<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1999
REGISTRATION NO. 333-71291
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
STRATEGIC TIMBER TRUST, INC.
(Exact name of registrant as specified in its governing instruments)
5 NORTH PLEASANT STREET
NEW LONDON, NEW HAMPSHIRE 03257
(603) 526-7800
(Address, including zip code, and telephone number, including area code, of
registrant's
principal executive offices)
C. EDWARD BROOM, PRESIDENT AND CHIEF EXECUTIVE OFFICER
STRATEGIC TIMBER TRUST, INC.
5 NORTH PLEASANT STREET
NEW LONDON, NEW HAMPSHIRE 03257
(603) 526-7800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
WILLIAM H. BRADLEY, ESQ. ROBERT V. JEWELL, ESQ.
THOMAS C. HERMAN, ESQ. CATHERINE S. GALLAGHER, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP ANDREWS & KURTH L.L.P.
999 PEACHTREE STREET, N.E. 600 TRAVIS, SUITE 4200
ATLANTA, GEORGIA 30309-3996 HOUSTON, TEXAS 77002-3090
(404) 853-8000 (713) 220-4200
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 26, 1999
PROSPECTUS
[COMPANY LOGO]
16,600,000 SHARES
STRATEGIC TIMBER TRUST, INC.
COMMON STOCK
$ PER SHARE
------------------
Strategic Timber Trust, Inc. acquires, owns and manages timberlands and
sells timber. We expect to qualify as a real estate investment trust, or a REIT,
for federal income tax purposes.
This is an initial public offering. We currently expect the initial public
offering price to be between $19 and $21 per share. We have applied to have the
common stock included for quotation on the Nasdaq National Market under the
symbol "STTR." The underwriters named in this prospectus may purchase up to
2,490,000 additional shares of common stock from us to cover over-allotments.
------------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10 FOR MATERIAL RISKS THAT MAY AFFECT YOUR INVESTMENT IN THE
COMMON STOCK, INCLUDING:
- The volatility of timber prices may reduce our revenues.
- Environmental and endangered species regulations restrict timber
harvesting and may otherwise restrict our ability to conduct our
business.
- Tax laws do not require us to distribute any cash to you.
- We do not have a significant operating history, and we incurred a
combined net loss of $16.4 million in 1998.
- Our management has never operated a REIT or a public company.
- We may not be able to achieve our intended growth.
- Acquisitions of additional timberlands involve numerous risks.
- We depend on key members of our senior management.
Tax laws and provisions of our organizational documents limit ownership of
our common stock by one person to 9.8% of all outstanding shares and may
otherwise restrict transfers of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- ------------
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Strategic Timber (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to a number of conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
A.G. EDWARDS & SONS, INC.
WARBURG DILLON READ LLC
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO
INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
, 1999
<PAGE> 3
<PAGE> 4
[COMPANY LOGO] STRATEGIC TIMBER TRUST, INC.
[MAP DEPICTING LOCATION OF REGISTRANT'S TIMBERLANDS AND SURROUNDING
MARKETS APPEARS HERE]
<TABLE>
<CAPTION>
NUMBER OF
MILLS WITHIN
MERCHANTABLE TIMBER MARKET AREA OF
REGION ACRES PREDOMINANT SPECIES (THOUSAND CUNITS*) PROPERTY
------ ------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
California 122,339 Second-growth redwood, 2,613 42
Douglas-fir, ponderosa pine,
true firs
Louisiana 82,009 Slash and loblolly pine 1,989 50
Oregon 232,621 Ponderosa pine, Douglas-fir 836 14
Washington 10,822 Douglas-fir, western 290 31
hemlock, cedar
------- ----- ---
447,791 5,728 137
Total
======= ===== ===
</TABLE>
*1 cunit equals 100 cubic feet of timber.
<PAGE> 5
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with additional or different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information contained
in this prospectus is accurate as of any date other than the date on the front
of this prospectus.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.............................. 1
Strategic Timber Trust, Inc........ 1
Summary Risk Factors............... 2
Structure and Formation of
Strategic Timber................ 4
Summary of Equity Ownership of
Strategic Timber................ 5
Benefits to Related Parties........ 5
The Offering....................... 7
Tax Status......................... 7
Summary Selected Pro Forma
Financial and Operating
Information..................... 8
RISK FACTORS......................... 10
The volatility of timber prices may
reduce our revenues............. 10
Environmental and endangered
species regulations restrict
timber harvesting and may
otherwise restrict our ability
to conduct our business......... 10
Tax laws do not require us to
distribute any cash to you...... 12
We do not have a significant
operating history, and we
incurred a combined net loss of
$16.4 million in 1998........... 12
Our management has never operated a
REIT or a public company........ 12
We may not be able to achieve our
intended growth................. 12
Acquisitions of additional
timberlands involve numerous
risks........................... 13
We depend on key members of our
senior management............... 13
Our recognition of revenues depends
on when buyers harvest our
timber.......................... 13
Our financial results and cash flow
will change from season to
season.......................... 13
Losses of timber from fire and
other causes are not insured.... 14
We will be taxed as a regular
corporation if we fail to
qualify as a REIT............... 14
Tax laws and provisions of our
organizational documents may
delay or prevent a change in our
ownership or management that may
be in your best interests....... 14
Our actual timber inventory may be
less than our current
estimates....................... 15
We may invest in timberlands in
countries outside the United
States, which may be
substantially riskier than
investments in domestic
timberlands..................... 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
You will incur immediate dilution
of your common stock............ 15
Our common stock has not had a
prior trading market and we do
not know if one will develop.... 16
The market price of our common
stock could fluctuate
significantly................... 16
Shares eligible for sale in the
future may reduce the market
price of our common stock....... 16
Some members of our management and
other continuing investors could
have conflicts of interest...... 17
We may change our investment,
financing and other policies
without your approval........... 17
An investment in the common stock
involves other tax issues....... 17
FORWARD-LOOKING STATEMENTS........... 18
STRUCTURE AND FORMATION OF STRATEGIC
TIMBER............................. 19
Our Structure...................... 19
Our Formation...................... 19
Benefits to Related Parties........ 23
DISTRIBUTION POLICY.................. 24
USE OF PROCEEDS...................... 25
CAPITALIZATION....................... 26
DILUTION............................. 27
SELECTED HISTORICAL FINANCIAL AND
OPERATING INFORMATION.............. 28
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION.............. 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 41
Overview........................... 41
Plan of Operation.................. 41
Recent Developments................ 43
Historical Results of Operations... 43
Liquidity and Capital Resources.... 49
Commitments and Contingencies...... 51
Year 2000.......................... 52
Market Risk........................ 53
BUSINESS AND PROPERTIES.............. 56
Overview........................... 56
Business Strategy.................. 58
Our Competitive Strengths.......... 61
Timber Industry Overview........... 62
Initial Timberland Properties...... 66
Harvest Methods.................... 77
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Access and Limitations on Access... 78
Federal and State Regulations...... 78
Our Customers...................... 83
Competition........................ 83
Insurance Coverage................. 84
Legal Proceedings.................. 84
Employees.......................... 84
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES......................... 85
Investment Policies................ 85
Financing Policies................. 85
Working Capital Reserves........... 86
Conflict of Interest Policies...... 86
Reports to Shareholders............ 87
Other Policies..................... 88
MANAGEMENT........................... 89
Directors and Executive Officers... 89
Management Relationships........... 92
Committees of the Board of
Directors....................... 92
Executive Compensation............. 93
Compensation of Directors.......... 93
1999 Incentive Plan................ 94
Employment and Non-Competition
Agreements...................... 95
Compensation Committee Interlocks
and Insider Participation....... 96
TRANSACTIONS WITH RELATED PARTIES.... 97
PRINCIPAL SHAREHOLDERS............... 98
DESCRIPTION OF CAPITAL STOCK......... 99
General............................ 99
Common Stock....................... 99
Transfer Agent and Registrar....... 99
Preferred Stock.................... 99
Restrictions on Ownership and
Transfer of Shares.............. 100
Nasdaq National Market Listing..... 101
MATERIAL PROVISIONS OF GEORGIA LAW
AND STRATEGIC TIMBER'S ARTICLES OF
INCORPORATION AND BYLAWS THAT MAY
HAVE AN ANTI-TAKEOVER EFFECT....... 102
Ownership Limit.................... 102
Business Combination Provisions of
Georgia Law..................... 102
The Board of Directors............. 103
Special Meetings of Shareholders;
Consents........................ 103
Preferred Stock.................... 103
Advance Notice of Director
Nominations and New Business.... 104
Supermajority Vote Requirements.... 104
Amendment of Articles of
Incorporation and Bylaws........ 104
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Limitation of Liability and
Indemnification................. 104
Insurance Policies................. 106
SHARES AVAILABLE FOR FUTURE SALE..... 107
General............................ 107
Registration Rights................ 108
THE PARTNERSHIP AGREEMENT............ 109
Powers of Strategic Timber
Operating Co., as General
Partner......................... 109
Power of Attorney.................. 109
Transfer of the General Partner's
and Strategic Timber's
Interests....................... 109
Amendments to the Partnership
Agreement....................... 109
Transfer of Partnership Units;
Substitute Limited Partners..... 110
Redemption of Partnership Units.... 110
Issuance of Additional Limited
Partnership Interests;
Additional Capital
Contributions................... 110
Other Covenants.................... 110
Exculpation and Indemnification of
Strategic Timber and Strategic
Timber Operating Co............. 111
Cash Distributions................. 111
Tax Matters........................ 111
Term............................... 111
FEDERAL INCOME TAX CONSEQUENCES...... 112
Legal Opinions..................... 112
Taxation of Strategic Timber....... 113
Taxation of Taxable U.S.
Shareholders.................... 119
Taxation of Tax-Exempt Shareholders
of Strategic Timber............. 120
Taxation of Non-U.S. Shareholders
of Strategic Timber............. 121
Tax Aspects of Strategic Timber's
Ownership of Interests in
Strategic Timber Partners....... 124
Other Taxes........................ 126
ERISA CONSIDERATIONS................. 127
General............................ 127
Status of Strategic Timber and
Strategic Timber Partners under
ERISA........................... 128
UNDERWRITING......................... 130
EXPERTS.............................. 132
LEGAL MATTERS........................ 132
WHERE YOU CAN FIND MORE
INFORMATION........................ 133
GLOSSARY OF SELECTED TIMBER INDUSTRY
TERMS.............................. 134
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>
Until , 1999, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
ii
<PAGE> 7
SUMMARY
This section summarizes information contained in other parts of this
prospectus. This summary does not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus carefully before deciding to invest in our common stock.
Throughout this prospectus, when we say "we," "us" or "Strategic Timber,"
we generally mean Strategic Timber Trust, Inc., a Georgia corporation, and its
subsidiaries. These subsidiaries include Strategic Timber Partners, LP, a
Delaware limited partnership, and Pioneer Resources, LLC, an Oregon limited
liability company. If the context requires, "Strategic Timber" may refer to
Strategic Timber Trust, Inc. without its subsidiaries.
We operate our business through Strategic Timber Partners, LP, which we
refer to as our "operating partnership" or "Strategic Timber Partners" in this
prospectus. We own all the stock of the sole general partner of Strategic Timber
Partners, a Delaware corporation called Strategic Timber Operating Co.
Unless we state otherwise, the information in this prospectus assumes that
the transactions described under "Structure and Formation of Strategic Timber"
are completed, the underwriters' over-allotment option is not exercised and the
initial public offering price is $20 per share, the mid-point of the range of
anticipated initial public offering prices. Unless we state otherwise, all share
and per share information in this prospectus has been adjusted to reflect a
36.59-for-1 common stock split, which will occur before completion of this
offering.
STRATEGIC TIMBER TRUST, INC.
We acquire, own and manage timberlands and sell standing trees, commonly
referred to as timber. We have been in business since April 1998. We currently
own approximately 448,000 acres of timberlands in the states of California,
Louisiana, Oregon and Washington. Our timberlands are located in active and
competitive timber markets. They contain approximately 5.7 million cunits of a
variety of species of merchantable timber, which is timber that is suitable for
sale in local markets for commercial uses. Approximately 92% of our merchantable
timber is of sufficient size and quality to be manufactured into lumber or
plywood, which is more valuable than timber of the same species that can be
converted only into pulp, paper products or other wood products.
Our revenues come primarily from the sale of timber to purchasers who cut
the timber and then transport the cut timber, or logs, to mills that produce
lumber, plywood, paper or other wood products. Because we do not own any timber
conversion facilities, such as lumber mills or paper mills, we do not have the
cash operating expenses, working capital needs and capital expenditures
associated with these facilities. Our primary operating expense will be
depletion, which is a non-cash expense relating to the cost of timber harvested.
Accordingly, we expect the cash we generate from our operations to exceed our
earnings for accounting purposes. In 1998, before beginning full scale
operations, our businesses incurred a combined net loss of $16.4 million.
We will elect to be taxed as a REIT for federal income tax purposes. Most
of our net income will be treated as capital gains. The tax rules applicable to
REITs do not require us to distribute any of our capital gains to you. We intend
to use this flexibility, which is not available to REITs primarily earning
ordinary income, to retain a substantial part of the cash we generate to acquire
additional timberlands. We also expect to distribute a portion of our cash to
you. These distributions will generally be treated as either a return of capital
or as capital gains.
Our principal objective is to maximize long-term shareholder value. We
believe that we are well-positioned to achieve this objective because:
WE BELIEVE TIMBER IS AN ATTRACTIVE INVESTMENT ASSET
- Trees grow predictably, and generally become worth more per unit of
volume as they grow because the logs they produce have higher value
end uses.
1
<PAGE> 8
- Timber owners have flexibility to harvest more trees when local
timber prices are high. When local timber prices are low, owners can
harvest less and let the trees continue to grow.
- Historically, timber prices in the United States have risen faster
than inflation over the long term.
- We expect worldwide demand for wood products to increase over the
foreseeable future. By contrast, we expect that worldwide timber
supplies will be constrained relative to this demand.
OUR MANAGEMENT HAS SUBSTANTIAL EXPERIENCE IN ACQUIRING AND MANAGING
TIMBERLANDS
- Since 1985, members of our management have participated in a series
of timberland investments in the United States, Latin America and
New Zealand as principals, investment managers and investment
advisors.
WE BELIEVE THERE WILL BE INCREASING OPPORTUNITIES FOR US TO ACQUIRE
ADDITIONAL TIMBERLANDS
- We have observed a growing trend toward consolidation of timberland
ownership. We believe this trend will continue because of (1) the
desire of large forest products companies to recognize greater value
from their timberland assets and (2) the difficulties faced by
owners of smaller timberland tracts in efficiently managing their
timberlands.
WE BELIEVE WE CAN COMPETE EFFECTIVELY IN ACQUIRING TIMBERLANDS
- The tax rules do not require us to distribute most of our earnings
to our shareholders. This will permit us to retain a substantial
part of the cash we generate from the sale of timber for
acquisitions.
- Our structure allows a timberland owner to contribute timberlands to
us in exchange for interests in our operating partnership. This will
permit these owners to defer the tax on their gains while
diversifying and obtaining liquidity for their timberland assets.
- Forest products companies that operate mills may view us as a
preferred purchaser of their timberlands because we do not compete
with their manufacturing operations, since we do not own timber
conversion facilities.
HOW TO CONTACT US
Our principal executive offices are located at 5 North Pleasant Street, New
London, New Hampshire 03257, and our telephone number is (603) 526-7800.
SUMMARY RISK FACTORS
You should carefully consider, among other factors, the discussion under
"Risk Factors" in this prospectus before deciding whether to invest in our
common stock. We have summarized below some of these risk factors.
- The volatility of timber prices may reduce our revenues.
- Environmental and endangered species regulations restrict timber
harvesting and may otherwise restrict our ability to conduct our
business.
- Tax laws do not require us to distribute any cash to you.
- We do not have a significant operating history and we incurred a combined
net loss of $16.4 million in 1998.
- Our management has never operated a REIT or a public company.
- We may not be able to achieve our intended growth.
- Acquisitions of additional timberlands involve numerous risks.
2
<PAGE> 9
- We depend on key members of our senior management.
- Our recognition of revenues depends on when buyers harvest timber.
- Our financial results and cash flow will change from season to season.
- Losses of timber from fire and other causes are not insured.
- We will be taxed as a regular corporation if we fail to qualify as a
REIT.
- Tax laws and provisions of our organizational documents may delay or
prevent a change in our ownership or management that may be in your best
interests. These provisions limit ownership of our common stock by one
person to 9.8% of all outstanding shares.
- Our actual timber inventory may be less than our current estimates.
- We may invest in timberlands in countries outside the United States,
which may be substantially riskier than investments in domestic
timberlands.
- By purchasing common stock in this offering, you will incur immediate
dilution of $4.58 per share, based on an initial public offering price of
$20 per share.
- Our common stock has not had a prior trading market and we do not know if
one will develop.
- The market price of our common stock could fluctuate significantly.
- Shares available for sale in the future may reduce the market price of
our common stock.
- Some members of our management and other continuing investors could have
conflicts of interest.
- We may change our investment, financing and other policies without your
approval.
- An investment in the common stock involves other tax issues.
3
<PAGE> 10
STRUCTURE AND FORMATION OF STRATEGIC TIMBER
We formed Strategic Timber and our operating partnership, Strategic Timber
Partners, in April 1998 to acquire property in southwest Louisiana that now
consists of approximately 82,000 acres of timberland. We financed the
transaction through a combination of bank loans and the issuance of units in our
operating partnership to the sellers. In October 1998, companies formed by our
initial shareholders acquired Pioneer Resources, LLC, an entity that held
approximately 366,000 acres of timberland in the U.S. Pacific Northwest. The
acquisition was financed through a combination of bank loans, the issuance of
units to the sellers, and an additional equity contribution by a company
affiliated with the sellers of the Louisiana property. At the completion of this
offering, the companies that acquired Pioneer will be merged into our operating
partnership. As a result, our operating partnership will control all of our
timberlands.
At the completion of this offering, we will have sold 16,600,000 shares of
common stock to the public and received net proceeds of $306.4 million, based on
an initial public offering price of $20 per share. We will use the net proceeds
of this offering, together with borrowings under a new credit facility,
primarily to (1) repay in full the amounts that we borrowed to acquire our
timberlands and finance our ongoing operations, and (2) redeem $47.0 million of
the existing units held by persons who sold timberland properties to us. See
"Use of Proceeds."
As a result of this offering and the transactions described above, our
structure will be as follows:
Public Shareholders (96.1%)
Continuing Investors (3.9%)
Strategic Timber Trust, Inc.
Common Stock Continuing
(100% of Shares) Investors
Strategic Timber Limited Partner Limited Partner
Operating Co. Interest (76.7%) Interest (22.3%)
General Partner
Interest (1.0%)
Strategic Timber Partners, LP
(holds all investment properties)
The percentages listed above do not reflect the potential issuance of
1,115,000 shares issuable upon the exercise of options we will grant at or
before the completion of this offering under our stock incentive plan. See
"Principal Shareholders" and "Management -- 1999 Incentive Plan."
4
<PAGE> 11
SUMMARY OF EQUITY OWNERSHIP OF STRATEGIC TIMBER
After we complete this offering and the formation transactions, the
ownership of Strategic Timber will be as follows:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------
PERCENTAGE BEFORE
CONVERSION OF UNITS PERCENTAGE ASSUMING
INTO COMMON CONVERSION OF ALL UNITS
STOCK INTO COMMON STOCK
------------------- --------------------------
<S> <C> <C>
OWNERSHIP OF STRATEGIC TIMBER
Public Shareholders.................................. 96.1% 74.7%
Management........................................... 3.6 7.2
Other Continuing Investors........................... 0.3 18.1
----- -----
100.0% 100.0%
===== =====
</TABLE>
The percentages listed above do not reflect the potential issuance of
1,115,000 shares issuable upon the exercise of options we will grant at or
before the completion of this offering under our stock incentive plan. See
"Principal Shareholders" and "Management -- 1999 Incentive Plan."
BENEFITS TO RELATED PARTIES
Our executive officers and affiliates will benefit from this offering and
the formation transactions as follows:
- Our executive officers will hold shares of common stock and units valued
at $32.1 million, based on an initial public offering price of $20 per
share, as shown below.
<TABLE>
<CAPTION>
SHARES AND
UNITS VALUE
---------- -----------
<S> <C> <C>
C. Edward Broom...................................... 408,329 $ 8,166,580
Christopher J. Broom................................. 408,329 8,166,580
Thomas P. Broom...................................... 408,329 8,166,580
T. Yates Exley....................................... 108,516 2,170,320
Nicholas C. Brunet................................... 90,740 1,814,800
Vladimir Harris...................................... 90,740 1,814,800
Joseph E. Rendini.................................... 90,740 1,814,800
--------- -----------
Total............................................. 1,605,723 $32,114,460
========= ===========
</TABLE>
- Our executive officers will also receive options to acquire a total of
875,000 shares of our common stock at the initial public offering price.
These options will vest in equal amounts over the three years following
completion of this offering.
- We have employment agreements with Messrs. C. Edward Broom, Christopher
J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C. Brunet, Vladimir
Harris and Joseph E. Rendini.
- Louisiana Timber Partners, LLC, the company that sold us the right to
acquire the Louisiana property, will receive $12.9 million in cash in
redemption of a portion of its units, and will own 1,762,974 units upon
completion of this offering. Hanns A. Pielenz, who has agreed to serve on
our Board of Directors, and Larry J. Woodard are the principal owners of
Louisiana Timber. The units retained by Louisiana Timber will have a
value of $35.3 million, based on an initial public offering price of $20
per share. Louisiana Timber acquired its units in exchange for
contributing to our operating partnership a contract to acquire the
Louisiana property.
- Mach One Partners, LLC, a separate company owned equally by Messrs.
Pielenz and Woodard, will receive $10.0 million in cash and 100,110 units
at the completion of this offering in redemption of its interest in
Strategic Timber Partners II, LP. Strategic Timber Partners II is one of
the
5
<PAGE> 12
companies that will be merged into our operating partnership. Mach One
acquired its interest in Strategic Timber Partners II in exchange for a
cash contribution of $10.0 million that was used to finance our
acquisition of Pioneer, and the cash and units it receives will have a
value of $12.0 million, based on an initial public offering price of $20
per share. Mach One will receive these units in satisfaction of its right
to receive an annual return of 40% on its original investment under the
Strategic Timber Partners II limited partnership agreement.
- In connection with our acquisition of Pioneer, we paid $35.0 million in
cash and issued interests in Strategic Timber Partners II to the former
members of Pioneer, including Gregory M. Demers. Mr. Demers, together
with a company he owns and controls, beneficially owned 76.5% of Pioneer
at the time of the acquisition. Upon completion of this offering and the
merger of Strategic Timber Partners II into our operating partnership,
Mr. Demers and his company will receive $18.4 million in cash in
redemption of a portion of their interests in Strategic Timber Partners
II and will beneficially own 1,660,333 units. These units will have a
value of $33.2 million, based on an initial public offering price of $20
per share.
- In connection with our acquisition of Pioneer, T. Yates Exley, one of the
former members of Pioneer and one of our Vice Presidents, received an
interest in Strategic Timber Partners II. Mr. Exley will receive $1.2
million in cash and, as indicated above, 108,516 units in redemption of
this interest upon completion of this offering. These units will have a
value of $2.2 million, based on an initial public offering price of $20
per share.
You should review "Transactions with Related Parties" for additional
information concerning benefits to executive officers, directors and other
continuing investors.
6
<PAGE> 13
THE OFFERING
Common stock we are offering........ 16,600,000 shares
Common stock to be outstanding after
this offering....................... 17,271,770 shares
Common stock and units to be
outstanding after this offering..... 22,237,975 shares and units
Use of Proceeds..................... Primarily to repay indebtedness and to
redeem the interests of some of the
continuing investors.
Proposed Nasdaq symbol.............. We have applied to have the common
stock included for quotation on the
Nasdaq National Market under the symbol
"STTR."
Each unit is redeemable for cash or, at our option, for one share of our
common stock. The number of shares of common stock listed above excludes
1,115,000 shares issuable upon the exercise of options we will grant at or
before the completion of this offering under our stock incentive plan. See "The
Partnership Agreement," "Structure and Formation of Strategic Timber" and
"Management -- 1999 Incentive Plan."
TAX STATUS
We plan to elect to be taxed as a REIT for federal income tax purposes
beginning with our 1998 tax year. Sutherland Asbill & Brennan LLP has acted as
our counsel in connection with this offering and our election to be taxed as a
REIT. Based on assumptions and factual representations we made to it, Sutherland
Asbill & Brennan LLP is of the opinion that we will meet the requirements to
qualify as a REIT for federal income tax purposes, and that our proposed method
of operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT. We have received favorable tax rulings
from the IRS that confirm the opinion of Sutherland Asbill & Brennan LLP that:
- Timberlands and timber qualify as real property and therefore as real
estate assets for purposes of the tax rules applicable to REITs; and
- Gross income from the type of timber cutting agreements we will use to
sell our timber is qualifying income for purposes of the tax rules
applicable to REITs.
As a REIT, we generally will not be subject to federal income taxes on the
portion of our net income that we distribute to you. We may, however, be subject
to certain federal income taxes and certain state and local taxes on our income
and property. See "Risk Factors -- We will be taxed as a regular corporation if
we fail to qualify as a REIT," " -- An investment in the common stock involves
other tax issues" and "Federal Income Tax Consequences."
7
<PAGE> 14
SUMMARY SELECTED PRO FORMA FINANCIAL AND OPERATING INFORMATION
In this section, we have provided you with a summary of the unaudited pro
forma financial information. The pro forma balance sheet information presents
our pro forma financial condition as if the formation transactions and this
offering had occurred as of December 31, 1998. The pro forma operating results
for the year ended December 31, 1998 present our pro forma operating results as
if this offering and the formation transactions had occurred as of January 1,
1998, except as described below. The pro forma operating results include:
- the historical results of Pioneer, our predecessor operation, as adjusted
to eliminate the results of operations and related assets and liabilities
we did not acquire, and to recognize revenues and costs of Pioneer's
sales that were previously eliminated for financial reporting purposes;
- the historical results from our Louisiana property only from April 27,
1998, the date we purchased these timberlands; and
- the historical results from the Coastal forest portion of our Pacific
Northwest timberlands only from July 5, 1998, the date Pioneer purchased
these timberlands.
The pro forma operating results do not include the historical results of
the Louisiana property before we purchased these timberlands. We acquired these
timberlands from an unrelated group of families that did not actively manage the
property for commercial timber operations. The pro forma operating results also
do not include the historical results of the Coastal forest portion of the
Pacific Northwest timberlands before the purchase of these timberlands by
Pioneer in July 1998. We believe that there is limited continuity between the
operation of the Coastal forest before and after Pioneer acquired these
timberlands. Because of the lack of continuity of operations before and after
these purchases, we believe that inclusion of historical financial information
for the Louisiana property and the Coastal forest in the pro forma operating
results prior to the dates of acquisition would not be helpful to your
understanding of our business or operations.
This section is a summary. We have included more complete pro forma
financial information, as well as historical financial information, in other
parts of this prospectus. We urge you to read this summary together with
"Structure and Formation of Strategic Timber," "Pro Forma Condensed Consolidated
Financial Information," "Selected Historical Financial and Operating
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as with the historical financial statements
and accompanying notes located elsewhere in this prospectus.
The pro forma financial information does not necessarily indicate what our
financial condition or results of operations actually would have been if all of
our pro forma assumptions were correct. Furthermore, we do not believe that this
information is indicative of our financial position and results of operations in
the future.
8
<PAGE> 15
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31, 1998
-----------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNT)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 47,534
Cost of products sold....................................... 11,056
Cost of timberland and property sales....................... 2,257
Depletion, depreciation and amortization.................... 21,954
Selling, general and administrative expenses................ 8,809
Operating income............................................ 2,994
Interest expense............................................ 18,437
Minority interest........................................... 3,456
Loss from continuing operations............................. (11,942)
Basic and diluted loss from continuing operations per
share..................................................... $ (0.69)
Weighted average number of shares used in the calculation of
basic and diluted loss from continuing operations per
share..................................................... 17,271,770
BALANCE SHEET DATA (AT PERIOD END):
Timberlands................................................. $ 607,867
Total assets................................................ 619,854
Long-term debt.............................................. 269,469
Minority interest........................................... 62,603
Shareholders' equity........................................ 282,578
OTHER DATA:
EBITDDA..................................................... $ 27,205
</TABLE>
- ---------------
EBITDDA is operating income, plus other income (expense), depletion,
depreciation and amortization, and cost of timberland and property sales. You
should not construe EBITDDA to be an alternative to operating income, as an
indicator of our operating performance, or an alternative to cash flow from
operating activities, as a measure of our liquidity. EBITDDA is not a financial
measure determined in accordance with generally accepted accounting principles
and may not be comparable to similarly titled measures of other companies.
EBITDDA is calculated as follows:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31, 1998
-----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Operating income............................................ $ 2,994
Other income (expense)...................................... --
Depletion, depreciation and amortization.................... 21,954
Cost of timberland and property sales....................... 2,257
-------
$27,205
=======
</TABLE>
9
<PAGE> 16
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, as well as the other information
presented in this prospectus, in deciding whether to invest in our common stock.
Each of these factors could adversely affect the market price of our common
stock, our financial results.
THE VOLATILITY OF TIMBER PRICES MAY REDUCE OUR REVENUES
CHANGES IN SUPPLY AND DEMAND AFFECT TIMBER PRICES AND OUR REVENUES
The volatile nature of timber prices can reduce our revenues. The market
price for timber can change substantially, based on changes in supply and
demand, especially for a particular species or in a particular geographic area.
Decreases in demand, increases in supply, or both, may reduce prices for our
timber, which in turn could reduce our revenues and negatively affect our
financial results.
The industries that use wood products drive the demand for timber. The vast
majority of our timberlands are stocked with softwood sawtimber. The demand for
most softwood sawtimber depends on the level of construction, repair and
remodeling activity. Interest rates and other local, national and international
economic conditions affect the level of construction, repair and remodeling
activity. A slowdown in construction is likely to reduce demand for our timber,
which would reduce our revenues. Wood substitutes and products made from lower
quality wood increasingly compete with higher quality sawtimber, which may also
reduce demand for our timber.
The number of timber sellers and the volume of timber they have available
for sale determine the supply of timber. Historically, increases in timber
prices have caused owners of timberlands to cut more trees. This increase in
supply may reduce the amount of price increases. Some government agencies,
principally the United States Forest Service and the Bureau of Land Management,
own large amounts of timberlands. If these agencies choose to sell more timber
than they have been selling in recent years, timber prices could fall. The
supply of timber available for harvest is also affected by, among other things,
environmental and other legal restrictions on harvesting, self-imposed
restrictions on harvesting attributable to timberland management decisions, and
natural events that destroy trees or entire forests, such as insect infestation,
severe weather and fire. See "Business and Properties -- Timber Industry
Overview -- Timber Demand, Supply and Prices."
WEAK EXPORT MARKETS MAY REDUCE DEMAND FOR OUR TIMBER
Weak overseas markets for wood and wood products, including weak demand in
Asia due to its continuing economic problems, and the resulting increase in
domestic supply have reduced and may continue to reduce the prices that we can
obtain for our timber.
ENVIRONMENTAL AND ENDANGERED SPECIES REGULATIONS RESTRICT TIMBER HARVESTING AND
MAY OTHERWISE RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS
THE PRESENCE OF ENDANGERED OR THREATENED SPECIES RESTRICTS HARVESTING
Federal, state and local laws and regulations intended to protect
threatened and endangered species restrict timber harvesting, road building and
other activities on our lands. These restrictions apply to activities that would
kill, injure or harass a protected species or significantly degrade its habitat.
The habitat of a protected species includes areas in which it lives, nests,
shelters, breeds, forages or feeds or areas that are for some other reason
necessary for the conservation of the protected species. The size of the area
subject to restriction will vary depending on the protected species at issue,
the time of year and other factors, but can range from less than one to hundreds
of acres. A number of species that naturally live on or near our timberlands,
including the red cockaded woodpecker, peregrine falcon, bald eagle, northern
spotted owl, marbled murrelet, bull trout and coho salmon, are protected under
the federal Endangered Species Act and similar state laws.
10
<PAGE> 17
OTHER REGULATIONS AND ENVIRONMENTAL RISKS MAY ADVERSELY AFFECT US
Our operations and properties are also subject to laws and regulations
governing silvicultural practices, which include forestry operations, the
environment, and health and safety. Some of these laws and regulations could
impose significant costs, penalties and liabilities on us for violations or
existing conditions whether or not we caused or knew about them. Our lands are
also subject to laws and regulations designed to protect wetlands, which may
restrict future harvesting, road building and other activities. Compliance with,
or damages or penalties for violating, current and future laws and regulations
could result in significant expense.
Our Louisiana property contains natural gas and oil wells and pipelines
that have been and will continue to be operated by third parties. The operation
of those wells and pipelines involves hazards such as well blowouts, cratering,
explosions, uncontrollable flows of oil or well fluids, fires, formations with
abnormal pressures, pollution, pipeline ruptures and spills, releases of toxic
gas and other environmental hazards and risks. The occurrence of any of these
events could cause us to incur substantial losses and could negatively affect
our financial results. In addition, we may be liable for any environmental
damage caused by operators of natural gas and oil wells and pipelines on our
Louisiana property.
WE MAY ACQUIRE PROPERTIES SUBJECT TO ENVIRONMENTAL AND OTHER LIABILITIES
We may acquire timberlands subject to environmental liabilities and certain
other existing or potential liabilities. We may not be able to recover any of
these liabilities from the sellers of these properties. In addition, we could be
subject to claims or losses under environmental laws for conditions that are not
revealed by investigations of those properties by environmental consultants.
THE NUMBER OF ACRES WE BELIEVE ARE CURRENTLY UNAVAILABLE FOR HARVESTING DUE
TO REGULATORY RESTRICTIONS MAY BE UNDERESTIMATED
We have identified approximately 23,000 acres of our timberlands that are
subject to harvest restrictions due to federal, state and local laws and
regulations intended to protect threatened and endangered species and watersheds
on our lands. These restrictions may substantially limit, or could possibly
prevent, harvests on some or all of these timberlands. Consistent with what we
believe is standard practice in the timber industry, we have included the timber
on these acres in our inventory but excluded that timber, to the extent
restricted, from our timber sales plans. Our estimates of the number of
restricted acres on our Pacific Northwest properties are based on our geographic
information systems and surveys performed by ourselves and others. Our estimates
of the number of restricted acres on our Louisiana property are also based on
our geographic information systems and surveys performed by ourselves and
others, but do not reflect property-wide surveys with respect to the presence of
threatened or endangered species. Before we authorize harvesting activities on
any of our properties, we survey the harvest area for the presence of threatened
and endangered species. If we gain additional information regarding the presence
of threatened or endangered species on our timberlands or if regulatory agencies
change the manner in which they apply related restrictions to our timberlands,
the number of our restricted acres could significantly increase.
REGULATION IS LIKELY TO BECOME MORE RESTRICTIVE AND REDUCE THE AMOUNT OF
OUR TIMBER THAT IS AVAILABLE FOR HARVESTING
During the last ten years, the number of environmental, endangered species
and forestry laws and regulations has increased markedly and the enforcement of
such regulations has generally intensified. This has resulted in an increase in
the number of acres subject to harvest restrictions. We believe that these laws
and regulations will become more restrictive over time, possibly resulting in a
significant increase in the number of our acres that may not be included in our
timber sales plan. For example, the number of species of salmon and other fish
designated as threatened or endangered has recently increased. As a result, we
anticipate that regulations concerning streams on some of our Pacific Northwest
properties may
11
<PAGE> 18
become more restrictive. See "Business and Properties -- Federal and State
Regulations -- Endangered Species Law."
TAX LAWS DO NOT REQUIRE US TO DISTRIBUTE ANY CASH TO YOU
We anticipate that our ongoing operations will produce net capital gains
and net ordinary losses. Unlike most existing REITs, we do not anticipate that
we will produce significant ordinary income. Accordingly, we do not anticipate
that we will be required to distribute any material amounts of cash to satisfy
the tax requirement that a REIT distribute 95% of its ordinary income. As a
result, we have more discretion over the amounts of distributions we make than
most other REITs. We intend to retain a substantial portion of the cash we
generate to acquire additional timberlands.
WE DO NOT HAVE A SIGNIFICANT OPERATING HISTORY, AND WE INCURRED A COMBINED NET
LOSS OF $16.4 MILLION IN 1998
Strategic Timber and our operating partnership were formed in April 1998
and neither entity has any significant operating history. Some of our initial
timberlands have relatively short or no operating history under our management
and some of our initial timberlands have no operating history at all. For
example, before our acquisition of the Louisiana property in April 1998, these
timberlands had not been actively managed as a commercial timber property. In
addition, before our acquisition of the Pacific Northwest properties in October
1998, these timberlands were managed as part of Pioneer's overall business,
which included the operation of mills. Thus, the financial statements contained
in this prospectus may not be helpful to your understanding of our business,
operations or prospects.
Our businesses incurred combined net losses of approximately $16.4 million
for the period from April 21, 1998 through December 31, 1998 and we expect that
we will continue to incur net losses in the near term. You should evaluate an
investment in Strategic Timber in light of the risks, expenses and difficulties
frequently encountered by companies in their early stages of development. We do
not own or operate mills or other timber conversion facilities, so we need to
find independent buyers for the timber we want to sell. Our ability to become
and stay profitable depends on a number of factors beyond our control, including
our ability to find buyers for as much timber as we want to sell.
OUR MANAGEMENT HAS NEVER OPERATED A REIT OR A PUBLIC COMPANY
Although some of our executive officers and directors have substantial
experience in the timber industry and managing timberlands held for investment,
none of the members of our management has prior experience operating a public
company or a REIT.
WE MAY NOT BE ABLE TO ACHIEVE OUR INTENDED GROWTH
Our business plan depends on our acquiring additional timberland
properties. Our ability to acquire any property will be subject to a number of
factors beyond our control, such as competition from other purchasers for timber
properties, our ability to obtain any financing we need to purchase the property
and the overall availability of timber properties.
We compete with traditional paper and forest products companies, other
public and private timber investment firms, governmental entities and
preservationist groups for U.S. timber properties. Many of our competitors have
substantially greater financial resources than we do. Competition for these
properties may increase prices and may make it difficult for us to acquire
timberlands at prices that are acceptable to us. Similar competitive forces may
make international timber properties more expensive. See "Business and
Properties -- Competition."
We intend to issue units in our operating partnership as payment for some
of our acquisitions because this would allow the sellers to defer taxes on their
gain from these sales. Any decrease in the market price of our common stock
could make it more difficult or more expensive for us to do this.
12
<PAGE> 19
ACQUISITIONS OF ADDITIONAL TIMBERLANDS INVOLVE NUMEROUS RISKS
Any acquisition that we make will involve numerous risks, which could
include some or all of the following:
- incurrence of additional debt, repayment of which may adversely affect
our cash flow and financial results;
- issuance of more common stock or preferred stock or units in our
operating partnership, which may dilute the value of our outstanding
common stock;
- assumption of liabilities that we are unaware of at the time of the
acquisition, such as environmental liabilities;
- uncertainties associated with operating in new markets; and
- difficulties in combining operations of the acquired company or
timberlands with our other operations.
Our acquisition strategy includes exploring acquisition opportunities
outside the United States, especially in undeveloped or underdeveloped markets.
In addition to the risks mentioned above, international acquisitions will
involve the risks described under "-- We may invest in timberlands in countries
outside the United States, which may be substantially riskier than investments
in domestic timberlands."
WE DEPEND ON KEY MEMBERS OF OUR SENIOR MANAGEMENT
We depend on the efforts of our executive officers, particularly C. Edward
Broom, our Chairman of the Board, President and Chief Executive Officer. If Mr.
Broom becomes unable or unwilling to continue to work for us, his lack of
participation may hurt our business and financial results. Even though we have
employment and non-competition agreements with all of our executive officers,
including Mr. Broom, any of them could still stop working for us. See
"Management -- Employment and Non-Competition Agreements."
OUR RECOGNITION OF REVENUES DEPENDS ON WHEN BUYERS HARVEST OUR TIMBER
We enter into cutting contracts with timber buyers that, within limits, let
them choose when to harvest our timber. Contracts longer than one year generally
require the buyer to cut minimum amounts of timber each year. Many of the
contracts require the buyer to pay us a portion of the expected value of the
timber at the inception of the contract. The advance payments under our current
contracts aggregate approximately 16% of the total expected 1999 annual payments
for harvests under these contracts, and are offset as the buyer begins to
harvest. We do not escrow these advance payments, and are free to use them in
our business for any purpose. For accounting purposes, we recognize revenue at
the time the buyer cuts and takes title to the timber and not when we receive
advance payments under cutting contracts. Therefore, the buyer's discretion as
to the timing of its timber harvest affects our recognition of revenue.
Buyers will be entitled to refunds of any remaining advance payments not
charged against timber cut if timber, because of fire or other casualty, is not
available for harvest. Even if timber is available for harvest, if the buyer
fails to cut the amounts it agreed it would cut, we may have to pay a partial
refund of any remaining advance payments to the buyer. See "Business and
Properties" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OUR FINANCIAL RESULTS AND CASH FLOW WILL CHANGE FROM SEASON TO SEASON
Rain in winter and our fire prevention measures in spring and summer limit
timber harvesting on our Louisiana property. Similarly, harvesting in the
Pacific Northwest is typically interrupted for periods during the winter and
spring due to snow and melting snow and, occasionally, in the late summer due to
our fire prevention measures. These seasonal limitations will reduce our
revenues during those periods, and may
13
<PAGE> 20
restrict our ability to distribute cash to you. If we acquire additional
properties in other locations, the seasonality of our operating results may
change.
LOSSES OF TIMBER FROM FIRE AND OTHER CAUSES ARE NOT INSURED
Fire, insect infestation, severe weather, disease, natural disasters and
other causes beyond our control may reduce the volume and value of timber that
can be harvested from our timberlands and hurt our financial results and cash
flow. As is typical in the industry, we do not maintain insurance for any loss
to our timber, including losses due to these causes.
WE WILL BE TAXED AS A REGULAR CORPORATION IF WE FAIL TO QUALIFY AS A REIT
We will elect to be taxed as a REIT for federal income tax purposes
beginning in 1998. Although we believe that we qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause us to
fail to qualify as a REIT or may cause us to elect not to be taxed as a REIT.
The IRS could challenge our qualification as a REIT. Qualification as a REIT
involves highly technical and complex Internal Revenue Code provisions and there
are few authoritative interpretations of these provisions. The complexity of
these provisions and of the applicable income tax regulations under the Internal
Revenue Code is greater in the case of a REIT that holds its assets through a
partnership as we do. In addition, future legislation, regulations,
administrative interpretations or court decisions could significantly change the
tax laws with respect to qualification as a REIT or the federal income tax
consequences of REIT qualification. See "-- An investment in the common stock
involves other tax issues" and "Federal Income Tax Consequences."
If we fail to qualify as a REIT in any taxable year, we would not be
allowed a deduction for cash distributions to you in computing our taxable
income and would owe federal and state income tax on our taxable income at
regular corporate rates. The highest federal income tax rate for corporations
currently is 35.0%. The highest state income tax rate for corporations in a
state in which we currently own timberlands or maintain an office is
approximately 8.8%. With some exceptions, we would also be disqualified from
treatment as a REIT for the four taxable years after the year we first failed to
qualify. As a result, we would have significantly less money available to
purchase additional timberlands or distribute to you in each of the years in
which we were disqualified as a REIT, and any net income we could distribute
would be taxed as ordinary income to you.
TAX LAWS AND PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS MAY DELAY OR PREVENT A
CHANGE IN OUR OWNERSHIP OR MANAGEMENT THAT MAY BE IN YOUR BEST INTERESTS
Our Articles of Incorporation and Bylaws, the partnership agreement that
governs our operating partnership and Georgia law place restrictions on the
ownership and transfer of shares of common stock and units. These restrictions
are intended in part to ensure we comply with federal tax requirements
applicable to REITs, and in part to discourage a change in control of Strategic
Timber without the consent of our Board of Directors. These provisions could
delay or prevent a change in our ownership or removal of our existing
management, even where such a change could be beneficial to or desired by you.
Our Articles of Incorporation prohibit beneficial ownership by any person
of more than 9.8% of our outstanding shares of common stock or preferred stock,
if any, unless our Board of Directors waives the restriction. In addition, the
election of our Board of Directors is staggered over a three-year period, which
may have an anti-takeover effect because a potential acquiror cannot obtain
immediate control of our Board of Directors. See "Material Provisions of Georgia
Law and Strategic Timber's Articles of Incorporation and Bylaws That May Have an
Anti-Takeover Effect."
Our Articles of Incorporation authorize the Board of Directors to issue
preferred stock with whatever rights and preferences it may choose, without your
approval. These rights and preferences could include, for example, dividend
rights, liquidation preferences, conversion rights or voting rights or other
provisions that could reduce your voting power or other rights. We could use
this preferred stock, under certain circumstances, as a method of discouraging,
delaying or preventing a change in our ownership or
14
<PAGE> 21
management, even when the holders of a majority of our shares of common stock
would approve or benefit from the change in control. Although we have no current
intention to issue any shares of preferred stock, we may choose to do so in the
future. See "Description of Capital Stock -- Preferred Stock."
OUR ACTUAL TIMBER INVENTORY MAY BE LESS THAN OUR CURRENT ESTIMATES
Independent forestry consultants have estimated the total volume of our
timber inventories based on sampling techniques that cannot identify with
certainty the actual volume of timber on our lands. We believe these estimates
are reasonably accurate and we use them to calculate the amount of harvestable
timber from our timberlands. Our actual timber inventories may differ from these
estimates. If the volume of timber we actually own is less than these estimates,
the amount of harvestable timber would be less than we anticipate. This would
hurt our financial results and cash flow. See "Business and Properties --
Initial Timberland Properties."
WE MAY INVEST IN TIMBERLANDS IN COUNTRIES OUTSIDE THE UNITED STATES, WHICH MAY
BE SUBSTANTIALLY RISKIER THAN INVESTMENTS IN DOMESTIC TIMBERLANDS
Our business strategy includes investing in timberlands located outside the
United States when our management believes that these timberlands offer higher
potential returns after taking into account the increased risks involved. This
strategy may include acquiring timberlands in developed and developing countries
in South America, Asia, Eastern Europe and other regions.
The lack of infrastructure in undeveloped and underdeveloped markets
increases the risks of acquiring and operating timberlands in those markets.
This may include the absence of:
- mills and other timber buyers near the timberlands;
- roads or means of transportation needed to reach the timberlands for
harvesting and to ship logs to local mills or export markets; or
- labor to manage the timberlands and harvest timber.
Given the difficulties of evaluating properties outside the United States, the
returns on foreign investments may be less than we expect. Future changes in the
economic or political conditions in foreign countries in which we may acquire
timberlands could affect our ability to retain and sell timber for harvest from
those timberlands. Foreign governments may seek to take over or nationalize our
timberlands, renegotiate or nullify existing contracts or other rights, or
impose laws or regulations that might severely limit the harvesting of
timberlands and the import and export of wood and wood products. Foreign
governments may impose other policies that might negatively impact our
operations, such as production restrictions, price controls, export controls,
income and other taxes and environmental regulations. Other political risks,
such as changes in governments, civil unrest, war, insurrection, acts of
terrorism and diplomatic developments could also adversely affect us.
We may be subject to other financial risks of overseas investment,
including inflation, changing fiscal policies, general economic instability and
changing currency exchange rates. From time to time, we may attempt to lessen
the effect of changes in exchange rates through foreign currency hedging
transactions, but we may not be able to do so.
We also cannot predict whether U.S. customs, quotas, duties, taxes or other
charges, or changes in U.S. foreign trade and investment laws and regulations,
will affect the import and export of forest products in the future, or what
effects such actions could have on our financial condition or operations.
YOU WILL INCUR IMMEDIATE DILUTION OF YOUR COMMON STOCK
We are offering our common stock at a price greater than our net tangible
book value. Net tangible book value equals the value of our tangible assets
minus the amount of our liabilities. Based on an initial public offering price
of $20 per share, our expected net tangible book value immediately following
this
15
<PAGE> 22
offering is $15.42 per share. Thus, by purchasing common stock in this offering,
you will incur immediate dilution of $4.58 per share. See "Dilution."
OUR COMMON STOCK HAS NOT HAD A PRIOR TRADING MARKET AND WE DO NOT KNOW IF ONE
WILL DEVELOP
Prior to this offering, our common stock has not been traded in any public
market. We do not know if investor interest will lead to the development of an
active trading market or how quickly you will be able to find a buyer for your
shares if you want to sell them.
Together with representatives of the underwriters, we will determine the
initial public offering price for the common stock. This initial price may bear
no relationship to the price at which the common stock will trade after
completion of this offering. See "Underwriting" for a description of the factors
we and the underwriters will consider in determining the initial public offering
price.
We have applied to have our common stock included for quotation on the
Nasdaq National Market. If we are approved for quotation on the Nasdaq National
Market, we would be subject to financial and market-related tests established by
the Nasdaq National Market to maintain our listing.
THE MARKET PRICE OF OUR COMMON STOCK COULD FLUCTUATE SIGNIFICANTLY
The market price of our common stock may fluctuate significantly due to a
number of factors, such as:
- changes in timber prices,
- changes in environmental or tax laws,
- the issuance or revisions of securities analysts' estimates regarding
us or the timber industry or
- announcements of changes in federal or state timber sales or timber
management policies.
The market price of our common stock could also be subject to significant
fluctuations in response to market forces, many of which are out of our direct
control. For instance, the price of our common stock may decrease if interest
rates increase. This could occur because an increase in interest rates could
cause some financial instruments, such as U.S. government bonds, to become
relatively more attractive investments than our common stock. Additionally, the
Nasdaq Stock Market and other stock markets have recently experienced
significant and sometimes rapid changes in both price and volume levels.
These and other factors have, from time to time, depressed the market
prices of stock in both forest products companies and REITs. Often, these
changes occur without regard to these companies' operating performances. These
forces could similarly affect the price of our common stock.
SHARES ELIGIBLE FOR SALE IN THE FUTURE MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK
Our Articles of Incorporation authorize the issuance of a total of
200,000,000 shares of common stock without additional shareholder approval. See
"Description of Capital Stock." We will offer to the public 16,600,000 shares in
this offering. We have reserved a total of 2,224,000 shares of our common stock
for issuance under our stock incentive plan. We intend to register all of the
shares issuable under this plan for sale in the public market.
One year from the date of the completion of this offering, the continuing
investors may exchange their units for cash, or, at our option, for shares of
our common stock on a one-for-one basis. See "The Partnership
Agreement -- Redemption of Partnership Units." As of that date, we have also
agreed to register up to 4,966,205 shares of common stock issuable on redemption
of units owned by our continuing investors. See "Shares Available for Future
Sale."
We intend to acquire additional timberlands in the future. We anticipate
funding these acquisitions through the sale of common stock, the issuance of
additional units, the issuance of debt or with cash we
16
<PAGE> 23
have retained, or a combination of these methods. Efforts to raise additional
capital through the sale of common stock or additional units may cause the
market price of our common stock to decrease.
If we issue any additional shares of common stock, whether pursuant to
existing stock options or otherwise, the value of your common stock and your
relative voting power may decrease. Our Articles of Incorporation do not grant
you preemptive rights, which would allow you to purchase a pro rata portion of
any future common stock or securities convertible into common stock that we
issue. The market price of our common stock may decrease if the market perceives
that we may issue additional shares of common stock, even if we do not choose to
do so.
SOME MEMBERS OF OUR MANAGEMENT AND OTHER CONTINUING INVESTORS COULD HAVE
CONFLICTS OF INTEREST
Conflicts of interest create a risk that people will put other interests
ahead of our interests when making decisions that affect us.
Our President, Chief Executive Officer and Chairman of our Board of
Directors, C. Edward Broom, is on the Board of Directors of several privately
held timber investment funds. All but one of these funds have been fully
invested and no additional timberland investments can be made. The one fund that
has not been fully invested could compete with us in acquiring timberlands if we
decide to acquire timberlands outside the United States. Under the terms of his
employment agreement with us, Mr. Broom has agreed that if we wish to bid on a
property and a fund with which he is affiliated is either the seller of the
property or also wishes to bid on the property, he will not participate in the
transaction on behalf of the fund. We have agreed that Mr. Broom may spend up to
5% of his time working for these timber funds, which will reduce the amount of
time he devotes to our business.
Our continuing investors could compete with us in our efforts to sell
timber from our timberlands, as well as in our efforts to acquire additional
timberlands. Some of the continuing investors are engaged in the timber
business. In particular, a company controlled by Mr. Demers currently purchases
timber from our Oregon timberlands for use in its sawmills.
WE MAY CHANGE OUR INVESTMENT, FINANCING AND OTHER POLICIES WITHOUT YOUR APPROVAL
Our Board of Directors determines our investment, financing and other
significant operating policies. Although the Board of Directors has no present
intention to amend or revise these policies, the Board of Directors may do so at
any time without your approval. See "Policies with Respect to Certain
Activities."
AN INVESTMENT IN THE COMMON STOCK INVOLVES OTHER TAX ISSUES
FEDERAL TAX LAW CHANGES MAY BE UNFAVORABLE
We are one of the first REITs to focus on timberland ownership and sales of
timber, and our business plan would not have been feasible before certain
changes to the Internal Revenue Code were enacted in 1997. Because the complex
REIT rules were not generally designed to accommodate investments in timber
properties, there is no established law governing the interplay of the tax rules
generally applicable to REITs and those applicable to timber operations. Over
time, the IRS, the Treasury Department or various courts may adopt new
interpretations governing this interplay, and these interpretations may be
unfavorable to us. See "Federal Income Tax Consequences."
STATE TAX LAWS MAY NOT CONFORM TO FEDERAL TAX LAW
Though we expect to qualify as a REIT for federal income tax purposes, our
qualification as a REIT under the laws of each individual state will depend,
among other things, on that state's conformity with federal tax law.
If you live in a state that does not conform to the federal tax treatment
of REITs, even if we do not do business in that state, cash distributions to you
will likely be characterized as ordinary income rather
17
<PAGE> 24
than capital gains for purposes of computing your state taxes. You should
consult with your tax advisor concerning the state tax consequences of an
investment in our common stock.
CAPITAL GAINS DISTRIBUTIONS TO NON-U.S. SHAREHOLDERS ARE GENERALLY SUBJECT
TO WITHHOLDING
We anticipate that substantially all of the amounts of cash we pay out to
you will generally be treated as either capital gains or a return of capital.
Under the provisions of the Foreign Investment in Real Property Tax Act, which
apply to non-U.S. shareholders, capital gain distributions are generally subject
to withholding at a rate of 35%.
FORWARD-LOOKING STATEMENTS
Some statements in this prospectus represent our expectations for Strategic
Timber and our common stock. These forward-looking statements are made only as
of the date of this prospectus. You can generally identify these forward-looking
statements by the use of the words "may," "will," "expects," "intends,"
"estimates," "anticipates" or "believes" or similar language.
We believe the expectations expressed in all forward-looking statements are
reasonable and accurate based on information we currently have. However, our
expectations may not prove to be correct. Important factors that could cause
actual results to differ from our expectations are disclosed under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business and Properties" and in other parts of this
prospectus.
18
<PAGE> 25
STRUCTURE AND FORMATION OF STRATEGIC TIMBER
OUR STRUCTURE
At the completion of this offering, we will conduct our business through an
operating partnership called Strategic Timber Partners, LP, a Delaware limited
partnership, and through its wholly owned subsidiary, Pioneer Resources, LLC, an
Oregon limited liability company. After we refinance our existing bank credit
facility, we will contribute the net proceeds of this offering to Strategic
Timber Partners in exchange for a number of its partnership units equal to the
number of shares of common stock sold in this offering. Upon the sale of any
additional shares of common stock, we will contribute the net proceeds of the
sale to Strategic Timber Partners in exchange for a number of partnership units
equal to the number of shares sold. For a description of the partnership units,
see "The Partnership Agreement." Strategic Timber Operating Co., a Delaware
corporation and wholly owned subsidiary of Strategic Timber, is the sole general
partner of Strategic Timber Partners.
OUR FORMATION
On April 21, 1998, we organized Strategic Timber, Strategic Timber Partners
and Strategic Timber Operating Co. to acquire our Louisiana property, which now
consists of approximately 82,000 acres of timberland in southwest Louisiana.
Louisiana Timber Partners, LLC, a Georgia limited liability company,
contributed to Strategic Timber Partners a contract to acquire the Louisiana
property in exchange for a 19.6% limited partnership interest in Strategic
Timber Partners. We valued this contract at $50.0 million, which we believed to
be the difference between the value of the property and the purchase price under
the contract that Louisiana Timber held. Strategic Timber retained a 79.4%
limited partnership interest in the partnership and Strategic Timber Operating
Co. retained the remaining one percent general partner interest in the
partnership. The partnership then purchased the Louisiana property on April 27,
1998 for $205.0 million in cash. The partnership funded the purchase price of
the Louisiana property and related transaction costs by borrowing $125.8 million
under a $215.0 million bank revolving credit facility, and with a cash
contribution of $85.0 million by Strategic Timber. Strategic Timber borrowed
these funds under a bank bridge loan.
After we acquired the Louisiana property, our structure was:
<TABLE>
<S> <C> <C>
- -----------------------------------------------
Strategic Timber Trust, Inc.
