERCLA proceeding in the future and that the aggregate amount of
future clean-up costs and other environmental liabilities will not be material.
See "Business -- Environmental Matters."
The Company cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found to
exist for which the Company may have liability. Enactment of more stringent laws
or regulations or more strict interpretation of existing laws and regulations
could require additional expenditures by the Company, some of which could be
material.
CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control at any time, the Company will be
required to offer to repurchase each Holder's Senior Subordinated Notes at a
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase. There
can be no assurance that the Company will have the financial resources necessary
to repurchase the Senior Subordinated Notes upon a Change of Control. In
addition, the terms of the New Credit Facility require that the New Credit
Facility be repaid in full upon a Change of Control before repurchase of the
Senior Subordinated Notes. The requirement to repurchase the Senior Subordinated
Notes upon a Change of Control may discourage persons from making a tender offer
for or a bid to acquire the Company. See "Description of Certain Indebtedness"
and "Description of Exchange Notes -- Repurchase at the Option of
Holders -- Change of Control."
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has been no public market for the Notes.
The Notes have not been registered under the Securities Act and will be subject
to restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. The holders of Notes (other than any such holder that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Notes. The Exchange Notes are new securities for
which there currently is no market. The Exchange Notes are eligible for trading
by qualified buyers in the Private Offerings, Resale and Trading though
Automated Linkages (PORTAL) market. The Company does not intend to apply for
listing of the Exchange Notes, on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System. Although the Exchange Notes are eligible for trading through PORTAL, the
Exchange Notes may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities, the
Company's performance and other factors. The Company has been advised by the
Initial Purchasers that they currently intend to make a market in the Exchange
Notes as permitted by applicable law and regulations; however, the Initial
Purchasers are not obligated to do so and any such market-making activities, if
commenced, may be discontinued at any time without notice. In addition, such
market-making activities may be limited during the Exchange Offer and pendency
of the Shelf Registration Statement. Therefore, there can be no assurance that
an active market for any of the Exchange Notes will develop, either prior to or
after the Company's performance of its obligations under the Exchange and
Registration Rights Agreement. See "Description of Exchange Notes."
The Exchange Notes generally will be permitted to be resold or otherwise
transferred (subject to the restrictions described under "Description of
Exchange Notes") by each holder without the requirement of further registration.
The Exchange Notes, however, will also constitute a new issue of securities with
no established trading market. The Exchange Offer will not be conditioned upon
any minimum or maximum aggregate principal amount of Notes being tendered for
exchange. No assurance can be given as to the
22
<PAGE> 27
liquidity of the trading market for the Exchange Notes, or, in the case of
non-exchanging holders of Notes, the trading market for the Notes following the
Exchange Offer.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such liquidity
and trading markets independently of the financial performance of, and prospects
for, the Company.
FORWARD LOOKING STATEMENTS
Certain of the matters discussed in this Prospectus may constitute
forward-looking statements for purposes of the Securities Act and the Exchange
Act, and as such may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from future results, performance or
achievements expressed or implied by such forward looking statements. Important
factors that could cause the actual results, performance or achievements of the
Company to differ materially from the Company's expectations are disclosed in
this Prospectus ("Cautionary Statements"), including, without limitation, those
statements made in conjunction with the forward-looking statements included
under "Risk Factors" and otherwise herein. All written forward looking
statements attributable to the Company are expressly qualified in their entirety
by the Cautionary Statements.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, certain
registration rights under the Exchange and Registration Rights Agreement will
terminate. In addition, any holder of Notes who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transactions. Each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Notes, where such Notes were acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Notes could be adversely affected. See "The Exchange Offer."
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<PAGE> 28
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange and Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes in
the Exchange Offer. The sources and uses of cash from the proceeds from the
Offering as of March 6, 1998, the Contributions and borrowings under the New
Credit Facility are set forth below:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
SOURCES OF FUNDS:
11% Senior Subordinated Notes due 2008.................... $130,000
Contributions from Holdings............................... 25,000
New Credit Facility(1).................................... 2,190
--------
Total............................................. $157,190
========
USES OF FUNDS:
Cash consideration for Consumer Products Division......... $121,218
Repayment of Existing Credit Facility(2).................. 21,879
Dividend to Holdings to redeem preferred stock of Holdings
held by Simpson(3)..................................... 4,288
Repayment of notes and accrued interest due Simpson....... 1,881
Transaction costs......................................... 7,924
--------
Total............................................. $157,190
========
</TABLE>
- ------------------------------
(1) The New Credit Facility provides up to $35.0 million on a revolving basis,
subject to borrowing base limitations and provides up to an additional $20.0
million for letters of credit to secure the Eau Claire IRBs. See
"Description of Certain Indebtedness."
(2) Reflects amounts outstanding under the Existing Credit Facility as of March
6, 1998. At December 31, 1997, the Revolver and Term Note bore interest at
either a Base Rate (as defined) or a LIBOR rate (as defined) which was
payable monthly. The average rate charged at December 31, 1997 was 9.2% and
9.3%, respectively, and the initial Revolving Loan Maturity Date (as
defined) was June 1, 2002.
(3) Reflects accrued dividends as of March 6, 1998. In connection with the
Transactions, Holdings was required to redeem preferred stock pursuant to
change of control provisions.
24
<PAGE> 29
CAPITALIZATION
AS OF JUNE 30, 1998
The following table sets forth the cash and cash equivalents and
capitalization of the Company as of June 30, 1998 on a historical basis which
includes the effect of the Transactions. The table should be read in conjunction
with the "Unaudited Pro Forma Financial Information," "Selected Financial and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical financial statements, including the
notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 3,605
========
Debt:
Industrial Revenue Bonds:
City of Plainwell, Michigan due 2007................... $ 3,500
City of Eau Claire, Wisconsin due 2014................. 18,800
New Credit Facility(1).................................... 5,576
11% Senior Subordinated Notes due 2008.................... 130,000
--------
Total debt............................................. 157,876
--------
Total stockholder's equity.................................. 27,212
--------
Total capitalization.............................. $185,088
========
</TABLE>
- ------------------------------
(1) The New Credit Facility provides up to $35.0 million on a revolving basis,
subject to borrowing base limitations, and provides up to an additional
$20.0 million for letters of credit to secure the Eau Claire IRBs. See
"Description of Certain Indebtedness."
25
<PAGE> 30
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Unaudited Pro
Forma Financial Information") of the Company has been derived by the application
of pro forma adjustments, which give effect to the Transactions, to the
historical financial statements of the Consumer Products Division and the
Specialty Paper Division included elsewhere in this Prospectus. The Acquisition
occurred simultaneously with the closing of the Offering. The Unaudited Pro
Forma Statements of Operations for the year ended December 31, 1997 and the six
months ended June 30, 1998, give effect to the Transactions as if such
Transactions had occurred on January 1, 1997.
The Unaudited Pro Forma Financial Information is for comparative purposes
only and does not purport to represent what the Company's results of operations
would actually have been had the Transactions in fact occurred on the assumed
date or to project the Company's results of operations for any future period.
The Unaudited Pro Forma Financial Information should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of the
Consumer Products Division and the Specialty Paper Division, including the notes
thereto, contained elsewhere in this Prospectus.
The pro forma adjustments, as described in the accompanying Notes to the
Unaudited Pro Forma Statements of Operations, are based on available information
and certain assumptions that management believes are reasonable.
The Acquisition has been accounted for under the purchase method of
accounting. The purchase price for the Consumer Products Division has been
allocated to tangible and intangible assets and liabilities based on preliminary
estimates of the fair value of assets acquired and liabilities assumed. However,
the allocation of the purchase price is subject to revision when additional
information concerning the final determination of the fair value of assets
acquired and liabilities assumed is obtained. Management believes that the final
allocation of the purchase price will be completed prior to September 30, 1998
and will not materially differ from the preliminary estimated amounts.
26
<PAGE> 31
PLAINWELL INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL SPECIALTY PAPER
DIVISION
---------------------------
PERIOD FROM PERIOD FROM
DECEMBER 30, JUNE 17, PRO FORMA HISTORICAL
1996 TO 1997 TO SPECIALTY CONSUMER
JUNE 16, DECEMBER 31, PRO FORMA PAPER PRODUCTS PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS DIVISION DIVISION ADJUSTMENTS TOTAL
------------ ------------ ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $40,795 $45,921 $ -- $86,716 $136,176 $ -- $222,892
(423)(c) (1,541)(e)
Cost of sales............ 34,231 40,805 (432)(a) 74,181 121,751 (5,787)(f) 188,604
------- ------- ------- ------- -------- -------- --------
Gross profit............. 6,564 5,116 855 12,535 14,425 7,328 34,288
Selling, general and 218(e)
administrative 5,787(f)
expenses................. 1,539 3,302 5(a) 4,846 2,919 246(g) 14,016
Corporate overhead
allocation............. 724 -- 724 2,057 -- 2,781
------- ------- ------- ------- -------- -------- --------
Operating income......... 4,301 1,814 850 6,965 9,449 1,077 17,491
Interest expense......... 124 1,187 941(b) 2,252 846 12,859(h) 15,957
------- ------- ------- ------- -------- -------- --------
Income before income
taxes.................. 4,177 627 (91) 4,713 8,603 (11,782) 1,534
Income tax provision..... 1,655 413 (34)(d) 2,034 3,355 (4,595)(i) 794
------- ------- ------- ------- -------- -------- --------
Net Income............... $ 2,522 $ 214 $ (57) $ 2,679 $ 5,248 $ (7,187) $ 740
======= ======= ======= ======= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Statements of Operations.
27
<PAGE> 32
PLAINWELL INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
CONSUMER PRODUCTS
DIVISION
HISTORICAL PERIOD FROM
THE JANUARY 1, 1998 TO PRO FORMA TOTAL
COMPANY MARCH 5, 1998 ADJUSTMENTS PRO FORMA
---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $85,127 $22,969 $ -- $108,096
Cost of sales.......................... 74,952 21,763 (1,286)(f) 95,270
(159)(e)
------- ------- -------- --------
Gross profit........................... 10,175 1,206 1,445 12,826
Selling, general and administrative
expenses............................. 6,437 704 75(e) 8,552
1,286(f)
50(g)
Corporate overhead allocation.......... -- 366 -- 366
------- ------- -------- --------
Operating income....................... 3,738 136 34 3,908
Interest expense....................... 5,644 138 2,160(h) 7,942
------- ------- -------- --------
Loss before income taxes and
extraordinary item................... (1,906) (2) (2,126) (4,034)
Income tax benefit..................... (815) (1) (829)(i) (1,645)
------- ------- -------- --------
Loss before extraordinary item......... $(1,091) $ (1) $ (1,297) $ (2,389)
======= ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Statements of Operations.
28
<PAGE> 33
PLAINWELL INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Adjustment to depreciation expense based on the purchase price accounting
adjustment and remaining economic useful lives of the Speciality Paper
Division's properties, as follows:
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 30, 1996
THROUGH JUNE 16, 1997
----------------------------------------
SELLING, GENERAL AND
COST OF SALES ADMINISTRATIVE EXPENSES
------------- -----------------------
<S> <C> <C>
Remove historical depreciation.............. $(1,037) $ 33
New basis depreciation...................... 605 38
------- ----
$ (432) $ 5
======= ====
</TABLE>
(b) The deferred finance costs of $1,051 are being amortized over five years
which is the length of the term note and revolving credit facility
(revolver). Adjustment to record interest expense and amortization of
deferred financing costs on the debt incurred to finance the acquisition of
the Specialty Paper Division, calculated as follows:
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 30, 1996
THROUGH JUNE 16, 1997
-----------------------------
<S> <C>
Term note........................................... $589
Revolving credit facility........................... 240
----
829
Amortization of deferred financing costs............ 122
----
$941
====
</TABLE>
The variable rate term note and revolving credit facility bore interest at
either a Base Rate (as defined) or a LIBOR rate (as defined). The rate used for
the period from December 30, 1996 through June 16, 1997 was 9.49%. The effect on
interest expense pertaining to the variable rate term note and revolving credit
facility of an adjustment of 1/8 of a percent variance in interest rates would
be $163 for the period from December 30, 1996 through June 16, 1997.
(c) Adjustment to conform the inventory method of the Speciality Paper Division
for the period from December 30, 1996 to June 16, 1997 from the last-in,
first-out method to the first-in, first-out method.
(d) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 37%.
(e) Adjustment to reflect depreciation expense based on the new basis and
remaining economic useful lives of the Consumer Products Division's
properties, as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM JANUARY 1, 1998
DECEMBER 31, 1997 THROUGH MARCH 5, 1998
------------------------------- ------------------------------
SELLING, GENERAL AND SELLING, GENERAL AND
COST OF ADMINISTRATIVE COST OF ADMINISTRATIVE
SALES EXPENSES SALES EXPENSES
-------- -------------------- ------- --------------------
<S> <C> <C> <C> <C>
Remove historical depreciation.... $(10,078) $(1,052) $(1,582) $(136)
New basis depreciation............ 8,537 1,270 1,423 211
-------- ------- ------- -----
$ (1,541) $ 218 $ (159) $ 75
======== ======= ======= =====
</TABLE>
(f) Reclassification of the Consumer Products Division general and
administrative expenses to conform to the Specialty Paper Division's
classification.
29
<PAGE> 34
PLAINWELL INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS -- (CONTINUED)
(g) Adjustment to record in selling, general and administrative expenses the
amortization of the residual goodwill over 40 years, calculated as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
YEAR ENDED THROUGH
DECEMBER 31, 1997 MARCH 5, 1998
----------------- ---------------
<S> <C> <C>
Remove historical amortization................ $(166) $(28)
New basis amortization........................ 412 78
----- ----
$ 246 $ 50
===== ====
</TABLE>
(h) Adjustment to record interest expense and amortization of deferred financing
costs on the debt incurred to finance the Acquisition and the repayment of
certain existing indebtedness of the Specialty Paper Division, calculated as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
YEAR ENDED THROUGH
DECEMBER 31, 1997 MARCH 5, 1998
----------------- ---------------
<S> <C> <C>
11% Senior Subordinated Notes due 2008................ $14,300 $2,547
Eliminate historical interest expense on the Specialty
Paper Division indebtedness repaid.................. (1,858) (451)
------- ------
12,442 2,096
Amortization of deferred financing costs (over 10
years, straight line)............................... 653 110
Eliminate amortization of deferred financing costs on
the Specialty Paper Division indebtedness repaid.... $ (236) 46
------- ------
$12,859 $2,160
======= ======
</TABLE>
(i) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 39%.
30
<PAGE> 35
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS)
THE COMPANY AND SPECIALTY PAPER DIVISION
The following table sets forth the selected historical financial and other
data of the Specialty Paper Division-Predecessor as of and for each of the
fiscal years in the four-year period ended December 29, 1996 and the period from
December 30, 1996 through June 16, 1997, of the Specialty Paper
Division-Successor as of and for the period from June 17, 1997 through December
31, 1997 and the period from June 17, 1997 through June 30, 1997, and of the
Company as of and for the six months ended June 30, 1998. On March 6, 1998,
pursuant to the Acquisition Agreement dated January 22, 1998, the Specialty
Paper Division was merged with PLAINWELL INC. and PLAINWELL INC. purchased the
Consumer Products Division. The historical financial statements of the Specialty
Paper Division are presented as the historical financial statements of the
Company and the results of operations of the Consumer Products Division are
included in the financial statements of the Company beginning on the acquisition
date. The selected historical financial and other data, with the exception of
tons sold and average selling price per ton, as of and for the years ended
December 31, 1995 and December 29, 1996, the period from December 30, 1996
through June 16, 1997 and the period from June 17, 1997 through December 31,
1997 have been derived from the financial statements of the Specialty Paper
Division, contained elsewhere herein, which have been audited by Ernst & Young
LLP, independent auditors. The selected historical financial and other data,
with the exception of tons sold and average selling price per ton, as of and for
the years ended December 31, 1993 and December 31, 1994 have been derived from
the unaudited financial statements of the Specialty Paper Division. The selected
historical financial and other data, with the exception of tons sold and average
selling price per ton, as of and for the period from June 17, 1997 through June
30, 1997 and for the six months ended June 30, 1998 have been derived from the
unaudited interim financial statements of the successor. In the opinion of
management, the interim financial statements as of and for the period from June
17, 1997 through June 30, 1997 and for the six months ended June 30, 1998
reflect all adjustments (consisting only of normal recurring adjustments)
necessary to fairly present the information presented for such periods. The
results of operations for the six months ended June 30, 1998 are not necessarily
indicative of the results of operations to be expected for the full year. The
information contained in the following table should also be read in conjunction
with "Capitalization," "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the historical financial statements of the Specialty Paper
Division, including the notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
----------------------------------------------------- --------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 30, JUNE 17, JUNE 17, SIX
1996 1997 1997 MONTHS
FISCAL YEAR(2) THROUGH THROUGH THROUGH ENDED
-------------------------------------- JUNE 16, DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1996 1997 1997 1997 1998
------- ------- -------- ------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $86,202 $96,736 $101,049 $85,230 $40,795 $45,921 $ 3,215 $ 85,127
Cost of sales.................... 73,184 87,587 99,536 76,425 34,231 40,805 2,709 74,952
------- ------- -------- ------- ------- ------- ------- --------
Gross profit..................... 13,018 9,149 1,513 8,805 6,564 5,116 506 10,175
Selling, general and
administrative expenses......... 3,231 4,833 3,455 4,434 1,539 3,302 227 6,437
Corporate overhead allocation.... 5,165 5,829 6,260 5,537 724 -- -- --
------- ------- -------- ------- ------- ------- ------- --------
Operating income (loss).......... 4,622 (1,513) (8,202) (1,166) 4,301 1,814 279 3,738
Interest expense................. 117 146 146 144 124 1,187 72 5,644
------- ------- -------- ------- ------- ------- ------- --------
Income (loss) before income taxes
and extraordinary item.......... 4,505 (1,659) (8,348) (1,310) 4,177 627 207 (1,906)
Income tax provision (benefit)... 1,945 (494) (2,777) (335) 1,655 413 74 (815)
------- ------- -------- ------- ------- ------- ------- --------
Income (loss) and extraordinary
item............................ 2,560 (1,165) (5,571) (975) 2,522 214 133 (1,091)
Extraordinary item............... -- -- -- -- -- -- -- (597)
------- ------- -------- ------- ------- ------- ------- --------
Net income (loss)................ $ 2,560 $(1,165) $ (5,571) $ (975) $ 2,522 $ 214 $ 133 $ (1,688)
======= ======= ======== ======= ======= ======= ======= ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash............................. $ -- $ 88 $ 67 $ -- $ -- $ 772 $ 18 $ 3,605
Working capital(3)............... 4,857 3,989 8,555 3,259 5,761 5,437 3,689 23,826
Total assets..................... 54,769 56,842 47,786 49,619 51,591 51,892 37,854 231,535
Total debt....................... 3,500 3,500 3,500 3,500 3,500 20,859 21,132 157,876
Total stockholder's equity....... 37,112 35,947 30,376 29,401 31,923 8,188 8,133 27,212
OTHER DATA:
Capital expenditures............. $ 1,854 $ 1,568 $ 3,878 $ 1,220 $ 66 $ 513 $ 9 $ 1,098
Depreciation and amortization.... 2,038 2,104 2,257 2,330 1,070 766 62 4,592
Ratio of earnings to fixed
charges(4)...................... 20.2x -- -- -- 25.0x 1.5x 3.3x 0.7x
Tons sold........................ 79,627 87,764 79,662 73,019 36,594 43,736 2,926 70,452
Average selling price per ton.... $ 1,083 $ 1,102 $ 1,268 $ 1,167 $ 1,115 $ 1,050 $ 1,099 $ 1,208
</TABLE>
31
<PAGE> 36
- ------------------------------
(1) The Specialty Paper Division was acquired from Simpson as of June 17, 1997
in a transaction accounted for under the purchase method of accounting.
(2) The Specialty Paper Division has a fiscal year ending on the Sunday closest
to December 31.
(3) Working capital represents total current assets less total current
liabilities. Throughout 1993 to June 16, 1997, Simpson performed cash
management on a centralized basis and processed related accounts receivable.
Accordingly, accounts receivable were funded immediately by Simpson and are
not included in working capital for fiscal years 1993, 1994, 1995 and 1996
and the period from December 30, 1996 through June 16, 1997.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and one-third of the rent expense
from operating leases, which management believes is a reasonable
approximation of the interest factor of the rent. For fiscal years 1994,
1995, 1996 and for the six months ended June 30, 1998, earnings were
inadequate to cover fixed charges by $1,659, $8,348, $1,310 and $1,906,
respectively.
32
<PAGE> 37
CONSUMER PRODUCTS DIVISION
The following table sets forth selected historical financial and other data
of the Consumer Products Division as of and for each of the years in the
five-year period ended December 31, 1997. The selected historical financial and
other data, with the exception of tons sold and average selling price per ton,
as of and for each of the years in three-year period ended December 31, 1997,
have been derived from the financial statements of the Consumer Products
Division, contained elsewhere herein, which have been audited by Arthur Andersen
LLP, independent public accountants. The selected historical financial and other
data, with the exception of tons sold and average selling price per ton, as of
and for each of the years in the two-year period ended December 31, 1994 have
been derived from the unaudited financial statements of the Consumer Products
Division. The information contained in the following table should also be read
in conjunction with "Capitalization," "Unaudited Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the historical financial statements of the Consumer
Products Division, including the notes thereto, contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $105,040 $104,884 $107,013 $133,649 $136,176
Cost of sales............................................ 110,619 115,713 129,483 124,052 121,751
-------- -------- -------- -------- --------
Gross profit (loss)...................................... (5,579) (10,829) (22,470) 9,597 14,425
Selling, general and administrative expenses............. 3,490 3,967 3,228 3,351 2,919
Corporate overhead allocation(1)......................... 1,555 1,724 1,509 1,962 2,057
-------- -------- -------- -------- --------
Operating income (loss).................................. (10,624) (16,520) (27,207) 4,284 9,449
Interest expense......................................... -- 89 881 812 846
-------- -------- -------- -------- --------
Income (loss) before income taxes........................ (10,624) (16,609) (28,088) 3,472 8,603
Income tax provision (benefit)(2)........................ (3,957) (6,187) (10,533) 1,354 3,355
-------- -------- -------- -------- --------
Net income (loss)........................................ $ (6,667) $(10,422) $(17,555) $ 2,118 $ 5,248
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................ $ -- $ -- $ -- $ -- $ --
Working capital.......................................... 10,369 18,211 18,053 19,294 15,560
Total assets............................................. 113,669 139,713 139,670 129,443 116,473
Total debt(5)............................................ -- 18,800 18,800 18,800 18,800
Intercompany accounts(6)................................. 82,548 94,951 99,107 89,638 75,489
OTHER DATA:
Capital expenditures..................................... $ 9,988 $ 14,450 $ 21,113 $ 1,922 $ 3,737
Depreciation and amortization(3)......................... 8,906 9,710 11,298 11,809 11,309
Ratio of earnings to fixed charges(4).................... -- -- -- 5.3x 11.2x
Tons sold................................................ 94,212 92,292 80,609 90,445 96,888
Average selling price per ton............................ $ 1,115 $ 1,136 $ 1,328 $ 1,478 $ 1,405
</TABLE>
33
<PAGE> 38
- ------------------------------
(1) Corporate overhead allocation represents a pro rata (based on sales dollars)
allocation of certain Pope & Talbot, Inc. corporate administrative costs not
directly attributable to the Consumer Products Division. These costs include
such items as tax services, certain human resource services, and general
corporate administrative costs.
(2) The Consumer Products Division historically has been included in the
consolidated income tax returns of Pope & Talbot, Inc. Income taxes are
presented here as if Consumer Products Division filed its taxes on a
separate return basis.
(3) Includes amortization of deferred financing costs of $2, $14, $14 and $13
for the years ended December 31, 1994, 1995, 1996 and 1997, respectively.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and amortization of deferred financing costs. For the years ended December
31, 1993, 1994 and 1995, earnings were inadequate to cover fixed charges by
$10,624, $16,609 and $28,088, respectively.
(5) Total debt consists of a note payable to the City of Eau Claire, Wisconsin
due 2014 in connection with the issuance of the Eau Claire IRBs to finance a
wastepaper pulping improvement project at the Consumer Products Division's
Eau Claire, Wisconsin facility. The note payable is to be assumed by the
Company in connection with the Acquisition.
(6) The Consumer Products Division has historically been accounted for as a
division of Pope & Talbot, Inc. and therefore has no separate historical
equity accounts. Cash funding and distributions have been managed through
Pope & Talbot, Inc.'s corporate cash management system. Cash collected from
and distributed to the Consumer Products Division has been reflected in the
intercompany account balance. The intercompany account balance represents
the net accumulated transactions between the Consumer Products Division and
Pope & Talbot, Inc.
34
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with
the financial statements of the Specialty Paper Division and the Consumer
Products Division, including the notes thereto, contained elsewhere in this
Prospectus. Prior to the 1997 Acquisition and the Acquisition, the Specialty
Paper Division and the Consumer Products Division were not operated as separate,
stand alone companies. As described under "Unaudited Pro Forma Financial
Information," a number of significant changes occurred in the funding and
operation of the Specialty Paper Division and the Consumer Products Division in
connection with the Transactions. As a result, the historical financial
information included in this Prospectus does not necessarily reflect what
Plainwell's financial position and results of operations would have been had
each division been operated as a separate, stand-alone entity during the periods
presented.
The Company acquired the Consumer Products Division simultaneously with the
consummation of the Offering. Accordingly, the following discussion regarding
the Consumer Products Division is based on its historical financial information
relating to periods of ownership by Pope & Talbot.
Holdings acquired the Specialty Paper Division on June 16, 1997, and merged
the division with and into the Company in connection with the consummation of
the Offering. The results of operations of the Specialty Paper Division have
been included in the financial statements of the Company since June 17, 1997.
Prior to the 1997 Acquisition, the Company had no operations and no significant
assets.
The Offering and the Acquisition will prospectively affect the Company's
results of operations and financial position in significant respects. The
acquisition of the Specialty Paper Division and the Consumer Products Division
were each accounted for using the purchase method of accounting. The purchase
price of the Specialty Paper Division was $32.5 million, which included $9.8
million for inventory. The purchase price of the Consumer Products Division was
$121.0 million in cash (less a working capital adjustment), plus the assumption
of certain liabilities. See "Prospectus Summary -- The Transactions."
GENERAL
The Company is a leading U.S. producer and marketer of value-added paper
products for niche markets within the paper industry. The Company conducts its
business through two divisions: (i) the Consumer Products Division, which
produces private label consumer tissue products such as bath tissue, paper
towels, napkins, and facial tissue, and (ii) the Specialty Paper Division, which
produces premium coated and uncoated printing papers and release and other
technical/specialty papers.
Market conditions and demand for the Company's products are generally
subject to cyclical changes in the economy and changes in industry operating
rate and capacity, all of which can significantly impact selling prices and the
Company's profitability. The Company believes that these two divisions are
generally subject to different market conditions and supply and demand
characteristics.
THE COMPANY AND SPECIALTY PAPER DIVISION
On March 6, 1998, the Specialty Paper Division was merged with PLAINWELL
INC. and PLAINWELL INC. purchased the Consumer Products Division pursuant to the
Acquisition Agreement dated January 22, 1998. The historical financial
statements of the Specialty Paper Division are presented as the historical
financial statements of the Company and the results of operations of the
Consumer Products Division are included in the financial statements of the
Company beginning on the acquisition date.
Although the selling prices of the Specialty Paper Division's products are
impacted by the general movement in the cost of principal raw materials,
primarily pulp, they have historically been less vulnerable to such movements
than the products of the Consumer Products Division. When raw material prices
increase, the division's profitability is dependent on the timing and degree to
which it is able to pass through price increases to its customers. The actual
impact on the division of raw materials price changes is affected by a
35
<PAGE> 40
number of factors including the level of inventories at the time of a price
change, the specific timing and frequency of price changes, and the lag time
that generally accompanies the implementation of selling price changes following
increases in raw materials prices. In 1995, the division was adversely affected
by a more than doubling of the price of pulp compared to 1994. During 1996, pulp
prices returned to near 1994 levels and remained relatively stable throughout
1997.
In addition to selling and raw material prices, the division's gross and
operating income margins are impacted by manufacturing utilization levels.
Management believes the division's previous owners used the facility to supply
inventory as a portion of its corporate-wide needs and did not seek to maximize
production at the Plainwell Mill. As part of its current business strategy,
management has restructured its sales force in an effort to increase sales and
will seek to improve margins and profitability by operating the facility at or
near capacity in the future.
RESULTS OF OPERATIONS -- THE COMPANY AND SPECIALTY PAPER DIVISION
Holdings acquired the Specialty Paper Division on June 16, 1997. The
financial results of the division for all periods prior to such date reflect the
operations of the division while it was under the ownership of Simpson. For the
period from June 17, 1997 through December 31, 1997, the financial results of
the Specialty Paper Division have been included in the financial statements of
Holdings. The financial information for the Specialty Paper Division before and
after its acquisition are not directly comparable because of differences in
accounting policies applied by Simpson and the Company and purchase method
accounting adjustments relating to its acquisition. The historical financial
information of the Company for the six months ended June 30, 1998 includes the
results of operations of the Consumer Products Division since March 6, 1998.
The following table sets forth for the periods presented the Specialty
Paper Division's and the Company's historical results of operations as a
percentage of net sales.