- -----------------------------------------------
100% 79.4% limited
partner
interest
- ------------------------ ------------------------------------------
Strategic Timber
Operating Co. Louisiana Timber Partners, LLC
- ------------------------ -------------------------------------------
1.0% general 19.6% limited
partner partner
interest interest
---------------------------------------------------------------------------------------
Strategic Timber Partners, LP
---------------------------------------------------------------------------------------
Louisiana property
</TABLE>
19
<PAGE> 26
Our initial shareholders formed Strategic Timber Trust II, LLC, a Georgia
limited liability company, Strategic Timber Two Operating Co., LLC, a Georgia
limited liability company, and Strategic Timber Partners II, LP, a Georgia
limited partnership, in September 1998. Our initial shareholders formed these
entities to acquire Pioneer, which holds approximately 366,000 acres of
timberland in the Pacific Northwest.
Strategic Timber Partners II acquired all of the membership interests in
Pioneer from its members on October 9, 1998, in exchange for $35.0 million in
cash and a 59.1% interest in Strategic Timber Partners II, which we valued at
$65.0 million. Strategic Timber Partners II funded the cash portion of the
purchase price for Pioneer and related transaction costs with a cash
contribution of $35.0 million by Strategic Timber Two Operating Co. in exchange
for a 31.8% interest in Strategic Timber Partners II, and a cash contribution of
$10.0 million by Mach One Partners, LLC, an affiliate of Louisiana Timber, in
exchange for a 9.1% interest in Strategic Timber Partners II. To fund Strategic
Timber Two Operating Co.'s contribution, Strategic Timber II borrowed $35.0
million under a bank bridge loan. In connection with the acquisition, Pioneer
refinanced its existing bank debt, leaving approximately $255.0 million
outstanding under its credit facility.
After Strategic Timber Partners II acquired Pioneer, our structure included
the following additional entities:
<TABLE>
<S> <C> <C>
- ----------------------------------------
Strategic Timber Trust II, LLC
- ----------------------------------------
100%
------------------------- ------------------------- --------------------------
Strategic Timber Former Pioneer Mach One
Two Operating Co. Members Partners, LLC
------------------------- ------------------------- --------------------------
1.0% general 30.8% limited 59.1% limited 9.1% limited
partner partner partner partner
interest interest interest interest
------------------------------------------------------------------------------------------------------
Strategic Timber Partners II, LP
------------------------------------------------------------------------------------------------------
100%
----------------------------------
Pioneer Resources, LLC
----------------------------------
Pacific Northwest properties
</TABLE>
Upon completion of this offering, Strategic Timber II, Strategic Timber Two
Operating Co. and Strategic Timber Partners II will be merged into Strategic
Timber Partners, leaving Pioneer as a wholly owned subsidiary of Strategic
Timber Partners. In connection with this merger, the owners of the merging
entities will receive cash and units in Strategic Timber Partners.
20
<PAGE> 27
As of the completion of the offering and the merger of the entities
described above into Strategic Timber Partners, and assuming we sell 16,600,000
shares of common stock in the offering at a price of $20 per share, our
structure will be as follows:
<TABLE>
<S> <C> <C> <C> <C>
Public Shareholders (96.1%)
Continuing Investors (3.9%)
- ----------------------------------
Strategic Timber Trust, Inc.
- ----------------------------------
- ----------------- ------------------- -------------- -------------- -----------------
Strategic Timber 76.7% limited Former Louisiana Former
Operating Co. partner interest Strategic Timber II Timber Mach One Pioneer
Members Partners, LLC Partners, LLC Members
- ----------------- ------------------- -------------- -------------- -----------------
1.0% general partner 4.2% limited 7.9% limited 0.4% limited 9.8% limited
interest partner interest partner interest partner interest partner interest
- -----------------------------------------------------------------------------------------------------------------------------
Strategic Timber Partners, LP
- -----------------------------------------------------------------------------------------------------------------------------
100% Louisiana property
- ---------------------------
Pioneer Resources, LLC
- ---------------------------
Pacific Northwest properties
</TABLE>
21
<PAGE> 28
The table below summarizes the amounts contributed in connection with the
formation transactions, and the amount and value of cash, common stock and
partnership units the parties to the formation transactions will receive as of
the completion of the offering. Amounts under "Aggregate Value To Be Received at
Completion of Offering" are based on an initial public offering price of $20 per
share.
<TABLE>
<CAPTION>
SHARES/UNITS AGGREGATE
ESTIMATED OR AND CASH TO BE VALUE TO BE
AGREED RECEIVED FOR RECEIVED AT RECEIVED AT
ORIGINAL VALUE AT ORIGINAL COMPLETION COMPLETION
NAME CONTRIBUTION CONTRIBUTION CONTRIBUTION OF OFFERING OF OFFERING
- ---- ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Louisiana Timber Purchase contract $50,000,000 5,000 units of 1,762,974 units of $48,204,480
Partners to acquire the Strategic Timber Strategic Timber
Louisiana property Partners Partners
$12,945,000 cash
Mach One Partners $10,000,000 $10,000,000 909 units of 100,110 units of $12,002,200
Strategic Timber Strategic Timber
Partners II Partners
$10,000,000 cash
Former Pioneer 100% of the $100,000,000 5,909 units of 2,170,086 units of $67,456,720
Members membership Strategic Timber Strategic Timber
(collectively) interests in Partners II Partners
Pioneer
$35,000,000 cash $24,055,000 cash
Strategic Timber Services Value not 671,770 shares of 671,770 shares of $32,096,100
Management and determined or Strategic Timber Strategic Timber
Original Investors specified at time
(collectively) of organization 2,810 units of 933,035 units of
Strategic Timber II Strategic Timber
Partners
</TABLE>
At or immediately before the closing of this offering:
- We will sell 16,600,000 shares of common stock in the offering.
- Strategic Timber Partners will enter into a new $375.0 million credit
facility.
- We will use the net proceeds of this offering and will borrow
approximately $260.0 million under our new credit facility to repay in
full our outstanding bank debt and to redeem a portion of the partnership
units held by Louisiana Timber and a portion of the Strategic Timber
Partners II partnership units held by the former Pioneer members and Mach
One. See "Use of Proceeds."
- Strategic Timber Partners will issue 3,203,231 partnership units to the
owners of Strategic Timber II, the former Pioneer members and Mach One.
As a result of the formation transactions described above, Strategic Timber will
own 17,271,770 partnership units, which will represent an approximate 77.7%
interest in Strategic Timber Partners.
The terms of the formation transactions were determined after arm's-length
negotiations between representatives of Strategic Timber, Louisiana Timber,
Pioneer, the former Pioneer members and Mach One.
22
<PAGE> 29
BENEFITS TO RELATED PARTIES
Our executive officers and affiliates will benefit from this offering and
the formation transactions as follows:
- Our executive officers will hold shares of common stock and units valued
at $32.1 million, based on an initial public offering price of $20 per
share, as shown below.
<TABLE>
<CAPTION>
SHARES AND
UNITS VALUE
---------- -----------
<S> <C> <C>
C. Edward Broom............................................. 408,329 $ 8,166,580
Christopher J. Broom........................................ 408,329 8,166,580
Thomas P. Broom............................................. 408,329 8,166,580
T. Yates Exley.............................................. 108,516 2,170,320
Nicholas C. Brunet.......................................... 90,740 1,814,800
Vladimir Harris............................................. 90,740 1,814,800
Joseph E. Rendini........................................... 90,740 1,814,800
--------- -----------
Total............................................. 1,605,723 $32,114,460
========= ===========
</TABLE>
- Our executive officers will also receive options to acquire an aggregate
of 875,000 shares of common stock at the initial public offering price.
These options will vest in equal amounts over the three years following
completion of this offering.
- We have employment and non-competition agreements with Messrs. C. Edward
Broom, Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas
C. Brunet, Vladimir Harris and Joseph E. Rendini.
- Louisiana Timber will receive $12.9 million in cash in redemption of a
portion of its partnership units, and will own 1,762,974 partnership
units upon completion of this offering. Hanns A. Pielenz, who has agreed
to serve on our Board of Directors, and Larry J. Woodard are the
principal owners of Louisiana Timber. The partnership units retained by
Louisiana Timber will have a value of $35.3 million, based on an initial
public offering price of $20 per share. Louisiana Timber acquired its
partnership units in exchange for contributing to Strategic Timber
Partners a contract, valued by the parties at $50.0 million, to acquire
the Louisiana property.
- Mach One, which is owned equally by Messrs. Pielenz and Woodard, will
receive $10.0 million in cash and 100,110 partnership units at the
completion of this offering in redemption of its interest in Strategic
Timber Partners II. Mach One acquired its interest in Strategic Timber
Partners II in exchange for a cash contribution of $10.0 million that was
used to finance our acquisition of Pioneer, and the cash and units it
receives will have a value of $12.0 million, based on an initial public
offering price of $20 per share. Mach One will receive these units in
satisfaction of its right to receive an annual return of 40% on its
original investment under the Strategic Timber Partners II limited
partnership agreement.
- In connection with the Pioneer acquisition, Strategic Timber Partners II
paid $35.0 million in cash and issued partnership interests valued by the
parties at $65.0 million to the former Pioneer members, including Gregory
M. Demers. Mr. Demers, together with a company he owns and controls,
beneficially owned 76.5% of Pioneer at the time of the acquisition. Upon
completion of this offering and the merger of Strategic Timber Partners
II into Strategic Timber Partners, Mr. Demers and his company will
receive $18.4 million in cash in redemption of a portion of their
partnership interests in Strategic Timber Partners II, and will
beneficially own 1,660,333 partnership units. These partnership units
will have a value of $33.2 million, based on an initial public offering
price of $20 per share.
- In connection with the Pioneer acquisition, T. Yates Exley, one of the
former Pioneer members and a Vice President of Strategic Timber, received
a partnership interest in Strategic Timber Partners II. Mr. Exley will
receive $1.2 million in cash and, as indicated above, 108,516 partnership
units in redemption of his partnership interest in Strategic Timber
Partners II upon the completion
23
<PAGE> 30
of this offering. The partnership units will have a value of $2.2
million, based on an initial public offering price of $20 per share.
Additional information concerning benefits to executive officers, directors
and other continuing investors is set forth under "Management" and "Transactions
with Related Parties."
DISTRIBUTION POLICY
We have not previously made any cash distributions on our common stock. Our
Board of Directors has approved a distribution on our common stock that will
occur after completion of the offering. This distribution will be based on a
quarterly distribution of $0.175 per share, but will be prorated for the partial
quarter between closing of the offering and the end of the quarter in which the
closing occurs. Our Board of Directors, in its sole discretion, will determine
whether subsequent distributions will be made. Our Board of Directors will base
its determination on our financial results, available cash flow, possible
acquisitions and capital requirements, as well as prevailing economic
conditions. We intend to retain a substantial portion of the cash we generate
from operations to acquire additional timberlands rather than distributing it to
you. We do not expect the tax rule that generally requires a REIT to distribute
to shareholders 95% of its ordinary income to affect us. We cannot provide any
assurance that we will make cash distributions in the future or the amount of
any distribution that we may make.
24
<PAGE> 31
USE OF PROCEEDS
We estimate that we will receive net cash proceeds from this offering of
approximately $306.4 million after deducting estimated underwriting discounts
and commissions and estimated offering expenses and based on an initial public
offering price of $20 per share. If the underwriters exercise their
over-allotment option in full, we estimate that we will receive net cash
proceeds from this offering of approximately $352.7 million.
We will use the net proceeds of this offering, together with approximately
$260.0 million of borrowings under our new credit facility, as follows:
- approximately $509.9 million to repay in full debt described in the table
below and accrued interest on this debt;
- approximately $47.0 million to redeem partnership units and other
partnership interests held by our continuing investors;
- approximately $6.8 million for termination fees on interest rate swaps
and related debt; and
- $2.3 million for financing costs on our new credit facility.
See "Structure and Formation of Strategic Timber."
The table below summarizes the debt to be repaid upon completion of this
offering, based on principal balances at February 28, 1999. The actual amounts
repaid may differ to the extent of any changes in the principal balance of loans
occurring subsequent to February 28, 1999.
<TABLE>
<CAPTION>
PRINCIPAL BALANCE AT
FEBRUARY 28, 1999 INTEREST RATE MATURITY DATE
-------------------- ------------- ------------------
<S> <C> <C> <C>
Strategic Timber Partners credit
facility......................... $133,787,000 7.50%(1) April 25, 2003
Strategic Timber bridge loan....... 85,000,000 9.00%(1) October 27, 1999
Pioneer credit facility............ 253,600,000 7.63%(1) September 30, 2003
Strategic Timber II bridge loan.... 35,000,000 9.06%(2) October 27, 1999
------------ -----
Total/Weighted Average... $507,387,000 7.92%
============ =====
</TABLE>
- ---------------
(1) These loans each bear interest at a floating rate based on LIBOR plus an
applicable margin. The rates shown are interest rates at February 28, 1999.
(2) On April 1, 1999, an additional payment of $3.3 million will become due on
the Strategic Timber II bridge loan.
Assuming an initial public offering price of $20 per share, after this
offering, we will have approximately $260.0 million of debt outstanding under
our new credit facility. For a description of the terms of our new credit
facility, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
If the underwriters exercise in full their over-allotment option to
purchase 2,490,000 additional shares of common stock, we expect to use the
additional net proceeds of approximately $46.3 million to reduce amounts
outstanding under our new credit facility.
Amounts outstanding under our operating partnership's credit facility, the
Strategic Timber bridge loan, the Pioneer credit facility and the Strategic
Timber II bridge loan were each incurred within the past year to pay for our
initial timberlands and to finance working capital requirements prior to
commencing full-scale operations.
Pending the uses described above, we will invest any unused portion of the
net proceeds in interest-bearing accounts or short-term, interest-bearing
securities, or both, which are consistent with our intention to qualify for
taxation as a REIT.
25
<PAGE> 32
CAPITALIZATION
The following table sets forth the combined historical capitalization of
Strategic Timber and Strategic Timber II as of December 31, 1998. As described
in "Structure and Formation of Strategic Timber," we currently conduct our
operations through two separate entities, Strategic Timber and Strategic Timber
II. Because these entities will be merged before the completion of this
offering, we believe it is meaningful to present the combined capitalization of
these entities as of December 31, 1998. The following table also sets forth our
pro forma capitalization as of December 31, 1998 assuming that we completed the
formation transactions and this offering and that we used the estimated net
proceeds of this offering and borrowings under our new credit facility as set
forth under "Use of Proceeds." You should read the following table in
conjunction with the financial statements and notes to the financial statements
included elsewhere in this prospectus, "Selected Historical Financial and
Operating Information," "Pro Forma Condensed Consolidated Financial Information"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
STRATEGIC TIMBER AND
STRATEGIC TIMBER II COMBINED
----------------------------
ACTUAL PRO FORMA
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Bridge loans.............................................. $120,000 $ --
Current portion of long-term debt......................... 136,287 --
Long-term debt............................................ 252,500 269,469
Minority interest........................................... 119,332 62,603
Shareholders' equity:
Preferred Stock, $.01 par value(1)........................ -- --
Common Stock, $.01 par value(2)........................... 1 173
Additional paid-in capital................................ -- 312,542
Accumulated deficit....................................... (16,367) (30,137)
-------- --------
Total shareholders' equity (deficit).............. (16,366) 282,578
-------- --------
Total Capitalization.............................. $611,753 $614,650
======== ========
</TABLE>
- ---------------
(1) 50,000,000 shares of preferred stock will be authorized upon completion of
this offering. No shares of preferred stock are currently, or at the
completion of this offering will be, issued and outstanding.
(2) 200,000,000 shares of common stock will be authorized at the completion of
this offering. 671,770 actual shares of common stock are currently issued
and outstanding. 17,271,770 shares of common stock will be issued and
outstanding at the completion of this offering, excluding (a) 4,966,205
shares of common stock that we may issue to redeem partnership units; (b)
2,490,000 shares of common stock that the underwriters have the option to
purchase solely to cover over-allotments; and (c) 1,115,000 shares of common
stock issuable upon exercise of options to be granted under our 1999
Incentive Plan upon completion of this offering. We will reserve a total of
2,224,000 shares of common stock for issuance under the 1999 Incentive Plan.
See "The Partnership Agreement -- Redemption of Partnership Units,"
"Underwriting" and "Management -- 1999 Incentive Plan."
26
<PAGE> 33
DILUTION
The assumed initial public offering price of $20 per share exceeds the net
combined tangible book value per share of Strategic Timber and Strategic Timber
II. Therefore, if you purchase common stock in this offering, you will incur an
immediate dilution in the net tangible book value of your shares. The following
table illustrates the dilution to purchasers of shares of common stock sold in
this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $20.00
Net combined tangible book value per share before this
offering(1)............................................ $16.20
Decrease in net combined tangible book value per share
attributable to this offering.......................... (0.78)
------
Pro forma net tangible book value per share after this
offering(2)............................................ 15.42
------
Dilution per share purchased in this offering............. $ 4.58
======
</TABLE>
- ---------------
(1) Determined by subtracting the total liabilities of Strategic Timber and
Strategic Timber II from the total tangible assets of Strategic Timber and
Strategic Timber II and dividing the difference by the sum of the total
number of shares of common stock issued and outstanding immediately prior to
this offering and the number of shares of common stock issuable upon the
exchange of all partnership units issued or to be issued in connection with
the formation transactions.
(2) Determined by subtracting our total liabilities from our total tangible
assets and dividing the difference by the number of shares of common stock
and partnership units that will be outstanding after this offering. This
calculation is based on our pro forma condensed combined balance sheet.
The following table summarizes the number of shares of common stock we will
sell in this offering, the total price to be paid for these shares, the number
of shares of common stock and partnership units previously issued or to be
issued in the formation transactions, and the net tangible book value of the
average contribution per share based on total contributions. All amounts are
determined as if this offering and the formation transactions had been completed
on December 31, 1998.
<TABLE>
<CAPTION>
SHARES SOLD BY BOOK VALUE OF
STRATEGIC TIMBER AND CONTRIBUTIONS TO
PARTNERSHIP UNITS ISSUED STRATEGIC TIMBER/
BY STRATEGIC TIMBER STRATEGIC TIMBER PURCHASE PRICE/
PARTNERS PARTNERS BOOK VALUE OF
------------------------ ------------------ CONTRIBUTION
NUMBER PERCENT AMOUNT PERCENT PER SHARE/UNIT
------------ --------- -------- ------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE/UNIT DATA)
<S> <C> <C> <C> <C> <C>
New investors in this offering.......... 16,600,000 74.7% $332,000 96.2% $20.00
Common stock and partnership units
outstanding or to be issued in the
formation transactions................ 5,637,975 25.3 13,181 3.8 2.34
---------- ----- -------- -----
Total......................... 22,237,975 100.0% $345,181 100.0%
========== ===== ======== =====
</TABLE>
27
<PAGE> 34
SELECTED HISTORICAL FINANCIAL AND OPERATING INFORMATION
The following tables show the selected historical consolidated financial
and operating information for Strategic Timber, Strategic Timber II and Pioneer.
Pioneer is the predecessor to Strategic Timber II.
Information for Strategic Timber and Strategic Timber II is presented as of
and for the period ended December 31, 1998. The information is derived from the
audited historical financial statements of Strategic Timber and Strategic Timber
II, and should be read in conjunction with those financial statements, which are
included elsewhere in this prospectus. The information shown for Strategic
Timber reflects the results of operations for the period from April 21, 1998,
the date of inception, to December 31, 1998. Information shown for Strategic
Timber II reflects the results of operations for the period from October 9,
1998, the date on which Strategic Timber II acquired Pioneer, to December 31,
1998.
Information is also presented for both Pioneer and its predecessor, Old
Pioneer Resources, LLC, which we will refer to as Old Pioneer. Old Pioneer was
formed in April 1994 for the purpose of acquiring certain timber-related assets.
The assets of Old Pioneer were contributed to Pioneer upon the formation of
Pioneer on January 3, 1996.
The selected historical financial and operating information of Pioneer as
of and for the years ended December 31, 1996 and December 31, 1997 and for the
period from January 1, 1998 to October 8, 1998 is derived from the audited
historical financial statements of Pioneer included elsewhere in this prospectus
and should be read in conjunction with those financial statements. Information
presented for Old Pioneer is derived from the audited historical financial
statements of Old Pioneer as of and for the year ended December 31, 1995.
Information presented for Old Pioneer as of and for the period from April 15,
1994, the date of inception, to December 31, 1994 is derived from unaudited
financial statements that were prepared on the same basis as those that were
audited.
The selected historical information presented for Strategic Timber and
Strategic Timber II is not comparable to the information presented for Pioneer
because the historical financial statements of Pioneer include the results of
conversion facilities and aircraft operations that were not acquired by
Strategic Timber II. In addition, the historical results of operations of
Strategic Timber include one-time start-up costs of approximately $140,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The results of operations of Old Pioneer and Pioneer among the periods
presented are not comparable to one another because:
- financial information of Old Pioneer was prepared using a different basis
of accounting than that of Pioneer;
- financial and operating information of Pioneer were affected by several
acquisitions in 1996, 1997 and 1998, including the acquisition of the
assets of Old Pioneer on January 3, 1996, each of which was accounted for
under the purchase method of accounting; and
- Old Pioneer conducted different operations than Pioneer.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and the accompanying notes
to financial statements included elsewhere in this prospectus.
This financial and operating information is historical in nature.
Information may not be representative of how we plan to manage our operations
after this offering.
28
<PAGE> 35
STRATEGIC TIMBER TRUST, INC. AND STRATEGIC TIMBER TRUST II, LLC
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STRATEGIC TIMBER STRATEGIC TIMBER II
AS OF AND FOR THE AS OF AND FOR THE
PERIOD FROM INCEPTION PERIOD FROM INCEPTION
(APRIL 21, 1998) TO (OCTOBER 9, 1998) TO
DECEMBER 31, 1998 DECEMBER 31, 1998
--------------------- ---------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:............................................. $ 507 $ 9,018
Operating Expenses:
Cost of timber sold................................. 403 5,746
Amortization of deferred financing costs............ 1,743 499
General and administrative expenses................. 1,820 1,738
--------- --------
Operating income (loss)............................. (3,459) 1,035
Other Income (Expense):
Interest expense.................................... (13,781) (5,657)
Interest income..................................... 33 12
--------- --------
Loss before minority interest......................... (17,207) (4,610)
Minority interest in loss of subsidiary partnership... 2,863 2,587
--------- --------
Net loss.............................................. $ (14,344) $ (2,023)
========= ========
CASH FLOW AND OTHER DATA:
EBITDDA(a)............................................ $ (1,312) $ 7,268
Depletion............................................. 403 5,703
Depreciation and amortization......................... 1,744 530
Cash provided by (used in) operating activities....... (6,913) 5,268
Cash used in investing activities..................... (205,235) (295,218)
Cash provided by financing activities................. 212,458 295,793
BALANCE SHEET DATA (AT PERIOD END):
Working capital (b)................................... $(226,623) $(38,617)
Timberlands........................................... 251,597 354,298
Total assets.......................................... 260,878 369,082
Total debt............................................ 218,787 290,000
Minority interest..................................... 46,919 72,413
Shareholders'/members' deficit........................ (14,343) (2,023)
OPERATING DATA (UNAUDITED):
Timber harvested...................................... 10,923tons 11,601MBF
Timber sold under timber deed......................... -- 19,295MBF
</TABLE>
- ---------------
(a) EBITDDA is defined as operating income (loss) plus depletion, depreciation
and amortization. You should not construe EBITDDA to be an alternative to
operating income, as an indicator of our operating performance, or as an
alternative to cash flow from operating activities, as a measure of our
liquidity. EBITDDA is not a financial measure determined in accordance with
generally accepted accounting principles and may not be comparable to
similarly titled measures of other companies.
EBITDDA is calculated as follows:
<TABLE>
<CAPTION>
STRATEGIC STRATEGIC
TIMBER TIMBER II
---------- ----------
<S> <C> <C>
Operating income (loss)................................ $(3,459) $1,035
Depletion.............................................. 403 5,703
Depreciation and amortization.......................... 1,744 530
------- ------
$(1,312) $7,268
======= ======
</TABLE>
(b) The negative working capital of Strategic Timber is caused primarily by the
classification of all Strategic Timber debt as current. This classification
is due to the inclusion of clauses in the debt agreements that allow the
lenders to call the debt prior to its maturity in the event of a "material
adverse change" in the business of Strategic Timber. The negative working
capital of Strategic Timber II is attributable primarily to debt maturing
in less than one year, accrued interest on debt and obligations under
interest rate swap agreements.
29
<PAGE> 36
PIONEER RESOURCES, LLC
(PREDECESSOR TO STRATEGIC TIMBER II)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OLD PIONEER PIONEER
--------------------------- ------------------------------------
PERIOD
FROM
APRIL 15, JANUARY 1,
1994 TO YEAR ENDED YEAR ENDED DECEMBER 31, 1998 TO
DECEMBER 31, DECEMBER 31, ----------------------- OCTOBER 8,
1994(A) 1995(A) 1996 1997 1998
------------ ------------ ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Log sales.................................. $ 42 $ 1,600 $ 25,901 $ 39,505 $ 23,097
Lumber and by-product sales................ 15,115 31,409 36,004 52,623 45,213
Timberland and property sales.............. 6,503 1,865 613 6,774 5,901
------- ------- -------- -------- ---------
Total revenues..................... 21,660 34,874 62,518 98,902 74,211
Operating Expenses:
Cost of products sold...................... 11,331 22,953 25,897 39,602 45,498
Cost of timberland and property sales...... 2,672 1,330 486 4,292 2,536
Depletion, depreciation and amortization... 2,907 2,982 15,366 25,259 12,966
Selling, general and administrative
expenses................................ 1,205 2,354 3,144 7,444 7,137
Write down of real estate investments...... -- -- -- -- 583
------- ------- -------- -------- ---------
Operating income................... 3,545 5,255 17,625 22,305 5,491
Other Income (Expense):
Interest expense........................... (1,871) (3,062) (6,070) (8,722) (12,505)
Interest income............................ 236 46 248 224 56
Other income (expense), net................ 239 343 -- 502 (780)
------- ------- -------- -------- ---------
Income (loss) from continuing operations
before income taxes and minority
interests.................................. 2,149 2,582 11,803 14,309 (7,738)
Income tax benefit (provision)............... -- -- (978) 355 336
------- ------- -------- -------- ---------
Income (loss) from continuing operations
before minority interest................... 2,149 2,582 10,825 14,664 (7,402)
Minority interest in loss of subsidiary...... -- -- 262 51 12
------- ------- -------- -------- ---------
Income (loss) from continuing operations..... 2,149 2,582 11,087 14,715 (7,390)
Discontinued operation, net(b)............... -- -- (48) (945) (897)
------- ------- -------- -------- ---------
Income (loss) before extraordinary item...... 2,149 2,582 11,039 13,770 (8,287)
Extraordinary item(c)........................ -- -- (780) -- (2,106)
------- ------- -------- -------- ---------
Net income (loss)............................ $ 2,149 $ 2,582 $ 10,259 $ 13,770 $ (10,393)
======= ======= ======== ======== =========
CASH FLOW AND OTHER DATA:
EBITDDA(d)................................... $ 9,363 $ 9,910 $ 33,477 $ 52,358 $ 20,213
Cash provided by operating activities........ (e) 16,451 26,806 24,749 7,767
Cash used in investing activities............ (e) (9,612) (58,110) (46,515) (162,297)
Cash provided by (used in) financing
activities................................. (e) (6,492) 35,733 18,699 153,168
BALANCE SHEET DATA (AT PERIOD END):
Working capital.............................. $(8,563) $(9,219) $ 1,167 $ 20,127
Timber, timberlands and timber cutting
rights..................................... 26,603 27,230 86,294 99,126
Total assets................................. 44,892 52,139 132,060 154,430
Total debt................................... 40,456 33,964 96,565 126,941
Members' equity.............................. 2,150 5,922 9,740 19,937
</TABLE>
30
<PAGE> 37
<TABLE>
<CAPTION>
OLD PIONEER PIONEER
--------------------------- ------------------------------------
PERIOD
FROM
APRIL 15, JANUARY 1,
1994 TO YEAR ENDED YEAR ENDED DECEMBER 31, 1998 TO
DECEMBER 31, DECEMBER 31, ----------------------- OCTOBER 8,
1994(A) 1995(A) 1996 1997 1998
------------ ------------ ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA (UNAUDITED):
Fee timber harvested (MMBF).................. 35 51 106 125 75
Non-fee timber purchased (MMBF).............. 12 15 31 28 36
Lumber production (MMBF)..................... 22 47 71 106 112
</TABLE>
- ---------------
(a) Financial and operating data for the period from April 15, 1994 to December
31, 1994 and for the year ended December 31, 1995 for Old Pioneer are not
comparable to other periods presented in this table. See the financial
statements of Pioneer and accompanying notes included elsewhere in this
prospectus for additional information.
(b) Relates to the plywood operations of Lane Plywood, which were discontinued
in 1997.
(c) In 1996 and 1998, borrowings of Pioneer were refinanced, resulting in the
write-off of certain deferred financing costs as extraordinary, non-cash
charges.
(d) EBITDDA is defined as operating income plus other income (expense),
depletion, depreciation and amortization and cost of timberland and
property sales. You should not construe EBITDDA to be an alternative to
operating income, as an indicator of Pioneer's operating performance, or as
an alternative to cash flow from operating activities, as a measure of
Pioneer's liquidity. EBITDDA is not a financial measure determined in
accordance with generally accepted accounting principles and may not be
comparable to similarly titled measures of other companies.
EBITDDA is calculated as follows:
<TABLE>
<CAPTION>
OLD PIONEER PIONEER
--------------------------- -----------------------------------------
PERIOD
FROM
APRIL 15, JANUARY 1,
1994 TO YEAR ENDED YEAR ENDED DECEMBER 31, 1998 TO
DECEMBER 31, DECEMBER 31, --------------------------- OCTOBER 8,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Operating income..................... $3,545 $5,255 $17,625 $22,305 $ 5,491
Other income (expense)............... 239 343 -- 502 (780)
Depletion, depreciation and
amortization....................... 2,907 2,982 15,366 25,259 12,966
Cost of timberland and property
sales.............................. 2,672 1,330 486 4,292 2,536
------ ------ ------- ------- -------
$9,363 $9,910 $33,477 $52,358 $20,213
====== ====== ======= ======= =======
</TABLE>
(e) Information regarding these amounts for the period from April 15, 1994 to
December 31, 1994 is not available.
31
<PAGE> 38
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following tables show, for the periods and dates indicated, pro forma
condensed consolidated financial information for Strategic Timber. The Pro Forma
Condensed Consolidated Balance Sheet presents our unaudited pro forma financial
condition as if the formation transactions and this offering had occurred as of
December 31, 1998. The Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1998 presents our unaudited pro forma operating
results as if this offering and the formation transactions, except for our
acquisitions of the Louisiana property and the Coastal forest portion of the
Pacific Northwest properties, had occurred as of January 1, 1998.
The Pro Forma Condensed Consolidated Statement of Operations includes the
historical results of Pioneer for the period from January 1, 1998 to October 8,
1998, as this entity represents our predecessor business. These historical
results of Pioneer have been adjusted to (1) eliminate results of operations and
related assets and liabilities attributable to Pioneer's timber conversion
facilities and aircraft operations that we did not acquire and (2) recognize
revenues and costs of Pioneer's sales that were previously eliminated for
financial reporting purposes.
The Pro Forma Condensed Consolidated Statement of Operations, however, does
not include the historical results of the Louisiana property prior to our
purchase of these timberlands on April 27, 1998. These timberlands were acquired
from an unrelated family group that did not actively manage the property for
commercial timber operations. The Pro Forma Condensed Consolidated Statement of
Operations also does not include the historical results of the Coastal forest
portion of the Pacific Northwest properties prior to the purchase of these
timberlands by Pioneer in July 1998. We believe that there is limited continuity
between the prior operation of the Coastal forest and Pioneer's actual and our
intended forestry activities on these timberlands. Because of the lack of
continuity of operations before and after these purchases, we believe that
inclusion of historical financial information for the Louisiana property and the
Coastal forest in the Pro Forma Condensed Consolidated Statement of Operations
prior to the dates of acquisition would not be helpful to your understanding of
our business or operations.
The pro forma condensed consolidated financial information does not purport
to represent what our financial position or results of operations actually would
have been had the formation transactions occurred on the dates indicated. The
pro forma condensed consolidated financial information also does not purport to
project our financial position or results of operations at any future date or
for any future period. This information should be read in conjunction with the
following:
- Audited consolidated financial statements of Strategic Timber as of and
for the period from inception (April 21, 1998) to December 31, 1998,
- Audited consolidated financial statements of Strategic Timber II as of
and for the period from inception (October 9, 1998) to December 31, 1998,
- Audited consolidated financial statements of Pioneer as of and for the
years ended December 31, 1996 and 1997 and for the period from January 1,
1998 to October 8, 1998,
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and
- "Selected Historical Financial and Operating Information."
32
<PAGE> 39
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
INTERCOMPANY
HISTORICAL HISTORICAL ELIMINATIONS AND
STRATEGIC STRATEGIC PRO FORMA
TIMBER TIMBER II ADJUSTMENTS(A) PRO FORMA
---------- ---------- ---------------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents.................. $ 310 $ 5,843 $ -- $ 6,153
Trade accounts receivable.................. 57 109 -- 166
Prepaid expenses........................... 1,312 146 (1,312)(b) 146
Due from affiliate......................... -- 1,476 (1,476)(c) --
-------- -------- --------- --------
Total current assets.................. 1,679 7,574 (2,788) 6,465
Timberlands.................................. 251,597 354,298 1,972(d) 607,867
Property and equipment, net.................. 16 186 -- 202
Land subject to repurchase................... 3,000 -- -- 3,000
Deferred financing costs, net................ 4,586 7,024 (11,610)(e) 2,320
2,320(e)
-------- -------- --------- --------
Total assets....................... $260,878 $369,082 $ (10,106) $619,854
======== ======== ========= ========
LIABILITIES:
Current liabilities
Bridge loans............................... $ 85,000 $ 35,000 $(120,000)(e) $ --
Current portion of long-term debt.......... 133,787 2,500 (136,287)(e) --
Accounts payable and other accrued
liabilities............................. 1,688 531 (1,312)(b) 907
Accrued interest........................... 2,054 4,845 (6,899)(e) --
Due to affiliates.......................... 2,236 -- (1,476)(c) 760
Deferred revenue........................... 3,537 -- -- 3,537
Obligations under interest rate swaps...... -- 3,316 (3,316)(e) --
-------- -------- --------- --------
Total current liabilities............. 228,302 46,192 (269,290) 5,204
Long-term debt............................... -- 252,500 (252,500)(e) 269,469
269,469(e)
Minority interest............................ 46,919 72,413 (45,028)(d) 62,603
(3,473)(e)
(1,907)(f)
(6,321)(g)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock............................... 1 -- 172(h) 173(h)
Additional paid-in capital................. -- -- 306,221(i) 312,542
6,321(g)
Accumulated deficit........................ (14,344) (2,023) (15,677)(e) (30,137)
1,907(f)
-------- -------- --------- --------
Total shareholders' equity
(deficit)........................ (14,343) (2,023) 298,944 282,578
-------- -------- --------- --------
Total liabilities and shareholders'
equity (deficit)................. $260,878 $369,082 $ (10,106) $619,854
======== ======== ========= ========
</TABLE>
The accompanying notes to pro forma condensed consolidated balance sheet
are an integral part of this balance sheet.
33
<PAGE> 40
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) For purposes of this Pro Forma Condensed Consolidated Balance Sheet, the
following proceeds from this offering, and uses of these proceeds, are
assumed:
<TABLE>
<S> <C> <C>
Proceeds from offering:
Shares to be issued....................................... 16,600,000
Offering price per share.................................. $ 20
-----------
Gross proceeds from this offering......................... $332,000
Borrowings under new credit facility...................... 269,469(e)
--------
Total proceeds.................................... $601,469
========
Uses of proceeds:
Repayment of existing debt and accrued interest thereon... $ 515,686(e)
Debt financing costs on new credit facility............... 2,320(e)
Early termination payments on Strategic Timber II bridge
loan................................................... 3,300(e)
Termination of interest rate swaps........................ 7,556(e)
Partial redemption of minority interests.................. 47,000(d)
Fees and expenses associated with this offering........... 25,607(i)
-----------
Total uses of proceeds............................ $601,469
========
</TABLE>
(b) Represents the reversal of offering expenses incurred and accrued as of
December 31, 1998. The recording of all expenses associated with this
offering is shown in note (i).
(c) Represents the elimination of intercompany receivables and payables.
(d) As of December 31, 1998, the following units are held by minority
unitholders in Strategic Timber Partners and Strategic Timber Partners II,
respectively:
<TABLE>
<CAPTION>
UNITS OWNED % OF TOTAL UNITS
----------- ----------------
<S> <C> <C>
Strategic Timber Partners
Louisiana Timber.......................................... 5,000 19.6%
Strategic Timber Partners II
Former Pioneer Members.................................... 5,909 59.1%
Mach One.................................................. 909 9.1%
</TABLE>
In connection with this offering, these minority unitholders will receive
$47,000 representing a partial redemption of their current holdings as
shown below:
<TABLE>
<CAPTION>
UNITS TO BE CASH TO BE
REDEEMED RECEIVED
----------- ----------
<S> <C> <C>
Strategic Timber Partners
Louisiana Timber.......................................... 1,295 $12,945
Strategic Timber Partners II
Former Pioneer Members.................................... 2,187 24,055
Mach One.................................................. 909 10,000
-------
$47,000
=======
</TABLE>
This amount represents a $1,972 premium over the minority unitholders'
account balances at December 31, 1998. The premium represents additional
consideration related to Strategic Timber's
34
<PAGE> 41
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
purchase of the Louisiana property and Strategic Timber II's acquisition of
Pioneer. Accordingly, we have reflected this premium as an increase in
basis in our timberlands.
The remainder of these unitholders' ownership interests will be converted
into units of Strategic Timber Partners. After this conversion, these
unitholders will have the following ownership interest in Strategic Timber
Partners:
<TABLE>
<CAPTION>
UNITS OWNED % OF TOTAL UNITS
----------- ----------------
<S> <C> <C>
Louisiana Timber............................................ 1,762,974 7.9%
Former Pioneer Members...................................... 2,170,086 9.8%
Mach One.................................................... 100,110(f) 0.4%
--------- ------
4,033,170 18.1%
========= ======
</TABLE>
(e) In conjunction with this offering, we plan to repay all of our outstanding
debt and any accrued interest associated with this debt, as shown below:
<TABLE>
<S> <C>
Strategic Timber and Strategic Timber II bridge loans..... $120,000
Strategic Timber credit facility and current portion of
long term debt......................................... 136,287
Pioneer credit facility................................... 252,500
Accrued interest.......................................... 6,899
--------
$515,686
========
</TABLE>
Concurrently, we plan to enter into a new credit facility that provides for
a $200,000 term loan and a revolving line of credit of up to $175,000. We
expect to immediately borrow $269,469 on this facility. Of the amount
expected to be drawn under this facility, approximately $200,000 will relate
to the term loan bearing interest at a variable rate expected to initially
approximate 7.2% and which will be payable in quarterly installments through
May 15, 2004. The remaining $69,469 will relate to a revolving line of
credit bearing interest at a variable rate also expected to initially
approximate 7.2% and maturing on May 15, 2004. Unused commitment fees on the
new credit facility will approximate 0.5%. We expect to incur approximately
$2,320 in debt issuance costs associated with the new credit facility.
In connection with the early extinguishment of our existing debt
instruments, we will write-off unamortized debt issuance costs on our
existing debt totaling $11,610 at December 31, 1998. In addition, we will be
obligated to pay termination fees of approximately $3,300 on the early
retirement of the Strategic Timber II bridge loan. All other debt may be
retired prior to maturity without penalty.
We also anticipate that we will terminate all existing interest rate swaps
at the date of this offering and enter into replacement swaps to mitigate
interest rate exposures on variable rate borrowings under our new credit
facility. We have estimated the cost to terminate these swaps to be $7,556,
which represents the fair value of all outstanding swaps as of December 31,
1998.
35
<PAGE> 42
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
As a result of the termination of our existing debt and interest rate swaps,
we will record an extraordinary loss from the early extinguishment of debt.
This loss is estimated to be approximately $19,150, of which $3,473 will be
allocated to minority interests, as shown below:
<TABLE>
<S> <C> <C>
Write-off of unamortized debt issuance costs......................... $11,610
Early termination fees............................................... 3,300
Termination of interest rate swaps, net of amount applied against
obligations under interest rate swaps of $3,316.................... 4,240
-------
Total extraordinary loss............................................. 19,150
Multiply by: minority interest percentage................... 18.1%
-------
Portion allocated to minority interests..................... 3,473
-------
Extraordinary loss................................................... $15,677
=======
</TABLE>
The actual amount of this loss may differ from this estimate.
(f) Mach One is entitled to a dividend of $1,907. Mach One has elected to
receive 100,110 units in Strategic Timber Partners in lieu of cash payment
of this dividend.
(g) Represents adjustment required to report initial minority interest of a
REIT, in accordance with Emerging Issues Task Force Issue 94-2, "Treatment
of Minority Interests in Certain Real Estate Investment Trusts."
(h) Represents 17,271,770 shares of common stock outstanding after this
offering with a par value of $0.01 per share.
(i) Amount is calculated as follows:
<TABLE>
<S> <C>
Proceeds from offering...................................... $332,000(a)
Less: portion applicable to common stock.................. (172)(h)
Less: Underwriters discounts and commissions.............. (21,082)
Less: Other fees and expenses, including legal,
accounting, financial advisory and listing fees and
printing costs...................................... (4,525)
--------
$306,221
========
</TABLE>
36
<PAGE> 43
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
PIONEER
STRATEGIC STRATEGIC (PREDECESSOR
TIMBER TIMBER II TO STRATEGIC
FOR THE PERIOD FOR THE PERIOD TIMBER II)
FROM FROM FOR THE PERIOD
INCEPTION INCEPTION FROM
(APRIL 21, (OCTOBER 9, JANUARY 1,
1998) TO 1998) TO 1998 THROUGH ELIMINATION OF
DECEMBER 31, DECEMBER 31, OCTOBER 8, NON-ACQUIRED PRO FORMA
1998 1998 1998 OPERATIONS(A) ADJUSTMENTS(B) PRO FORMA
-------------- -------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Timber and log sales....... $ 267 $ 9,018 $ 23,097 $ 9,967 $ -- $ 42,349
Lumber and by-product
sales.................... -- -- 45,213 (45,213) -- --
Timberland and property
sales and other.......... 240 -- 5,901 (956) -- 5,185
-------- ------- -------- -------- ------- -----------
Total revenues...... 507 9,018 74,211 (36,202) -- 47,534
Operating Expenses:
Cost of products sold...... -- 43 45,498 (34,485) -- 11,056
Cost of timberland and
property sales........... 7 -- 2,536 (957) 671(c) 2,257
Depletion, depreciation and
amortization............. 397 5,734 12,789 (1,726) 4,702(c) 21,954
58(d)
Amortization of deferred
financing costs.......... 1,743 499 177 -- (1,955)(e) 464
Selling, general and
administrative
expenses................. 1,819 1,707 7,137 (1,854) --(f) 8,809
Write down of real estate
investments.............. -- -- 583 (583) -- --
-------- ------- -------- -------- ------- -----------
Operating income
(loss)................. (3,459) 1,035 5,491 3,403 (3,476) 2,994
Other Income (Expense):
Interest expense........... (13,781) (5,657) (12,505) -- 13,506(e) (18,437)
Interest income............ 33 12 56 (56) -- 45
Other income (expense),
net...................... -- -- (780) 780 -- --
-------- ------- -------- -------- ------- -----------
Income (loss) from
continuing operations
before income taxes and
minority interest...... (17,207) (4,610) (7,738) 4,127 10,030 (15,398)
Income tax (provision)
benefit.................... -- -- 336 -- (336)(g) --
-------- ------- -------- -------- ------- -----------
Income (loss) from
continuing operations
before minority
interest............... (17,207) (4,610) (7,402) 4,127 9,694 (15,398)
Minority interest............ 2,863 2,587 12 (12) (1,994)(h) 3,456(h)
-------- ------- -------- -------- ------- -----------
Income (loss) from
continuing
operations............. $(14,344) $(2,023) $ (7,390) $ 4,115 $ 7,700 $ (11,942)
======== ======= ======== ======== ======= ===========
Basic and diluted loss from
continuing operations per
share: $ (0.69)(i)
===========
Weighted average number of
shares used in the
calculation of basic and
diluted loss from
continuing operations per
share: 17,271,770(i)
===========
</TABLE>
The accompanying notes to pro forma condensed consolidated statement of
operations are an integral part of this statement.
37
<PAGE> 44
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) Amounts represent the elimination of revenues and expenses associated with
operations of Pioneer that were not acquired by Strategic Timber II. These
operations primarily include Pioneer's timber conversion facilities and
aircraft operations. Amounts also reflect the recognition of logging
revenues and costs from the sale of timber from Pioneer's timberlands to
conversion facilities previously owned by Pioneer. These sales and costs
were previously eliminated for financial reporting purposes, as they were
intercompany transactions prior to the acquisition of the timberlands
business of Pioneer by Strategic Timber II. These sales have been recorded
at fair value based upon similar arm's-length transactions.
Certain reclassifications have been made to the historical statements of
operations of Strategic Timber and Strategic Timber II to conform with the
presentation of the historical Pioneer statement of operations.
(b) For purposes of this Pro Forma Condensed Consolidated Statement of
Operations, the following proceeds from this offering, and uses of these
proceeds, are assumed:
<TABLE>
<S> <C> <C>
Proceeds from offering:
Shares to be issued....................................... 16,600,000
Offering price per share.................................. $ 20
-----------
Gross proceeds from this offering......................... $332,000
Borrowings under new credit facility...................... 269,469(e)
--------
Total proceeds.................................... $601,469
========
Uses of proceeds:
Repayment of Strategic Timber II debt and accrued interest
thereon................................................ $ 294,845(e)
Debt financing costs on new credit facility............... 2,320(e)
Early termination payments on Strategic Timber II bridge
loan................................................... 3,300(e)
Termination of Strategic Timber II interest rate swaps.... 4,763(e)
Partial redemption of minority interests.................. 47,000
Fees and expenses associated with this offering........... 25,607 377,835
----------- --------
Excess cash proceeds................................. $223,634
========
</TABLE>
Excess cash proceeds arise due to certain assumptions regarding the timing
of this offering and the purchase of the Louisiana property. Specifically,
the accompanying Pro Forma Condensed Consolidated Statement of Operations
assumes that the formation transactions and this offering occur on January
1, 1998, but does not reflect the historical financial results of the
Louisiana property until after our acquisition of these timberlands on
April 27, 1998. We have assumed the following related to these excess cash
proceeds:
- For the period from January 1, 1998 until our acquisition of the
Louisiana property on April 27, 1998, we utilized $69,469 of these excess
proceeds to pay down the revolving line of credit portion of the new
credit facility initially borrowed in connection with this offering. See
note (e).
- On April 27, 1998, we then re-borrowed the $69,469 in excess proceeds and
used this amount, together with the remaining excess cash proceeds, to
purchase the Louisiana property.
- We have not recognized any interest income on any excess proceeds as we
do not expect to maintain this level of cash after this offering.
(c) Represents adjustment to reflect additional depletion expense after
stepping-up the basis in the timberlands we acquired from Pioneer,
resulting from the application of purchase accounting.
38
<PAGE> 45
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(d) Amount represents depreciation expense on property and equipment acquired
from Pioneer. This property and equipment will be depreciated over periods
ranging from three to five years.
(e) In conjunction with this offering, we plan to repay all of our outstanding
debt and any accrued interest associated with this debt. Concurrently, we
plan to enter into a new credit facility that provides for a $200,000 term
loan and a revolving line of credit of up to $175,000. We expect to
immediately borrow $269,469 on this facility. Of the amount expected to be
drawn under this facility, approximately $200,000 will relate to the term
loan bearing interest at a variable rate expected to initially approximate
7.2% and which will be payable in quarterly installments through May 15,
2004. The remaining $69,469 will relate to a revolving line of credit
bearing interest at a variable rate also expected to initially approximate
7.2% and maturing on May 15, 2004. Unused commitment fees on the new credit
facility will approximate 0.5%.
Based on expected levels of debt to be outstanding under this facility,
expected interest costs would be $18,437 for the year ended December 31,
1998. The adjustment shown on the accompanying Pro Forma Condensed
Consolidated Statement of Operations is calculated as follows:
<TABLE>
<S> <C>
Expected interest expense................................... $ 18,437
Less: previously recognized interest expense of:
Strategic Timber..................................... (13,781)
Strategic Timber II.................................. (5,657)
Pioneer.............................................. (12,505)
--------
$(13,506)
========
</TABLE>
An increase in the interest rates of 1/8% would yield additional annual
interest expense of approximately $337, based on the level of debt we
expect to be outstanding after this offering.
We expect to incur approximately $2,320 in debt issuance costs associated
with the new credit facility. Such costs will be amortized over a period of
five years. The adjustment shown on the accompanying Pro Forma Condensed
Consolidated Statement of Operations is calculated as follows:
<TABLE>
<S> <C>
Pro forma amortization expense.............................. $ 464
Less: previously recognized amortization expense of:
Strategic Timber..................................... (1,743)
Strategic Timber II.................................. (499)
Pioneer.............................................. (177)
-------
$(1,955)
=======
</TABLE>
As a result of the termination of our existing debt and interest rate
swaps, we will record an extraordinary loss from the early extinguishment
of debt. This loss would approximate $19,150 using historical amounts
reported in the Strategic Timber and Strategic Timber II consolidated
financial statements as of December 31, 1998. The actual amount of this
loss may differ from this estimate. This loss has not been reflected in the
Pro Forma Condensed Consolidated Statement of Operations, which shows only
pro forma income (loss) from continuing operations.
(f) Historical selling, general and administrative expenses have not been
adjusted to reflect the reductions in such costs anticipated by management
after this offering. Such reductions are anticipated primarily due to:
- expected cost savings from the reduction of personnel due to the
consolidation of all current operations, net of additional costs
associated with being a public company and
39
<PAGE> 46
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
- changes in the way we plan to operate our Pacific Northwest properties.
(g) Represents the elimination of all historical taxes recorded by Pioneer
because we expect to qualify as a REIT and, thus, we expect to be subject
only to nominal state taxes.
(h) Represents the minority interest charges, assuming minority ownership in
Strategic Timber Partners of 18.1% after the formation transactions and
this offering. Amount is calculated as follows:
<TABLE>
<S> <C>
Loss from continuing operations before minority interest
expense................................................... $(15,398)
Extraordinary loss.......................................... (14,172)(j)
--------
Net loss before minority interest expense................... (29,570)
Multiply by: minority interest percentage................... 18.1%
Minority interest before dividends.......................... 5,363
Less: Dividend on minority interests........................ (1,907)
--------
Minority interest........................................... $ 3,456
========
</TABLE>
One of the minority unitholders, Mach One, will be entitled to a dividend
of $1,907 based upon contractual commitments with the Company. Mach One has
elected to receive 100,110 partnership units in lieu of cash payment of
this dividend.
(i) For the year ended December 31, 1998, basic loss from continuing operations
per share is calculated by dividing loss from continuing operations by the
weighted average shares outstanding during the period. It is assumed that
17,271,770 shares were outstanding during the entire reporting period.
Diluted loss from continuing operations per share is calculated by dividing
income from continuing operations by the weighted average shares
outstanding during the period plus the weighted average of potentially
dilutive securities outstanding during the period. Approximately 4,966,205
partnership units, which are convertible on a share for share basis into
shares of our common stock, have not been included in this calculation
since these potential shares are antidilutive in periods in which a loss
from continuing operations is reported. Diluted loss from continuing
operations per share also does not include the effects of stock options to
be granted under the 1999 Incentive Plan, as such stock options will be
granted on the date of this offering with an exercise price equal to the
offering price.
(j) As previously noted, the Pro Forma Condensed Consolidated Statement of
Operations assumes that the Louisiana property was purchased in April 1998.
Accordingly, we have further assumed that this property was purchased using
excess proceeds from the offering and, thus, the historical debt used to
acquire this property never existed. Accordingly, the extraordinary loss
shown in note (h) does not include any write-off of deferred financing
costs associated with early retirement of historical debt used to acquire
the Louisiana property. In addition, this loss does not include costs of
terminating the interest rate swap related to Strategic Timber debt, as
will actually occur. See note (e).
40
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
This section contains management's discussion and analysis of the
historical financial condition and results of operations of Strategic Timber,
Strategic Timber II and Pioneer, the predecessor to Strategic Timber II. The
following also presents our pro forma financial condition and results of
operations after giving effect to the formation transactions and this offering.
See "Structure and Formation of Strategic Timber."
The discussions of historical results are based on the historical financial
statements of
- Strategic Timber as of and for the period from inception (April 21, 1998)
to December 31, 1998,
- Strategic Timber II as of and for the period from inception (October 9,
1998) to December 31, 1998 and
- Pioneer as of and for the years ended December 31, 1996 and 1997 and for
the period from January 1, 1998 to October 8, 1998,
and should be read in conjunction with those financial statements contained
elsewhere in this prospectus. Discussions of our plan of operation are based, in
part, on information contained in "Pro Forma Condensed Consolidated Financial
Information."
The following discussion first addresses our expected operating plan after
giving effect to the formation transactions and this offering. Following this
section are analyses of the historical operating results of Strategic Timber,
Strategic Timber II and Pioneer, and discussions on our historical and
anticipated liquidity and capital resources, commitments and contingencies, Year
2000 compliance plans and market risks.
PLAN OF OPERATION
GENERAL
The following discussion is based, in part, on the pro forma information
contained in "Pro Forma Condensed Consolidated Financial Information." We
believe that the pro forma financial information, as presented, will not be
comparable to the results of operations and cash flows that we will derive in
1999 and beyond. The primary reason for this belief is that the pro forma
results for the Louisiana property and certain California timberlands, which
together represent the majority of our merchantable timber inventory, include
only partial years of operations at actual harvest levels that are well below
expected future levels.
The pro forma condensed consolidated statements of operations include
results of operations of the Louisiana property only for the period from its
acquisition on April 27, 1998 to December 31, 1998. The results of operations
prior to April 27, 1998 are not included in the Pro Forma Condensed Consolidated
Statement of Operations due to a lack of continuity of operations and a
fundamental change in the management of the Louisiana property after
acquisition. Because the Louisiana property had not been operated as a
commercial forest prior to our acquisition of these timberlands, the age of the
timber located on the Louisiana property is disproportionately weighted to
over-mature timber that remains standing beyond its economic rotation
age -- that is, the age at which the timber should be optimally harvested. In
the southern United States, economic rotation age varies by species but
generally approximates 30 to 32 years. Starting in 1999, we will actively focus
on the sale of this over-mature timber. Accordingly, we expect harvest volumes
and revenues to be much greater than historical amounts.
Furthermore, from the date of the acquisition of the Louisiana property
through December 31, 1998, we conducted only limited operations on the Louisiana
property, while preparing the property for active commercial timber operations.
These preparations included conducting a complete timber inventory, detailed
mapping, preparation of timber sales plans and initiation of commercial
marketing activities. We
41
<PAGE> 48
incurred significant one-time preparatory expenses totaling approximately
$140,000 prior to the commencement of the commercial operation of the Louisiana
property that will not occur in future periods. These expenses have been
recorded as a component of general and administrative expenses in the historical
financial statements of Strategic Timber.
The pro forma condensed consolidated financial statements also exclude the
historical financial results of certain California timberlands prior to the date
of acquisition by Pioneer in July 1998 due to a lack of continuity of
operations. These California timberlands, known as the Coastal forest, were
managed in a substantially different manner by the prior owners than we expect
to manage them. Before Pioneer acquired the Coastal forest, the previous owners
held these timberlands primarily to seek capital appreciation. Harvests were
conducted at relatively low levels with the objectives of thinning and
extraction of hardwood species from softwood tracts. Also, Pioneer postponed
planned harvesting of the Coastal forest in anticipation of the eventual sale of
Pioneer to Strategic Timber II.
In May 1998, shortly before Pioneer's acquisition of the Coastal forest,
the prior owners received approval of an "Option A" timber management plan for
the Coastal forest. The Option A timber management plan was developed pursuant
to a California permit process that establishes long-term growth and sustainable
harvest for a specified timberland. This Option A plan establishes a
decade-by-decade harvesting model through which the Coastal forest has been
approved for substantial commercial harvesting of softwood species. We intend to
manage the property in accordance with the Option A plan and, thus, expect to
increase substantially harvest volumes and revenues from the Coastal forest as
compared with historical results. See "Business and Properties -- Initial
Timberland Properties -- The California Timberlands."
REVENUES
In 1999 and beyond, we intend to execute a timber sales plan that will
enable us to generate an increasing revenue stream. This plan primarily will
involve the harvesting of mature timber on our timberlands. For example, timber
on the Louisiana property is weighted to over-mature timber as the prior owners
allowed the timber to remain standing beyond its economic rotation age.
Similarly, components of the Commander forest in California and the Washington
property consist of mature, high-value timber that is at its optimal harvest
age. Our timber sales plan for these tracts calls for removing this low-growth
timber and replanting with seedlings selected for superior genetic
characteristics to increase growth rates. While this plan will involve immediate
harvests of over-mature tracts, we believe that it will allow us to develop a
sustained yield forestry management approach on a long-term basis. In selecting
tracts to be sold for harvesting in a given year, we will evaluate our holdings
on an overall basis, taking into account the relative maturity levels and
current productivity of tracts available for harvest, the strength of local
markets and the desirability of reforesting a particular area so that we can
increase the growth rate of our timber and better balance the age class
distribution of our holdings. Our timber sales plan will be modified
periodically to adjust for changes in growth patterns, future acquisitions of
timberlands, unforeseen events and general economic conditions.
We enter into cutting contracts under which the buyer, at its expense, will
be required to cut and haul the purchased timber to its own conversion facility,
or to another purchaser to whom it is reselling. Our contracts extend for up to
six years, and we may enter in longer-term contracts in the future. Contracts
with terms of more than one year provide for price adjustments at least annually
and typically require the buyer to cut minimum amounts of timber each year.
Within these limits, the buyer has discretion as to when it harvests our timber.
We recognize revenue at the time the buyer cuts and takes title to the timber.
Therefore, the buyer's discretion as to the timing of its timber harvest affects
our recognition of revenue.
In addition to cutting contracts, we also expect to derive revenues from
several other sources. We will grant hunting, grazing, camping and other rights
of access to approved hunting clubs and individuals. These hunting leases and
other rights will both produce revenues and provide us with assistance in
maintaining and protecting our properties. We expect that approximately $1.0
million of our 1999 revenues will be derived from the issuance of hunting,
grazing, camping and other rights. From time to time, we expect to make
incidental sales of portions of its properties that have a higher and better use
than the long-term production of timber. See "Business and Properties."
42
<PAGE> 49
EXPENSES
Our primary operating expense will be depletion, which is a non-cash
expense relating to the cost of timber harvested. Depletion will be calculated
based on the capitalized cost of the timber harvested, including cost of
acquisition and any silvicultural activities, divided by available timber volume
based on timber surveys. Timber surveys are expected to be performed annually to
assess available merchantable timber volumes. Accordingly, depletion rates will
be adjusted at that time and applied prospectively. Based on our projected
harvest levels, as well as current depletion rates, our expected 1999 depletion
expense will be approximately $48.8 million.
We expect that 1999 selling, general and administrative costs will be
approximately one-third lower than pro forma selling, general and administrative
costs for the year ended December 31, 1998. This decline is attributable to the
anticipated cost savings from the reduction of personnel due to the
consolidation of all current operations, net of additional costs associated with
being a public company, as well as changes in the way we plan to operate the
Pacific Northwest properties. In the past, Pioneer focused on log sales from the
Pacific Northwest properties. Pioneer was responsible for cutting timber and
converting it into logs prior to sale. We plan to focus our sales efforts on
sales of standing timber, where customers will be responsible for cutting and
hauling timber. This change in business strategy will mitigate or eliminate
previously incurred administrative costs associated with maintaining sorting
areas, log yards and other facilities to convert timber into logs.
SEASONALITY
Rain in winter and our fire prevention measures in spring and summer limit
timber harvesting on the Louisiana property. Similarly, harvesting on our
timberlands in the Pacific Northwest has been interrupted for periods during the
winter and spring due to snow and melting snow, and occasionally in the late
summer due to our fire prevention measures. Accordingly, our results of
operations may fluctuate on a quarterly basis due to the seasonal nature of our
harvesting activities, as follows:
<TABLE>
<CAPTION>
QUARTER EFFECT
------- ------
<S> <C>
First/Fourth Rain in the southeast and snow in the northwest could affect
all harvesting activities.
Second/Third Our fire prevention measures limit harvesting on our
Louisiana property and could limit harvesting on our
Pacific Northwest properties.
</TABLE>
EFFECTS OF INFLATION
Prices for our timber will be subject to cyclical fluctuations due to
market or other economic conditions, including the level of construction and
remodeling activity. Although timber prices in the U.S. have historically risen
faster than inflation over the long-term, these prices generally do not directly
follow short-term inflationary trends. Costs of forest operations and general
and administrative expenses do tend to reflect inflationary trends.
RECENT DEVELOPMENTS
To date, we have entered into contracts providing for aggregate 1999 timber
harvests valued at $17.1 million. These include new contracts on our Louisiana
property with five separate buyers -- Boise Cascade Corporation, Heath Timber
Company, Inc., Hunt Forest Products, Inc., Nash-Co. Industries Forest Products,
Inc. and Temple-Inland Inc. -- and provide for harvests of up to 300,000 tons of
timber in 1999. The 1999 harvests also include sales of 17.4 million board feet
from our Commander forest to Sierra-Pacific Industries, Inc.
We expect to sell more timber in the Pacific Northwest as the effects of
winter weather subside.
HISTORICAL RESULTS OF OPERATIONS
The following discussion focuses on the historical operating results of
Strategic Timber, Strategic Timber II and Strategic Timber II's predecessor,
Pioneer. This discussion is historical in nature and may
43
<PAGE> 50
not be representative of how we plan to manage our operations after this
offering and the formation transactions. See "-- Overview" and "-- Plan of
Operation" and "Structure and Formation of Strategic Timber."
STRATEGIC TIMBER TRUST, INC.
Strategic Timber and Strategic Timber Partners were formed in April 1998 to
acquire the Louisiana property, which now consists of approximately 82,000 acres
of timberland. Louisiana Timber contributed to Strategic Timber Partners a
contract to acquire the Louisiana property in exchange for a 19.6% limited
partnership interest valued at $50.0 million. This value represented the
difference between the fair value of the Louisiana property and the purchase
price under the contract contributed by Louisiana Timber. Strategic Timber
retained a 79.4% limited partnership interest in Strategic Timber Partners and
Strategic Timber Operating Co., Strategic Timber's wholly owned subsidiary,
retained the remaining 1.0% general partner interest. The partnership then
purchased the Louisiana property on April 27, 1998 for $205.0 million in cash.
The partnership funded the purchase price of the Louisiana property and related
transaction costs by borrowing $125.8 million under a $215.0 million bank
revolving credit facility, and with a cash contribution of $85.0 million by
Strategic Timber. Strategic Timber borrowed these funds under a bank bridge
loan.
The historical financial statements of Strategic Timber include the results
of operations for the period from inception, April 21, 1998, to December 31,
1998. Since the acquisition of the Louisiana property, Strategic Timber has
deferred active harvesting on these timberlands to prepare for full-scale
commercial operations. During this time, Strategic Timber conducted a detailed
timber inventory, mapped its property, prepared timber sales plans and initiated
marketing activities for timber to be sold from the property. The operating
results reflect only limited harvesting operations, including the sale of
salvage timber and thinning. Expenses incurred relate primarily to interest
expense on bank debt, amortization of deferred financing costs and the
preparation of the property for active commercial timber operations.
Revenues. During the reporting period, Strategic Timber sold salvage timber
and property for approximately $323,000. In addition, Strategic Timber
recognized approximately $184,000 of revenues related to hunting, grazing and
farming leases issued on the Louisiana property.
Expenses. Cost of timber sold of approximately $403,000 represents
depletion on timber harvested. The calculation of depletion is based on the
capitalized cost of the harvested timber, including cost of acquisition and any
silvicultural activities, divided by available timber volume based on timber
surveys. Timber surveys are expected to be performed annually to assess
available merchantable timber volumes. Accordingly, depletion rates will be
adjusted at that time and applied prospectively.
Amortization of deferred financing costs of approximately $1.7 million
represents the amortization of costs incurred to obtain financing used for our
acquisition and working capital requirements. These costs are being amortized
over the terms of the underlying debt, ranging from one to five years.
General and administrative expenses of approximately $1.8 million are
composed primarily of consulting and management fees for managing and tracking
available timber and corporate salaries. These expenses also include one-time
costs totaling $140,000 associated with preparing the Louisiana property for
active commercial timber operations. Such preparations included the conducting
of a complete timber inventory, detailed mapping, preparation of harvest plans
and implementation of commercial marketing activities.
Interest expense of approximately $13.8 million represents interest costs
on Strategic Timber's existing debt, net of the effects of an interest rate swap
used to hedge certain exposures to variable interest rates. See "-- Market
Risk."
Minority interest of approximately $2.9 million is the share of the
operating partnership's losses attributable to the minority unitholders of the
operating partnership.
Strategic Timber will elect to be treated as a REIT under provisions of the
Internal Revenue Code beginning with the tax year ended December 31, 1998. As a
result, Strategic Timber is not subject to
44
<PAGE> 51
federal income taxes on distributed income but, instead, Strategic Timber's
shareholders are taxed. No benefit for income taxes has been provided on the
loss since inception, as the benefit is not currently "more likely than not" to
be realized by Strategic Timber due to its limited operating history. Strategic
Timber's net operating loss is approximately $15.8 million at December 31, 1998.
STRATEGIC TIMBER TRUST II, LLC
Our initial shareholders formed Strategic Timber II in September 1998 to
acquire Pioneer, which holds approximately 366,000 acres of timberland in the
Pacific Northwest. Strategic Timber II acquired all of the membership interests
in Pioneer from its members on October 9, 1998, in exchange for $35.0 million in
cash and a 59.1% interest in Strategic Timber Partners II, which we valued at
$65.0 million. Strategic Timber Partners II funded the cash portion of the
purchase price for Pioneer and related transaction costs with a cash
contribution of $35.0 million by Strategic Timber Two Operating Co. in exchange
for a 31.8% interest in Strategic Timber Partners II, and a cash contribution of
$10.0 million by Mach One, in exchange for a 9.1% interest in Strategic Timber
Partners II. To fund Strategic Timber Two Operating Co.'s contribution,
Strategic Timber II borrowed $35.0 million under a bank bridge loan. In
connection with the acquisition, Pioneer refinanced its existing bank debt,
leaving approximately $255.0 million outstanding under its credit facility.
Strategic Timber II accounted for this acquisition under the purchase
method of accounting. The following summarizes the fair value of interests held
by the former members of Pioneer and Mach One immediately following the
application of purchase accounting:
<TABLE>
<CAPTION>
FAIR VALUE FAIR VALUE
OF INTEREST NUMBER OF UNITS PER UNIT
----------- --------------- ----------
<S> <C> <C> <C>
Former Members of Pioneer........................ $65,000,000 5,909 $11,000
Mach One......................................... 10,000,000 909 11,000
</TABLE>
The historical financial statements of Strategic Timber II include the
results of operations for the period from inception, October 9, 1998, to
December 31, 1998. The operating results reflect only limited harvesting
activities, as Strategic Timber II primarily focused on transitioning systems
and personnel in the months immediately following the acquisition.
Revenues. During the reporting period, Strategic Timber II recorded
revenues of approximately $9.0 million. Approximately $5.6 million of this
amount relates to revenues recognized under a timber deed with Kinzua Resources.
See "-- Commitments and Contingencies." The remaining $3.4 million represents
sales of timber from our Commander forest and our Oregon and Washington
properties. Excluding amounts harvested under the timber deed, approximately
11.6 million board feet were harvested during the period from inception to
December 31, 1998.
Expenses. Cost of timber sold of approximately $5.7 million primarily
represents depletion on timber harvested. The calculation of depletion is based
on the capitalized cost of the harvested timber, including cost of acquisition
and any silvicultural activities, divided by available timber volume based on
timber surveys. Timber surveys are expected to be performed annually to assess
available merchantable timber volumes. Accordingly, depletion rates will be
adjusted at that time and applied prospectively.
Amortization of deferred financing costs of approximately $499,000
represent the amortization of costs incurred to obtain financing used for our
acquisition and working capital requirements. These costs are being amortized
over the terms of the underlying debt, ranging from one to five years.
General and administrative expenses of approximately $1.7 million are
composed primarily of salaries, consulting fees and reimbursement of expenses
incurred by an affiliate, Strategic Timber, on Strategic Timber II's behalf.
Consulting fees totaling approximately $261,000 represent fees paid to outside
vendors for managing and tracking available timber. Reimbursed costs include
Strategic Timber II's portion of certain shared expenses, such as rent,
utilities and insurance, which initially were paid by Strategic Timber.
Reimbursed costs also represent allocations of Strategic Timber salaries and
other expenses for management resources dedicated to the operations of Strategic
Timber II. During the period from
45
<PAGE> 52
inception to December 31, 1998, Strategic Timber II recognized expenses of
approximately $624,000 for reimbursed costs.
Interest expense of approximately $5.7 million represents interest costs on
Strategic Timber II's existing debt, net of the effect of three interest rate
swaps used to hedge certain exposures to variable interest rates. See "-- Market
Risk."
Minority interest of approximately $2.6 million is the share of the
operating partnership's losses attributable to the minority unitholders of the
operating partnership.
PIONEER RESOURCES, LLC
The historical financial statements of Pioneer are presented as Pioneer is
the predecessor to Strategic Timber II. In addition to the Pacific Northwest
properties, these financial statements include the operating results of
Pioneer's timber conversion facilities and aircraft operations, neither of which
were acquired by Strategic Timber II. See "Pro Forma Condensed Consolidated
Financial Information" for a discussion of pro forma adjustments required to be
made to the historical Pioneer financial statements to reflect the results of
operations that Strategic Timber II acquired.
Introduction. The predecessor to Pioneer, Old Pioneer, was originally
formed in 1994. Pioneer and Old Pioneer, directly or through affiliated
companies, have completed a number of significant timberland and other asset
acquisitions since inception. In addition, Pioneer has engaged, on a small
scale, in the sale or disposal of timberlands not integral to its operations.
These acquisitions are described in more detail below and in the notes to the
financial statements of Pioneer, which are included elsewhere in this
prospectus.
Each acquisition by Pioneer was accounted for using the purchase method of
accounting. Accordingly, the historical financial and operating results vary
significantly as a result of the inclusion in the later periods of the effects
of these acquisitions and, therefore, are not necessarily comparable and are not
indicative of future results of operations. The following table identifies
Pioneer's significant acquisitions. Information regarding acreage and
merchantable timber are given as of the date of acquisition.
<TABLE>
<CAPTION>
MERCHANTABLE
ACQUISITION ACREAGE TIMBER SELLER DATE CONSIDERATION
- ----------- ------- ------------ ----------------- -------------- -------------
(BOARD FEET
IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Kinzua (East Oregon) 175,525 781.7 Kinzua April 1994 $130.0
Lane Plywood (West Oregon) 3,130 31.9 Lane Plywood May 1996 10.0
Pilot Rock (East Oregon) 130,207 188.6 Louisiana Pacific June 1996 34.0
Commander (California) 43,313 313.7 Louisiana Pacific September 1997 25.0
Skelly Panther and Swamp Creek
(West Oregon) 1,194 14.2 Weyerhaeuser December 1997 7.4
Riffe Lake (West Washington) 4,899 63.3 Weyerhaeuser February 1998 15.1
Aloha (West Washington) 5,922 70.5 Weyerhaeuser May 1998 17.0
Coastal forest (California) 79,026 839.2 Coastal Forest July 1998 130.0
</TABLE>
Period From January 1, 1998 to October 8, 1998
Effective July 2, 1998, Pioneer completed its acquisitions of the Longview
and Willits Woods timberlands in California. Together, these timberlands are
referred to as the Coastal forest. Prior to this acquisition, the operations of
Pioneer consisted primarily of timberlands and sawmills in Oregon, California
and Washington. The Coastal forest acquisition, as with all of Pioneer's other
acquisitions, was accounted for under the purchase method of accounting.
Revenues. Revenues for the period ended October 8, 1998 were $74.2 million.
Approximately 61% of revenues were derived from lumber and by-product sales,
which due to a backlog of delayed sales deliveries in the second half of 1997,
were shipped in the first six months of 1998.
46
<PAGE> 53
The volume of lumber sold during the period was 112.2 million board feet.
The Heppner sawmill increased volume to 63.9 million board feet due to capital
improvement projects and productivity gains resulting from an increased work
shift that was instituted in the later half of 1997. The Pilot Rock sawmill
increased volume to 48.3 million board feet due to productivity gains from
capital improvement projects implemented in the later half of 1997.
Additionally, sales volumes for both mills were affected by the delay in sales
deliveries in the latter half of 1997 discussed above.
Pioneer's average lumber prices for the period from January 1, 1998 to
October 8, 1998 decreased by 26% from the comparable period of 1997 due to the
industry-wide price declines associated with the Asian export market. Pioneer's
average lumber prices were consistent with the lumber market during this time.
Revenues from the sale of logs totaled $23.1 million on sales volume of 42
million board feet. Revenues from log sales, on an annualized basis, were less
than 1997 levels due to a general decrease in the market price of logs
compounded with a decrease in the volume of Asian export quality logs harvested
from the Western Oregon timberlands. Pioneer's management made the decision in
1997 to harvest the majority of the Western Oregon timberlands acquired in May
1996 from Lane Plywood in anticipation of a declining export log market.
Boise Cascade reduced harvesting on its timber contracts during the period
ended October 8, 1998 over prior period levels. The Boise Cascade contracts
generated revenues of $2.3 million for the period ended October 8, 1998 and
$16.2 million for the nine months ended September 30, 1997.
Revenues from the sale of non-strategic parcels of timberland and other
property sold during the period was $5.9 million. During this period, Pioneer's
land management staff actively sought higher and better uses for strategic
parcels of property.
Expenses. Excluding timber and property sales and depletion, depreciation
and amortization, cost of products sold was 67% of net revenues for the period
ended October 8, 1998. Annualized gross margin during the period, in dollars and
as a percentage of sales, declined from 1997 levels due to a variety of factors,
the most important of which was the decrease in lumber prices during the period.
For the period ended October 8, 1998, Pioneer's lumber mills experienced an
operating loss of $1.2 million compared to an operating profit of $5.4 million
in the nine month period ended September 30, 1997.
Depletion, depreciation and amortization was $13.0 million for the period
ended October 8, 1998. Depletion, depreciation and amortization, on an
annualized basis, declined from 1997 levels due to a small overall decrease in
logs harvested and a substantial decrease in the harvest from the more highly
valued Western Oregon timberlands acquired from Lane Plywood. In 1998, Pioneer
did not harvest any volumes from these timberlands, which have higher depletion
rates than those of its other timberlands.
Selling, general, and administrative expenses were $7.1 million for the
period ended October 8, 1998. Selling general and administrative expenses
primarily consisted of salary expense and consulting and legal expenses
associated with Pioneer's acquisitions and expanded operations.
During the reporting period, Pioneer wrote down the value of one of its
real estate investments by $583,000, based on Pioneer's current assessment of
the fair value of this property. This investment was not among the properties
purchased by Strategic Timber II as part of its acquisition of Pioneer on
October 9, 1998.
Interest expense during the period totaled $12.5 million, resulting from
increased debt associated with Pioneer's timberland acquisitions.
Other expense consisted of $780,000 in expenses during the period ended
October 8, 1998. The majority of this amount relates to land and property
Pioneer donated to a trust for public lands.
Income taxes relate to Lane Plywood, the only taxable entity within the
combined group, and are not material to the combined results of operations.
47
<PAGE> 54
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues for 1997 increased by 58% compared to 1996, from $62.5
million to $98.9 million. Revenues from the sale of lumber and by-products
increased by 46% from $36.0 million to $52.6 million. These increases are due
primarily to a full year of operations for the Pilot Rock lumber mill. The Pilot
Rock lumber mill operations which Pioneer acquired from Louisiana Pacific in
June 1996, generated revenues of $9.8 million and $23.8 million respectively,
for the years ended December 31, 1996 and 1997.
The volume of lumber sold increased 49% from 71 million board feet to 106
million board feet. This increase in sales volume was due to the full year of
operations for the Pilot Rock sawmill facility that had volumes of 20 million
board feet in 1996 and 50 million board feet in 1997, respectively. The Heppner
sawmill also increased volume from 51 million board feet in 1996 to 56 million
board feet in 1997. The increased volumes are due to gains achieved from capital
improvement projects and productivity gains resulting from an increased work
shift that was instituted in August 1997.
Pioneer's average lumber prices remained approximately the same for both
1996 and 1997, and were consistent with the lumber market during this time.
There was an improvement in lumber prices starting in the first part of 1996
which peaked in the first quarter of 1997. By year-end 1997, prices had declined
to comparable levels of those at the beginning of 1996.
Revenues from the sale of logs increased by 53% from $25.9 million to $39.5
million. The volume of logs sold increased from 56 million board feet in 1996 to
83 million board feet in 1997. The increased volume was a result of Pioneer's
decision to increase contracted harvesting with Boise Cascade and to increase
harvest volumes of export quality logs. The Boise Cascade contracts generated
volumes of 32 million board feet in 1996 and 65 million board feet in 1997.
Pioneer decided to increase harvesting on the Western Oregon timberlands
acquired in May 1996 from Lane Plywood in anticipation of a declining export log
market. The Western Oregon timberland sales volumes were 9 million board feet in
1996 and 18 million board feet in 1997. Pioneer's overall average price of logs
sold increased during this period due to an increased mix of the higher valued
export quality logs. The export quality logs had an average price decrease of
16% during this period, which was consistent with industry-wide decreases in log
prices.
The Boise Cascade contracts generated revenues of $12.3 million and $26.6
million, respectively, for the years ended December 31, 1996 and 1997. The
Western Oregon timberlands that Pioneer acquired from Lane Plywood generated
revenues of $7.3 million and $12.3 million, respectively, for the years ended
December 31, 1996 and 1997.
Revenues from sales of non-strategic parcels of timberland and other
property sold during the period increased significantly from $0.6 million in
1996 to $6.8 million in 1997. The increased 1997 revenues were attributed to
Pioneer's staffing addition of an experienced land management group that was put
in place in late 1996. During 1997, the Company sold a total of 6,222 acres in
approximately 20 separate transactions.
Expenses. Excluding timberland and other property sales and depletion,
depreciation and amortization, cost of products sold remained relatively
consistent at 42% of net revenues for 1996 and 43% of net revenues in 1997. Both
the Pilot Rock and Heppner lumber mills maintained comparable operating margins
for both 1996 and 1997.
Depletion, depreciation and amortization increased 64% from $15.4 million
for 1996 to $25.3 million in 1997 due to several factors affecting depletion.
First, Pioneer harvested 19 million board feet more timber in 1997 than in 1996.
Second, Pioneer harvested 9 million board feet more timber in 1997 than in 1996
from the Western Oregon timberlands that Pioneer acquired from Lane Plywood. The
depletion rate on these export quality timberlands was more than that on the
other timberlands. Depreciation and amortization were generally consistent
between these periods.
Selling, general and administrative expenses increased 137% from $3.1
million in 1996 to $7.4 million in 1997. The increase in selling, general and
administrative expenses was due to salary expenses associated
48
<PAGE> 55
with staff increases and additional consulting and legal expenses associated
with Pioneer's expanded operations.
Interest expense increased 44% from $6.1 million in 1996 to $8.7 million in
1997. Most of this increase resulted from the increased debt associated with the
1997 timberland acquisitions.
Other income and expense consisted of $0.5 million of income in 1997. This
income consisted mainly of the gain associated with the sale of an aircraft.
Income taxes are related to Lane Plywood, the only taxable entity within
the combined group, and are not material to the combined results of operations.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
Strategic Timber has financed its operations through commercial loans. At
February 28, 1999, Strategic Timber had borrowings under a bridge loan of $85.0
million. At February 28, 1999, Strategic Timber Partners had borrowings under
its revolving credit facility of approximately $133.8 million. The Strategic
Timber bridge loan bears interest at a variable rate based on LIBOR plus an
applicable margin (9.00% as of February 28, 1999) and matures on October 27,
1999. The maximum borrowing allowed under the operating partnership credit
facility is $215.0 million, subject to a borrowing base calculation described in
the credit agreement. The borrowing base is based on the value of merchantable
timber on the Louisiana property, as estimated by Strategic Timber's lenders.
The operating partnership credit facility bears interest at a variable rate
based on LIBOR plus an applicable margin (7.50% as of February 28, 1999) and
terminates on April 25, 2003.
Strategic Timber II has financed its acquisition of the Pacific Northwest
properties by issuing $290.0 million in debt instruments. At February 28, 1999,
Strategic Timber II had borrowings under the Strategic Timber II bridge loan in
the amount of $35.0 million, and under the Pioneer credit facility, which
consists of a term loan of $200.0 million and a revolving credit facility for
$53.6 million. The Strategic Timber II bridge loan bears interest at a fixed
rate of 9.06% and matures on October 27, 1999. The term loan bears interest at
adjusted LIBOR plus an applicable margin (7.57% at February 28, 1999) and
matures on September 30, 2003. Term loan payments must be made in quarterly
installments and will commence on December 31, 1999. The maximum borrowing
allowed under the revolving credit facility is $70.0 million, of which
approximately $35.0 million can be used for letters of credit. A portion of the
revolving credit facility bears interest at LIBOR plus an applicable margin
(7.57% at February 28, 1999), while the remaining portion bears interest at the
base rate plus an applicable margin (8.75% at February 28, 1999). The revolving
credit facility terminates on September 30, 2003.
Strategic Timber and Strategic Timber II are required to meet certain
financial and non-financial covenants under each of the debt instruments,
including restrictions on additional borrowings, the maintenance of financial
ratios and limitations on capital spending, investments, and asset sales. The
bridge loans generally prohibit Strategic Timber and Strategic Timber II from
making shareholder distributions while the loans are outstanding. At February
28, 1999, the companies were in compliance with all covenants and expect to
remain in compliance in the immediate future. All borrowings are secured by the
companies' interests in the operating partnerships, as well as the assets of
those partnerships.
Until the completion of the formation transactions and this offering,
Strategic Timber and Strategic Timber II expect to finance their on-going
operations with cash flows from harvesting activities on their timberlands, as
well as by additional borrowings under the Strategic Timber Partners revolving
credit facility and the revolving credit facility portion of the Pioneer credit
facility. After that time, we plan to extinguish all existing debt using
proceeds from this offering as well as funds from a new credit facility.
We will be required to pay additional costs of approximately $3.3 million
in connection with our expected repayment in full of the existing debt
agreements. Additionally, assuming that the repayment occurs on May 31, 1999, we
expect to recognize an extraordinary loss of approximately $12.9 million,
49
<PAGE> 56
before allocation to minority interests, associated with the extinguishment of
existing debt instruments prior to their maturity dates.
In connection with the formation transactions, we have the option to
terminate all existing interest rate swaps and to enter into replacement swap
agreements required by the new credit facility. We have elected to terminate the
existing swaps. Assuming the terminations had occurred on February 28, 1999, we
would have recognized a loss of approximately $3.7 million, before allocation to
minority interests, associated with the terminations.
NEW CREDIT FACILITY
In connection with this offering, a syndicate of commercial banks and other
lending institutions have agreed to provide a new credit facility of $375.0
million that Strategic Timber and Strategic Timber II will use to repay all
existing debt, fund future acquisitions and provide for ongoing working capital
requirements.
The new credit facility, to close at the same time as this offering, will
include both a single-advance term loan of $200.0 million and a revolving line
of credit of $175.0 million. Assuming net proceeds from the initial public
offering of $306.4 million, we expect to borrow at the time of closing
approximately $60.0 million under the revolving line of credit and all $200.0
million of the term loan.
The new credit facility will have a five-year term. No repayment of
principal will be required prior to maturity, though the percentage we may
borrow against merchantable timber will be reduced on each anniversary of the
facility closing. Both the term and revolving line of credit portions of the
facility, together with any related interest rate swap obligations, will be
secured by first liens on all of our assets.
The amount we will be able to borrow under the $175.0 million revolving
line of credit will be limited to agreed-upon percentages of a borrowing base.
The borrowing base is comprised of the value of merchantable timber and of
timber sale contracts containing terms approved by the lenders. Initially, we
may borrow up to the sum of 60% of independently valued merchantable timber and
80% of the amounts owed to us under eligible timber sale contracts, less amounts
outstanding under the term loan. At each anniversary of the closing of the
credit facility, the percentage that we may borrow against merchantable timber
will be reduced by 2%, so that during the final year of the five-year loan, we
will be able to borrow only 52% of the value of merchantable timber.
Interest rates under the new credit facility and a commitment fee on unused
portions of the revolving line of credit will be adjusted each quarter.
Adjustment will be based on the ratio of our total debt at the end of the
quarter to cash flows achieved in the four-quarter period concluding at the end
of the quarter. We will have the option to borrow on the basis of rates tied
either to LIBOR or a bank prime rate. Interest rates could vary under the
adjustment formulas between a margin of 175 and 300 basis points for advances
borrowed on a LIBOR-rate basis. Interest rates could vary between a margin of 25
and 150 basis points for advances borrowed on a prime rate basis. The unused
commitment fee could vary between 37.5 and 50 basis points, determined on an
annual basis. Interest and commitment fees will be paid quarterly.
Our operations will have to produce a minimum ratio of EBITDDA to interest
expense, measured at the end of each fiscal quarter for the prior twelve months.
The required minimum EBITDDA to interest ratio is 2.00 to 1 at the end of each
fiscal quarter through March 31, 2000, increasing to 2.50 to 1 for each later
fiscal-quarter end. We also must maintain a minimum ratio of EBITDDA to the sum
of expenditures for interest, shareholder distributions and capital purchases,
measured at the end of each fiscal quarter for the prior twelve months. This
ratio must exceed 1.00 to 1 at the end of each fiscal quarter through June 30,
2000 and must exceed 1.25 to 1 at the end of later fiscal quarters.
The new credit facility will require us to stay below a maximum ratio of
outstanding debt to EBITDDA generated during the prior twelve months. The
maximum ratio is 6.00 to 1 at the end of each fiscal quarter through June 30,
2000 and is 5.00 to 1 for each later quarter.
50
<PAGE> 57
We expect the provisions of the new credit facility to provide us with
significant operating flexibility. There will be no restriction on acquisitions
of timberlands within the United States, as long as the acquisitions do not
cause us to be out of compliance with borrowing base and financial covenant
terms contained in the credit agreement. Timberland acquisitions outside the
United States will require lender approval.
The new credit facility will allow us to make shareholder distributions, so
long as they do not cause us to default under other terms of the credit
agreement. We will be able to make up to $5.0 million in capital expenditures
each year and execute capitalized leases with total payments aggregating less
than $1.0 million annually. There will be no limitation on operating leases we
enter into in the ordinary course of business.
Borrowing limitations under the new credit facility will not be as
restrictive as those currently applicable to Strategic Timber and Strategic
Timber II. We will be able to borrow outside the new credit facility on an equal
basis, so long as these borrowings do not contain more restrictive covenants or
require principal repayment prior to the five-year maturity of the new credit
facility. We expect to be allowed to secure these other borrowings with first
liens on certain of our timberland and other properties.
We expect costs of entering into the new credit facility will be
approximately $2.3 million.
We anticipate that our initial working capital, together with anticipated
cash flow from operations and anticipated borrowings under the new credit
facility, will provide us adequate liquidity to fund our current activities
during the five-year term of the new credit facility. However, although we may
have substantial availability under the new credit facility immediately after
this offering, we may still need to obtain additional financing. In particular,
one of our principal business strategies is to acquire additional timberlands.
The implementation of this strategy may require us to obtain external financing
in addition to the new credit facility.
COMMITMENTS AND CONTINGENCIES
During the period ended December 31, 1998, Strategic Timber entered into a
cutting contract whereby the buyer was granted the right to cut approximately
625 acres of timber. Upon closing the contract, Strategic Timber received an
advance payment of approximately $450,000. The contract became effective on
December 29, 1998 and expires on December 31, 2000.
Strategic Timber also entered into an agreement in December 1998 with its
President and Chief Executive Officer, C. Edward Broom, to sell to Mr. Broom for
$3.0 million approximately 6,700 acres of agricultural land that was acquired as
part of the Louisiana property without any separate determination of cost. The
sale was effected to provide a source of cash for Strategic Timber to make
required payments of bank debt. Mr. Broom and other members of management
determined this purchase price to produce the necessary funds to make these
payments. The purchase price does not necessarily reflect the price Strategic
Timber might have been able to obtain if the property had been fully prepared
for sale and exposed to the market for a sufficient period of time to produce
the highest price. To protect Strategic Timber's economic interest in the
property, Mr. Broom has agreed that Strategic Timber may repurchase the property
at any time before December 31, 2000 at the price paid by Mr. Broom, plus a pro
rata annual increase at the rate of 8%, compounded annually. See "Transactions
with Related Parties."
On December 29, 1998, Strategic Timber II entered into a contract granting
Kinzua Resources, LLC the right to harvest timber on a tract in the Pacific
Northwest properties (approximately 42,000 acres). The contract is in the form
of a timber deed where risk of loss passed to Kinzua Resources for the duration
of the contract. The contract expires September 30, 1999. Kinzua Resources may
harvest any timber on the defined acreage during the period of the contract.
After the contract expires, any standing timber on the tract reverts to
Strategic Timber II. Kinzua Resources paid approximately $5.6 million for these
rights, none of which is refundable. Accordingly, Strategic Timber II recognized
revenues for the full value of the contract during the period ended December 31,
1998. Kinzua Resources, which operates
51
<PAGE> 58
sawmills, is controlled by Gregory M. Demers, a continuing investor. See
"Transactions with Related Parties."
Revenues, net income and cash flow from our operations will be dependent to
a significant extent on our ability to harvest timber at adequate levels. Among
other factors, conditions that may restrict harvesting of our timberlands
include insect infestation, severe weather, fire, natural disasters and other
causes beyond our control. As is typical in the forest products industry we do
not, and likely will not, maintain insurance coverage with respect to damage to
our timberlands. Even if such insurance was available, the cost would be
prohibitive.
The harvesting of timber is also subject to a variety of state and federal
laws and regulations, including environmental, threatened and endangered species
and habitat for such species, and air and water quality. These laws and
regulations are modified from time to time and are subject to judicial and
administrative interpretation. Pending regulatory and legal matters or future
governmental regulations, legislation or judicial or administrative decisions
may have a material adverse effect on our financial position, results of
operations or liquidity. See "Risk Factors -- Environmental and endangered
species regulations restrict timber harvesting and may otherwise restrict our
ability to conduct our business" and "Business and Properties -- Federal and
State Regulations."
Strategic Timber and Strategic Timber II have made limited capital
expenditures to date. Upon the completion of this offering and the formation
transactions, we plan to make capital expenditures in the form of reforestation
and silvicultural activities on all of our timberlands. These activities will
include thinning, the planned conversion of uneven-aged pine forests to
even-aged plantations, road building and maintenance. These expenditures are
expected to be approximately $2.0 million during 1999. In addition, we have
engaged Mason, Bruce & Girard, Inc., an independent forestry consultant, for a
fee of approximately $1.3 million to develop an "Option A" timber management
plan with respect to our Commander forest to be submitted to the California
Department of Forestry and Fire Protection. See "Business and
Properties -- Initial Timberland Properties."
YEAR 2000
The Year 2000 issue refers to the problems that may arise from the improper
processing of dates and date-sensitive calculations by computers and
microprocessors embedded in other systems as the year 2000 approaches and is
reached. Historically, most computer hardware and software and other systems
have used two digits to determine the year in a date. For example, the year 1975
would be identified by 75. Therefore, some systems cannot distinguish dates in
the 2000s from dates in the 1900s.
To address this issue, we have taken an inventory of all of our information
technology, or IT, systems, such as computer hardware and software, and non-IT
systems, such as fire alarms, and have assessed the readiness of these systems
for the year 2000.
We use personal computers and personal computer-based applications in our
daily operations. Because we purchased most of the hardware and software for
these systems during 1998, we believe that most of our IT systems should already
be Year 2000 compliant. We have received assurances from the manufacturer that
the personal computers we purchased are Year 2000 compliant. To verify this, we
have tested our hardware, all of which appears to be Year 2000 compliant. In
addition, we have begun to assess the readiness of software packages we use,
including our geographic information system, or GIS. In most cases, we have
received assurances from the manufacturers of these software packages that the
programs are Year 2000 compliant. We are currently in the process of obtaining
these assurances in writing. We expect that testing on software applications
will be completed by the end of the second quarter of 1999.
Due to our recent formation, and because of Pioneer's historical methods of
operations, there are a limited number of non-IT systems requiring assessment.
Accordingly, our Year 2000 compliance plans involve assessing and testing IT
systems first and non-IT systems second. The Year 2000 compliance of non-IT
systems has not yet been assessed. We expect to assess these systems beginning
in the second quarter of 1999.
52
<PAGE> 59
We rely on our customers for revenue and rely on vendors for services,
including inventory tracking, reforestation, and other services. Inadequate Year
2000 compliance programs by these parties could have an adverse effect on our
operations. For instance, if customers become unable to pay, our receivable
balances would increase, affecting cash flows. If vendors provided inaccurate
inventory data, our harvest plans would not be optimized. Our most significant
vendors are independent scaling bureaus in the Pacific Northwest that measure
the volume of timber harvested by our customers. They record and transmit data
relating to measured volumes electronically using computer software. If this
software is not Year 2000 compliant, measurements could be inaccurate or we
would have to rely on manual calculation and delivery of measurement data. We
are currently writing to the scaling bureaus and other key vendors, suppliers
and customers to determine the status of their Year 2000 compliance programs. We
expect to have all responses accumulated by the end of the second quarter. We
have not developed any contingency plans in the event any of our key vendors is
not compliant at this time. We will develop contingency plans, if needed, after
assessing the responses we receive from our vendors and suppliers.
On a combined basis, we have spent less than $10,000 through December 31,
1998 on our Year 2000 compliance programs. We expect to spend approximately
$15,000 during the remainder of 1999 to address the Year 2000 issue.
We believe that our most reasonably possible worst case scenario related to
the Year 2000 issue is that our key information systems, such as the GIS, will
not be Year 2000 compliant. We also would have operational difficulties if the
parties who measure the volumes of timber harvests, which may be our customers
or independent scaling bureaus, are unable to record and transmit data because
they are not Year 2000 compliant. If this or any other component of our Year
2000 compliance plan is not adequately completed prior to January 1, 2000, we
can operate our businesses manually until such time as all systems become
compliant. We do not expect that the short-term manual operation of our
businesses would have a material adverse effect on the financial condition or
results of operations.
We cannot be certain that we have identified all potential Year 2000 issues
or that we will be Year 2000 compliant by January 1, 2000. Non-compliance by us
or our key vendors and customers could have a material adverse effect on our
future results of operations or financial condition.
MARKET RISK
Financial market risk is the risk of loss from adverse changes in financial
market prices and rates. Our principal financial market risk is related to
changes in interest rates because we borrow money based upon variable rates of
interest. Our borrowings as of February 28, 1999 are as follows:
<TABLE>
<CAPTION>
INTEREST
AMOUNT MATURITY DATE RATE
------------ ------------------ --------
<S> <C> <C> <C>
Fixed Rate Debt:
Strategic Timber II bridge loan............ $ 35,000,000 October 27, 1999 9.06%
Variable Rate Debt:
Strategic Timber bridge loan............... 85,000,000 October 27, 1999 9.00%
Strategic Timber Partners credit
facility................................ 133,787,000 April 25, 2003 7.50%
Strategic Timber II term loan.............. 200,000,000 September 30, 2003 7.57%
Strategic Timber II revolving credit
line.................................... 53,600,000 September 30, 2003 7.87%
------------
$507,387,000
============
</TABLE>
The carrying value of our debt approximates its fair value.
To lessen our risks associated with changing interest rates, we have
entered into interest rate swap agreements. Under our swap agreements, we must
pay a third party, often called a counterparty, a fixed interest rate on a
specific amount of money, or notional amount. In turn, the counterparty pays us
interest on the notional amount at a rate that is tied to a fluctuating market
rate. The fluctuating rate is calculated
53
<PAGE> 60
on periodic calculation dates based on a three month maturity of LIBOR. In most
instances under our swap agreements, the net amount that we either pay or
receive is determined on each calculation date and then we either receive or
make a payment three months after the calculation date.
Swap agreements serve to protect us against rising interest rates and the
lender against falling interest rates. If interest rates rise, then the amount
that we receive from the counterparty increases. We use this additional amount
to pay the increased market rate for borrowings under our credit facility. If
interest rates decrease, then the amount that the counterparty would receive
from us increases. We would be required to pay the counterparty interest on the
notional amount equal to the difference between the higher fixed rate and the
lower market rate. The lower market rate of interest on our credit facility
would offset our payments to the swap counterparty. Although the swap agreement
limits our risk to rising interest rates, it also minimizes our benefit if
interest rates decrease.
However, swap agreements do not completely protect us from increases in
interest rates. At February 28, 1999, the total notional amount represented by
all of our swap agreements was $200.0 million, although we had $507.4 million in
total borrowings under our debt instruments as of that date. We have provided
information about our existing swaps, as of February 28, 1999, in the table
below.
<TABLE>
<CAPTION>
VARIABLE RATE AT
FEBRUARY 28, 1999 FAIR VALUE
NOTIONAL FIXED --------------------- OF SWAP AT
AMOUNT MATURITY DATE RATE RATE BASED ON FEBRUARY 28, 1999
- ------------------- ------------------ ----- ----- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Strategic Timber
$100,000,000 May 13, 2002 5.99% 5.00% 3 Month LIBOR ($1,185,807)
Strategic Timber II
$25,000,000 October 14, 2003 6.69% 5.06% 3 Month LIBOR ($1,167,177)
$25,000,000 October 14, 2003 6.69% 5.06% 3 Month LIBOR ($1,098,553)
$50,000,000 September 30, 2003 5.77% 5.06% 3 Month LIBOR ($ 231,098)
-----------
($3,682,635)
===========
</TABLE>
The fair value of the swap represents the amount that Strategic Timber or
Strategic Timber II would have to pay to terminate the swap.
Our new credit facility will require us to enter into swap agreements for
at least $100.0 million in total notional amount. Accordingly, we will terminate
our existing swap agreements. Assuming that we terminated these agreements on
February 28, 1999, we would have recognized a loss of approximately $3.7 million
before allocation to minority interests. We intend to enter into new swap
agreements with terms that are similar to our existing swaps, although we cannot
assure you that this will be the case.
It is likely that the total notional amount of new swaps we enter into will
be less than the total borrowings under the new credit facility. This means that
the interest payments we recover from all counterparties under our swap
agreements may be much less than the total amount of any additional interest we
must pay to our lenders if interest rates increase. Despite any shortfall in
interest rate protection, we would be required to pay the excess interest to the
lender whenever a payment is due under the terms of the credit facility.
Our protection under our interest swap agreements may be limited further by
the timing of interest rate calculations between the swaps and our credit
facility. The floating interest rate under our swap agreements is usually
determined three months in advance. However, under our credit facility, our
interest rate may be based on the prime lending rate, which is recalculated
every day. If interest rates climb in the short term, the interest we pay on the
credit facility may increase without any immediate adjustment to the payments we
receive from our counterparties under our swap agreements. Ultimately, the
expense associated with our swaps may be greater than the benefit. If we desire
to terminate them, we may be unable to do so because the terms of our new credit
facility will require us to maintain swaps with at least $100.0 million in
notional amount during the life of the facility.
54
<PAGE> 61
When we enter into swap agreements, we are subject to a risk called
counterparty credit risk. This term refers to the risk that the counterparty
will not be able to perform its obligations under the swap agreement. We limit
our exposure to counterparty credit risk by entering into swap agreements only
with recognized dealer banks and financial institutions. We expect these
institutions will be able to perform their obligations under our swap
agreements.
Borrowers who enter into swap agreements are also subject to the risk that
the swap agreement may be legally unenforceable. However, we attempt to minimize
this risk by entering into swap agreements governed by state or U.S. law with
large U.S. banks. Currently, none of the counterparties to our existing swaps
has sold any of them to a third party.
Strategic Timber and Strategic Timber II incurred $254,827 and $189,108,
respectively, of net interest expense in 1998 relating to swap agreements.
55
<PAGE> 62
BUSINESS AND PROPERTIES
Timber industry terms used in this section are defined in "Glossary of
Selected Timber Industry Terms" beginning on page 134 of this prospectus. In
this section we refer to timber volumes in terms of board feet, which is the
standard for measurement in the western United States, and tons, which is the
standard in the southeastern United States. To aggregate our holdings, we have
in some cases converted board feet or tons to cunits. Each cunit is equal to 100
cubic feet of timber. We convert one thousand board feet of timber to 2.25
cunits, and one ton of timber to 0.3525 cunits.
OVERVIEW
WE OWN AND SELL TIMBER
We acquire, own and manage timberlands and sell timber. We intend to
acquire additional timberlands and capitalize on the growing trend toward
consolidation of timberland ownership.
We currently own approximately 448,000 acres of timberlands in the states
of California, Louisiana, Oregon and Washington. Our timberlands contain a total
of approximately 5.7 million cunits, or approximately 2.54 billion board feet,
of a variety of species of merchantable timber. Timber is considered
merchantable in a particular timber market when it meets the minimum size and
usable volume that is suitable for sale for commercial uses in that market.
Approximately 92% of our merchantable timber is sawtimber, which is timber that
is of sufficient size and quality to be manufactured into lumber or plywood.
Sawtimber is more valuable than timber of the same species that can be converted
only into pulp, paper products or other wood products.
Our timberlands contain substantial inventories of premium species and
grades of timber with a variety of end uses. When we refer to "premium" species
of timber, we mean species whose market value is among the highest in the
specific geographic area where it is located. This market value is based upon
the size, quality and end uses of the species. Approximately 4.0 million cunits,
or 70.3% of our total merchantable timber volume, consist of premium softwood
species, such as Douglas-fir, second-growth redwood, southern pine, ponderosa
pine and cedar. Approximately 18.2% of our merchantable timber volume consists
of other softwood species and the remainder consists of hardwood species.
Our timberlands are located near approximately 137 mills, called timber
conversion facilities, that convert the timber we sell into wood products, such
as lumber, plywood, paper and wood pulp. Some of these mills are owned by forest
products companies that also own standing timber. Based on market surveys that
independent forest industry consultants have prepared for us, annual total
consumption of timber within the markets that we serve is over 7.2 billion board
feet. Over each of the next five years, we plan to sell approximately 3% of this
amount from our initial timberlands. Based on these facts, we believe that our
timberlands are located in active and competitive markets for timber, including
sawtimber.
WE FOCUS ON GENERATING CASH
Our revenues will come primarily from the sale of timber. We do not have
the cash operating expenses, working capital needs and capital expenditures
associated with lumber mills, paper mills or other timber conversion facilities.
As timber is harvested under timber cutting contracts, we will record
revenues. Accounting rules require us to reduce recorded income by a non-cash
depletion charge against the initial investment in the harvested timber. This
depletion charge will materially reduce any income that can be recorded for
accounting purposes from the sales of timber in years immediately following our
acquisition of timberlands. However, this charge will not reduce cash available
to us for distribution or reinvestment. As a result, we believe the cash we
generate from our operations will exceed our earnings for accounting purposes.
We will elect to be taxed as a REIT for federal income tax purposes.
Because most of our net income will be treated as capital gains, the tax rules
that generally require REITs to distribute 95% of their
56
<PAGE> 63
ordinary income to shareholders will not affect us. We intend to use this
flexibility to retain a substantial part of the cash we generate to acquire
additional timberlands.
HOW WE OPERATE AND RECOGNIZE REVENUE
We sell standing timber rather than delivered logs, which are the cut
segments of the tree. We enter into timber cutting contracts with third parties
that require them to harvest and pay for standing timber. These parties include
forest products companies and, less frequently, brokers and loggers.
In selecting timber to be sold for harvesting, we evaluate all of our
timberlands as a whole. We take into account, among other factors, the relative
maturity levels and current productivity of tracts available for harvest, the
strength of local markets and the desirability of reforesting a particular area.
This approach allows us to increase the overall growth rate of our timber and
better balance the age class distribution of our holdings. Once we have
identified specific timber tracts to be offered for harvest, we will either seek
sealed bids from prospective buyers or negotiate a purchase with one or more
buyers. After we have found a suitable buyer, we will enter into a cutting
contract with the buyer.
Under cutting contracts, the buyer, at its expense, is required to cut the
purchased timber and haul the logs to its own conversion facility, or to another
purchaser to whom it is reselling. Our contracts with auction buyers typically
range from three to 18 months in length. We currently have negotiated contracts
which extend for up to six years, and we may enter into longer term contracts in
the future. Contracts with terms of more than one year provide for price
adjustments at least annually and typically require the buyer to cut minimum
amounts of timber each year. Within these limits, the buyer has discretion as to
when it harvests our timber, although buyers typically begin their harvests as
soon as practicable after entering into contracts with us. Title to and risk of
loss of the timber passes from us to the buyer when the timber is actually
removed from the land.
For accounting purposes, we recognize revenue at the time the buyer cuts
and takes title to the timber. Under our cutting contracts, the buyer generally
pays us when it cuts the timber. Many of the contracts require the buyer to pay
us a portion of the expected value of the timber at the inception of the
contract. The advance payments under our current contracts aggregate
approximately 16% of the total expected 1999 annual payments for harvests under
these contracts, and are offset as the buyer harvests the timber. We do not
escrow these advance payments and are free to use them in our business for any
purpose. Buyers will be entitled to refunds of any remaining advance payments
not charged against timber cut if timber is not available for harvest because of
fire, weather, disease or other damage. If timber is available for harvest, but
the buyer fails to cut the amounts it agreed it would cut, we may be entitled to
damages on account of this breach, but we must refund any remaining balance of
advance payments in excess of these damages.
We expect our revenues will be seasonal. Rain in winter and our fire
prevention measures in spring and summer limit timber harvesting on the
Louisiana property. Similarly, harvesting on the Pacific Northwest properties is
typically interrupted for periods during the winter and spring due to snow and
melting snow, and occasionally in the late summer due to fire prevention
measures. We expect that our financial results in the first and fourth quarters
may be materially affected by winter rain and snow. Our financial results in the
second and third quarters may be materially affected by the risks of fire.
In addition to cutting contracts, we also expect to derive revenues from
several other sources. We will grant hunting, grazing, camping and other rights
of access to approved hunting clubs and individuals. These hunting leases and
other rights will both produce revenues and help us to maintain and protect our
properties. From time to time, we expect to make incidental sales of portions of
our properties that have a higher and better use than the long-term production
of timber.
After a timber tract has been harvested, we reforest the tract as soon as
practicable, generally within the next twelve months. We reforest using
independent contractors working under our supervision. The costs of
reforestation represent the majority of our capital expenditures.
57
<PAGE> 64
OUR OPERATING COSTS ARE LOW
We have a low-cost operation because we perform few of the "on the ground"
functions required to harvest timber. We sell standing timber and do not cut
timber directly or hire third-party loggers to cut our timber. Instead, buyers
under cutting contracts are responsible for cutting and transporting timber. By
limiting our expenses, we expect to maintain higher operating margins on our
timber sales than if we cut and removed timber ourselves.
Most of our operating costs are fixed and consist of employee salaries and
benefits and the costs of our facilities and supplies. Until recently, we
utilized a third-party forest management firm to manage our Louisiana property.
Currently, our employees manage all of our timberlands. However, we may engage
third-party forest management firms for consulting services. We believe that our
current staffing and facilities are sufficient to manage our current timberland
holdings as well as additional timberlands that we may acquire within the next
few years.
BUSINESS STRATEGY
OUR OBJECTIVE IS TO MAXIMIZE LONG-TERM SHAREHOLDER VALUE
We intend to:
- focus on owning timberlands and selling timber for harvest, not on owning
or operating lumber mills or other timber conversion facilities;
- acquire additional timberlands that will increase our ability to generate
cash and enhance the overall value of our timberlands;
- actively manage our timberlands to enhance timber growth; and
- develop timber selling and reforestation plans to increase the long-term
value of our timberland portfolio.
WE FOCUS ON OWNING AND SELLING TIMBER
We intend to focus on timberland ownership and selling timber for harvest,
which we believe will enable us to:
- avoid the conflicts that frequently arise within the paper and forest
products industry between providing consistent timber supplies to captive
mills and managing a forest for growth in order to increase timberland
value; and
- increase the value realized from our timber resources by selling our
timber to the highest bidder in each market in which we participate
rather than to captive mills.
WE ACQUIRE TIMBERLANDS TO GENERATE CASH AND ENHANCE LONG-TERM VALUE
As an owner of timberlands and a seller of timber, as opposed to an owner
or operator of timber conversion facilities, we are a natural acquiror of
timberlands from a variety of potential sellers. We believe that U.S. timberland
ownership will continue its recent trend of consolidation. Specifically, we
believe that timberland ownership will continue to shift from forest products
companies that also own mills to companies that solely own and manage
timberlands. Furthermore, we expect to see some small landowners sell their
timberlands to larger organizations that have greater financial resources and
can provide professional management of the timberlands.
We believe that forest products companies frequently view their timberland
assets as a means of assuring supply to, and profitability of, their mills
without considering separately the current value of their timber resources. We
believe that these companies are under increasing pressure to realize the value
of their timberland assets by selling or monetizing them. We believe that we may
be viewed by these companies as a preferred purchaser of their timberlands
because we do not compete with their manufacturing operations.
58
<PAGE> 65
Smaller private timberland owners who seek to diversify their timberland
ownership and obtain liquidity also present us with acquisition opportunities.
We believe that small timberland owners lack the scale of operations needed to
efficiently manage their timberland assets. Private landowners may be reluctant
to make outright sales of their timberlands, even if they would like additional
liquidity, because sales may trigger taxes or be inconsistent with their estate
plans. These issues can often be compounded by irregular cash flow from smaller
timberland tracts.
According to the most recent U.S. Forest Service estimates, approximately
490 million acres of timberlands in the United States are owned by
non-government owners. The largest non-government owner holds less than 3% of
all U.S. timberlands. We believe this fragmented ownership of timberlands
presents us with a wide variety of potential timberland acquisition candidates.
We intend to take advantage of these acquisition opportunities by:
- retaining a significant portion of our internally generated cash for
timber acquisitions;
- maintaining financial flexibility through a conservative capital
structure with a target debt-to-total market capitalization ratio of
approximately 40%, which we believe will better enable us to fund
acquisitions when opportunities arise;
- using units in our operating partnership as a form of consideration for
acquisitions, an approach that will permit the seller to defer taxes and
achieve liquidity and professional management; and
- accessing capital markets to provide additional funds for acquisitions.
Through acquisitions of timberlands, we intend to broaden and enhance the
value, marketability and diversity of our timber portfolio. We evaluate each
proposed acquisition based on the specific characteristics of the property. Our
evaluation criteria include:
- volume of merchantable and premerchantable timber on the property;
- productivity of the property's soils;
- growth rates of timber on the property;
- regional market supply and demand factors affecting the property;
- the proportion of sawtimber on the property;
- whether the acquisition will enhance the mix of species or diversify the
ages of timber in our timber portfolio; and
- environmental and endangered species conditions, including restrictions
on harvesting that could limit the amount of timber that can be cut.
We look for properties that present opportunities to increase cash flow and
derive more value from the property than the seller is obtaining. We seek to
derive additional cash flow and value by:
- modifying a property's timber selling plan in ways that may not be
feasible for the seller given the size and composition of the seller's
timber portfolio or the seller's purpose in holding the
timberlands -- for example, as a source of raw material supply for a
given mill;
- targeting high-value uses for our timber -- for example, selling tall,
straight trees to be used for poles rather than for sawtimber or pulp;
- developing an industry brand name based on the size and quality of our
timber portfolio;
- implementing cost saving opportunities available by managing the acquired
timberlands as a component of our total portfolio; and
- leasing tracts for recreation, grazing, hunting and other activities not
related timber production and selling tracts which are suited for better
and more valuable uses, such as for residential or commercial
development.
59
<PAGE> 66
Based on the substantial prior timberland acquisition experience of our
management, we believe that we can acquire timberland properties on more
favorable terms through private negotiations rather than through competitive
auctions. Accordingly, we intend to pursue privately negotiated acquisitions as
our principal means of acquiring timberlands.
Our principal focus for acquisitions will be on timberlands located within
developed markets in the continental United States. Developed markets are areas
with a number of independent lumber mills, paper mills or other timber
conversion facilities sufficient to create competition for our timber.
We also intend to explore potential timberland acquisition opportunities in
Latin America and in other active timber growing regions of the world. We
currently intend to limit our ownership of non-U.S. timberlands to no more than
20% of our asset portfolio. We intend to seek non-U.S. timberlands with values
that are depressed relative to those in the United States. Prices of non-U.S.
timberlands may be depressed due to undeveloped or underdeveloped forestry
management plans, markets or infrastructure. Based on the experience of our
management, we believe many timberland acquisition opportunities outside of the
United States can provide higher risk-adjusted returns due to low-cost labor,
land, and energy, fertile soils and favorable climates, in combination with the
introduction of modern forestry practices and improved product marketing.
WE EMPLOY ACTIVE FOREST MANAGEMENT PRACTICES TO ENHANCE TREE GROWTH
Tree growth is a major driver of timberland returns. We employ advanced
forest management practices, also called silviculture, to enhance this growth,
improve the quality of our timber and reduce the time required for a tree to be
ready for harvesting. The application of silvicultural practices such as
choosing seedlings with superior genetic characteristics, fertilizing, pruning,
thinning and controlling pests and diseases, can improve both tree growth rates
and wood quality. We employ professional forest managers who are experts in
applying these silvicultural techniques to our local forests and tree species.
WE DEVELOP HARVEST AND REFORESTATION PLANS THAT INCREASE LONG-TERM
PORTFOLIO VALUE
We believe that good silvicultural practices will produce both financial
and environmental benefits. Our strategy is to design forest management plans to
bring each of our forests into a balanced state. A balanced forest contains a
roughly equal number of acres of trees of each age class from newly planted
seedlings to mature trees. Once a forest reaches a balanced state, we intend to
manage it to generate predictable, consistent and sustainable annual timber
harvests and cash flow. An additional benefit of active forest management is
that the actively managed forest is more resistant to the threats of fire, pests
and disease than a forest left purely in its natural state.
We intend to develop operating plans for each of our properties. These
operating plans include site-and species-specific harvest and reforestation
plans. While we establish plans for our portfolio as a whole, we maintain the
flexibility to increase or decrease harvest levels and alter the species mix and
location on each of our timberlands in response to local market conditions.
Finally, to enhance values in the future, we engage in an active reforestation
program, planting species well suited for local soils and markets.
We use a computer system called a geographic information system, or GIS, in
the management of our timberlands. Our GIS data, which we will compile over a
period of years, will include detailed topographical field maps for all our
timberlands describing the characteristics, including age, species, size and
other characteristics of our timber.