<TABLE>
<CAPTION>
SPECIALTY
PAPER COMPANY
SPECIALTY PAPER DIVISION - ---------------------------
DIVISION - PREDECESSOR SUCCESSOR SUCCESSOR SUCCESSOR
-------------------------------------- ------------ ----------- ---------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 30, JUNE 17, JUNE 17, SIX
1996 1997 1997 MONTHS
THROUGH THROUGH THROUGH ENDED
FISCAL FISCAL JUNE 16, DECEMBER 31, JUNE 30, JUNE 30,
YEAR 1995 YEAR 1996 1997 1997 1997 1998
--------- --------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 98.5 89.7 83.9 88.9 84.3 88.0
----- ----- ----- ----- ----- -----
Gross profit............ 1.5 10.3 16.1 11.2 15.7 12.0
Selling, general and
administrative
expenses.............. 3.4 5.2 3.8 7.2 7.0 7.6
Corporate overhead
allocation............ 6.2 6.5 1.8 -- -- --
----- ----- ----- ----- ----- -----
Operating income
(loss)................ (8.1)% (1.4)% 10.5% 4.0% 8.7% 4.4%
===== ===== ===== ===== ===== =====
</TABLE>
Six months ended June 30, 1998 compared to the six months ended June 30,
1997.
Net Sales Net sales increased $41.1 million to $85.1 million for the six
months ended June 30, 1998 compared to $44.0 million for the six months ended
June 30, 1997. The increase was attributable to the acquisition of the Consumer
Products Division which added $45.6 million in net sales. Sales for the
Specialty Paper Division decreased $4.5 million to $39.5 million for the six
months ended June 30, 1998 compared to $44.0 million for the six months ended
June 30, 1997. The decrease in sales for Specialty Paper Division was
attributable to a 3.6% decline in tons sold and a 7.8% decrease in net selling
price.
Cost of Sales and Gross Profit Cost of sales increased $38.0 million to
$74.9 million for the six months ended June 30, 1998 compared to $36.9 million
for the six months ended June 30, 1997. The increase was
36
<PAGE> 41
attributable to the acquisition of the Consumer Products Division which added
$39.3 million in cost of sales. Cost of sales for the Specialty Paper Division
decreased approximately $1.3 million or 3.6% to $35.6 million.
Gross profit as a percent of net sales decreased to 12.0% for the six
months ended June 30, 1998 compared to 16.1% for the six months ended June 30,
1997. The decrease in the gross profit percentage was mostly attributable to a
decrease in the net selling price per ton during the six months ended June 30,
1998 compared to the six months ended June 30, 1997.
Selling, General and Administrative Expenses Selling, general and
administrative expenses as a percentage of net sales was 7.6% for the six months
ended June 30, 1998 compared to 3.8% for the period from December 30, 1996
through June 16, 1997 and 7.0% for the period from June 17, 1997 through June
30, 1997. The increase as a percentage of net sales from the period from
December 30, 1996 through June 16, 1997 is due to additional sales personnel and
other administrative expenses that have been added following the consummation of
the 1997 Acquisition.
Operating income (loss) Operating income as a percentage of net sales was
4.4% for the six months ended June 30, 1998 compared to 10.5% for the period
from December 30, 1996 through June 16, 1997 and 8.7% for the period from June
17, 1997 through June 30, 1997. The decline in operating income as a percentage
of net sales is primarily attributable to the decrease in gross margins as
discussed above.
1997 Compared to 1996
Net Sales. The Specialty Paper Division's net sales increased $1.5
million, or 1.7%, to $86.7 million for 1997 compared to $85.2 million for 1996.
The increase was attributable to a 10.0% increase in tons sold from 73,019 tons
for 1996 to 80,330 tons for 1997 which was partially offset by a 7.6% reduction
in the average selling price per ton.
Cost of Sales and Gross Profit. Cost of sales decreased $1.4 million, or
1.8%, to $75.0 million for 1997 compared to $76.4 million for 1996. Cost of
sales as a percentage of net sales decreased to 86.5% for 1997 compared to 89.7%
for 1996. As a percentage of net sales, gross profit improved to 13.5% for 1997
compared to 10.3% for 1996. The improvement in both cost of sales as a
percentage of net sales and gross profit was primarily due to lower pulp prices,
reduced headcount and improved capacity utilization which were partially offset
by lower average selling prices per ton.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of net sales was 7.2% for the period
from June 17, 1997 through December 31, 1997 and 3.8% for the period from
December 30, 1996 through June 16, 1997 compared to 5.2% for 1996. The increase
for the period June 17, 1997 through December 31, 1997 was primarily due to
additional general and administrative expenses incurred by the division
following the consummation of the 1997 Acquisition representing costs for
administrative services previously provided by Simpson and thus previously
reflected in the corporate overhead allocation.
Corporate Overhead Allocation. Corporate overhead allocation represents
amounts charged to the division from Simpson for certain administrative services
rendered. Corporate overhead allocation declined $4.8 million to $724,000 for
the period December 30, 1996 through June 16, 1997 compared to $5.5 million for
1996. Corporate overhead allocation was not charged to the division subsequent
to the acquisition from Simpson, and thus for the period June 17, 1997 to
December 31, 1997, there were no costs charged to the division. Subsequent to
June 17, 1997, incremental costs for the required services previously provided
by Simpson are reflected in selling, general and administrative expenses.
Operating Income (Loss). Operating income as a percentage of net sales was
4.0% for the period from June 17, 1997 through December 31, 1997 and 10.5% for
the period from December 30, 1996 through June 16, 1997 compared to a 1.4% loss
for 1996. This improvement was primarily attributable to higher gross margins
resulting from decreased costs of raw materials.
37
<PAGE> 42
1996 Compared to 1995
Net Sales. The Specialty Paper Division's net sales decreased $15.8
million, or 15.7%, to $85.2 million for 1996 compared to $101.0 million for
1995. The decrease in net sales was due to a combination of a 8.3% reduction in
tons sold to 73,019 tons for 1996 from 79,662 tons for 1995, and an 8.0%
decrease in the average selling price per ton. The reduction in tons sold was
partially attributable to the announcement of the pending sale of the division.
Cost of Sales and Gross Profit. Cost of sales decreased $23.1 million, or
23.2%, to $76.4 million for 1996 compared to $99.5 million for 1995. Cost of
sales as a percentage of net sales decreased to 89.7% for 1996 compared to 98.5%
for 1995. As a percentage of net sales, gross profit increased to 10.3% for 1996
compared to 1.5% for 1995. The reduction in cost of sales was primarily due to
the decrease in tons sold and a reduction in prices of raw materials compared to
1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $979,000, or 28.3% to $4.4 million for 1996
compared to $3.5 million for 1995. Selling, general and administrative expenses
as a percentage of net sales increased 1.8% to 5.2% for 1996 compared to 3.4%
for 1995. The increase was primarily due to an increase in workers compensation
insurance expense.
Corporate Overhead Allocation. Corporate overhead allocation decreased
$723,000, or 11.5% to $5.5 million for 1996 compared to $6.3 million for 1995.
Corporate overhead allocation as a percentage of net sales increased to 6.5% for
1996 compared to 6.2% for 1995.
Operating Loss. Operating loss decreased $7.0 million to $1.2 million for
1996 compared to an $8.2 million loss for 1995. The improvement in operating
loss was primarily attributable to reduced costs of raw materials.
CONSUMER PRODUCTS DIVISION
The selling prices of the Consumer Product Division's products are largely
a function of demand and industry capacity. The Consumer Products Division's
private label tissue products are generally priced at a discount to their
nationally branded counterparts. The tissue markets, which were subject to
industry-wide overcapacity and substantial price competition beginning in the
early 1990s, began to recover in early 1995 as supply and demand began to
equalize and manufacturers were able to pass through increases in raw material
prices. According to the U.S. Bureau of Labor Statistics, market tissue prices
for 1991, 1992, 1993, 1994, 1995, and 1996 increased (decreased) by 0.7%, 0.5%,
(1.7%), (1.0%), 8.4%,and 3.8%, respectively. Based on preliminary estimates by
the U.S. Bureau of Labor Statistics, tissue prices declined by 2.0% (subject to
change), in 1997. Management believes that this decline was the result of
downward pricing pressure based on lower pulp and waste paper costs. However,
management anticipates that tissue prices will improve in 1998, and in January
1998 one industry participant announced tissue price increases of approximately
4% to 7%. There can be no assurance, however, that any such price increase will
be implemented.
The division's profitability is affected by the timing and degree to which
it is able to pass through price increases of its raw materials, particularly
wastepaper. Wastepaper generally follows the pricing trends of world pulp
markets. In the second half of 1994 and the first half of 1995, pulp and
wastepaper prices increased significantly. From 1994 to 1995, the Consumer
Products Division's wastepaper costs per ton increased from $127 to $247 for
post-consumer waste and from $128 to $299 for pre-consumer waste. These costs
per ton declined along with the pulp market by early 1996 and in 1997 have
averaged $153 for pre-consumer waste and $110 for post-consumer waste.
Generally, the Company is able to increase sales prices in times of rising
material costs and is forced to reduce prices in times of declining costs.
However, there is usually a lag of several months before the Company adjusts its
prices.
The Consumer Products Division has recently generated significant
improvement in its operating performance. In 1997, net sales, EBITDA and net
income were $136.2 million, $20.7 million and $5.2 million, respectively, as
compared to $104.9 million, a $6.8 million loss and a $10.4 million net loss,
respectively, for 1994. The Company believes this improvement was primarily due
to the approximately $50.0 million of capital investment over the last five
years, used primarily to strategically reposition the division. Important
elements
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<PAGE> 43
of the strategic repositioning included the upgrade of existing facilities,
including a new pulping and de-inking operation at the Eau Claire, Wisconsin
facility, the construction of the Pittston, Pennsylvania converting facility and
the development and implementation of the integrated computer-based customer
service system. Such capital expenditures have enabled the Company to: (i)
produce a brighter, softer pulp which has improved finished product quality and
allowed the Company to command higher prices for its products; (ii) increase
sales of higher margin, premium tissue products such as two-ply bath tissue and
paper towels; (iii) improve its level of customer service; (iv) increase sales
to mass merchandisers and wholesale clubs; and (v) increase productivity and
realize manufacturing efficiencies. As a result of these improvements, the net
selling price per ton realized by the division increased 23.7% from 1994 to
1997. During the same period, market tissue prices as measured by the U.S.
Bureau of Labor Statistics increased by 10.8%. In addition, to address the
Ransom, Pennsylvania facility's historically high labor cost structure, the
Company implemented a labor contract in 1995 which resulted in an eight-month
strike. The strike was resolved in December 1995 and a new labor agreement was
adopted, resulting in increased workforce flexibility and reduced labor costs.
The 1995 strike had a significant impact on financial performance in 1995 and
also affected financial performance in 1996 as the Company resumed full-scale
operations at the Ransom, Pennsylvania facility. The Company believes that the
strategic repositioning of the division has resulted in significant improvement
in the Consumer Products Division's operating performance and positions the
division to pursue future growth opportunities.
RESULTS OF OPERATIONS -- CONSUMER PRODUCTS DIVISION
The following table sets forth for the periods presented the Consumer
Products Division's historical results of operations as a percentage of net
sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 121.0 92.8 89.4
----- ----- -----
Gross profit (loss)......................................... (21.0) 7.2 10.6
Selling, general and administrative expenses................ 3.0 2.5 2.1
Corporate overhead allocation............................... 1.4 1.5 1.5
----- ----- -----
Operating income (loss)..................................... (25.4)% 3.2% 7.0%
===== ===== =====
</TABLE>
1997 Compared to 1996
Net Sales. The Consumer Products Division's net sales increased $2.6
million, or 1.9%, to $136.2 million for 1997 compared to $133.6 million for
1996. The increase was attributable to a 7.1% increase in tons sold to 96,888
for 1997 compared to 90,445 for 1996 and which was partially offset by a 4.9%
reduction in the average selling price per ton to $1,405 for 1997 as compared to
$1,478 per ton for 1996. The decrease in the selling price per ton was primarily
the result of downward pricing pressure based on lower wastepaper costs for
1997, which was partially offset by a more favorable mix of higher margin
products.
Cost of Sales and Gross Profit. Cost of sales decreased $2.3 million, or
1.9%, to $121.8 million for 1997 compared to $124.1 million for 1996. Cost of
sales as a percentage of net sales decreased to 89.4% for 1997 compared to 92.8%
for 1996. As a percentage of net sales, gross profit improved to 10.6% for 1997
compared to 7.2% for 1996. The improvement in both cost of goods sold and gross
profit as a percentage of net sales was primarily due to increased sales of
higher margin products, higher utilization rates on manufacturing equipment,
lower raw material costs as a percentage of net sales, and increased salary
absorption related to increased volume. In addition, costs were higher for 1996
as the division recovered from the effects of the strike at the Ransom,
Pennsylvania facility which ended in December 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $432,000, or 12.9% to $2.9 million for 1997
compared to $3.4 million for 1996. Selling, general and administrative expenses
as a percentage of net sales decreased 0.4% to 2.1% for 1997 compared to 2.5%
for
39
<PAGE> 44
1996. The decrease was primarily due to a continued emphasis on controlling
costs, and in particular for this period, reduction in salary and benefits
expenses.
Corporate Overhead Allocation. Corporate overhead allocation represents
amounts charged to the division from Pope & Talbot, Inc. for certain
administrative services rendered. Corporate overhead allocation remained
essentially flat at $2.1 million and $2.0 million, or 1.5% of net sales, for
1997 compared to 1996, respectively. The Company believes the corporate overhead
allocation amounts are higher than amounts that would have been realized had the
division operated as a stand alone business. See "Unaudited Pro Forma
Consolidated Financial Information."
Operating Income. Operating income increased $5.1 million, or 118.6% to
$9.4 million for 1997 compared to $4.3 million for 1996. Operating income as a
percentage of net sales increased 3.8% to 7.0% for 1997 compared to 3.2% for
1996. This improvement was primarily attributable to higher gross profit for
1997.
1996 Compared to 1995
Net Sales. The Consumer Products Division's net sales increased $26.6
million, or 24.9%, to $133.6 million for 1996 compared to $107.0 million for
1995. The increase was attributable to (i) a 12.2% increase in tons sold for
1996 to 90,445 compared to 80,609 for 1995 as the Company recovered from an
eight-month strike at its Ransom, Pennsylvania facility in 1995 and (ii) an
11.3% increase in the average selling price per ton for 1996 to $1,478 compared
to $1,328 for 1995, due in part to higher percentage of sales in higher price
product lines such as two-ply paper towels and napkins.
Cost of Sales and Gross Profit (Loss). Cost of sales decreased $5.4
million, or 4.2% to $124.1 million for 1996 compared to $129.5 million for 1995.
Cost of sales as a percentage of net sales decreased to 92.8% for 1996 compared
to 121.0% for 1995. As a percentage of net sales, gross profit improved to 7.2%
for 1996 compared to a gross loss in 1995. The improvement in both cost of goods
sold as a percentage of net sales and gross profit was primarily due to the
settlement at the end of 1995 of an eight-month strike at the Ransom,
Pennsylvania facility which negatively impacted 1995 results. In addition, this
improvement was due to increased sales of higher quality, higher margin products
as the division began to realize the benefits of its capital improvement program
at the Eau Claire, Wisconsin facility, which was completed in 1995, lower raw
material costs and higher utilization rates on manufacturing equipment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $123,000, or 3.8%, to $3.4 million for 1996
compared to $3.2 million for 1995. Selling, general and administrative expenses
as a percentage of net sales decreased 0.5% to 2.5% for 1996 compared to 3.0%
1995. The decrease was primarily due to the increase in net sales.
Corporate Overhead Allocation. Corporate overhead allocation increased
$453,000, or 30.0% to $2.0 million for 1996 compared to $1.5 million for 1995.
Corporate overhead allocation as a percentage of net sales increased 0.1% to
1.5% for 1996 compared to 1.4% for 1995.
Operating Income (Loss). Operating income increased $31.5 million to $4.3
million for 1996 compared to a $27.2 million loss for 1995. Operating income as
a percentage of net sales was 3.2% for 1996. The improvement in operating income
was primarily attributable to higher gross profit for 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital, debt
service, capital expenditures and possible acquisitions. Management believes
that cash generated from operations, together with borrowings under the New
Credit Facility, will be sufficient to meet the Company's capital needs in the
foreseeable future.
Capital expenditures were $1.1 million for the six months ended June 30,
1998 compared to $0.1 million for the six months ended June 30, 1997.
Capital expenditures for the Specialty Paper Division were $629,000 for
1997 compared to $1.2 million and $4.7 million in 1996 and 1995, respectively.
The 1995 expenditures were primarily used to: (i) construct a
40
<PAGE> 45
new pulping building; (ii) install a new pulping system; (iii) relocate an
existing pulper; and (iv) replace certain other equipment.
Capital expenditures at the Consumer Products Division were $3.7 million
for 1997 compared to $1.9 million and $21.1 million for 1996 and 1995,
respectively. The 1995 expenditures were primarily used for a new pulping
operation at the Eau Claire, Wisconsin facility which substantially increased
pulp production capacity and improved the product quality at that facility.
For 1998 the Company anticipates capital expenditures of approximately $7
million to $9 million which is expected to be used to complete installation of
the "pop-up" facial converting line at the Pittston, Pennsylvania facility, for
additional converting capacity and for general equipment maintenance. The
Company estimates that $730,000 will be spent in 1998 on environmental
compliance and cleanup work at its operating locations. The Company further
estimates that future capital spending to comply with the Cluster Rules and the
GLI could be up to $5 million. The Company cannot predict if or when such rules
will be promulgated in a form that will require the Company to make such
expenditures. In addition, the Company is indemnified under various agreements
with respect to other contingent environmental liabilities. See "Risk
Factors -- Environmental Matters" and "Business -- Environmental Matters."
In connection with the consummation of the Merger and the Acquisition, the
Company established the New Credit Facility which matures in 2003 and which
provides for up to $35.0 million of borrowings on a revolving basis, subject to
a borrowing base, and up to an additional $20.0 million for letters of credit to
secure the Eau Claire IRBs. The New Credit Agreement contains certain financial
and operational covenants and other restrictions with which the Company must
comply, including among others, a requirement to maintain certain financial
ratios and limitations on the Company's ability to incur additional
indebtedness. See "Description of Certain Indebtedness."
The Year 2000 issue relates to the ability or inability of computer systems
to properly process information and data containing or related to dates
beginning with the year 2000 and beyond. The Year 2000 issue exists because,
historically, many computer systems that are in use today were developed years
ago when a year was identified using a two-digit field rather than a four-digit
field. As information and data containing or related to the century date are
introduced to computer hardware, software and other systems, date sensitive
systems may recognize the year 2000 as "1900", or not at all, which may result
in computer systems processing information incorrectly. This, in turn, may
significantly and adversely affect the integrity and reliability of information
databases and may result in a wide variety of adverse consequences to a company.
In addition, Year 2000 problems that occur with third parties with which a
company does business, such as suppliers, computer vendors, distributors and
others, may also adversely affect any given company.
In connection with the 1997 Acquisition, Plainwell Paper Company and
Simpson entered into a Transition Services Agreement pursuant to which Simpson
agreed to provide certain services to Plainwell Paper Company for a period
ending not later than the second anniversary of the 1997 Acquisition. The
Company entered into an 18-month Transition Services Agreement with Pope &
Talbot, Inc. for the purposes of maintaining and processing the Consumer
Products Divisions information systems requirements.
The Company has engaged a consulting firm to assist in (i) inventorying the
Consumer Products Division existing information systems, (ii) determining the
ongoing productivity of each such system to the Consumer Products Division,
(iii) determining fitness for use of such systems by the Specialty Paper
Division and certain other tasks, including Year 2000 impact; and (iv) certain
other tasks.
The Company has made an initial assessment of the Year 2000 impact and has
identified that a majority of its systems are not Year 2000 compliant and has
also identified aspects of its systems that need improvement. The Company has
developed a plan to implement certain improvements, including the replacement or
rewriting of its systems to address the Year 2000 issue. Based on preliminary
estimates, the Company expects to complete such enhancements by the third
quarter of 1999 and to incur costs of approximately $2.5 million during the next
18 months, the majority of which are expected to be capital in nature. In
addition, the Company expects to complete testing these new systems before the
Year 2000. The Company estimates that approximately $0.4 million will be spent
during 1998 and 1999 to convert systems which only require conversions for Year
2000 compliance. With respect to the Company's information technology systems,
the Company plans to replace its financial systems with a common financial
reporting
41
<PAGE> 46
system that is Year 2000 compliant. The general ledger and accounts payable
portions are expected to be implemented during the fourth quarter of 1998 with
the remaining portions to be installed, configured and tested during the fourth
quarter of 1998 and the first quarter of 1999. The Specialty Paper Division and
the Consumer Products Division operate their own order management systems which
are currently not Year 2000 compliant. Each division plans to rewrite such
systems to become Year 2000 compliant by the end of the third quarter 1999 at an
estimated cost of approximately $1.4 million and has contracted with third
parties to begin such conversions by the third quarter of 1999. In addition, the
Company is evaluating other systems for Year 2000 compliance. The Company
expects to complete any necessary changes for compliance by the end of the
second quarter 1999 and expects the cost associated therewith will not exceed
approximately $100,000.
The Company has conducted a preliminary assessment of its non-information
technology systems, primarily microprocessors and microcomputers used in the
production process. The Company has been in contact with key vendors to ensure
these systems will be Year 2000 compliant. Based on the Company's preliminary
assessment, management believes that, if the systems are not Year 2000
compliant, there may be some effect on the historical archiving of information
used to assess quality and other production-related issues, but that these Year
2000 deficiencies will not effect the production and delivery processes, the
operating systems or data integrity. The Company has developed an informal
alternative historical data collection process if such systems are not compliant
by the year 2000.
The Company plans to request information from its key vendors concerning
their Year 2000 compliant plans during the third quarter 1998. Vendors will be
asked to ensure that the Year 2000 issue will not interfere with delivery
schedules. Management's preliminary assessments through both verbal and written
information from certain vendors, indicate that the Company's key vendors will
be Year 2000 compliant or have developed alternative methods of processing
orders and deliveries to ensure the Company's supply of materials and services
are not interrupted. The Company is not dependent on any one key vendor for its
supply of materials and services.
The Company believes that the most likely worst case Year 2000 compliance
scenario is that the conversion of each of the Specialty Paper Division and
Consumer Products Division will not be completed and tested by the year 2000.
Every effort is being made by the Company to ensure that these systems will be
Year 2000 compliant. In the event these systems are not Year 2000 compliant, the
Company plans to process orders manually and ship products as usual. The Company
believes that the potential impact of processing orders manually would be with
respect to the timely processing of invoices. The Company does not believe that
such scenario would have a material effect on the Company's results of
operations, liquidity and financial condition.
The Company has not completed its assessment of the Year 2000 issue, but
currently believes that costs of addressing this issue will not have a material
adverse impact on the Company's financial position. The Company plans to devote
all resources required to resolve any significant Year 2000 issues in a timely
manner.
Management believes that based on current levels of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds including the availability of seasonal borrowings
under the New Credit Facility will be adequate for the foreseeable future to
make required payments of principal and interest on the Company's indebtedness,
to fund anticipated capital expenditures and working capital requirements. The
ability of the Company to meet its debt service obligations and reduce its total
debt will be dependent, however, upon the future performance of the Company
which, in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond the Company's control. A
portion of the debt of the Company bears interest at floating rates; therefore,
its financial condition is and will continue to be affected by changes in
prevailing interest rates.
INFLATION
The Company believes that inflation has not had a material impact on the
results of operations of either the Consumer Products Division or the Specialty
Paper Division.
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<PAGE> 47
INDUSTRY OVERVIEW
The paper industry is generally divided into three market segments: (i)
printing and writing papers; (ii) packaging; and (iii) tissue. The Company
competes in the tissue segment and the premium end of the printing and writing
papers segment. The Company also produces release and other technical/specialty
papers.
TISSUE
Tissue paper is used principally for bath tissue, facial tissue, napkins
and paper towels and is sold to consumer and commercial/industrial customers.
According to industry sources, the U.S. tissue industry has among the highest
profit margins and most stable growth rates in the paper industry. From 1975 to
1996, total shipments for the U.S. tissue industry increased from 4.0 million
tons to 6.3 million tons, a compound annual growth rate of 2.2%. In the last 10
years total shipments have declined only once and in the last 22 years shipments
have not declined in successive years.
[U.S. SHIPMENT OF TISSUE BAR CHART]
In 1996, the U.S. consumer tissue industry had sales of approximately $7
billion, which accounted for approximately 63% of the U.S. tissue industry's
sales. Domestic consumer tissue shipments grew from 2.7 million tons in 1984 to
3.9 million tons in 1996, a compound annual growth rate of 3.1%. The Company
believes that shipment growth rates in the consumer market are primarily
affected by population growth trends and general economic growth. In 1996,
branded premium products, branded value products and private label products
accounted for 44%, 40% and 16%, respectively, of total consumer tissue
shipments. In 1996, bath tissue accounted for 54% of the market, with paper
towels making up 31%, and facial tissue and napkins accounting for the
remainder. Historically, the primary channels of distribution for the at home
market have been grocery stores, and to a lesser extent, retail drug stores and
pharmacies. However, during the past several years mass merchandisers and
warehouse clubs have become increasingly important distribution channels.
The private label market is a niche market in the tissue segment of the
paper industry. The Company believes that there are significant opportunities
for growth in the private label tissue market because of: (i) increased
recognition by consumers that private label tissue products offer quality at
value prices; (ii) increased emphasis by retailers who generally receive higher
margins on private label tissue products than on their nationally branded
counterparts; and (iii) the growth of mass merchandisers and wholesale clubs
which have traditionally emphasized private label tissue products.
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<PAGE> 48
The Company believes that tissue segment operating rates (i.e., actual
production divided by industry capacity) of approximately 92% to 93% represent
balanced supply and demand. During the period from 1991 through 1993, tissue
industry operating rates fell to approximately 91% due to higher than historic
capacity additions. At the same time, there was significant price competition in
the premium branded segment of the market which, as seen in the chart below,
effectively capped prices for the period from 1991 through 1994. According to
the American Forest & Paper Association, tissue industry operating rates have
since increased from the levels experienced in 1992 and were 94.3% for the year
ended December 31, 1997. The tissue pricing environment has improved as
operating rates increased, price competition at the premium level decreased and
market prices, as measured by the tissue price index shown in the table below,
have increased by 10.8% (as of September 30, 1997) since 1994 and at a compound
annual rate of 4.6% since 1975. According to information provided by the
American Forest & Paper Association, capacity additions are expected to be
approximately 2.3% in 1998 and approximately 3.8% in 1999. Since this
information was published, there have been public announcements of capacity
curtailments that would reduce industry capacity growth to (0.1)% in 1998 and
3.0% in 1999. These rates compare to the growth rate in industry capacity of
2.1% per year from 1977 to 1997 and 1.7% per year for the last five years ended
1997.
<TABLE>
<CAPTION>
1975 100
Measurement Period
(Fiscal Year Covered) 110
122
<S> <C>
1978 130
144
167
1981 179
182
186
1984 188
194
197
1987 198
209
229
1990 246
248
249
1993 245
242
263
1996 273
267
</TABLE>
PRINTING AND WRITING PAPERS
Coated Paper
Coated papers are primarily used in media and marketing applications
including corporate annual reports, high-end advertising brochures, magazines
and catalogs, and direct mail advertising. Coated papers can be split into two
main categories based on price and quality: coated groundwood papers (made with
10% or more of mechanical pulp) and free-sheet papers (made with chemically
treated pulp). Chemically treated pulp produces brighter and stronger paper than
groundwood pulp. Coated papers are further differentiated into five product
grades of decreasing brightness ranging from No. 1 (highest quality and
brightness) to No. 5 (lowest quality and brightness). Each grade is produced in
a variety of basis weights (weight per sheet size) and finish which can be
gloss, dull or matte. The coating process changes the gloss, ink absorption,
texture and opacity of the paper to meet the performance requirements of each
customer group.
44
<PAGE> 49
The following table shows the characteristics, applications and relative
market size of each of the coated paper grades.
<TABLE>
<CAPTION>
GENERAL 1997 U.S.
GRADE CHARACTERISTICS TONS SOLD BASESTOCK BRIGHTNESS TYPICAL USE
- ----- ------------------ --------- ------------------ ---------- ------------------
<S> <C> <C> <C> <C> <C>
No.1... Enameled, double- 455,255 High-brightness 82 to 88 Corporate
coated, expensive chemical pulp, communications,
base and coating, heavily filled high-end
high gloss advertising
No.2... Double-coated, 1,142,314 High-brightness 78 to 82 Expensive
expensive base and chemical pulp advertising,
coating brochures,
magazine covers
No.3... Single or double 2,218,619 Chemical pulp, 76 to 82 Upscale catalogs,
coated, lower minor amounts of direct mail
quality basesheet groundwood promotions,
magazines and text
books
No.4... Lower cost, lower 1,146,307 Groundwood and 72 to 78 Magazines,
brightness chemical pulp, catalogs and
some clay filler direct mail
catalogs
No.5... Lower basis 3,934,199 Mostly groundwood 68 to 72 Mass market,
weight, high or thermo- catalogs, weekly
groundwood content mechanical pulp, magazines, large
chemical pulp volume mailings
---------
Total 8,896,694
</TABLE>
- ------------------------------
Sources: American Forest & Paper Association.
The Specialty Paper Division primarily produces No. 1 and No. 2 premium
grades of paper. No. 1 and No. 2 premium grades of paper accounted for
approximately 1.5 million tons, or 19.1%, of the total 7.8 million tons of
coated two-sided printing paper produced in 1996. Coated free-sheet is typically
used for corporate annual reports, high-end advertising brochures, magazines and
catalogs, coffee table books and menus for which higher reproduction and
graphics quality is required. These grades are characterized by short production
runs with frequent grade changes.
Coated paper demand and prices are cyclical. Prices are driven by domestic
supply and demand and to a lesser extent by the availability and price of
imports. Coated two-sided printing paper net imports accounted for 8.6% of
domestic consumption in 1996. Demand is generally correlated with domestic
economic conditions and more specifically to consumption in end-use markets such
as magazine and book publications, food and consumer packaging and business
papers. From 1988 to 1993 North American and European coated paper manufacturers
increased capacity by approximately six million tons or approximately 40%. At
the same time the world's economies moved into a recession which resulted in
decreased demand, low operating rates and decreased prices. The improved
economic environment and increased demand resulting from a pick-up in
advertising pages, catalogs and new publications fueled higher selling prices
and lower inventories during 1994 with prices for No.1 coated free-sheet peaking
in mid-1995. In response to near record prices demand decreased late in 1995 and
through 1996 resulting in lower realized prices across all coated paper grades.
Release and Other Technical/Specialty Papers
The Company also produces release and other technical/specialty papers.
Release paper is used for backing paper for products ranging from postage stamps
to food labeling. According to an industry source, this
45
<PAGE> 50
market has had a compound annual growth rate of 8.8% for the period from 1993
through 1997. Much of this growth has been driven by (i) consumer applications
such as food nutritional labeling, self-adhesive postage stamps and computer
printer labels and (ii) industrial applications such as bar code labels,
automotive trim and insulation applications.
Uncoated Papers
The Specialty Paper Division participates to a small degree in the uncoated
paper market. The Specialty Paper Division produces a film coated sheet sold
under the brand name Satin Kote which is a hybrid between the coated and
uncoated segment. The Specialty Paper Division also sells some uncoated offset
as filler tonnage when needed.
46
<PAGE> 51
BUSINESS
GENERAL
The Company is a leading U.S. producer and marketer of value-added paper
products for niche markets within the paper industry. The Company conducts its
business through two divisions: (i) the Consumer Products Division, which
produces private label consumer tissue products such as bath tissue, paper
towels, napkins and facial tissue, and (ii) the Specialty Paper Division, which
produces premium coated and uncoated printing papers and release and other
technical/specialty papers. The Company has established leading market positions
in certain of these niche markets by combining high quality products, broad
product offerings, strong customer service, efficient manufacturing and the
significant use of recycled materials. In addition, the Company believes that
operating in different niche markets provides the Company with a larger, more
diversified income stream.
BUSINESS STRATEGY
The Company's business strategy is to increase revenues and profitability
in its Consumer Products Division and Specialty Paper Division. The Company
intends to implement its strategy by: (i) capitalizing on attractive niche
markets; (ii) fully utilizing existing capacity; (iii) increasing sales of
higher margin products; (iv) enhancing its high level of customer service; (v)
reducing costs and increasing operating efficiencies; and (vi) pursuing
strategic acquisitions.
- CAPITALIZE ON ATTRACTIVE NICHE MARKETS. The Company has positioned
itself to take advantage of several niche markets within the paper
industry which it believes are attractive and growing. The Consumer
Products Division has established a leading market position in the
private label segment of the at-home consumer tissue market. The Company
believes that the private label tissue market will continue to be an
attractive niche market because of: (i) increased recognition by
consumers that private label tissue products offer quality at value
prices; (ii) increased emphasis by retailers who generally receive higher
margins on private label tissue products than on their nationally branded
counterparts; and (iii) the growth of mass merchandisers and wholesale
clubs which have traditionally emphasized private label tissue products.
The Company believes the premium printing paper, release and
technical/specialty paper niche markets offer generally higher margins,
fewer competitors and more stable prices than the commodity paper market.
In addition, according to industry sources, U.S. sales of coated
two-sided No. 1 and No. 2 paper, the division's primary printing
products, grew at 6.3% and 8.6%, respectively, for 1997 from 1996. The
Company further believes it is well positioned for growth in these niche
markets due to the Specialty Paper Division's technical expertise,
flexible manufacturing capabilities and customized selling process.
- FULLY UTILIZE EXISTING CAPACITY. The Company's objective is to fully
utilize existing capacity in both the Specialty Paper Division and the
Consumer Products Division. The Specialty Paper Division has recently
been operating at production levels which are below the approximately
88,000 tons, respectively, of finished product which it produced in 1994.
During 1996 and 1997, the Specialty Paper Division produced approximately
67,450 tons and approximately 83,903 tons, of finished product. The
Company believes that in the future it can exceed production levels which
were achieved in 1994. In addition, the Company believes that there is
additional converting capacity in the Consumer Products Division which
can be utilized over the next twelve months. The Consumer Products
Division also intends to commence full scale production of "pop-up"
facial tissue by mid-1998. The Company expects to invest approximately
$3.7 million (of which $742,000 has been invested as of December 31,
1997) to acquire and install the necessary "pop-up" converting equipment
which will add approximately 5,000 tons of converting capacity.
- INCREASE SALES OF HIGHER MARGIN PRODUCTS. The Company plans to continue
to increase sales of higher margin products. The Consumer Products
Division has successfully increased sales of higher
47
<PAGE> 52
margin two-ply bath tissue and paper towels from 43.2% of tons sold in
1994 to 54.2% of tons sold in 1997. The Company plans to commence in
mid-1998 the full scale production of higher margin "pop-up" facial
tissue. The Company expects this new product will enhance the Company's
product line, result in increased sales to the division's existing
customers and generate incremental demand for all its private label
tissue products. The Specialty Paper Division plans to use its focused
marketing, product engineering capabilities and flexible manufacturing to
continue to develop new higher margin products for niche applications. In
addition, the Company will also continue to focus on increasing sales of
its existing higher margin products, such as its Kashmir(R) brand of No.
1 coated printing paper.
- ENHANCE HIGH LEVEL OF CUSTOMER SERVICE. The Company intends to continue
to enhance its high level of customer service to strengthen its
relationships with its customers. The Company believes that the Consumer
Products Division is currently the only private label tissue supplier to
its customers that utilizes EDI and VMI systems, which enable the Company
to assist customers with inventory management, the development of a
favorable product mix and the implementation of category management
programs. The Company believes that continued high levels of customer
service will further increase sales to existing mass merchandisers and
warehouse club customers and attract new ones.
Management believes that it can extend the application of the Consumer
Products Division's computerbased customer service system to customers of
the Specialty Paper Division. The system should provide the Specialty
Paper Division with a competitive advantage as it seeks to better serve
its customer base. In addition, the Specialty Paper Division's sales and
service staff expects to continue to fulfill its customers' needs through
a highly specialized technical service staff and research and development
team.
- REDUCE COSTS AND IMPROVE OPERATING EFFICIENCIES. The Company continually
focuses on reducing costs and improving operating efficiencies. For
example, the Specialty Paper Division has recently increased
productivity, as measured by tons of production per employee, by 22.4%,
from 210 tons per employee for 1996 to 257 tons per employee for 1997.
The Company intends to continue to focus on the Specialty Paper
Division's cost reduction efforts as well as implement cost reduction
efforts at the Consumer Products Division to: (i) improve manufacturing
and converting yield; (ii) reduce freight transportation costs; (iii)
improve fiber purchasing and mix; (iv) reduce energy and other
manufacturing costs; and (v) eliminate duplicative administrative
functions.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to supplement its
growth strategy by actively evaluating specialty paper acquisition
candidates to expand its manufacturing capacity, strengthen its presence
within various channels of distribution, serve new geographic markets or
further diversify its operations and income stream. The Company is in
discussions from time to time with potential acquisition candidates and
believes that the ongoing consolidation of the North American paper
industry should present the Company with attractive acquisition
opportunities.
PRODUCTS
The following table sets forth net sales of the Consumer Products Division
and the Specialty Paper Division for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Consumer Products Division.................................. $107.0 $133.7 $136.2
Specialty Paper Division.................................... 101.0 85.2 86.7
------ ------ ------
Total............................................... $208.0 $218.9 $222.9
====== ====== ======
</TABLE>
Consumer Products Division. The Consumer Products Division's broad line of
private label consumer tissue products includes bath tissue, paper towels,
napkins and facial tissue which range from economy to premium quality grades,
including premium quality paper towels and napkins. Its product assortment is
48
<PAGE> 53
designed for the private label consumer tissue market. The Company intends to
add "pop-up" tissue to its product offering in mid-1998 and believes that with
this addition, the Company will have a broad product line that offers retailers
one-stop shopping for their private label tissue needs. The division's premium
products include two-ply bath tissue and paper towels, napkins and paper towels
with embossing and colored prints in a variety of designs, including seasonal
designs. In addition, from time to time the Consumer Products Division sells
excess jumbo rolls of tissue (i.e., large rolls of manufactured paper used for
conversion into finished product) to other tissue converters.
The following table sets forth the Consumer Products Division's net sales
and tons sold by product line for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------------------------- ---------------------
1995 1996 1997 1998
--------------------- --------------------- --------------------- ---------------------
(DOLLARS IN MILLIONS)
NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-Ply Bath Tissue............. $ 12.9 10,513 $ 15.7 11,229 $ 17.7 13,369 $ 8.5 6,380
2-Ply Bath Tissue............. 29.8 22,750 34.2 24,021 36.5 27,579 18.8 14,420
Facial Tissue................. 9.6 5,455 9.8 5,110 9.4 4,854 5.4 2,693
Napkins....................... 17.0 11,599 23.0 13,229 22.4 13,331 11.4 7,123
1-Ply Paper Towels............ 8.6 8,128 11.1 8,991 11.4 9,620 4.1 3,376
2-Ply Paper Towels............ 26.8 19,161 37.3 24,272 36.6 24,958 19.9 13,441
Jumbo Rolls................... 2.3 3,003 2.6 3,593 2.2 3,177 .5 828
------ ------ ------ ------ ------ ------ ----- ------
Total................. $107.0 80,609 $133.7 90,445 $136.2 96,888 $68.6 48,261
====== ====== ====== ====== ====== ====== ===== ======
</TABLE>
Specialty Paper Division. The Specialty Paper Division produces and
supplies premium coated and uncoated printing papers and release and other
technical/specialty papers throughout the U.S. to end users which require high
quality and high performance paper. Premium coated printing paper is used for
corporate annual reports, high-end advertising brochures, magazines and
catalogs, coffee table books, menus and high quality, full color desktop
publishing. Uncoated printing paper is used for quality books, manuals, direct
mail, brochures, reply cards, newsletters, inserts, maps, data sheets and
envelopes. Release papers include base papers which are silicone coated by the
division's customers and used as a protective layer or backing paper for
pressure sensitive applications. Applications include release papers for
self-adhesive postage stamps, mailing labels, bar code labels, and labels for
retail food packages. Release papers are also increasingly being used to protect
industrial adhesives used as fastening systems for certain automotive trim and
aircraft applications as well as for the manufacture of sound, thermal and
electrical insulating materials. Other technical/specialty papers are used for
special dry release, cigarette mouthpiece, tamperproof label, archival bond and
other customer specific applications. The division's sales force, specialized
technical service staff and research and development team work closely with
customers to improve its products and to develop new products to address market
needs. The division's research and development team is currently developing new
coated printing paper products for use in connection with digital imaging
systems such as desktop color ink jet printers and digital printing presses.
The following table sets forth the Specialty Paper Division's net sales and
tons sold by product line for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR JUNE 30,
--------------------------------------------------------------------- ---------------------
1995 1996 1997 1998
--------------------- --------------------- --------------------- ---------------------
(DOLLARS IN MILLIONS)
NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Coated Printing Paper............. $ 44.0 34,773 $38.6 32,682 $42.6 39,349 $21.7 18,479
Uncoated Printing Paper........... 12.9 12,706 9.1 10,606 9.2 11,746 6.0 7,527
Release Paper..................... 42.0 30,467 35.4 28,303 33.5 27,037 13.5 10,834
Other Technical/Specialty
Paper(1)........................ 2.1 1,716 2.1 1,428 1.4 2,198 1.9 1,678
------ ------ ----- ------ ----- ------ ----- ------
Total......................... $101.0 79,662 $85.2 73,019 $86.7 80,330 $43.1 38,518
====== ====== ===== ====== ===== ====== ===== ======
</TABLE>
- ---------------
(1) Includes sales adjustments.
49
<PAGE> 54
MARKETING AND SALES
Consumer Products Division. The Consumer Products Division's marketing and
sales efforts are primarily targeted at the retail consumer market. It sells
products through a number of distribution channels including mass merchandisers,
warehouse clubs, supermarkets and drug store chains principally in the Midwest
and the Northeast. Approximately 90% of its consumer products are sold under
major grocery and mass merchandisers' private label brand names which the
Company believes have become well-recognized and accepted among their
value-conscious consumers. The remaining 10% of the division's products are sold
under its own brand names such as Nature's Choice(R), Best Value(R), Pert(R) and
Capri(R) generally by smaller retailers that do not have their own private label
brand names.
The Consumer Products Division markets and sells its products to a wide
variety of customers through an eight-person sales force and selected
independent brokers. Its sales force works directly with customers to evaluate
and develop favorable product mixes and to implement category management
programs that are designed to assist customers with distribution and inventory
management. The Consumer Products Division has developed and implemented an
integrated computer-based customer service system which includes technologies
such as EDI, VMI, Advanced Shipment Notification ("ASN") and Continuous
Replenishment Planning ("CRP"). The system provides real-time information on
customers, orders, shipments and inventory status. Using such information, the
division is able to monitor and replenish customer inventories, provide
information on category activity and shelf space profitability and to offer
just-in-time order delivery to its top customers. In addition, such information
is used to schedule production operations in a cost effective manner and to
maintain sufficient inventories to meet customer demand. The Consumer Products
Division has six customer service representatives and four scheduling
representatives who serve customers by processing, tracking and confirming
orders and answering general product inquiries. Customer service and scheduling
representatives are linked to its customer service database and are capable of
providing customers with inventory and order data. Such representatives manage
the day-to-day operation of the EDI, ASN, CRP and VMI services to evaluate
customers' inventory needs and product mix and enable the division to maintain a
dialogue with customers. The Company believes that from these services, the
Consumer Products Division has fostered long-term relationships with many of its
customers through its efforts to increase customer profitability in the private
label tissue industry and to provide high levels of customer service. The
Company believes that such system provides a significant competitive advantage
and has been an important factor in increasing sales to mass merchandisers and
wholesale clubs from approximately 4,268 tons in 1993 to approximately 29,800
tons for 1997.
The Consumer Products Division's marketing and sales effort includes
materials such as printed advertisements in trade publications, targeted direct
mailings and product brochures which assist the promotion of products by its
customers. The Company also has agreements with approximately 30 selected
independent brokers for the marketing and sale of the division's various
products to certain customers. The agreements are generally for a one-year term
and are terminable by either party upon 30 days written notice. The brokers
receive commissions which range from one to three percent of net sales.
Specialty Paper Division. The Specialty Paper Division uses two separate
sales forces to market and sell its products. Premium coated and uncoated
printing papers are sold to customers in major metropolitan markets through a
four-person sales force focused primarily to paper merchants which market such
products to graphic designers, specialty and commercial printers. Premium coated
printing paper is marketed and sold under the Kashmir(R) brand name and the
division's new brand name, "Plainwell." The Specialty Paper Division markets and
sells a film-coated grade of printing paper to printing markets under the brand
name Satin Kote. The Company's sales groups and research and development
department frequently work with end users such as graphic designers, printers
and hardware companies such as printer manufacturers to develop products
tailored for specific customer requirements.
The release and other technical/specialty papers are sold by a dedicated
three-person technical sales group. These products are sold directly to the
division's customers which include companies that silicone coat base papers for
use as a protective layer or backing paper for pressure sensitive applications
by end users. The division's customers also include other industries that use
release and other technical/specialty papers. In
50
<PAGE> 55
providing a customized product offering, the Company seeks to capitalize on its
technical product development and flexible manufacturing capabilities to
differentiate itself from its competitors.
CUSTOMERS
Consumer Products Division. The Consumer Products Division has well
established relationships with its customer base and serves as a major private
label tissue supplier to many of its customers. The division sells its products
to customers located throughout the U.S., with a concentration near its
manufacturing facilities in the Midwest and Northeast. Its customers include:
(i) mass merchandisers such as Kmart Corporation and Wal-Mart Stores, Inc.; (ii)
warehouse clubs such as B.J. Wholesale Club; (iii) supermarkets that operate
under the names A&P, Giant, Tops Markets and Stop & Shop; and (iv) other
retailers and wholesalers. In 1997, its top 10 customers accounted for
approximately 77.5% of its net sales. The Company expects to focus on increasing
the Consumer Products Division's sales to its top customers and large, growing
customers such as mass merchandisers and wholesale clubs that typically purchase
a full line of products which generally involve higher volume transactions and
fewer SKUs. By focusing on these larger accounts, the Consumer Products Division
is able to improve overall efficiency through longer production runs and reduced
inventory.
Specialty Paper Division. Premium coated and uncoated papers are sold to
paper merchants such as Zellerbach, a division of Mead, and Unisource. Release
and other technical/specialty papers are sold to silicone coating companies such
as the Akrosil Division of the International Paper Company and Avery Dennison
Corporation. In 1997, the 10 largest customers of the Specialty Paper Division
represented 67.5% of its net sales. In conjunction with the 1997 Acquisition,
Holdings and Simpson entered into a requirements contract pursuant to which
Simpson has the right to purchase specific products from Plainwell Paper
Company. The Specialty Paper Division has agreed to supply Simpson with up to
20,000 tons of a specific product during the initial year (and an additional two
years if the term is extended by Simpson) under Simpson's brand name to maintain
continuity of supply of products. See "Risk Factors -- Dependence on Certain
Customers."
MANUFACTURING
Consumer Products Division. The Consumer Products Division operates two
paper mills which have an estimated combined capacity to produce 110,000 tons of
tissue paper per year. Each mill is equipped with (i) a wet crepe paper machine
used to process pulp to manufacture products that require greater strength and
durability such as paper towels, and (ii) a dry crepe machine used to process
pulp to manufacture lighter weight products that emphasize softness and
brightness such as bath tissue and facial tissue. The mill located in Eau
Claire, Wisconsin pulps, de-inks and removes debris such as staples and fine
fiber remnants from pre-consumer and post-consumer wastepaper to produce pulp.
As a result of a recent $21.0 million investment in the Eau Claire, Wisconsin
facility, it has excess capacity of 25,000 tons of pulp per year which could
support future growth of paper making operations. The mill located in Ransom,
Pennsylvania uses pre-consumer wastepaper, predominantly polycoated trimmings
from the production of paper cups and food board used in frozen food packaging,
to produce pulp. The mill separates the polycoating from the wastepaper which is
washed and does not require de-inking. The Ransom, Pennsylvania facility blends
minimal amounts of virgin fiber with its recycled pulp. The Ransom, Pennsylvania
facility uses a computerized monitoring process to ensure quality control.
Converting involves mounting jumbo rolls of paper on converting machines
which unroll, emboss and print tissue as needed. The machines then roll or fold
the processed tissue into finished products such as bath tissue, napkins or
paper towels. Finished goods are then packaged and stored in warehouses. The
Company conducts converting operations at its Eau Claire, Wisconsin facility and
Pittston, Pennsylvania facility which is located near the Company's Ransom,
Pennsylvania facility.
Specialty Paper Division. The Plainwell Mill has three Black Clawson
Fourdrinier paper machines with independent fiber lines and associated
converting operations. The mill has an estimated capacity to produce 99,600 tons
of paper per year. The Plainwell Mill uses a wide range of pulp grades purchased
from outside suppliers as well as large volumes of post-industrial and
post-consumer waste to meet product specifications.
51
<PAGE> 56
Each of the three paper machines has its own dedicated stock preparation line
matched to the size of the machine. The lines can be interchanged to allow for
specialty runs which enables greater flexibility. The Plainwell Mill is able to
blend a broad range of fibers, including a high percentage of generally lower
cost recycled fibers, into a base sheet which is then coated using a rod coating
technology. The Company believes that this technology and its capability to
produce high quality recycled content papers provide the Company with
significant cost savings and marketing advantages. The mill has complete process
control and on-line dye control through a Measurex system that allows the mill
to meet and maintain exact customer specifications. The division's converting
operations are housed in a 32,000 square foot facility adjacent to the paper
machine building. Approximately 60% of the Plainwell Mill's production is
shipped in roll form, and the mill has an automated roll wrap system. The
remainder of the mill's production is sheeted on cutter/trimmer operations. The
quality control system at the Plainwell Mill is ISO 9002 certified.
COMPETITION
Consumer Products Division. The private label consumer tissue products
industry is highly competitive. The Consumer Products Division competes with
large, vertically integrated, multinational companies and smaller, regional
companies. The markets in which the division operates have been increasingly
characterized by a limited number of large companies selling under recognized
brand names. Some of the division's competitors are significantly larger than
the Company, are vertically integrated and have equal or greater access to
financial and other resources. The Consumer Products Division's primary
competitors include Fort James Corporation, Georgia-Pacific Corporation,
Shepherd Tissue Inc., American Tissue Corporation, Orchids Paper Products Co.
and Potlach Corporation. The Company believes that it has a competitive
advantage over most of such competitors based largely on its focus on private
label tissue products, its integrated computer-based customer service and the
Company's ability to offer a broad range of products at competitive prices and
to deliver these products on a timely basis.
Specialty Paper Division. The Specialty Paper Division sells products in
the highly competitive premium coated printing paper and release and other
technical/specialty paper markets. The division's products directly compete with
those of a number of companies, some which are significantly larger than the
Company and which have integrated pulp supplies at their mill sites. Such
companies may manufacture a significant amount of their pulp requirements which
may reduce their exposure to fluctuations in the market price of pulp compared
to the Company. See "Risk Factors -- Risks Associated with Fluctuations in
Supply and Costs of Raw Materials." In addition, certain of the mills operated
by the division's competitors may be lower cost producers of pulp and coated
paper than the Plainwell Mill. The Specialty Paper Division's main competitors
in premium coated printing paper and release and other technical/specialty paper
markets include Champion International Corporation, Consolidated Papers Inc.,
Potlach Corporation, S.D. Warren Co., the Nicolet Division of International
Paper Company, and Rhinelander Paper Company, Inc. and Otis Specialty Papers,
units of Wausau-Mosinee Paper Corporation. The Company believes that it has a
competitive advantage based largely on its ability to produce small quantities
of highly customized products that vary in specifications such as paper weight,
opacity, brightness and coatings. See "Risk Factors -- Competition."
RAW MATERIALS AND SUPPLIERS
Consumer Products Division. Raw materials are a significant component of
the Consumer Products Division's cost structure. Principal raw materials for the
division's products are pre-consumer and post-consumer waste paper. Wastepaper
is purchased by the division under a combination of supply arrangements with
brokers located in the Midwest and the Northeast. In order to minimize freight
costs, the Consumer Products Division focuses on maintaining and establishing
relationships with dealers located near its manufacturing facilities and in
proximity to urban areas where a majority of post-consumer waste is produced.
The division has a network of consistent suppliers for substantially all of its
raw materials and believes that current sources of supply are adequate to meet
its requirements. The division purchases the bulk of its raw materials under
purchase orders.
Specialty Paper Division. The Specialty Paper Division depends on pulp as
a key raw material for the manufacturing of its products. All supplies and raw
materials, including pulp, are sourced and purchased by
52
<PAGE> 57
the Plainwell Mill under purchase orders. The purchasing department utilizes a
broad network of suppliers who provide all goods and services necessary for the
mill's operations. Pulp is purchased locally through a broad based system of
suppliers and brokers. The division seeks competitive bids on all major
purchases to ensure competitive prices and believes that current sources of
supply are adequate to meet its requirements. The Company's energy requirements
are satisfied through electricity, water, and natural gas. See "Risk
Factors -- Risks Associated with Fluctuations in Supply and Costs of Raw
Materials."
FACILITIES
The Company owns manufacturing, converting and warehouse facilities at the
locations shown in the following table:
<TABLE>
<CAPTION>
SIZE (APPROXIMATE
LOCATION DIVISION TYPE OF FACILITY SQUARE FEET)
-------- -------- ---------------- -----------------
<S> <C> <C> <C>
Eau Claire, Wisconsin Consumer Products Manufacturing, Converting, 462,000
Distribution, Warehouse
Pittston, Pennsylvania Consumer Products Converting, Distribution, 330,000
Warehouse
Ransom, Pennsylvania Consumer Products Manufacturing 238,000
Plainwell, Michigan Specialty Paper Manufacturing, Converting, 526,000
Distribution, Warehouse
Plainwell, Michigan Specialty Paper Warehouse 40,000
</TABLE>
The Company's executive offices are located in Plainwell, Michigan. The
Company also leases warehouse space in Eau Claire, Wisconsin and, on a
short-term, as needed basis, at locations in Pennsylvania.
EMPLOYEES
As of March 31, 1998, the Company employed 1,086 persons, consisting of 748
persons at the Consumer Products Division and 338 persons at the Specialty Paper
Division. All of the Company's hourly production employees are represented by
the United Paperworkers International Union, and all of the Company's facilities
are covered by labor agreements. The labor agreement covering the Wisconsin
facility expires in March 2000. The labor agreements for the Ransom and
Pittston, Pennsylvania facilities expire in September 1999. The labor agreement
for the Plainwell Mill expires in November 2000.
The employees at the Eau Claire, Wisconsin facility participate in a
multiemployer pension plan which is not administered by the Company but by a
separate plan administrator. Under the Multiemployer Pension Plan Act of 1980,
if a contributing employer totally or partially withdraws from an underfunded
multiemployer plan, the employer would become liable to fund a portion of the
plan's unfunded vested liability. The plan administrator informed Pope & Talbot,
Inc. in a letter dated December 6, 1996 that if Pope & Talbot, Inc. withdrew in
1996 from the multiemployer plan relating to the Eau Claire, Wisconsin facility,
the withdrawal liability would have been $9.7 million. The Acquisition will not
cause a withdrawal to occur and management has no intention of changing
operations so as to subject the Company to any material withdrawal obligation
under such plan.
In 1995, to address the Ransom, Pennsylvania facility's historically high
labor cost structure, the Company implemented a labor contract which resulted in
an eight-month strike. The division's union employees in Ransom, Pennsylvania
rejected this contract, went on strike for eight months and returned to work in
December 1995. The strike was resolved in December 1995 and a new labor
agreement was adopted, resulting in increased workforce flexibility and reduced
labor costs. The Company considers its relationships with its employees to be
good.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. Management does not believe that the outcome of any of
the matters in which the Company is currently involved will have a material
adverse effect on the financial condition or results of operations of the
Company.
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<PAGE> 58
ENVIRONMENTAL MATTERS
The Company is subject to increasingly stringent and comprehensive federal,
state and local environmental requirements, including laws and regulations
relating to air emissions, wastewater management, the handling and disposal of
solid and hazardous waste and related financial responsibility requirements, and
the cleanup of properties affected by hazardous substances. Certain
environmental laws impose significant penalties for noncompliance, and others
impose strict, retroactive, joint and several liability on persons responsible
for releases of hazardous substances. The Company believes that its operations
have been and are in substantial compliance with environmental requirements, and
that it has no liabilities arising under such requirements except as would not
be expected to have a material adverse effect on the Company's operations,
liquidity or financial condition.
The Company estimates that $730,000 will be spent in 1998 on environmental
compliance and clean up work at its operating locations. Although the Company
believes its estimate of 1998 costs is reasonable, there can be no assurances
that actual expenditures will not exceed the estimated amount.
The Company owns and operates a landfill in the Township of Washington,
Wisconsin, for disposal of its paper-making sludge. Pope & Talbot, Wis., Inc.
has already closed two of three sections of the landfill and the Company is
currently monitoring those sections in accordance with requirements of
environmental laws. The Company expects to begin closure of the third section of
the landfill by 2002. Closure will cost approximately $1.3 million, and the
Company will then spend an additional $80,000 per year for 40 years to monitor
the closed landfill. The Company believes that, based on current information and
regulatory requirements, the estimates for the landfill closure established by
the Company are adequate, although there can be no assurance that the costs will
not eventually exceed the amount presently estimated.
The Company or its predecessors has received requests for information and
notice letters from government agencies or other third parties indicating that
the Company may be responsible for costs associated with the investigation and
cleanup of several contaminated sites. Because investigation and remediation
activities at some of these sites are in preliminary stages, the Company cannot
estimate with any certainty the costs it may incur to resolve its involvement in
these known cases. Based on current information about materials sent to the
sites and the fact that the Company has certain indemnification and statutory
rights against its corporate predecessors and other responsible parties, the
Company does not expect these matters to have a material adverse effect on the
Company's operations, liquidity or financial condition.