With the aid of the GIS, we will be able to manage our timberland portfolio
actively, track inventory and develop site-specific harvest plans. We will also
be able to monitor other critical aspects of our timberlands as required, such
as the location of roadways or wildlife nesting areas. We expect to use the GIS
to analyze the impact that new legislation may have on our timberlands by
modeling the effect of the legislation on our timberland portfolio. We will also
use the GIS to evaluate potential acquisition opportunities.
60
<PAGE> 67
Many of our competitors and smaller timberland owners do not utilize a GIS,
mainly due to the relatively high initial cost and to the length of time
necessary to collect sufficient data to optimize its use. Thus, we believe the
GIS will give us an advantage over our competitors who do not use this system.
OUR COMPETITIVE STRENGTHS
WE HAVE EXPERIENCED MANAGEMENT WITH SIGNIFICANT OWNERSHIP
C. Edward Broom, Christopher J. Broom, Thomas P. Broom, Vladimir Harris and
Joseph E. Rendini founded Strategic Timber in April 1998. These individuals
collectively have substantial experience in acquiring, owning and managing
timberland assets. Since 1985, they have collectively participated in a series
of timberland investments in the United States, Latin America and New Zealand,
as principals, investment managers and investment advisors.
Our founders have hired both former colleagues and advisors with whom they
have worked successfully in the past. These individuals have diverse experience
and expertise in our key areas of timberland acquisition, operation and
management.
Upon completion of this offering, management will beneficially own
1,605,723 shares of common stock and partnership units, representing 7.2% of the
shares of common stock and partnership units that will be outstanding. We
believe that management's equity ownership in Strategic Timber and Strategic
Timber Partners aligns the interests of management and shareholders.
WE HAVE A DIVERSIFIED PORTFOLIO OF TIMBERLAND
Geographic Location. Our initial portfolio of 448,000 acres of timberlands
is well diversified by geographic region. Approximately 35% of our merchantable
timber is located in Louisiana, 34% in coastal California, 14% in Oregon, 12% in
interior California, and 5% in Washington. We intend to enhance this geographic
diversity through acquisitions by increasing our ownership in less dominant
regions and expanding to new areas.
Species. Our timberlands support a variety of species, including
Douglas-fir, southern pine, second-growth redwood, western pine, hemlock, red
cedar and hardwood. Southern pine and Douglas-fir each account for about
one-quarter of our merchantable timber, and second-growth redwood and ponderosa
pine account for approximately 16% and 7% of our merchantable timber,
respectively. Other softwood species account for approximately 15% and hardwood
accounts for approximately 11% of our total merchantable timber portfolio.
End Use Market. We sell timber for a variety of end uses. Our pine
sawtimber in Louisiana and Douglas-fir in the western states is usually
converted into lumber for construction purposes. Our California and Oregon
ponderosa pines are processed into construction lumber, but also are used to
make molding, doors, windows and furniture. Second-growth redwoods produce
highly durable lumber, which is used for decks and patios. Most of our hardwood
inventory is processed into wood pulp and, ultimately, into various paper
products. Because our timber can be used in many applications, we can sell our
trees to a variety of different timber conversion facilities.
WE FOCUS ON OWNING AND MANAGING TIMBERLANDS
We own and manage timberlands but do not own or operate timber conversion
facilities. Paper and forest products companies, which have substantial
timberland holdings, may view us as a preferred purchaser when considering the
disposition of their timberlands, because we do not directly compete with their
manufacturing operations.
61
<PAGE> 68
OUR REIT STRUCTURE WILL BENEFIT OUR SHAREHOLDERS
We intend to operate as an umbrella partnership real estate investment
trust, known as an UPREIT, which means we will own timberlands indirectly
through our operating partnership. We believe the UPREIT structure will offer
the following benefits to our shareholders:
- TAX EFFICIENCY -- Our REIT structure, coupled with our focus on
timberland holdings, will provide substantial tax advantages, including:
- a single tax on virtually all, if not all, of our taxable income whether
or not distributed, rather than a tax at both the corporate and
shareholder levels;
- a substantial timber depletion allowance that will reduce our taxable
income, without reducing our cash flow;
- treatment of distributions to our shareholders either as tax-free return
of capital or as capital gain;
- flexibility to retain and reinvest cash primarily for timber
acquisitions, rather than making tax-mandated distributions to
shareholders; and
- generally, no unrelated business taxable income to our tax-exempt
shareholders.
- ATTRACTIVE ACQUISITION CURRENCY -- We may be able to structure timber
acquisitions in a way that will permit a seller to obtain liquidity by
exchanging timberland for operating partnership units without incurring
tax at the time of the disposition. This may enhance our ability to
complete acquisitions on terms that are more favorable to us.
TIMBER INDUSTRY OVERVIEW
TIMBER AS AN ASSET CLASS
We believe that timber represents an attractive asset class for a number of
reasons, including the following:
- REGENERATION -- Timber is a growing and renewable asset, unlike natural
resources such as minerals, oil and natural gas.
- PREDICTABLE GROWTH -- Trees grow predictably and, as they grow, they
become worth more per unit of volume because they have higher value end
uses. For example, solidwood products, which are made from larger trees,
are a higher value end use for timber as compared to pulp or paper
products, which are typically made from smaller trees.
- HARVEST FLEXIBILITY -- As an independent timberland owner, we have
substantial flexibility to enter into new cutting contracts to generate
additional timber sales when local timber prices are high. When local
timber prices are low, we can avoid entering into new cutting contracts
and let our timber continue to grow.
- FAVORABLE LONG-TERM WORLDWIDE SUPPLY/DEMAND FUNDAMENTALS -- According to
forestry consultant analyses, demand for wood and wood products has
historically been correlated to population growth, economic development
and standards of living, which are forecast to continue to increase. By
contrast, we expect that worldwide timber supplies will be constrained
relative to demand.
- HISTORICAL REAL PRICE APPRECIATION -- Domestic timber prices have, over
the long term, increased at rates in excess of inflation. The U.S. Forest
Service estimates that, from 1967 to 1997, prices for Douglas-fir,
ponderosa pine and loblolly pine increased at average rates of between 7%
and 9% per year, or between 2% and 4% per year after adjusting for
inflation.
62
<PAGE> 69
PRODUCTS AND MARKETS
We sell the timber harvested from our timberlands for processing as either
sawtimber or pulpwood by facilities located generally in close proximity to our
timberlands. Sawtimber typically is converted into lumber, plywood and other
solidwood products. The harvested timber that is of insufficient size or quality
to be converted into lumber or other solidwood products is sold for conversion
into pulp, paper and engineered wood products. The lumber, pulp, paper and other
wood products are then distributed in domestic and international markets. Timber
markets, while regional in terms of purchasers of timber, are impacted by the
availability and cost of timber from other regions and by global economic
conditions.
Approximately 92% of our merchantable timber inventory is in the form of
sawtimber that can be manufactured into solidwood products. The remaining 8% is
timber that we can sell as pulpwood. Our objective is to sell sawtimber instead
of pulpwood. We achieve this goal by allowing our trees to mature into sawtimber
instead of cutting them for sale as pulpwood. However, we may cut and sell
pulpwood as part of our thinning and forest management practices.
TIMBER DEMAND, SUPPLY AND PRICES
Demand. Demand for timber depends upon the markets for wood products,
including lumber, plywood, pulp and engineered wood products. Because these
markets are impacted by changes in domestic and international economic
conditions, demand for these products can experience significant fluctuations.
Regional timber demand can also fluctuate due to changes in operating rates or
the number and size of wood conversion facilities within the region.
Our timber portfolio consists primarily of softwood timber. Douglas-fir,
southern pine, second-growth redwood, ponderosa and sugar pine, hemlock, cedar
and white fir are the most prevalent softwood species on our timberlands.
Currently, approximately 11% of the volume of our merchantable timber consists
of hardwoods.
A substantial portion of softwood timber is converted into lumber. Demand
for lumber is primarily impacted by the home construction, repair and remodeling
markets and the industrial construction market. Because of the structural
strength and stability of Douglas-fir and southern pine lumber, their most
important use is for construction lumber. Douglas-fir is particularly well-known
for its appearance and hard surface quality. Sugar and ponderosa pines are used
primarily for new construction as well as for decorative purposes such as
molding, doors, windows and furniture. These pines are recognized for their
strength, durable surface and appearance. Second-growth redwood is also
converted into premium-grade lumber used primarily in applications where
appearance and durability are important, such as residential porches and decks.
Second-growth redwood is known for its natural beauty, superior ability to
retain paints and finishes and resistance to decay, insects and chemicals. As a
result, second-growth redwood is not generally used to produce lumber for
construction and its price has historically been less volatile than that of
other premium softwood species.
The most common applications for hardwood sawtimber include furniture,
flooring and moldings. Thus, demand for hardwood sawtimber is generally less
susceptible than softwood timber to fluctuations in construction activity. Most
of the hardwood timber on our initial timberlands is pulpwood, usable for paper
and other commodity applications rather than specialty applications such as
furniture.
Some timber species grown on the U.S. west coast, such as Douglas-fir and
hemlock, have historically experienced significant demand in the Japanese
markets. These products have strength, appearance and stability characteristics
that have historically been highly valued in Japan and, as a result, have
attracted higher prices than would have been realized if sold in the domestic
market.
U.S. log exports have declined steadily over the past eight years,
generally a result of increased competition from European producers, and more
recently the deteriorating economic and financial conditions in Asia. According
to U.S. Forest Service data, log exports from the United States have fallen from
approximately 7.5 million cunits in 1989 to approximately 3.3 million cunits in
1997.
63
<PAGE> 70
Supply. The Pacific Northwest and the Southeast are the two principal
timber producing regions in the United States.
The supply of logs available for purchase in the Pacific Northwest has been
significantly affected in recent years by reductions in the volume of timber
harvested from public lands. This reduction is primarily a result of increased
governmental policy emphasis toward protection of endangered species, habitat
preservation, conservation and recreation. According to U.S. Forest Service
data, the timber harvested from federal lands in California, Oregon and
Washington in 1997 was approximately 1.4 billion board feet, a decline of 80%
from the approximately 6.7 billion board feet harvested in 1988. We expect that
the amount of timber harvested from federal lands will remain at current levels
or continue to decline. This trend changes the supply emphasis to the private
sector and thus strengthens our position as a private seller of timber. Timber
harvests have declined more in the western United States than in the
southeastern United States because public timberland ownership in the west
represents a substantially greater proportion of the total than it does in the
southeast.
Timber harvests can fluctuate regionally depending upon factors such as
changes in weather conditions, harvest strategies of local forest products
industry participants and prevailing timber prices. Rising timber prices often
lead to increased harvests on private timberlands. Timber prices are also
affected by lumber prices, which depend upon a number of factors, including the
level of domestic lumber consumption and production, conditions in export
markets and lumber imports from Canada and other countries. U.S. imports of wood
products have historically been limited by freight costs and, since April 1996,
by the five-year United States-Canada lumber trade agreement. However, these
limitations on U.S. imports have been partially mitigated by reduced U.S. lumber
and log exports and increased lumber imports from Canada, Europe and other
regions.
Lumber imports also compete indirectly with timber harvested in the United
States. Because a large portion of logs are converted into lumber, imports of
lumber into the United States reduce the demand for logs at U.S. conversion
facilities. U.S. Forest Service data indicate that lumber imports represented
36% of the United States consumption of softwood lumber in 1997.
According to U.S. Forest Service data, log imports into the United States
historically have not been significant. Small volumes of logs are imported from
Canada into the states of Washington and Maine for conversion into lumber and
pulp, but the volumes do not materially impact the regional markets. Global log
markets can, however, affect the prices paid for U.S. log exports because U.S.
exporters face strong competition in their key markets.
Prices. Short term timber prices have historically been cyclical as a
result of supply and demand imbalances. However, timber prices have increased at
rates above inflation over the long term. The U.S. Forest Service estimates that
between 1967 and 1997, timber prices for Douglas-fir, ponderosa pine and
loblolly pine timber experienced average annual increases of 7.2%, 8.7% and
7.2%, respectively, compared to an average inflation rate of 5.2%.
The reduction in log supply from public lands that occurred at the
beginning of this decade caused prices for logs to increase significantly,
reaching peak levels during late 1993 and early 1994. Forest industry
publications indicate that, since 1996, exports of Douglas-fir logs and lumber
to Japan have been greatly reduced. These trends likely have reduced prices for
Douglas-fir and some pine species in the Pacific Northwest. However, strong
domestic construction and repair and remodeling markets continue to support
softwood log prices.
64
<PAGE> 71
The graph below illustrates historical price indices for representative
species of timber sold in the areas in which we currently operate. Mason, Bruce
& Girard, Inc., an independent forestry consultant, has determined the price
indices for timber. The price indices for timber are based upon average
delivered log prices adjusted to exclude typical logging and transportation
costs for timber in those operating areas. The consumer price index, or CPI, is
based on data provided by the U.S. Bureau of Labor Statistics.
HISTORICAL PRICE INDICES OF SELECTED TIMBER SPECIES
(1990 = 100)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California Coastal - Redwood 100.0 88.0 144.0 223.8 252.7 184.8 163.4 146.6 161.0
Louisiana - Pine Sawtimber 100.0 101.2 126.6 143.1 176.6 203.3 173.8 231.3 227.8
Washington - Douglas-fir 100.0 100.6 146.1 210.1 200.2 206.6 217.4 193.6 141.9
CPI 100.0 103.0 105.9 109.0 111.9 114.7 118.5 120.6 122.9
</TABLE>
65
<PAGE> 72
The table below provides estimated average regional market prices for
timber as of December 31, 1998, based on market surveys of similar species
conducted by our independent forestry consultants, Mason, Bruce & Girard on the
California, Oregon and Washington properties, and Canal Forest Resources, Inc.
on the Louisiana property. All prices are expressed in dollars per thousand
board feet, except prices for Louisiana pine timber, which are in dollars per
ton. These prices are lower than the mill-delivered prices that form the basis
for most published timber pricing, because mill-delivered prices include the
costs of cutting timber and transporting it to the mill. The difference between
mill-delivered prices and standing timber prices will vary based on the terrain
and weather on the property and how far the property is from mills.
<TABLE>
<CAPTION>
PRICES OF STANDING TREES
AS OF DECEMBER 31, 1998
------------------------
<S> <C>
CALIFORNIA -- COASTAL FOREST
Second-growth redwood....................................... $468
Douglas-fir................................................. $228
CALIFORNIA -- COMMANDER FOREST
Ponderosa pine.............................................. $350
Douglas-fir................................................. $250
LOUISIANA
Pine........................................................ $ 46
OREGON
Ponderosa pine.............................................. $294
Douglas-fir................................................. $294
WASHINGTON
Douglas-fir................................................. $441
Western hemlock............................................. $335
Cedar....................................................... $745
</TABLE>
INITIAL TIMBERLAND PROPERTIES
We have summarized below the merchantable timber, acreage, and predominant
species for our initial timberland portfolio by region.
<TABLE>
<CAPTION>
MERCHANTABLE TIMBER
-------------------------------------
REGION ACRES PREDOMINANT SPECIES LOCAL UNITS(A) CUNITS(A)
- ------ ------- ------------------- ---------------- -----------
<S> <C> <C> <C> <C>
California 122,339 Second-growth redwood,
Douglas-fir, ponderosa pine,
true firs 1,161,000 MBF(b) 2,613,000
5.6 million)
Louisiana 82,009 Slash and loblolly pine tons(c 1,989,000
Oregon 232,621 Ponderosa pine, Douglas-fir 372,000 MBF(b)(d) 836,000
Washington 10,822 Douglas-fir, western hemlock,
cedar 129,000 MBF(b) 290,000
------- ---------
Total 447,791 5,728,000
======= =========
</TABLE>
- ---------------
(a) Timber inventories are carried and tracked in the units used in local
markets. For purposes of summarizing data regarding our portfolio, we
convert local units into one common unit, or cunit. One cunit equals 100
cubic feet. We use conversion rates of 0.3525 cunits per ton for timber on
the Louisiana property and 2.25 cunits per thousand board feet for timber
on the Pacific Northwest properties.
(b) Verified by Mason, Bruce & Girard at the time of purchase of the tracts
that make up the Pacific Northwest properties. Mason, Bruce & Girard has
subsequently adjusted these volumes for harvest and growth to December 31,
1998.
(c) Verified by Canal Forest Resources, as of December 31, 1998.
66
<PAGE> 73
(d) Includes approximately 15.3 million board feet, or approximately 34,376
cunits of merchantable timber inventory under Oregon timber deeds. Under
these timber deeds, we have the right to sell timber located on lands not
belonging to us. All of the land as to which we have timber deeds is owned
by private individuals. See " -- Initial Timberland Properties -- The
Oregon Timberlands."
Consistent with industry practice, in determining the amount of
merchantable timber in our inventory, we have included approximately 23,000
acres of timberland that are subject to harvest restrictions. These restrictions
may substantially limit, or could possibly prevent, harvests on some or all of
these timberlands. We have not included timber from these restricted acres in
our timber sales plan to the extent these restrictions prohibit harvesting. Our
estimates of the number of restricted acres on our Pacific Northwest properties
(approximately 18,500 acres) are based on our geographic information systems and
surveys performed by ourselves and others. Our estimates of the number of
restricted acres on our Louisiana property (approximately 4,500 acres) are also
based on our GIS and surveys performed by ourselves and others, but do not
reflect property-wide surveys with respect to the presence of threatened or
endangered species. Before we authorize harvesting activities on any of our
properties, we survey the harvest area for the presence of threatened and
endangered species. If we gain additional information regarding the presence of
threatened or endangered species on our timberlands or if regulatory agencies
change the manner in which they apply related restrictions to our timberlands,
the number of our restricted acres could significantly increase. See "Risk
Factors -- Environmental and endangered species regulations restrict timber
harvesting and may otherwise restrict our ability to conduct our business" and
"-- Federal and State Regulations -- Endangered Species Law."
TIMBERLAND MANAGEMENT STRATEGY
Our existing timberland holdings complement one another well. This is
exemplified by the fit between the Louisiana property and the Coastal forest in
California. A substantial portion of the Louisiana property contains over-mature
sawtimber. While these trees are expected to command a premium price in the
marketplace due to their size and quality, the overall growth rate of these
stands of mature trees is below the potential of the land given the fertile
soils and site characteristics. Accordingly, once these slower-growing, mature
trees are harvested, and reforestation activities are completed, stand growth on
the Louisiana property will substantially increase. By contrast, the Coastal
forest is relatively immature and is growing at its peak rate. Our operating
plan over the next few years for the two forests calls for substantial
harvesting on the Louisiana property to reinvigorate growth and for less
harvesting of the Coastal forest in order to maintain the rapidly growing base
of timber there. By operating these properties as part of an integrated whole,
we anticipate that we can enhance the productivity of our overall portfolio.
Similarly, components of the Commander forest in California and the
Washington property consist of mature, high-value timber that is at its optimal
harvest age. Our timber selling plan for the Commander and Washington properties
calls for removing this low-growth timber and replanting with seedlings selected
for superior genetic characteristics to increase the stands' total growth rates.
The Eastern Oregon properties consist primarily of uneven-aged stands which
contain a significant volume of premerchantable timber. The operating plan for
the Eastern Oregon tract includes decreasing harvest levels over the next five
years to allow the younger trees to mature and to maintain the property's
overall balanced condition.
67
<PAGE> 74
The table below reflects our approximate planned sales of timber from our
initial timberlands from 1999 through 2003 by region, in thousands of cunits.
This table shows our current timber sales plan, which is subject to change.
Timber cutting contracts that we have and will enter into permit buyers to
remove the contracted amount of timber over the life of the contract. Our
ability to recognize income from cutting contracts will depend upon the buyer's
decision to harvest timber under the terms of these contracts. Because we may
not be able to precisely control the timing of timber sales under multiple year
cutting contracts, the volume of timber actually harvested in any given year may
differ from our sales plan. The contracts provide for specified amounts to be
cut in each year of the contract.
TIMBER SALES PLAN
(THOUSAND CUNITS)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
California.................................................. 150 145 145 145 145
Louisiana................................................... 215 230 245 245 255
Oregon...................................................... 110 105 95 90 85
Washington.................................................. 30 30 25 25 25
--- --- --- --- ---
Total............................................. 505 510 510 505 510
=== === === === ===
</TABLE>
Due to a substantial amount of over-mature timber on our timberlands, and
consistent with prudent forest management practices, we plan to sell a volume of
timber from our initial timberlands from 1999 to 2008 that is materially greater
than the volume we plan to sell in subsequent periods. We presently anticipate
that the timber sales from our initial timberlands will average approximately
485,000 cunits per year from 1999 to 2008. We expect timber sales from these
timberlands for the period from 2009 to 2018 to average approximately 300,000
cunits per year. Under our timber sales plan, we expect the growth on our
initial timberlands to increase from approximately 345,000 cunits in 1999 to
approximately 420,000 cunits in 2009 and to average approximately 460,000 cunits
per year in the ten year period beginning in 2009. We further expect that total
timber inventory on these lands will decline from approximately 6.8 million
cunits in 1999 to approximately 6.0 million cunits in 2009, but will increase to
approximately 7.6 million cunits in 2018. As part of our growth strategy, we
intend to acquire additional timberlands in order to augment our current timber
sales plan.
To date, we have entered into contracts providing for aggregate 1999 timber
harvests valued at $17.1 million. These include new contracts on our Louisiana
property with five separate buyers -- Boise Cascade Corporation, Health Timber
Company, Inc., Hunt Forest Products, Inc., Nash-Co. Industries Forest Products,
Inc. and Temple-Inland Inc. -- and provide for harvests of up to 300,000 tons of
timber in 1999. The 1999 harvests also include sales of 17.4 million board feet
from our Commander forest to Sierra-Pacific Industries, Inc.
Some of our timberlands may have greater value if used for ranching,
farming or recreational purposes or for residential or commercial development.
We will sell these properties to others when it is in our financial interest to
do so. We also may exchange lands with significant environmental and
recreational values for lands that are more suitable for commercial timber
production.
THE LOUISIANA PROPERTY
The Louisiana property consists of approximately 82,000 acres located in
southwest Louisiana, primarily comprised of high quality softwood timber. Over
79% of the acreage of the Louisiana property contains merchantable timber, with
a comparably high component of mature pine. Additionally, these timberlands
possess highly productive soils and favorable topography and climate. We believe
that, due to the substantial amount of mature timber on the Louisiana property,
the property is well suited for immediate harvest and replanting to take
advantage of superior growing conditions.
68
<PAGE> 75
Timber on the Louisiana property is categorized as set forth below, as
verified by Canal Forest Resources as of December 31, 1998:
LOUISIANA PROPERTY
ACREAGE BY TYPE
<TABLE>
<CAPTION>
TYPE ACRES PERCENTAGE
- ---- ------ ----------
<S> <C> <C>
Merchantable timber......................................... 64,820 79.0%
Pre-merchantable timber..................................... 13,754 16.8%
------ ------
Total Timberland Acreage.......................... 78,574 95.8%
Agricultural land........................................... 473 0.6%
Open/non-forested........................................... 2,962 3.6%
------ ------
Total Acreage..................................... 82,009 100.0%
====== ======
</TABLE>
Before our acquisition of this property, it was not actively managed for
commercial timber production. As a result, it now contains a substantial
inventory of mature timber, including approximately 3.8 million tons of pine
sawtimber valued for the size and quality of the wood. This pine sawtimber
represents over 67% of the property's merchantable timber volume, and
approximately 83% of the property's merchantable pine volume. Since most of the
timber on this property has been allowed to remain standing past the age that a
commercial timber company would normally have harvested it, there is now an
abundance of mature timber that is ready for harvest.
Since our acquisition of the Louisiana property, we have conducted only
limited harvesting operations there, while preparing the property for active
commercial operations. We conducted a complete timber inventory and detailed
mapping of the property, prepared timber sales plans and initiated commercial
marketing activities for timber to be sold from the property.
Estimated timber volumes on the Louisiana property are as set forth below,
as verified by Canal Forest Resources as of December 31, 1998:
LOUISIANA PROPERTY
MERCHANTABLE TIMBER BY PRODUCT
<TABLE>
<CAPTION>
TIMBER INVENTORY AMOUNT PERCENTAGE
---------------- --------- ----------
(TONS)
<S> <C> <C>
Pine sawtimber.............................................. 3,803,050 67.4%
Pine pulpwood............................................... 785,631 13.9%
Hardwood sawtimber.......................................... 508,151 9.0%
Hardwood pulpwood........................................... 546,507 9.7%
--------- -----
Total............................................. 5,643,339 100.0%
========= =====
</TABLE>
69
<PAGE> 76
Timber buyers in southwest Louisiana predominantly seek quality pine
sawtimber used for lumber and plywood. Hardwood sawtimber and both pine and
hardwood pulpwood markets exist, but these markets are less competitive.
According to a report prepared by independent forestry consultants, there are 50
mills within 170 truck miles of the property that annually consume 13.6 million
tons of sawtimber and 16.8 million tons of pulpwood. Our planned 1999 timber
sales would represent approximately 2% of this consumption amount. The following
map depicts the location of mills near the Louisiana property:
[GRAPHIC DEPICTING LOCATION OF LOUISIANA TIMBERLANDS AND CONVERSION
FACILITIES IN MARKET REGION OF LOUISIANA TIMBERLANDS APPEARS HERE]
We will consider selling or exchanging parcels from the Louisiana property
that may have greater value if not used for timber production. In particular,
the Louisiana property includes over 50 individual parcels of less than 200
acres each, which may have a greater value to neighboring landowners than to us.
The Louisiana property also includes several parcels that are in close proximity
to the Grand Coushatta Casino and Hotel. This parcel may accommodate future
commercial development.
We recently sold approximately 6,700 acres of agricultural land from the
Louisiana property that had previously been used for rice farming. See
"Transactions with Related Parties."
Strategic Timber does not own the mineral rights to the Louisiana property.
The owners of the mineral rights operate oil and natural gas wells on the
property. We do not expect the oil and natural gas
70
<PAGE> 77
operations to interfere with timber harvesting or with our management of the
property. See "-- Federal and State Regulations -- Environmental Laws."
THE CALIFORNIA TIMBERLANDS
Our California timberlands consist of two distinct operating areas, the
Coastal forest and the Commander forest, which together contain approximately
122,000 acres.
The Coastal forest is located in Mendocino and Sonoma Counties, California,
and consists of two blocks. Together, they include approximately 79,000 acres of
coastal timberland containing approximately 856 million board feet of
merchantable timber, approximately 743 million board feet of which consist of
softwood species.
According to Mason, Bruce & Girard, there are 22 mills in the North Coast
resource area, the market area for our Coastal forest. These mills consume an
estimated 887 million board feet annually. Our planned timber sales in 1999 from
our Coastal forest would represent 4.0% of this amount. The following map
depicts the location of conversion facilities within this market area:
[GRAPHIC DEPICTING LOCATION OF COASTAL PROPERTY AND CONVERSION
FACILITIES IN MARKET REGION OF COASTAL FOREST APPEARS HERE]
71
<PAGE> 78
The Coastal forest contains a blend of species as shown below, as verified
by Mason, Bruce & Girard as of December 31, 1998:
COASTAL FOREST
MERCHANTABLE TIMBER BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
------- ----------------- ----------
(IN THOUSANDS)
-----------------
<S> <C> <C>
Second-growth redwood.................................... 398,249 46.5%
Douglas-fir.............................................. 276,826 32.3%
Hardwoods................................................ 113,766 13.3%
Sugar pine............................................... 52,397 6.1%
Whitewoods............................................... 15,072 1.8%
------- ------
Total.......................................... 856,310 100.0%
======= ======
</TABLE>
Second-growth redwood timber is the predominant species in our Coastal
forest. Second-growth redwood timber commands a premium price in the market and
experiences a lower degree of price volatility than many other softwood species
due to its durability, specialty applications, distinctive coloring and its
relative scarcity. Second-growth redwood grows exclusively in the climatic
conditions unique to the limited coastal range from central California to
southernmost Oregon due to the soil characteristics, substantial rainfalls and
persistent fog. Approximately 32% of the merchantable inventory on the Coastal
forest consists of Douglas-fir, which also grows well under these same
conditions and has historically commanded a premium in the marketplace due to
its durability, strength and aesthetic characteristics.
The Coastal forest is managed under an "Option A" timber management plan
filed with and approved by the California Department of Forestry and Fire
Protection in May 1998. The prior owner of the property, with the assistance of
Mason, Bruce & Girard, developed the Option A timber management plan pursuant to
a California permit process that establishes long-term growth and sustainable
harvest of a specified timberland. This Option A plan established a
decade-by-decade harvesting model through which the Coastal forest has been
approved for substantial commercial harvesting of softwood species. We intend to
manage the property in accordance with the Option A plan and, thus, we expect to
increase substantially harvesting and revenues from the Coastal forest as
compared with historical results. See "-- Federal and State Regulations -- State
Forestry Regulations."
Most of the Coastal forest is productive timberland that we intend to
continue to manage for timber production. A portion of the property may be
suitable for use as a vineyard, and the former owner has the option to reacquire
this portion at a price of $2,000 per acre. Under the option agreement, we would
retain rights to the timber growing on any land we sell.
The Commander forest consists of approximately 43,000 acres and is located
in Glenn, Tehama, Lake and Mendocino counties in the coastal range of northern
California. The Commander forest is located entirely within the Mendocino
National Forest. The merchantable timber inventory in the Commander forest is
approximately 45% Douglas-fir and 46% various pine and fir species. We intend to
harvest over-mature timber in order to reinvigorate stand growth in the
Commander forest.
The Commander forest contains a blend of species as shown below, as
verified by Mason, Bruce & Girard as of December 31, 1998:
COMMANDER FOREST
MERCHANTABLE TIMBER BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Douglas-fir................................................. 136,927 44.9%
White fir................................................... 73,756 24.2%
Ponderosa pine.............................................. 40,234 13.2%
Sugar pine.................................................. 25,271 8.3%
Incense cedar............................................... 28,350 9.3%
Other pine.................................................. 539 0.1%
------- ------
Total............................................. 305,077 100.0%
======= ======
</TABLE>
72
<PAGE> 79
We do not expect to sell any significant parcels from the Commander forest
for higher and better uses. However, because the property contains a number of
tracts of less than 100 acres, there may be opportunities to sell some of these
small tracts to recreational or other users.
According to Mason, Bruce & Girard, there are 20 mills in the northern
interior and Sacramento resource areas of California, which is the market area
for the Company's Commander forest. These mills consume an estimated 1.06
billion board feet of timber annually. Our planned timber sales in 1999 from the
Commander forest would represent 2.9% of this amount.
[GRAPHIC DEPICTING LOCATION OF COMMANDER FOREST AND CONVERSION
FACILITIES IN MARKET REGION OF COMMANDER FOREST APPEARS HERE]
The Commander forest is currently managed under an annual timber management
plan filed with and approved by the California Department of Forestry and Fire
Protection. We plan to file an "Option A" timber management plan, similar to the
type of plan filed for the Coastal forest, with the California Department of
Forestry and Fire Protection by the end of 1999. See "-- Federal and State
Regulations -- State Forestry Regulations."
73
<PAGE> 80
THE OREGON TIMBERLANDS
Our Oregon timberlands consist of approximately 233,000 acres located to
the east of the Cascade Mountains in Baker, Deschutes, Grant, Klamath, Morrow,
Umatilla and Wheeler counties and in Walla Walla County in southeastern
Washington. These timberlands contain approximately 357 million board feet of
merchantable timber, which can be marketed for many different uses. The
predominant species are ponderosa pine and Douglas-fir, representing
approximately 40% and 32% of the total merchantable timber volume, respectively,
on our Oregon timberlands. We intend to harvest selectively and thin the Oregon
timberlands over the next 15 years to allow the substantial inventory of
premerchantable trees to grow into higher value age classes.
In addition to the 357 million board feet of timber on land that we own in
eastern Oregon, we also own approximately 15.3 million board feet of
merchantable timber under timber deeds in Oregon and southeastern Washington.
Under our timber deeds, we own timber without owning the land itself. Private
individuals own all of the lands relating to our timber deeds.
The Oregon timberlands, including timber we own under timber deeds, contain
a blend of species as shown below, as verified by Mason, Bruce & Girard as of
December 31, 1998:
OREGON TIMBERLANDS AND TIMBER DEEDS
MERCHANTABLE TIMBER BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Ponderosa pine.............................................. 148,201 39.9%
Douglas-fir................................................. 119,298 32.1%
White fir................................................... 62,721 16.9%
Western larch............................................... 29,944 8.0%
Lodgepole pine.............................................. 9,766 2.6%
Other....................................................... 1,892 0.5%
------- ------
Total............................................. 371,822 100.0%
======= ======
</TABLE>
Throughout the western United States, harvest levels have been reduced from
public lands over the past ten years. Private owners of timberland have become
the beneficiaries of reduced timber supplies from public lands and the resulting
competitive market for timber. Many mills in eastern Oregon have closed during
the last decade, mostly due to the drastic reduction of timber sales from
federal lands. However, many of the remaining mills have increased capacity
through mill improvements. Mill capacity is adjusting to accommodate the
available supply of eastern Oregon timber. According to Mason, Bruce & Girard,
the current annual log consumption by the 14 mills within the market area of our
Oregon timberlands is estimated to be 492 million board feet. Our planned timber
sales in 1999 from Oregon timberlands would represent 9.9% of this amount.
74
<PAGE> 81
[GRAPHIC DEPICTING LOCATION OF OREGON TIMBERLANDS AND
CONVERSION FACILITIES IN MARKET REGION OF
OREGON TIMBERLANDS APPEARS HERE]
We are currently evaluating our Oregon timberlands to identify parcels that
have a higher and better use than growing timber. We have identified over 15,500
acres from our Oregon timberlands that could be sold, consistent with our
long-term investment strategy of focusing our activities on timber production.
The properties that could be sold include parcels that may be suitable for
grazing, recreational uses or for exchange with the Bureau of Land Management
for timberland.
75
<PAGE> 82
THE WASHINGTON TIMBERLANDS
Our Washington timberlands are located in Lewis, Grays Harbor and Douglas
counties and consist of approximately 11,000 acres containing approximately 129
million board feet of merchantable timber. The timber on the Washington
timberlands is in even-aged stands with well-defined harvesting programs in
place.
The Washington timberlands contain a blend of species as shown below, as
verified by Mason, Bruce & Girard as of December 31, 1998:
WASHINGTON TIMBERLANDS
MERCHANTABLE TIMBER BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Western hemlock............................................. 56,980 44.2%
Douglas-fir................................................. 30,789 23.9%
Red and incense cedar....................................... 16,066 12.5%
Other conifers.............................................. 13,168 10.2%
Red alder................................................... 8,348 6.5%
Other hardwoods............................................. 3,415 2.7%
------- ------
Total............................................. 128,766 100.0%
======= ======
</TABLE>
Historically, a significant amount of logs produced from privately held
timberland in Washington has been sold in the export market, principally due to
the demand for Douglas-fir in Asia, and Japan in particular. The export market
has weakened considerably since early 1997, however, and many logs that would
have previously been exported are now being sold to domestic mills.
According to Mason, Bruce & Girard, there are a total of 31 mills within
the market area served by our Washington timberlands, with a total annual log
consumption of approximately 979 million board feet. Our planned timber sales
from our Washington timberlands in 1999 would represent approximately 1.4% of
this amount. Large industrial timberland owners dominate this market. In
addition to providing a large portion of the annual timber supply, these
companies also generate demand for the resource by operating their own sawmills,
export facilities, and, in some cases, pulp mills.
76
<PAGE> 83
[GRAPHIC DEPICTING LOCATION OF WASHINGTON TIMBERLANDS AND CONVERSION
FACILITIES IN MARKET AREA OF WASHINGTON TIMBERLANDS APPEARS HERE].
HARVEST METHODS
Harvest methods for our timberlands will vary depending upon geography,
topography and soil characteristics. Generally, crawling tractors and wheeled
ground skidders will be used on relatively level terrain. Steep terrain will
generally dictate the use of more expensive cable or tower logging methods. The
Louisiana property, which has comparatively flat terrain, is expected to be
harvested using these ground-based skidder and tractor methods. Portions of the
Coastal and Commander forests have comparatively steep terrain and are expected
to require more cable or tower logging methods. The remaining properties,
containing both level and steep terrain, are expected to be harvested using a
combination of methods.
On the Louisiana property, we intend to thin the productive pine
timberlands, generally twice prior to final harvest. Thinning is employed both
to maintain the optimal stocking density and to improve the quality and health
of the remaining timber. Thinning will be conducted using either mechanical
harvesters or ground crews. We intend to conduct its final harvest of pine
plantations when the timber reaches a mature condition, usually between the ages
of 26 and 34. These management and harvest guidelines are accepted forestry
practice in the southeastern United States and are intended to replicate the
natural
77
<PAGE> 84
ecological lifecycle of the southern pine. Following final harvest, we will
regenerate the site through replanting with appropriate genetically selected
seedlings.
On our Pacific Northwest properties, we will employ a variety of management
and harvest techniques. Consistent with prudent forest management, commonly
accepted forestry practices, and applicable law, harvest practices will include
both partial cutting and clear cutting depending on the specific forest
characteristics. For example, in western Washington, Douglas-fir timber stands
on steeper slopes should be clear-cut and replanted in order to minimize soil
damage and encourage the regeneration of a productive forest. However, in the
ponderosa pine forests of eastern Oregon or California, a multiple stage partial
harvest will encourage natural regeneration of pine, minimize risks (such as
insect infestation) and maintain wildlife habitat.
ACCESS AND LIMITATIONS ON ACCESS
Substantially all of the timberlands in our timberland portfolio are
accessible by a system of established public and private roadways. When
maintenance or new roads are needed, third-party road crews typically conduct
road and bridge construction under the supervision of our personnel or
contracted forest managers. We are also a party to reciprocal road-use and
cost-sharing agreements with private landowners and with governmental agencies.
See " -- Federal and State Regulations -- Other Regulatory Matters."
FEDERAL AND STATE REGULATIONS
BACKGROUND AND APPROACH
Our operations are subject to numerous federal, state and local laws and
regulations, including those relating to the environment, endangered species,
our forestry activities, and health and safety. Endangered species,
environmental and other laws restrict our operations and could impose
significant delays, costs, damages, penalties and liabilities on us. We expect
that endangered species and environmental laws will become more restrictive over
time. Due to the significance of regulation to our business, we plan to
integrate wildlife, habitat and watershed management into our resource
management practices.
Consistent with industry practice, in determining the amount of
merchantable timber in our inventory, we have included approximately 23,000
acres of timberland that are subject to harvest restrictions. These restrictions
may substantially limit, or could possibly prevent, harvests on some or all of
these timberlands. We have not included timber from these restricted acres in
our timber sales plan, to the extent that these restrictions prohibit
harvesting. We expect environmental, forestry and wildlife regulations to become
more restrictive in the future, possibly resulting in the withdrawal of a
significant number of additional acres from our timber sales plan.
ENDANGERED SPECIES LAW
The Federal Endangered Species Act and similar state laws and regulations
protect wildlife species threatened with possible extinction. A number of
species indigenous to the southern and northwestern United States have been, are
and in the future will be protected under these laws and regulations. These laws
generally prohibit activities that would kill, injure, or harass a protected
species or significantly degrade its habitat. The habitat of a protected species
includes areas in which it lives, nests, shelters, breeds, forages or feeds or
areas that are for some other reason necessary for the conservation of the
protected species. Protected species indigenous to the southern United States
and currently found on or near our properties include the red cockaded
woodpecker, Louisiana black bear and bald eagle. Protected species indigenous to
the northwestern United States and currently found on or near our properties
include the northern spotted owl, marbled murrelet, bald eagle, American
peregrine falcon, northern goshawk, steelhead trout, coho salmon and various
other fish species. To the extent required by law, we survey our timberlands for
the presence of endangered or threatened species before we harvest any specific
tract of timberland. A wildlife biologist reviews the survey and determines
whether our harvesting activities will affect any endangered or threatened
species. Our harvest plans take into account any potential restrictions
78
<PAGE> 85
for endangered or threatened species of which we are aware. If we discover
endangered or threatened species on a particular tract, we have the flexibility
to adjust our harvest plans in an effort to avoid any significant reduction in
yield. We can choose to sell timber from a different tract or have the timber
cut at a different time of the year to avoid disturbing the habitat of an
endangered or threatened species. We can exercise this flexibility because we
harvest only a small percentage of our timberlands each year. Nonetheless, the
presence of protected species on or near our timberlands may significantly
affect our operations, including restricting or prohibiting timber harvesting,
road building, access across federal lands and silvicultural activities on the
affected areas of our timberlands.
The states of California, Oregon and Washington have rules and regulations
that regulate our timber harvest activities to protect endangered species. The
California Forest Practice Rules, the California Endangered Species Act, the
Washington Forest Practices Act, the Oregon Forest Practices Act and related
regulations all have specific provisions governing habitat protection for the
northern spotted owl, bald eagle, marbled murrelet, coho salmon, steelhead trout
and other threatened or endangered species. At present, Louisiana has not
adopted any endangered species requirements that affect our Louisiana
operations.
In 1990, the U.S. Fish and Wildlife Service listed the northern spotted owl
as a threatened species throughout its range in Washington, Oregon and
California. At the time of the listing, the U.S. Fish and Wildlife Service
issued suggested guidelines to be followed by landowners in order to comply with
the Endangered Species Act's prohibition against harming or harassing owls. The
guidelines recommend several measures, including habitat management and the
restriction of harvest activities in areas within a certain proximity of known
owl activity centers.
Pacific Northwest Properties. Recent surveys by independent forestry
consultants of our Pacific Northwest properties identified the presence of the
northern spotted owl, the bald eagle and other endangered or threatened species.
We engaged independent forestry consultants to provide information about our
timberlands for our lenders. In connection with this process, the consultants
surveyed the presence of wildlife on our properties. The surveys conducted in
the first quarter of 1998 showed that there were approximately 110 northern
spotted owl activity centers that affect our Commander forest, though many of
these activity centers are located on adjacent properties. Although there have
been incidental observations of bald eagles, American peregrine falcon, and
golden eagles in the Commander forest, no nesting or rooting sites have been
found. Steelhead trout and fall chinook salmon have been observed in streams in
the Commander forest and it is likely that streams in that forest will be
subject to restrictions for these species and for coho salmon. One bald eagle
nest was found on our Riffe Lake tract in Washington. The surveys noted that the
range of the marbled murrelet and the northern spotted owl include our Riffe
Lake tract, though none are currently known to reside on the property.
Our forestry consultants have also conducted surveys as part of our timber
harvest planning process on our Coastal forest. These surveys showed that there
were approximately 12 pairs or single spotted owls on the Longview tract in
California, and that the property is within the range of the bald eagle,
peregrine falcon and marbled murrelet. Streams within the Longview tract support
coho salmon, steelhead trout, and chinook salmon. We currently comply with
restrictions to protect and restore the habitat of these fish. The nature and
scope of restrictions to conserve fish populations may increase over time. For
example, the size of buffer zones along streams on our property may have to be
widened and the number of streams subject to buffer requirements may increase.
Road construction and maintenance requirements may also become more burdensome.
A similar survey conducted on our Willits Woods/Williams Ranch tract in the
Coastal forest showed that there were approximately 10 pairs or single spotted
owls and one peregrine falcon nest on the property, and that the property is
within the range of the bald eagle, the peregrine falcon and the marbled
murrelet. Streams within the Willits Woods/Williams Ranch tract contain coho
salmon and steelhead trout. Some chinook salmon have also been reported. We
comply with the same protective measures with respect to streams on this tract
as with the Longview tract.
Louisiana Property. In connection with our acquisition of the Louisiana
property, we conducted a Phase I environmental site assessment in April 1998.
This Phase I assessment identified red cockaded
79
<PAGE> 86
woodpecker nests that were apparently abandoned on approximately two acres. The
Louisiana property has in the past been, and may still be, inhabited by the red
cockaded woodpecker, as well as other protected species. Although no endangered
species surveys are required prior to harvesting in Louisiana, there are strict
regulations requiring us to halt harvest operations in specific areas where
evidence of endangered species is observed. If we do observe protected species,
we would begin biological studies to determine appropriate responses to
protected species present on the property. The presence of any protected species
on our timberlands could materially restrict our future harvests.
To the extent required to comply with environmental regulations, we will
evaluate each tract of timber designated for thinning, harvesting or another
silvicultural operation to determine whether to conduct a field inspection
before commencing operations. We also intend to investigate reported sightings
of threatened or endangered species to the extent required by industry standards
and governmental regulations.
We believe that we are managing our harvesting operations in the areas
affected by protected species in compliance with applicable federal and state
regulations. We do not believe that the presence of any protected species on our
lands will materially restrict our ability to proceed with our current harvest
plans and other silvicultural activities and operations. Because we harvest only
a small percentage of our merchantable inventory each year, we generally have
the flexibility to adjust for the presence of protected species on our
timberlands. We can choose to defer harvesting on an affected tract and
substitute it with an unaffected tract. The presence of a protected species on a
tract does not always permanently remove acreage from harvesting because the
protected species may move or restrictions may apply only during limited periods
of time -- for example, during a species' breeding or mating seasons. However,
additional species on or around our timberlands may receive protected status
under the Endangered Species Act or similar state laws.
Protected species may be discovered in significant numbers on or around our
timberlands. These species could be or become present on our properties in
sufficient numbers to restrict our timber sales plan materially. Additionally,
future legislative, administrative or judicial activities related to protected
species may adversely affect us, our ability to continue our operations as
currently conducted, or our ability to implement our business strategy.
STATE FORESTRY REGULATIONS
In operating our Pacific Northwest properties, we must comply with state
statutes and regulations that regulate forestry operations. These laws address
many growing, harvesting and other activities on forest lands. Among other
requirements, these laws restrict the size and spacing of harvest units and
impose reforestation obligations on the owners of forest lands. State laws and
regulations also limit timber slash burning, operations during fire hazard
periods, logging activities affecting or utilizing water courses or in proximity
to ocean and inland shore lines, water degradation and grading and road
construction activities.
The State of Oregon requires a timber owner to provide prior notification
before beginning various types of forestry operations, including harvesting.
The States of Washington and California are more restrictive. The State of
Washington requires a rigorous regulatory review prior to harvesting, depending
upon the environmental and other sensitivities of the proposed logging site.
This pre-harvesting review may take from 15 to 30 days or more to complete.
Before a private landowner can harvest timber in California, the landowner
must submit a timber harvest plan prepared by a registered professional
forester. The plan must comply with California's forestry rules, which are
perhaps the most stringent in the United States. The plan must describe in
detail how the harvest will be done, the silvicultural methods to be used,
stocking methods, and what measures will be taken to prevent erosion, maintain
water quality, protect wildlife habitats. The plan must also provide support for
the sustainability of other forest resources. A timberland owner like Strategic
Timber that owns over 50,000 acres in California must operate under either a
sustained yield plan or an "Option A" plan.
80
<PAGE> 87
Both of these documents require sophisticated plans detailing inventory methods,
planned harvest levels and assurances that growth and harvest are being balanced
over time.
Louisiana does not currently have any statutes or regulations we believe
would materially restrict our forestry operations.
We may acquire timberlands in jurisdictions with forest practices acts that
are considerably more restrictive than the best management practices currently
utilized by many foresters. Many states are considering or are expected to
consider laws and regulations governing forest practices.
ENVIRONMENTAL LAWS
Timber operations involve the use and storage of various materials such as
herbicides, pesticides, fertilizers and gasoline, and may result in air
emissions, releases to soil or groundwater, or discharges of potentially
hazardous materials into streams and other bodies of water. Accordingly, we must
comply with federal, state and local environmental laws and regulations relating
to the protection of the environment. Environmental laws and regulations have
changed substantially and rapidly over the last 20 years, and we expect them to
become increasingly stringent. Although we believe that we are in substantial
compliance with these requirements, these laws and regulations may lead to
significant costs, penalties and liabilities, including those related to claims
for damages to property or natural resources. These laws and regulations could
also impose restrictions on timber harvesting and other silvicultural
activities. As of the date of this prospectus, we are not aware of any pending
legislative, administrative or judicial action relating to the protection of the
environment that we believe could materially and adversely affect us.
Some environmental statutes, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act and comparable state
laws, impose strict liability, regardless of the lack of negligence or fault on
the part of the person held liable. Under various laws and regulations, an owner
or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on, from or in its
property, often without regard to whether the owner or operator knew of, or was
responsible for, the release of the substances. The presence of these
substances, or the failure to remediate them properly, may adversely affect the
owner's ability to sell contaminated real estate or to use it as collateral.
The Louisiana property contains active and inactive natural gas and oil
wells and pipelines, which have been and will continue to be operated by third
parties. The operation of natural gas and oil wells involves risks, such as well
blowouts, cratering, explosions, uncontrollable flows of oil or well fluids,
fires, formations with abnormal pressures, pollution, pipeline ruptures and
spills, and releases of toxic gas. The operators of these natural gas and oil
wells and pipelines are primarily responsible for any environmental hazards
associated with these activities. Other past activities on the Louisiana
property are evidenced by an abandoned asphalt plant, an abandoned sawmill and
abandoned landfills. We do not believe that these past activities have caused
any material environmental impacts.
Our operations involve only owning and selling timberlands, Pioneer and
related entities have in the past owned timber processing facilities associated
with the Pacific Northwest properties. In some circumstances, past owners may
incur environmental liability. Additionally, a property connected with our
Oregon timberlands was previously the site of an equipment maintenance
operation. Remedial activities have been conducted on this property, and we
believe that no material contamination remains at the site. A company affiliated
with the sellers of Pioneer has agreed to indemnify us against environmental
liabilities arising out of the Pacific Northwest properties relating to
conditions that existed at the time of the acquisition.
We may acquire timberlands subject to potential environmental or other
liabilities. We are not aware of any activities or any conditions on our initial
timberlands that would likely result in our material liability for remediation
or other environmental costs. However, we may not know about material
environmental conditions on our lands that may have been created by us, a prior
owner or operator of our land or an
81
<PAGE> 88
adjacent landowner. In addition, our operations could result in material
liabilities, fines, costs and restrictions under current or future environmental
laws and regulations.
The Federal Clean Air Act and Clean Water Act, and their state equivalents,
control our on-site preparation activities such as slash burning and regulatory
programs designed to reduce runoff discharged into bodies of water. For example,
the U.S. Environmental Protection Agency and its state counterpart have
designated bodies of water as "water quality impaired," triggering a requirement
to establish Total Maximum Daily Loads, or TMDLs, for those bodies of water. The
TMDL process could result in additional limitations on harvesting activities in
some or all of the states where we operate. Our California timberlands are in
watersheds that have been designated as water quality impaired. As the TMDL
process is completed for these watersheds, we must take precautions to prevent
erosion, and we may need to monitor water quality during our harvesting
operations. However, our timber sales plans currently provide measures to
protect water quality. Therefore we believe that this designation will have no
material effect on our ability to conduct business.
In addition, our business is affected by federal and state laws designed to
protect wetlands. The Federal Clean Water Act authorizes the regulation of
wetland areas. Access to timberlands located within or beyond a protected
wetlands area may be limited, and we may be required to pay for the protection
of wetland areas. Alternatively, we may have to stop harvesting in wetland
areas. Based on existing governmental surveys and supplemental data that
identify wetland areas, we have identified approximately 4,500 acres of wetlands
on our Louisiana property. Consistent with local forestry practice, we are
harvesting timber in these wetland areas only to a limited extent.
OTHER REGULATORY MATTERS
Our operations will be subject to various other federal and state
regulations. For example, the Federal Insecticide, Fungicide, and Rodenticide
Act regulates the use of pesticides used in forestry practices. We must also
comply with the federal Occupational Safety and Health Act and comparable state
statutes relating to the health and safety of employees. We believe that we are
in compliance with OSHA regulations, including general industry standards,
permissible exposure levels for toxic chemicals and record-keeping requirements.
A portion of our Pacific Northwest properties consists of sections of land
that are intermingled with or adjacent to sections of federal land managed by
the U.S. Forest Service and the Bureau of Land Management. Removal of trees from
those portions of the Pacific Northwest properties requires trucks to carry logs
across logging and general purpose roads. In many cases, access is only, or most
economically, achieved through a road or roads built across adjacent federal
land and available to us pursuant to a reciprocal right-of-way agreement.
Recent litigation not involving us before the U.S. Court of Appeals for the
Ninth Circuit held that the Bureau of Land Management was not required to
consult with the U.S. Forest and Wildlife Service, the agency that administers
the Endangered Species Act, prior to approving a private landowner's proposal to
build an access road across federal land pursuant to an existing reciprocal
right-of-way entered into prior to the enactment of the Endangered Species Act.
The Court found that the Bureau of Land Management did not have discretion to
disapprove a road segment due to endangered species concerns. However, future
federal law or regulation requiring the Bureau of Land Management to consult
with the U.S. Forest and Wildlife Service in connection with a reciprocal
right-of-way could prevent us from harvesting the affected portion of the
Pacific Northwest properties.
To the extent that we acquire new timberlands that require access through
federal lands, we may need to enter into new reciprocal right-of-way agreements
with the Bureau of Land Management or other federal agencies which would require
consultation with the U.S. Forest and Wildlife Service. In addition, the Bureau
of Land Management previously attempted to revise regulations governing
reciprocal right-of-way agreements. These regulations attempted to expand the
Bureau of Land Management's consideration of environmental and cultural factors
in granting, issuing or renewing rights-of-way, provide the Bureau of Land
Management with regulatory authority to object to the location of roads because
of potential effects
82
<PAGE> 89
on threatened or endangered species and allow for the abandonment of
rights-of-way under certain circumstances. Future attempts to so revise the
applicable regulations, if successful, could affect our ability to harvest
timber activities on the Pacific Northwest properties.
OUR CUSTOMERS
We currently are in the process of building a customer base for timber from
the Louisiana property that will enable us to meet our planned timber sales
program. We have entered into and will continue to enter into cutting contracts
with respect to the Louisiana property in the ordinary course of our business.
We plan to offer timber for sale to major industrial companies, and to develop
marketing relationships with timber brokers and independent logging companies in
the southeastern United States.
Our eastern Oregon timberlands have historically been a raw material
supplier for two previously affiliated sawmills located nearby. Although it is
expected that these two mills will continue to be major purchasers of timber
from these lands, we have initiated a marketing program to diversify our
customer base within the region.
Until mid-1998, our western Washington timberlands had been managed as part
of a much larger industrial land base, with the bulk of the harvested timber
being converted at affiliated facilities. In the future, we intend to take
advantage of the diverse market for timber in the region. These potential new
markets include many large industrial timber companies as well as brokers and
exporters.
Historically, the previous owner of our Commander forest dealt exclusively
with the most prominent lumber producer in northern California with respect to
sales of timber from that forest. We intend to develop relationships with other
wood users in the region. In the redwood region of northern California, we
anticipate doing business with a diverse group of potential timber customers.
Currently, we are in the process of building a customer base for timber from our
Coastal forest.
To date, we have entered into contracts providing for aggregate 1999 timber
harvests valued at $17.1 million. These include new contracts on our Louisiana
property with five separate buyers -- Boise Cascade Corporation, Heath Timber
Company, Inc., Hunt Forest Products, Inc., Nash-Co. Industries Forest Products,
Inc. and Temple-Inland Inc. -- and provide for harvests of up to 300,000 tons of
timber in 1999. The 1999 harvests also include sales of 17.4 million board feet
from our Commander forest to Sierra-Pacific Industries, Inc.
We expect to sell more timber in the Pacific Northwest as the effects of
winter weather subside.
COMPETITION
COMPETITION IN TIMBER SALES
Due to transportation costs, domestic timber conversion facilities tend to
purchase raw materials within relatively confined geographic areas. Currently in
the United States, we and our competitors all benefit from the relatively close
proximity of numerous conversion facilities. Additional competitive factors
within a market area generally will include species, quality, and consistency in
meeting customers' specifications and delivery requirements.
Within the United States, we compete with numerous private timber owners.
In addition, we compete with the U.S. Forest Service and other governmental or
public agencies with timber holdings. The level of competition will also tend to
vary depending upon prevailing timber prices. Rising timber prices often lead to
increased harvesting on private timberlands, including lands not previously made
available for commercial timber operations.
Internationally, we expect competitive situations and factors similar to
those in the United States. Where we seek to develop the timber resource in a
growing locality, it may also experience competition for or limitations on
labor, energy, skilled professionals or other resources. Relatively new markets
and markets
83
<PAGE> 90
which are not yet fully developed for a particular product may experience
sluggish sales due to a lack of market competition, as there may be a limited or
undeveloped pool of buyers for a particular product.
Global price fluctuations may adversely affect demand for particular
species, grades, or products or could make substitute species, products or
materials economically competitive. Price fluctuations could also bring certain
supplies of standing timber to market which have until now been unprofitable to
harvest. We believe, however, that our current diversified portfolio and our
global investment strategy will dampen the negative effects of depressed markets
in any given region.
COMPETITION FOR TIMBERLAND PROPERTIES
Competition for high-quality timberland within the United States and in
certain other countries has intensified, often requiring a flexible approach to
identification, negotiation, and completion of successful acquisitions. We
believe that our competitive strengths will enhance our success in acquisitions
despite the greater financial resources of certain of our competitors. See "Risk
Factors -- We may not be able to achieve our intended growth."
INSURANCE COVERAGE
Certain types of losses, such as damage to our timberlands and associated
lost revenues due to fires, ice storms, pests, disease and other natural
disasters, are uninsurable at commercially justifiable rates. Accordingly, as is
typical in the industry, we do not carry insurance for these losses. See "Risk
Factors -- Losses of timber from fire and other causes are not insured."
LEGAL PROCEEDINGS
Although we may, from time to time, be involved in litigation and claims
arising out of our operations in the normal course of business, we are not
currently a party to any material legal proceedings.