In 1990, the Company's predecessor was named a potentially responsible
party ("PRP") with respect to the Allied Paper, Inc./Portage Creek/Kalamazoo
River Superfund Site ("Kalamazoo River Site"). The site is named on U.S. EPA's
National Priorities List ("NPL"), the agency's inventory of contaminated sites
designated for ranking and cleanup under the federal Superfund law. According to
investigations conducted by U.S. EPA, the Kalamazoo River and associated paper
mill properties, including the Company's, may be contaminated with
polychlorinated biphenyls ("PCBs"). U.S. EPA believes that the contamination is
a result of historical paper-making operations at a number of mills in the
Kalamazoo area. Simpson entered into an Administrative Consent Order with the
Michigan Department of Environmental Quality ("MDEQ") on December 28, 1990,
under which it and other PRPs agreed to perform certain environmental
investigation activities at the site. In connection with the 1997 Acquisition,
the Company assumed such obligations. The Company also joined a group of four
PRPs, the Kalamazoo River Study Group ("KRSG"), to conduct the work required
under the Order and attempt to identify other PRPs who might contribute to the
investigation and cleanup effort. Litigation involving KRSG and other
prospective PRPs is pending. To the Company's knowledge, neither U.S. EPA nor
the PRPs have developed comprehensive estimates of overall cleanup costs for the
Kalamazoo River Site. Although the Company's share of such costs could be
material, the Company believes that any costs likely to be incurred by it in
connection with this matter would be borne by Simpson pursuant to the indemnity
provisions contained in the 1997 Acquisition agreement. Such provisions
generally provide for indemnification for costs of Known Environmental
Liabilities and provide that costs of Unknown Environmental Liabilities (as such
terms are defined in the 1997 Acquisition agreement) shall be shared by the
Company and Simpson pursuant to a formula which limits the Company's share of
such costs until after the fifth anniversary of the closing date of the 1997
Acquisition. Indemnification is limited in both cases to the amount of the
purchase price. The liabilities associated with the Kalamazoo River Site
contamination are
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<PAGE> 59
Known Liabilities. Therefore, based on its understanding of the Kalamazoo River
Site contamination, the involvement of other PRPs and the indemnity rights
against Simpson the Company does not expect this matter to have a material
adverse effect on the Company's operations, liquidity or financial condition.
One discrete portion (a so-called "Operable Unit") of the Kalamazoo River
Site is the 12th Street Landfill, a property wholly owned by the Company. The
Company expects to pay for the entire cost of the investigation and cleanup work
at this location. An environmental consultant retained by the Company estimates,
based on recent studies of the site and an evaluation of possible cleanup
strategies, that the present value cost of the final remedy is $1.8 million. The
Company expects that costs associated with the 12th Street Landfill, as with
other portions of the Kalamazoo River Site, will be borne by Simpson pursuant to
the indemnity agreement discussed above.
The Company has been identified as a PRP with respect to the West KL Avenue
Landfill NPL site in Oshtemo Township, Michigan. On May 2, 1997, the Company
entered into a Settlement Agreement with other PRPs, one faction of which had
sued another, pursuant to which each PRP agreed to pay a certain share of the
site's cleanup costs. The Company's share of the costs was $15,000. On June 19,
1997, the underlying lawsuit regarding costs associated with the cleanup was
dismissed with prejudice by the U.S. District Court for the Western District of
Michigan. The court's order also barred future claims for contribution and
response costs by non-parties. The Company therefore believes this matter is
resolved. The Company expects that any further costs associated with this matter
would be borne by Simpson pursuant to the indemnity agreement discussed above.
The Company received notice from private parties that it might be liable
for releases of hazardous substances at the Cork Street Landfill NPL Site, in
Kalamazoo, Michigan. The Company believes that wastewater treatment plant
sludge, fly ash and bottom ash from the Plainwell Mill may have been disposed of
at the site in the mid-1980s. Sludge from the mill is currently being sent to
the landfill for use as cover material, with regulatory agency approval.
According to the environmental consultant who reviewed the available information
in 1997, U.S. EPA's responsible project manager has stated that the information
known about the Company's involvement at the Cork Street Landfill would not now
support the agency's naming the entity a PRP with respect to the site. The
Company believes this matter is resolved and expects that any further costs
associated with this matter would be borne by Simpson pursuant to the indemnity
agreement discussed above.
In 1987, the Company's predecessor, Pope & Talbot, Wis., Inc. received a
request for information from the U.S. EPA that indicated that it was considered
a PRP with respect to the Blue Valley Landfill Superfund Site in Eau Claire,
Wisconsin. Available records indicate that Pope & Talbot, Wis., Inc. sent a de
minimis amount of wastewater treatment sludge from the de-inking process and
general wastes from the tissue division to the Blue Valley Landfill. Pope &
Talbot, Wis., Inc.'s predecessor at the Eau Claire facility, the Brown Company,
also sent waste to the Blue Valley Landfill Superfund Site and has been named a
PRP with respect to the site. Based on the amount of material that Pope &
Talbot, Wis., Inc. sent to the Blue Valley Landfill, the Company does not
anticipate that its costs associated with the site will have a material adverse
effect on the Company's operations, liquidity or financial condition.
In 1996, Pope & Talbot, Wis., Inc. received notification from U.S. EPA that
it was considered a PRP with respect to the A.E. Schneider & Son Salvage Yard
Site in Chippewa Falls, Wisconsin ("Schneider Site"). U.S. EPA indicated in
subsequent correspondence with Pope & Talbot, Wis, Inc. that it believed that
lead from the Eau Claire, Wisconsin facility might have been disposed of at the
Schneider Site. Pope & Talbot, Wis, Inc. conducted a followup investigation and
reported to U.S. EPA that the only potentially lead-containing waste transported
from the Eau Claire, Wisconsin mill to the Schneider Site was believed to be a
counterweight to a steam engine crane that was disposed of in the mid-1970s,
when Pope & Talbot, Wis., Inc.'s predecessor at the Eau Claire, Wisconsin
facility, the Brown Company, owned the mill. The Company does not believe the
costs associated with this matter will have a material adverse effect on the
Company's operations, liquidity or financial condition.
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<PAGE> 60
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of February 1, 1998, and
a brief account of the business experience of each person who is a director or
executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William L. New......................... 54 Chairman, Chief Executive Officer and
President
Francis J. Fitzpatrick................. 58 Group Executive and Chief Operating
Officer -- Specialty Paper Division
George E. Mangarelli................... 55 Executive Vice President, Chief
Financial Officer -- Specialty Paper
Division, Secretary and Director
Roy E. Fuchs........................... 54 Executive Vice President and Chief
Financial Officer -- Consumer Products
Division
Gary A. Hayden......................... 49 Vice President and General Manager --
Consumer Products Division
Brenton S. Halsey...................... 70 Director
David F. Thomas........................ 48 Director
John D. Weber.......................... 34 Director
</TABLE>
WILLIAM L. NEW has served as Chairman of the Board of Directors, Chief
Executive Officer and President of the Plainwell Paper Company since June 1997.
Prior to that, from September 1995 through May 1997 Mr. New was President and a
Director of the New Group, Inc., consultants to the paper industry. From 1991 to
August 1995, Mr. New founded and was Chairman, Chief Executive Officer and
President of Encore Paper Company. Prior to that, from 1970 to 1991, Mr. New
held various positions at Wisconsin Tissue, previously an affiliate of Philip
Morris (which owned Plainwell Paper Company over this tenure), including
Executive Vice President and Chief Operating Officer. Following the consummation
of the Transactions, Mr. New serves as Chairman of the Board of Directors, Chief
Executive Officer and President of the Company. Since 1991, Mr. New has served
as a director of Integrated Paper Services.
FRANCIS J. FITZPATRICK has served as Executive Vice President and Chief
Operating Officer of Plainwell Paper Company since June 1997. Prior to that he
was a principal in Longmeadow Associates which provided consulting services for
product and market development in the paper industry. From 1982 to 1990, he was
President of Westfield River Paper Company. Prior to that he was Director of
marketing and sales for the Nicolet Division, previously an affiliate of Philip
Morris (which owned Plainwell Paper Company over this tenure). Mr. Fitzpatrick
serves as Group Executive and Chief Operating Officer -- Specialty Paper
Division.
GEORGE E. MANGARELLI has served as Executive Vice President and Chief
Financial Officer of Plainwell Paper Company since July 1997. Prior to that,
from May 1995 to July 1997, he was Senior Vice President, Chief Financial
Officer and Secretary of Encore Paper Company. From 1993 to 1994, Mr. Mangarelli
was Senior Vice President and Chief Financial Officer of Overhead Door
Corporation. From 1990 to 1993, he was Vice President, Finance and Chief
Financial Officer of Global Technology Systems, Inc. Mr. Mangarelli serves as
Executive Vice President, Chief Financial Officer -- Specialty Paper Division,
Secretary and a director of the Company. Mr. Mangarelli is a certified public
accountant.
ROY E. FUCHS has served as a financial consultant to Plainwell Paper
Company since November 1997. Prior to that, from September 1989 to September
1997, he was Vice President, Paper Industry Financing for the CIT Group, Inc.
From 1987 to 1989 he was an independent consultant to the paper industry. From
1974 to 1987 he held positions in finance and marketing management with
International Paper Company. Mr. Fuchs serves as Executive Vice President and
Chief Financial Officer -- Consumer Products Division.
GARY A. HAYDEN has served as Vice President and General Manager -- Consumer
Products Division since June 1997 and has served as Division Manufacturing
Manager for the tissue business of Pope & Talbot
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<PAGE> 61
since 1996. Prior to that, Mr. Hayden served as Resident Manager for the Eau
Claire, Wisconsin facility. From 1977 to 1993, Mr. Hayden worked in various
operational and managerial capacities for Pope & Talbot.
BRENTON S. HALSEY is a director of the Company. Mr. Halsey was the founding
Chief Executive Officer and Chairman of the James River Corporation from 1969 to
1990. He continued as Chairman until 1992 when he became Chairman Emeritus.
DAVID F. THOMAS is a director of the Company. Mr. Thomas has been President
of 399 Venture Partners since December 1994. In addition, Mr. Thomas has been a
Managing Director of Citicorp Venture Capital, Ltd., an affiliate of 399 Venture
Partners, for over five years. Mr. Thomas is currently a director of Lifestyle
Furnishings International Ltd., Galey & Lord, Inc., Anvil Knitwear, Inc., Stage
Stores, Inc., Neenah Foundry Company and a number of private companies.
JOHN D. WEBER is a director of the Company. Since 1994, Mr. Weber has been
a Vice President at Citicorp Venture Capital, Ltd. Previously, Mr. Weber worked
at Putnam Investments from 1992 through 1994. Mr. Weber is a director of Anvil
Knitwear, Inc., Neenah Foundry Company and a number of private companies.
DIRECTOR COMPENSATION
The Company will reimburse directors for any out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, the Company may compensate directors for services provided in such
capacity.
EXECUTIVE COMPENSATION
For the period from June 17, 1997 through December 31, 1997 William L. New,
Francis J. Fitzpatrick and George E. Mangarelli received $168,030, $108,159, and
$101,172, respectively, in cash compensation from the Plainwell Paper Company.
Messrs. New, Fitzpatrick and Mangarelli serve as executive officers of the
Company. The Company is currently negotiating salaries and other cash
compensation to be paid to the executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Halsey, Thomas and Weber comprise the members of the Compensation
Committee of the Board of Directors.
EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENTS
Plainwell Paper Company has entered into an Executive Employment and Stock
Purchase Agreement with William L. New, and in connection with the Transactions,
the Company assumed the obligations of Plainwell Paper Company thereunder. Such
agreement provides for: (i) a three year employment term; (ii) severance
benefits and noncompetition, nonsolicitation and confidentiality agreements in
certain situations; (iii) restrictions on the transfer of Mr. New's common stock
in Holdings; (iv) the vesting of certain of Mr. New's common stock in Holdings
(the "Common Stock"); and other terms and conditions of Mr. New's employment.
See "Certain Transactions -- Executive Employment Stock Purchase Agreements."
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
All of the Company's issued and outstanding capital stock is owned by
Holdings. The following table sets forth certain information with respect to the
equity interests of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK
------------------------------------ -------------
<S> <C>
Plainwell Holding Company(1)................................ 100%
c/o PLAINWELL INC.
200 Allegan Street
Plainwell, Michigan 49080
</TABLE>
- ---------------
(1) Plainwell Holding Company is an affiliate of 399 Venture Partners. The
Management Shareholders also have, through an investment in Plainwell
Holding Company, a beneficial interest in the Company.
DESCRIPTION OF HOLDINGS' CAPITAL STOCK
In connection with the Acquisition, Holdings' certificate of incorporation
was amended and restated to provide for two series of preferred stock (series A
and B) and four classes of common stock (classes A, B, C and D). The Series A
Preferred Stock (the "Series A Preferred") has a liquidation value of $100 per
share, an accruing dividend of 13.0% and a scheduled redemption 13 years after
the closing of the Acquisition. Holdings is authorized to issue 240,000 shares
of Series A Preferred, of which approximately 232,300 shares are issued and
outstanding as of the closing of the Acquisition. The Series B Preferred Stock
(the "Series B Preferred") has a liquidation value of $100 per share, an
accruing dividend of 12.5% and a scheduled redemption 13 years after the closing
of the Acquisition. Holdings is authorized to issue 40,000 shares of Series B
Preferred, of which 35,000 shares are issued and outstanding as of the closing
of the Acquisition. Each share of common stock is entitled to participate pro
rata in any distribution made by Holdings with respect to its common stock. The
Class A Common Stock (the "Class A Common") is Holdings' only class of voting
stock. The holders of Class A Common are entitled to one vote per share. Shares
of Class A Stock are convertible into an equal number of shares of Class B
Common Stock (the "Class B Common"). The Class B Common are non-voting common
stock and are convertible into an equal number of shares of Class A Common upon
the occurrence of a public offering of Holdings' equity securities or at the
election of the holders of a majority of the Class B Common then outstanding.
The Class C Common Stock (the "Class C Common") are non-voting common stock and,
upon any distribution by Holdings upon its common stock, each share of Class C
Common is entitled to a distribution, prior in right to the remaining common
stock of Holdings, equal to the unreturned original cost thereof (as defined in
Holdings' certificate of incorporation) plus a yield of 8.0% compounded annually
on the unreturned original cost thereof from the date of issuance thereof. The
Class D Common Stock (the "Class D Common") is non-voting common stock and, upon
any distribution by Holdings upon its common stock, each share of Class D Common
is entitled to a distribution, junior in right to distributions made on the
Class C Common with respect to the unreturned original cost thereof and prior in
right to the remaining common stock of Holdings, equal to the unreturned
original cost thereof (as defined in Holdings' certificate of incorporation).
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<PAGE> 63
CERTAIN TRANSACTIONS
EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENT
Plainwell Paper Company has entered into an Executive Employment and Stock
Purchase Agreement with William L. New, and in connection with the Transactions,
the Company assumed the obligations of Plainwell Paper Company thereunder. Such
agreement provides for: (i) a three year employment term; (ii) severance
benefits and noncompetition, nonsolicitation and confidentiality agreements in
certain situations; (iii) restrictions on the transfer of Mr. New's common stock
in Holdings; (iv) the vesting of certain of Mr. New's common stock in Holdings;
and other terms and conditions of Mr. New's employment.
STOCKHOLDERS AGREEMENT
In connection with the 1997 Acquisition, Holdings, 399 Venture Partners,
management stockholders and the other stockholders of Holdings entered into a
Stockholders Agreement, dated as of June 16, 1997, as amended ( the
"Stockholders Agreement"). The Stockholders Agreement provides, among other
things, for the following: (i) an agreement by all parties to vote their Common
Stock so as to cause the Board of Directors of the Company to consist of five
members, two of whom shall be selected by 399 Venture Partners (currently,
Messrs. Thomas and Weber), one of whom shall be designated by the holders of a
majority Holdings' Class A Common Stock (currently, Mr. Halsey), one of whom
shall be the Chief Executive Officer of the Company (currently, Mr. New), and
one of whom shall be the Chief Financial Officer of the Specialty Paper Division
(currently, Mr. Mangarelli), (ii) certain restrictions on transfer of the Common
Stock, including, but not limited to, provisions providing that (a) the Company
and certain holders of the Common Stock will have limited rights of first offer
in any proposed third party sale of Common Stock by any of Holdings'
stockholders, and (b) certain holders of the Common Stock will have limited
participation rights in any proposed third party sale of Common Stock by other
stockholders, (iii) certain limited preemptive rights to Holdings' stockholders
with respect to an issuance or sale of Common Stock by Holdings, and (iv) an
agreement by all parties that, upon approval of a sale of all Common Stock or a
sale of all or substantially all of Holdings' assets by Holdings' Board of
Directors and 399 Venture Partners, such parties will consent to and raise no
objections against such sale and sell its Common Stock in such sale, if so
required.
REGISTRATION RIGHTS AGREEMENT
In connection with the 1997 Acquisition, the parties to the Stockholders
Agreement contemporaneously entered into a Registration Rights Agreement (as
amended, the "Registration Rights Agreement"). Pursuant to the terms of the
Registration Rights Agreement, 399 Venture Partners has the right to require
Holdings, at the expense of Holdings and subject to certain limitations, to
register under the Securities Act all or part of the shares of Common Stock (the
"Registrable Securities") held by them. 399 Venture Partners is entitled to
demand up to five long-form registrations at any time and unlimited short-form
registrations. Subject to certain limitations set forth in the Registration
Rights Agreement, all holders of Registrable Securities are entitled to an
unlimited number of "piggyback" registrations, with Holdings paying all expenses
of the offering, whenever Holdings proposes to register Common Stock under the
Securities Act. Each such holder is subject to certain pro rata limitations on
its ability to participate in such a "piggyback" registration. In addition,
pursuant to the Registration Rights Agreement, Holdings has agreed to indemnify
all holders of Registrable Securities against certain liabilities, including
certain liabilities under the Securities Act.
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<PAGE> 64
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
Concurrently with the consummation of the Transactions, the Company entered
into the New Credit Facility with Sanwa Business Credit Corporation. The
following is a summary of the material terms and conditions of the New Credit
Facility and is subject to the detailed provisions of the New Credit Facility
and various related documents entered into in connection with the New Credit
Facility.
General. The New Credit Facility consists of (i) a five-year revolving
line of credit providing up to $35.0 million of availability (the "Revolver")
and (ii) a five-year letter of credit guaranty providing for a maximum amount of
up to $20.0 million (the "LC Facility") to support obligations of the Company
under the Eau Claire IRBs. The Revolver is available in multiple drawings from
time to time, subject to certain limitations, including a requirement that
amounts outstanding under the Revolver (including certain letters of credit
other than the letters of credit applicable to the Eau Claire IRBs) will at all
times be less than a borrowing base based on (i) 85% of the Company's Eligible
Accounts Receivable (as defined), and (ii) 60% of the Company's Eligible Raw
Materials and Finished Goods Inventory (as defined) subject to a cap of $21.0
million. Up to $6.0 million of the amount available under the Revolver may be
used for letters of credit supporting obligations of the Company, which will
reduce the availability under the Revolver. Advances under the Revolver will be
used to finance ongoing working capital and general corporate requirements of
the Company. Under certain circumstances, the Company is required to repay the
Revolver with the proceeds of asset sales.
Interest Rate; Fees. Amounts outstanding under the Revolver bear interest,
at the Company's option, at either (i) the Prime Rate plus a margin which varies
between 0% and .25% depending upon the Company's financial performance and
leverage ratio; or (ii) LIBOR plus a margin which varies between 2.0% and 2.75%
depending upon the Company's financial performance and leverage ratio, payable
monthly in arrears. The Company pays a non-use fee equal to 0.375% of the unused
amount of the Revolver per annum, payable monthly in arrears. In addition, the
Company pays a fee equal to 1.5% per annum on the undrawn face amount of the LC
Facility and a fee equal to 2.0% per annum on the undrawn face amount of letters
of credit issued under the $6.0 million subfacility of the Revolver payable
monthly in arrears plus expenses.
Collateral. The New Credit Facility is secured by a first priority
perfected lien on, and security interest in, all of the Company's common stock
and present and future tangible and intangible assets (subject to first priority
liens on the Eau Claire, Wisconsin facility attributable to the applicable
IRBs), and proceeds thereof, including, without limitation, accounts receivable,
inventory, machinery, equipment, tooling, real property, leasehold interests,
patents, trademarks, copyrights, royalty interest, brand-names, customer lists
and general intangibles, (collectively the "Collateral"); provided, that as of
the Closing Date the Collateral will not include the Company's real property at
its Ransom and Pittston, Pennsylvania facilities or the equipment and fixtures
installed therein. The Revolver and the LC Facility are cross-collateralized.
Under certain circumstances, the Company is required to cash collateralize the
LC Facility.
Covenants. The Company is subject to certain affirmative and negative
covenants contained in the New Credit Facility, including covenants that limit:
(i) liens; (ii) additional indebtedness; (iii) mergers and acquisitions; (iv)
sale of assets; and (v) ability to pay dividends. In addition, the New Credit
Facility requires the Company to maintain compliance with certain specified
financial covenants, including covenants relating to net funded debt to EBITDA,
fixed charge coverage and capital expenditures and requires repayment upon a
change of control (as defined therein).
THE IRBS
Eau Claire Industrial Revenue Bonds
Concurrently with the consummation of the Acquisition, the Company assumed
all liabilities under Industrial Revenue Bonds issued by the City of Eau Claire,
Wisconsin (the "Eau Claire IRBs"). The
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<PAGE> 65
following is a summary of the material terms and conditions of the Eau Claire
IRBs and various related documents.
General. The Eau Claire IRBs mature in 2014, were issued by the City of
Eau Claire, Wisconsin on November 1, 1994, and the proceeds from the sale
thereof were loaned to Pope & Talbot, Wis., Inc. to finance the acquisition,
construction, installation and equipping of a solid waste disposal facility and
to pay certain costs of issuance of the Eau Claire IRBs.
The Eau Claire IRBs are limited obligations of the City of Eau Claire
payable only from amounts paid by Pope & Talbot, Wis., Inc. and its permitted
assigns and other amounts held in certain funds and accounts established under
an indenture (the "Eau Claire IRB Indenture") and pledged therefor. The Company
will be obligated to make payments in amounts sufficient to pay the principal of
and interest and premium on the Eau Claire IRBs and certain other fees and
expenses and to make payments sufficient to pay the purchase price of Eau Claire
IRBs tendered for purchase.
Interest Rate; Fees. The Eau Claire IRBs bear interest at various rates
set forth in the Eau Claire IRB Indenture, subject to adjustment from time to
time. At no time will any of the Eau Claire IRBs bear interest at a rate in
excess of the lesser of (i) 12% per annum or (ii) the maximum rate permitted by
applicable law. In addition, the Company will be obligated to pay a fee equal to
1.5% per annum on the undrawn face amount of the LC Facility. At September 30,
1997, the interest rate on the Eau Claire IRBs was 4.25%.
Demand Purchase Option. At any time or from time to time, the Eau Claire
IRBs may be tendered for repurchase by the holders thereof prior to maturity at
a purchase price equal to the principal amount plus accrued interest. The
repurchase date varies depending upon the interest rate reset date applicable at
the time a holder tenders for repurchase. The sources of funds for the
repurchase of any tendered Eau Claire IRBs is as follows and in the following
order of priority: (i) funds from a bond purchase fund required to be maintained
with the trustee under the Eau Claire IRB Indenture; (ii) proceeds from a
remarketing of the Eau Claire IRBs; (iii) funds drawn from certain permitted
credit facilities established to provide security for certain obligations with
respect to the Eau Claire IRBs; and (iv) any other funds furnished by or on
behalf of the Company.
Redemption. The Eau Claire IRBs may be redeemed by the City of Eau Claire
prior to maturity in whole at the option of the Company during certain periods
and upon the occurrence of certain events, at a redemption price equal to the
principal amount plus accrued interest thereon. The Eau Claire IRBs are also
subject to mandatory redemption by the City of Eau Claire in whole, without a
redemption premium, upon the occurrence of certain tax-significant events
defined and set forth in the Eau Claire IRB Indenture.
Collateral. The payment of the principal and purchase price of and
interest on the Eau Claire IRBs is secured by the LC Facility, which provides
for a maximum amount of up to $20.0 million to support obligations of the
Company under the Eau Claire IRBs.
Covenants. The Company is subject to certain affirmative and negative
covenants contained in the Eau Claire IRB Indenture and related agreements,
including covenants that limit: (i) liens; (ii) additional senior indebtedness;
(iii) mergers and acquisitions; (iv) sale of assets; and (v) ability to pay
dividends. In addition, the Indenture and related agreements require the Company
to maintain compliance with certain specified financial covenants, including
covenants relating debt to net worth, fixed charge coverage and capital
expenditures.
Plainwell Industrial Revenue Bonds
Concurrently with the consummation of the Merger, the Company assumed all
liabilities under the Plainwell IRBs. The following is a summary of the material
terms and conditions of the Plainwell IRBs and various related documents.
General. The Plainwell IRBs mature in 2007, were issued by the City of
Plainwell, Michigan on November 1, 1983 and the proceeds from the sale thereof
were loaned to Plainwell Paper Company to finance the cost of acquiring,
constructing and installing certain facilities including pollution control
facilities.
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The Plainwell IRBs are limited obligations of the City of Plainwell payable
only from amounts paid by Plainwell Paper Company and its permitted assigns and
other amounts held in, or as guaranty of, certain funds and accounts established
under an indenture (the "Plainwell IRB Indenture") and pledged therefor. The
Company is obligated to make payments in amounts sufficient to pay the principal
of and interest and premium on the Plainwell IRBs and certain other fees and
expenses. Following the Merger, the obligations of the Company under the
Plainwell IRBs remained subject to the absolute and unconditional guaranty of
Philip Morris Corporation, a Virginia corporation and former parent of the
Specialty Paper Division, pursuant to a parent guaranty agreement.
Interest Rate; Fees. The Plainwell IRBs are variable rate obligations
which bear interest at a rate equal to a benchmark rate, plus an amount in the
range of 1/4% to 2 1/4%, adjusted from time to time in accordance with and
subject to certain exceptions set forth in the Plainwell IRB Indenture. The
interest rate is subject to conversion to a fixed rate of interest at any time
at the option of the Company. At December 31, 1997, the interest rate on the
Plainwell IRBs was 4.45%
Demand Purchase Option. The Plainwell IRBs may be purchased on the demand
of the owners thereof at a purchase price of par plus accrued interest.
Following conversion to a fixed rate of interest, however, the Plainwell IRBs
shall no longer be subject to purchase on demand.
Redemption. The Plainwell IRBs may be redeemed by the City of Plainwell
prior to maturity in whole or in part at the option of the Company (i) at any
time at the redemption price of 100% of the principal amount thereof plus
accrued interest, or (ii) on any interest payment date at various redemption
prices set forth in the Plainwell IRB Indenture. The Plainwell IRBs are also
callable for redemption by the City of Plainwell in whole, without a redemption
premium, if the Company is obligated, or exercises its option, to cause the
Plainwell IRBs to be redeemed upon the occurrence of certain tax-significant or
materially adverse events.
Covenants. The Company is not be subject to any material affirmative or
negative covenants contained in the Plainwell IRB Indenture or related
agreements.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture among the
Company and United States Trust Company of New York, as trustee (the "Trustee").
The terms of the Exchange Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Exchange Notes are subject to all such terms, and
Holders of Exchange Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of the material provisions of
the Indenture does not purport to be complete and is qualified in its entirety
by reference to the Indenture, including the definitions therein of certain
terms used below. Copies of the Indenture and the Exchange and Registration
Rights Agreement will be made available to Holders as set forth under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this "Description of Exchange Notes," the term "Company" refers only
to PLAINWELL INC. and not to Holdings or any of its Subsidiaries.
The Company has not issued, and does not have any current firm arrangements
to issue, any indebtedness to which the Exchange Notes would rank senior or pari
passu in right of payment. The Exchange Notes will be general unsecured
obligations of the Company and will be subordinated in right of payment to all
existing and future Senior Debt of the Company. As of June 30, 1998, which
includes the effect of the Transactions, the amount of the Company's outstanding
Senior Debt was $27.9 million. In addition, the Company has $35.0 million of
additional borrowings available under the New Credit Facility. The Indenture
permits the Company to incur additional indebtedness, including additional
Senior Debt, subject to certain restrictions. See "-- Certain
Covenants -- Incurrence of Indebtedness."
Although the Company currently has no Subsidiaries, under certain
circumstances, the Company will be able to designate any future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants set forth in the Indenture. The Company's payment
obligations under the Exchange Notes will be guaranteed, on a senior
subordinated basis, by all of the Company's future Restricted Subsidiaries, if
any. See "-- Certain Covenants -- Subsidiary Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to
$130,000,000 and will mature on March 1, 2008. Interest on the Exchange Notes
will accrue at the rate of 11% per annum and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
1998, to Holders of record on the immediately preceding February 15 and August
15. Interest on the Exchange 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 of and premium, interest and
Liquidated Damages, if any, on the Exchange Notes will be payable at the office
or agency of the Company maintained for such purpose or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders of the Exchange Notes at their respective addresses set forth in
the register of Holders of Exchange Notes; provided that all payments of
principal, premium, interest and Liquidated Damages with respect to Exchange
Notes the Holders of which have given wire transfer instructions to the Company
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
Company, the Company's office or agency will be the office of the Trustee
maintained for such purpose. The Exchange Notes will be issued in denominations
of $1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Exchange Notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Debt of the
Company, whether outstanding on the Closing Date or thereafter incurred.
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Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of Senior Subordinated Notes will
be entitled to receive any payment with respect to the Senior Subordinated
Notes, and until all Obligations with respect to Senior Debt are paid in full,
any distribution to which the Holders of Senior Subordinated Notes would be
entitled shall be made to the holders of Senior Debt (except that Holders of
Senior Subordinated Notes may receive Permitted Junior Securities and payments
made from the trust described under "-- Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or in respect of the Senior
Subordinated Notes (except in Permitted Junior Securities or from the trust
described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of or premium, or interest on any Designated
Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to any Designated
Senior Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders of
such Designated Senior Debt. Payments on the Senior Subordinated Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage as a result of a nonpayment default may be commenced
unless and until (i) 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice issued as a result of a nonpayment
default. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless the same has been cured
for a period of at least 181 consecutive days, provided that 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Senior Subordinated Notes is accelerated because
of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. As of
March 31, 1998, which includes the effect of the Transactions, the amount of the
Company's outstanding Senior Debt was $27.8 million. The Company will be able to
incur additional Senior Debt in the future, subject to certain limitations. See
"-- Certain Covenants -- Incurrence of Indebtedness."
OPTIONAL REDEMPTION
The Exchange Notes are not redeemable at the Company's option prior to
March 1, 2003. Thereafter, the Exchange Notes are subject to redemption at any
time at the option of the Company, 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 and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on March 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.500%
2004........................................................ 103.666%
2005........................................................ 101.833%
2006 and thereafter......................................... 100.000%
</TABLE>
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Notwithstanding the foregoing, prior to March 1, 2001, the Company may
redeem up to an aggregate of $45,500,000 in principal amount of Senior
Subordinated Notes at a redemption price of 111% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the net cash proceeds of a Public Offering
of common stock of the Company; provided that (i) at least 65% in aggregate
principal amount of the Senior Subordinated Notes originally issued under the
Indenture remain outstanding immediately after the occurrence of such redemption
and (ii) such redemption shall occur within 60 days of the date of the
consummation of each such Public Offering.
SELECTION AND NOTICE
If less than all of the Senior Subordinated Notes are to be redeemed at any
time, selection of Senior Subordinated Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Senior Subordinated Notes are listed, or, if the
Senior Subordinated Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided that no
Senior Subordinated Notes of $1,000 principal amount or less shall be redeemed
in part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each Holder of Senior
Subordinated Notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Senior Subordinated Note is to be
redeemed in part only, the notice of redemption that relates to such Senior
Subordinated Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior Subordinated 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 Senior Subordinated Note. Senior Subordinated Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest and Liquidated Damages, if any, cease to accrue on
the Senior Subordinated Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Subordinated Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer (a "Change of Control Offer") to each Holder of Senior
Subordinated Notes to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of the principal amount of such Holder's Senior Subordinated
Notes at an offer price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within 30 days following a
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Subordinated Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Senior
Subordinated Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Senior Subordinated Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Senior Subordinated Notes or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee the Senior Subordinated Notes so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Senior Subordinated Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Senior Subordinated Notes
so tendered the Change of Control
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Payment for such Senior Subordinated Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Senior Subordinated Note equal in principal amount to any unpurchased
portion of the Senior Subordinated Notes surrendered, if any; provided that each
such new Senior Subordinated Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Senior Subordinated Notes to require
that the Company repurchase or redeem the Senior Subordinated Notes in the event
of a takeover, recapitalization or similar transaction.
The New Credit Facility prohibits, and future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
prohibit, the Company from purchasing any Senior Subordinated Notes following a
Change of Control and/or provide that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Senior Subordinated Notes, the Company could seek the consent of its
lenders to the purchase of Senior Subordinated Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Senior Subordinated Notes. The Company's failure to
purchase tendered Senior Subordinated Notes following a Change of Control would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the New Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of Senior Subordinated Notes. See "-- Subordination."
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Senior Subordinated Notes validly tendered and not
withdrawn under such Change of Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or 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; provided that the amount of (a) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (b) any securities, notes or other
obligations received by the Company or such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) shall be deemed to be
cash for purposes of this provision.
Within 360 days of the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds, at its option, (i) to repay Senior Debt
(and to correspondingly permanently reduce commitments with respect thereto in
the case of revolving borrowings) or (ii) to fulfill reimbursement obligations
arising under the LC Facility to the extent such reimbursement obligations arose
as a result of actual cash payments having been made under such facility for the
benefit of the Company in connection with the Eau Claire IRBs (and to
correspondingly permanently reduce reimbursement obligations with respect
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thereto) or to cash collateralize the LC Facility if the Indebtedness under the
New Credit Facility has been accelerated or (iii) the making of a capital
expenditure or the acquisition of other long-term assets (including the
acquisition of Capital Stock of a Person) in the same line of business as the
Company immediately prior to such acquisition. Pending the final application of
any such Net Proceeds, the Company may temporarily reduce Senior Debt or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales 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 $5.0
million, the Company will be required to make an offer to all Holders of Senior
Subordinated Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Senior Subordinated 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 and Liquidated Damages, if any,
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Senior Subordinated
Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
the Company may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Senior Subordinated Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Subordinated Notes to be purchased on a pro rata
basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to any direct or
indirect holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions (a)
payable in Equity Interests (other than Disqualified Stock) of the Company, (b)
to the Company or any Wholly Owned Restricted Subsidiary of the Company or (c)
paid by a Restricted Subsidiary pro rata to the holders of its common stock);
(ii) purchase, redeem or otherwise acquire or retire for value (including
without limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent of
the Company (other than any such Equity Interests owned by the Company or any
Wholly Owned Restricted Subsidiary of the Company); (iii) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness of the Company or any Restricted Subsidiary that is
subordinated to the Senior Subordinated Notes or any Guarantee thereof, except a
payment of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness;"
and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date, is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Closing Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the
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time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company from the issue or sale
since the Closing Date of, or equity contributions with respect to, Equity
Interests of the Company (other than Disqualified Stock) or of Disqualified
Stock or debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) 100% of the fair market
value of non-cash property contributed as equity contributions to the
Company, provided that (a) such property is related, ancillary or
complementary to a business of the Company conducted on the Closing Date,
(b) such fair market value is determined by the Company in good faith
evidenced by a resolution of the Board of Directors set forth in an
Officer's Certificate delivered to the Trustee and, if the fair market
value of such contribution or series of related contributions is in excess
of $5.0 million, an opinion as to the value thereof issued by an investment
banking firm of national standing shall simultaneously be delivered to the
Trustee (which opinion shall provide a specific value, or a range of values
the lowest point of which, is not lower than the value set forth in the
related resolution of the Board of Directors) and (c) the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such non-cash contribution (or the dates of each
non-cash contribution in the case of a series of related contributions)
determined on a pro forma basis as if such contribution (or series of
related contributions) had been made at the beginning of such four quarter
period (or periods) shall be greater than the Company's historical Fixed
Charge Coverage Ratio for such period (or periods) plus (iv) to the extent
that any Restricted Investment is sold for cash or otherwise liquidated or
repaid for cash, 100% of the net cash proceeds thereof (less the cost of
disposition) (but only to the extent not included in subclause (i) of this
clause (c)).
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from the calculation of the amount available for Restricted Payments
pursuant to clause (c) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
provided that the amount of any such net cash proceeds that are utilized for any
such defeasance, redemption, repurchase or other acquisition shall be excluded
from the calculation of the amount available for Restricted Payments pursuant to
clause (c) of the preceding paragraph; (iv) payments to, which are promptly used
by, Holdings for the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of Holdings held by any of the Company's (or
any of its Restricted Subsidiaries') directors, officers or employees who have
died or whose employment has been terminated; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $500,000 in any twelve-month period or $2,000,000 in the
aggregate and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (v) payments of up to $4.2
million (from the net proceeds of the Offering) to, which are promptly used by,
Holdings for the repurchase of up to $4.0 million in liquidation value of
Holdings' Series A Preferred Stock, par value $0.01 per share, held by Simpson
and accrued but unpaid dividends thereon provided such shares are permanently
retired; and (vi) other Restricted Payments in an aggregate amount not to exceed
$5.0 million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
set forth in an Officers' Certificate and delivered to the Trustee. Not later
than
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the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness," the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
Incurrence of Indebtedness
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt); provided, however, that the Company and
its Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
would have been at least 2.0 to 1, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under the Revolver under the New Credit Facility in an
aggregate amount not to exceed the greater of $35.0 million at any time
outstanding and the Borrowing Base as of such date, less the aggregate
amount of all Net Proceeds of Asset Sales applied to repay any such
Indebtedness pursuant to clause (i) of the second paragraph of the covenant
described above under the caption "-- Repurchase at the Option of Holders
-- Asset Sales;"
(ii) the incurrence by the Company of reimbursement or term loan
obligations of up to $20.0 million arising with respect to the LC Facility
under the New Credit Facility to the extent such reimbursement or term loan
obligations arise as a result of actual cash payments having been made
under
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such facility for the benefit of the Company in connection with the Eau
Claire IRBs or the incurrence of Indebtedness to cash collateralize the LC
facility if Indebtedness under the New Credit Facility has been
accelerated;
(iii) the incurrence by the Company of Indebtedness represented by the
Senior Subordinated Notes;
(iv) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary (or purchase of the
outstanding Capital Stock of a Person that owns such property, plant or
equipment), in an aggregate principal amount not to exceed at any one time
outstanding the greater of $5.0 million or 5% of the Company's net tangible
assets (determined in accordance with GAAP applied on a consistent basis)
as of the most recent quarterly balance sheet date;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets
or a new Restricted Subsidiary; provided that such Indebtedness was
incurred by the prior owner of such assets or such Restricted Subsidiary
prior to such acquisition by the Company or one of its Restricted
Subsidiaries and was not incurred in connection with, or in contemplation
of, such acquisition by the Company or one of its Restricted Subsidiaries;
and provided, further, that the principal amount (or accreted value, as
applicable) of such Indebtedness, together with any other outstanding
Indebtedness incurred pursuant to this clause (vi), does not exceed $5.0
million;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted to be incurred by the first paragraph, or by clauses
(iii) through (vii) of the second paragraph of this covenant;
(viii) the incurrence of Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary, and any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(x) the guarantee by the Company or any of its Restricted Subsidiaries
of Indebtedness that was permitted to be incurred by another provision of
this covenant;
(xi) Indebtedness incurred pursuant to commodity agreements of the
Company or any of its Restricted Subsidiaries to the extent entered into in
the ordinary course of the Company's business and not for speculative
purposes to protect the Company and its Restricted Subsidiaries from
fluctuations in the prices of raw materials used in their businesses in
amounts reasonably related to the Company's business;
(xii) Indebtedness incurred pursuant to exchange rate agreements of
the Company or any of its Restricted Subsidiaries to the extent entered
into in the ordinary course of the Company's business and not for
speculative purposes to protect the Company and its Restricted Subsidiaries
from fluctuations in exchange rates relating to sales of inventory in the
ordinary course of business in a currency other than U.S. dollars in
amounts reasonably related to such sales;
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(xiii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance, and
obligations in respect of performance and surety bonds and completion
guarantees provided by the Company or any Restricted Subsidiary of the
Company in the ordinary course of business; provided, however, that upon
the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence; and
(xiv) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness in an aggregate amount not to exceed $10 million at
any one time outstanding, which Indebtedness may be incurred under the New
Credit Facility or otherwise.
For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (xiv)
above or is entitled to be incurred pursuant to the first paragraph of this
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 hereof. Accrual of
interest, the accretion of accreted value and the payment of interest in
the form of additional Indebtedness will not be deemed to be an incurrence
of Indebtedness for purposes of this covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens unless all
payments of principal of, and premium, interest and Liquidated Damages, if any,
on the Notes or otherwise under the Indenture are equally and ratably secured
with (or prior to) such Indebtedness.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the Closing Date, (b) the Credit Agreement as in
effect as of the Closing Date, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Credit Agreement as in effect on the Closing Date, (c)
the Indenture and the Notes, (d) applicable law, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
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course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), 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
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any 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 organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Subordinated Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, the Company or the entity or Person formed
by or surviving any 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 (a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (b) will, after giving pro forma
effect to such transaction 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 Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions will not prohibit (i) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Restricted Subsidiary or other agreements which provide for reasonable
and customary indemnities provided on behalf of, officers, directors and
employees of the Company and its Restricted Subsidiaries, in each case as
determined in good faith by the Company evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee,
(ii) transactions between or among the Company and/or its Restricted
Subsidiaries; and (iii) any Restricted Payment that is permitted by the
provisions of the Indenture described above under the caption "-- Restricted
Payments."
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Limitation on Issuances and Sales of Capital Stock of Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any of its Restricted Subsidiaries to, transfer, convey, sell or otherwise
dispose of any Capital Stock of any Restricted Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless (a) such transfer, conveyance, sale or other disposition is of
all of the Capital Stock of such Restricted Subsidiary owned by the Company and
its Restricted Subsidiaries and (b) such transaction is conducted in accordance
with the covenant described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales" and (ii) will not permit any Restricted Subsidiary of
the Company to issue any of its Equity Interests (other than, if required by
law, shares of its Capital Stock constituting directors' qualifying shares) to
any Person other than to the Company or a Wholly Owned Restricted Subsidiary of
the Company.
Limitation on Other Senior Subordinated Debt
The Indenture provides that neither the Company nor any Restricted
Subsidiary will incur any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Company or such Restricted Subsidiary, as the
case may be, and senior in any respect in right of payment to the Senior
Subordinated Notes or such Restricted Subsidiary's Guarantee thereof.
Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create after the date of the Indenture a
Subsidiary substantially all of whose assets are located in the United States or
that conducts substantially all of its business in the United States, then such
newly acquired or created Subsidiary shall execute a Guarantee of the Senior
Subordinated Notes (a "Subsidiary Guarantee") and deliver an opinion of counsel
in accordance with the terms of the Indenture; provided that this covenant shall
not apply to (i) a Restricted Subsidiary formed for the sole purpose of engaging
in accounts receivable financings; and (ii) any Subsidiary that has been
properly designated as an Unrestricted Subsidiary in accordance with the
Indenture for so long as it continues to constitute an Unrestricted Subsidiary.
The Obligations of each Guarantor of the Senior Subordinated Notes under
its Subsidiary Guarantee will be subordinated in right of payment to all Senior
Debt of such Guarantor pursuant to subordination provisions substantially
similar to those described above under "-- Subordination."
The Indenture permits the Company's Subsidiaries to incur additional
indebtedness, including additional Senior Debt, subject, in the case of the
Company's Restricted Subsidiaries, to certain restrictions. See "-- Incurrence
of Indebtedness."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Restricted Subsidiary, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of any
Restricted Subsidiary, or in the case the Company designates a Restricted
Subsidiary to be an Unrestricted Subsidiary in accordance with the Indenture,
then such Restricted Subsidiary will be released and relieved of any obligations
under its guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "-- Repurchase at the Option of Holders -- Asset Sales."
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Subordinated Notes are
outstanding, the Company will furnish to the Holders of Senior Subordinated
Notes (i) 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
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial
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condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial information and results of operations
of the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company and its
Restricted Subsidiaries will agree that, for so long as any Senior Subordinated
Notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Senior Subordinated Notes
(whether or not prohibited by the subordination provisions of the Indenture),
(ii) default in payment when due of the principal of or premium, if any, on the
Senior Subordinated Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company to comply with the
provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Asset Sales" or "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure by the
Company for 30 days after written notice by the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Senior Subordinated Notes
to comply with any of its other agreements in the Indenture or the Senior
Subordinated Notes; (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or
is created after the Closing Date, which default (a) is caused by a failure to
pay principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express 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 $5.0 million or more; (vi) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million and either (a) any creditor commences
enforcement proceedings upon any such judgment or (b) such judgments are not
paid, fully bonded (by a financially responsible institution regularly engaged
in the issuance of security bonds) discharged or stayed within a period of 45
days; (vii) except as permitted by the Indenture, any guarantee of the Senior
Subordinated Notes shall be held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and effect or any
Restricted Subsidiary, or any Person acing on behalf of any Restricted
Subsidiary, shall deny or disaffirm its obligations under its guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Restricted Subsidiaries.
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 Senior
Subordinated Notes may declare all the Senior Subordinated 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
the Company, any Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Senior Subordinated Notes will become due and payable without further action or
notice. Holders of the Exchange Notes may not enforce the Indenture or the
Exchange Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Senior Subordinated Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Senior Subordinated Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Subordinated Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Senior Subordinated Notes. If an
Event of Default occurs prior to March 1, 2003 by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding the prohibition on redemption of the Senior Subordinated
Notes prior to such date, then the premium specified in the Indenture with
respect to the year 2003 shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Senior Subordinated Notes.
The Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Senior Subordinated 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 the principal of or premium,
interest or Liquidated Damages, if any, on, the Senior Subordinated Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is 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 DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Restricted Subsidiary (other than the Company and its Restricted
Subsidiaries), as such, shall have any liability for any obligations of the
Company or such Restricted Subsidiary under the Senior Subordinated Notes, any
Guarantee thereof, the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Senior
Subordinated Notes by accepting a Senior Subordinated Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Senior Subordinated 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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Subordinated Notes
("Legal Defeasance") except for (i) the rights of Holders of outstanding Senior
Subordinated Notes to receive payments in respect of the principal of and
premium, interest and Liquidated Damages, if any, on the Senior Subordinated
Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to the Senior Subordinated Notes concerning
issuing temporary Senior Subordinated Notes, registration of Senior Subordinated
Notes, mutilated, destroyed, lost or stolen Senior Subordinated Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
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 Senior Subordinated 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 Senior Subordinated Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Subordinated Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal
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of and premium, interest and Liquidated Damages, if any, on the outstanding
Senior Subordinated Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Senior
Subordinated Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Closing
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Senior Subordinated 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; (iii) in the case of Covenant
Defeasance, the Company 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 Senior Subordinated 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; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to 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; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company 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; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Senior Subordinated Notes over the other creditors
of the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company 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, except that the opinion of
counsel need not speak as to the conditions precedent stated in clauses (iv) and
(vii) of this paragraph.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Senior Subordinated Notes and the Guarantees thereof may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Senior Subordinated Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Senior Subordinated Notes), and any existing default or
compliance with any provision of the Indenture, the Senior Subordinated Notes or
the Guarantees thereof may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Subordinated Notes
(including consents obtained in connection with a tender offer or exchange offer
for Senior Subordinated Notes).
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Subordinated Notes held by a non-consenting Holder):
(i) reduce the principal amount of Senior Subordinated Notes whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Senior Subordinated Note or alter the
provisions with respect to the redemption of the Senior Subordinated Notes
(other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest or Liquidated Damages, if any, on any
Senior Subordinated Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, interest or Liquidated Damages, if any, on
the Senior Subordinated Notes (except a rescission of acceleration of the Senior
Subordinated Notes by the Holders of at least a majority in aggregate principal
amount of the Senior Subordinated Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Senior Subordinated Note payable
in money other than that stated in the Senior Subordinated Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Senior Subordinated Notes to receive payments of
principal of or premium, interest or Liquidated Damages, if any, on the Senior
Subordinated Notes, (vii) waive a redemption payment with respect to any Senior
Subordinated Note (other than a payment required by one of the covenants
described above under the caption "-- Repurchase at the Option of Holders"),
(ix) release any Restricted Subsidiary from its Guarantee of the Senior
Subordinated Notes or (ix) make any change in the foregoing amendment and waiver
provisions. In addition, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) requires the consent of the Holders of
at least 75% in aggregate principal amount of the Senior Subordinated Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Senior Subordinated Notes.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Subordinated Notes, the Company and the Trustee may amend or supplement the
Indenture, the Senior Subordinated Notes or any Guarantee thereof to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Senior
Subordinated Notes in addition to or in place of certificated Senior
Subordinated Notes, to provide for the assumption of the Company's or any
Restricted Subsidiary's obligations to Holders of Senior Subordinated Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Senior Subordinated Notes or
that does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; 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
Senior Subordinated 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 Senior Subordinated Notes, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Exchange and Registration Rights Agreement without charge by writing to
PLAINWELL INC., 200 Allegan Street, Plainwell, MI 49080, Attention: Chief
Financial Officer.
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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.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, 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 (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of inventory in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "-- Repurchase at the Option of Holders -- Change of
Control" and/or the provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding
the foregoing: (i) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is permitted
by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments," (iv) the grant in the ordinary course of
business of a non-exclusive license of patents, trademarks, registrations
therefor and other similar intellectual property for fair value as determined in
good faith by the Company evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee and (v) any Lien
(or foreclosure thereon) securing Indebtedness to the extent that such Lien is
granted in compliance with "-- Certain Covenants -- Liens" above will not be
deemed to be Asset Sales.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
85% of the book value of accounts receivable, net of allowances for doubtful
accounts, owned by the Company and its Restricted Subsidiaries as of such date,
plus (ii) 60% of the book value of inventory owned by the Company and its
Restricted Subsidiaries as of such date, minus (iii) the principal amount of
borrowings outstanding as of such date under the Revolver to the extent that the
amount of such borrowings exceeds the sum of clauses (i) and (ii) above, all of
the foregoing calculated on a consolidated basis in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
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"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within one year after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
to any "person" or "group" (as such terms are used in Section 13(d)(3) and
Section 14(d)(2) of the Exchange Act), other than the Principals, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person or group (as
defined above), other than the Principals, becomes the "beneficial owner" (as
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of 50% or more of the voting power of the voting stock of the
Company; or (iv) the first day on which more than a majority of the members of
the board of directors of the Company are not Continuing Directors. For purposes
of this definition, any transfer of an equity interest of an entity that was
formed for the purpose of acquiring voting stock of the Company will be deemed
to be a transfer of such portion of such voting stock as corresponds to the
portion of the equity of such entity that has been so transferred.
Clause (i) of the definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of the assets of the Company and its Restricted
Subsidiaries taken as a whole. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Company to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Company and its Restricted Subsidiaries taken as a whole to
another Person or group may be uncertain.
"Closing Date" means the date of the closing of the sale of the Notes.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits, (iii) consolidated interest
expense whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (iv) depreciation and
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) in each case, on a consolidated basis and determined in accordance with
GAAP. Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Restricted Subsidiary
of a Person shall be added to Consolidated Net Income to compute Consolidated
Cash Flow only to the extent (and in the same proportion) that the Net Income of
such Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained) pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Restricted Subsidiaries;
provided that for purposes of the covenant described under the caption
"-- Certain Covenants -- Restricted Payments," "Consolidated Net Income" means
with respect to the Company for any period, the Company's Consolidated Net
Income for such period plus the portion of the Company's non-cash charges for
such period for amortization of goodwill or other intangibles recorded in
connection with acquisitions as a result of the application of the purchase
method of accounting in accordance with Accounting Principles Board Opinion Nos.
16 and 17, provided, that such adjustments shall not be made in respect of any
subsidiary of the Company or portion of the Company's business which the Company
received as a contribution, the fair market value of which contribution was
included in clause (c)(iii) of the first paragraph of the covenant described
under the caption "-- Certain Covenants -- Restricted Payments."
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (a) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date, plus (b) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (i) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (ii) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Restricted Subsidiaries and (iii) all unamortized debt
discount and expense and unamortized deferred charges as of such date, in each
case determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election (which approval may be specific or by approval of a proxy
statement which contains the name of such nominees for election) or (iii) is an
employee of and was nominated in good faith by 399 Venture Partners, Inc.
pursuant to the Stockholders Agreement, for 399 Venture Partners, Inc.'s own
benefit and not pursuant to any arrangement, agreement or understanding with any
third party (other than the Stockholders Agreement).
"Credit Agreement" means that certain credit agreement, dated as of the
Closing Date, by and among the Company, the lenders party thereto, including the
Revolver and the LC Facility, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Agreement and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $10.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable (other than pursuant to an offer to repurchase such Capital Stock due
to a change of control provision substantially similar to the "Change of
Control" covenant applicable to the Senior Subordinated Notes, which offer may
not be completed until 60 days after completion of the Change of Control Offer),
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the Holder thereof, in whole or in part, on or prior to the date that is 91
days after the date on which the Senior Subordinated Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture, until such Indebtedness is repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be
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excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each of the Company's Restricted Subsidiaries existing on
the Closing Date, and each other Restricted Subsidiary that executes a Guarantee
of the Senior Subordinated Notes pursuant to the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate, currency or commodity swap agreements, cap
agreements and collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in interest rates, currency
exchange rates or commodity prices.
"Holdings" means Plainwell Holding Company, a Delaware corporation.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance deferred that constitutes an accrued expense or trade
payable, if and to the extent any of the foregoing indebtedness (other than
letters of credit and Hedging Obligations) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, including without
limitation, accrued interest, premiums, fees and expenses, (ii) all indebtedness
of others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), (iii) Disqualified Stock of such Person
and (iv) to the extent not otherwise included, the Guarantee by such Person of
any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of.
"LC Facility" means the letter of credit guaranty under the Credit
Agreement providing for a maximum amount of $20.0 million to support certain
obligations of the Company as specified therein, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to
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give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) and (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Notes being
offered hereby) of the Company or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company; (iv) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales;" and (v) any acquisition of assets solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Senior Subordinated Notes are subordinated to Senior
Debt pursuant to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries which Senior Debt was permitted by the terms of the
Indenture to be incurred; (ii) Liens in favor of the Company or any of its
Restricted Subsidiaries; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company;
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provided that such Liens were not created in contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Restricted Subsidiary of
the Company, provided that such Liens were not created in the contemplation of
such acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (v) Liens existing on the date of
the Indenture; (vi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefore; and (vii) Liens incurred in
the ordinary course of business of the Company or any Restricted Subsidiary of
the Company with respect to obligations that do not exceed $5.0 million at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Restricted
Subsidiary; (viii) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness" covering only the assets acquired with the
proceeds of such Indebtedness; (ix) Liens to secure Permitted Refinancing
Indebtedness so long as such Liens do not extend to any property not subject to
the Liens securing the Indebtedness exchanged for, or extended, refinanced,
renewed, replaced, defeased by, or refunded from the net proceeds of, such
Permitted Refinancing Indebtedness and (x) Liens in favor of the Trustee as
provided for in the Indenture on money or property held or collected by the
Trustee in its capacity as Trustee.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accredit value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accredit value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Senior
Subordinated Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to the Senior Subordinated Notes on terms at least as favorable
to the Holders of Senior Subordinated Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"Principals" means 399 Venture Partners, Inc., CCT Partners IV, L.P. and
William L. New and their respective Affiliates.
"Public Offering" means an underwritten public offering of stock (other
than Disqualified Stock) of the Company registered under Securities Act (other
than a public offering registered on Form S-8 under the Securities Act) that
results in net proceeds of at least $35.0 million to the Company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
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"Revolver" means the revolving line of credit under the Credit Agreement
providing up to $35.0 million of availability, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Senior Debt" of a Person means (i) all Indebtedness of such Person
outstanding under the Credit Agreement and all Hedging Obligations with respect
thereto, (ii) any other Indebtedness of such Person permitted to be incurred
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to any Senior Debt of such Person and (iii) all Obligations of such
Person with respect to the foregoing including interest accruing at the contract
rate or rates therefor from and after the initiation of a bankruptcy proceeding
with respect to any such Person regardless of whether such interest in allowed
as a claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Debt of a Person will not include (a) any
liability for federal, state, local or other taxes owed or owing by such Person,
(b) any Indebtedness of such Person to any of its Subsidiaries or other
Affiliates, (c) any trade payables or (d) any Indebtedness that is incurred in
violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders Agreement" means that certain Stockholders Agreement, dated
as of June 16, 1997, by and among Holdings, 399 Venture Partners, Inc., CCT
Partners IV, L.P., Brenton Halsey, Larkspur Capital Corporation, William L. New
(and any other executives of the Company executing a joinder thereto) and the
Individual Purchasers (as defined in the Stockholders Agreement), as amended, in
whole or in part from time to time.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on March 6, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the Purchase Agreement, the Company
entered into the Exchange and Registration Rights Agreement with the Initial
Purchaser pursuant to which the Company has agreed to: (i) file with the
Commission on or prior to 60 calendar days after the date of issuance of the
Notes (the "Issue Date") a registration statement on an appropriate form under
the Securities Act (the "Exchange Offer Registration Statement") relating to a
registered exchange offer (the "Exchange Offer") for the Notes under the
Securities Act and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act as soon as
practicable thereafter, but in no event later than 150 calendar days after the
Issue Date. Upon the effectiveness of the Exchange Offer Registration Statement,
unless it would not be permitted by applicable law or Commission policy, the
Company will promptly offer to exchange any and all of the outstanding Notes for
the Exchange Notes that are identical in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions) and that would be registered under the Securities Act. The Company
will keep the Exchange Offer open for not less than 20 days (or longer, if
required by applicable law) after the date on which notice of the Exchange Offer
is mailed to the holders of the Notes. For each Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Note will receive an Exchange
Note having a principal amount equal to that of the surrendered Note. Interest
on each Exchange Note will accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Company believes that the
Exchange Notes would in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser of
Notes who is an "affiliate" of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes: (i) will not
be able to rely on the interpretation of the staff of the Commission; (ii) will
not be able to tender its Notes in the Exchange Offer; and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or transfer of the Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
If (i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to effect the Exchange Offer because the Exchange Offer
is not permitted by applicable law or Commission policy; or (ii) any Holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following commencement of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(c) that it is a Broker-Dealer and owns Notes acquired directly from the Company
or an affiliate of the Company, then the Company will file with the Commission a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of Transfer Restricted Securities by such holders who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note and each Exchange Note, the Holder of which is
subject to prospectus delivery requirements of the Securities Act in order to
sell such Note or Exchange Note, until the occurrence of any of the following
events: (i) the first date on which such Note may be exchanged for an Exchange
Note in the Exchange Offer, if following such exchange such Holder would be
entitled to resell such Exchange Note to the public without complying with the
prospectus delivery requirements of the Securities Act; (ii) the date on which
such Note has been registered pursuant to an effective Shelf Registration
Statement under the Securities Act and disposed of in accordance with the "Plan
of Distribution" section of the Prospectus contained in such Shelf Registration
Statement; (iii) the date on which such Note is sold to the public pursuant to
Rule 144 under the Securities Act or by a Broker-Dealer pursuant to the "Plan of
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Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein); or (iv) such Note or
Exchange Note, as the case may be, shall have ceased to be outstanding.
The Company will use its best efforts to cause the Exchange Offer
Registration Statement or, if applicable, the Shelf Registration Statement
(each, a "Registration Statement") to become effective under the Securities Act
by the Commission as soon as practicable after the filing thereof but in no
event later than 150 calendar days after the Issue Date.