EMPLOYEES
Upon the closing of the formation transactions described in "Structure and
Formation of Strategic Timber," our employees will include the persons currently
employed by Strategic Timber Operating Co. and Strategic Timber Two Operating
Co. As of March 15, 1999, these entities employed 27 salaried full-time
employees. Of these employees, eight are part of senior management, 13 are in
forestry operations and six hold administrative and clerical positions. We
expect to hire seven additional forestry operations employees within the next 30
days.
All of our senior management, together with three administrative employees,
are located at our headquarters office in New London, New Hampshire.
None of our employees are represented by unions or covered by any
collective bargaining agreements. We have not experienced a work stoppage and
our management believes that we maintain good relations with our employees.
84
<PAGE> 91
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
This section summarizes our current investment objectives and policies,
disposition and financing policies and policies with respect to other
activities. Our Board of Directors established these policies, and it may amend
or revise them from time to time without a shareholder vote. However, we cannot
affirmatively take any action intended to terminate Strategic Timber's
qualification as a REIT without the approval of the holders of a majority of our
outstanding common stock.
INVESTMENT POLICIES
Our investment objective is to maximize the total return from our entire
portfolio consistent with our long-term policy of increasing sustainable yield.
We will seek to accomplish our objective primarily through managing our initial
portfolio of timberlands and acquiring additional timberlands.
Our initial portfolio of timberlands includes a total of approximately
448,000 acres in California, Louisiana, Oregon and Washington. We intend to
acquire additional timberlands in these states, elsewhere within the United
States and abroad. Our current policy, however, is to limit investments outside
the United States to no more than 20% of the total value of our assets.
We will focus on long-term ownership of timberlands. However, we may
purchase or lease properties for long- or short-term investment. We will finance
our investments as described below under "-- Financing Policies." We may cause
our operating partnership to hold or sell any or all of its initial portfolio
when circumstances warrant, subject to the restrictions on sale in the
partnership agreement. We also may participate with other entities in property
ownership, through joint ventures or other types of co-ownership. Equity
investments may be subject to existing mortgage financing and other indebtedness
that has priority over our equity interest in those properties. To enhance the
value of timberlands located in undeveloped or underdeveloped markets, we may
invest in limited conversion, transport or export facilities to stimulate the
growth and competition of local timber markets or provide access to export
markets.
While we intend to emphasize equity investments in timberlands, we may, in
our sole discretion, invest in forest products-related mortgages, partnerships
and other interests in timberlands. We may invest in securities of companies
engaged in timberland activities, subject to the gross income and asset tests
necessary for REIT qualification. We may acquire securities or assets of other
timber owning companies when consistent with our investment policies.
There are currently no other limitations on
- the percentage of our assets that we may invest in any one property,
venture or type of security,
- the number of properties in which we may invest or
- the concentration of our investments in a single geographic region.
Our Board of Directors may establish other limitations, and other policies, as
it deems appropriate from time to time.
We conduct all of our investment activities through our operating
partnership. See "The Partnership Agreement -- Powers of Strategic Timber
Operating Co., as General Partner."
FINANCING POLICIES
We intend to target a ratio of debt to total market capitalization,
assuming the exchange of all partnership units for common stock, of
approximately 40%. Our Board of Directors may, however, reconsider this policy
from time to time and reduce or increase this ratio accordingly. Assuming an
initial offering price of $20 per share, following the completion of this
offering and the use of net proceeds from this offering, we will have
approximately $260.0 million of indebtedness, or $213.7 million if the
underwriters exercise in full their over-allotment option. This will constitute
approximately 36.9% of our total market capitalization after giving effect to
this offering, or 30.2% if the underwriters exercise in full
85
<PAGE> 92
their over-allotment option. Before this offering, we have financed our
activities primarily through bank loans and equity investments. See "Structure
and Formation of Strategic Timber."
Generally, we will determine all of our financing policies in light of
then-current economic conditions and timber prices, relative costs of debt and
equity capital, market values of properties, growth and acquisition
opportunities and other factors. If the Board of Directors determines that
additional funding is desirable, we may raise funds through additional equity
offerings, debt financings, retention of cash we generate from our operations or
a combination of these methods.
If the Board of Directors determines to raise additional equity capital, it
has the authority, without your approval, to issue additional shares of
authorized common stock or preferred stock on terms it deems appropriate,
including in exchange for property. Our then-existing shareholders will have no
preemptive right to purchase any of these shares. If the Board of Directors
determines to raise additional equity capital, Strategic Timber will contribute
funds raised to Strategic Timber Partners in return for additional partnership
units. In addition, Strategic Timber may issue additional shares of common stock
in redemption of partnership units on the exercise of the limited partners'
exchange rights under the partnership agreement. See "The Partnership
Agreement."
The Board of Directors, through its control of Strategic Timber Operating
Co., also has the authority to cause Strategic Timber Partners to issue
additional partnership units in any manner as it deems appropriate, including in
exchange for property. See "The Partnership Agreement -- Issuance of Additional
Limited Partnership Interests; Additional Capital Contributions." Strategic
Timber may also purchase shares of its common stock, subject to restrictions
under Georgia law applicable to shareholder distributions. If a holder of
partnership units surrenders its units for exchange, Strategic Timber may, at
its discretion, cause Strategic Timber Partners to redeem those partnership
units for cash rather than common stock. See "The Partnership Agreement."
We anticipate that borrowings will be made through Strategic Timber
Partners. Strategic Timber also may incur indebtedness and lend borrowed funds
to Strategic Timber Partners on the same or similar terms and conditions on
which Strategic Timber borrowed the funds. Debt may be in the form of purchase
money obligations to sellers of timberlands to Strategic Timber Partners,
publicly or privately placed debt instruments, or financing from banks,
institutional investors or other lenders. Any of this debt may be unsecured or
may be secured by mortgages or other interests in the assets of Strategic
Timber, Strategic Timber Partners or any newly created property-owning
partnership. Any number or amount of mortgages may be placed on a particular
property. The proceeds from any borrowings may be used for the payment of
distributions, for working capital, to pay the exchange price payable for
partnership units under the partnership agreement, to refinance indebtedness, to
finance acquisitions or for other purposes deemed appropriate by the Board of
Directors.
WORKING CAPITAL RESERVES
We will maintain working capital reserves in amounts that our Board of
Directors determines to be adequate to meet normal contingencies in connection
with the operation of our business.
CONFLICT OF INTEREST POLICIES
EMPLOYMENT AGREEMENTS
C. Edward Broom serves on the Board of Directors, or the equivalent
management body, of several privately held timber investment funds arising from
his previous employment with Resource Investments, Inc. Only one of these funds
has committed funds that have not yet been invested. This fund could compete
with us in acquiring timberlands. Because this fund's investment policies are to
invest exclusively outside the United States and typically to make larger
investments than we plan to make, we do not expect conflicts to arise. In his
employment agreement, Mr. Broom has agreed that if we wish to bid on a property
and any fund with which he is affiliated is either the seller of the property or
also wishes to bid on the property, he will not participate in the transaction
on behalf of the fund. Mr. Broom may not
86
<PAGE> 93
compete against us during the term of his employment and for a period of one
year thereafter in North America, Central America and South America, Mr. Broom
may not solicit purchasers of our timber or prospective sellers of timberlands
with which he had contact during the term of his employment for a period of one
year thereafter. Mr. Broom has also agreed to spend no more than 5% of his time
devoted to his interests in these timber funds.
We also have an employment and non-competition agreement with each of
Messrs. Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C.
Brunet, Vladimir Harris and Joseph E. Rendini effective as of the consummation
of this offering. Each of these employment agreements prohibits the employee
from competing against us during the term of his employment and for a period of
one year thereafter in North America, Central America and South America. It also
prohibits the employee from soliciting purchasers of our timber or prospective
sellers of timberlands with which he had contact during the term of his
employment for a period of one year thereafter. See "Management -- Employment
and Non-Competition Agreements."
OTHER POLICIES GOVERNING COMPETING WITH STRATEGIC TIMBER
Under Georgia law, each of our directors and executive officers must carry
out his duties in a manner he believes in good faith to be in the best interests
of Strategic Timber, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances. In addition, under Georgia
law, a transaction between Strategic Timber and any of our directors or between
Strategic Timber and a corporation, firm or other entity in which one of our
directors has a significant interest may not be challenged on the basis of the
director's conflicting interest if the transaction is fair to Strategic Timber.
This type of transaction also could not be challenged on the basis of the
director's conflict of interest if, after the director discloses the material
facts concerning his or her interest and the transaction, a majority of our
disinterested directors or a majority of our shareholders approves the
transaction. For shareholder approval, shares held or controlled by a director
with a conflicting interest would not count.
Our policies restrict all employees from investing in timberlands, directly
or indirectly, for their own accounts. This policy does not apply to timberlands
owned by employees at the time they became our employees. Our non-employee
directors may only invest in timberlands, directly or indirectly, if the
director first offers the opportunity to us on the same terms and conditions
available to the director. The Audit Committee of the Board of Directors
administers this policy, and can make exceptions.
Our Articles of Incorporation and Bylaws do not further restrict our
directors, officers, shareholders or affiliates from having an interest in
investments that we acquire or sell, or acting for their own accounts in
investing in timberlands or engaging in other businesses in which we engage.
THE PARTNERSHIP AGREEMENT
The partnership agreement gives Strategic Timber Operating Co., as general
partner, full and exclusive responsibility to manage and control the business of
Strategic Timber Partners, subject to limited exceptions described under "The
Partnership Agreement." The limited partners in Strategic Timber Partners have
agreed that Strategic Timber Operating Co. is not required to consider the
separate interests of the limited partners, including tax consequences to the
limited partners, in conducting the partnership's business. Strategic Timber
owns all of the equity interests in Strategic Timber Operating Co.
REPORTS TO SHAREHOLDERS
We intend to send you annual reports containing audited consolidated
financial statements and an independent public accounting firm's opinion on the
financial statements. We also intend to send you quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
See "Where You Can Find More Information."
87
<PAGE> 94
OTHER POLICIES
We intend to operate in a manner that will permit Strategic Timber to
qualify for taxation as a REIT under the Internal Revenue Code. We could decide
not to operate to qualify as a REIT if the Board of Directors decides that,
because of changes in economic circumstances or tax rules, it is no longer in
Strategic Timber's best interests to qualify as a REIT, and a majority of our
shareholders approves this decision. We also intend to operate in a manner that
will not subject Strategic Timber to regulation under the Investment Company Act
of 1940, as amended. We have not invested and do not intend to invest in the
securities of other issuers, other than Strategic Timber Partners and Strategic
Timber Operating Co. and other than in connection with timberland acquisitions,
for the purpose of exercising control over those issuers. We have not traded,
underwritten or sold securities of other issuers. We do not intend to underwrite
securities of other issuers or trade actively in loans or other investments.
We may make investments other than those described above, although we
currently do not intend to do so. We may repurchase or otherwise reacquire
common stock or any other securities we may issue. We have no present intention
to repurchase any of our common stock. If we do repurchase shares, we will only
do so in accordance with applicable federal and state laws and the requirements
for qualifying as a REIT under the Internal Revenue Code and the Treasury
Regulations. We have not issued common stock or any other securities in exchange
for property except in connection with our formation transactions. We also have
not reacquired any of our common stock or any other securities. See "Structure
and Formation of Strategic Timber." We may make loans to third parties,
including our officers and directors.
88
<PAGE> 95
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our Board of Directors will be expanded effective immediately upon
completion of this offering to include the director nominees named below, each
of whom has been nominated for election and has consented to serve. We believe
that an independent Board of Directors, whose interests are aligned with those
of the shareholders, is essential to the creation of long-term shareholder
value. Therefore, it is expected that upon completion of this offering, four of
seven of our directors will not be employed by, or otherwise affiliated with,
Strategic Timber.
In connection with the expansion of the Board of Directors, and upon
completion of this offering, the Board of Directors will be divided into three
classes. The initial terms of the first, second and third classes will expire in
2000, 2001 and 2002, respectively. Beginning in 2000, directors of each class
will be chosen for three-year terms upon the expiration of their current terms
and each year one class of directors will be elected by the shareholders. We
believe that classification of the Board of Directors will help to assure the
continuity and stability of our business strategies and policies as determined
by the Board of Directors. Holders of common stock will have no right to
cumulative voting in the election of directors. Consequently, at each annual
meeting of shareholders, the holders of a plurality of shares of common stock
will be able to elect all of the successors of the class of directors whose term
expires at that meeting.
Information concerning our current directors, director nominees and
executive officers is set forth below.
<TABLE>
<CAPTION>
TERM EXPIRES
NAME AGE POSITION (DIRECTORS ONLY)
- ---- --- -------- ----------------
<S> <C> <C> <C>
C. Edward Broom............. 70 President, Chief Executive Officer and Chairman of 2002
the Board of Directors
Christopher J. Broom........ 38 Executive Vice President, Chief Investment Officer 2001
and Director
Thomas P. Broom............. 39 Executive Vice President, Chief Operating Officer and 2000
Director
Kenneth L. Chute............ 53 Senior Vice President and Chief Financial Officer
Nicholas C. Brunet.......... 36 Senior Vice President and Director of Forest
Operations
Vladimir Harris............. 42 Senior Vice President and Director of Acquisitions
Joseph E. Rendini........... 44 Secretary, General Counsel and Vice President
T. Yates Exley.............. 38 Vice President -- Strategy and Development
Starling W. Childs, II...... 45 Director+ 2000
Jay S. Lucas................ 44 Director+ 2001
Hanns A. Pielenz............ 59 Director+ 2002
Richard P. Urfer............ 62 Director+ 2002
</TABLE>
- ---------------
+ Each of these individuals has agreed to serve as a director upon being elected
to the Board of Directors. We expect that each of these individuals will be
elected as a director upon completion of this offering.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
C. Edward Broom has been the President and Chief Executive Officer of
Strategic Timber since its inception and Chairman of the Board of Directors
since January 1999. Mr. Broom is responsible for our overall corporate strategy
and direction. Mr. Broom was a co-founder of Resource Investments, Inc., a
timberland investment advisory firm, and served as its Chairman and Chief
Executive Officer from its
89
<PAGE> 96
founding in 1983 until the firm was acquired by the Union Bank of Switzerland in
1995. Mr. Broom organized Resource Investments Advisors, Inc. in June 1995 after
Resource Investments, Inc. was acquired by the Union Bank of Switzerland, and
has served as the President, Chief Executive Officer and controlling shareholder
of Resource Investments Advisors since that time. Resource Investments Advisors
is a timberland investment management firm that performs some of the same
services previously offered by Resource Investments, Inc. In 1997, Mr. Broom
co-founded Strategic Timber Investments LLC, which was created as a new
timberland investment management firm and succeeded to a portion of the business
of Resource Investments Advisors, but was subsequently dissolved when Strategic
Timber was formed. Mr. Broom currently serves on the board of directors or
management committee of each of Resource Investments, Inc.'s joint ventures.
Christopher J. Broom has served as Executive Vice President and Chief
Investment Officer of Strategic Timber since its inception and a Director since
January 1999. Mr. Broom has primary responsibility for the development of
investment opportunities, capital development, and investor relations. From 1997
to 1998, Mr. Broom served as Executive Vice President and Director of Marketing
and Product Development for Strategic Timber Investments, which he co-founded.
From 1995 to 1997, he served as a Director of UBS Resource Investments, Inc.,
the successor to Resource Investments, Inc. after its acquisition by the Union
Bank of Switzerland, and had overall responsibility for new product development
and marketing of the firm's timberland investment services to institutional
investors. Mr. Broom previously served Resource Investments, Inc. as Senior Vice
President of New Product Development, Client Services and Marketing and
Principal from 1988 to 1995.
Thomas P. Broom has served as Executive Vice President and Chief Operating
Officer and a Director of Strategic Timber since its inception. Mr. Broom has
primary responsibility for management and administration of our timberland
portfolio. From 1997 to 1998, Mr. Broom served as Executive Vice President and
Director of Operations and Finance for Strategic Timber Investments, which he
co-founded. From 1995 to 1997, he served as Director of Finance and
Administration and Fund Manager of UBS Resource Investments, and had
responsibility for its administrative matters, including accounting, insurance,
auditing, personnel and facilities management. Mr. Broom previously served as
Vice President of Administration of Resource Investments, Inc. from 1992 to
1995. During that time, Mr. Broom also served as the fund manager of Resource
Investments, Inc.'s Tasman Chile Ltd. joint venture and was responsible for new
investment activities for Resource Investments, Inc. in South America.
Kenneth L. Chute has served as Senior Vice President and Chief Financial
Officer of Strategic Timber since January 1999, and is responsible for our
financial, accounting, treasury and tax functions, credit facilities,
information systems, and human resources. Mr. Chute has over 20 years experience
in financial management, auditing, accounting systems, mergers, acquisitions,
and disposals. From 1979 to 1998, he served as Chief Financial Officer and Vice
President of Finance and Administration for Sprague Energy Corp., a diversified
energy company located in Portsmouth, New Hampshire. He began his career as an
auditor at Arthur Andersen, LLP. Mr. Chute is a Certified Public Accountant and
is a member of the American Institute of CPAs, the New Hampshire Society of
CPAs, the Institute of Management Accountants and the Financial Executives
Institute.
Nicholas C. Brunet has served as Senior Vice President and Director of
Forest Operations of Strategic Timber since June 1998, and is responsible for
forestry operations of our timberland holdings. From 1996 until the time he
joined us, Mr. Brunet served as Area Manager for Green Crow Corporation, a land
investment and log brokerage firm located in Port Angeles, Washington. From 1995
to 1996, Mr. Brunet served as a Vice President of UBS Resource Investments,
where he was Fund Manager for U.S. timberlands. From 1990 to 1995, Mr. Brunet
served in the same capacity for Resource Investments, Inc., UBS Resource
Investments' predecessor.
Vladimir Harris has served as Senior Vice President and Director of
Acquisitions of Strategic Timber since its inception. Mr. Harris has primary
responsibility for timberland acquisitions. From February to April 1998, Mr.
Harris served as Senior Vice President and Chief Investment Officer of Strategic
Timber Investments. From June 1988 through January 1998, he was an officer and a
Managing Director of
90
<PAGE> 97
Baldwin & Clarke Corporate Finance, Inc. and Baldwin & Clarke Capital Markets,
Inc., which are affiliated financial advisory and investment banking firms based
in Bedford, New Hampshire. In these capacities, he specialized in mergers and
acquisitions and served as a consultant to UBS Resource Investments from 1995 to
1997, and to Resource Investments, Inc., UBS Resource Investments' predecessor,
from 1990 to 1995.
Joseph E. Rendini has served as Secretary, General Counsel and Vice
President of Strategic Timber since its inception. From 1997 to 1998, Mr.
Rendini served as Vice President and General Counsel of Strategic Timber
Investments. From 1994 to 1997, Mr. Rendini engaged in a private civil
litigation practice in Boston, Massachusetts. From 1993 through 1994, Mr.
Rendini served as Managing Attorney for United States Fidelity + Guaranty
Insurance Company for eastern Massachusetts. Prior to joining USF+G, Mr. Rendini
engaged in a private civil litigation practice in Boston, Massachusetts and New
York, New York.
T. Yates Exley has served as Vice President -- Strategy and Development of
Strategic Timber since October 1998. Mr. Exley is responsible for the
development and structure of acquisition vehicles and investment partnerships.
Mr. Exley served as Executive Vice President of Pioneer from 1997 to 1998. From
1989 to 1997, he was a Senior Vice President at Dillon, Read & Co., Inc.,
located in San Francisco, California, where he headed that firm's West Coast
forest practice business and worked on a wide range of financings, acquisitions,
and divestitures within the forest and paper product sector.
DIRECTORS WHO HAVE AGREED TO SERVE AS OF THE COMPLETION OF THIS OFFERING
Starling W. Childs, II will become a director of Strategic Timber upon the
completion of this offering. Since 1997, Mr. Childs has served as a Partner and
sales representative for Optimum Yield, Incorporated, a distributor of forestry
and agricultural soil additives and fertilizers. Since 1988, Mr. Childs has
served as the Chairman of the Board of S. W. Childs Management Corporation, a
privately-held brokerage firm located in New York, New York, and served as a
director of that firm from 1978 to 1988. Since 1988, Mr. Childs has also served
as the Principal of Ecological and Environmental Consulting Services, Inc., an
environmental, ecological and forest resource consulting firm located in Lyme,
Connecticut.
Jay S. Lucas will become a director of Strategic Timber upon the completion
of this offering. Since 1991, Mr. Lucas has served as the President and Managing
Director of The Lucas Group, a corporate strategy consulting firm located in New
London, New Hampshire that he founded in 1991. From 1982 to 1990, Mr. Lucas was
a Vice President and partner at Bain & Company, a leading international
corporate strategy consulting firm based in Boston, Massachusetts. Mr. Lucas
currently serves as a director of Wolverine (Massachusetts) Corporation, an
international manufacturer of industrial ovens, and MIJA Industries, Inc., the
leading manufacturer of pressure gauges for the fire protection industry.
Hanns A. Pielenz will become a director of Strategic Timber upon the
completion of this offering. Since 1968, Mr. Pielenz has been the Chief
Executive Officer and Chairman of Amann Group, a textile manufacturing company
based in Germany. Mr. Pielenz also serves as a director of Interglas A.G., a
German fiberglass manufacturer. Mr. Pielenz is a resident and citizen of
Germany.
Richard P. Urfer will become a director of Strategic Timber upon the
completion of this offering. Since 1997, Mr. Urfer has served as the Chief
Executive Officer of BW Capital Markets, Inc., the U.S. affiliate of
Baden-Wurttembergische Bank AG, the largest privately held commercial bank in
the State of Baden-Wurttemberg, Germany. From 1995 to 1997, Mr. Urfer served as
an Executive Vice President of Resource Investments Advisors. In 1987, Mr. Urfer
founded R.P. Urfer & Co., Inc., a corporate finance consulting firm located in
Morristown, New Jersey, and served as its Managing Director until 1995. Mr.
Urfer currently is a director of Anesta Corp., a pharmaceutical company located
in Salt Lake City, Utah, and BW Capital Markets, Inc.
91
<PAGE> 98
MANAGEMENT RELATIONSHIPS
C. Edward Broom, our President, Chief Executive Officer and Chairman of the
Board of Directors, is the father of both Christopher J. Broom, our Executive
Vice President, Chief Investment Officer and a Director, and Thomas P. Broom,
our Executive Vice President, Chief Operating Officer and a Director.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
Promptly following the completion of this offering, our Board of Directors
will establish an Audit Committee that will at all times consist of three
independent directors. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review the
independence of the independent public accountants, consider the range of audit
and non-audit fees and review the adequacy of our internal accounting controls.
EXECUTIVE COMMITTEE
Promptly following the completion of this offering, our Board of Directors
will establish an Executive Committee. The Executive Committee will set and
execute corporate strategy and policy, and will generally exercise all other
powers of the Board of Directors except as prohibited by law. The initial
members of the Executive Committee will be Messrs. C. Edward Broom, Christopher
J. Broom and Thomas P. Broom.
COMPENSATION COMMITTEE
Promptly following the completion of this offering, our Board of Directors
will establish a Compensation Committee that will at all times consist of three
independent directors. The Compensation Committee will review and make
recommendations to the full Board of Directors concerning proposals by
management with respect to compensation, bonuses, employment agreements and
other benefits and policies respecting such matters for our executive officers.
The Compensation Committee will also administer our stock incentive plan and
other benefit plans.
92
<PAGE> 99
EXECUTIVE COMPENSATION
The following table shows total compensation paid in 1998 and compensation
expected to be paid in 1999 by Strategic Timber to C. Edward Broom, our
President and Chief Executive Officer, and our other most highly compensated
executive officers. Kenneth L. Chute, our Senior Vice President and Chief
Financial Officer, was not with us in 1998, but is included because we expect
him to be one of the four most highly compensated executive officers in 1999.
Because Strategic Timber was formed in April 1998, no compensation was paid in
any prior completed year and the amounts indicated below for 1998 reflect
compensation for a partial year. Salaries for 1999 are current annual base
salaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
C. Edward Broom...................................... 1998 $168,750(1) -- --
President and Chief Executive Officer 1999 225,000 (2) 150,000(3)
Christopher J. Broom................................. 1998 $131,250(1) -- --
Executive Vice President and Chief Investment
Officer 1999 175,000 (2) 150,000(3)
Thomas P. Broom...................................... 1998 $131,250(1) -- --
Executive Vice President and Chief Operating
Officer 1999 175,000 (2) 150,000(3)
Kenneth L. Chute..................................... 1998 -- -- --
Senior Vice President and Chief Financial Officer 1999 $150,000 (2) 137,500(3)
Vladimir Harris...................................... 1998 $101,250(1) -- --
Senior Vice President and Director of Acquisitions 1999 135,000 (2) 137,500(3)
</TABLE>
- ---------------
(1) Salaries for 1998 include the following amounts that were earned but not
paid in 1998: C. Edward Broom, $18,750; Christopher J. Broom, $56,250;
Thomas P. Broom, $62,250; and Vladimir Harris, $33,750. We expect to pay
these amounts prior to the completion of this offering.
(2) Bonuses for 1999 will be determined by the Board of Directors in its sole
discretion, upon recommendation from the Compensation Committee.
(3) We will grant these options to purchase common stock at the completion of
this offering. The exercise price of all of these options will be the
initial public offering price. One-third of the options granted will vest on
each of the first, second and third anniversaries of the completion of this
offering. We did not grant any stock options or stock appreciation rights
during 1998, and we do not anticipate granting any stock appreciation rights
during 1999.
COMPENSATION OF DIRECTORS
We will pay our directors who are not employees fees for their services as
directors. Each non-employee director will receive an annual retainer of
$12,000. In addition, each non-employee director will receive a fee of $1,000
for each meeting of the Board of Directors attended in person, $500 for each
such meeting attended by telephone, and $500 for each committee meeting
attended. Each non-employee director will also be reimbursed for all expenses
incurred in connection with attending Board of Directors and committee meetings
in person. Upon the completion of this offering, each non-employee director will
receive options to purchase 10,000 shares of common stock at an exercise price
equal to the initial public offering price. These options will vest over a
three-year period, with the first vesting to occur on the first anniversary of
the completion of this offering. Any future issuance of stock options to
non-employee directors will be in accordance with the terms of our stock
incentive plan.
93
<PAGE> 100
1999 INCENTIVE PLAN
Prior to the completion of this offering, the Board of Directors will
adopt, and the shareholders of Strategic Timber will approve, the 1999 Strategic
Timber Trust Omnibus Incentive Plan.
Under the 1999 Incentive Plan, we may grant to employees and non-employee
directors stock options, stock appreciation rights, restricted stock and other
stock-based awards, as well as cash-based annual and long-term incentive awards.
We believe that the 1999 Incentive Plan will form an important part of our
overall compensation program. The 1999 Incentive Plan will support our ongoing
efforts to attract and retain talented employees and directors and will give us
the ability to provide employees with incentives that are directly linked to our
profitability and increases in shareholder value.
Eligibility. All employees of Strategic Timber, its subsidiaries and its
affiliates as well as non-employee directors of Strategic Timber, its
subsidiaries, and its affiliates, will be eligible to receive awards under the
1999 Incentive Plan. For convenience, both employees and non-employee directors
eligible to receive awards under the 1999 Incentive Plan are referred to as
employees.
Administration. We currently anticipate that the 1999 Incentive Plan will
be administered by the Compensation Committee or a subcommittee. The
Compensation Committee will make recommendations to the full Board of Directors
as to the individuals to whom awards will be granted and the terms of the
awards. The Compensation Committee can delegate its authority under the 1999
Incentive Plan to our officers, subject to approval by the Board of Directors,
with respect to employees who are not executive officers. The Board of Directors
will determine the terms of any awards to members of the Compensation Committee
under the 1999 Incentive Plan.
Shares Reserved. 2,224,000 shares of common stock may be issued under the
1999 Incentive Plan, representing, upon the completion of this offering,
approximately 10% of the outstanding shares of common stock and partnership
units. The shares of common stock subject to any award that terminates, expires
or is cashed out without payment being made in the form of common stock will
again be available for distribution under the 1999 Incentive Plan.
Options to purchase an aggregate of 1,115,000 shares of common stock will
be granted to some of our executive officers, directors and employees as of the
completion of this offering, at an exercise price equal to the initial public
offering price. These options will vest over a three-year period, with the first
vesting to occur on the first anniversary of the completion of this offering.
Messrs. C. Edward, Christopher J. and Thomas P. Broom will each receive options
to purchase 150,000 shares of common stock, Messrs. Chute and Harris will each
receive options to purchase 137,500 shares of common stock, and Messrs. Brunet
and Rendini will each receive options to purchase 75,000 shares of common stock.
Cash-Based Annual and Long-Term Incentive Awards. Cash-based annual and
long-term incentive awards may be granted under the 1999 Incentive Plan. These
awards will be earned only if corporate, business unit or individual performance
objectives over performance cycles established by or under the direction of the
Compensation Committee are met. The performance objectives may vary from
participant to participant, group to group and period to period. Performance
objectives for awards will be based upon criteria established by the
Compensation Committee. No annual incentive award paid to a participant with
respect to a performance cycle may exceed $1,000,000, and no long-term incentive
award paid to a participant may exceed $1,000,000 times the number of years in
the performance cycle.
Stock-Based Awards. The 1999 Incentive Plan will permit the granting of
incentive stock options, which qualify for special tax treatment, and
nonqualified stock options. The exercise price for incentive stock options will
not be less than the fair market value of common stock on the date of grant, as
determined under the 1999 Incentive Plan. The 1999 Incentive Plan permits the
Compensation Committee to cancel an option upon exercise by the holder and pay
the holder, in cash or common stock, the difference between the fair market
value of the shares covered by the option and the exercise price.
We may also grant stock appreciation rights either singly or in combination
with underlying stock options. Stock appreciation rights entitle the holder upon
exercise to receive an amount in any combination
94
<PAGE> 101
of cash or common stock, as determined by the Compensation Committee, equal in
value to the excess of the fair market value of the shares covered by the right
over the grant price. The Compensation Committee will determine the grant price
and other terms of stock appreciation rights.
We may also award shares of restricted common stock. The restricted stock
vests and becomes transferable upon the satisfaction of conditions set forth in
the applicable award agreement. Restricted stock awards may be subject to
forfeiture if, for example, the recipient's employment terminates before the
award vests. Except as specified at the time of grant, holders of restricted
stock will have voting rights and the right to receive dividends on their
restricted shares.
The 1999 Incentive Plan also provides for other awards that are denominated
in, valued by reference to, or otherwise based on or related to common stock.
These awards may include performance shares and restricted stock units that
entitle the recipient to receive, upon satisfaction of performance goals or
other conditions, a specified number of shares of common stock or the cash
equivalent.
Under the 1999 Incentive Plan, the total number of shares of restricted
common stock and other shares of common stock subject to or underlying incentive
stock options, nonqualified stock options, stock appreciation rights and other
stock-based awards granted to any plan participant may not exceed 25% of the
total shares of common stock that may be issued under the 1999 Incentive Plan.
Change in Control Provisions. The 1999 Incentive Plan provides that, in the
event of a significant change in our ownership or Board of Directors, the Board
of Directors may:
- make all stock options and stock appreciation rights immediately
exercisable,
- remove the restrictions applicable to outstanding restricted stock and
other stock-based awards,
- cash out the value of outstanding stock options, stock appreciation
rights, restricted stock and other stock-based awards on the basis of the
highest price paid or offered during the preceding 60-day period, and
- vest all outstanding incentive awards and pay out these awards on a
prorated basis, based on the maximum award opportunity of the awards and
the number of months elapsed compared with the total number of months in
the performance cycle.
Adjustments for Share Dividends, Mergers and Similar Events. The Board of
Directors will make appropriate adjustments in outstanding awards under the 1999
Incentive Plan to reflect common stock dividends, splits and similar events. In
the event of a merger, liquidation, sale of the business or similar event, the
Board of Directors, in its discretion, may provide for substitution or
adjustment of outstanding awards, or may terminate all awards with payment of
cash or in-kind consideration.
Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 1999 Incentive Plan. The Compensation Committee may at any time
amend outstanding awards for the purpose of satisfying changes in law or for any
other lawful purpose. However, no action may be taken that materially and
adversely affects any rights under an outstanding award without the holder's
consent. Further, amendments to the 1999 Incentive Plan may be subject to
approval by our shareholders if and to the extent required by the Internal
Revenue Code to preserve the qualified status of incentive stock options or to
preserve tax deductibility of compensation earned under options.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
We have employment agreements with each of Messrs. C. Edward Broom,
Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C. Brunet,
Vladimir Harris and Joseph E. Rendini effective as of the consummation of this
offering.
The employment agreement with C. Edward Broom provides for his employment
as President and Chief Executive Officer of Strategic Timber for a period of
four years and automatically renews for successive one-year periods. Mr. Broom's
employment agreement provides for an initial annual base salary of $225,000. Mr.
Broom's employment agreement contains provisions relating to his involvement in
several
95
<PAGE> 102
privately held timber investment funds. If we wish to bid on a property and any
fund with which Mr. Broom is affiliated is the seller of the property or also
wishes to bid on the property, Mr. Broom will not participate in the transaction
on behalf of that fund. In addition, Mr. Broom has agreed to spend no more than
5% of his time devoted to his interests in these timber funds. The employment
agreement otherwise prohibits Mr. Broom from competing against us during the
term of his employment under the agreement and for a period of one year
thereafter in North America, Central America and South America, and from
soliciting purchasers of our timber or prospective sellers of timberlands with
which he had contact during the term of his employment for a period of one year
thereafter. The employment agreement may be terminated by mutual agreement,
voluntarily by Mr. Broom or by us without cause upon six months' prior written
notice during the first two years of the employment term and upon ninety days'
notice thereafter, and immediately by us for cause or upon the death or
disability of Mr. Broom. Mr. Broom or his heirs are entitled to one year's
compensation if Mr. Broom terminates his employment for good reason, or we
terminate without cause.
Each of Messrs. Christopher J. Broom, Thomas P. Broom, Chute, Brunet,
Harris and Rendini have entered into employment agreements with us on
substantially similar terms. Each employment agreement provides for an initial
minimum annual base salary for each executive officer as follows: Mr.
Christopher J. Broom, $175,000; Mr. Thomas P. Broom, $175,000; Mr. Chute,
$150,000; Mr. Brunet, $90,000; Mr. Harris, $135,000; and Mr. Rendini, $100,000.
The employment agreement with each executive provides for his employment as an
officer of Strategic Timber for a period of four years and automatically renews
for successive one-year periods. Each employment agreement prohibits the
executive from competing against us during the term of his employment under the
agreement and for a period of one year thereafter in North America, Central
America and South America, and from soliciting purchasers of our timber or
prospective sellers of timberlands with which he had contact during the term of
his employment for a period of one year thereafter. The employment agreement may
be terminated by mutual agreement, voluntarily by the executive or by us without
cause upon six months' prior written notice during the first two years of the
employment term and upon ninety days' notice thereafter, and immediately by us
for cause or upon the death or disability of the executive. Each executive or
his heirs are entitled to one year's compensation if the executive terminates
his employment for good reason, or we terminate without cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, we did not have a compensation committee. Thomas P. Broom, who
was our sole director from inception until January 1999 and who is our Executive
Vice President and Chief Operating Officer, previously determined compensation
of executive officers. C. Edward Broom, our President and Chief Executive
Officer, and Christopher J. Broom, our Executive Vice President and Chief
Investment Officer, assisted Thomas P. Broom in determining executive officer
compensation for 1998.
96
<PAGE> 103
TRANSACTIONS WITH RELATED PARTIES
In December 1998, we concluded a transaction with our President and Chief
Executive Officer, C. Edward Broom, in which Mr. Broom purchased for $3.0
million approximately 6,700 acres of agricultural land in Louisiana that we had
leased to third parties principally for rice farming. This property was included
in the purchase of the Louisiana property without any separate determination of
cost. We determined that this property was ancillary to our ongoing business of
timber production. We sold this property to provide a source of cash to make
payments of our bank debt. Mr. Broom and other members of senior management
determined this purchase price to produce the necessary funds to make these
payments. The purchase price does not necessarily reflect the price we might
have been able to obtain if the property had been fully prepared for sale and
exposed to the market for a sufficient period of time to produce the highest
price. To protect our economic interest in the property, Mr. Broom has agreed
that we may repurchase the property at any time before December 31, 2000, at the
price paid by Mr. Broom plus a pro-rata annual increase at the rate of 8%,
compounded annually.
In December 1998, we sold some of our eastern Oregon timber to Kinzua
Resources, LLC, a sawmill company controlled by Gregory M. Demers, a beneficial
owner of more than 5% of our common stock, for $5.6 million. We executed timber
deeds conveying approximately 19.3 million board feet of timber, consisting of a
variety of species. Kinzua Resources has regularly acquired and used wood from
the eastern Oregon timberlands in the past, and we anticipate that we will
continue to sell timber from these lands to Kinzua in the ordinary course of
business in the future.
Hanns A. Pielenz, who has agreed to serve as a director on or before the
completion of this offering, owns a 50% interest in each of Louisiana Timber and
Mach One. In April 1998, Louisiana Timber contributed to Strategic Timber
Partners a contract to acquire the Louisiana property in exchange for
partnership units, which the parties valued at $50.0 million. In October 1998,
Mach One invested $10.0 million cash in exchange for an interest in Strategic
Timber Partners II, in connection with our acquisition of Pioneer. As of the
completion of the offering, Louisiana Timber will receive partnership units and
cash valued at $48.2 million, and Mach One will receive partnership units and
cash valued at $12.0 million, in each case assuming an offering price of $20 per
share of common stock.
Before the completion of this offering, we will pay approximately $760,000
to Broom Resource Investments, LLC. This amount includes reimbursement of
approximately $320,000 in expenses paid on behalf of Strategic Timber and
$440,000 in fees due to BRI in connection with our acquisition of the Louisiana
property. BRI's fees relate to the services it performed before the formation of
Strategic Timber in acquiring from Louisiana Timber the contract to purchase the
Louisiana property. BRI is owned by Messrs. C. Edward Broom, Christopher J.
Broom and Thomas P. Broom, who are executive officers and directors of Strategic
Timber.
We rent our headquarters office in New London, New Hampshire, from Broom
Properties, LLC, a company controlled by Messrs. C. Edward and Thomas P. Broom.
We rent this space for $5,250 per month under a two year lease entered into in
January 1999. In 1998, payments to Broom Properties, LLC for this space totaled
$40,000.
97
<PAGE> 104
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock and partnership units exchangeable for common stock by
our directors and prospective directors, our most highly compensated executive
officers, all of our directors, prospective directors and executive officers as
a group and each person who is known to be the beneficial owner of more than 5%
of the outstanding shares of common stock. This table assumes that all of the
formation transactions and this offering have been completed and that the
underwriters do not exercise their over-allotment option and gives effect to a
36.59-for-1 stock split, which will occur prior to completion of this offering.
The second column in the table below assumes that the identified person and no
other person redeems all partnership units the identified person beneficially
owns for shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE PERCENTAGE
AND PARTNERSHIP OF ALL SHARES OF ALL SHARES OF
UNITS BENEFICIALLY OF COMMON COMMON STOCK AND
NAME AND ADDRESS OF OWNER OWNED STOCK PARTNERSHIP UNITS
------------------------- ------------------ ------------- --------------------
<S> <C> <C> <C>
Hanns A. Pielenz............................... 1,863,084 9.7% 8.4%
740 Manatee Cove
Vero Beach, FL 32963
Larry J. Woodard............................... 1,863,084 9.7% 8.4%
1089 Lighthouse Two
Hilton Head Island, SC 29928
Gregory M. Demers.............................. 1,660,333 8.8% 7.5%
25310 Jeans Road
Veneta, OR 97487
C. Edward Broom................................ 408,329 2.3% 1.8%
Christopher J. Broom........................... 408,329 2.3% 1.8%
Thomas P. Broom................................ 408,329 2.3% 1.8%
Kenneth L. Chute............................... -- -- --
Vladimir Harris................................ 90,740 * *
Jay S. Lucas................................... -- -- --
Starling W. Childs, II......................... -- -- --
Richard P. Urfer............................... -- -- --
All directors, prospective directors and
executive officers as a group (12 persons)... 3,468,807 17.2% 15.6%
</TABLE>
- ---------------
* Less than 1%
Shares and units shown as owned by Hanns A. Pielenz and Larry J. Woodard
include 1,762,974 partnership units held of record by Louisiana Timber and
100,110 partnership units held of record by Mach One. Hanns A. Pielenz, a
prospective director, and Larry J. Woodard each may be deemed to beneficially
own the partnership units held by Louisiana Timber and Mach One.
98
<PAGE> 105
DESCRIPTION OF CAPITAL STOCK
The description of our capital stock set forth below and elsewhere in this
prospectus does not purport to be complete and is qualified in its entirety by
reference to our Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws, each of which will be adopted shortly before completion of this
offering. Copies of the Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws are exhibits to the registration statement of which
this prospectus is a part.
GENERAL
Under the Articles of Incorporation, the Board of Directors has the
authority to issue up to 200,000,000 shares of common stock, par value $.01 per
share, and 50,000,000 shares of preferred stock, par value $.01 per share. Upon
completion of this offering, 17,271,770 shares of common stock will be issued
and outstanding and no shares of preferred stock will be issued or outstanding.
19,761,770 shares will be issued and outstanding if the underwriters'
over-allotment option is exercised in full.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
to be voted on by shareholders and are not entitled to cumulative voting in the
election of directors. Generally, matters to be approved by shareholders must be
voted for by holders of a majority of the shares of common stock represented in
person or by proxy at a meeting, subject to any contractual or other rights of
security holders, such as any special rights of holders of preferred stock, none
of which is currently outstanding. A plurality of the shares of common stock is
needed to elect directors. For certain other matters affecting or relating to
voting rights of holders of shares of common stock, including election of
directors and supermajority voting requirements, see "Material Provisions of
Georgia Law and Strategic Timber's Articles of Incorporation and Bylaws That May
Have an Anti-Takeover Effect."
Subject to any preferential rights granted by the Board of Directors in
connection with the future issuance of preferred stock, holders of shares of
common stock are entitled to share ratably in any dividends and distributions
Strategic Timber declares and pays and in any distribution to shareholders upon
dissolution of Strategic Timber.
Holders of common stock have no preemptive or other subscription or
conversion rights, and there are no redemption or sinking fund provisions with
respect to these shares. As discussed below, if shares of common stock are
converted into shares of excess stock, the rights attributable to the shares
will be substantially limited.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors has the authority, without further shareholder vote,
to issue preferred stock in one or more series and to fix its rights,
preferences and limitations, including dividend rights, conversion rights,
sinking fund provisions, voting rights, rights to elect a specified number of
directors, terms and rights of redemption and liquidation preferences. These
rights and preferences could include the right to receive specified dividend
payments and payments on liquidation prior to any payments being made to the
holders of common stock. The Board of Directors could authorize the issuance of
preferred stock with terms and conditions that could discourage a takeover or
other transaction that holders of common stock might believe to be in their best
interests. See "Material Provisions of Georgia Law and Strategic Timber's
Articles of Incorporation and Bylaws That May Have an Anti-Takeover
Effect -- Preferred Stock." As of the date of this prospectus, no shares of
preferred stock are outstanding and we have no current plans to issue any
preferred stock.
99
<PAGE> 106
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES
To qualify as a REIT under the Internal Revenue Code, among other things,
not more than 50% in value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer persons during the last half of a
taxable year. This "five or fewer" requirement does not apply during the first
year for which we elect to be treated as a REIT. Also, shares of our capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months, other than the first year or during a
proportionate part of a shorter taxable year. See "Federal Income Tax
Consequences."
To protect us from losing our status as a REIT and to protect us from a
concentration of ownership among our shareholders, the Articles of
Incorporation, subject to certain exceptions, provide that no person may
beneficially own more than 9.8% of the lesser of the aggregate number or the
value of the outstanding shares of common stock or any series of preferred
stock. Under the Articles of Incorporation, a person generally beneficially owns
shares for this purpose if the person would be treated as an owner of common
stock or preferred stock either directly or indirectly under section 542(a)(2)
of the Internal Revenue Code, taking into account, for this purpose, applicable
constructive ownership rules. When two or more persons act as a partnership or
similar group for the purpose of acquiring, holding or disposing of securities,
the group is considered a single person under the Articles of Incorporation. The
Board of Directors may waive the ownership limit as to any person upon receipt
of a ruling from the IRS, an opinion of counsel or other evidence acceptable to
the Board that ownership by that person will not cause Strategic Timber to lose
its REIT status.
Any transfer of shares of common stock or preferred stock is void, and the
intended transferee will acquire no rights to the shares of capital stock, if
the transfer would do any of the following:
- cause any person to beneficially own shares of common stock or preferred
stock in excess of the ownership limit not otherwise permitted as
provided above;
- result in the shares of common stock or preferred stock being
beneficially owned by fewer than 100 persons;
- result in Strategic Timber being "closely held" within the meaning of
section 856(h) of the Internal Revenue Code;
- result in Strategic Timber constructively owning 10% or more of the
ownership interests in a tenant of Strategic Timber within the meaning of
section 856(d)(2)(B) of the Internal Revenue Code;
- result in Strategic Timber failing to qualify as a "domestically
controlled REIT" within the meaning of section 897(h)(4)(B) of the
Internal Revenue Code; or
- otherwise cause Strategic Timber to fail to qualify as a REIT.
These restrictions on transferability and ownership will not apply if the Board
of Directors adopts a resolution recommending that Strategic Timber terminate
its status as a REIT, and the resolution is approved by the holders of a
majority of the outstanding shares of common stock.
If any attempted transfer of common stock or preferred stock or other event
resulting in an increase in any holder's percentage interest in common stock or
preferred stock would cause a purported transferee or holder to be in violation
of any of the restrictions described in the previous paragraph, then the
purported transferee or holder will not acquire, or will cease to own, the
shares in excess of the highest number of shares that could be held in
compliance with these restrictions. The excess stock will be converted
automatically into an equal number of shares of stock and transferred
automatically, by operation of law, to a trust, the beneficiary of which will be
a qualified charitable organization selected by Strategic Timber.
As soon as practical after the transfer of shares to the trust, the trustee
of the trust will be required to sell the excess stock to a person or entity who
could own the shares without violating the ownership restrictions. In the case
of excess stock resulting from a transfer for value, the trustee must distribute
to the prohibited owner the lesser of the price paid by the prohibited owner for
the shares or the sales
100
<PAGE> 107
proceeds received by the trust for the shares. In the case of excess stock
resulting from any event other than a transfer for value, the trustee will be
required to sell the excess stock to a qualified person and distribute to the
prohibited owner the lesser of the market price of the excess stock or the sales
proceeds received by the trust for the excess stock. Once shares become excess
stock, they lose their voting rights until they are held in compliance with the
ownership limit in the Articles of Incorporation, subject to any voting rights
that may be afforded by Georgia law.
Excess stock held in trust is deemed to be offered for sale to Strategic
Timber at the lesser of the price per share in the transaction that created the
excess stock, or the market price. Strategic Timber has the right to accept the
offer for 90 days.
All certificates representing shares of common stock will bear a legend
referring to the restrictions described above.
Any person who beneficially owns more than 5% of the outstanding shares of
any class or series of our capital stock is required to provide a written
statement to us containing ownership information by January 31 of each year. In
addition, upon our request, each record and beneficial owner of common stock or
preferred stock is required to disclose to us in writing information we consider
necessary to determine our status as a REIT and to ensure compliance with the
ownership restrictions in the Articles of Incorporation.
The ownership restrictions described above could have the effect of
delaying, deferring or preventing a change of control in which holders of common
stock might receive a premium for their shares over the then prevailing market
price. For additional matters that could have the effect of delaying, deferring
or preventing a change of control, see "Material Provisions of Georgia Law and
Strategic Timber's Articles of Incorporation and Bylaws That May Have an
Anti-Takeover Effect."
NASDAQ NATIONAL MARKET LISTING
Prior to the date of this prospectus, there has been no public trading
market for the common stock. We have applied to have the common stock included
for quotation on the Nasdaq National Market under the symbol "STTR."
101
<PAGE> 108
MATERIAL PROVISIONS OF GEORGIA LAW AND STRATEGIC TIMBER'S ARTICLES OF
INCORPORATION AND BYLAWS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
This section discusses the material provisions of our Articles of
Incorporation and Bylaws, and of Georgia law, that may have an anti-takeover
effect. This summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the Georgia Business Corporation Code
and the Articles of Incorporation and Bylaws. Copies of the Articles of
Incorporation and Bylaws have been filed as exhibits to the registration
statement of which this prospectus is a part.
Certain provisions of the Georgia Business Corporation Code and the
Articles of Incorporation and Bylaws, summarized in the following paragraphs,
may discourage a takeover attempt that you might consider to be in your best
interest. This could include a takeover that would result in payment of a
premium over the market price of shares.
OWNERSHIP LIMIT
The Articles of Incorporation contain restrictions on the number of shares
of capital stock that individual shareholders can own. These restrictions are
intended to ensure that shareholders do not acquire significant shareholdings in
a manner that could jeopardize Strategic Timber's ability to remain qualified as
a REIT for tax purposes. Transfers that would disqualify Strategic Timber from
REIT status are treated as void. These restrictions and the consequences of
violating them are discussed above under "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Shares."
BUSINESS COMBINATION PROVISIONS OF GEORGIA LAW
Our Bylaws subject us to provisions of the Georgia Code restricting our
ability to engage in business combination transactions with significant
shareholders. These provisions prohibit business combinations between a
corporation and any person who has acquired beneficial ownership of 10% or more
of the voting stock of the corporation. The prohibition applies for a period of
five years from the date the shareholder acquired the 10% interest. The
prohibitions do not apply if:
- prior to the time the shareholder acquired the 10% interest, the Board of
Directors of the corporation approved either the business combination or
the transaction that resulted in the person becoming an interested
shareholder.
- the shareholder became the beneficial owner of at least 90% of the
outstanding shares of voting stock of the corporation in the same
transaction in which the interested shareholder acquired the 10%
interest. In computing the percentage of shares owned by the interested
shareholder, shares owned by persons who are directors or officers, their
affiliates or associates and by subsidiaries of the corporation and
employee stock plans are excluded.
- the shareholder, subsequent to acquiring the 10% interest, became the
beneficial owner of at least 90% of the voting stock of the corporation
and the business combination was approved by holders of a majority of the
voting stock entitled to vote, excluding voting stock beneficially owned
by the shareholder or by persons who are directors or officers, their
affiliates or associates and by subsidiaries of the corporation and
employee stock plans. In computing the percentage of shares owned by the
interested shareholder, shares owned by persons who are directors or
officers, their affiliates or associates and by subsidiaries of the
corporation and employee stock plans are excluded.
Our Bylaws also subject us to "fair price" provisions of the Georgia Code
that further restrict business combination transactions with 10% shareholders.
These provisions require the consideration paid for stock acquired in the
business combination to meet specified tests, which are designed to ensure that
shareholders receive at least fair market value for their shares in the business
combination. A business combination with a 10% shareholder does not need to meet
these tests if either of the following apply:
- The continuing directors unanimously approve the business combination,
provided there are at least three continuing directors. A continuing
director is any member of the Board of Directors who is
102
<PAGE> 109
not an affiliate or associate of a 10% shareholder or any of its
affiliates, and who was a director prior to the date the 10% shareholder
first acquired the 10% interest, or a successor to such a director in
certain circumstances.
- Two-thirds of the continuing directors recommend the business combination
and a majority of the voting stock entitled to vote approves the business
combination. For purposes of this vote, voting stock beneficially owned
by the interested shareholder is excluded.
THE BOARD OF DIRECTORS
Our Board of Directors is divided into three classes of directors serving
staggered three-year terms. The term of office of the first class of directors
will expire at the 2000 meeting of shareholders; the term of the second class of
directors will expire at the 2001 annual meeting of shareholders; and the term
of the third class of directors will expire at the 2002 annual meeting of
shareholders. At each annual meeting of shareholders, the class of directors to
be elected at the meeting will be elected for a three-year term, and the
directors in the other two classes will continue in office. Because shareholders
will have no right to cumulative voting for the election of directors, at each
annual meeting of shareholders the holders of a plurality of the shares of
common stock will be able to elect all of the successors to the class of
directors whose term expires at that meeting. Classification of the Board of
Directors expands the time required to change the composition of a majority of
directors, which may discourage an acquisition proposal. The Articles of
Incorporation provide that the number of directors shall be fixed by resolution
of the Board of Directors, but shall not be less than three unless the Articles
of Incorporation are amended to delete the classification of the Board of
Directors.
The Articles of Incorporation also provide that, except for any directors
who may be elected by holders of preferred stock, directors may be removed only
for cause by the affirmative vote of shareholders holding at least a majority of
the votes entitled to be cast by all shareholders in the election of directors.
Vacancies on the Board of Directors, however occurring, may be filled only by a
majority vote of the remaining directors. Directors elected by the Board of
Directors to fill vacancies continue until the next election of the class for
which they have been chosen, except for directors elected to fill vacancies
resulting from an increase in the number of directors, who continue until the
next election of directors by the shareholders. A vote of shareholders holding
at least two-thirds of all the votes entitled to be cast is required to amend or
repeal these classified board and director removal provisions. These provisions
make it more difficult and time-consuming to change majority control of the
Board of Directors and make it more difficult for shareholders to remove
incumbent directors and fill the vacancies with their own nominees. These
provisions may reduce our vulnerability to an unsolicited takeover proposal or
the removal of incumbent management.
SPECIAL MEETINGS OF SHAREHOLDERS; CONSENTS
The Bylaws provide that special meetings of shareholders may be called only
by the Chairman of the Board of Directors, the President, a majority of the
Board of Directors or holders of outstanding stock having not less than 75% of
the votes entitled to be cast by all of the outstanding shares of our capital
stock. Also, shareholders may act without a meeting only by unanimous written
consent, which makes shareholder action without a meeting highly unlikely. These
provisions make it more difficult for the shareholders to take action without
the sanction of our management.
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors has the power,
without a shareholder vote, to establish the preferences and rights of one or
more series of preferred stock and to issue these shares. The Board of Directors
can grant the holders of any series of preferred stock preferences, powers and
rights, voting or otherwise, that have priority over the rights of holders of
common stock. The issuance of preferred stock could discourage a change in
control or acquisition of Strategic Timber. As of the date of
103
<PAGE> 110
this prospectus, no shares of preferred stock are outstanding, and we have no
current plans to issue any preferred stock.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws contain provisions requiring shareholders to notify us in
advance of their nominations of candidates for election to the Board of
Directors who are not nominated by the Board of Directors, and their proposals
for business to be conducted at the annual meeting of shareholders. Without
compliance with these provisions, any nominations or business proposed by
shareholders without approval by the Board of Directors cannot be considered by
the shareholders at a meeting.
SUPERMAJORITY VOTE REQUIREMENTS
Under the Articles of Incorporation and the Bylaws, some matters require
approval by a two-thirds vote, rather than merely a majority vote. A vote of
two-thirds of shareholders is required to amend the provisions of the Articles
of Incorporation and the Bylaws concerning classification of the Board of
Directors and removal and replacement of directors. A vote of two-thirds of
shareholders is required to amend the Articles of Incorporation to permit
shareholders to act by majority written consent rather than unanimous written
consent. Approval by two-thirds of the continuing directors and a majority of
shareholders, excluding certain persons, is required to amend the Bylaws to
eliminate the applicability of the provisions of the Georgia Code restricting
business combinations between Strategic Timber and significant shareholders.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation cannot be amended without the affirmative
vote of at least a majority of the shares of outstanding capital stock entitled
to vote, voting together as a group. Some provisions of the Articles of
Incorporation cannot be amended without the approval of the holders of
two-thirds of the shares of outstanding capital stock entitled to vote, voting
together as a single class. The Bylaws can generally be amended by the Board of
Directors or a majority of the shares cast at a shareholders meeting. Some
bylaws may be amended only by the shareholders, and some of those may only be
amended by a vote of greater than a majority of shares entitled to vote. See
" -- Supermajority Vote Requirements."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our officers and directors are indemnified against liabilities in
accordance with Georgia Code, the Articles of Incorporation, the Bylaws and the
indemnification agreements described below.
GEORGIA BUSINESS CORPORATION CODE
Section 14-2-851 of the Georgia Code empowers a corporation to indemnify a
director, including a former director and including a director who is or was
serving another entity at the request of the corporation against liability
arising from official acts if the director acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation.
For all other acts, the corporation may indemnify a director who acted in good
faith and reasonably believed that the conduct was not opposed to the best
interests of the corporation. The corporation may indemnify a director with
respect to criminal proceedings if the director acted in good faith and had no
reasonable cause to believe the conduct was unlawful. A corporation may not
indemnify a director adjudged liable for conduct involving receipt of an
improper personal benefit.
In addition, section 14-2-856 of the Georgia Code permits the articles of
incorporation, bylaws, a contract, or resolution approved by the shareholders to
authorize the corporation to indemnify a director against claims to which the
director was a party, including claims by the corporation or shareholder
derivative actions. However, the corporation may not indemnify the director for
liability to the corporation for any appropriation of a corporate opportunity,
intentional misconduct or knowing violation of law, unlawful distributions or
receipt of an improper benefit.
104
<PAGE> 111
Section 14-2-852 of the Georgia Code provides for mandatory indemnification
against reasonable expenses incurred by a director who is wholly successful in
defending an action to which the director was a party due to his or her status
as a director. Section 14-2-854 allows a court, upon application by a director,
to order indemnification and advance of expenses if it determines that the
director is entitled to indemnification under the Georgia Code or if it
determines that indemnification is fair and reasonable even if the director has
failed to meet the statutory standard of conduct under section 14-2-851.