Upon the effectiveness of the Exchange Offer Registration Statement, unless
it would not be permitted by applicable law or Commission policy, the Company
will promptly commence the Exchange Offer to enable each Holder of the Notes
(other than Holders who are affiliates (within the meaning of the Securities
Act) of the Company or underwriters (as defined in the Securities Act) with
respect to the Exchange Notes) to exchange the Notes for Exchange Notes. If
applicable, the Company shall keep the Shelf Registration Statement continuously
effective for, under certain circumstances, a maximum of two years after the
Issue Date.
In the event that, for any reason whatsoever: (a) the Company fails to file
any of the Registration Statements on or before the date specified for such
filing; (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); (c) the Company fails to consummate the Exchange
Offer within 30 Business Days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement; or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Exchange and
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
liquidated damages ("Liquidated Damages") to each Holder of Notes, with respect
to the first 90 calendar day period, or any portion thereof, immediately
following the occurrence of a Registration Default, in an amount equal to 50
basis points per annum of the principal amount of Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional 50 basis points
per annum of the principal amount of Notes with respect to each subsequent 90
calendar day period, or any portion thereof, until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of 200 basis
points per annum of the principal amount of Notes. At such time as no
Registration Default is continuing, the accrual of Liquidated Damages will
cease. In the event of any Registration Default, the Company will provide
appropriate notice thereof and of the imposition of the related Liquidated
Damages to the Holders of the Notes.
The Company (i) shall make available for a period of up to one year from
the consummation of the Exchange Offer a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such Exchange Notes and (ii) shall pay all expenses incident to the Exchange
Offer (including the expense of one counsel to the Holders covered thereby) and
will indemnify certain holders of the Notes (including any broker-dealer)
against certain liabilities, including liabilities under the Securities Act. A
broker-dealer which delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Exchange and
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes
in the Exchange Offer will be required to make representations in the Letter of
Transmittal that (a) it is not an "affiliate" of the Company (within the meaning
of Rule 405 of the Securities Act); (b) it is not engaged in and does not intend
to engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes to be issued in the
Exchange Offer; (c) it is acquiring the Exchange Notes in its ordinary course of
business; and (d) if it is a Participating Broker-Dealer holding Notes acquired
for its own account as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes received in respect of such Exchange Notes pursuant to the Exchange Offer.
The Commission has taken the position and the Company believes that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
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with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Exchange and Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use the prospectus contained in the Exchange Offer Registration Statement in
connection with the resale of such Exchange Notes.
If the holder is a Participating Broker-Dealer, it will be required to
include a representation in such Participating Broker-Dealer's letter of
transmittal with respect to the Exchange Offer that such Participating
Broker-Dealer has not entered into any arrangement or understanding with the
Company or any affiliate of the Company to distribute the Exchange Notes.
Holders of the Notes will be required to make certain representations to
the Company (as described above) in order to participate in the Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells Notes pursuant
to the Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Company will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Exchange and Registration Rights Agreement
contains a discussion of all material elements thereof, but does not purport to
be complete and is qualified in its entirety by reference to all provisions of
the Exchange and Registration Rights Agreement. The Company will provide a copy
of the Exchange and Registration Rights Agreement to prospective purchasers of
Notes identified to the Company by an Initial Purchaser upon request.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that: (i) the Exchange Notes bear a Series B designation and
a different CUSIP Number from the Notes; (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof; and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Exchange and Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Notes in certain circumstances relating to the timing of the Exchange Offer, all
of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Notes and will be entitled to
the benefits of the Indenture.
As of the date of this Prospectus, $130,000,000 aggregate principal amount
of Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
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The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Company will not extend the Expiration Date beyond ,
1998.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the Exchange Notes. Such
interest will be paid with the first interest payment on the Exchange Notes on
September 1, 1998. Interest on the Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each March 1 and
September 1, commencing on September 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
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By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the eighth paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the Notes
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The Depositary and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their accept-
91
<PAGE> 96
ance of the Exchange Offer by causing DTC to transfer Notes to the Depositary in
accordance with DTC's ATOP procedures for transfer. DTC will then send an
Agent's Message to the Depositary.
The term "Agent's Message" means a message transmitted by DTC, received by
the Depositary and forming part of the confirmation of a book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the Depositary, which states that DTC has received an express acknowledgment
from the participant in DTC tendering Notes that such participant has received
and agrees to be bound by the Notice of Guaranteed Delivery.
Notwithstanding the foregoing, in order to validly tender in the Exchange
Offer with respect to Securities transferred pursuant to ATOP, a DTC participant
using ATOP must also properly complete and duly execute the applicable Letter of
Transmittal and deliver it to the Depositary. Pursuant to authority granted by
DTC, any DTC participant which has Notes credited to its DTC account at any time
(and thereby held of record by DTC's nominee) may directly provide a tender as
though it were the registered holder by so completing, executing and delivering
the applicable Letter of Transmittal to the Depositary. DELIVERY OF DOCUMENTS TO
DTC DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes must
be cured within such time as the Company shall determine. Although the Company
intends, to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
92
<PAGE> 97
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Notes in the Exchange Offer, a telegram, telex, letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Notes are to
be registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return all
tendered Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Notes (see
"-- Withdrawal of Tenders") or (iii) waive such
93
<PAGE> 98
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only: (i) to the Company (upon redemption thereof or otherwise); (ii) so
long as the Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company); (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act; or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALES OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in
94
<PAGE> 99
exchange for Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with person to participate, in the distribution of the Exchange
Notes, will be allowed to resell the Exchange Notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the Exchange Notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act. However, if any holder acquires Exchange Notes
in the Exchange Offer for the purpose of distributing or participating in a
distribution of the Exchange Notes, such holder cannot rely on the position of
the staff of the Commission enunciated in such no-action letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, unless an exemption from registration is otherwise available.
Further, each Participating Broker-Dealer that receives Exchange Notes for its
own account in exchange for Notes, where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (a) it is not an "affiliate" of
the Company (within the meaning of Rule 405 of the Securities Act); (b) it is
not engaged in and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Notes to be issued in the Exchange Offer; (c) it is acquiring the Exchange Notes
in its ordinary course of business; and (d) if it is a Participating
Broker-Dealer holding Notes acquired for its own account as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes received in respect of such
Exchange Notes pursuant to the Exchange Offer. As indicated above, each
Participating Broker-Dealer that receives an Exchange Note for its own account
in exchange for Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel
described below) is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
In the opinion of Kirkland & Ellis, special counsel to the Company, the
exchange of the Notes for Exchange Notes pursuant to the Exchange Offer will not
be treated as an "exchange" for federal income tax purposes because the Exchange
Notes will not be considered to differ materially in kind or extent from the
Notes. Rather, the Exchange Notes received by a holder will be treated as a
continuation of the Notes in the hands of such holder. As a result, there will
be no federal income tax consequences to holders exchanging Notes for Exchange
Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities
95
<PAGE> 100
Act in connection with any resale of Exchange Notes received in respect of such
Notes pursuant to the Exchange Offer. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received in exchange for Notes where
such Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of up to one year
from the consummation of the Exchange Offer, it will make this Prospectus, as
amended or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale. In addition, until , 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with person to participate, in the distribution
of the Exchange Notes, will be allowed to resell the Exchange Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction and such a secondary resale transaction
should be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Securities Act, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Company has
agreed that, for a period of up to one year from the consummation of the
Exchange Offer, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
offered hereby will be passed upon for the Company by Kirkland & Ellis, New
York, New York.
96
<PAGE> 101
EXPERTS
The financial statements of the Specialty Paper Division as of December 31,
1995, December 29, 1996, June 16, 1997 and December 31, 1997, and for the years
ended December 31. 1995 and December 29, 1996, the period from December 30, 1996
through June 16, 1997, and the period from June 17, 1997 through December 31,
1997, appearing in this Prospectus and in the Registration Statement, and the
financial statement schedule for the years ended December 31, 1995 and December
29, 1996, the period from December 30, 1996 through June 16, 1997, and the
period from June 17, 1997 through December 31, 1997, included in the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of the Consumer Products Division as of and for
the three years ended December 31, 1997, appearing in this Prospectus and in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon appearing elsewhere
herein, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
97
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PLAINWELL INC. -- SUCCESSOR AND REGISTRANT
Report of Ernst & Young LLP, Independent Auditors......... F-2
Balance Sheet as of December 31, 1997, and June 30, 1998
(unaudited)............................................ F-3
Statement of Operations for the period from June 17, 1997
through December 31, 1997, the period from June 17,
1997 through June 30, 1997 and the six months ended
June 30, 1998 (unaudited).............................. F-4
Statement of Changes in Stockholder's Equity for the
period from June 17, 1997 through December 31, 1997 and
the six months ended June 30, 1998 (unaudited)......... F-5
Statement of Cash Flows for the period from June 17, 1997
through December 31, 1997, the period from June 17,
1997 through June 30, 1997 and the six months ended
June 30, 1998 (unaudited).............................. F-6
Notes to Financial Statements............................. F-7
PLAINWELL PAPER COMPANY -- PREDECESSOR
Report of Ernst & Young LLP, Independent Auditors......... F-17
Balance Sheets as of December 29, 1996 and June 16,
1997................................................... F-18
Statements of Operations for the years ended December 31,
1995 and December 29, 1996 and for the period from
December 30, 1996 through June 16, 1997................ F-19
Statements of Changes in Stockholder's Equity for the
years ended December 31, 1995 and December 29, 1996 and
for the period from December 30, 1996 through June 16,
1997................................................... F-20
Statements of Cash Flows for the years ended December 31,
1995 and December 29, 1996 and for the period from
December 30, 1996 through June 16, 1997................ F-21
Notes to Financial Statements............................. F-22
CONSUMER PRODUCTS DIVISION (AN OPERATING DIVISION OF POPE &
TALBOT, INC.) FINANCIAL STATEMENTS
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-30
Balance Sheets -- December 31, 1996 and 1997.............. F-31
Statements of Operations -- Years ended December 31, 1995,
1996 and 1997.......................................... F-32
Statements of Inter Company Accounts -- Years Ended
December 31, 1995, 1996 and 1997....................... F-33
Statements of Cash Flows -- Years ended December 31, 1995,
1996 and 1997.......................................... F-34
Notes to Financial Statements............................. F-35
</TABLE>
F-1
<PAGE> 103
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors
of PLAINWELL INC.
We have audited the accompanying balance sheet of PLAINWELL INC. (the
Company) as of December 31, 1997 and the related statements of operations,
changes in stockholder's equity and cash flows for the period from June 17, 1997
through December 31, 1997. 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 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 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 audit provides 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 the Company as of December
31, 1997 and the results of its operations and its cash flows for the period
from June 17, 1997 through December 31, 1997, in conformity with generally
accepted accounting principles.
Milwaukee, Wisconsin ERNST & YOUNG LLP
March 19, 1998
F-2
<PAGE> 104
PLAINWELL INC.
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
----------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash...................................................... $ 772 $ 3,605
Accounts receivable, net of allowances.................... 6,473 19,591
Inventories:
Paper mill fiber....................................... 1,985 3,384
Work in progress....................................... 1,916 4,933
Finished goods......................................... 5,650 16,592
Chemicals and supplies................................. 1,130 7,194
------- --------
10,681 32,103
Other current assets...................................... 2,244 4,035
------- --------
Total current assets........................................ 20,170 59,334
Properties, net............................................. 24,594 140,250
Other assets................................................ 7,128 31,951
------- --------
TOTAL ASSETS...................................... $51,892 $231,535
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current portion of long-term debt......................... $ 3,000 $ 5,576
Accounts payable.......................................... 7,857 12,860
Accrued liabilities....................................... 3,876 17,072
------- --------
TOTAL CURRENT LIABILITIES.............................. 14,733 35,508
Long-term debt.............................................. 20,839 152,300
Other long-term liabilities................................. 8,132 16,515
Commitments and contingencies (Note 6)
STOCKHOLDER'S EQUITY:
Common stock, par value $1 per share; authorized 1,000
shares; issued and outstanding 500 shares.............. 1 1
Paid-in capital........................................... 7,973 32,973
Retained earnings (deficit)............................... 214 (5,762)
------- --------
TOTAL STOCKHOLDER'S EQUITY............................. 8,188 27,212
------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $51,892 $231,535
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 105
PLAINWELL INC.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JUNE 17, 1997 JUNE 17, 1997 SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
----------------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales......................................... $45,921 $3,215 $85,127
Costs and expenses:
Cost of sales................................... 40,805 2,709 74,952
Selling, general and administrative............. 3,302 227 6,437
Interest........................................ 1,187 72 5,644
------- ------ -------
Total costs and expenses................ 45,294 3,008 87,033
------- ------ -------
Income (loss) before income taxes and
extraordinary item.............................. 627 207 (1,906)
Income tax provision (benefit).................... 413 74 (815)
------- ------ -------
Income (loss) before extraordinary item........... 214 133 (1,091)
Extraordinary item, net of tax (Note 8)........... -- -- (597)
------- ------ -------
Net income (loss)................................. $ 214 $ 133 $(1,688)
======= ====== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 106
PLAINWELL INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ------- -------- -------
<S> <C> <C> <C> <C>
Balance at June 17, 1997........................... $-- -- $ -- $ --
Issuance of common stock......................... 1 7,973 -- 7,974
Net income....................................... -- -- 214 214
--- ------- -------- -------
Balance at December 31, 1997....................... 1 7,973 214 8,188
Net loss (unaudited)............................. -- -- (1,688) (1,688)
Dividend (unaudited)............................. -- -- (4,288) (4,288)
Contribution to capital (unaudited).............. -- 25,000 -- 25,000
--- ------- -------- -------
Balance at June 30, 1998 (unaudited)............... $ 1 $32,973 $ (5,762) $27,212
=== ======= ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 107
PLAINWELL INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JUNE 17, 1997 JUNE 17, 1997 SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
----------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $ 214 $ 133 $ (1,688)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Extraordinary item................................ -- -- 597
Depreciation...................................... 766 42 4,176
Amortization of deferred finance costs and
goodwill....................................... 124 20 416
Deferred income taxes............................. 68 -- --
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable............................. 2,375 (124) (4,300)
Accrued liabilities.......................... 1,100 489 4,072
Income taxes payable/refundable.............. (812) 75 (758)
Accrued pensions............................. (73) -- 256
Postretirement benefits...................... 66 -- --
Decrease (increase) in:
Accounts receivable.......................... (6,473) (3,498) (3,497)
Inventories.................................. (1,732) 77 (1,738)
Other current assets......................... 173 (19) 8
------- ------- --------
NET CASH USED IN OPERATING ACTIVITIES..... (4,204) (2,805) (2,456)
INVESTING ACTIVITIES:
Capital expenditures................................ (563) (9) (1,098)
Purchase of Consumer Products Division.............. -- -- (123,317)
------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES..... (563) (9) (124,415)
FINANCING ACTIVITIES:
Proceeds from long-term debt........................ -- -- 130,000
Payments of term loan............................... (500) -- (13,500)
Deferred finance cost incurred...................... -- -- (6,245)
Net borrowings (payment) on revolving line of
credit............................................ 6,039 2,832 508
Payment of Simpson note payable..................... -- -- (1,771)
Capital contribution................................ -- -- 25,000
Dividend............................................ -- -- (4,288)
------- ------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.............................. 5,539 2,832 129,704
------- ------- --------
Increase in cash.................................... 772 18 2,833
Cash at beginning of period......................... -- -- 772
------- ------- --------
Cash at end of period............................... $ 772 $ 18 $ 3,605
======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest............................ $ 947 $ -- $ 902
Cash paid (received) for income taxes............. $ 1,157 $ -- $ (270)
</TABLE>
See accompanying notes.
F-6
<PAGE> 108
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
PLAINWELL INC. (the Company) was formed on March 6, 1998. The Company is a
wholly owned subsidiary of Plainwell Holding Company ("Holdings"). Effective
March 6, 1998, Plainwell Paper Company merged with the Company. Plainwell Paper
Company was a wholly owned subsidiary of Holdings. The merger of Holdings and
Plainwell Paper Company was treated as a reorganization/merger of companies
under common control, with no step-up in basis of the assets of Plainwell Paper
Company. In addition, the Company purchased substantially all of the assets,
properties and rights and assumed certain related liabilities of the tissue
business of Pope & Talbot, Inc. (see Note 8). This business operates as the
Consumer Products Division of the Company.
The historical financial information of the Company for the six months
ended June 30, 1998 includes the results of operations of the Consumer Products
Division beginning on the acquisition date.
On June 16, 1997, Holdings acquired from Simpson Paper Company ("Simpson")
in a series of transactions 100% of the common stock of the Company and certain
inventories for $16,638,000 in cash, the assumption of $3,500,000 of
indebtedness in the form of industrial revenue bonds, the assumption of other
liabilities of $6,572,000, the issuance by Holdings of $4.0 million in Series A
Preferred Stock and an estimated amount payable to Simpson of $1,771,000. The
total purchase price, including the costs of the acquisition, was $33,467,000.
The acquisition has been accounted for using the purchase method of accounting
and the allocation of the purchase price has been pushed down to the Company by
Holdings. The purchase price has been allocated to the estimated fair values of
the underlying assets acquired and liabilities assumed in accordance with
Accounting Principles Board opinion No. 16. Such allocations were based on
appraisals, evaluations and other studies. The purchase cost was less than the
estimated fair value of the Company's net assets. For financial reporting
purposes, current assets were recorded at estimated fair value and the residual
of $24,357,000 was allocated to noncurrent assets.
Nature of Operations
The Company owns and operates, in Plainwell, Michigan, a specialty coated
paper mill. The plant has a flexible manufacturing system which produces premium
coated printing paper and technical special grades of paper.
Sales are generally to well-established companies in the United States.
Credit losses have not been significant. For the period ending December 31,
1997, sales to two customers comprised 36% and 15% of sales for the period. No
other customers represented more than 10% of sales.
The Company purchases pulp from several vendors and believes that it has an
adequate supply. The price of pulp is a commodity and is subject to significant
fluctuations.
Fiscal Year
The Company's fiscal period ends on December 31.
Inventories
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out method.
F-7
<PAGE> 109
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Properties
Properties are carried at cost. Costs of maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts, with the resultant gain
or loss included in income.
For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of respective assets.
<TABLE>
<CAPTION>
ESTIMATED LIFE
IN YEARS
--------------
<S> <C>
Mills, plant and improvements.......................... 20 - 40
Equipment.............................................. 6 - 15
Furniture and fixtures................................. 6 - 10
</TABLE>
For income tax purposes, depreciation is calculated primarily using
accelerated methods.
Interest is capitalized in connection with construction of major projects.
No interest was capitalized in 1997.
Inventoriable Stores
Inventoriable stores include various parts and supplies used in the
maintenance and operation of the Company's manufacturing equipment.
Inventoriable stores are stated at cost determined using the first-in, first out
method of accounting.
Deferred Finance Costs
Deferred finance costs are amortized using the interest method over the
terms of the related debt.
Environmental
Losses associated with environmental remediation obligations are accrued
when such losses are probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally are recognized no
later than the completion of a remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recognized as assets when
their receipt is deemed probable.
Revenue Recognition
Revenues are recognized when goods are shipped to the customer. In
determining net sales, revenues are reduced by freight, discounts and returns.
Research and Development
Research and development costs are charged to expense as incurred and were
$92,000 in 1997.
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 assets and 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.
F-8
<PAGE> 110
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
New Accounting Pronouncement
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Statement 130 established new rules for the reporting and
display of comprehensive income and its components. The adoption of this
Statement had no impact on the Company's net loss or stockholder's equity.
Interim Financial Data
The accompanying unaudited balance sheet as of June 30, 1998, and the
related statements of operations, changes in stockholder's equity and cash flows
for the six months ended June 30, 1998, have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting only of adjustments of a normal and recurring nature) considered
necessary for a fair presentation of the financial position and results of
operations have been included. Operating results for the six months ended June
30, 1998 are not necessarily indicative of the results that might be expected
for the year ending December 31, 1998.
2. ADDITIONAL BALANCE SHEET INFORMATION
Components are as follows (dollars in thousands):
<TABLE>
<S> <C>
Accounts receivable:
Trade receivables......................................... $ 6,509
Miscellaneous receivable.................................. 308
Less:
Sales returns.......................................... (321)
Allowance for doubtful accounts........................ (23)
-------
$ 6,473
=======
Other current assets:
Refundable income taxes................................... $ 852
Deferred income taxes..................................... 674
Prepaid expenses.......................................... 718
-------
$ 2,244
=======
Properties:
Land...................................................... $ 566
Mills, plant and improvements............................. 4,787
Equipment................................................. 19,532
Furniture and fixtures.................................... 475
-------
25,360
Less accumulated depreciation............................. (766)
-------
Net properties.............................................. $24,594
=======
</TABLE>
F-9
<PAGE> 111
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<S> <C>
Other assets:
Deferred finance costs, net of accumulated amortization of
$124................................................... $ 1,148
Due from prior owners for environmental remediation
costs.................................................. 2,000
Intangible pension asset.................................. 991
Inventoriable stores...................................... 1,833
Other..................................................... 1,156
-------
$ 7,128
=======
Accrued liabilities:
Payable to Simpson........................................ $ 1,852
Income taxes.............................................. 203
Other..................................................... 1,821
-------
$ 3,876
=======
Other long-term liabilities:
Accrued pension cost...................................... $ 126
Postretirement obligation................................. 1,234
Accrued environmental..................................... 2,000
Deferred income taxes..................................... 4,772
-------
$ 8,132
=======
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<S> <C>
Term note.................................................. $13,500
Note payable............................................... 3,500
Revolving line of credit................................... 6,839
-------
23,839
Less current portion....................................... 3,000
-------
Long-term debt............................................. $20,839
=======
</TABLE>
Under the terms of a bank Loan and Security Agreement ("LSA"), the
Company's credit facility consists of a term note ("Term Note") in the amount of
$13,500,000 and a revolving line of credit ("Revolver") up to a maximum of
$10,000,000. Borrowings on the Revolver are limited to an amount equal to the
sum of 85% of eligible accounts receivable and 60% of eligible inventories. At
December 31, 1997, unused available borrowings on the Revolver were $3,161,000.
The Revolver and Term Note bear interest at either a base rate (as defined) or a
LIBOR rate (as defined) which is payable monthly. The average rate charged at
December 31, 1997 was 9.2% and 9.3%, respectively. A fee of .375% per annum is
charged on the average daily unused portion of the Revolver.
The Revolver is due on June 1, 2002. Monthly principal of $250,000 is due
on the Term Note beginning November 1, 1997 with a final payment due June 1,
2002.
The LSA is secured by substantially all of the Company's assets other than
land and buildings.
The LSA contains various restrictive covenants which limit the amount of
capital expenditures and management fees that can be paid and have required
fixed charged coverage and liabilities to net worth ratios. The Company was in
compliance with or obtained waivers for all restrictive covenants.
F-10
<PAGE> 112
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
The $3,500,000 note payable relates to a tax-exempt bond issued by the City
of Plainwell for the benefit of the Company. The bond and related note payable
bear interest at a variable rate which was 4.65% at December 31, 1997. Interest
payments are due monthly and continue until the note matures on October 1, 2007.
Maturities of long-term debt are as follows (in thousands): 1998 -- $3,000;
1999 -- $3,000; 2000 -- $3,000; 2001 -- $3,000; and 2002 -- $8,339.
4. EMPLOYEE BENEFIT PLANS
Pension Plans
Substantially all of the Company's employees participate in noncontributory
defined-benefit pension plans. These include a Company-administered salary plan
and union plan.
Net periodic pension cost for the period ending December 31, 1997 was
composed of the following (dollars in thousands):
<TABLE>
<S> <C>
Salary and union hourly plan:
Service cost -- benefits earned during the period......... $ 270
Interest cost on projected benefit obligation............. 340
Actual earnings from plan assets.......................... (482)
-----
Total net periodic pension cost................... $ 128
=====
</TABLE>
The following table sets forth the funded status of the plans and the
amount recognized as a prepaid (accrued) pension cost at December 31, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
PLANS IN WHICH:
-----------------------------------
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS TOTAL
----------- ----------- -------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested portion.................................... $(9,722) $ -- $(9,722)
Nonvested portion................................. (294) (88) (382)
------- ----- -------
Accumulated benefit obligation...................... (10,016) (88) (10,104)
Excess of projected benefit obligation over
accumulated benefit obligation.................... -- (38) (38)
------- ----- -------
Projected benefit obligation........................ (10,016) (126) (10,142)
Plan assets at fair market value.................... 11,007 -- 11,007
------- ----- -------
Prepaid (accrued) pension cost...................... $ 991 $(126) $ 865
======= ===== =======
</TABLE>
Substantially all of the pension plans' assets are invested in common
stock, fixed-income securities, cash and cash equivalents. The discount rate
used in determining the actuarial present value of the projected benefit
obligation was 7.5%. The expected long-term rate of return on plan assets was
9.0%.
The funding policy regarding all of the plans is to make contributions to
the plan that are between the minimum amounts required by the Employee
Retirement Income Security Act and the maximum amounts deductible under current
income tax regulations.
F-11
<PAGE> 113
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Defined Contribution Retirement Plans
The Company sponsors defined contribution 401(k) retirement plans covering
substantially all salaried and hourly employees. The Company matches a
percentage of the participants' contributions. Total Company contribution
expense was $157,000 in 1997.
Other Postretirement Plans
The Company sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried employees and eligible spouses and dependents
of the employees. The medical plans pay a stated percentage of covered medical
expenses incurred after deducting co-payments made once a stated deductible has
been met. The life insurance plans pay a defined benefit. The Company does not
fund these plans prior to actual incurrence of costs under the plans.
Net periodic other postretirement benefit cost for these plans for the
period ending December 31, 1997 was composed of the following (dollars in
thousands):
<TABLE>
<S> <C>
Postretirement costs:
Service cost -- benefits attributed to service during the
period................................................. $24
Interest cost on accumulated benefit obligation........... 42
---
Net periodic cost of other postretirement benefit plans..... $66
===
</TABLE>
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
balance sheet at December 31, 1997 (dollars in thousands):
<TABLE>
<S> <C>
Accumulated benefit obligation:
Retirees.................................................. $ 97
Other fully eligible participants......................... 282
Other active participants................................. 855
------
$1,234
======
</TABLE>
For measurement purposes, 7.67% was assumed for health care costs for 1997.
The rate is assumed to decline in decrements of 0.33% every year until it
reaches 5.0% in 2005 where it will remain thereafter. A 1% increase in the
assumed health care cost trend rates would increase the accumulated
postretirement benefit obligation by 9% at December 31, 1997. The effect of this
1% increase on the service and interest cost components of the net periodic cost
of postretirement medical and life insurance plans would be an increase of 10%.
The discount rate used in determining the accumulated benefit obligation was
7.5% in 1997.
F-12
<PAGE> 114
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
5. INCOME TAXES
The income tax provision (benefit) consists of the following components
(dollars in thousands):
<TABLE>
<S> <C>
Current:
Federal................................................... $ 48
State..................................................... 297
----
345
Deferred:
Federal................................................... 62
State..................................................... 6
----
68
----
$413
====
</TABLE>
The income tax provision was different from the amount computed by applying
the United States statutory federal income tax rate as follows (dollars in
thousands):
<TABLE>
<S> <C>
Provision at statutory rates................................ $213
State income and franchise tax, net of federal income tax
benefit................................................... 196
Other....................................................... 4
----
$413
====
</TABLE>
F-13
<PAGE> 115
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The net deferred
tax (liabilities) assets are composed of the following (dollars in thousands):
<TABLE>
<S> <C>
Deferred income tax liabilities:
Property and equipment................................... $(5,119)
Environmental recoveries................................. (740)
Pension.................................................. (368)
-------
(6,227)
Deferred income tax assets:
Receivables.............................................. 88
Inventories.............................................. 162
Vacation and other employee benefits..................... 339
Inventoriable stores..................................... 219
Environmental liabilities................................ 740
Postretirement benefits.................................. 457
Health insurance accrual................................. 85
Other.................................................... 39
-------
2,129
-------
Net deferred tax liability................................. $(4,098)
=======
Included in the balance sheet as:
Current deferred income tax asset........................ $ 674
Noncurrent deferred income tax liability................. (4,772)
-------
$(4,098)
=======
</TABLE>
6. ENVIRONMENTAL REMEDIATION
In 1990, the Company was named as one of several potentially responsible
parties ("PRP") at a Superfund site in Kalamazoo, Michigan which has five
distinct operable units. PRPs may be held jointly and severally liable for
cleanup plus related costs. One operable unit of the Kalamazoo River Site is the
12th Street Landfill, a property wholly owned by the Company. The Company
expects to pay for the entire cost of the investigation and remediation work at
this location. The Company has recorded a liability for the estimated cost to
remediate this unit. A receivable for remediation costs recoverable under an
indemnification agreement with Simpson has also been recorded. Investigations at
a second operable unit, which includes a portion of the Kalamazoo River,
continue and environmental remediation costs, if any, that may be incurred
cannot presently be estimated. Management believes the Company is not
responsible for environmental remediation costs at the other three units.
Accordingly, in the accompanying financial statements, the Company has not
recorded a liability for any remediation costs or recovery under the
indemnification agreement for the other three units.
Although the final outcome of these environmental matters is subject to a
great many variables and cannot be predicted with any degree of certainty,
management believes that the ultimate outcome will not have a material effect on
the current financial position, liquidity or results of operations of the
Company.
F-14
<PAGE> 116
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
7. COMMITMENTS
Under the terms of a requirements contract, Simpson has the right to
purchase from the Company all of Simpson's requirements, up to 20,000 tons for
the twelve-month period ended June 30, 1998 for coated two-sided matter paper
products sold by Simpson under the brand name EVERGREEN. If the terms of the
requirements contract is extended by Simpson, Simpson has the right to purchase
from the Company all of Simpson's requirements, up to 20,000 tons per twelve
month period through June 30, 2000 for sheets and rolls of matte papers of the
same grade and quality as EVERGREEN.