However, the court may not order indemnification in excess of reasonable
expenses for liability to the corporation or for receipt of an improper benefit.
Section 14-2-857 of the Georgia Code permits a corporation to indemnify an
officer, including a former officer and including an officer who is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, to
the same extent as a director. A corporation may indemnify an officer who is not
a director to a further extent by means of articles of incorporation, bylaw,
board resolution, or contract. However, the corporation may not indemnify an
officer for liability arising from conduct involving appropriation of a
corporate opportunity, intentional misconduct or knowing violation of law,
unlawful distributions, or receipt of an improper personal benefit. An officer
who is not a director is also entitled to mandatory indemnification and may
apply for court-ordered indemnification.
Section 14-2-858 of the Georgia Code permits a corporation to purchase and
maintain insurance on behalf of directors and officers against liability
incurred by them in their capacities or arising out of their status as directors
and officers of the corporation, regardless of whether the corporation would
have the power to indemnify or advance expenses to the director or officer for
the same liability under the Georgia Code.
ARTICLES OF INCORPORATION
Article V of the Articles of Incorporation exculpates our directors from
personal liability for money damages to us or our shareholders to the fullest
extent permitted by the Georgia Code, as it may be amended from time to time.
Currently, the directors are exculpated from all liability to us or our
shareholders except for liability arising from conduct involving appropriation
of a corporate opportunity, intentional misconduct or knowing violation of law,
unlawful distributions, or receipt of an improper personal benefit. The Articles
of Incorporation also provide that any repeal or modification of Article V of
the Articles of Incorporation by the shareholders will not reduce any right or
protection of a director existing at the time of the repeal or modification.
BYLAWS
Article VI of the Bylaws requires Strategic Timber to indemnify to the
fullest extent permitted under the Georgia Code any person who is or was a
director or an officer, including a director or an officer who is or was serving
another entity at our request.
Repeal or modification of Article VI of the Bylaws or of any relevant
provisions of the Georgia Code does not reduce the rights to indemnification
under the Bylaws with respect to any previous occurrences. The indemnification
and advancement of expenses provided by the Bylaws are not exclusive of any
other rights permitted by applicable law to which a person seeking
indemnification or advancement of expenses may be entitled. All rights to
indemnification under Article VI of the Bylaws continue as to a person who has
ceased to be a director or officer.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with each of our
directors and executive officers prior to completion of this offering, and
intend to enter into similar agreements with prospective directors upon
completion of this offering. The indemnification agreements require us to
indemnify directors and executive officers to the fullest extent permitted by
law and advance to the directors and executive officers all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not
105
<PAGE> 112
permitted. Under these agreements, we must also indemnify and advance all
expenses incurred by directors and executive officers seeking to enforce their
rights under the indemnification agreements. Although the form of
indemnification agreement offers essentially the same scope of coverage afforded
by the Georgia Code and the Articles of Incorporation and the Bylaws, it
provides greater assurance to directors and executive officers that
indemnification will be available, because, as a contract, it cannot be modified
unilaterally in the future by the Board of Directors or the shareholders to
eliminate the rights it provides.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Strategic
Timber, we have been informed that in the opinion of the SEC this type of
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
INSURANCE POLICIES
We intend to purchase a policy of insurance providing reimbursement of
indemnification payments to officers and directors and reimbursement of
liabilities incurred by directors and officers in their capacities as such, to
the extent that they are not otherwise indemnified by Strategic Timber.
106
<PAGE> 113
SHARES AVAILABLE FOR FUTURE SALE
GENERAL
Before this offering, there has been no public market for our common stock,
and we have no way of knowing what the trading price will be after the offering.
As described below, only the shares sold in the offering will be available for
sale shortly after the offering due to contractual and legal restrictions on
resale of the shares and partnership units outstanding prior to the offering.
Nevertheless, sales of substantial amounts of common stock in the public market
after the restrictions lapse could cause the prevailing market price of the
common stock to drop. Limited partners of Strategic Timber Partners may be
entitled under certain circumstances to exchange partnership units for shares of
common stock. This could result in a large number of common shares eligible for
immediate resale in the public market. See "The Partnership
Agreement -- Redemption of Partnership Units."
Upon completion of this offering, we will have 17,271,770 outstanding
shares of common stock. We will have 19,761,770 shares of common stock issued
and outstanding if the underwriters exercise their over-allotment option in
full. The shares of common stock being sold in the offering will be freely
tradeable by persons other than our affiliates without restriction or
registration under the Securities Act, subject to the limitations on ownership
in our Articles of Incorporation. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Shares." Under the rules of
the Securities Act, an "affiliate" is a person that controls, is controlled by,
or is under common control with Strategic Timber. Determining who is an
affiliate is subjective based on determining "control," but each of our
directors and executive officers would generally be considered an affiliate of
Strategic Timber. We sold the remaining outstanding shares in private
transactions, and these shares are eligible for public sale if registered under
the Securities Act or sold in accordance with Securities Act Rule 144.
Holders of our common stock and partnership units have agreed, subject to
limited exceptions, that for a period of one year from the completion of this
offering, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any shares of common stock or any partnership
units or any securities convertible into, or exercisable or exchangeable for,
common stock or partnership units.
On and after the first anniversary of the completion of this offering,
Strategic Timber Partners will be obligated to exchange each partnership unit at
the request of the holder for, at our option, either one share of common stock
or cash equal to the fair market value of one share of common stock at the time
of the exchange. See "The Partnership Agreement -- Redemption of Partnership
Units."
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of privately placed shares from
Strategic Timber or any of its affiliates, the holder is entitled to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the then outstanding common stock or the average weekly trading volume of the
common stock during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the SEC. Sales under Rule 144 are subject
to other requirements, in particular that they be made through stock brokers,
that a notice of sale be filed by the selling shareholder, and that Strategic
Timber have filed with the SEC all of its required public company reports at the
time of the sale.
If two years have elapsed since the date of acquisition of privately placed
shares from Strategic Timber or from any affiliate of Strategic Timber, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate of
Strategic Timber at any time during the three months immediately preceding a
sale, such person is entitled to sell these shares in the public market under
Rule 144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements of Rule 144.
107
<PAGE> 114
REGISTRATION RIGHTS
We intend to issue options to purchase approximately 1,115,000 shares of
common stock to executive officers, directors and employees upon completion of
this offering, and have reserved additional shares for future issuance under the
1999 Incentive Plan. We intend to file one or more registration statements under
the Securities Act to register the shares of common stock reserved for issuance
under the 1999 Incentive Plan. These registration statements will become
effective immediately upon filing. Commencing one year after this offering, we
will also be obligated to file one or more registration statements under the
Securities Act to register the shares of common stock issuable upon redemption
of partnership units for shares of common stock. See "Management -- 1999
Incentive Plan" and "The Partnership Agreement -- Redemption of Partnership
Units."
108
<PAGE> 115
THE PARTNERSHIP AGREEMENT
This summary of Strategic Timber Partners' limited partnership agreement
describes the material provisions of that agreement as it will be in effect
immediately after completion of this offering. This summary and the other
descriptions of provisions of the partnership agreement included in this
prospectus are qualified in their entirety by reference to the partnership
agreement, which is filed as an exhibit to the registration statement of which
this prospectus is a part.
The following provisions of the partnership agreement are summarized
elsewhere in the prospectus:
- With regard to our management, see "Management."
- With regard to formation, see "Structure and Formation of Strategic
Timber."
- With regard to tax allocations and other tax issues, see "Federal Income
Tax Consequences."
Upon consummation of this offering, Strategic Timber will hold
approximately 76.7% of the limited partnership units in Strategic Timber
Partners.
POWERS OF STRATEGIC TIMBER OPERATING CO., AS GENERAL PARTNER
Under the partnership agreement, Strategic Timber Operating Co., a wholly
owned subsidiary of Strategic Timber, is the sole general partner of Strategic
Timber Partners. Strategic Timber Operating Co. generally will have full and
exclusive responsibility and discretion in the management, operation and control
of Strategic Timber Partners. These powers include the ability to cause
Strategic Timber Partners to enter into major transactions, such as cutting
contracts, acquisitions and dispositions of timberland. No limited partner may
take part in the operation, management or control of the business of Strategic
Timber Partners. Under the partnership agreement, the limited partners cannot
remove Strategic Timber Operating Co. as the general partner of Strategic Timber
Partners.
POWER OF ATTORNEY
Each limited partner, and each person who acquires a unit from a holder and
executes and delivers a transfer application, grants to the general partner a
power of attorney to execute and file documents required for the qualification,
continuance or dissolution of Strategic Timber Partners. The power of attorney
also grants the authority for the amendment of, and to make consents and waivers
under the partnership agreement, as well as other matters incidental to the
management of the partnership.
TRANSFER OF THE GENERAL PARTNER'S AND STRATEGIC TIMBER'S INTERESTS
Strategic Timber may not transfer, including in connection with mergers and
other business combinations involving Strategic Timber, any of its partnership
units unless:
- a majority of the units held by the partners, including Strategic Timber,
approve the transaction, or
- substantially all of the assets of the other entity are contributed to
Strategic Timber Partners.
AMENDMENTS TO THE PARTNERSHIP AGREEMENT
Generally, the partnership agreement may be amended by Strategic Timber
Operating Co., as general partner. Some amendments that would adversely affect a
limited partner's rights must be approved by each partner that would be
adversely affected. These include amendments that would
- convert a limited partner's interest into a general partner's interest,
- modify the limited liability of a limited partner,
- alter the interest of any partner in profits or losses or the right to
receive distributions other than as a result of dilution to account for
additional capital contributions being made by a new or existing partner,
or
109
<PAGE> 116
- alter or modify the redemption right described below.
TRANSFER OF PARTNERSHIP UNITS; SUBSTITUTE LIMITED PARTNERS
The partnership agreement provides that the limited partners, other than
Strategic Timber, generally may transfer the economic interests in a partnership
unit without the consent of any other person. However, a transferee may be
substituted as a limited partner only if Strategic Timber Operating Co. consents
and the transferee agrees to be bound by the terms and conditions of the
partnership agreement. Transfers to family members or trusts for the benefit of
a family member and admission of those transferees as limited partners are
permitted without consent or agreement. In addition, limited partners may not
transfer partnership units in violation of regulatory and other restrictions set
forth in the partnership agreement.
REDEMPTION OF PARTNERSHIP UNITS
On and after the first anniversary of the completion of this offering, at
the request of a holder of partnership units, Strategic Timber Partners will be
obligated to redeem each partnership unit for cash equal to the fair market
value of one share of common stock at the time of the redemption. However, at
its option, Strategic Timber can assume Strategic Timber Partners' obligation
and elect to acquire any partnership unit presented for redemption for either
one share of common stock or an amount of cash of the same value. With each
acquisition of partnership units, Strategic Timber's percentage ownership
interest in the partnership will increase.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS; ADDITIONAL CAPITAL
CONTRIBUTIONS
Generally, Strategic Timber Operating Co., is authorized, without the
consent of the limited partners, to cause Strategic Timber Partners to issue
additional partnership units to Strategic Timber, to the limited partners or to
other persons on terms and conditions determined by Strategic Timber Operating
Co.
For additional partnership units to be issued to Strategic Timber by
Strategic Timber Partners:
- Strategic Timber must issue additional shares of common stock and
contribute to Strategic Timber Partners the entire net proceeds received
by Strategic Timber from the issuance, or
- Strategic Timber Partners must issue additional partnership units to all
partners in proportion to their respective interests in Strategic Timber
Partners.
In addition, Strategic Timber Operating Co., as the general partner, may cause
Strategic Timber Partners to issue to Strategic Timber additional partnership
units in different series or classes, which may be senior to the partnership
units, in conjunction with an offering of securities of Strategic Timber having
substantially similar rights, if the net proceeds of the offering are
contributed to Strategic Timber Partners. Consideration for additional
partnership units may be cash or other assets, including timber assets. No
limited partner has preemptive, preferential or similar rights with respect to
additional capital contributions to Strategic Timber Partners or the issuance or
sale of any partnership units.
Other than as described above with respect to Strategic Timber, no limited
partner is required to make any additional capital contributions to Strategic
Timber Partners.
OTHER COVENANTS
The partnership agreement provides that Strategic Timber Partners cannot
effect any transaction that would
- adversely affect the ability of Strategic Timber to qualify as a REIT
under the Internal Revenue Code,
- subject Strategic Timber to federal income taxes, other than for capital
gains that it has elected to retain, or
110
<PAGE> 117
- violate any law or regulation applicable to Strategic Timber or Strategic
Timber Partners.
EXCULPATION AND INDEMNIFICATION OF STRATEGIC TIMBER AND STRATEGIC TIMBER
OPERATING CO.
The partnership agreement generally provides that neither Strategic Timber
Operating Co., as general partner of Strategic Timber Partners, nor Strategic
Timber will have liability for monetary damages to Strategic Timber Partners or
any limited partner for losses sustained or liabilities incurred as a result of
any act or omission taken or permitted by Strategic Timber Operating Co. in
connection with the partnership's business that is determined by Strategic
Timber Operating Co., in good faith, to be in, or not against, Strategic Timber
Partners' best interest, unless the act or omission constitutes intentional
misconduct, or a knowing violation of law or the partnership agreement. In
addition, Strategic Timber Operating Co. and Strategic Timber are not liable for
any misconduct or negligence on the part of their agents, provided that the
agents were appointed by Strategic Timber Operating Co. in good faith. By
executing the partnership agreement, the limited partners have agreed that, in
fulfilling the fiduciary duties owed by Strategic Timber Operating Co. to the
limited partners, Strategic Timber Operating Co. is not required to consider the
separate interests of the limited partners, including tax consequences to them.
The partnership agreement provides for indemnification of Strategic Timber,
Strategic Timber Operating Co., and the directors and officers of Strategic
Timber, as well as any other persons Strategic Timber Operating Co., as general
partner, may designate. Strategic Timber Partners shall indemnify any of these
indemnitees against any losses, claims, damages, liabilities, judgments, fines,
settlements and expenses arising from the operations of the partnership so long
as the indemnitee acted in good faith and in a manner it reasonably believed to
be in, or not opposed to, the best interest of Strategic Timber Partners, and in
the case of any criminal proceeding, the indemnitee had no reasonable cause to
believe that its conduct was unlawful. This indemnification is limited to the
assets of Strategic Timber Partners and no partner in the partnership is
personally liable for such indemnification. Strategic Timber Partners may
reimburse reasonable expenses incurred by any indemnitee in defense of an action
relating to the operations of the partnership, if the partnership receives
certain written affirmations and undertakings from the indemnitee. Strategic
Timber Partners may purchase and maintain insurance on behalf of indemnitees
against liabilities incurred by them in connection with the partnership's
activities, regardless of whether the partnership would have the power to
indemnify the indemnitee for the same liability under the partnership agreement.
CASH DISTRIBUTIONS
Strategic Timber Operating Co. will determine the timing and amount of cash
distributions made by Strategic Timber Partners. When authorized by Strategic
Timber Operating Co., cash will be distributed among the partners in proportion
to their ownership interests.
TAX MATTERS
Strategic Timber Operating Co. will be the tax matters partner of the
partnership and, as such, will generally have the authority to make tax
elections under the Internal Revenue Code on behalf of the partnership. See
"Federal Income Tax Consequences -- Tax Aspects of Strategic Timber's Ownership
of Interests in Strategic Timber Partners."
TERM
Under the partnership agreement, Strategic Timber Partners will continue as
a limited partnership until December 31, 2099 or until sooner dissolved as a
result of:
- the bankruptcy of Strategic Timber Operating Co., or
- the vote of a majority in interest of the units of Strategic Timber
Partners to dissolve including those held by Strategic Timber.
111
<PAGE> 118
FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the federal income tax consequences that may
be relevant to our shareholders. As described under the heading "Legal
Opinions," this section is the opinion of our counsel, Sutherland Asbill &
Brennan LLP. In a private letter ruling issued to us, the IRS has confirmed the
opinion of counsel on several issues. These issues and the IRS ruling are
described below. The IRS ruling is filed as an exhibit to the registration
statement of which this prospectus is a part.
This section is based on the Internal Revenue Code, as it is currently in
effect, existing, temporary, and currently proposed Treasury Regulations
thereunder, the legislative history of the Internal Revenue Code, existing
administrative interpretations and practices of the IRS, and judicial decisions.
All of these authorities are subject to change either prospectively or
retroactively, and any changes in them may adversely affect the tax consequences
described below.
The discussion below does not address all federal income tax matters
affecting us or our shareholders. It does not address the tax consequences that
may be relevant to particular shareholders that are subject to special treatment
under the federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations or non-United States persons. Tax
consequences to tax-exempt organizations and non-U.S. persons are discussed only
to a limited extent under the headings "-- Taxation of Tax-Exempt Shareholders
of Strategic Timber" and "-- Taxation of Non-U.S. Shareholders of Strategic
Timber." The discussion also does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction except to the extent
discussed under the heading "Other Taxes".
We urge prospective purchasers of shares of common stock to consult their
own tax advisors regarding the specific tax consequences to them of the
ownership and disposition of these shares in light of their specific tax and
investment situations, the specific federal, state, local, and foreign tax laws
applicable to them, and the potential changes in applicable tax laws.
LEGAL OPINIONS
Sutherland Asbill & Brennan LLP has acted as our counsel in connection with
this offering and our election to be taxed as a REIT. Except where indicated,
statements as to matters of federal income tax law and legal conclusions
contained in this section are the opinion of Sutherland Asbill & Brennan LLP.
However, none of the statements in this section concerning any consequences
arising under the laws of any state, locality or foreign jurisdiction
constitutes an opinion of our counsel. Investors should be aware that an opinion
of counsel represents only that counsel's best legal judgment and does not bind
the IRS or any court. Thus, the IRS could challenge the statements and opinions
in this section, and if this happens a court could reject the statements or
opinions.
Based on the accuracy of representations we have made to them and subject
to the qualifications set forth in the more detailed discussion that follows,
Sutherland Asbill & Brennan LLP is of the opinion that, beginning with our
taxable year ending December 31, 1998, we will be organized in conformity with
the requirements for qualification as a REIT, and our proposed method of
operation will enable us to meet the requirements for qualification and taxation
as a REIT.
Sutherland Asbill & Brennan LLP's opinion is based on various assumptions
and is conditioned upon representations we have made as to factual matters,
including representations regarding the organization, business, properties,
operations, and future conduct of the businesses of Strategic Timber, Strategic
Timber Partners and Strategic Timber Operating Co. Furthermore, qualification
and taxation as a REIT depend upon our ability to meet the various qualification
tests discussed below on an ongoing basis through actual annual operating
results, distribution levels, and diversity of share ownership. Sutherland
Asbill & Brennan LLP will not review these results on a continuing basis and
cannot provide any assurance that the actual results of our operations for any
particular taxable year will satisfy the qualification tests.
112
<PAGE> 119
We have received a private letter ruling from the IRS confirming the
opinion of Sutherland Asbill & Brennan LLP that:
- timberlands and the timber thereon constitute real estate assets
within the meaning of the asset tests for REIT qualification described
in section 856(c)(4) of the Internal Revenue Code. See "-- Taxation of
Strategic Timber -- Asset Tests."
- income we receive from timber cutting agreements satisfying the
requirements of section 631(b) of the Code will qualify as gain from
the sale or other disposition of real property which is not property
held primarily for sale to customers in the ordinary course of a trade
or business within the meaning of the gross income tests for REIT
qualification described in section 856(c)(2) and (3) of the Internal
Revenue Code. See "-- Taxation of Strategic Timber -- Income Tests."
- income from section 631(b) timber cutting agreements will not be
considered income derived from a prohibited transaction as described
in section 857(b)(6) of the Internal Revenue Code.
The opinion of Sutherland Asbill & Brennan LLP contained in this section
addresses a number of tax issues that were not a part of the private letter
ruling received from the IRS. As noted, an opinion of counsel represents only
that counsel's best legal judgment and does not bind the IRS or any court. The
IRS could challenge the statements and opinions in this section, and if that
happens a court could reject the statements or opinions.
TAXATION OF STRATEGIC TIMBER
GENERAL
We will elect to be taxed as a REIT beginning with our taxable year ending
December 31, 1998. We believe that we will be organized and will operate in such
a manner as to qualify and remain qualified to be taxed as a REIT. No assurance
can be given, however, that we will operate in a manner so as to qualify, or
remain qualified, as a REIT.
As a REIT, we generally will not be subject to federal income taxes on that
portion of our ordinary income or capital gain that we currently distribute to
shareholders. The Internal Revenue Code generally allows a REIT to deduct
dividends paid to its shareholders. This deduction for dividends paid
substantially eliminates the "double taxation" of earnings at the corporation
and distributions to the shareholders that generally results from investment in
a regular "C" corporation. However, we will be subject to federal income tax as
follows:
- We will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains, although, as
explained below, our shareholders will be entitled to a tax credit for
their share of the tax we pay with respect to undistributed net capital
gains.
- If we have net income from the sale or other disposition of "foreclosure
property" that is held primarily for sale to customers in the ordinary
course of our trade or business or other nonqualifying income from
foreclosure property, we will be subject to tax at the highest corporate
rate on such income.
- If we have net income from prohibited transactions, that income will be
subject to a 100% tax. Prohibited transactions are, in general, sales or
other dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of a trade or
business.
- If we fail to satisfy the 75% gross income test or the 95% gross income
test (described below), but nonetheless maintain our qualification as a
REIT, we will be subject to a 100% tax on an amount equal to the gross
income attributable to the greater of the amount by which we fail the 75%
or the 95% gross income test, multiplied by a fraction intended to
reflect our profitability.
- If we fail to distribute during each calendar year at least the sum of
- 85% of our REIT ordinary income for that year,
- 95% of our REIT capital gain net income for that year, other than
capital gain income we elect to retain and pay taxes on and
113
<PAGE> 120
- any undistributed taxable income from prior periods, other than
capital gains from such years which we elected to retain and pay taxes
on,
then we will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
- Under certain circumstances, we may be subject to the "alternative
minimum tax" on certain items of tax preference.
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, we must elect to be taxed as a REIT. We also must
meet the requirements discussed below relating to our organization, sources of
income, nature of assets, and distributions.
Organizational Requirements
In order to qualify as a REIT, we must satisfy the following organizational
requirements:
(1) we must be a corporation, trust, or association that is managed by
one or more trustees or directors;
(2) our beneficial ownership must be evidenced by transferable shares
or by transferable certificates of beneficial interest;
(3) we must be taxable as a domestic corporation but for sections 856
through 859 of the Internal Revenue Code;
(4) we must not be a financial institution or an insurance company;
(5) our beneficial ownership must be held by 100 or more persons; and
(6) during the last half of each taxable year no more than 50% in
value of our outstanding stock may be owned directly or indirectly, through
the application of attribution rules, by five or fewer individuals (as
defined in the Internal Revenue Code to include certain entities).
We must meet requirements (1) through (4) during the entire taxable year.
We must meet requirement (5) during at least 335 days of a taxable year of
twelve months, or during a proportionate part of a taxable year of less than
twelve months. Requirements (5) and (6) will not apply to us until our taxable
year ending December 31, 1999.
In the opinion of Sutherland Asbill & Brennan LLP, we have satisfied
requirements (1) through (4) above for the taxable year ended December 31, 1998,
and, with respect to requirement (5), 100 or more persons have held the
beneficial ownership of our stock since December 31, 1998. We further believe
that we will have issued in this offering sufficient common stock with
sufficient diversity of ownership to allow us to satisfy requirement (6) above
(and continue to satisfy requirement (5) above) for our taxable year ending
December 31, 1999. In addition, our Articles of Incorporation provide
restrictions intended to assist us in continuing to satisfy the share ownership
requirements described in (5) and (6) above regarding the transfer and ownership
of common stock. These ownership and transfer restrictions are described in
"Description of Capital Stock -- Restrictions on Ownership and Transfer of
Shares." However, because of the absence of authority on this issue, there is no
assurance that the operation of these Articles of Incorporation provisions will,
as a matter of law, prevent a concentration of ownership of stock in excess of
the ownership limits described in requirements (5) and (6) above. If we fail to
satisfy these requirements, our status as a REIT will terminate; however, if we
comply with the rules contained in the applicable Treasury Regulations requiring
us to attempt to ascertain the actual ownership of our shares, and we do not
know, and would not have known through the exercise of reasonable diligence,
whether we failed to meet the requirement set forth in condition (6) above, we
will be treated as having met such requirement. See "-- Taxation of Strategic
Timber -- Failure of the Company to Qualify as a REIT." In rendering its opinion
that we are organized in a manner that permits us to qualify as a REIT,
Sutherland Asbill & Brennan LLP is relying on our representations that the
ownership of our stock (without regard to the "excess stock" provisions of the
Articles of Incorporation) satisfies the stock ownership requirements set forth
in requirement (6) above.
114
<PAGE> 121
There are a few additional organizational requirements that we must satisfy
in order to be treated as a REIT. Our taxable year must be the calendar year.
Also, we must maintain required records and request on an annual basis certain
information from our shareholders designed to disclose the actual ownership of
our outstanding stock. A REIT's failure to comply with these record-keeping
requirements would result in a monetary fine imposed on that REIT, unless it is
shown that the failure was due to reasonable cause and not to willful neglect.
We intend to comply with all of these requirements.
Income Tests
In order to maintain qualification as a REIT, we must satisfy two gross
income requirements each year. First, at least 75% of our gross income for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property or from certain types of temporary
investments. Types of qualifying income include "rents from real property" and
"gain from the sale or other disposition of real property" other than property
held primarily for sale to customers in the ordinary course of a trade or
business. Second, at least 95% of our gross income for each taxable year must be
derived from such real property investments, dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of these
items. For purposes of these tests, "gross income" does not include gross income
from any "prohibited transaction," a term defined in section 857(b)(6) of the
Internal Revenue Code. A transaction can be a prohibited transaction only if it
involves the sale or other disposition of property held primarily for sale to
customers in the ordinary course of a trade or business.
In applying the gross income tests and the asset tests to a REIT that is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership is the same in the hands of the REIT for purposes of section 856 of
the Internal Revenue Code, including satisfying the gross income tests and the
asset tests. Thus, our proportionate share of the assets and items of income of
Strategic Timber Partners will be treated as assets and items of income of
Strategic Timber for purposes of applying the requirements described in this
summary. For this reason, references in this summary to our income and assets
include our proportionate share of the income and assets of Strategic Timber
Partners. A summary of the rules governing the federal income taxation of
partnerships and their partners is provided below in "-- Tax Aspects of
Strategic Timber's Ownership of Interests in Strategic Timber Partners."
The fact that we own 100% of the outstanding stock of Strategic Timber
Operating Co., makes it a "qualified REIT subsidiary." A qualified REIT
subsidiary is not treated as a separate corporation for federal income tax
purposes, and all assets, liabilities, and items of income, deduction, and
credit of a qualified REIT subsidiary are treated as assets, liabilities, and
items of Strategic Timber for all purposes of the Internal Revenue Code,
including the REIT qualification tests. For this reason, references in this
summary to the income and assets of Strategic Timber include the income and
assets of Strategic Timber Operating Co. and any other qualified REIT
subsidiary.
We plan to dispose of standing timber by granting purchasers cutting rights
to timber by contracts that satisfy the requirements of section 631(b) of the
Internal Revenue Code. Section 631(b) generally treats a timber owner's gain or
loss on a disposal of timber as though it were gain or loss on the sale of such
timber if the owner has held the timber for more than one year and disposes of
it under a contract pursuant to which the owner retains an economic interest in
the timber. Advance payments received under a section 631(b) contract are
taxable in the year received, even though the timber to be cut under the
contract might be cut in a later year. If we refund advance payments subsequent
to the filing of the tax return for the year such advance payments were
received, we will be required to amend that tax return and may be required to
issue revised statements (Forms 1099 and 2439) to our shareholders, which may
necessitate the filing of amended tax returns by the shareholders.
In the opinion of Sutherland Asbill & Brennan LLP, any gain we recognize
under timber cutting agreements that satisfy the requirements of section 631(b)
will be treated as gain from the sale or other disposition of real property that
is not property held primarily for sale to customers in the ordinary course
115
<PAGE> 122
of business within the meaning of the 75% gross income test and the 95% gross
income test. As noted above, we have received a private letter ruling from the
IRS confirming this opinion.
It is also the opinion of Sutherland Asbill & Brennan LLP that the income
we receive from timber cutting agreements that do not satisfy the requirements
of section 631(b) of the Internal Revenue Code solely because we have not held
the timber disposed of for more than one year will qualify as "rents from real
property" within the meaning of the two gross income tests, provided that those
timber cutting agreements also meet the requirements set forth in the following
paragraph.
Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "rents from real property" solely because it is based
on a fixed percentage or percentages of receipts or sales. Second, rents
received from a person will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or an actual or constructive
owner of 10% or more of the REIT, actually or constructively owns 10% or more of
that person. Third, if rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an independent contractor who is adequately
compensated and from whom the REIT derives no revenue (subject to a 1% de
minimis exception).
We anticipate that our only rental income of a material amount from sources
other than timber cutting agreements will be from certain real property leases,
including hunting leases. In determining that we satisfied the gross income
tests for the period ending December 31, 1998, Sutherland Asbill & Brennan LLP
reviewed available lease documents, determined which leases would produce
qualifying "rents from real property" and which would not, and relied on our
representations (i) that each lease that produced qualifying rents that was not
reviewed is substantially identical in all material respects to the terms of a
particular lease reviewed, (ii) that neither we nor any actual or constructive
owner of 10% or more of our common stock owns 10% or more of any lessee and
(iii) that specific amounts of our 1998 gross income were derived from specific
sources. Based on these representations, it is the opinion of Sutherland Asbill
& Brennan LLP that satisfied the gross income tests for the period ending
December 31, 1998.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we will fail to qualify as a REIT for that year unless we are
entitled to relief under the Internal Revenue Code. These relief provisions will
generally be available if our failure to meet the gross income tests was due to
reasonable cause and not due to willful neglect, we attach a schedule of the
sources of our income to our federal income tax return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. We
have represented that we will exercise ordinary business care and prudence in
attempting to satisfy the gross income tests and will attach a schedule of the
sources of our income to our tax return each year. It is not possible, however,
to state whether in all circumstances we would be entitled to the benefit of the
relief provisions. Furthermore, as discussed above in "-- Taxation of Strategic
Timber -- General," even if the relief provisions apply, a 100% tax would be
imposed on an amount equal to (a) the gross income attributable to the greater
of the amount by which we failed the 75% test or the 95% test, multiplied by (b)
a fraction intended to reflect our profitability.
Any net income we realize from the sale or other disposition of property
held primarily for sale to customers in the ordinary course of a trade or
business will be treated as income from a "prohibited transaction" and will be
subject to a 100% penalty tax. Such prohibited transaction income may also have
an adverse effect upon our ability to satisfy the income tests for qualification
as a REIT. Under existing law, whether property is held primarily for sale to
customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. In the opinion of Sutherland Asbill & Brennan LLP, income derived
from timber cutting agreements that satisfy the requirements of section 631(b)
of the Internal Revenue Code will be treated as
116
<PAGE> 123
income realized from the disposition of property used in our trade or business
and not as income realized from the sale or other disposition of property held
primarily for sale to customers in the ordinary course of our trade or business.
The IRS has confirmed this conclusion in the private letter ruling we received.
Strategic Timber Partners intends to hold timberlands and other properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, developing, owning and operating timberlands and other properties
and to make such occasional sales of timberlands (as opposed to dispositions of
standing timber) or other properties, including "higher and better use" parcels,
as are consistent with its investment objectives. The IRS could contend that one
or more of such sales is a prohibited transaction and subject to the 100%
penalty tax. In general, the determination of whether property is held primarily
for sale to customers in the ordinary course of its trade of business depends on
all the facts and circumstances surrounding such property's sale. Therefore, it
is not possible for Sutherland Asbill & Brennan LLP to opine whether any future
sale of timberlands or other properties, other than a sale of timber meeting the
requirements of section 631(b), might be a prohibited transaction.
We intend to satisfy the gross income tests in 1999 and subsequent years.
However, there can be no assurance that we will in fact satisfy these
requirements every year.
Asset Tests
At the close of each calendar quarter, we must satisfy three tests relating
to our assets. First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by us may
not exceed 5% of the value of our total assets, and we may not own more than 10%
of any one issuer's outstanding voting securities. This final rule, however,
does not apply to our interests in Strategic Timber Partners, any other
partnership, any qualified REIT subsidiary, or any other disregarded entity.
In the opinion of Sutherland Asbill & Brennan LLP, timberlands and the
timber thereon constitute real estate assets within the meaning of the asset
tests. The ruling received from the IRS confirms this conclusion. We met the 75%
asset test during 1998 and anticipate that we will always meet this test.
If we should fail to satisfy the asset tests at the end of a calendar
quarter, we would lose our REIT status unless (1) we satisfied all of the asset
tests at the close of the preceding calendar quarter and (2) the discrepancy
between the value of our assets and the asset requirements either did not exist
immediately after the acquisition of any particular asset or was not wholly or
partly caused by such an acquisition. If the condition described in clause (2)
of the preceding sentence were not satisfied, we could still avoid
disqualification by eliminating any discrepancy within 30 days after the close
of the quarter in which it arose.
Distribution Requirements
In order to qualify as a REIT, we must distribute dividends, other than
capital gain dividends to our shareholders in an amount at least equal to (1)
the sum of (a) 95% of our "REIT taxable income" (computed without regard to the
dividends paid deduction and by excluding our net capital gain) and (b) 95% of
any after-tax net income from foreclosure property, minus (2) the sum of certain
items of non-cash income. We generally must pay these dividends in the taxable
year to which they relate. However, we may pay a dividend in the following
taxable year if we declare the dividend before timely filing our tax return for
the taxable year to which the dividend relates and we pay the dividend on or
before the first regular dividend payment date after the declaration. We intend
to make timely distributions sufficient to satisfy these distribution
requirements.
In the event that we distribute or are treated as having distributed at
least 95%, but less than 100%, of our so adjusted "REIT taxable income," we will
be subject to tax on the income not distributed at ordinary corporate tax rates.
We will also be subject to tax at capital gain rates on any of our net capital
117
<PAGE> 124
gain that we do not distribute or are not treated as having distributed. If we
fail to distribute during each calendar year at least the sum of (1) 85% of our
REIT ordinary income for such year, (2) 95% of our REIT capital gain income for
such year, other than capital gain income which we elect to retain and pay tax
on as provided below, and (3) any undistributed taxable income from prior
periods, other than capital gains from such years which we elected to retain and
pay tax on, we would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
The Internal Revenue Code allows us to elect to retain rather than
distribute all or part of our net capital gains. There are several effects of
such an election. First, we are required to pay the tax on such gains at regular
corporate tax rates. Second, our shareholders are required to include their
proportionate share of the undistributed net capital gain in income. However,
the shareholders will receive a credit for their share of the tax we paid, which
may result in a tax refund to them. Third, the basis of a shareholder's stock
would be increased by the amount of the undistributed net capital gains included
in income by the shareholder minus the amount of capital gains tax we paid on
the shareholder's behalf. In order for a shareholder to receive the credit or
the refund for the taxes we paid on the shareholder's behalf, the shareholder
must file the necessary forms with the IRS.
At any given time, it is possible that we may not have sufficient cash or
other liquid assets to meet the distribution requirements. This may result from
timing or other differences between (1) the actual receipt of income and actual
payment of deductible expenses, (2) the inclusion of such income and deduction
of such expenses in arriving at our taxable income, or (3) our percentage
interest in the Strategic Timber Partners' cash flow and our share of taxable
income arising upon a disposition of property contributed to Strategic Timber
Partners where the fair market value of such property exceeds its tax basis. If
such differences occur, we may, in order to meet the distribution requirements,
find it necessary to arrange for borrowings, equity issuances or asset sales, or
to pay dividends in the form of taxable stock dividends, or to elect to retain
and pay taxes on a portion of our net capital gains.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we would be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends. It is our intention to meet all distribution requirements for the
year in which such requirements arise, so we do not anticipate paying deficiency
dividends.
FAILURE TO QUALIFY AS A REIT
If we fail to qualify to be taxed as a REIT in any taxable year and if the
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. We could not deduct distributions to our shareholders in any year in
which we failed to qualify as a REIT. This would significantly reduce the cash
we have available to distribute to our shareholders and would likely reduce the
value of our common stock. In addition, if we failed to qualify as a REIT, all
distributions to our shareholders would be taxable as ordinary income, to the
extent of our current and accumulated earnings and profits. If that happened,
subject to certain limitations of the Internal Revenue Code, corporate
shareholders might be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we also would be
disqualified from being taxed as a REIT for the next four taxable years. It is
not possible to state whether in all circumstances we would be entitled to that
statutory relief.
118
<PAGE> 125
TAXATION OF TAXABLE U.S. SHAREHOLDERS
We are using the term "U.S. shareholder" to mean a holder of our common
stock who, for United States federal income tax purposes, is:
- an individual who is a citizen or resident of the United States;
- an entity that is a corporation or partnership for United States federal
income tax purposes and that is created or organized in the United States
or under the laws of the United States or any political subdivision
thereof although certain partnerships so created or organized may be
treated, under regulations not yet published, as not a United States
person;
- any estate whose income is includible in gross income for United States
federal income tax purposes regardless of its source; or
- a domestic trust. A domestic trust is any trust whose administration is
subject to the primary supervision of a court within the United States,
and as to which one or more United States fiduciaries have the authority
to control all substantial decisions although certain trusts classified
for United States federal income tax purposes as a United States person
prior to August 20, 1996 may, under regulations not yet published, elect
to retain their classification as a domestic trust.
DISTRIBUTIONS BY STRATEGIC TIMBER
So long as we qualify as a REIT, distributions we make out of our current
or accumulated earnings and profits that are not designated as capital gain
dividends will constitute dividends taxable to our taxable U.S. shareholders as
ordinary income. U.S. shareholders that are corporations will not be eligible
for the dividends received deduction with respect to such dividends.
Distributions we properly designate as capital gain dividends will, to the
extent that they do not exceed our actual net capital gain for the taxable year,
be taxable to taxable U.S. shareholders as long-term capital gains without
regard to the period for which a U.S. shareholder has held our common stock.
U.S. shareholders that are corporations may, however, be required to treat
up to 20% of specified capital gain dividends as ordinary income pursuant to
section 291(d) of the Internal Revenue Code. Individuals are generally subject
to differing rates of tax on various transactions giving rise to long-term
capital gains or losses. In general, the maximum long-term capital gain rate
applicable to individuals is 20%.
If we elect to retain and reinvest some or all of our capital gains rather
than distributing them, we will pay tax on these gains at the corporate tax
rate, which is now 35%. You will be deemed to have received a capital gain
dividend equal to your proportionate share of the gain we retained, which you
will need to report in your own return. You will, however, be entitled to a tax
credit on your proportionate share of the tax we paid on the gain. The maximum
capital tax rate applicable to U.S. individuals on this gain is 20% and,
depending upon your income, may be less. The difference between the tax we paid
on your behalf at the 35% corporate rate and the tax you actually owe on this
gain may be used to offset your liability for tax on other items of income, and
if your total tax payments exceed your liability, you will be entitled to a tax
refund. Tax-exempt organizations who are shareholders will be entitled to a
refund of the entire amount of tax we paid on their behalf. Each year, we will
report the amount of any retained capital gains to you on IRS Forms 2439, which
are similar to a Form 1099, and you may claim the tax credit on your own income
tax return, or on Form 990-T in the case of exempt organizations. Your tax basis
in the common stock you own will be increased by the amount of the deemed
capital gain dividend, less your proportionate share of the tax we paid on your
behalf.
To the extent that we make distributions in excess of our current and
accumulated earnings and profits, such distributions will be treated first as a
tax-free return of capital to each U.S. shareholder. A distribution treated as a
return of capital reduces the adjusted basis that the U.S. shareholder has in
its common stock for tax purposes by the amount of such distribution (but not
below zero), with distributions in excess of a U.S. shareholder's adjusted basis
in its common stock taxable as capital gains, provided that
119
<PAGE> 126
the common stock has been held as a capital asset. We will be treated as having
sufficient earnings and profits to treat as a dividend any distribution up to
the amount required to be distributed in order to avoid imposition of the 4%
excise tax discussed under "-- Taxation of Strategic Timber -- General" and
"-- Taxation of Strategic Timber -- Requirements for
Qualification -- Distribution Requirements." As a result, shareholders may be
required to treat as taxable dividends specified distributions that would
otherwise result in tax-free returns of capital. Moreover, any "deficiency
dividend" will be treated as a "dividend," either an ordinary dividend or a
capital gain dividend, regardless of our earnings and profits. Dividends
declared in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by us and received by the shareholder on December 31 of that year,
provided that we actually pay the dividend on or before January 31 of the
following calendar year. Shareholders may not include in their own income tax
returns any net operating losses or net capital losses we may incur. We will
notify each shareholder after the close of our taxable year as to the portions
of the distributions attributable to that year which constitute ordinary income,
capital gain or a return of capital.
Income from distributions we pay and gain arising from the sale or exchange
by a U.S. shareholder of our common stock will not be treated as passive
activity income and, as a result, U.S. shareholders generally will not be able
to apply any "passive activity losses" against such income or gain. Dividends we
pay to the extent they do not constitute a capital gain dividend or a return of
capital, will generally be treated as investment income for purposes of the
investment interest limitation. Net capital gain from the sale or other
disposition of shares of our common stock and capital gain dividends will
generally not be considered investment income for purposes of the investment
interest limitation.
SALE OF COMMON STOCK
Upon any sale or other taxable disposition of our common stock, a U.S.
shareholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (1) the amount of cash and the fair
market value of any property received on such sale or other disposition and (2)
the shareholder's adjusted basis in the common stock for tax purposes. This gain
or loss will be capital gain or loss if the common stock has been held as a
capital asset and will be long-term gain or loss if the common stock has been
held for more than one year. In general, any loss recognized by a U.S.
shareholder upon the sale or other taxable disposition of common stock that has
been held for six months or less for tax purposes will be treated as a long-term
capital loss to the extent of distributions received by the U.S. shareholder
from us which were required to be treated as long-term capital gains.
WITHHOLDING ON DISTRIBUTIONS
We will report to our U.S. shareholders and to the IRS the amount of
dividends paid during each calendar year and the amount of any tax withheld.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless the
shareholder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. shareholder that does not provide us with the correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
shareholder's federal income tax liability. In addition, we may be required to
withhold a portion of capital gain distributions to any shareholder who fails to
certify his non-foreign status to us. See "--Taxation of Non-U.S. Shareholders
of Strategic Timber."
TAXATION OF TAX-EXEMPT SHAREHOLDERS OF STRATEGIC TIMBER
Dividends that we pay a tax-exempt shareholder, other than tax-exempt
shareholders that fall within the special categories described below, will not
be unrelated business taxable income, or "UBTI," unless the tax-exempt
shareholder has held its common stock as "debt financed property" within the
meaning of the Internal Revenue Code or has otherwise used its common stock in
an unrelated trade or business.
120
<PAGE> 127
Similarly, a tax-exempt shareholder's income from the sale of common stock will
not constitute UBTI unless the tax-exempt shareholder has held the common stock
as "debt financed property" within the meaning of the Internal Revenue Code or
has used the common stock in an unrelated trade or business.
Dividends we pay tax-exempt shareholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation under
Internal Revenue Code sections 501(c)(7), (9), (17) and (20), respectively, will
constitute UBTI unless the organization is able properly to deduct amounts set
aside or placed in reserve for purposes authorized by the Internal Revenue Code
so as to offset this dividend income. Prospective shareholders falling in to one
of these categories should consult their own tax advisors concerning these set
aside and reserve requirements.
In addition, in some circumstances a pension trust that owns more than 10%
of our stock may be required to treat a percentage of the dividends received
from us as UBTI. This percentage is the gross income we derived from an
unrelated trade or business (determined as if we were a pension trust) divided
by our gross income for the year in which the dividends are paid. The rule will
apply to a pension trust holding more than 10% of our stock only if (1) the
percentage is at least 5%, (2) in order for us to meet the 100 shareholder
requirement to qualify as a REIT, it is necessary for us to treat the
beneficiaries of the pension trust as holding our shares held by the trust in
proportion to their actuarial interests in the pension trust and (3) either one
pension trust owns more than 25% of the value of our stock, or a group of
pension trusts individually holding more than 10% of the value of our stock
collectively owns more than 50% of the value of our stock. Based on the
anticipated ownership of the shares of our common stock immediately after this
offering, and as a result of the limitations on transfer and ownership of this
common stock contained in the Articles of Incorporation, we do not expect this
rule to apply to any tax-exempt shareholders of our stock. In addition, we
intend to conduct our business in such a way that we would not be treated as
deriving gross income from an unrelated trade or business, even if this rule
were to apply.
TAXATION OF NON-U.S. SHAREHOLDERS OF STRATEGIC TIMBER
The rules governing United States federal income taxation of the ownership
and disposition of common stock by persons that are considered to be non-U.S.
shareholders for tax purposes are complex, and we will not attempt in this
discussion to provide more than a brief summary of these rules. The discussion
does not address all aspects of United States federal income tax and does not
address state, local or foreign tax consequences that may be relevant to a
non-U.S. shareholder in light of its particular circumstances.
DISTRIBUTIONS BY STRATEGIC TIMBER
Under the Foreign Investment in Real Property Tax Act, which is commonly
referred to as "FIRPTA," distributions to a non-U.S. shareholder that are
attributable to gain from sales or exchanges of United States real property
interests will be treated by the non-U.S. shareholders as income effectively
connected with a United States trade or business. Gain from dispositions of
timber that we have owned for more than one year growing on timberlands within
the United States will come within this category. Non-U.S. shareholders would
generally be taxed at the same rates applicable to domestic shareholders on this
gain, subject to a special alternative minimum tax in the case of nonresident
alien individuals. Also, this gain may be subject to a 30% branch profits tax in
the hands of a non-U.S. shareholder that is a corporation. Unless a tax treaty
between the United States and the country of residence of the non-U.S.
shareholder reduces the withholding rate for REIT dividends, we are generally
required to withhold 35% of any capital gain distribution. That amount is
creditable against the non-U.S. shareholder's United States federal income tax
liability and is refundable if the amount withheld exceeds the non-U.S.
shareholders' actual U.S. income tax liability. To obtain a refund, the non-U.S.
shareholder must file a U.S. income tax return. This 35% withholding tax rate on
capital gain dividends is higher than the maximum rate on long-term capital
gains of individuals of 20%.
121
<PAGE> 128
Distributions we pay to a non-U.S. shareholder that are neither
attributable to gain from our sale or exchange of United States real property
interests nor designated by us as capital gains dividends will be treated as
ordinary income to the extent that they are made out of our current or
accumulated earnings and profits. These distributions will be subject to U.S.
withholding tax on a gross basis (that is, without allowance of deductions) at a
30% rate, unless the withholding tax rate is reduced under an applicable income
tax treaty between the United States and the country of tax residence of the
non-U.S. shareholder.
For dividends paid prior to January 1, 2000, we are permitted by the tax
rules to rely on a shareholder's address in determining whether the dividend is
subject to withholding on the basis of being paid to a non-U.S. person. If a
non-U.S. shareholder is relying on a tax treaty to claim a lower withholding
rate, we will ask the shareholder to provide an appropriately executed Form 1001
to document this claim.
Recently finalized United States Treasury Regulations applicable to
dividends paid after December 31, 1999 set forth presumptions which we may
generally rely upon to determine whether, in the absence of certain
documentation, a shareholder should be treated as a non-U.S. shareholder for
purposes of the withholding tax on non-capital gain dividends. The presumptions
would not apply for purposes of granting a reduced rate of withholding under a
treaty to a non-U.S. shareholder. To obtain a reduced rate of withholding under
a treaty, a non-U.S. shareholder will be required to either (i) provide a Form
W-8 certifying such non-U.S. shareholder's entitlement to benefits under a
treaty together with, in certain circumstances, additional information, or (ii)
satisfy certain other applicable treaty certification requirements. The new
regulations also provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty, dividends paid to a non-U.S.
shareholder that is an entity should be treated as paid to the entity or to
those persons or entities holding an interest in the entity.
The 30% withholding tax applicable to non-capital gain dividends will not
apply if the dividends are treated as effectively connected with the conduct by
the non-U.S. shareholder of a United States trade or business (or,
alternatively, where an income tax treaty applies, if the dividend is
effectively connected with a permanent establishment maintained within the
United States by the non-U.S. shareholder) and the non-U.S. shareholder files
appropriate certifications with us. These dividends will be subject to tax on a
net basis (that is, after allowance of deductions) at graduated rates, in the
same manner as U.S. shareholders. In general, a foreign shareholder will not be
considered engaged in a U.S. trade or business solely as a result of its
ownership of common stock.
Distributions in excess of our current or accumulated earnings and profits
will not be taxable to a non-U.S. shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's common stock, but will reduce the
adjusted basis of the shareholder's common stock. To the extent that such
distributions exceed the adjusted basis of a non-U.S. shareholder's common
stock, they will give rise to gain from the sale or exchange of the
shareholder's common stock. The tax treatment of this gain is the same as if the
non-U.S. shareholder had sold our stock, which is described below.
SALE OF COMMON STOCK
Gain recognized by a non-U.S. shareholder on the sale or exchange of common
stock generally will not be subject to United States taxation unless the shares
constitute a "United States real property interest" within the meaning of
FIRPTA. Our common stock will not constitute a "United States real property
interest" so long as we are a "domestically controlled REIT." We will meet this
definition if, at all times during a specified testing period, less than 50% in
value of our stock is held directly or indirectly by non-U.S. shareholders. We
believe that after this offering we will be a "domestically controlled REIT,"
and therefore that the sale of common stock will not be subject to taxation
under FIRPTA. However, because the common stock is expected to become publicly
traded, no assurance can be given that we will continue to meet this definition.
Even if we meet this definition, gain from the sale or exchange of common stock
not otherwise subject to FIRPTA will be taxable to a non-U.S. shareholder if (i)
the non-U.S. shareholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien
122
<PAGE> 129
individual will be subject to a 30% United States withholding tax on the amount
of the gain, or (ii) the non-U.S. shareholder's investment in common stock is
effectively connected with its U.S. trade or business, in which case the
non-U.S. shareholder will be subject to the same treatment as U.S. shareholders
with respect to this gain.
If we do not qualify as, or cease to be a "domestically controlled REIT,"
the determination of whether gain arising from the sale or exchange by a
non-U.S. shareholder of common stock would be subject to United States taxation
under FIRPTA as a sale of a "United States real property interest" will depend
on whether the common stock is "regularly traded" for tax purposes on an
established securities market and on the size of the selling non-U.S.
shareholder's interest in Strategic Timber. In general, if the common stock is
"regularly traded" on an established securities market during the quarter in
which the non-U.S. shareholder sells his or her stock and the selling non-U.S.
shareholder holds, directly or indirectly, 5% or less of our common stock during
the five-year period ending on the date of disposition, then the sale will not
be subject to United States taxation under FIRPTA. If gain on the sale or
exchange of common stock were subject to taxation under FIRPTA, the non-U.S.
shareholder would be subject to regular United States income tax with respect to
this gain in the same manner as a U.S. shareholder (subject to any applicable
alternative minimum tax, as computed in the case of nonresident alien
individuals and foreign corporations and the possible application of the 30%
branch profits tax in the case of foreign corporations), and the purchaser of
the common stock would be required to withhold and remit to the IRS 10% of the
purchase price.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
We must report annually to the IRS and to each non-U.S. shareholder the
amount of dividends paid to, and the tax withheld with respect to, the
shareholder, regardless of whether any tax was actually withheld. That
information may also be made available to the tax authorities of the country in
which a non-U.S. shareholder resides.
Backup withholding tax, which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish certain information under the
United States information reporting requirements, will generally not apply:
- if distributions are paid on or prior to December 31, 1999 to a non-U.S.
shareholders at an address outside the United States (provided that we do
not have actual knowledge that the payee is a United States person),
- if such distributions are subject to the 30% (or lower treaty rate)
withholding tax discussed above,
- if the distribution is a capital gains distribution, or
- if the distribution is attributable to gain we realized from the sale or
exchange by Strategic Timber of United States real property interests.
For distributions paid after December 31, 1999, the new regulations provide
certain presumptions and other rules under which non-U.S. shareholders may be
subject to backup withholding and related information reporting in the absence
of required certifications. As a general matter, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
common stock by or through a foreign office of a foreign broker. However,
information reporting, but not backup withholding, will apply to a payment of
the proceeds of a sale of common stock by a foreign office of a broker that (a)
is a United States person, (b) derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States,
(c) is a U.S. "controlled foreign corporation" for United States tax purposes,
or (d) effective after December 31, 1999, certain brokers that are foreign
partnerships with U.S. partners or that are engaged in a U.S. trade or business,
unless in each such case the broker has documentary evidence in its records that
the holder is a non-U.S. shareholder and certain other conditions are met, or
the shareholder otherwise establishes an exemption. Payment to or through a
United States office of a broker of the proceeds of a sale of common stock is
subject to both backup
123
<PAGE> 130
withholding and information reporting unless the shareholder certifies under
penalty of perjury that the shareholder is a non-U.S. shareholder, or otherwise
establishes an exemption.
The backup withholding tax is not an additional tax and may be credited
against a non-U.S. shareholder's United States federal income tax liability or
refunded to the extent excess amounts are withheld, provided that the required
information is supplied to the IRS.
TAX ASPECTS OF STRATEGIC TIMBER'S OWNERSHIP OF INTERESTS IN STRATEGIC TIMBER
PARTNERS
GENERAL
All of our assets will be held through Strategic Timber Partners. In
general, partnerships are "pass-through" entities which are not subject to
federal income tax. Instead, partners are allocated their proportionate shares
of the items of income, gain, loss, deduction and credit of a partnership, and
are potentially subject to tax on these items, without regard to whether the
partners receive a distribution from the partnership. We will include in our
income our proportionate share of these partnership items of Strategic Timber
Partners for purposes of the various REIT income tests and in the computation of
our REIT taxable income. Moreover, for purposes of the REIT asset tests, we will
include our proportionate share of assets held through Strategic Timber
Partners.
Our interest in Strategic Timber Partners may involve special tax
considerations. Those considerations include (1) the allocation of items of
income and expense, which could affect the computation of our taxable income,
(2) the treatment of Strategic Timber Partners as a partnership for federal
income tax purposes, and (3) the taking of actions by Strategic Timber Partners
which could adversely affect our qualification as a REIT.
ENTITY CLASSIFICATION
An organization formed as a partnership will be treated as a partnership
for federal income tax purposes if (1) it is not expressly classified as a
corporation under section 301.7701-2(b)(1) through (8) of the Treasury
Regulations; (2) it does not elect to be classified as an association taxable as
a corporation; and (3) it is not treated as a corporation by virtue of being
classified as a "publicly traded partnership."
Under section 7704 of the Code, a partnership is treated as a corporation
for federal income tax purposes if it is a "publicly traded partnership," except
in situations in which 90% or more of the partnership's gross income is
"qualifying income" within the meaning of section 7704(c)(2) of the Code.
"Qualifying income" includes interest, dividends, real property rents, gains
from the disposition of real property, and certain income or gains from the
exploitation of natural resources, including timber. We expect that more than
90% of the gross income of Strategic Timber Partners each year will be
"qualifying income."
We, Strategic Timber Partners, and Strategic Timber Operating Co., the sole
general partner of Strategic Timber Partners, have represented to Sutherland
Asbill & Brennan LLP that Strategic Timber Partners will timely file a federal
income tax return for its initial taxable year ending December 31, 1998, and
will not elect to be treated as a corporation for federal income tax purposes.
Sutherland Asbill & Brennan LLP is of the opinion that Strategic Timber Partners
will be treated as a partnership for federal income tax purposes.
If for any reason Strategic Timber Partners were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, we would not be
able to satisfy the income and asset requirements for REIT status. See
"-- Taxation of Strategic Timber -- Requirements for Qualification -- Income
Tests" and "-- Requirements for Qualification -- Asset Tests." In addition, any
change in Strategic Timber Partners' status for tax purposes might be treated as
a taxable event, in which case we might incur a tax liability without any
related cash distribution. See "-- Taxation of Strategic Timber -- Distribution
Requirements." Further, items of income and deduction of Strategic Timber
Partners would not pass through to its partners, and its partners would be
treated as shareholders for tax purposes.
124
<PAGE> 131
Consequently, Strategic Timber Partners would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing Strategic Timber
Partners' taxable income.
PARTNERSHIP ALLOCATIONS
Although a partnership agreement will generally determine the allocation of
income and loss among partners, those allocations will be disregarded for tax
purposes if they do not comply with the provisions of section 704(b) of the
Internal Revenue Code and applicable Treasury Regulations. Generally, section
704(b) and the Treasury Regulations require that partnership allocations respect
the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. In the opinion of Sutherland Asbill &
Brennan, LLP, the allocation of taxable income and loss contained in the
partnership agreement of Strategic Timber Partners complies with the
requirements of section 704(b) of the Internal Revenue Code and the applicable
Treasury Regulations.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES
Pursuant to section 704(c) of the Internal Revenue Code, income, gain, loss
and deduction attributable to appreciated or depreciated property which has been
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of contributed property at the time of contribution and the
adjusted tax basis of such property at such time, commonly called a "Book-Tax
Difference." Section 704(c) allocations are solely for federal income tax
purposes and do not affect the partners' capital accounts or other economic or
legal arrangements among the partners.