In connection with the purchase of Plainwell Paper Company, a Transition
Service Agreement was entered into pursuant to which Simpson has agreed to
provide certain transition services to the Company for a period ending not later
than June 16, 1999.
In connection with the purchase of the Consumer Products Division, the
Company entered into a 18-month Transaction Service Agreement through September
30, 1999 with Pope & Talbot, Inc. for the purpose of processing the existing
information systems.
8. SUBSEQUENT EVENTS (UNAUDITED)
Effective March 6, 1998, Plainwell Paper Company merged with and into the
Company (the Merger) and its business operates as the Specialty Paper Division
of the Company. In connection therewith, the Company recorded a dividend to
Holdings of $4,288,000 to permit Holdings to redeem preferred stock of Holdings
held by Simpson as required pursuant to change of control provisions.
In January 1998, the Company entered into an agreement to purchase
substantially all of the assets, properties and rights and assume certain
related liabilities of the tissue business of Pope & Talbot, Inc. (the
Acquisition). Effective March 6, 1998, the Company acquired the tissue business
of Pope & Talbot, Inc. for consideration consisting of $121 million in cash, and
the assumption of $18.8 million of indebtedness in the form of industrial
revenue bonds and the assumption of certain other liabilities.
The acquisition of the Consumer Products Division has been accounted for
under the purchase method; accordingly, its results are included in the
financial statements of the Company from the date of acquisition (in thousands):
<TABLE>
<S> <C>
Cash consideration, including working capital............... $121,707
Direct acquisition costs.................................... 1,610
--------
Total purchase price........................................ $123,317
========
Accounts receivable......................................... $ 9,620
Inventories................................................. 19,683
Properties.................................................. 119,735
Other current assets........................................ 3,665
Intangible.................................................. 17,573
Accounts payable and accrued expenses....................... (17,903)
Long-term debt -- industrial revenue bonds.................. (18,800)
Other long-term liabilities................................. (10,256)
--------
$123,317
========
</TABLE>
In connection with the Merger and the Acquisition, on March 6, 1998 the
Company issued $130 million principal amount of 11% Senior Subordinated Notes
due 2008 in a Rule 144A private placement and entered into a $35 million senior
credit facility. In addition, the Company received an equity contribution of $25
F-15
<PAGE> 117
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
million from Holdings. The net proceeds from the offering and the equity
contribution were used by the Company to fund the cash portion of the
consideration for the Acquisition, to repay certain existing debt of Plainwell
Paper Company, and to pay the dividend to Holdings to enable Holdings to redeem
the preferred stock held by Simpson.
In connection with Plainwell Paper Company's early extinguishment of debt
in March 1998, the Company recorded an extraordinary loss of $597,000 which
represents the unamortized balance of debt issuance costs related to Plainwell
Paper Company's previous credit agreement.
The following unaudited pro forma results of operations for the year ended
December 31, 1997 and the six months ended June 30, 1998 assume the Acquisition,
Merger and related transactions occurred at the beginning of each period
presented (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1997 ENDED JUNE 30, 1998
----------------- -------------------
<S> <C> <C>
Net sales................................. $222,892 $108,096
Income (loss) before extraordinary item... 740 (2,389)
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
Management believes if the Specialty Paper and Consumer Products Divisions
operated on a stand-alone basis using the cost structure management expects to
have in place, the corporate overhead costs allocated would have been replaced
with the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1997 ENDED JUNE 30, 1998
----------------- -------------------
<S> <C> <C>
Corporate overhead allocation:
Specialty Paper Division................ $ (724) $ --
Consumer Products Division.............. (2,057) (366)
Stand-Alone Basis:
Specialty Paper Division................ 724 --
Consumer Products Division.............. 500 89
------- -----
Reduction in expenses..................... $(1,224) $(277)
======= =====
</TABLE>
The Consumer Products Division is a party to legal proceedings and
environmental matters generally incidental to the business. Although the final
outcome of any legal proceeding or environmental matter is subject to a great
many variables and cannot be predicated with any degree of certainty, management
believes that the ultimate outcome resulting from these proceedings and matters
would not have a material effect on the Consumer Product Division's current
financial position, liquidity or results of operations; however, in any given
future reporting period such proceedings or matters could have a material effect
on results of operations.
The Consumer Products Division owns and operates a landfill in the Township
of Washington, Wisconsin, for disposal of its paper-making sludge. The Consumer
Products Division has closed two of three sections of the landfill and is
currently monitoring those sections in accordance with requirements of state
environmental laws. The Consumer Products Division expects to begin closure of
the third section of the landfill by 2002. Estimated closure costs of $1,300,000
are being accrued over the operational life of the landfill. Monitoring costs
estimated at $80,000 per year will be required for 40 years following the
closure of the landfill. The Consumer Products Division believes that, based on
current information and regulatory
F-16
<PAGE> 118
PLAINWELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
requirements, the estimates for the landfill closure costs are adequate,
although there can be no assurance that the costs will not eventually exceed the
amount presently estimated.
The Consumer Products Division is considered a potentially responsible
party (PRP) with respect to the Blue Valley Landfill Superfund Site in Eau
Claire, Wisconsin. Available records indicate that the Consumer Products
Division sent a de minimis amount of wastewater treatment sludge from the
de-inking process and general wastes from the tissue division to the Blue Valley
Landfill. The Consumer Products Division's predecessor at the Eau Claire
facility also sent waste to the Blue Valley Landfill Superfund Site and has been
named a PRP with respect to the site. Based on the amount of material that the
Consumer Products Division sent to the Blue Valley Landfill and its
indemnification agreement with its predecessor, the Consumer Products Division
does not anticipate that its costs associated with the site will have a material
adverse effect on its operations, liquidity or financial condition.
In 1997, the EPA published regulations establishing standards and
limitations for non-combustion sources under the Clean Air Act and revised
regulations under the Clean Water Act. The new rules may require more stringent
controls on air emissions and wastewater discharges from the Consumer Products
Division's tissue mills. These regulations are collectively referred to as the
"cluster rules." The Consumer Products Division estimates that future capital
spending to comply with the cluster rules could be up to $5,000,000, depending
on the timing and specific requirements imposed. The Consumer Products Division
cannot predict if or when such rules will be promulgated in a form that will
require the Consumer Products Division to make such expenditures. The Consumer
Products Division believes that the cost of compliance with cluster rules and
other environmental requirements will not have a material adverse effect on its
liquidity, operations or financial condition.
F-17
<PAGE> 119
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Plainwell Paper Company
We have audited the accompanying balance sheets of Plainwell Paper Company
(the "Company") as of December 29, 1996 and June 16, 1997, and the related
statements of operations, changes in stockholder's equity and cash flows for the
years ended December 31, 1995 and December 29, 1996 and for the period from
December 30, 1996 through June 16, 1997. 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 the Company at December 29,
1996 and June 16, 1997, and the results of its operations and its cash flows for
the years ended December 31, 1995 and December 29, 1996 and for the period from
December 30, 1996 through June 16, 1997, in conformity with generally accepted
accounting principles.
Milwaukee, Wisconsin ERNST & YOUNG LLP
June 29, 1998
F-18
<PAGE> 120
PLAINWELL PAPER COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Current assets:
Miscellaneous receivable.................................. $ 25 $ 43
Inventories............................................... 9,407 12,139
Deferred income taxes..................................... 839 534
Prepaid expenses.......................................... 846 626
------- -------
Total current assets................................... 11,117 13,342
Properties, net............................................. 26,906 25,847
Receivable from Simpson..................................... 5,795 5,876
Other assets................................................ 5,801 6,526
------- -------
TOTAL ASSETS...................................... $49,619 $51,591
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable.......................................... $ 5,771 $ 5,911
Accrued liabilities....................................... 2,087 1,670
------- -------
TOTAL CURRENT LIABILITIES.............................. 7,858 7,581
Long-term debt.............................................. 3,500 3,500
Other long-term liabilities................................. 4,241 3,979
Deferred income taxes....................................... 4,619 4,608
Commitments and contingencies (Note 6)
STOCKHOLDER'S EQUITY:
Common stock, par value $1 per share; authorized 1,000
shares; issued and outstanding 500 shares.............. 1 1
Paid-in capital........................................... 27,480 27,480
Retained earnings......................................... 1,920 4,442
------- -------
TOTAL STOCKHOLDER'S EQUITY............................. 29,401 31,923
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $49,619 $51,591
======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE> 121
PLAINWELL PAPER COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 29, JUNE 16,
1995 1996 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................. $101,049 $85,230 $40,795
Costs and expenses:
Cost of sales....................................... 99,536 76,425 34,231
Selling, general and administrative................. 3,455 4,434 1,539
Overhead allocation from Simpson.................... 6,260 5,537 724
Interest............................................ 146 144 124
-------- ------- -------
Total costs and expenses.................... 109,397 86,540 36,618
-------- ------- -------
Income (loss) before income taxes..................... (8,348) (1,310) 4,177
Income tax provision (benefit)........................ (2,777) (335) 1,655
-------- ------- -------
Net income (loss)..................................... $ (5,571) $ (975) $ 2,522
======== ======= =======
</TABLE>
See accompanying notes.
F-20
<PAGE> 122
PLAINWELL PAPER COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996
AND THE PERIOD FROM DECEMBER 30, 1996 THROUGH JUNE 16, 1997
(Dollars In thousands)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ------- --------- -------
<S> <C> <C> <C> <C>
Balance at January 2, 1995.......................... $1 $27,480 $8,466 $35,947
Net loss.......................................... -- -- (5,571) (5,571)
-- ------- ------ -------
Balance at January 1, 1996.......................... 1 27,480 2,895 30,376
Net loss.......................................... -- -- (975) (975)
-- ------- ------ -------
Balance at December 29, 1996........................ 1 27,480 1,920 29,401
Net income........................................ -- -- 2,522 2,522
-- ------- ------ -------
Balance at June 16, 1997............................ $1 $27,480 $4,442 $31,923
== ======= ====== =======
</TABLE>
See accompanying notes.
F-21
<PAGE> 123
PLAINWELL PAPER COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 29, JUNE 16,
1995 1996 1997
------------ ------------ -------------
(Dollars In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................... $(5,571) $ (975) $ 2,522
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for deferred income taxes................ 138 628 294
Depreciation....................................... 2,257 2,330 1,070
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable.............................. (3,296) (662) 140
Accrued liabilities........................... 69 373 (417)
Other long-term liabilities................... (564) 2,345 (334)
Accrued pensions.............................. 13 (1,507) (102)
Postretirement benefits....................... 100 140 72
Decrease (increase) in:
Miscellaneous receivable...................... 380 41 (18)
Inventories................................... (1,458) 5,773 (2,732)
Prepaid expenses.............................. (16) 52 (623)
Other assets.................................. (188) (2,255) 220
Receivable from Simpson....................... 11,959 (5,284) (81)
------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 3,823 999 11
INVESTING ACTIVITIES:
Capital expenditures................................. (3,878) (1,220) (66)
Other................................................ 34 154 55
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES...... (3,844) (1,066) (11)
------- ------- -------
Decrease in cash..................................... (21) (67) --
Cash at beginning of period.......................... 88 67 --
------- ------- -------
Cash at end of period................................ $ 67 $ -- $ --
======= ======= =======
Supplemental disclosure of cash flow
information -- Cash paid for interest.............. $ 146 $ 144 $ 124
</TABLE>
See accompanying notes.
F-22
<PAGE> 124
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 16, 1997
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Plainwell Paper Company (the "Company"), formerly doing business as Simpson
Plainwell Paper Company, is a wholly owned subsidiary of Simpson Paper Company,
which is a subsidiary of Simpson Investment (collectively, "Simpson").
Nature of Operations and Relationship With Simpson
The Company owns and operates a specialty coated paper mill in Plainwell,
Michigan, that produces and supplies premium coated printing papers and
technical specialty grades of paper.
Sales are generally to well-established companies in the United States.
Credit losses have not been significant. For the year ended December 31, 1995,
the Company had sales to two individual customers which comprised 12.6% and
10.7% of sales for the year. For the year ended December 29, 1996, the Company
has sales to two individual customers which comprised 14% and 11% of sales for
the year. For the period ending June 16, 1997, sales to one individual customer
comprised 16% of sales for the period. No other customers represented more than
10% of revenues.
The Company purchases pulp from several vendors and believes that it has an
adequate supply. The price of pulp is a commodity and is subject to significant
fluctuations.
The financial statements are based on separate accounting records
maintained by Simpson for the Company. Throughout the period covered by these
financial statements, Simpson performed cash management on a centralized basis
and processed related accounts receivable and certain other transactions. The
systems utilized by Simpson did not provide detail for receivables and cash
receipts and payments on a business-specific basis. Accordingly, cash, trade
receivables and the related allowances for bad debts are recorded by the Company
and by Simpson through the intercompany receivable account. These accounting
records reflect certain charges by Simpson for direct costs and expenses
incurred by Simpson that were associated with the Company's selling, general and
administrative operations. Additionally, certain administrative costs incurred
by Simpson which benefit the Company but are not directly attributable to the
Company, which historically had not been allocated, have been allocated to the
Company in the accompanying financial statements. These costs include
engineering, environmental, management information services, marketing and other
administrative costs and are allocated based on net sales. Such costs are
separately classified as overhead allocation from Simpson in the statements of
operations. Management believes the allocation of overhead from Simpson is
reasonable given Simpson's organizational and management structure.
Throughout the period covered by these financial statements, the Company
participated in Simpson's cash disbursement system and, as such, its cash
funding requirements were met by Simpson. Other than the note payable (see Note
3) and related interest expense, there has been no allocation to the Company of
Simpson's consolidated borrowings and related interest expense. For the periods
in the accompanying financial statements, the Company was generally in a net
receivable position from Simpson.
The financial information included herein may not necessarily be indicative
of the financial position, results of operations or cash flows of the Company in
the future, nor does such information necessarily reflect the financial
position, results of operations or cash flows of the Company had it been a
separate, stand-alone company during the periods presented.
Fiscal Year
The Company's fiscal year ended on the Sunday closest to December 31.
F-23
<PAGE> 125
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Inventories
Inventories are stated at the lower of cost or market, with cost determined
using the last-in, first-out (LIFO) method.
Properties
Properties are carried at cost. Costs of maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts, with the resultant gain
or loss included in income.
For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of respective assets. The estimated
useful lives of the principal items of plant and equipment range from 10 to 40
years. For income tax purposes, depreciation is calculated primarily using
accelerated methods.
Interest is capitalized in connection with construction of major projects.
No interest was capitalized in 1995, 1996 or 1997.
Inventoriable Stores
Inventoriable stores include various parts and supplies used in the
maintenance and operation of the Company's manufacturing equipment.
Inventoriable stores are stated at cost determined on the first-in, first out
method of accounting.
Intercompany Account
Cash collected from and distributed to the Company is reflected in the
intercompany account balance. The intercompany account balance represents the
net accumulated transactions between Simpson and the Company. The average
balance of the intercompany account with Simpson decreased $5,871,000 for the
year ended December 31, 1995 and increased $8,616,000 for the year ended
December 29, 1996 and $581,000 for the period from December 30, 1996 through
June 16, 1997.
Income Taxes
The Company is included in the consolidated federal tax return of Simpson.
Income taxes have been provided as if the Company were a separate taxpayer. The
Company's current income taxes payable/receivable is classified with the
Receivable from Simpson in the accompanying balance sheet.
Environmental Liabilities
Losses associated with environmental remediation obligations are accrued
when such losses are probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally are recognized not
later than the completion of a remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recognized as assets when
their receipt is deemed probable.
Revenue Recognition
Sales are recognized when goods are shipped to the customer. In determining
net sales, sales are reduced by commissions, discounts and freight.
F-24
<PAGE> 126
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Interest Expense and Income
The interest expense reflected in the statements of operations represents
interest associated with the note payable related to an industrial revenue bond.
The Company was not allocated any interest income on the receivable from
Simpson.
Research and Development
Research and development costs are charged to expense as incurred and were
$351,000, $181,000 and $142,000 for the years ended December 31, 1995 and
December 28, 1996, and for the period from December 30, 1996 through June 16,
1997, respectively.
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 assets and 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.
2. ADDITIONAL BALANCE SHEET INFORMATION
Components are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Inventories:
Paper mill fiber.......................................... $ 1,537 $ 1,883
Work in progress.......................................... 1,372 1,716
Finished goods............................................ 5,548 6,577
Chemicals and other....................................... 916 1,506
------- -------
9,373 11,682
Plus adjustment to state inventories at LIFO cost......... 34 457
------- -------
$ 9,407 $12,139
======= =======
Properties:
Land...................................................... $ 1,178 $ 1,178
Mills, plant and improvements............................. 9,586 9,638
Equipment................................................. 29,900 29,873
Furniture and fixtures.................................... 2,518 2,488
------- -------
43,182 43,177
Less accumulated depreciation............................. 16,276 17,330
------- -------
Net properties.............................................. $26,906 $25,847
======= =======
Other assets:
Due from prior owners for environmental remediation
costs.................................................. $ 2,000 $ 2,000
Intangible pension asset.................................. 1,144 1,246
Inventoriable stores...................................... 2,311 2,433
Other..................................................... 346 847
------- -------
$ 5,801 $ 6,526
======= =======
</TABLE>
F-25
<PAGE> 127
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Accrued liabilities:
Workers' compensation claims.............................. $ 667 $ 654
Other..................................................... 1,420 1,016
------- -------
$ 2,087 $ 1,670
======= =======
Other long-term liabilities:
Postretirement obligation................................. $ 1,390 $ 1,462
Accrued environmental..................................... 2,000 2,000
Workers' compensation and other........................... 717 414
Other..................................................... 134 103
------- -------
$ 4,241 $ 3,979
======= =======
</TABLE>
3. LONG-TERM DEBT
The $3,500,000 note payable relates to a tax-exempt bond issued by the City
of Plainwell for the benefit of the Company. The bond and related note payable
bear interest at a variable rate which was 4.45% at December 29, 1996 and June
16, 1997. Interest payments are due monthly and continue until the note matures
on October 1, 2007.
4. EMPLOYEE BENEFIT PLANS
Pension Plans
Substantially all of the Company's employees participate in noncontributory
defined-benefit pension plans. Salaried employees are covered by a
noncontributory defined-benefit pension plan administered by Simpson which also
includes other salaried employees of Simpson. The union hourly employees are
covered by a noncontributory defined-benefit pension plan administered by
Simpson. Pension benefits for employees covered under this plan are based on
each employee's years of service.
Net periodic pension cost, was composed of the following (dollars in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 29, JUNE 16,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period...................................... $ 372 $ 524 $ 269
Interest cost on projected benefit
obligation.................................. 749 831 429
Actual earnings from plan assets.............. (1,677) (2,258) (1,693)
Deferral of earnings from plan assets......... 1,036 1,429 1,161
Net amortization and deferral................. 151 194 92
------- ------- -------
Net periodic pension cost..................... $ 631 $ 720 $ 258
======= ======= =======
</TABLE>
F-26
<PAGE> 128
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
The following table sets forth the funded status and the amount recognized
as a prepaid pension cost (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Accumulated benefit obligation:
Vested portion............................................ $(11,297) $(11,902)
Nonvested portion......................................... (402) (425)
-------- --------
Accumulated benefit obligation.............................. (11,699) (12,327)
Excess of projected benefit obligation over accumulated
benefit obligation........................................ (1,024) (1,108)
-------- --------
Projected benefit obligation................................ (12,723) (13,435)
Plan assets at fair market value............................ 11,975 13,799
-------- --------
Plan assets greater (less) than projected benefit
obligation................................................ (748) 364
Unrecognized net gain (loss)................................ 552 (390)
Unrecognized prior service.................................. 1,346 1,277
Balance of unrecorded transition asset...................... (6) (5)
-------- --------
Prepaid pension cost........................................ $ 1,144 $ 1,246
======== ========
</TABLE>
Substantially all the pension plan's assets are invested in common stock,
fixed-income securities, cash and cash equivalents. The discount rate used in
determining the actuarial present value of the projected benefit obligation was
7.5% for December 29, 1996 and June 16, 1997. The expected long-term rate of
return on plan assets was 9.0% for the 1996 and 1997 periods.
The funding policy regarding all of the plans is to make contributions to
the plans that are between the minimum amounts required by the Employee
Retirement Income Security Act of 1974 (ERISA) and the maximum amounts
deductible under current income tax regulations.
Profit-Sharing and Savings Retirement Plan
The Company sponsors a 401(k) retirement plan covering substantially all
salaried and hourly employees. The Company matches a percentage of the
participants' contributions. Total Company contributions expense recorded for
the years ended December 31, 1995 and December 29, 1996 and for the period from
December 30, 1996 through June 16, 1997 was $165,000, $198,000 and $87,000,
respectively.
Other Postretirement Plans
Simpson sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried Company employees and eligible spouses and
dependents of the employees. The medical plans pay a stated percentage of
covered medical expenses incurred after deducting copayments made once a stated
deductible has been met. The life insurance plans pay a defined benefit. Simpson
does not prefund these plans prior to actual incurrence of costs under the
plans.
F-27
<PAGE> 129
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Net periodic other postretirement benefit cost, for these plans was
composed of the following (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 29, JUNE 16,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Service cost -- benefits attributed to service
during the period........................... $ 46 $ 48 $25
Interest cost on accumulated benefit
obligation.................................. 105 123 67
Net amortization and deferral................. 3 28 6
---- ---- ---
Net periodic cost of other postretirement
benefit plans............................... $154 $199 $98
==== ==== ===
</TABLE>
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
balance sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Accumulated benefit obligation:
Retirees.................................................. $ 454 $ 451
Other fully eligible participants......................... 371 389
Other active participants................................. 899 807
------ ------
1,724 1,647
Unrecognized actuarial gain................................. (334) (185)
------ ------
Accrued postretirement benefit cost liability............... $1,390 $1,462
====== ======
</TABLE>
For measurement purposes, 8.0% and 7.67% rates of increase were assumed for
health care costs for 1996 and 1997, respectively. The rate is assumed to
decline in 1/3% decrements every year until it reaches 5% in 2005 where it will
remain thereafter. A 1% increase in the assumed health care cost trend rates
would increase the accumulated postretirement benefit obligation by 7% at June
16, 1997. The effect of this 1% increase on the service and interest cost
components of the net periodic cost of postretirement medical and life insurance
plans would be an increase of 8% for 1997. The discount rate used in determining
the accumulated benefit obligation was 7.5% in both 1996 and 1997.
F-28
<PAGE> 130
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
5. INCOME TAXES
The income tax provision (benefit) consists of the following components
(dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 29, JUNE 16,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................. $(3,015) $(1,133) $1,041
State............................... 100 170 320
------- ------- ------
(2,915) (963) 1,361
Deferred:
Federal............................. 127 577 270
State............................... 11 51 24
------- ------- ------
138 628 294
------- ------- ------
$(2,777) $ (335) $1,655
======= ======= ======
</TABLE>
The income tax provision (benefit) was different from the amount computed
by applying the United States statutory federal income tax rate as follows
(dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 29, JUNE 16,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Provision (benefit) at statutory
rates............................... $(2,838) $(445) $1,420
State income and franchise tax, net of
federal income tax benefit.......... 73 112 211
Other, net............................ 12 (2) 24
------- ----- ------
$(2,777) $(335) $1,655
======= ===== ======
</TABLE>
F-29
<PAGE> 131
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The net deferred
tax (liabilities) assets are composed of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment.............................. $(4,710) $(4,688)
Environmental recoveries............................ (740) (740)
Pension............................................. (423) (461)
------- -------
(5,873) (5,889)
Deferred income tax assets:
Vacation and other employee benefits................ 817 505
Environmental liabilities........................... 740 740
Postretirement benefits............................. 514 541
Other............................................... 22 29
------- -------
2,093 1,815
------- -------
Net deferred tax liability............................ $(3,780) $(4,074)
======= =======
Included in the balance sheet as:
Current deferred income tax asset................... $ 839 $ 534
Noncurrent deferred income tax liability............ (4,619) (4,608)
------- -------
$(3,780) $(4,074)
======= =======
</TABLE>
6. ENVIRONMENTAL REMEDIATION
In 1990, the Company was named as one of several potentially responsible
parties ("PRP") at a Superfund site in Kalamazoo, Michigan which has five
distinct operable units. PRPs may be held jointly and severally liable for
cleanup plus related costs. One operable unit of the Kalamazoo River Site is the
12th Street Landfill, a property wholly owned by the Company. The Company
expects to pay for the entire cost of the investigation and remediation work at
this location. The Company has recorded a liability for the estimated cost to
remediate this unit. A receivable for remediation costs recoverable under an
indemnification agreement with Simpson has also been recorded. Investigations at
a second operable unit, which includes a portion of the Kalamazoo River,
continue and environmental remediation costs, if any, that may be incurred
cannot presently be estimated. Management believes the Company is not
responsible for environmental remediation costs at the other three units.
Accordingly, in the accompanying financial statements, the Company has not
recorded a liability for any remediation costs or recovery under the
indemnification agreement for the other three units.
Although the final outcome of these environmental matters is subject to a
great many variables and cannot be predicted with any degree of certainty,
management believes that the ultimate outcome will not have a material effect on
the current financial position, liquidity or results of operations of the
Company.
F-30
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Pope & Talbot, Inc.:
We have audited the accompanying balance sheets of the Consumer Products
Division (an operating division of Pope & Talbot, Inc.) as of December 31, 1996
and 1997, and the related statements of operations, intercompany account and
cash flows for each of the years ended December 31, 1995, 1996 and 1997. 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 the Consumer Products
Division (an operating division of Pope & Talbot, Inc.) as of December 31, 1996
and 1997, and the results of its operations and its cash flows for each of the
years ended December 31, 1995, 1996 and 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
April 6, 1998
F-31
<PAGE> 133
CONSUMER PRODUCTS DIVISION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable (net of allowance for doubtful
accounts of $1,019 and $639 at December 31, 1996 and
1997, respectively).................................... $ 12,380 $ 10,676
Inventories............................................... 17,976 17,669
Deferred income taxes..................................... 2,566 2,053
Prepaid expenses.......................................... 379 262
-------- --------
Total current assets................................... 33,301 30,660
Properties:
Plant and equipment....................................... 178,305 180,301
Accumulated depreciation.................................. (98,302) (107,856)
-------- --------
80,003 72,445
Land...................................................... 2,524 2,524
-------- --------
Total properties....................................... 82,527 74,969
Goodwill, net of amortization............................... 3,863 3,697
Deferred Income Tax Assets, net............................. 9,528 6,936
Other Assets................................................ 224 211
-------- --------
$129,443 $116,473
======== ========
LIABILITIES
Current Liabilities:
Accounts payable.......................................... $ 3,467 $ 5,712
Accrued payroll and related taxes......................... 4,990 4,625
Other accrued liabilities................................. 5,550 4,763
-------- --------
Total current liabilities.............................. 14,007 15,100
Postretirement Benefits..................................... 6,998 7,084
Long-Term Debt.............................................. 18,800 18,800
Commitments and Contingencies............................... -- --
Intercompany Account........................................ 89,638 75,489
-------- --------
$129,443 $116,473
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-32
<PAGE> 134
CONSUMER PRODUCTS DIVISION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net Revenues............................................... $107,013 $133,649 $136,176
Costs and Expenses:
Cost of sales............................................ 129,483 124,052 121,751
Selling, general and administrative...................... 3,228 3,351 2,919
Corporate overhead allocation............................ 1,509 1,962 2,057
Interest................................................. 881 812 846
-------- -------- --------
Total costs and expenses.............................. 135,101 130,177 127,573
-------- -------- --------
Income (Loss) Before Income Taxes.......................... (28,088) 3,472 8,603
Income Tax Provision (Benefit)............................. (10,533) 1,354 3,355
-------- -------- --------
Net Income (Loss).......................................... $(17,555) $ 2,118 $ 5,248
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE> 135
CONSUMER PRODUCTS DIVISION
STATEMENTS OF INTERCOMPANY ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1994................................ $ 94,951
1995 Activity:
Net loss............................................... (17,555)
Net distribution from Pope & Talbot, Inc............... 21,711
--------
Balance at December 31, 1995................................ 99,107
1996 Activity:
Net income............................................. 2,118
Net distribution to Pope & Talbot, Inc................. (11,587)
--------
Balance at December 31, 1996................................ 89,638
1997 Activity:
Net income............................................. 5,248
Net distribution to Pope & Talbot, Inc................. (19,397)
--------
Balance at December 31, 1997................................ $ 75,489
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE> 136
CONSUMER PRODUCTS DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $(17,555) $ 2,118 $ 5,248
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities --
Depreciation and amortization......................... 11,298 11,809 11,309
Gain on sale of properties............................ -- -- (32)
Changes in assets and liabilities:
Increase (decrease) in --
Accounts payable................................. (3,434) (3,516) 2,245
Accrued payroll and related taxes................ (88) 427 (365)
Other accrued liabilities........................ (752) 2,276 (787)
Postretirement benefits.......................... 75 55 86
Decrease (increase) in:
Accounts receivable.............................. 1,191 (2,963) 1,704
Inventories...................................... 3,423 2,869 307
Deferred income taxes............................ (10,533) 1,218 3,105
Prepaid expenses................................. 3 (86) 117
-------- -------- --------
Net cash provided by (used for) operating
activities..................................... (16,372) 14,207 22,937
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (21,113) (1,922) (3,737)
Proceeds from sale of other properties................... 316 58 197
-------- -------- --------
Net cash used for investing activities........... (20,797) (1,864) (3,540)
CASH FLOW FROM FINANCING ACTIVITIES:
Net distribution (to) from Pope & Talbot, Inc............ 21,711 (12,343) (19,397)
Change in restricted bond funds.......................... 15,458 -- --
-------- -------- --------
Net cash provided by (used for) financing
activities..................................... 37,169 (12,343) (19,397)
Change in Cash............................................. -- -- --
Cash at Beginning of Period................................ -- -- --
-------- -------- --------
Cash at End of Period...................................... $ -- $ -- $ --
======== ======== ========
Noncash Investing Activities:
Transfer of property from Parent to CPD.................. $ -- $ 756 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE> 137
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. BASIS OF PRESENTATION:
The Consumer Products Division (CPD) is an operating division of Pope &
Talbot, Inc. and Subsidiaries (Parent). The CPD owns and operates
fully-integrated tissue manufacturing and converting facilities located in Eau
Claire, Wisconsin, and Ransom, Pennsylvania, with converting and distributing
operations for the Ransom facility located in Pittston, Pennsylvania. Tissue
products manufactured by the CPD include towels, napkins, bathroom tissue and
facial tissue. These tissue products are sold under private and controlled
labels to supermarkets, drugstores, mass merchandisers, food and drug
distribution companies and warehouse club stores. The accompanying financial
statements reflect the assets and liabilities of the CPD at December 31, 1996
and 1997, and the statements of operations, changes in intercompany account and
cash flows for the years ended December 31, 1995, 1996 and 1997.
The financial statements are based on separate accounting records
maintained by Parent for the CPD. These accounting records reflect certain
charges by Parent for direct costs and expenses associated with the CPD
operations which were included in cost of goods sold or selling, general and
administrative expenses as appropriate. Additionally, Parent's administrative
costs not directly attributable to the CPD, which historically had not been
allocated, have been allocated to the CPD based on net sales. Management
believes this allocation method is reasonable. These indirect Parent costs
include such items as general corporate, tax services, certain human resources
and other administrative costs. The Parent's indirect administrative overhead
allocation, which is separately classified as corporate overhead allocation in
the statements of operations, amounted to $1.5 million, $2.0 million and $2.1
million for the years ended December 31, 1995, 1996 and 1997, respectively.
Since CPD has historically operated as a division of the Parent it is not
practicable to estimate what the corporate overhead expenses would have been on
a stand-alone basis.
Because the CPD results were included in the consolidated financial
statements of Parent, there are no separate historical equity accounts for the
CPD.
Throughout the period covered by these financial statements, the CPD
participated in Parent's cash disbursement system and, as such, its cash funding
requirements were met by Parent. Other than the City of Eau Claire note payable
(see Note 6) and related interest expense, there has been no allocation to the
CPD of the Parent's consolidated borrowings and related interest expense, except
for interest capitalized as a component of properties.
The financial information included herein may not necessarily be indicative
of the financial position, results of operations or cash flows of the CPD in the
future, nor does such information necessarily reflect the financial position,
results of operations or cash flows of the CPD had it been a separate,
stand-alone company during the periods presented.
2. ACCOUNTING POLICIES:
Inventories
Inventories are stated at the lower of average cost or market. Inventory
costs include the cost of materials, labor and plant overhead.
Properties
Properties are carried at cost and include expenditures for new facilities
and equipment and those expenditures which substantially increase the useful
lives of existing plant and equipment. Costs of maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts, with the resultant gain
or loss included in income.
F-36
<PAGE> 138
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of respective assets. The estimated
useful lives of the principal items of plant and equipment range from 3 to 20
years. For income tax purposes, depreciation is calculated primarily using
accelerated methods.
Interest costs related to funds borrowed by Parent during the construction
period of major capital projects is capitalized. The interest capitalized is
determined by applying Parent's effective interest rate to the accumulated
capital costs during the construction period of a project. Interest capitalized
was $149,000 during 1995 and no interest was capitalized in 1996 or 1997.
Goodwill
The goodwill contained in the balance sheets relates to the 1980 purchase
of the Eau Claire, Wisconsin facilities. This amount is being amortized on a
straight-line basis over 40 years. The accumulated amortization related to this
goodwill was $2,927,000 and $3,093,000 at December 31, 1996 and 1997,
respectively.
Revenue Recognition
Revenue from the sale of products is recognized when the products are
shipped to customers.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs expensed in
the three years ended December 31, 1995, 1996 and 1997 were not material.
Interest Expense
The interest expense reflected in the statements of operations represents
interest associated with the City of Eau Claire note payable, which is currently
an obligation of the Parent, but is directly related to the CPD. Consequently,
the interest expense reflected in the statements of operations and the amount of
debt reflected in the balance sheets are not intended to reflect interest
expense that the CPD may have incurred or the amount of debt which would have
been outstanding had the CPD been an independent company.
Income Taxes
Income taxes have been determined on a separate return basis. Deferred
income taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The principal
temporary differences are related to depreciation, net operating loss
carryforwards and postretirement benefits.
Intercompany Account
Parent maintains a cash disbursement system which is administered by its
corporate office. Cash collected from and distributed to the CPD is reflected in
the intercompany account balance. The intercompany account balance represents
the net accumulated transactions between Parent and the CPD.
Per Share Information
Earnings per common share information has been omitted in the financial
statements since the CPD was not a separate entity with its own capital
structure during the years presented.
F-37
<PAGE> 139
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
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 assets and 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.
3. INVENTORIES:
Inventory components at December 31, 1996 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................ $ 4,776 $ 3,343
Finished goods........................................... 10,140 11,050
Chemicals and supplies................................... 3,060 3,276
------- -------
$17,976 $17,669
======= =======
</TABLE>
4. PLANT AND EQUIPMENT:
Plant and equipment components at December 31, 1996 and 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Mills, plants and improvements......................... $ 31,356 $ 32,059
Equipment.............................................. 144,373 144,365
Mobile equipment....................................... 1,829 1,390
Construction in progress............................... 747 2,487
-------- --------
$178,305 $180,301
======== ========
</TABLE>
5. OTHER ACCRUED LIABILITIES:
Other accrued liabilities' components at December 31, 1996 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Customer incentive accrual................................. $2,206 $2,187
Accrued freight costs...................................... 984 811
Accrued utilities costs.................................... 1,120 881
Other accrued liabilities.................................. 1,240 884
------ ------
$5,550 $4,763
====== ======
</TABLE>
CPD provides certain customers sales discounts based on negotiated minimum
purchased volumes. Discounts are accrued as product shipments are made and are
paid periodically as minimum volumes are achieved.
6. LONG-TERM DEBT:
During 1994, the City of Eau Claire, Wisconsin issued tax-exempt,
adjustable rate, solid waste disposal revenue bonds. The bonds were issued to
finance a wastepaper pulping improvement project at the CPD's Eau Claire,
Wisconsin tissue facility. Upon sale of the bonds, the City of Eau Claire loaned
$18.8 million to Parent and the related debt is reflected on the CPD balance
sheets. The note payable has a variable interest rate
F-38
<PAGE> 140
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(4.3% at December 31, 1997) and is due in 2014. The carrying value of the note
payable approximates its fair value. In connection with the note payable, Parent
maintains a $19,552,000 letter of credit with a bank to collateralize the note
payable for which it pays a commitment fee. The commitment fee on the letter of
credit varies from 0.425% to 0.625% annually (.5% at December 31, 1997) based
upon Parent's leverage ratio.
7. PENSION AND OTHER POSTRETIREMENT PLANS:
Pension Plans
Substantially all of the CPD employees participate in noncontributory
defined-benefit pension plans. These include Parent administered plans and a
multi-employer plan administered by a union.
The Eau Claire union CPD hourly employees are covered under a
multi-employer union pension plan. Contributions to this plan are based upon
negotiated hourly rates. Salaried CPD employees are covered by a noncontributory
defined-benefit pension plan administered by Parent which also includes other
salaried employees of Parent. It is not practical to determine the amount of
accumulated benefits or net assets available for benefits that apply solely to
CPD employees covered by these plans.
The Ransom union CPD hourly employees are covered by a noncontributory
defined benefit pension plan administered by Parent. Pension benefits for
employees covered under this plan are based on each employee's years of service.
Net periodic pension cost for the years ended December 31, 1995, 1996 and
1997 was composed of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Ransom union hourly plan:
Service cost -- benefits earned during the
period................................... $ 328 $ 248 $ 244
Interest cost on projected benefit
obligation............................... 971 1,017 1,038
Actual earnings from plan assets............ (1,805) (2,047) (3,531)
Deferral of earnings from plan assets....... 864 975 2,330
Net amortization and deferral............... 136 136 136
------- ------- -------
Total Ransom union hourly plan...... 494 329 217
Allocations of salaried pension benefits from
Parent...................................... (96) (11) (152)
Contributions to multi-employer plan.......... 994 1,034 1,052
------- ------- -------
Total net periodic pension cost..... $ 1,392 $ 1,352 $ 1,117
======= ======= =======
</TABLE>
F-39
<PAGE> 141
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
The following table sets forth the funded status of the Ransom union hourly
plan and the amount recognized as a prepaid (accrued) pension cost at December
31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Accumulated benefit obligation:
Vested portion....................................... $(13,536) $(14,027)
Nonvested portion.................................... (884) (607)
-------- --------
Accumulated and projected benefit obligation...... (14,420) (14,634)
Plan assets at fair market value....................... 13,676 16,391
-------- --------
Plan assets greater (less) than projected benefit
obligation...................................... (744) 1,757
Unrecognized net gain.................................. (144) (2,597)
Unrecognized prior service............................. 942 811
Balance of unrecorded transition asset from initial
application of SFAS No. 87........................... 19 15
-------- --------
Prepaid (accrued) pension cost......................... $ 73 $ (14)
======== ========
</TABLE>
Substantially all of the pension plan's assets are invested in common
stock, fixed-income securities, cash and cash equivalents. The discount rate
used in determining the actuarial present value of the projected benefit
obligation was 7.5% for December 31, 1996 and 1997. The expected long-term rate
of return on plan assets was 9.0% for the 1996 and 1997 periods.
The funding policy regarding all of the Parent administered plans is to
make contributions to the plans that are between the minimum amounts required by
the Employee Retirement Income Security Act (ERISA) and the maximum amounts
deductible under current income tax regulations.
Other Postretirement Plans
The Parent sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried CPD employees and eligible spouses and
dependents of the employees. The medical plans pay a stated percentage of
covered medical expenses incurred after deducting co-payments made once a stated
deductible has been met. The life insurance plans pay a defined benefit. The
Parent does not fund these plans prior to actual incurrence of costs under the
plans.
Net periodic other postretirement benefit cost for the years ended December
31, 1995, 1996 and 1997 for these plans was composed of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Nonsalaried CPD postretirement costs:
Service cost -- benefits attributed to service
during the period................................ $113 $116 $120
Interest cost on accumulated benefit obligation..... 330 405 411
Net amortization and deferral....................... (79) (53) (39)
---- ---- ----
Total nonsalaried........................... 364 468 492
Allocations of salaried postretirement costs from
Parent.............................................. (19) 144 169
---- ---- ----
Net periodic cost of other postretirement
benefit plans............................. $345 $612 $661
==== ==== ====
</TABLE>
F-40
<PAGE> 142
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
balance sheets at December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accumulated benefit obligation:
Retirees................................................. $2,597 $2,652
Other fully eligible participants........................ 1,470 1,492
Other active participants................................ 3,382 3,442
------ ------
7,449 7,586
Unrecognized actuarial gain................................ (622) (630)
Unrecognized prior service................................. 171 128
------ ------
Accrued postretirement benefit cost liability.............. $6,998 $7,084
====== ======
</TABLE>
For measurement purposes, 9.0% and 8.5% rates of increase were assumed for
health care costs for 1996 and 1997, respectively. The rate is assumed to
decline in .5% decrements every year until it reaches 5% in 2004 where it will
remain thereafter. A 1% increase in the assumed health care cost trend rates
would increase the accumulated postretirement benefit obligation by $873,000 at
December 31, 1997. The effect of this 1% increase on the service and interest
cost components of the net periodic cost of postretirement medical and life
insurance plans would be an increase of $98,000 for 1997. The discount rate used
in determining the accumulated benefit obligation was 7.5% in for both 1996 and
1997.
8. INCOME TAXES:
The income tax provision (benefit) consists of the following components (in
thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year Ended December 31, 1995
Federal.................................... $ -- $ (9,550) $ (9,550)
State...................................... -- (983) (983)
---- -------- --------
$ -- $(10,533) $(10,533)
==== ======== ========
Year Ended December 31, 1996
Federal.................................... $ -- $ 1,146 $ 1,146
State...................................... 134 74 208
---- -------- --------
$134 $ 1,220 $ 1,354
==== ======== ========
Year Ended December 31, 1997
Federal.................................... $ -- $ 2,839 $ 2,839
State...................................... 251 265 516
---- -------- --------
$251 $ 3,104 $ 3,355
==== ======== ========
</TABLE>
F-41
<PAGE> 143
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
The difference in income tax provision (benefit) from the amount computed
by applying the United States statutory federal income tax rate for the years
ended December 31, 1995, 1996 and 1997 is reconciled below (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------ ------
<S> <C> <C> <C>
Income (loss) before income taxes.............. $(28,088) $3,472 $8,603
======== ====== ======
United States statutory federal income tax
provision (benefit).......................... $ (9,831) $1,215 $3,011
State income and franchise taxes, net of
federal income tax benefit................... (702) 139 344
-------- ------ ------
$(10,533) $1,354 $3,355
======== ====== ======
</TABLE>
Deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The net deferred
tax assets at December 31, 1996 and 1997 are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current deferred taxes:
Gross assets........................................... $ 2,566 $ 2,053
Gross liabilities...................................... -- --
------- -------
Total current deferred taxes........................ 2,566 2,053
Noncurrent deferred taxes:
Gross assets........................................... 20,882 17,460
Gross liabilities...................................... (11,354) (10,524)
------- -------
Total noncurrent deferred taxes..................... 9,528 6,936
------- -------
Net deferred tax assets........................ $12,094 $ 8,989
======= =======
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets (liabilities) at December 31, 1996 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Depreciation........................................... $(11,125) $(10,397)
Net operating loss carryforwards....................... 18,153 14,697
Postretirement benefits................................ 2,729 2,763
Vacation pay........................................... 1,076 1,018
Reserves and allowances................................ 705 514
Inventories............................................ 468 236
Other, net............................................. 88 158
-------- --------
Net deferred tax assets................................ $ 12,094 $ 8,989
======== ========
</TABLE>
At December 31, 1997, CPD had available approximately $38,100,000 of net
operating loss carryforwards for U.S. Federal tax purposes, expiring beginning
in 2007 through 2010.
9. MAJOR CUSTOMERS:
In 1995, the CPD had sales to two customers of $14,727,000 and $12,198,000.
In 1996, the CPD had sales to three customers of $16,307,000, $14,430,000 and
$13,491,000. Also during 1996, the CPD had sales to
F-42
<PAGE> 144
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
two customers of $10,171,000 and $7,098,000, that became commonly owned in 1997.
In 1997, the CPD had sales to three customers of $20,715,000, $20,323,000 and
$13,825,000. No other customers represented more than 10% of revenues for any of
the aforementioned periods.
10. LITIGATION AND LEGAL MATTERS:
The CPD is a party to legal proceedings and environmental matters generally
incidental to the business. Although the final outcome of any legal proceeding
or environmental matter is subject to a great many variables and cannot be
predicted with any degree of certainty, management believes that the ultimate
outcome resulting from these proceedings and matters would not have a material
effect on CPD's current financial position, liquidity or results of operations;
however, in any given future reporting period such proceedings or matters could
have a material effect on results of operations.
CPD owns and operates a landfill in Washington County, Wisconsin, for
disposal of its paper-making sludge. CPD has closed two of three sections of the
landfill and is currently monitoring those sections in accordance with
requirements of state environmental laws. CPD expects to begin closure of the
third section of the landfill by 2002. Estimated closure costs of $1,300,000 are
being accrued over the operational life of the landfill. Monitoring costs
estimated at $80,000 per year will be required for 40 years following the
closure of the landfill. It is CPD's policy to expense monitoring costs as
incurred. CPD believes that, based on current information and regulatory
requirements, the estimates for the landfill closure costs established by CPD
are adequate, although there can be no assurance that the costs will not
eventually exceed the amount presently estimated.
In 1987, CPD received a request for information from the U.S. Environmental
Protection Agency (EPA) that indicated that it was considered a potentially
responsible party (PRP) with respect to the Blue Valley Landfill Superfund Site
in Eau Claire, Wisconsin. Available records indicate that CPD sent a de minimis
amount of wastewater treatment sludge from the de-inking process and general
wastes from the tissue division to the Blue Valley Landfill. CPD's predecessor
at the Eau Claire facility, the Brown Company, also sent waste to the Blue
Valley Landfill Superfund Site and has been named a PRP with respect to the
site. Based on the amount of material that CPD sent to the Blue Valley Landfill
and its indemnification agreement with the Brown Company, CPD does not
anticipate that its costs associated with the site will have a material adverse
effect on its operations, liquidity or financial condition.
In 1996, CPD received notification from the EPA that it was considered a
PRP with respect to the A.E. Schneider & Sons Salvage Yard Site in Chippewa
Falls, Wisconsin (the Schneider Site). U.S. EPA indicated in subsequent
correspondence with CPD that it believed that lead from the Eau Claire,
Wisconsin facility might have been disposed of at the Schneider Site. CPD
conducted a follow-up investigation and reported to the EPA that the only
potentially lead containing waste transported from the Eau Claire, Wisconsin
mill to the Schneider Site was believed to be a counterweight to a steam engine
crane that was disposed of in the mid-1970s, when CPD's predecessor at the Eau
Claire, Wisconsin facility, the Brown Company, owned the mill. CPD does not
believe the costs associated with this matter will have a material adverse
effect on its operations, liquidity or financial condition.
In 1997, the EPA published regulations establishing standards and
limitations for non-combustion sources under the Clean Air Act and revised
regulations under the Clean Water Act. The new rules may require more stringent
controls on air emissions and wastewater discharges from the CPD tissue mills.
These regulations are collectively referred to as the "cluster rules." CPD
estimates that future capital spending to comply with the cluster rules could be
up to $5,000,000, depending on the timing and specific requirements imposed. CPD
cannot predict if or when such rules will be promulgated in a form that will
require the CPD to make such expenditures. CPD believes that the cost of
compliance with cluster rules and other environmental requirements will not have
a material adverse effect on its liquidity, operations or financial condition.
F-43
<PAGE> 145
- ------------------------------------------------------------
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 17
Use of Proceeds............................ 24
Capitalization............................. 25
Unaudited Pro Forma Consolidated Financial
Information.............................. 26
Selected Historical Financial and Other
Data..................................... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 35
Industry Overview.......................... 43
Business................................... 47
Management................................. 56
Principal Stockholders..................... 58
Description of Holdings' Capital Stock..... 58
Certain Transactions....................... 59
Description of Certain Indebtedness........ 60
Description of Exchange Notes.............. 63
The Exchange Offer......................... 87
Certain Material U.S. Federal Income Tax
Considerations........................... 95
Plan of Distribution....................... 95
Legal Matters.............................. 96
Experts.................................... 97
Index to Financial Statements.............. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
[PLAINWELL INC. LOGO]
PLAINWELL INC.
OFFER TO EXCHANGE ITS SERIES B
11% SENIOR SUBORDINATED
NOTES DUE 2008 FOR SERIES A
11% SENIOR SUBORDINATED NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties 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 such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as it currently exists or may
hereafter be amended.
Section 145 further authorizes a corporation 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 or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The Company maintains and has in effect insurance policies covering all of
the Company's directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S>
*3.1 Certificate of Incorporation of PLAINWELL INC.
*3.2 By-laws of PLAINWELL INC.
*4.1 Indenture dated as of March 6, 1998 between PLAINWELL INC.
and United States Trust Company of New York.
*4.2 Purchase Agreement dated as of March 3, 1998 among PLAINWELL
INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc
*4.3 Exchange and Registration Rights Agreement dated as of March
6, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and
Salomon Brothers Inc
*5.1 Opinion and consent of Kirkland & Ellis.
</TABLE>
II-1
<PAGE> 147
<TABLE>
<C> <S>
*10.1 Amended and Restated Loan and Security Agreement dated as of
March 6, 1998 by and between PLAINWELL INC. and Sanwa
Business Credit Corporation as Agent for the Lenders.
*10.2 Agreement of Purchase and Sale dated as of January 22, 1998,
by and among Pope & Talbot, Inc., Pope & Talbot, Wis., Inc.,
Plainwell Holding Company and PLAINWELL INC.
*10.3 Transition Services Agreement dated as of March 6, 1998 by
and between PLAINWELL INC. and Pope & Talbot, Inc.
*10.4 Transition Services Agreement dated as of June 16, 1997 by
and between Plainwell Paper Company and Simpson Paper
Company.
*10.5 CVC Securities Purchase Agreement dated as of June 16, 1997
by and between Plainwell Holding Company and Citicorp
Venture Capital, Ltd.
*10.6 Securities Transfer Agreement made and entered into as of
January 31, 1998 between 399 Venture Partners, Inc. and
Citicorp Venture Capital, Ltd.
*10.7 Stockholders Agreement dated as of June 16, 1997, by and
among Plainwell Holding Company, Citicorp Venture Capital,
Brenton Halsey, Larkspur Capital Corporation, William L. New
and any executives of the Company and its Subsidiaries
acquiring Common Stock after the date thereof and executing
a joinder thereto, and the persons set forth on the
Individual Purchaser Signature Page attached thereto.
*10.8 Joinder to Stockholders Agreement dated as of June 16, 1997
by and among Plainwell Holding Company (the "Company") and
certain securityholders of the Company made and entered into
as of January 31, 1998 by and between the Company and 399
Venture Partners, Inc.
*10.9 Registration Rights Agreement dated as of June 16, 1997 by
and among Plainwell Holding Company, Citicorp Venture
Capital, Ltd., CCT II Partners, L.P., Brenton Halsey,
Larkspur Capital Corporation, William L. New and each other
executive of the Company or its subsidiaries who acquires
Common Stock from the Company and executes a joinder thereto
and the persons set forth on the Individual Purchaser
Signature Page attached thereto.
*10.10 Joinder to Registration Rights Agreement dated as of June
16, 1997 by and among Plainwell Holding Company (the
"Company") and certain securityholders of the Company made
and entered into as of January 31, 1998 by and between the
Company and 399 Venture Partners, Inc.
*10.11 Inventory Purchase Agreement dated June 12, 1997 by and
between Simpson Paper Company and Plainwell Paper Company.
*10.12 Collective Bargaining Agreement dated November 29, 1995 by
and between Pope & Talbot, Inc., CPD - Ranson/Pittston
Township and United Paperworkers International Union AFL-CIO
and Ranson/Pittston Township, Local Number 1448.
*10.13 Collective Bargaining Agreement dated April 1, 1997 by and
between Pope & Talbot, Wis., Inc., Eau Claire, Wisconsin and
the United Paperworkers International Union and its
affiliated Local No. 42.
*10.14 Loan Agreement dated November 1, 1983 by and between
Economic Development Corporation of the City of Plainwell
and Plainwell Paper Company.
*10.15 Indenture of Trust dated November 1, 1983 by and among
Economic Development Corporation of the City of Plainwell
and First & Merchants National Bank.
*10.16 Executive Employment and Stock Purchase Agreement dated as
of June 16, 1997 by and among Plainwell Paper Company,
Plainwell Holding Company and William New.
*12.1 Statement of Computation of Ratios.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
*23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included in signature page).
*25.1 Statement of Eligibility of Trustee on Form T-1.
*27.1 Financial Data Schedule.
</TABLE>
II-2
<PAGE> 148
<TABLE>
<C> <S>
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- ---------------
* Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering; and
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of the chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
II-3
<PAGE> 149
described under Item 20 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plainwell, State of
Michigan, on September 2, 1998.
PLAINWELL INC.
By: /s/ WILLIAM L. NEW
------------------------------------
Name: William L. New
Title: Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on September 2, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ WILLIAM L. NEW Chairman, Chief Executive Officer and
- -------------------------------------------------------- President (principal executive officer)
William L. New
* Executive Vice President, Chief Financial
- -------------------------------------------------------- Officer -- Speciality Paper Division,
George E. Mangarelli Secretary, Treasurer (principal financial
officer and accounting officer) and
Director
* Director
- --------------------------------------------------------
Brenton S. Halsey
* Director
- --------------------------------------------------------
Dave F. Thomas
* Director
- --------------------------------------------------------
John D. Weber
*By: /s/ WILLIAM L. NEW
---------------------------------------------------
As Attorney-in-fact
</TABLE>
II-5
<PAGE> 151
EXHIBITS INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
*3.1 Certificate of Incorporation of PLAINWELL INC. .............
*3.2 By-laws of PLAINWELL INC. ..................................
*4.1 Indenture dated as of March 6, 1998 between PLAINWELL INC.
and United States Trust Company of New York.................
*4.2 Purchase Agreement dated as of March 3, 1998 among PLAINWELL
INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc. ...
*4.3 Exchange and Registration Rights Agreement dated as of March
6, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and
Salomon Brothers Inc. ......................................
*5.1 Opinion and consent of Kirkland & Ellis.....................
*10.1 Amended and Restated Loan and Security Agreement dated as of
March 6, 1998 by and between PLAINWELL INC. and Sanwa
Business Credit Corporation as Agent for the Lenders........
*10.2 Agreement of Purchase and Sale dated as of January 22, 1998,
by and among Pope & Talbot, Inc., Pope & Talbot, Wis., Inc.,
Plainwell Holding Company and PLAINWELL INC. ...............
*10.3 Transition Services Agreement dated as of March 6, 1998 by
and between PLAINWELL INC. and Pope & Talbot, Inc. .........
*10.4 Transition Services Agreement dated as of June 16, 1997 by
and between Plainwell Paper Company and Simpson Paper
Company.....................................................
*10.5 CVC Securities Purchase Agreement dated as of June 16, 1997
by and between Plainwell Holding Company and Citicorp
Venture Capital, Ltd. ......................................
*10.6 Securities Transfer Agreement made and entered into as of
January 31, 1998 between 399 Venture Partners, Inc. and
Citicorp Venture Capital, Ltd. .............................
*10.7 Stockholders Agreement dated as of June 16, 1997, by and
among Plainwell Holding Company, Citicorp Venture Capital,
Brenton Halsey, Larkspur Capital Corporation, William L. New
and any executives of the Company and its Subsidiaries
acquiring Common Stock after the date thereof and executing
a joinder thereto, and the persons set forth on the
Individual Purchaser Signature Page attached thereto........
*10.8 Joinder to Stockholders Agreement dated as of June 16, 1997
by and among Plainwell Holding Company (the "Company") and
certain securityholders of the Company made and entered into
as of January 31, 1998 by and between the Company and 399
Venture Partners, Inc. .....................................
*10.9 Registration Rights Agreement dated as of June 16, 1997 by
and among Plainwell Holding Company, Citicorp Venture
Capital, Ltd., CCT II Partners, L.P., Brenton Halsey,
Larkspur Capital Corporation, William L. New and each other
executive of the Company or its subsidiaries who acquires
Common Stock from the Company and executes a joinder thereto
and the persons set forth on the Individual Purchaser
Signature Page attached thereto.............................
*10.10 Joinder to Registration Rights Agreement dated as of June
16, 1997 by and among Plainwell Holding Company (the
"Company") and certain securityholders of the Company made
and entered into as of January 31, 1998 by and between the
Company and 399 Venture Partners, Inc. .....................
*10.11 Inventory Purchase Agreement dated June 12, 1997 by and
between Simpson Paper Company and Plainwell Paper Company...
*10.12 Collective Bargaining Agreement dated November 29, 1995 by
and between Pope & Talbot, Inc., CPD - Ranson/Pittston
Township and United Paperworkers International Union AFL-CIO
and Ranson/Pittston Township, Local Number 1448.............
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
*10.13 Collective Bargaining Agreement dated April 1, 1997 by and
between Pope & Talbot, Wis., Inc., Eau Claire, Wisconsin and
the United Paperworkers International Union and its
affiliated Local No. 42.....................................
*10.14 Loan Agreement dated November 1, 1983 by and between
Economic Development Corporation of the City of Plainwell
and Plainwell Paper Company.................................
*10.15 Indenture of Trust dated November 1, 1983 by and among
Economic Development Corporation of the City of Plainwell
and First & Merchants National Bank.........................
*12.1 Statement of Computation of Ratios..........................
23.1 Consent of Ernst & Young LLP................................
23.2 Consent of Arthur Andersen LLP..............................
*23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).......
*24.1 Powers of Attorney (included in signature page).............
*25.1 Statement of Eligibility of Trustee on Form T-1.............
*27.1 Financial Data Schedule.....................................
*99.1 Form of Letter of Transmittal...............................
*99.2 Form of Notice of Guaranteed Delivery.......................
*99.3 Form of Tender Instructions.................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Experts," "Summary
Historical Financial and Other Data of the Company and Specialty Paper Division"
and "Selected Historical Financial and Other Data of the Company and Specialty
Paper Division" and to the use of our reports dated March 19, 1998 and our
report dated June 29, 1998, in Amendment No. 3 to the Registration Statement
(Form S-4 No. 333-51857) and related Prospectus of PLAINWELL INC. for the
registration of $130,000,000 11% Senior Subordinated Notes.
Milwaukee, Wisconsin ERNST & YOUNG LLP
September 2, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, dated April 6, 1998, with respect to the financial statements of the
Consumer Products Division (an operating division of Pope & Talbot, Inc.)
included in this Amendment No. 3 to Form S-4 of PLAINWELL INC. (No. 333-51857),
and to all references to our firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Portland, Oregon
September 1, 1998