All of the current timber assets of Strategic Timber Partners have a
Book-Tax Difference. When those assets are disposed of, including as a result of
timber dispositions pursuant to a timber cutting agreement, the Book-Tax
Difference will be accounted for by income allocations to the respective
contributing partners. These income allocations will eliminate the Book-Tax
Difference over the life of the partnership. Treasury Regulations under section
704(c) provide partnerships with a choice of several methods of accounting for
Book-Tax Differences. We have determined to use the "remedial method" for
accounting for Book-Tax Differences with respect to the properties owned by
Strategic Timber Partners at the time of this offering.
BASIS IN PARTNERSHIP INTEREST
Our adjusted tax basis in our interest in Strategic Timber Partners
generally will be equal to the amount of cash and the basis of any other
property we contribute to Strategic Timber Partners, will be increased by our
allocable share of the partnership's income and indebtedness and will be
reduced, but not below zero, by our allocable share of losses incurred by
Strategic Timber Partners, by the amount of cash distributed to us by Strategic
Timber Partners, and by constructive distributions resulting from a reduction in
our share of Strategic Timber Partners' indebtedness.
If our distributive share of Strategic Timber Partners' losses exceeds the
adjusted tax basis of our partnership interest, the recognition of such excess
loss will be deferred until such time as we have adjusted tax basis in our
partnership units against which to deduct the loss. To the extent that the
distributions from Strategic Timber Partners, or any decrease in our share of
the indebtedness of Strategic Timber Partners (such decreases being considered a
cash distribution to the partners), exceeds our adjusted tax basis, such excess
distributions constitute taxable income to us. This taxable income will
125
<PAGE> 132
normally be characterized as capital gain, and if our interest in the
partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gain.
OTHER TAXES
We, any of our subsidiaries, Strategic Timber Partners or our shareholders
may be subject to foreign, state and local tax in various countries, states and
localities, including those countries, states and localities in which we, it or
they transact business, own property, or reside. The state, local or foreign tax
treatment of any of these parties in such jurisdictions may differ from the
federal income tax treatment described above.
Qualification as a REIT under the laws of the individual states will
depend, among other things, on the state's conformity with federal tax law. For
example, one change made by the Taxpayer Relief Act of 1997, which eliminated
percentage limitations on the amount of income a REIT can have from the
disposition of assets held for less than four years is critical to the federal
income tax treatment described in this prospectus. If a state's tax laws do not
conform to this change, our status as a REIT under that state's tax laws would
be doubtful.
Louisiana and Oregon conform to this change and otherwise generally follow
the federal tax treatment of REITs. New Hampshire does not conform to the
federal tax treatment of REITs. Accordingly, the New Hampshire Business Profits
Tax will apply to us. The Business Profits Tax is a 7% tax on net business
profits with no deduction for dividends distributed to shareholders. The
Business Profits Tax is subject to apportionment based on a three-factor
formula, so we will not be required to pay the tax on the full amount of our
income, but only on that portion that is attributed to New Hampshire through
application of the apportionment formula.
We will be subject to a Business and Occupation tax in Washington, which is
a tax on gross receipts. However, receipts from the sale of standing timber are
exempt from this Washington tax.
Some states in which we are not engaged in business do not conform to the
federal tax treatment of REITs. Since we do not do business in those states, we
would generally not be subject to taxation by any of those states. However, cash
distributions out of our earnings and profits to shareholders in those states
would likely be characterized as ordinary income rather than capital gains for
purposes of computing their state tax liability. This difference will generally
be relevant only in those states where capital gains are taxed at preferential
rates, or if a shareholder has a net capital loss carryforward available for
state tax purposes.
The state tax treatment of net capital gains we retain will depend on the
state tax laws of the states in which both we and our shareholders are subject
to tax. It is possible, therefore, that we may pay some state income taxes with
respect to our undistributed net capital gains that produce no usable state tax
credit for our shareholders. For example, although California otherwise
generally conforms to the federal treatment of REITs, it has not adopted the
provisions dealing with the treatment of retained capital gains. As a result, we
will pay California taxes on our retained capital gains, but shareholders will
not receive a credit for the taxes paid by us against their California tax
liability, if any.
Prospective investors are urged to consult their own tax advisors regarding
the effect of foreign, state and local tax laws upon an investment in our common
stock. Again, none of the statements in this discussion concerning matters of
foreign, state or local tax law constitutes an opinion of counsel.
126
<PAGE> 133
ERISA CONSIDERATIONS
GENERAL
This section summarizes some important issues under the Employee Retirement
Income Security Act of 1974, as amended, or ERISA, and the prohibited
transaction provisions of section 4975 of the Internal Revenue Code that you
should consider before purchasing our common stock. Even if you are not an
employee benefit plan, another tax-qualified retirement plan, or an individual
retirement account, or IRA, you should review "-- Status of Strategic Timber and
Strategic Timber Partners under ERISA." This section does not deal with all
aspects of ERISA or section 4975 of the Internal Revenue Code that may be
relevant to you in light of your particular circumstances, especially if you
are:
- a plan subject to Title I of ERISA;
- other retirement plan or IRA subject to the prohibited transaction
provisions of section 4975 of the Internal Revenue Code; or
- a governmental plan or church plan that is exempt from ERISA and section
4975 of the Internal Revenue Code but that may be subject to state law
requirements.
This section is based on current provisions of ERISA and the Internal
Revenue Code, existing and currently proposed regulations under ERISA and the
Internal Revenue Code, the legislative history of ERISA and the Internal Revenue
Code, existing administrative rulings of the Department of Labor and reported
judicial decisions. Legislative, judicial or administrative changes may affect
the accuracy of any statements in this section, even with respect to
transactions entered into or contemplated prior to the effective date of such
changes.
IF YOU ARE A FIDUCIARY MAKING A DECISION TO INVEST IN THE COMMON STOCK ON
BEHALF OF A PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A
TAX-QUALIFIED RETIREMENT PLAN, OR AN IRA, YOU SHOULD CONSULT YOUR OWN LEGAL
ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975
OF THE INTERNAL REVENUE CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE,
OWNERSHIP OR SALE OF THE COMMON STOCK BY A PLAN OR AN IRA.
If you are a fiduciary of a pension, profit-sharing, or other employee
benefit plan, or an ERISA plan, that is subject to Title I of ERISA, you should
consider carefully whether an investment in the common stock is consistent with
your fiduciary responsibilities under ERISA. In particular, the fiduciary
requirements of Part 4 of Title I of ERISA require an ERISA plan's investments
to be:
- prudent and in the best interests of the ERISA plan, its participants,
and its beneficiaries,
- diversified in order to minimize the risk of large losses, unless it is
clearly prudent not to do so, and
- authorized under the terms of the ERISA plan's governing documents,
provided the documents are consistent with ERISA.
In determining whether an investment in the common stock is prudent for
purposes of ERISA, you should consider whether the investment is reasonably
designed, as a part of the ERISA plan's portfolio, to meet the objectives of the
ERISA plan, taking into consideration the risk of loss and opportunity for gain
or other return from the investment, the diversification, cash flow and funding
requirements of the ERISA plan's portfolio. You also should take into account
the nature of our business, our management, our brief operating history, the
fact that certain investment properties may not have been identified yet, the
possibility of the recognition of unrelated business taxable income, and any
other facts and circumstances that may be relevant to an investment.
If you are a fiduciary of an IRA or of a qualified retirement plan that is
not subject to Title I of ERISA because it is a governmental or church plan or
because it does not cover common law employees, you should consider that these
plans may only make investments that are authorized by the appropriate governing
documents and under applicable state law. We refer to these plans as non-ERISA
plans.
If you are a fiduciary of an ERISA plan or are making the investment
decision for an IRA or other non-ERISA plan, you should consider the application
of the prohibited transaction provisions of ERISA
127
<PAGE> 134
and the Internal Revenue Code in making your investment decision. A "party in
interest" or "disqualified person" with respect to an ERISA plan or with respect
to a non-ERISA plan or IRA subject to Internal Revenue Code section 4975 is
subject to (1) an initial 15% excise tax on the amount involved in any
prohibited transaction involving the assets of the plan or IRA and (2) an
additional excise tax equal to 100% of the amount involved if any prohibited
transaction is not corrected within the appropriate period. If an IRA is
maintained on behalf of a disqualified person who engages in a prohibited
transaction, the IRA will lose its tax-exempt status and its assets will be
deemed to have been distributed to the disqualified person or his or her
beneficiary in a taxable distribution on account of the prohibited transaction,
and no excise tax will be imposed. In addition, if you are a fiduciary and you
permit an ERISA plan to engage in a transaction that you know or should know is
a prohibited transaction, you may be liable to the ERISA plan for any loss the
ERISA plan incurs as a result of the transaction or for any profits you earn in
the transaction.
STATUS OF STRATEGIC TIMBER AND STRATEGIC TIMBER PARTNERS UNDER ERISA
This section discusses principles you should apply to determine whether the
fiduciary requirements of ERISA and the prohibited transaction provisions of
ERISA and the Internal Revenue Code apply to an entity because one or more
investors in the equity interests in the entity is:
- an ERISA plan or
- a non-ERISA plan or IRA subject to section 4975 of the Internal Revenue
Code.
If you are an ERISA Plan fiduciary, you also should consider the relevance
of those principles to:
- ERISA's prohibition on improper delegation of control over or
responsibility for "plan assets" and
- ERISA's imposition of co-fiduciary liability on a fiduciary who
participates in, permits the occurrence of, or fails to remedy a known
breach by another fiduciary.
If our assets are deemed to be "plan assets" under ERISA,
- the prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving our assets,
- persons who exercise any authority over our assets, or who provide
investment advice to us, would be considered fiduciaries of each ERISA
plan that acquires common stock, and transactions involving our assets
undertaken at their direction or pursuant to their advice might violate
their fiduciary responsibilities under ERISA, especially with regard to
conflicts of interest,
- a fiduciary exercising his or her investment discretion over the assets
of an ERISA plan to cause it to acquire or hold the common stock could be
liable under Part 4 of Title I of ERISA for transactions we enter into
that do not conform to ERISA standards of prudence and fiduciary
responsibility, and
- certain transactions that we might enter into in the ordinary course of
its business and operations might constitute "prohibited transactions"
under ERISA and the Internal Revenue Code.
Based on the following discussion, we do not believe that our assets will
be deemed "plan assets" of any ERISA plan, IRA or non-ERISA plan that invests in
the common stock. The Department of Labor or the Treasury Department, however,
may reach a contrary conclusion.
Regulations of the Department of Labor defining "plan assets" generally
provide that when an ERISA plan or non-ERISA plan or IRA acquires a security
that is (1) an equity interest in a company and (2) not a "publicly-offered
security," the ERISA plan's, non-ERISA plan's or IRA's assets include both the
equity interest and an undivided interest in each of the underlying assets of
the issuer of the equity interest, unless one or more exceptions specified in
these regulations are satisfied. We refer to these regulations defining plan
assets as the plan asset regulations.
128
<PAGE> 135
The plan asset regulations define a publicly-offered security as a security
that is
- widely-held,
- freely transferable, and
- either part of a class of securities registered under the Securities
Exchange Act of 1934 or sold pursuant to an effective registration statement
under the Securities Act and registered under the Exchange Act within 120 days
after the end of the fiscal year of the issuer during which this offering
occurred.
We are selling the shares of common stock in an offering registered under
the Securities Act and we will register the shares under the Exchange Act.
The plan asset regulations provide that a security is "widely held" only if
it is part of a class of securities that is owned by 100 or more investors who
are independent from the issuer and one another. If the number independent
investors falls below 100 subsequent to the initial public offering as a result
of events beyond the issuer's control, the security will still be considered
widely held. We anticipate that upon completion of this offering, the common
stock will be "widely held."
The plan asset regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. When a security is part of an offering in
which the minimum investment is $10,000 or less (as is the case with this
offering), the security will ordinarily be deemed to be freely transferable even
if there are certain restrictions on transfer. These permissible restrictions on
transfer include:
- any restriction on or prohibition against any transfer or assignment that
would result in the termination or reclassification of an entity for
federal or state tax purposes, or that otherwise would violate any
federal or state law or court order,
- any requirement that advance notice of a transfer or assignment be given
to the issuer,
- any administrative procedure that establishes an effective date, or an
event (such as completion of an offering), prior to which a transfer or
assignment will not be effective, and
- any limitation or restriction on transfer or assignment that is not
imposed by the issuer or a person acting on behalf of the issuer.
We believe that the common stock will be "freely transferable" in spite of
the restrictions imposed under our Articles of Incorporation on the transfer of
the common stock. We also are not aware of any other facts or circumstances
limiting the transferability of the common stock that are not permitted by the
plan asset regulations. We do not intend to impose in the future, or to permit
any person to impose on our behalf, any impermissible limitations or
restrictions on transfer. The plan asset regulations only establish a
presumption in favor of a finding of free transferability, and the Department of
Labor or the Treasury Department may reach a contrary conclusion.
Assuming that the common stock will be "widely held" and that no other
facts and circumstances other than those referred to in the preceding paragraph
exist that restrict transferability of the common stock, the common stock should
be publicly offered securities. Thus, our assets should not be deemed to be
"plan assets" of any ERISA plan, IRA, or non-ERISA plan that invests in the
common stock.
The plan asset regulations also will apply in determining whether the
assets of Strategic Timber Partners will be deemed to be "plan assets." The
partnership interests in Strategic Timber Partners will not be publicly-offered
securities. Nevertheless, if the shares of common stock constitute
publicly-offered securities, your indirect investment in Strategic Timber
Partners through your ownership of common stock will not cause the assets of
Strategic Timber Partners to be treated as "plan assets" of an ERISA plan, IRA,
or a non-ERISA plan subject to section 4975 of the Internal Revenue Code.
129
<PAGE> 136
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and Strategic Timber has agreed to sell to such underwriter, the
number of shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
Salomon Smith Barney Inc....................................
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
A.G. Edwards & Sons, Inc....................................
Warburg Dillon Read LLC.....................................
ABN AMRO Incorporated.......................................
Morgan Keegan & Company, Inc................................
----------
Total.................................................. 16,600,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, A.G.
Edwards & Sons, Inc., Warburg Dillon Read LLC, ABN AMRO Incorporated, and Morgan
Keegan & Company, Inc. are acting as representatives, propose to offer some of
the shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the shares to certain dealers at the
public offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to certain other dealers. If all of the shares are
not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised Strategic Timber that the underwriters do not intend to confirm any
sales to any accounts over which they exercise discretionary authority.
Strategic Timber has granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to 2,490,000 additional
shares of common stock at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
Strategic Timber will pay an advisory fee of 0.65% of the gross proceeds of
this offering, including any exercise of the underwriters' over-allotment
option, to Salomon Smith Barney Inc. for advisory services in connection with
the evaluation, analysis and structuring of the formation of Strategic Timber
and this offering.
130
<PAGE> 137
Strategic Timber, its officers and directors, and Strategic Timber Partners
have agreed that, subject to certain exceptions, for a period of one year from
the date of the consummation of this offering, they will not, without the prior
written consent of Salomon Smith Barney Inc., dispose of or hedge any shares of
common stock or any partnership units or any securities convertible into, or
exercisable or exchangeable for, common stock or partnership units. The owners
of units and shares received in the formation transactions have agreed not to
dispose of or hedge the units or shares for a period of one year after
consummation of this offering, without the prior written consent of Salomon
Smith Barney Inc. However, Salomon Smith Barney Inc., in its sole discretion,
may release any of the securities subject to these lock-up agreements at any
time without notice.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares will be
determined by negotiations between Strategic Timber and the representatives.
Among the factors to be considered in determining the initial public offering
price are Strategic Timber's record of operations, its current financial
condition, its future prospects, its markets, the economic conditions in and
future prospects for the industry in which Strategic Timber competes, its
management, and currently prevailing general conditions in the equity securities
markets, including current market valuations of publicly traded companies
considered comparable to Strategic Timber. There can be no assurance, however,
that the prices at which the shares will sell in the public market after this
offering will not be lower than the price at which they are sold by the
underwriters or that an active trading market in the common stock will develop
and continue after this offering.
Strategic Timber has applied to have the common stock included for
quotation on the Nasdaq National Market under the symbol "STTR."
The following table shows the underwriting discounts and commissions
Strategic Timber will pay to the underwriters in connection with this offering.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY STRATEGIC TIMBER
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
In connection with this offering, the representatives, on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include over-allotment, syndicate covering transactions
and stabilizing transactions. Over-allotment involves syndicate sales of common
stock in excess of the number of shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of common stock
made for the purpose of preventing or retarding a decline in the market price of
the common stock while this offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
representatives, in covering syndicate short positions or making stabilizing
purchases, repurchase shares originally sold by that syndicate member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
Strategic Timber estimates that the total expenses of this offering,
including the advisory fee to be paid to Salomon Smith Barney, will be $4.5
million.
131
<PAGE> 138
ABN AMRO Bank, which is affiliated with ABN AMRO Incorporated, one of the
representatives, is a lender under Strategic Timber's existing credit facilities
and has received customary fees in connection with those credit facilities. The
net proceeds of this offering will be used to repay all of Strategic Timber's
indebtedness under the credit facilities. Because the amount to be repaid to ABN
AMRO Bank under the credit facilities exceeds 10% of the net proceeds of this
offering, the offering will be conducted in accordance with Rule 2710(c)(8) of
the National Association of Securities Dealers, Inc.'s Conduct Rules. See "Use
of Proceeds." ABN AMRO Incorporated is participating in the offering on the same
terms as the other underwriters and will not receive any benefit in connection
with the offering other than customary managing, underwriting and selling fees.
ABN AMRO Bank is also one of the lenders on Strategic Timber's new credit
facility.
Strategic Timber and Strategic Timber Partners have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect of any of those liabilities.
EXPERTS
The financial statements of:
- Pioneer Resources, LLC as of and for the years ended December 31, 1996
and 1997, and for the period from January 1, 1998 to October 8, 1998,
- Strategic Timber Trust, Inc. as of and for the period from inception
(April 21, 1998) to December 31, 1998, and
- Strategic Timber Trust II, LLC as of and for the period from inception
(October 9, 1998) to December 31, 1998,
included in this prospectus and elsewhere in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included in this
prospectus in reliance upon the authority of Arthur Andersen LLP as experts in
accounting and auditing in giving such reports.
Information included in this prospectus relating to our timber inventory,
acreage and timber sales plan with respect to the Pacific Northwest properties,
and the growth rate and species of our timber on these properties, as well as
historical price indices and current prices in our markets, has been reviewed by
Mason, Bruce & Girard, Inc., an independent forest resource consulting firm, and
is included in this prospectus in reliance upon the authority of Mason, Bruce &
Girard, Inc. as an expert in timber inventory and appraisals. Information
included in this prospectus relating to our timber inventory, acreage and timber
sales plan with respect to the Louisiana property, and the growth rate and
species of our timber on this property, as well as current prices in our
markets, has been reviewed by Canal Forest Resources, Inc., an independent
forest resource consulting firm, and is included in this prospectus in reliance
upon the authority of Canal Forest Resources, Inc. as an expert in timber
inventory and appraisals.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, Atlanta, Georgia, will pass upon certain
legal matters for Strategic Timber with respect to the validity of the common
stock offered by this prospectus. Andrews & Kurth L.L.P., Houston, Texas, will
pass upon certain legal matters for the underwriters. In connection with the
formation transactions, Sutherland Asbill & Brennan LLP received 46,651 shares
of common stock, which are now owned by certain partners of that firm, and
51,617 partnership units in Strategic Timber Partners.
132
<PAGE> 139
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-11 under the
Securities Act to register the common stock we are offering. This prospectus is
part of that registration statement and omits some of the information set forth
in the registration statement and the exhibits and schedules to the registration
statement. For further information about us and our common stock, you should
read registration statement and the exhibits and schedules. Statements contained
in this prospectus regarding the contents of any contract or other document are
not complete. You should read the exhibit for a more complete description of the
contract or document included in the exhibit. We qualify each statement
contained in this prospectus regarding the contents of any contract or document
filed as an exhibit to the registration statement by reference to the exhibit.
Upon completion of this offering, we will file annual, quarterly and
special reports, proxy statements and other information with the SEC. You can
read and copy any materials we file with the SEC at its Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site that contains information we file
electronically with the SEC, which you can access over the Internet at
http://www.sec.gov.
In addition, we have applied to have the common stock included for
quotation on the Nasdaq National Market under the symbol "STTR." Once the common
stock has been listed on the Nasdaq National Market, you will be able to obtain
information about Strategic Timber at the offices of The Nasdaq Stock Market,
Inc. at 1735 K Street N.W., Washington, D.C. 20006.
133
<PAGE> 140
GLOSSARY OF SELECTED TIMBER INDUSTRY TERMS
We have provided you with definitions for some of the timber industry terms
we use in this prospectus.
BOARD FOOT (BF) A standard unit of measure for lumber that is 12
inches square and one inch thick.
CONVERSION The process of sawing or otherwise processing logs
or transforming timber into any other type of wood
product.
CONVERSION FACILITY A sawmill, pulp mill or other facility at which
timber conversion occurs.
CUNIT A standard unit of measurement of volume equal to
one hundred cubic feet.
HARDWOODS Trees that generally have broad leaves and are
deciduous (losing leaves every year).
LOGS Segments of the main stem of a tree that are cut to
specific length and diameter specifications and are
utilized as raw materials for lumber, plywood and
pulp/paper manufacturers.
LUMBER Solidwood product that is manufactured from logs.
Lumber is produced in standard dimensions and used
for a variety of applications, including building
construction, furniture and shipping containers.
MBF One thousand board feet. A common unit of measure
for estimating timber volume as well as lumber.
MERCHANTABLE TIMBER Timber exceeding a minimum size and usable volume
that is suitable for sale for commercial uses in
the market where the timber is to be sold.
PLANTATION A timber stand established either through sowing of
seeds or by planting seedlings.
PREMERCHANTABLE TIMBER Trees that have not yet reached a size where they
are suitable for sale.
PULPWOOD Wood that is cut primarily to make wood pulp, which
may be manufactured into paper, fiber, paperboard
and other paper products.
SAWTIMBER Trees containing logs of sufficient size and
quality to be suitable for conversion into lumber
or plywood.
SECOND-GROWTH REDWOODS Redwoods that have been replanted after the
original forest was harvested or regrown after
being destroyed by fire; these redwoods may be
harvested for commercial purposes.
SEEDLINGS Live trees less than one inch in diameter at ground
level.
SILVICULTURE The practice of establishing, tending and
reproducing forest stands of desired
characteristics.
SOFTWOODS Trees that are usually evergreen, bear cones and
have needles or scale-like leaves. They include
pines, spruces, firs and cedars.
SOLIDWOOD A term used to distinguish wood products that are
manufactured by sawing or cutting a log, such as
lumber or plywood, as opposed to wood products
produced from wood pulp, wood fiber or chips.
134
<PAGE> 141
THINNING Removal of selected trees, usually to eliminate
overcrowding, to remove dying or diseased trees and
to promote more rapid growth of desired trees.
"Pre-commercial thinning" refers to thinning that
does not produce merchantable timber.
TIMBER A standing tree or group of standing trees. Once
cut, a tree is no longer considered timber, but
becomes a log that can then be converted into wood
products.
TIMBERLANDS Forestland generally capable of producing more than
20 cubic feet of wood per acre per year.
WOOD FIBER Generally refers to pulpwood or chips used in the
manufacture of pulp and paper.
135
<PAGE> 142
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Strategic Timber Trust, Inc. and Subsidiaries Consolidated
Financial Statements:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheet -- December 31, 1998........... F-3
Consolidated Statement of Operations -- For the Period
from Inception (April 21, 1998) to December 31, 1998... F-4
Consolidated Statement of Changes in Shareholders'
Deficit -- For the Period from Inception (April 21,
1998) to December 31, 1998............................. F-5
Consolidated Statement of Cash Flows -- For the Period
from Inception (April 21, 1998) to December 31, 1998... F-6
Notes to Consolidated Financial Statements................ F-7
Strategic Timber Trust II, LLC and Subsidiaries Consolidated
Financial Statements:
Report of Independent Public Accountants.................. F-13
Consolidated Balance Sheet -- December 31, 1998........... F-14
Consolidated Statement of Operations -- For the Period
from Inception (October 9, 1998) to December 31,
1998................................................... F-15
Consolidated Statement of Changes in Members'
Deficit -- For the Period from Inception (October 9,
1998) to December 31, 1998............................. F-16
Consolidated Statement of Cash Flows -- For the Period
from Inception (October 9, 1998) to December 31,
1998................................................... F-17
Notes to Consolidated Financial Statements................ F-18
Pioneer Resources, LLC and Subsidiaries Consolidated
Financial Statements:
Report of Independent Public Accountants.................. F-24
Consolidated Balance Sheets -- December 31, 1996 and
1997................................................... F-25
Consolidated Statements of Operations -- Years Ended
December 31, 1996 and 1997 and the Period from January
1, 1998 to October 8, 1998............................. F-26
Consolidated Statements of Changes in Members'
Equity -- Years Ended December 31, 1996 and 1997 and
the Period from January 1, 1998 to October 8, 1998..... F-27
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1996 and 1997 and the Period from January
1, 1998 to October 8, 1998............................. F-28
Notes to Consolidated Financial Statements................ F-29
</TABLE>
F-1
<PAGE> 143
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Strategic Timber Trust, Inc.:
We have audited the accompanying consolidated balance sheet of Strategic
Timber Trust, Inc. (a Georgia corporation) and subsidiaries as of December 31,
1998, and the related consolidated statements of operations, changes in
shareholders' deficit and cash flows for the period from inception (April 21,
1998) to December 31, 1998. 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 Strategic Timber Trust, Inc.
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the period from inception to December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 26, 1999
F-2
<PAGE> 144
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 310,284
Trade accounts receivable................................. 56,708
Prepaid expenses.......................................... 1,311,988
------------
Total current assets.............................. 1,678,980
TIMBERLANDS................................................. 251,597,386
PROPERTY AND EQUIPMENT:
Machinery and equipment................................... 8,395
Furniture and fixtures.................................... 5,918
Leasehold improvements.................................... 2,820
------------
17,133
Less -- Accumulated depreciation.......................... (1,588)
------------
15,545
LAND SUBJECT TO REPURCHASE (Note 5)......................... 3,000,000
DEFERRED FINANCING COSTS, net............................... 4,586,000
------------
Total assets...................................... $260,877,911
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bridge loan............................................... $ 85,000,000
Revolving line of credit.................................. 133,787,034
Accounts payable and other accrued liabilities............ 1,688,260
Accrued interest.......................................... 2,053,397
Due to affiliates......................................... 2,236,244
Deferred revenue.......................................... 3,537,015
------------
Total current liabilities......................... 228,301,950
MINORITY INTEREST........................................... 46,919,256
SHAREHOLDERS' DEFICIT:
Common stock ($.01 par value, 200,000,000 shares
authorized, 671,770 shares issued and outstanding)..... 1,000
Accumulated deficit....................................... (14,344,295)
------------
(14,343,295)
------------
Total liabilities and shareholders' deficit....... $260,877,911
============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of this consolidated balance sheet.
F-3
<PAGE> 145
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUES:
Timber and property sales................................. $ 322,954
Other..................................................... 183,985
------------
Total revenues.................................... 506,939
OPERATING EXPENSES:
Cost of timber sold....................................... 402,614
Amortization of deferred financing costs.................. 1,743,000
General and administrative expenses....................... 1,820,288
------------
Operating loss.................................... (3,458,963)
OTHER INCOME (EXPENSE):
Interest expense.......................................... (13,781,366)
Interest income........................................... 33,324
------------
Loss before minority interest..................... (17,207,005)
MINORITY INTEREST IN LOSS OF SUBSIDIARY PARTNERSHIP......... 2,862,710
------------
Net loss.......................................... $(14,344,295)
============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-4
<PAGE> 146
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
------ ------------ ------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY, April 21, 1998................... $ -- $ -- $ --
Initial contribution................................. 1,000 -- 1,000
Net loss............................................. -- (14,344,295) (14,344,295)
------ ------------ ------------
SHAREHOLDERS' DEFICIT, December 31, 1998............... $1,000 $(14,344,295) $(14,343,295)
====== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-5
<PAGE> 147
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (14,344,295)
Adjustments to reconcile net loss to net cash used in
operating activities --
Minority interest in net loss of subsidiary
partnership........................................... (2,862,710)
Depletion.............................................. 402,614
Depreciation and amortization.......................... 1,744,458
Non-cash compensation.................................. 1,000
Changes in assets and liabilities:
Increase in trade accounts receivable.................. (56,708)
Increase in prepaid expenses........................... (7,223)
Increase in accounts payable and other accrued
liabilities........................................... 383,625
Increase in accrued interest........................... 2,053,397
Increase in due to affiliates.......................... 2,236,244
Increase in deferred revenue........................... 3,537,015
-------------
Net cash used in operating activities............. (6,912,583)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of timberlands.................................. (205,218,034)
Purchases of property and equipment....................... (17,133)
-------------
Net cash used in investing activities............. (205,235,167)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan................................. 85,000,000
Proceeds from borrowings under revolving line of credit... 138,787,034
Repayments of revolving line of credit.................... (5,000,000)
Deferred financing costs.................................. (6,329,000)
-------------
Net cash provided by financing activities......... 212,458,034
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 310,284
CASH AND CASH EQUIVALENTS, beginning of period.............. --
-------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 310,284
=============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 11,727,968
=============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-6
<PAGE> 148
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONTROL --
Strategic Timber Trust, Inc., a Georgia corporation, was organized April
21, 1998 for the purpose of acquiring, owning and managing timberlands. Our
consolidated financial statements include the accounts of our wholly owned
subsidiary, Strategic Timber Operating Co., a Delaware corporation, and those of
Strategic Timber Partners, LP, a Delaware limited partnership in which we have a
79.4% limited partner interest. Strategic Timber Operating Co. is the sole
general partner of Strategic Timber Partners and holds a 1.0% general partner
interest. All significant intercompany transactions have been eliminated.
On April 27, 1998, we acquired 88,000 acres of timberland in southwest
Louisiana for total consideration valued at $255,000,000. Louisiana Timber
Partners, LLC, a Georgia limited liability company, contributed to Strategic
Timber Partners a contract to acquire the Louisiana property in exchange for
5,000 limited partnership units, representing an aggregate of 19.6% of the total
partnership units then outstanding. We valued these partnership units at
$50,000,000, which we believed to be the difference between the fair value of
the property and the purchase price of the property under the contract Louisiana
Timber contributed. Strategic Timber Partners then purchased the Louisiana
property on April 27, 1998 for $205,000,000 in cash. The partnership funded the
purchase price of the Louisiana property and related transaction costs by
borrowing $125,800,000 under a $215,000,000 bank revolving credit facility and
with an $85,000,000 cash contribution made to the partnership by Strategic
Timber. Strategic Timber borrowed these funds under a bank bridge loan.
We plan to sell shares of our common stock in an initial public offering
during 1999. Shortly before this offering, the timber operations of our
affiliate, Strategic Timber Trust II, LLC, will be merged into Strategic Timber
Partners. As the entities to be merged are under common ownership, we will
account for this merger using the historical carrying amounts of Strategic
Timber Trust II, LLC's assets and liabilities.
NATURE OF BUSINESS OPERATIONS --
We own and manage timberlands for the purpose of selling standing timber.
We negotiate and contract for the sale of our standing timber with buyers who
generally cut and pay for the trees during the contract period.
CONSOLIDATION --
The accompanying financial statements consolidate the accounts of Strategic
Timber and all entities in which Strategic Timber holds a majority and
controlling interest. Minority ownership in Strategic Timber Partners is
reflected as minority interest expense in the accompanying consolidated
statement of operations and minority interest in the accompanying consolidated
balance sheet.
USE OF ESTIMATES --
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by our
management in determining the reported amount of 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.
REVENUE RECOGNITION --
We enter into timber cutting contracts with third parties that require
customers to harvest and remove timber at their expense. These contracts may
last for periods ranging from three months to six years, or
F-7
<PAGE> 149
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occasionally longer. Contracts that are longer than one year typically require
the customer to harvest minimum amounts of timber each year. We recognize
revenue and depletion at the time our customer takes title to the timber, which
occurs when legal ownership and the risk of loss passes to the purchaser and the
quantity sold is determinable. We may receive payments under these contracts in
advance of recognition of revenue.
We may enter into timber deeds whereby all cutting rights on a tract of
timberland are sold to a buyer. At the end of the contract term, any uncut
timber will revert back to us. Risk of loss passes to our customers upon the
signing of the deeds. For instance, if a fire destroys or partially destroys the
timber subject to a timber deed, the purchaser would not be entitled to a refund
of any portion of the purchase price. Accordingly, we will recognize revenues
and costs under our timber deeds at the time the contracts close. We do not
expect to make outright sales of timber by timber deeds beyond the second
quarter of 1999.
CASH AND CASH EQUIVALENTS --
Cash and cash equivalents include cash and short term investments with
original maturities of three months or less.
TIMBERLANDS --
We capitalize acquisition costs of land and timber, site preparation and
other costs relating to the planting and growing of timber. Such costs are
charged to cost of timber sold as depletion at the time timber is harvested,
based on the relationship of harvested timber to the estimated volume of
currently merchantable timber. Estimates of currently merchantable timber are
subject to change based on periodic timber surveys. Depletion is calculated on a
property-by-property basis, and further by product category within the property.
Timberlands are stated at the lower of cost, net of depletion, or market
value.
PROPERTY AND EQUIPMENT --
Property and equipment consists of furniture and fixtures, machinery and
equipment and leasehold improvements. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets, which range
from three to five years. Amortization of leasehold improvements is calculated
on a straight-line basis over the lesser of the lease term or the estimated
useful lives of the assets.
DEFERRED FINANCING COSTS --
Deferred financing costs consist of fees and expenses incurred in
connection with our borrowings. These fees are being amortized over the terms of
the related debt agreements ranging from one to five years.
INCOME TAXES --
We intend to elect to be treated as a real estate investment trust, or
REIT, under provisions of the Internal Revenue Code. As a result, we will not be
subject to federal income taxes on the portion of our income that we currently
distribute to our shareholders.
We will be able to generate net operating losses for tax purposes in years
in which we do not have taxable income. No benefit for income taxes has been
provided on our loss since inception as the benefit is
F-8
<PAGE> 150
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not currently "more likely than not" to be realized due to our limited operating
history. Our net operating loss carryforwards are approximately $15.8 million at
December 31, 1998.
We may be subject to state and local taxes regardless of whether we
distribute some or all of our income to our shareholders. For the period ended
December 31, 1998, though, we did not incur any state or local income tax
liabilities due to our operating loss.
INTEREST RATE SWAPS --
Interest rate swaps involve the periodic exchange of interest payments
without the exchange of underlying principal or notional amounts. Net amounts
paid or received on interest rate swaps are recognized as interest expense as
incurred in the accompanying consolidated statement of operations.
SHAREHOLDERS' EQUITY --
The accompanying consolidated financial statements have been adjusted to
give effect to a 36.59-for-1 stock split that we expect will occur immediately
prior to completion of our initial public offering. We have also given effect in
the accompanying consolidated financial statements to a planned increase in the
number of common shares authorized for issuance to 200,000,000 shares, which is
expected to be approved by our board of directors and current shareholders
immediately prior to completion of our initial public offering. We also expect
to authorize 50,000,000 shares of preferred stock immediately prior to
completion of our initial public offering.
After giving effect to the stock split, our common stock account does not
contain the required par value. This deficit will be funded with the proceeds
from our initial public offering.
2. DEBT:
We have the following debt instruments outstanding as of December 31, 1998:
<TABLE>
<S> <C>
Revolving credit line(a)................................... $133,787,034
Bridge loan(b)............................................. 85,000,000
------------
$218,787,034
============
</TABLE>
(a) We have a senior revolving credit line that provides a maximum borrowing of
$215,000,000, subject to formula. The credit line is used to finance our
acquisitions of timberlands and for general corporate purposes. The
facility bears interest at LIBOR plus an applicable margin rate, 7.75% at
December 31, 1998. Interest is payable quarterly. The unused portion of the
credit facility is subject to a commitment fee of 50 basis points per
annum. This facility expires on April 25, 2003 and is secured by all assets
and properties of Strategic Timber Partners, including timberlands.
(b) The bridge loan was used to finance our initial acquisition of timberlands
and matures on October 27, 1999. The loan bears interest at LIBOR plus an
applicable margin rate, 9.25% at December 31, 1998. Interest is payable
quarterly. The bridge loan is secured by all assets and property of
Strategic Timber.
The revolving credit line and the bridge loan have certain financial and
non-financial covenants, including restrictions on additional borrowings, the
maintenance of certain financial ratios and limitations on capital spending,
investments, distributions and asset sales. We believe that we are in compliance
with all covenants at December 31, 1998.
All debt has been classified as current in the accompanying consolidated
balance sheet. This is due to the inclusion of clauses in the debt agreements
that allow our lenders to call the debt prior to its maturity
F-9
<PAGE> 151
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the event of a "material adverse change" in our business. In addition, our
intention is to repay all of our outstanding borrowings with the proceeds from
our initial public offering and a new credit facility that will be put in place
at the time of the offering.
The fair value of the above financial instruments approximate their
carrying value at December 31, 1998.
3. INTEREST RATE SWAP:
In connection with our revolving line of credit, we have entered into a
$100,000,000 interest rate swap contract with our primary lender to hedge a
portion of the variable interest rate exposure on this debt instrument. Under
the terms of the swap, we are required to pay interest quarterly to the lender
at a fixed rate of 5.99% and receive interest quarterly at the three-month LIBOR
rate, which was 5.25% at December 31, 1998. At December 31, 1998, we have
recorded a payable of approximately $77,000 related to the net interest payment
due to the lender, with the offsetting charge applied to interest expense. The
swap will mature on May 13, 2002.
The fair value of this swap is estimated as the amount payable to the
lender to terminate the agreement as of December 31, 1998. At this date, the
fair value of this swap is a payable of approximately $2,793,378.
The counterparty to our interest rate swap contract is a major financial
institution. We do not expect non-performance by this institution, but we
periodically monitor the credit quality of this organization. Our credit risk on
this derivative financial instrument is limited to the unrealized gain on the
contract in the event that the swap has a positive fair value.
4. COMMITMENTS AND CONTINGENCIES:
At the time of our initial public offering, Louisiana Timber will be
entitled to receive consideration of approximately $12,945,000 in cash
representing a partial redemption of its interest in Strategic Timber Partners.
Louisiana Timber also will own 1,762,974 units in Strategic Timber Partners
after the initial public offering.
Our operations and timberlands are subject to federal, state and local laws
and regulations, including those related to the environment, endangered species
and forestry activities. In addition, our land may become subject to laws and
regulations designed to protect wetlands. All of these regulations may cause us
to incur significant costs, damages, penalties or other liabilities, and may
materially and adversely affect harvesting operations on our timberlands.
We are subject to certain claims and litigation, including unasserted
claims, in the normal course of business. While it is not possible to predict
with certainty the outcome of these matters, it is our opinion that the ultimate
outcome will not have a material adverse effect on the consolidated financial
statements of Strategic Timber or our subsidiaries.
As of December 31, 1998, we do not have any material commitments under
non-cancelable operating leases.
5. RELATED PARTY TRANSACTIONS:
In December 1998, we entered into a transaction with our President and
Chief Executive Officer, C. Edward Broom, in which Mr. Broom purchased for
$3,000,000 approximately 6,700 acres of agricultural land on our Louisiana
property. Because we determined that this property was ancillary to our ongoing
business, we sold this property to provide a source of cash to make required
payments of our bank debt.
F-10
<PAGE> 152
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mr. Broom and other members of our senior management determined this purchase
price to provide the necessary funds to make these required payments.
The purchase price does not necessarily reflect the price we might have
been able to obtain if the property had been fully prepared for sale and exposed
to the market for a sufficient period of time to produce the highest price. To
protect our economic interest in the property, Mr. Broom has agreed that we may
repurchase the property at any time before December 31, 2000, at the price paid
by Mr. Broom plus a pro-rata annual increase at the rate of 8% compounded
annually. Accordingly, we have recorded the proceeds from this sale as deferred
revenue and have classified the underlying property as land held for repurchase
in the accompanying consolidated balance sheet. If we decide not to exercise the
repurchase option, we will recognize revenue and costs of $3,000,000 during the
year ended December 31, 2000, resulting in no gain or loss on this related party
transaction.
We rent office space from a company controlled by two of our executive
officers. Rental payments under this lease arrangement are $5,000 per month and
totaled approximately $40,000 for the period from inception to December 31,
1998.
We also have a payable of $760,000 to Broom Resource Investments, LLC, an
entity whose shareholders are substantially the same as those of Strategic
Timber. This amount represents fees and expenses paid by this entity on our
behalf in connection with our acquisition of the Louisiana property.
Our management performs services on behalf of our affiliate, Strategic
Timber Trust II, LLC. We also pay vendors for certain shared expenses, such as
rent, utilities and insurance. During the period ended December 31, 1998, we
charged Strategic Timber Trust II, LLC approximately $624,000 for services
provided, and costs paid, on their behalf. All amounts charged by us were paid
by Strategic Timber Trust II, LLC prior to year end.
At December 31, 1998, we have a payable of approximately $1,500,000 to
Strategic Timber Trust II, LLC. This amount primarily relates to cash that they
advanced to us so that we could make required payments under our debt
agreements. We repaid this amount in February 1999.
6. EMPLOYEE BENEFIT PLANS:
We have established a 401(k) plan. All full time employees are eligible to
participate in the plan after completing 1,000 hours of service. The plan
provides that we may make contributions to the plan on behalf of our employees
at the discretion of our Board of Directors. No contributions were made during
the period from inception to December 31, 1998.
7. NON-CASH INVESTING AND FINANCING ACTIVITIES:
Our founding shareholders received approximately 15,000 shares of common
stock, prior to the 36.59-for-1 stock split, in exchange for services valued at
$1,000. These services were provided in lieu of funding the required initial
capital contribution to form Strategic Timber. The value of these services was
determined based on the estimated initial fair value of Strategic Timber.
In connection with Strategic Timber's acquisition of the Louisiana
property, Louisiana Timber, in lieu of cash consideration, received 5,000 units
in Strategic Timber Partners valued at approximately $50,000,000. The fair value
of these units was based on the difference between the fair value of the
Louisiana property, $255,000,000, and the actual cash we paid to purchase this
property, $205,000,000.
F-11
<PAGE> 153
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. MAJOR CUSTOMERS:
As we have recently commenced our timber sales plan on our newly acquired
timberlands, we have recognized limited revenues during this reporting period.
Accordingly, all of our timber sales during the reporting period were derived
from two customers and were limited to salvage operations. We expect that sales
to other customers will commence in the near term as we continue to expand the
operations of these timberlands.
9. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board released Standard
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
pronouncement requires the recognition of all derivative instruments on the
balance sheet at fair value. Any subsequent changes in fair value are then
recognized in earnings unless the derivative qualifies for treatment as a hedge.
Strategic Timber is currently assessing the effects, if any, the pronouncement
will have on earnings. This pronouncement could lead to increased volatility in
our earnings and other comprehensive income.
We do not believe that any other recently issued pronouncements will have a
significant effect on our financial condition or results of operation.
F-12
<PAGE> 154
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Strategic Timber Trust II, LLC:
We have audited the accompanying consolidated balance sheet of Strategic
Timber Trust II, LLC (a Georgia limited liability company) and subsidiaries as
of December 31, 1998, and the related consolidated statements of operations,
changes in members' deficit and cash flows for the period from inception
(October 9, 1998) to December 31, 1998. 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 Strategic Timber Trust II,
LLC and subsidiaries as of December 31, 1998 and the results of their operations
and their cash flows for the period from inception to December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 26, 1999
F-13
<PAGE> 155
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,842,918
Trade accounts receivable................................. 108,857
Prepaid expenses.......................................... 145,837
Due from affiliate........................................ 1,476,244
------------
Total current assets.............................. 7,573,856
TIMBERLANDS................................................. 354,298,144
PROPERTY AND EQUIPMENT:
Vehicles.................................................. 123,166
Machinery and equipment................................... 93,390
------------
216,556
Less -- Accumulated depreciation.................. (30,892)
------------
185,664
DEFERRED FINANCING COSTS, net............................... 7,024,096
------------
Total assets...................................... $369,081,760
============
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Bridge loan............................................... $ 35,000,000
Current portion of long-term debt......................... 2,500,000
Accounts payable and other accrued liabilities............ 530,126
Accrued interest.......................................... 4,844,870
Obligations under interest rate swaps..................... 3,316,300
------------
Total current liabilities......................... 46,191,296
LONG-TERM DEBT.............................................. 252,500,000
MINORITY INTEREST........................................... 72,413,153
MEMBERS' DEFICIT............................................ (2,022,689)
------------
Total liabilities and members' deficit............ $369,081,760
============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of this consolidated balance sheet.
F-14
<PAGE> 156
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUES.................................................... $ 9,017,504
OPERATING EXPENSES:
Cost of timber sold....................................... 5,746,026
Amortization of deferred financing costs.................. 499,116
General and administrative expenses....................... 1,737,587
-----------
Operating income.................................. 1,034,775
OTHER INCOME (EXPENSE):
Interest expense.......................................... (5,656,745)
Interest income........................................... 12,434
-----------
Loss before minority interest..................... (4,609,536)
MINORITY INTEREST IN LOSS OF SUBSIDIARY PARTNERSHIP......... 2,586,847
-----------
Net loss.......................................... $(2,022,689)
===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-15
<PAGE> 157
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
MEMBERS' EQUITY, October 9, 1998............................ $ --
Net loss.................................................. (2,022,689)
-----------
MEMBERS' DEFICIT, December 31, 1998......................... $(2,022,689)
===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-16
<PAGE> 158
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (2,022,689)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in net loss of subsidiary
partnership........................................... (2,586,847)
Depletion.............................................. 5,703,128
Depreciation and amortization.......................... 530,008
Changes in assets and liabilities:
Increase in trade accounts receivable.................. (108,857)
Increase in prepaid expenses........................... (145,837)
Increase in due from affiliate......................... (1,476,244)
Increase in accounts payable and other accrued
liabilities........................................... 530,126
Increase in accrued interest........................... 4,844,870
-------------
Net cash provided by operating activities......... 5,267,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Pioneer.................................... (295,000,000)
Reforestation activities.................................. (101,272)
Purchases of property and equipment....................... (116,556)
-------------
Net cash used in investing activities............. (295,217,828)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan................................. 35,000,000
Proceeds from investment by Mach One...................... 10,000,000
Proceeds from revolving line of credit and term loan...... 255,000,000
Deferred financing costs.................................. (4,206,912)
-------------
Net cash provided by financing activities......... 295,793,088
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 5,842,918
CASH AND CASH EQUIVALENTS, beginning of period.............. --
-------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 5,842,918
=============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 811,875
=============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-17
<PAGE> 159
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONTROL --
Strategic Timber Trust II, LLC, a Georgia limited liability company, was
organized on October 9, 1998 for the purpose of acquiring, owning and managing
timberlands. Our consolidated financial statements include the accounts of our
wholly owned subsidiary, Strategic Timber Two Operating Co., LLC, a Georgia
limited liability company, and those of Strategic Timber Partners II, LP, a
Georgia limited partnership in which we have a 30.8% limited partner interest.
Strategic Timber Two Operating Co. is the sole general partner of Strategic
Timber Partners II. Our consolidated financial statements also include the
accounts of Pioneer Resources, LLC, an Oregon limited liability company that is
wholly-owned by Strategic Timber Partners II. All significant intercompany
transactions have been eliminated.
On October 9, 1998, Strategic Timber Partners II acquired all of the
membership interests in Pioneer from its members for total consideration valued
at approximately $360,000,000. Pioneer holds approximately 366,000 acres of
timberland in the U.S. Pacific Northwest. Strategic Timber Partners funded the
cash portion of the purchase price and related transaction costs with:
- a $35,000,000 cash contribution made by Strategic Timber II, in exchange
for 3,080 units, or a 30.8% limited partner interest in Strategic Timber
Partners II, and
- a $10,000,000 cash contribution made by Mach One Partners, LLC in
exchange for 909 units, or a 9.1% limited partner interest in Strategic
Timber Partners II.
To fund our contribution to Strategic Timber Partners II, we borrowed
$35,000,000 under a bank bridge loan.
Strategic Timber Partners II also issued 5,909 units, representing a 59.1%
limited partner interest in Strategic Timber Partners II, to the former Pioneer
members, which we valued at $65,000,000. In connection with the acquisition, we
retired Pioneer's then existing debt with the proceeds from a new $255,000,000
term loan and revolving credit line.
The acquisition was accounted for using the purchase method. The purchase
price has been allocated to timberlands, property and equipment and certain
other assets and liabilities based on an independent third party valuation of
the assets acquired. However, the accounting for this transaction is preliminary
and may be subject to certain purchase accounting adjustments as additional
information becomes available.
The members of Strategic Timber II also own and control Strategic Timber
Trust, Inc., an affiliated entity that was organized in April 1998 to acquire,
own and manage timberlands. Strategic Timber has a controlling interest in
Strategic Timber Partners, LP. Strategic Timber plans to sell shares of its
common stock in an initial public offering during 1999. Shortly before the
offering, Strategic Timber II, Strategic Timber Two Operating Co. and Strategic
Timber Partners II will be merged into Strategic Timber Partners, leaving
Pioneer as a wholly owned subsidiary of Strategic Timber Partners. Because the
entities to be merged are under common ownership, this merger will be accounted
for using the historical carrying amounts of Strategic Timber II's assets and
liabilities.
NATURE OF BUSINESS OPERATIONS --
We own and manage timberlands for the purpose of selling standing timber.
We negotiate and contract for the sale of our standing timber with buyers who
generally cut and pay for the trees during the contract period.
F-18
<PAGE> 160
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATION --
The accompanying financial statements consolidate the accounts of Strategic
Timber II and all entities in which Strategic Timber II holds a majority or
controlling interest. Strategic Timber II consolidates the results of Strategic
Timber Partners II, and its wholly owned subsidiary, Pioneer, as the management
and control of this entity is held by Strategic Timber Two Operating Co.,
Strategic Timber II's wholly-owned subsidiary. Minority ownership in our
subsidiaries is reflected as minority interest in the accompanying consolidated
balance sheet and minority interest expense in the accompanying consolidated
statement of operations.
USE OF ESTIMATES --
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by our
management in determining the reported amount of 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.
REVENUE RECOGNITION --
We enter into timber cutting contracts with third parties that require
customers to harvest and remove timber at their expense. These contracts may
last for periods ranging from three months to six years, or occasionally longer.
Contracts that are longer than one year typically require the customer to
harvest minimum amounts of timber each year. We recognize revenue and depletion
at the time our customer takes title to the timber, which occurs when legal
ownership and the risk of loss passes to the purchaser and the quantity sold is
determinable. We may receive payments under these contracts in advance of
recognition of revenue.
We have entered into timber deeds whereby all cutting rights on a tract of
timberland are sold to a buyer. At the end of the contract term, any uncut
timber will revert back to us. Risk of loss passed to our customers upon the
signing of the deeds. For instance, if a fire destroys or partially destroys the
timber subject to a timber deed, the purchaser would not be entitled to a refund
of any portion of the purchase price. Accordingly, we recognized revenues and
costs under our timber deeds at the time the contracts closed. We do not plan to
make outright sales of timber by timber deeds on an ongoing basis.
CASH AND CASH EQUIVALENTS --
Cash and cash equivalents include cash and short term investments with
original maturities of three months or less.
TIMBERLANDS --
We capitalize acquisition costs of land and timber, site preparation and
other costs relating to the planting and growing of timber. Such costs are
charged to cost of timber sold as depletion at the time timber is harvested,
based on the relationship of harvested timber to the estimated volume of
currently merchantable timber. Estimates of currently merchantable timber are
subject to change based on periodic timber surveys. Depletion is calculated on a
property-by-property basis, and further by product category within the property.
Timberlands are stated at the lower of cost, net of depletion, or market
value.
F-19
<PAGE> 161
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT --
Property and equipment consists principally of vehicles and machinery and
equipment. Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets, which range from three to five years.
DEFERRED FINANCING COSTS --
Deferred financing costs consist of fees and expenses incurred in
connection with our borrowings. These fees are being amortized over the terms of
the related debt agreements ranging from one to five years.
INCOME TAXES --
We have not provided for income taxes in the accompanying statement of
operations as we are a limited liability corporation. Accordingly, our members
will be responsible for any federal or state income tax liabilities resulting
from our operations.
INTEREST RATE SWAPS --
Interest rate swaps involve the periodic exchange of interest payments
without the exchange of underlying principal or notional amounts. Net amounts
paid or received on interest rate swaps are recognized as interest expense as
incurred in the accompanying consolidated statement of operations.
2. DEBT:
We have the following debt instruments outstanding as of December 31, 1998:
<TABLE>
<S> <C>
Revolving credit line(a)................................... $ 55,000,000
Term loan(b)............................................... 200,000,000
Bridge loan(c)............................................. 35,000,000
------------
$290,000,000
============
</TABLE>
(a) We have a revolving credit line that provides a maximum borrowing of
$70,000,000, subject to formula. The credit line was used to finance our
acquisition of Pioneer and will be used for general corporate purposes. A
portion of the facility bears interest at LIBOR plus a margin, 7.85% at
December 31, 1998, while the remaining portion bears interest at the base
rate plus a margin, 8.75% at December 31, 1998. Interest is payable
quarterly. This facility expires on September 30, 2003 and is secured by
all assets of Pioneer, including timberlands. We expect that this credit
facility will be retired prior to maturity with proceeds from the Strategic
Timber initial public offering and a new credit facility that will be put
in place at the time of the offering.
(b) The term loan was used to finance our acquisition of Pioneer and is payable
in quarterly installments commencing on December 31, 1999, with the last
installment being due on September 30, 2003. We expect that this loan will
be retired prior to maturity with the proceeds from the Strategic Timber
initial public offering and the new credit facility. The loan bears
interest at adjusted LIBOR plus a margin, 7.85% at December 31, 1998.
Interest is payable quarterly. The term loan is also secured by all assets
of Pioneer, including timberlands.
(c) The bridge loan was also used to finance our acquisition of Pioneer and
matures on October 27, 1999. Similar to our other debt instruments, we
expect that this loan will be retired prior to maturity with the proceeds
from the Strategic Timber initial public offering and the new credit
facility. The loan
F-20
<PAGE> 162
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bears interest at a fixed rate of 9.06%. Interest is payable quarterly. The
bridge loan is secured by all assets of Strategic Timber II, including our
investments in Strategic Timber Partners II and Pioneer.
Under the bridge loan agreement, additional interest will be charged on the
principal balance if the loan is not repaid before the beginning of the
following periods:
<TABLE>
<S> <C>
Between January 1, 1999 and March 31, 1999................. 1.5%
Between April 1, 1999 and June 30, 1999.................... 4.5%
Between July 1, 1999 and September 30, 1999................ 10.5%
On or after October 1, 1999................................ 19.5%
</TABLE>
Also, we will be required to pay additional compensation upon termination
if the bridge loan is not repaid before the beginning of the following
periods:
<TABLE>
<S> <C>
Between January 1, 1999 and March 31, 1999................. $ 1,125,000
Between April 1, 1999 and June 30, 1999.................... 1,725,000
Between July 1, 1999 and September 30, 1999................ 2,100,000
On or after October 1, 1999................................ 2,250,000
</TABLE>
All instruments described above have certain financial and non-financial
covenants, including restrictions on additional borrowings, the maintenance of
certain financial ratios and limitations on capital spending, investments,
distributions and asset sales. We believe that we are in compliance with all
covenants at December 31, 1998.
Contractual maturities of debt as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31,
1999..................................................... $ 37,500,000
2000..................................................... 13,750,000
2001..................................................... 27,500,000
2002..................................................... 36,250,000
2003..................................................... 175,000,000
------------
$290,000,000
============
</TABLE>
The fair value of the above financial instruments approximate their
carrying value at December 31, 1998.
3. INTEREST RATE SWAPS:
We have entered into a series of interest rate swap agreements to hedge a
portion of the variable interest rate exposure on our underlying debt
instruments. The following table outlines the key terms of each swap:
<TABLE>
<CAPTION>
RATE RECEIVED AT FAIR VALUE AT
NOTIONAL COMPANY COMPANY DECEMBER 31, DECEMBER 31,
COUNTERPARTY AMOUNT PAYS RECEIVES 1998 1998
- ------------ ------------ ------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
First Union................. $ 25,000,000 6.69% 3 month LIBOR 5.34% $(1,700,534)
Bank of America............. 25,000,000 6.69% 3 month LIBOR 5.34% (1,766,524)
ABN Amro.................... 50,000,000 5.77% 3 month LIBOR 5.34% (1,295,852)
------------
$100,000,000
============
</TABLE>
Net interest payments are to be made quarterly on January 14, April 14,
July 14 and October 14, commencing on January 14, 1999, under the terms of each
swap. The maturity dates of the swaps range
F-21
<PAGE> 163
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from September 30, 2003 to October 14, 2003. At December 31, 1998, we have
recorded a payable of approximately $189,000 related to the net interest payment
due, with the offsetting charge applied to interest expense.
We have recorded a payable of $3,316,000 in the accompanying consolidated
financial statements related to the fair value of swaps assumed or entered into
in connection with the acquisition of Pioneer.
The counterparties to our interest rate swap contracts consist of major
financial institutions. We do not expect non-performance by any of these
counterparties but we periodically monitor the credit quality of these
institutions. Our credit risk on these derivative financial instruments is
limited to the unrealized gain on those contracts with a positive fair value.
4. COMMITMENTS AND CONTINGENCIES:
The units held by the former Pioneer members entitle them to certain
rights. In the event that the initial public offering of Strategic Timber common
stock has not occurred by June 30, 1999, the former Pioneer members will be
entitled to a payment of $65,000,000 in redemption of their interests, to be
paid at the option of the former Pioneer members. In addition, the former
Pioneer members will be entitled to 15% simple interest on this $65,000,000,
beginning on June 30, 1999. If the redemption amount is not paid by December 31,
1999, the former Pioneer members will have the right to assume control of
Strategic Timber Partners II.
The ownership units held by Mach One in Strategic Timber Partners II
entitle Mach One to a dividend of 40% per year on its initial investment of
$10,000,000. Mach One is entitled to $10,000,000 plus accrued dividends in
redemption of its interest if the initial public offering of Strategic Timber
common stock has not occurred by June 30, 1999. Dividends are payable at the
earlier of the closing of Strategic Timber's initial public offering or
redemption of Mach One's ownership interest. Our maximum liability under this
dividend would be approximately $4,900,000, assuming that such payment is made
on December 31, 1999. Under a separate agreement with Mach One, the expected
payment on this dividend will be made in the form of 100,110 limited partnership
units of Strategic Timber Partners.
At the time of the merger of Strategic Timber II and subsidiaries into
Strategic Timber Partners, the former Pioneer members and Mach One will be
entitled to receive consideration valued at $67,457,000 and $12,002,000,
respectively, representing a full redemption of their interests in Strategic
Timber Partners II. This consideration will be in the form of cash and limited
partnership units of Strategic Timber Partners.
We have engaged Mason, Bruce & Girard for a fee of approximately $1,300,000
to develop an "Option A" timber management plan to be submitted to the
California Department of Forestry and Fire Protection. Such payment is expected
to be made in 1999.
Our operations and timberlands are subject to federal, state and local laws
and regulations, including those related to the environment, endangered species
and forestry activities. In addition, our land may become subject to laws and
regulations designed to protect wetlands. All of these regulations may cause us
to incur significant costs, damages, penalties or other liabilities, and may
materially and adversely affect harvesting operations on our timberlands.
We are subject to certain claims and litigation, including unasserted
claims, in the normal course of business. While it is not possible to predict
with certainty the outcome of these matters, it is our opinion that the ultimate
outcome will not have a material adverse effect on our financial statements.
As of December 31, 1998, we do not have any material commitments under
non-cancelable operating leases.
F-22
<PAGE> 164
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS:
In December 1998, we entered into a timber deed with Kinzua Resources, LLC,
an entity controlled by Gregory M. Demers, a beneficial owner of more than 5% of
the partnership units of Strategic Timber Partners II. Under the terms of the
deed, we conveyed approximately 19,300,000 board feet of timber for
approximately $5,600,000. This timber deed will expire in September 1999. In
accordance with our accounting policies, we have recognized revenues on the
entire value of the contract, as well as related costs, during the period ended
December 31, 1998.
The management of our affiliate, Strategic Timber, performs services on our
behalf. They also pay vendors for certain shared expenses, such as rent,
utilities and insurance. During the period ended December 31, 1998, we
recognized expenses of approximately $624,000 allocated to us by Strategic
Timber for services they provided, and costs they paid, on our behalf. We paid
all amounts due to Strategic Timber prior to year end.
At December 31, 1998, we have a receivable of approximately $1,500,000 due
from Strategic Timber. This amount primarily relates to cash that we advanced to
them so that they could make required payments under their debt agreements.
Strategic Timber repaid this amount in February 1999.
6. EMPLOYEE BENEFIT PLANS:
We have established a 401(k) plan. All full time employees are eligible to
participate in the plan after completing 1,000 hours of service. The plan
document provides that we may make contributions on behalf of our employees at
the discretion of our board of directors. No contributions were made for the
period ended December 31, 1998.
7. NON-CASH INVESTING AND FINANCING ACTIVITIES:
In connection with our acquisition of Pioneer, the former Pioneer members
received 5,909 units, or a 59.1% limited partnership interest, in Strategic
Timber Partners II and $35,000,000 in cash. The limited partnership interest in
Strategic Timber Partners II was valued at approximately $65,000,000.
8. MAJOR CUSTOMERS:
All of our revenues during the reporting period were derived from two
customers, including the related party transaction discussed in Note 5. We
expect that sales to other customers will commence in the near term as we
continue to expand the operations of these timberlands.
9. NEW PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board released Standard
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
pronouncement requires the recognition of all derivative instruments on the
balance sheet at fair value. Any subsequent changes in fair value are then
recognized in earnings unless the derivative qualifies for treatment as a hedge.
Strategic Timber II is currently assessing the effects, if any, the
pronouncement will have on earnings. This pronouncement could lead to increased
volatility in our earnings and other comprehensive income.
We do not believe that any other recently issued pronouncements will have a
significant effect on our financial condition on results of operations.
F-23
<PAGE> 165
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Pioneer Resources, LLC:
We have audited the accompanying consolidated balance sheets of Pioneer
Resources, LLC (an Oregon limited liability company and predecessor to Strategic
Timber Trust II, LLC) and subsidiaries (the "Company") as of December 31, 1996
and 1997, and the related consolidated statements of operations, changes in
members' equity and cash flows for the years then ended and for the period from
January 1, 1998 to October 8, 1998. 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 audits 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 Pioneer Resources, LLC and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the years then ended and for the period from
January 1, 1998 to October 8, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon
February 26, 1999
F-24
<PAGE> 166
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,429,000 $ 1,362,000
Trade accounts receivable................................. 2,338,000 3,396,000
Receivables, related party................................ 176,000 256,000
Inventories............................................... 11,623,000 12,602,000
Prepaid expenses and deposits............................. 258,000 4,198,000
Real estate investments................................... 1,091,000 2,000,000
Current portion of notes receivable....................... -- 1,522,000
Net current assets of discontinued operation.............. 3,331,000 3,209,000
------------ ------------
Total current assets.............................. 23,246,000 28,545,000
------------ ------------
TIMBER, TIMBERLANDS AND TIMBER CUTTING RIGHTS............... 86,294,000 99,126,000
REAL ESTATE INVESTMENTS..................................... 5,128,000 7,409,000
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 1,233,000 1,145,000
Buildings................................................. 2,222,000 2,364,000
Machinery and equipment................................... 8,482,000 10,035,000
Aircraft.................................................. 5,735,000 3,660,000
------------ ------------
17,672,000 17,204,000
Less -- Accumulated depreciation.......................... (1,924,000) (2,845,000)
------------ ------------
Total property, plant and equipment............... 15,748,000 14,359,000
------------ ------------
NOTES RECEIVABLE............................................ 1,420,000 2,546,000
OTHER ASSETS................................................ 224,000 2,445,000
------------ ------------
Total assets...................................... $132,060,000 $154,430,000
============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 17,119,000 $ 2,600,000
Accounts payable.......................................... 1,749,000 3,096,000
Accounts payable -- related party......................... 101,000 27,000
Accrued liabilities....................................... 2,209,000 2,180,000
Deferred income taxes..................................... 901,000 515,000
------------ ------------
Total current liabilities......................... 22,079,000 8,418,000
------------ ------------
DEFERRED INCOME TAXES....................................... 2,363,000 1,688,000
CUTTING CONTRACT DEPOSIT.................................... 16,819,000 --
LONG-TERM DEBT, less current maturities..................... 79,446,000 124,341,000
NET NONCURRENT LIABILITIES OF DISCONTINUED OPERATION........ 622,000 --
MINORITY INTEREST........................................... 991,000 46,000
MEMBERS' EQUITY............................................. 9,740,000 19,937,000
------------ ------------
Total liabilities and members' equity............. $132,060,000 $154,430,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-25
<PAGE> 167
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE PERIOD FROM JANUARY 1, 1998 TO
OCTOBER 8, 1998
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1998 TO
------------------------- OCTOBER 8,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Log sales................................................. $25,901,000 $39,505,000 $ 23,097,000
Lumber and by-product sales............................... 36,004,000 52,623,000 45,213,000
Timberland and property sales............................. 613,000 6,774,000 5,901,000
----------- ----------- ------------
Total revenues...................................... 62,518,000 98,902,000 74,211,000
OPERATING EXPENSES:
Cost of products sold..................................... 25,897,000 39,602,000 45,498,000
Cost of timberland and property sales..................... 486,000 4,292,000 2,536,000
Depletion, depreciation and amortization.................. 15,366,000 25,259,000 12,966,000
Selling, general and administrative expenses.............. 3,144,000 7,444,000 7,137,000
Write down of real estate investments (Note 3)............ -- -- 583,000
----------- ----------- ------------
Operating income.................................... 17,625,000 22,305,000 5,491,000
OTHER INCOME (EXPENSE):
Interest expense.......................................... (6,070,000) (8,722,000) (12,505,000)
Interest income........................................... 248,000 224,000 56,000
Other income (expense), net............................... -- 502,000 (780,000)
----------- ----------- ------------
Income (loss) from continuing operations before
income taxes and minority interest................ 11,803,000 14,309,000 (7,738,000)
INCOME TAX BENEFIT (PROVISION).............................. (978,000) 355,000 336,000
----------- ----------- ------------
Income (loss) from continuing operations before
minority interest................................. 10,825,000 14,664,000 (7,402,000)
MINORITY INTEREST IN LOSS OF SUBSIDIARY..................... 262,000 51,000 12,000
----------- ----------- ------------
Income (loss) from continuing operations............ 11,087,000 14,715,000 (7,390,000)
DISCONTINUED OPERATION:
Loss from discontinued plywood operation (less applicable
tax benefits of $30,000 and $821,000 for 1996 and
1997)................................................... (48,000) (1,339,000) --
Gain (loss) on disposal of discontinued plywood operation
(less applicable tax provision of $241,000 in 1997 and
tax benefit of $550,000 for the period from January 1,
1998 to October 8, 1998................................. -- 394,000 (897,000)
----------- ----------- ------------
Income (loss) before extraordinary item............. 11,039,000 13,770,000 (8,287,000)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt............................ (780,000) -- (2,106,000)
----------- ----------- ------------
Net income (loss)................................... $10,259,000 $13,770,000 $(10,393,000)
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-26
<PAGE> 168
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 8, 1998
<TABLE>
<S> <C>
MEMBERS' EQUITY, December 31, 1995.......................... $ --
Member contributions...................................... 1,159,000
Member distributions...................................... (1,678,000)
Net income................................................ 10,259,000
------------
MEMBERS' EQUITY, December 31, 1996.......................... 9,740,000
Member contributions...................................... 4,075,000
Member distributions...................................... (7,648,000)
Net income................................................ 13,770,000
------------
MEMBERS' EQUITY, December 31, 1997.......................... 19,937,000
Member contributions...................................... 62,000
Member distributions...................................... (6,104,000)
Net loss.................................................. (10,393,000)
------------
MEMBERS' EQUITY, October 8, 1998............................ $ 3,502,000
============
</TABLE>
- ---------------
The accompanying notes are an integral part of these consolidated statements.
F-27
<PAGE> 169
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 8, 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JANUARY 1, 1998
--------------------------- TO
1996 1997 OCTOBER 8, 1998
------------ ------------ ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)......................................... $ 10,259,000 $ 13,770,000 $ (10,393,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Extraordinary loss...................................... 780,000 -- 2,106,000
Write down of assets to estimated realizable value...... -- -- 1,283,000
(Gain)/loss on sale of assets........................... -- (433,000) 212,000
Minority interest in loss of subsidiary................. (262,000) (51,000) (12,000)
Depletion, depreciation, amortization, and cost of
timber and property sold............................... 15,852,000 29,551,000 15,502,000
Deferred income taxes................................... (387,000) (1,154,000) (656,000)
Changes in balance sheet captions, (in 1996, net of
effects of businesses acquired during the period) --
Trade accounts receivable............................... (727,000) (1,094,000) (555,000)
Inventories............................................. (5,891,000) 136,000 549,000
Related party receivables and payables, net............. (929,000) (31,000) (778,000)
Accounts payable........................................ 645,000 235,000 195,000
Net advances (reduction) on cutting contract deposit.... 7,244,000 (16,819,000) --
Changes in other asset and liability accounts, net...... 222,000 639,000 314,000
------------ ------------ -------------
Net cash provided by operating activities........... 26,806,000 24,749,000 7,767,000
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for Lane acquisition............................ (10,062,000) -- --
Cash paid for Pilot Rock acquisition...................... (30,323,000) -- --
Cash paid for Pioneer Aviation acquisition................ (3,725,000) -- --
Purchase of minority interest in Pioneer Aviation......... -- (1,173,000) --
Purchases of timber and timberlands....................... (9,816,000) (40,308,000) (162,356,000)
Purchases of real estate investments...................... (1,132,000) (3,164,000) (1,414,000)
Purchases of property, plant and equipment................ (3,359,000) (4,654,000) (1,885,000)
Collection (issuances) of notes receivable, net........... (1,420,000) (4,541,000) 1,891,000
Proceeds from sale of fixed assets........................ 1,051,000 6,156,000 1,467,000
Deposit on timber and timberlands......................... -- 1,169,000 --
Contribution of Old Pioneer net assets.................... 524,000 -- --
Acquisition of Kinzua net assets.......................... 152,000 -- --
------------ ------------ -------------
Net cash used by investing activities............... (58,110,000) (46,515,000) (162,297,000)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Members' contributions.................................... $ 10,000 $ -- $ 62,000
Long-term borrowings...................................... 55,531,000 66,281,000 193,700,000
Repayment of borrowings................................... (19,558,000) (37,212,000) (32,127,000)
Deferred financing fees incurred.......................... (150,000) (2,722,000) (2,363,000)
Cash payments for members' distributions.................. (100,000) (7,648,000) (6,104,000)
------------ ------------ -------------
Net cash provided by financing activities........... 35,733,000 18,699,000 153,168,000
------------ ------------ -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 4,429,000 (3,067,000) (1,362,000)
CASH AND CASH EQUIVALENTS, beginning of period.............. -- 4,429,000 1,362,000
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 4,429,000 $ 1,362,000 $ --
============ ============ =============
</TABLE>
- ---------------
The accompanying notes are an integral part of these consolidated statements.
F-28
<PAGE> 170
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SALE OF PIONEER RESOURCES, LLC:
Effective October 9, 1998, a significant portion of Pioneer Resources,
LLC's (Pioneer) timberland assets were sold to Strategic Timber Partners II, LP.
The acquisition was effected by the acquisition of the ownership interests of
Pioneer by Strategic Timber Partners II, LP.
Immediately prior to the sale, certain assets and liabilities of Pioneer
(including all of the interests in Pioneer's subsidiaries) were conveyed to
Frontier Resources, LLC, a newly formed entity with the same ownership structure
as Pioneer prior to the transaction.
2. BASIS OF PRESENTATION AND NATURE OF OPERATIONS:
BASIS OF PRESENTATION
Pioneer Resources, LLC and its subsidiaries were formed in December 1995
for the purpose of acquiring certain assets and liabilities of Old Pioneer.
Pioneer has three subsidiaries:
- Kinzua Resources, LLC ("Kinzua"), which owns and operates sawmills in
Heppner and Pilot Rock, Oregon;
- Pioneer Aviation, LLC ("Pioneer Aviation"), which owns aircraft and
related buildings and equipment; and
- Lane Plywood, Inc. ("Lane") owns timber and timberlands and real estate.
Pioneer, Kinzua and Pioneer Aviation are Oregon limited liability
companies. Lane is an Oregon C corporation. One member owns a controlling
interest in Pioneer. The accompanying consolidated financial statements
represent the financial position of Pioneer as of December 31, 1996 and 1997.
The consolidated statements of operations, cash flows and members' equity for
the period from January 1, 1998 to October 8, 1998 represent results of
operations and cash flows for the nine-month period ended September 30, 1998.
Activity between October 1, 1998 and October 8, 1998 is insignificant. All
significant intercompany transactions and balances have been eliminated.
On January 3, 1996, certain assets and liabilities of Old Pioneer were
contributed to Pioneer by noncontrolling members of Old Pioneer and recorded at
their historical cost. In addition, Pioneer acquired timber and timberlands from
former members of Old Pioneer at fair value. These former members of Old Pioneer
collectively represented a controlling ownership in Old Pioneer and did not
become members in Pioneer. This acquisition was made with the proceeds from debt
financing. Pioneer also acquired 99.5% of the ownership interest in Kinzua. The
purchase price of Kinzua approximated Kinzua's book value. Accordingly, the
respective assets and liabilities acquired have been recorded at Kinzua's
historical cost. This series of transactions is referred to in these notes as
the "Transactions". Because of the insignificant activity on January 1 and
January 2, 1996, the Transactions have been reflected as if they occurred on
January 1, 1996 in the accompanying financial statements.
On November 25, 1996, the owners of Pioneer Merger, Inc. ("PMI"), which
became a wholly owned subsidiary of Pioneer on the same date, transferred their
ownership interests in Lane to Pioneer. Lane then became a wholly owned
subsidiary of Pioneer. This transaction was treated as a reorganization under
common control and therefore the historical basis of the assets and liabilities
did not change. Lane had been under common ownership and management with Pioneer
since its acquisition by PMI on May 1, 1996 (see Note 9). Accordingly, the
financial position, results of operations and cash flows of Lane have been
included in the accompanying consolidated financial statements. In 1997, the
plywood operation of Lane was discontinued and the majority of Lane's
plywood-related assets were sold in December 1997. See
F-29
<PAGE> 171
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Note 11 for additional discussion of the discontinued plywood operation. Lane
continues to manage its timber and timberlands, and real estate investments.
NATURE OF OPERATIONS
Pioneer's primary products are logs and lumber. Pioneer owns timber and
timberlands in the western United States, principally Oregon, California and
Washington, and sells logs harvested to unrelated third parties or transfers
them to its sawmills for conversion to lumber. The sawmills also purchase and
convert logs from unrelated third parties. These products are commodities whose
price is significantly affected by factors outside of their control. These
factors include the availability of logs and lumber from other domestic and
foreign markets, the demand for new construction materials, and general economic
conditions. Lumber is sold principally to furniture manufacturers and the
construction market through wholesalers within the United States. External third
party log sales are principally made to other wood products converters in the
western United States.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires our 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.
REVENUE RECOGNITION
Log, lumber and by-product sales are recognized upon shipment or delivery
of products to customers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with
maturities at date of purchase of 90 days or less.
INVENTORIES
Inventories are valued at the lower of cost or market value, applied on a
last-in, first-out (LIFO) basis. The major types of inventories are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Logs............................................ $ 8,794,000 $ 7,479,000
Lumber.......................................... 4,503,000 6,586,000
Supplies and other.............................. 14,000 4,000
LIFO reserve.................................... (1,688,000) (1,467,000)
----------- -----------
Total................................. $11,623,000 $12,602,000
=========== ===========
</TABLE>
TIMBER AND TIMBERLANDS
Pioneer's timber and timberlands consist principally of fee timber located
in the western United States. Pioneer uses a composite rate for timber
depletion. Depletion rates are based on estimated remaining merchantable volume;
these estimates are subject to change based on periodic timber surveys.
F-30
<PAGE> 172
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REAL ESTATE INVESTMENTS
Real estate investments consist primarily of undeveloped commercial real
estate located in Eugene, Oregon, as well as ranch property. A substantial
portion of the commercial real estate was obtained as part of the Lane
acquisition (see Note 9). Pioneer monitors the carrying costs of its real estate
properties and records reserves to reduce carrying costs to estimated market
value when it believes impairment has occurred. During 1998, Pioneer wrote down
the value of one of its real estate investments by $583,000 based on Pioneer's
current assessment of the fair value of this property.
Pioneer anticipates selling a portion of its commercial real estate within
one year of the balance sheet date. Accordingly, the cost basis associated with
parcels anticipated to be sold within one year has been reflected as a current
asset in the accompanying consolidated balance sheets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists principally of land, buildings,
machinery and equipment located on the Heppner and Pilot Rock sawmill sites.
Aircraft consists of planes and a helicopter owned by Pioneer Aviation and used
by Pioneer as part of its business and timber management activities.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets, approximately 5 to 15 years for manufacturing equipment, 15
to 40 years for buildings and 5 to 10 years for vehicles and aircraft.
OTHER ASSETS
Other assets consist principally of unamortized deferred financing fees.
Deferred financing fees are being amortized over the term of the underlying
debt.
TIMBER AND TIMBERLAND PURCHASES
Pioneer purchased the Coastal tract in July 1998 for approximately
$131,000,000. The Coastal tract consists primarily of timber located in northern
California. Other significant properties purchased in 1998 were the Riffe Lake
tract in January 1998 for approximately $15,000,000, and the Aloha tract in
March 1998 for approximately $17,000,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Pioneer's cash and cash equivalents, accounts
receivable, accounts payable and debt instruments approximates market value as
of December 31, 1996 and 1997.
F-31
<PAGE> 173
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
Supplemental cash flow information and significant noncash transactions are
included as follows:
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1998 TO
------------------------ OCTOBER 8,
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................... $ 5,059,000 $8,497,000 $12,153,000
Cash paid for income taxes............................... 258,000 960,000 173,000
SIGNIFICANT NONCASH TRANSACTIONS:
Distributions declared but not paid...................... -- -- --
Reduction of member notes receivable in consideration for
timber and timberlands................................. 10,862,000 -- --
Issuance of long-term debt in consideration for timber
and timberlands........................................ 23,000,000 -- --
Reduction of member notes receivable in consideration of
ownership interest in Kinzua........................... 969,000 -- --
Issuance of note payable to seller in connection with
Pilot Rock acquisition................................. 5,000,000 -- --
Reduction of member note receivable in consideration for
interest in Pioneer Aviation........................... 1,300,000 -- --
Reduction of member note receivable in lieu of member's
distribution........................................... 1,578,000 -- --
Reduction of member note receivable in consideration for
real estate investments................................ 980,000 -- --
Contribution of timber deposit and equipment for equity
interest............................................... -- 4,075,000 --
Application of timber deposit to purchase of timber...... -- -- 3,793,000
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current period's presentation.
4. LONG-TERM DEBT AND SUBSEQUENT REFINANCING:
On February 26, 1998, Pioneer refinanced a substantial portion of its
outstanding debt as of December 31, 1997. The current portion of long-term debt
in the accompanying consolidated balance sheet as of December 31, 1997 reflects
the terms of the new agreement with the Bank of Montreal (the Lending
Commitment). The debt outstanding as of December 31, 1997 consists of
$125,232,000 of borrowings pursuant to a Credit Agreement with the Bank of
Montreal and certain other banks. As a part of the refinancing, unamortized
deferred financing fees of $2,106,000 related to refinanced borrowings were
written off in 1998.
LENDING COMMITMENT TERMS
The Lending Commitment provides for a senior secured revolving Credit
Facility of up to $350,000,000 for a term of seven years. The Lending Commitment
will allow Pioneer to refinance the majority of its outstanding debt and, under
conditions defined in the Lending Commitment, will allow Pioneer to borrow
additional funds for acquisitions or other general business purposes. The amount
F-32
<PAGE> 174
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available for borrowing is based on the value of Pioneer's assets, computed in
accordance with terms set forth in the Lending Commitment.
Interest rates will be based on either a base rate, computed as the higher
of the Federal Funds rate plus 0.5% or the Bank of Montreal's prime commercial
lending rate, or LIBOR, plus a margin. The margin is contingent upon Pioneer's
EBITDDA, calculated as earnings before interest, taxes, depletion, depreciation
and amortization, to debt ratio.
The amount available for borrowing will be permanently reduced, on a
quarterly basis, according to the following schedule:
<TABLE>
<CAPTION>
TOTAL ANNUAL
COMMITMENT CUMULATIVE
YEAR REDUCTION REDUCTION
- ---- ------------ ----------
<S> <C> <C>
2002................................................ 15% 15%
2003................................................ 20% 35%
2004................................................ 30% 65%
2005................................................ 35% 100%
</TABLE>
In addition, all payments received related to the timber harvesting
contract discussed in Note 5 must be applied against the principal portion of
outstanding borrowings.
The Lending Commitment contains covenants that require Pioneer to maintain
certain financial ratios. Pioneer was in compliance with these covenants based
on the consolidated financial statement balances as of December 31, 1997. The
Lending Commitment is collateralized by essentially all assets of Pioneer.
OTHER DEBT
Other debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Term note, payable in monthly installments of approximately
$31,000 including interest. Interest is variable (8.25% as
of December 31, 1997). Debt is secured by aviation
equipment................................................. $2,450,000 $ --
Term note, payable in annual installments of $250,000,
including interest at 8.0%. Debt is secured by real
property.................................................. 1,000,000 830,000
Term note, payable in annual installments of $81,000,
including interest at 5.0%. Debt is secured by timber and
timberlands............................................... 323,000 242,000
Term note, payable in monthly installments of $6,100,
including interest. Interest is variable (8.12% as of
December 31, 1997). Debt is secured by aviation
equipment................................................. -- 497,000
Other term notes with varying maturities and interest rates.
Debt is secured by timber and timberlands................. -- 140,000
</TABLE>
REPAYMENT SCHEDULE
The following debt payout schedule is computed based on the terms of the
Lending Commitment with the Bank of Montreal, as well as the repayment terms of
the debt instruments not refinanced.
These amounts include principal payments required by the sale of timber
under the long-term cutting contract as discussed above and in Note 5, which
totaled $2,300,000 for 1998. These principal amounts are in addition to the
regularly scheduled payments required by the Lending Commitment. As this
long-term
F-33
<PAGE> 175
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cutting contract expires in 1998, no payments for periods beyond 1998 are
included in the debt repayment schedule.
Principal payments due on long-term debt as of December 31, 1997,
considering the effect of the subsequent refinancing and including the impact of
1998 harvest levels as previously discussed, are as follows:
<TABLE>
<S> <C>
1998....................................................... $ 2,600,000
1999....................................................... 615,000
2000....................................................... 336,000
2001....................................................... 275,000
2002....................................................... 16,153,000
Thereafter................................................. 106,962,000
------------
$126,941,000
============
</TABLE>
On October 9, 1998, Pioneer's outstanding balance under the Credit Facility
was paid off as a part of the sale of a significant portion of Pioneer's
timberland assets to Strategic Timber Partners II, LP. This sale is discussed in
Note 1.
INTEREST RATE SWAPS
To hedge its exposure to adverse fluctuations in interest rates, Pioneer
entered into loan swap arrangements with two financial institutions in 1997. The
interest rate differential on interest rate swap contracts used to hedge
underlying debt obligations is reflected as an adjustment to interest expense
over the life of the swaps.
Pursuant to these arrangements, Pioneer swapped a portion of its variable
rate debt for fixed rate debt. The notional amount swapped totaled $70,000,000,
which consists of $50,000,000 expiring in 2000 and $20,000,000 expiring in 2002.
$40,000,000 of the swaps maturing in 2000 can be extended to 2002 at the
financial institutions' option.
5. LONG-TERM CUTTING CONTRACT:
Pioneer has rights to a cutting contract with an unrelated third party
customer. This contract requires periodic advance deposits to Pioneer prior to
harvesting the timber. The purchase price of timber removed under this contract
is applied against the advance at the time of harvest according to prices
specified in the agreement. During 1997, the deposit balance was fully utilized
and the customer began paying Pioneer for volume removed on a current basis. As
discussed in Note 4, these payments were applied as principal payments against
Pioneer's long-term debt.
6. INCOME TAXES:
Pioneer, Kinzua and Pioneer Aviation are limited liability companies. As
owners of a limited liability company, members of Pioneer, Kinzua and Pioneer
Aviation are taxed on their respective share of income and there is no entity
level tax. Accordingly, no income tax accounts for Pioneer, Kinzua and Pioneer
Aviation have been reflected in the accompanying consolidated financial
statements.
PMI and Lane are C corporations and are, therefore, subject to income
taxes. Both companies account for deferred tax assets and liabilities based on
the temporary differences between the financial statement and tax bases of
assets and liabilities as measured by the enacted tax rates for the years in
which the taxes are expected to be paid. As discussed further in Note 11, the
plywood operations of Lane
F-34
<PAGE> 176
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were discontinued in September 1997. The components of deferred taxes related to
the continuing operations of PMI and Lane included in Pioneer's consolidated
balance sheets as of December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Land............................................ $ 901,000 $ 515,000
========== ==========
Long-term liabilities:
Timber.......................................... $1,284,000 $ 483,000
Land............................................ 1,079,000 1,205,000
---------- ----------
$2,363,000 $1,688,000
========== ==========
</TABLE>
Deferred tax liabilities of $93,000 and $301,000, respectively, related to
temporary differences between the financial statement and tax bases of Lane's
inventory are included in net current assets of discontinued operation in the
accompanying consolidated balance sheets as of December 31, 1996 and 1997.
On a stand-alone basis, Lane's effective tax rate was approximately 38% for
the period from acquisition (May 1, 1996) through December 31, 1996, the year
ended December 31, 1997 and the period from January 1, 1998 to October 8, 1998.
This rate differs from the federal statutory rate due primarily to state taxes.
Lane's tax benefit (provision) has been allocated between continuing and
discontinued operations in the statements of operations for the period from
acquisition (May 1, 1996) through December 31, 1996, the year ended December 31,
1997 and the period from January 1, 1998 to October 8, 1998.
7. MEMBERS' EQUITY AND RELATED PARTY TRANSACTIONS:
The liability of the individual members of Pioneer is limited to the
balances of their respective members' equity accounts.
The members of Pioneer were actively involved in managing the company and
paid regular salaries which are included in selling, general and administrative
expenses in the accompanying consolidated statements of operations. Prior to the
sale of Pioneer as described in Note 1, Greg Demers owned or controlled a
majority of the Pioneer's ownership interest and five other individuals or
entities owned the balance.
Pioneer has had transactions with several of its members and entities
affiliated with its members. Related party receivables and payables as of
December 31, 1996 and 1997 consist primarily of receivables and payables to
members or to entities affiliated with members.
MINORITY INTEREST
Greg Demers owns the 0.5% ownership interest in Kinzua not owned by
Pioneer. This ownership is reflected as minority interest in the accompanying
consolidated financial statements.
OTHER RELATED PARTY TRANSACTIONS
Various related parties have used the services of Pioneer Aviation's
aircraft and have been charged accordingly for such services at a rate that
approximates fair market value. These charges totaled $571,000, $258,000 and
$71,000 in 1996 and 1997, and the period from January 1, 1998 to October 8,
1998, respectively.
F-35
<PAGE> 177
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Beginning in 1996, Pioneer engaged a forest products trading company to
market its lumber products. One of Pioneer's members also has an ownership
interest in the trading company. Sales commissions paid to this entity, which
approximated market value, were $248,000, $700,000 and $324,000 in 1996, 1997
and the period from January 1, 1998 to October 8, 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES:
LAND OWNERSHIP DISPUTE
In 1994, Old Pioneer filed a lawsuit against an unrelated third party for
$6,000,000, alleging that this party was erroneously deeded certain tracts of
timber and timberlands valued at $6,000,000 in April 1994. The other party then
counter-sued Old Pioneer for $6,000,000. Discovery and trial proceedings
occurred through 1997.
In January 1998, an Oregon Circuit/District Court ruled in Old Pioneer's
favor and ordered that the other party reconvey the timber and timberlands to
Old Pioneer and compensate Old Pioneer for the value of timber harvested during
the period the disputed property was under the other party's control. The other
party's claims were denied.
As Pioneer believes the other party is likely to appeal the Court's
decision, and as Pioneer has not yet assumed possession of the property or
collected damages, Pioneer has not recorded the gain contingency in the
accompanying consolidated financial statements. Any ultimate recoveries from the
lawsuit will be allocated among the owners of Old Pioneer at the time of the
related transaction. Pioneer's share of any recoveries would be approximately
27% of total recoveries received by Old Pioneer.
OTHER CLAIMS
Pioneer is subject to ongoing litigation and claims as part of its normal
business operations. In the opinion of management, none of these claims will
have a material adverse effect on the business or results of operations of
Pioneer.
9. ACQUISITIONS:
Three acquisitions have been reflected in the accompanying consolidated
financial statements. In May 1996, Lane was acquired by a group of investors who
also have ownership interests in Pioneer. The investors' ownership interests
were transferred to Pioneer in November 1996. In June 1996, Pioneer and Kinzua
acquired timber and timberlands and a sawmill in Pilot Rock, Oregon. In August
1996, Pioneer acquired a majority ownership interest in Pioneer Aviation.
LANE PLYWOOD ACQUISITION
Lane was formed in 1952. PMI was formed in 1996 by members of Pioneer for
the purpose of acquiring Lane. Lane was acquired by PMI on May 1, 1996. Lane's
operating assets principally consisted of timber-related operations and a
plywood operation. The acquisition was accounted for using the purchase method
of accounting; the purchase price was $10,100,000. The results of operations of
Lane are included in the accompanying consolidated financial statements for all
periods beginning May 1, 1996. As discussed in Note 11, Lane's plywood operation
was discontinued in 1997. Thus, the results of the plywood operation are
reflected as discontinued for all periods presented in the consolidated
financial statements.
On November 25, 1996, the ownership of PMI was transferred to Pioneer. This
transaction was accounted for as a reorganization of entities under common
control and, accordingly, the carrying values of Lane's accounts were not
adjusted as a result of the ownership transfer to Pioneer.
F-36
<PAGE> 178
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the unaudited pro forma results of
discontinued operations for the year ended December 31, 1996 as if the Lane
acquisition had been consummated at the beginning of the period. The pro forma
results were prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the Lane acquisition been consummated
at the beginning of the period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <C>
Revenue from discontinued operation...................... $39,363,000
Loss from discontinued operation......................... (142,000)
</TABLE>
PILOT ROCK ACQUISITION
In June 1996, Kinzua acquired a sawmill in Pilot Rock, Oregon ("Pilot
Rock") for $5,500,000. Concurrently, Pioneer purchased timber and timberlands in
northeastern Oregon from the same seller for $28,500,000. The acquisition was
accounted for using the purchase method of accounting. Results of operations of
the acquired sawmill and timber operations for the period from July 1, 1996
through December 31, 1996, the year ended December 31, 1997 and the period from
January 1, 1998 to October 8, 1998 are included in the accompanying consolidated
financial statements.
The following table presents the unaudited pro forma revenue and income
from continuing operations for the year ended December 31, 1996 as if the Pilot
Rock acquisition had been consummated at the beginning of the period. The pro
forma results were prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the Pilot Rock acquisition been
consummated at the beginning of the period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <C>
Revenue.................................................. $74,355,000
Income from continuing operations........................ 8,649,000
</TABLE>
PIONEER AVIATION ACQUISITION
As discussed in Note 2, Pioneer Aviation was a related entity to Pioneer
prior to Pioneer acquiring a majority interest in Pioneer Aviation in August
1996. Through a series of purchases, capital contributions and ownership
exchanges in 1996 and 1997, Pioneer acquired all of the ownership interest in
Pioneer Aviation. The combined total of capital contributions, purchases of
other owners' interests and ownership exchanges totaled $5,000,000 and
$1,246,000 in 1996 and 1997, respectively. These acquisitions were accounted for
by the purchase method of accounting, except exchanges that have been recorded
at historical cost. Results of operations have been included in the accompanying
consolidated financial statements for each of the periods presented.
10. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION:
Pioneer operates in two industry segments - timber operations and lumber
operations. The timber operations segment consists of sales of logs to both
outside customers and to the lumber operations segment. The lumber operations
segment consists of lumber and by-products produced by Pioneer's two sawmills.
Operating income from the timber operations segment includes timberland and
property sales of $613,000, $6,774,000 and $5,901,000 in 1996, 1997, and the
period from January 1, 1998 to October 8, 1998, respectively.
F-37
<PAGE> 179
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents Pioneer's sales to certain customers as a
percentage of total sales for the applicable period. Other than as reflected in
the table, there were no other customers with sales equal to or in excess of 10%
of total sales for the years ended December 31, 1996, 1997 and for the period
from January 1 to October 8, 1998.
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Customer A.................................................. 33% 29%
Customer B.................................................. 13% --
</TABLE>
While many of Pioneer's logs and lumber products are of export quality,
Pioneer does not directly export any logs or other products.
Segment information for the years ended December 31, 1996, 1997 and for the
period from January 1, 1998 to October 8, 1998 are as follows:
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1998 TO
------------------------- OCTOBER 8,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Timber operations............................. $34,244,000 $60,304,000 $38,965,000
Lumber operations............................. 36,004,000 52,623,000 45,213,000
Intersegment sales to lumber operations....... (7,730,000) (14,025,000) (9,967,000)
----------- ----------- -----------
$62,518,000 $98,902,000 $74,211,000
=========== =========== ===========
Operating income (loss):
Timber operations............................. $13,618,000 $18,771,000 $ 8,788,000
Lumber operations............................. 4,007,000 3,534,000 (3,297,000)
----------- ----------- -----------
$17,625,000 $22,305,000 $ 5,491,000
=========== =========== ===========
Depreciation, depletion and amortization:
Timber operations............................. $13,809,000 $23,171,000 $11,152,000
Lumber operations............................. 639,000 781,000 610,000
General corporate assets...................... 918,000 1,307,000 1,204,000
----------- ----------- -----------
$15,366,000 $25,259,000 $12,966,000
=========== =========== ===========
Capital expenditures (a):
Lumber operations............................. $ 350,000 $ 917,000 $ 1,524,000
General corporate assets...................... 3,009,000 3,737,000 361,000
----------- ----------- -----------
$ 3,359,000 $ 4,654,000 $ 1,885,000
=========== =========== ===========
</TABLE>
(a) Capital expenditures do not include the cost of acquiring additional timber
and timberland properties.
Balance sheet segment information as of December 31, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Identifiable Assets:
Timber operations....................................... $ 92,625,000 $108,690,000
Lumber operations....................................... 22,614,000 25,442,000
General corporate assets................................ 16,821,000 20,298,000
------------ ------------
$132,060,000 $154,430,000
============ ============
</TABLE>
F-38
<PAGE> 180
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. DISCONTINUED OPERATION:
In September 1997, Pioneer decided to dispose of its plywood manufacturing
operation, as owned and operated by Lane. This operation ceased in November
1997.
The net losses of the plywood operation for all periods presented are
included in the consolidated statements of operations under discontinued
operation. Revenues from the plywood operation were $27,788,000 in 1996 and
$36,818,000 in 1997. Except for certain receivables, inventories, and other
current assets carried at a total estimated net realizable value of $3,209,000,
all assets of the plywood operation were disposed of prior to December 31, 1997.
The gain in 1997 on disposal of the discontinued operation reflected in the
consolidated statement of operations includes gains on the sale of equipment
used in the plywood operation, less estimated closure-related costs, net of tax
provision on the gain. The loss in the period from January 1, 1998 to October 8,
1998 related to the disposal of this operation principally represents costs
incurred in excess of those estimated in 1997 for closure-related expenses.
12. SUBSEQUENT EVENT:
As discussed in Note 1, Pioneer's interest in Kinzua was conveyed to
Frontier Resources. In January 1999, Frontier decided to permanently close the
Heppner, Oregon sawmill operated by Kinzua. Based on an initial assessment,
Frontier believes that closure costs related to the plant shutdown will not be
significant.
F-39
<PAGE> 181
[INSIDE BACK COVER]
[PHOTO A]
Mid-rotation, intensively-managed
Southern pine plantation.
Life Cycle of A Tree
Strategic Timber owns and manages a diversified portfolio of
commercial timber, a renewable natural resource.
<TABLE>
<S> <C>
[PHOTO B] [PHOTO C]
Fast-growing 5 year-old Southern Mature Southern pine ready for
pine plantation in Louisiana. harvest. Clear, straight and
large diameter sawtimber has
many high-value end uses.
</TABLE>
<PAGE> 182
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16,600,000 SHARES
STRATEGIC TIMBER TRUST, INC.
COMMON STOCK
[LOGO]
------------
PROSPECTUS
, 1999
------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
A.G. EDWARDS & SONS, INC.
WARBURG DILLON READ LLC
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 183
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Unless otherwise defined, all capitalized terms contained in this Part II
shall have the meanings ascribed to them in the prospectus which forms a part of
this Registration Statement. Strategic Timber is sometimes referred to herein as
the "Registrant."
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses expected to be incurred
by Strategic Timber in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 111,448
National Association of Securities Dealers, Inc. filing
fee....................................................... 30,500
Nasdaq National Market listing fee.......................... *
Blue Sky fees and expenses.................................. 5,000
Accounting fees and expenses................................ 800,000
Legal fees and expenses..................................... *
Financial advisory fee...................................... 2,158,000
Printing and engraving expenses............................. 250,000
Registrar and Transfer Agent's fees......................... 15,500
Directors' and Officers' liability insurance................ 162,000
Miscellaneous fees and expenses............................. $ 300,000
----------
Total............................................. *
==========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 32. SALES TO SPECIAL PARTIES.
In connection with the formation transactions, the following sales of
Strategic Timber's and Strategic Timber Partners' securities have occurred
within the past six months or will occur upon the completion of this offering:
(i) In accordance with the terms of the Strategic Timber Partners II
partnership units held by the former members of Pioneer and the Strategic
Timber Partners II partnership units held by Mach One, the former members
of Pioneer will receive $24.1 million in cash and 2,170,086 Strategic
Timber Partners partnership units having a value of $43.4 million, based on
an initial public offering price of $20 per share, and Mach One will
receive $10.0 million in cash and 100,110 Strategic Timber Partners
partnership units having a value of $2.0 million, based on the initial
public offering price of $20 per share, in connection with the merger of
Strategic Timber Partners II into Strategic Timber Partners. The Strategic
Timber Partners II partnership units will be canceled in the merger. The
former members of Pioneer acquired their Strategic Timber Partners II
partnership units in connection with Strategic Timber Partners II's
acquisition of Pioneer. Mach One acquired its interest in Strategic Timber
Partners II in exchange for $10.0 million cash to Strategic Timber Partners
II that was used to finance Strategic Timber Partners II's acquisition of
Pioneer.
(ii) In accordance with the terms of the Strategic Timber Partners
partnership units held by Louisiana Timber, Louisiana Timber will receive
$12.9 million in cash and will own 1,762,974 Strategic Timber Partners
partnership units having a value of $35.3 million, based on an initial
public offering price of $20 per share, as of the completion of the
offering. Louisiana Timber acquired its Strategic Timber Partners
partnership units in exchange for the contribution to Strategic Timber
Partners of a contract (valued by the parties at $50.0 million) to acquire
the Louisiana property.
II-1
<PAGE> 184
(iii) At the completion of this offering, the shareholders of
Strategic Timber who formed Strategic Timber II will receive 933,035
Strategic Timber Partners partnership units in connection with the merger
of Strategic Timber II, Strategic Timber Partners II and Strategic Timber
Two Operating Co. into Strategic Timber Partners. The Strategic Timber
Partners II partnership units will be canceled in the merger.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
In addition to the issuances described in Item 32, Strategic Timber and
Strategic Timber Partners have issued the following securities:
(i) In April 1998, Strategic Timber issued an aggregate of 16,065 (or
587,798 shares adjusted for Strategic Timber's 36.59-for-1 stock split)
shares of common stock to six individuals for services rendered as
employees of Strategic Timber: C. Edward Broom, Christopher J. Broom,
Thomas P. Broom, Charles W. Godfrey, Vladimir Harris and Joseph E. Rendini.
Based on an initial public offering price of $20 per share, these shares
are worth approximately $11.8 million.
(ii) In April 1998, Strategic Timber Partners issued 500 Class B
partnership units and 4,500 Class C partnership units to Louisiana Timber
in exchange for assignment to Strategic Timber Partners of a contract to
acquire the Louisiana property. The parties valued the contract at $50.0
million. In connection with the completion of this offering, these units
will be converted into an aggregate of 1,762,974 partnership units and
$12.9 million in cash. Based on an initial public offering price of $20 per
share, these units are worth approximately $35.3 million.
(iii) In April 1998, Strategic Timber issued 1,275 shares (or 46,651
shares adjusted for the stock split) of common stock to Sutherland Asbill &
Brennan LLP in consideration of legal services rendered to Strategic
Timber. Based on an initial public offering price of $20 per share, these
shares are worth approximately $933,000.
(iv) In June 1998, Strategic Timber issued 1,020 (or 37,321 shares
adjusted for the stock split) shares of common stock to Nicholas C. Brunet
for services rendered as an employee of Strategic Timber. Based on an
initial public offering price of $20 per share, these shares are worth
approximately $746,000.
With respect to the issuances of common stock, options and partnership
units convertible into common stock described in Item 32 above and in this Item
33, Strategic Timber relied upon the exemption provided by section 4(2) of the
Securities Act, and in all but the issuance of shares to Mr. Brunet, Regulation
D, Rule 506, promulgated thereunder.
Each recipient of the securities described above and in Item 32 represented
his or its intention to acquire the securities for investment only and not with
a view to distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. Each recipient had adequate access to
information about Strategic Timber.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
GEORGIA BUSINESS CORPORATION CODE
Section 14-2-851 of the GBCC empowers a corporation to indemnify a director
(including a former director and including a director who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) against liability
arising from official acts if the director acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation.
For all other acts, the corporation may indemnify a director who acted in good
faith and reasonably believed that the conduct was not opposed to the best
interests of the corporation. The corporation may indemnify a director with
respect to criminal proceedings if the director acted in good
II-2
<PAGE> 185
faith and had no reasonable cause to believe the conduct was unlawful. A
corporation may not indemnify a director adjudged liable for conduct involving
receipt of an improper personal benefit.
In addition, section 14-2-856 of the GBCC permits the articles of
incorporation, bylaws, a contract, or resolution approved by the shareholders to
authorize the corporation to indemnify a director against claims to which the
director was a party, including claims by the corporation or in the right of the
corporation (e.g., a shareholder derivative action). However, the corporation
may not indemnify the director for liability to the corporation for any
appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions or receipt of an improper benefit.
Section 14-2-852 of the GBCC provides for mandatory indemnification against
reasonable expenses incurred by a director who is wholly successful in defending
an action to which the director was a party due to his or her status as a
director of the corporation on the merits or otherwise. Section 14-2-854 allows
a court, upon application by a director, to order indemnification and
advancement of expenses if it determines that the director is entitled to
indemnification under the GBCC or if it determines that indemnification is fair
and reasonable even if the director has failed to meet the statutory standard of
conduct under section 14-2-851. However, the court may not order indemnification
in excess of reasonable expenses for liability to the corporation or for receipt
of an improper benefit.
Section 14-2-857 of the GBCC permits a corporation to indemnify an officer
(including a former officer and including an officer who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) to the same extent as
a director. A corporation may indemnify an officer who is not a director to a
further extent by means of articles of incorporation, bylaw, board resolution,
or contract. However, the corporation may not indemnify an officer for liability
arising from conduct involving appropriation of a corporate opportunity,
intentional misconduct or knowing violation of law, unlawful distributions, or
receipt of an improper personal benefit. An officer who is not a director is
also entitled to mandatory indemnification and may apply for court-ordered
indemnification.
Section 14-2-858 of the GBCC permits a corporation to purchase and maintain
insurance on behalf of directors and officers against liability incurred by them
in their capacities or arising out of their status as directors and officers of
the corporation, regardless of whether the corporation would have the power to
indemnify or advance expenses to the director or officer for the same liability
under the GBCC.
ARTICLES OF INCORPORATION
Article V of the Articles of Incorporation exculpates the directors of
Strategic Timber from personal liability for money damages to Strategic Timber
or its shareholders to the fullest extent permitted by the GBCC, as it may be
amended from time to time. Currently, the directors are exculpated from all
liability to Strategic Timber or its shareholders except for liability arising
from conduct involving appropriation of a corporate opportunity, intentional
misconduct or knowing violation of law, unlawful distributions, or receipt of an
improper personal benefit. The Articles of Incorporation also provide that any
repeal or modification of Article V of the Articles of Incorporation by the
shareholders of Strategic Timber shall not adversely affect any right or
protection of a director of Strategic Timber existing at the time of such repeal
or modification.
BYLAWS
Article VI of Strategic Timber's Bylaws provides that Strategic Timber
shall indemnify to the fullest extent permitted under the GBCC any person who is
or was a director or an officer of Strategic Timber, including a director or an
officer who is or was serving at the request of Strategic Timber as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
No amendment, termination, or other elimination of Article VI of the Bylaws
or of any relevant provisions of the GBCC or of any other applicable law shall
affect or diminish in any way the rights to
II-3
<PAGE> 186
indemnification under the Bylaws with respect to any action, suit or proceeding
arising out of, or relating to, any event or act or omission occurring or fact
or circumstance existing prior to such amendment, termination or other
elimination. The indemnification and advancement of expenses provided by, or
granted pursuant to, Strategic Timber's Bylaws are not exclusive of any other
rights permitted by applicable law to which a person seeking indemnification or
advancement of expenses may be entitled, whether by contract or otherwise. All
rights to indemnification under Article VI of the Bylaws continue as to a person
who has ceased to be a director or officer and shall be deemed to be a contract
between Strategic Timber and each such person.
INDEMNIFICATION AGREEMENTS
Strategic Timber will enter into indemnification agreements with each of
its directors and executive officers prior to completion of this offering, and
intends to enter into similar agreements with its prospective directors upon
completion of the offering. The indemnification agreements provide for
indemnification to the fullest extent permitted by applicable law, the Articles
of Incorporation, the Bylaws and any resolutions of the Board of Directors and
shareholders of Strategic Timber as in effect on the date of execution of each
such indemnification agreement, and to such greater extent as applicable law may
thereafter from time to time permit. The terms of these indemnification
agreements are consistent with the terms of Article VI of Strategic Timber's
Bylaws and Article V of the Articles of Incorporation.
INSURANCE
Strategic Timber intends to purchase a policy of insurance providing
reimbursement of indemnification payments to officers and directors of Strategic
Timber and reimbursement of certain liabilities incurred by directors and
officers of Strategic Timber in their capacities as such, to the extent that
they are not otherwise indemnified by Strategic Timber.
UNDERWRITING AGREEMENT
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the underwriters of Strategic Timber, its directors and its officers, and by
Strategic Timber of the underwriters, for certain liabilities, including
liabilities arising under the Securities Act, and affords certain rights of
contribution with respect thereto.
PARTNERSHIP AGREEMENT
The Partnership Agreement (Exhibit 3.5.4) provides for indemnification of
Strategic Timber, Strategic Timber Operating Co., and the directors and officers
of Strategic Timber, as well as any other persons Strategic Timber Operating
Co., as general partner, may designate. Strategic Timber Partners shall
indemnify any of these indemnitees against any losses, claims, damages,
liabilities, judgments, fines, settlements and expenses arising from the
operations of Strategic Timber Partners so long as the indemnitee acted in good
faith and in a manner it reasonably believed to be in, or not opposed to, the
best interest of Strategic Timber Partners, and in the case of any criminal
proceeding, the indemnitee had no reasonable cause to believe that its conduct
was unlawful. This indemnification is limited to the assets of Strategic Timber
Partners and no partner in Strategic Timber Partners shall be personally liable
for such indemnification. Strategic Timber Partners may reimburse reasonable
expenses incurred by any such indemnitee in defense of an action relating to the
operations of Strategic Timber Partners, if Strategic Timber Partners receives
certain written affirmations and undertakings from the indemnitee. Strategic
Timber Partners may purchase and maintain insurance on behalf of such
indemnitees against liabilities incurred by them in connection with Strategic
Timber Partners' activities, regardless of whether Strategic Timber Partners
would have the power to indemnify the indemnitee for the same liability under
the Partnership Agreement.
II-4
<PAGE> 187
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
See Index to Financial Statements on page F-1 of the prospectus which
forms a part of this Registration Statement.
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1.1+** Contract for the Purchase and Sale of Real Property, dated
April 15, 1998, by and between Griffin Logging, Inc. and
Louisiana Timber Partners, LLC
2.1.2+** Partial Assignment and Assumption of Contract, dated April
23, 1998, by and between Louisiana Timber Partners, LLC and
Strategic Timber Partners, LP
2.1.3+** Contribution Agreement, dated April 23, 1998, by and among
Strategic Timber Partners, LP, Strategic Timber Operating
Co., the Registrant and Louisiana Timber Partners, LLC
2.2+** Acquisition and Contribution Agreement, dated October 9,
1998, by and among Strategic Timber Trust II, LLC, Strategic
Timber Two Operating Co., LLC, Strategic Timber Partners II,
LP, Frontier Resources, LLC and all of the former owners of
the membership interests of Pioneer Resources, LLC
2.3 Plan and Agreement of Merger with respect to the Merger of
Strategic Timber Trust II, LLC, Strategic Timber Two
Operating Co., LLC, and Strategic Timber Partners II, LP
with and into Strategic Timber Partners, LP, dated as of
January 25, 1999
3.1.1** Articles of Incorporation of the Registrant
3.1.2 Form of Amended and Restated Articles of Incorporation of
the Registrant to be effective on or prior to the
consummation of this offering
3.2.1** Bylaws of the Registrant
3.2.2 Form of Amended and Restated Bylaws of the Registrant to be
effective on or prior to the consummation of this offering
3.3** Certificate of Incorporation of Strategic Timber Operating
Co.
3.4** Bylaws of Strategic Timber Operating Co.
3.5.1** Agreement of Limited Partnership of Strategic Timber
Partners, LP
3.5.2** First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners, LP
3.5.3** First Amendment to First Amended and Restated Agreement of
Limited Partnership of Strategic Timber Partners, LP
3.5.4** Form of Second Amended and Restated Agreement of Limited
Partnership of Strategic Timber Partners, LP, to be
effective on or prior to the consummation of this offering
3.6.1** Agreement of Limited Partnership of Strategic Timber
Partners II, LP
3.6.2** First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners II, LP
3.7** Operating Agreement of Strategic Timber Trust II, LLC
3.8** Operating Agreement of Strategic Timber Two Operating Co.,
LLC
</TABLE>
II-5
<PAGE> 188
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
3.9** Fourth Amended and Restated Operating Agreement of Pioneer
Resources, LLC
4.1* Form of Common Stock Certificate
5.1* Opinion of Sutherland Asbill & Brennan LLP as to certain
matters regarding the shares of Common Stock offered hereby
8.1 Opinion of Sutherland Asbill & Brennan LLP as to tax matters
(included in the prospectus that forms part of this
Registration Statement under "Federal Income Tax
Consequences")
8.2 Private Letter Ruling issued to the Registrant, dated March
19, 1999
10.1 Form of 1999 Strategic Timber Trust Omnibus Incentive Plan
10.2 Form of Indemnification Agreement to be executed between
Registrant and certain of its officers and directors
10.3 Form of Stock Option Agreement
10.4 Form of Stock Option Agreement for Outside Directors
10.5+** Replacement Credit Agreement, dated October 9, 1998, by and
among Pioneer Resources, LLC, First Union National Bank, ABN
AMRO Bank N.V., NationsBank, N.A., and the other lenders
which are or become parties thereto
10.6+** Loan Agreement, dated April 27, 1998, by and among Strategic
Timber Partners, LP, ABN AMRO Bank N.V., and the other
lenders which are or become parties thereto
10.7+** Bridge Loan Agreement, dated April 27, 1998, by and among
the Registrant, ABN AMRO Bank N.V. and the lenders named
therein
10.8+** Bridge Loan Agreement, dated October 9, 1998, by and among
Strategic Timber Trust II, LLC, ABN AMRO Bank N.V. and the
lenders named therein
10.9.1 Timber Purchase Agreement, dated December 29, 1998, between
Kinzua Resources, LLC and Pioneer Resources, LLC
10.9.2 Statutory Bargain and Sale Timber Deed between Kinzua
Resources, LLC and Pioneer Resources, LLC, dated December
29, 1998
10.10 Employment and Non-Competition Agreement between the
Registrant and C. Edward Broom
10.11 Employment and Non-Competition Agreement between the
Registrant and Christopher J. Broom
10.12 Employment and Non-Competition Agreement between the
Registrant and Thomas P. Broom
10.13 Employment and Non-Competition Agreement between the
Registrant and Kenneth L. Chute
10.14 Employment and Non-Competition Agreement between the
Registrant and Vladimir Harris
10.15 Employment and Non-Competition Agreement between the
Registrant and Nicholas C. Brunet
10.16 Employment and Non-Competition Agreement between the
Registrant and Joseph E. Rendini
21.1** Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Mason, Bruce & Girard, Inc.
23.4 Consent of Canal Forest Resources, Inc.
</TABLE>
II-6
<PAGE> 189
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
24.1** Power of Attorney
27.1 Financial Data Schedule
99.1** Consent of Prospective Director Starling W. Childs, II
99.2** Consent of Prospective Director Jay S. Lucas
99.3** Consent of Prospective Director Hanns A. Pielenz
99.4** Consent of Prospective Director Richard P. Urfer
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Schedules and similar attachments to this exhibit have been omitted. A list
of these omitted schedules has been provided in this exhibit, and the
Registrant agrees to furnish supplementally to the Commission a copy of any
omitted schedule upon request.
ITEM 37. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Strategic
Timber pursuant to the foregoing provisions, or otherwise, Strategic Timber 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 Strategic Timber of expenses
incurred or paid by a director, officer or controlling person of Strategic
Timber 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, Strategic Timber 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 Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Strategic Timber pursuant to Rule 424(b)(1) or (4)
or 497(h) under the 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 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-7
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New London, State of New Hampshire, on the 26th day
of March, 1999.
STRATEGIC TIMBER TRUST, INC.
By: /s/ C. EDWARD BROOM
----------------------------------
C. Edward Broom
President and Chief Executive
Officer
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ C. EDWARD BROOM President, Chief Executive March 26, 1999
- ----------------------------------------------------- Officer and Chairman of
C. Edward Broom the Board of Directors
(Principal Executive
Officer)
* Senior Vice President and March 26, 1999
- ----------------------------------------------------- Chief Financial Officer
Kenneth L. Chute (Principal Financial and
Accounting Officer)
* Executive Vice President, March 26, 1999
- ----------------------------------------------------- Chief Investment Officer
Christopher J. Broom and Director
* Executive Vice President, March 26, 1999
- ----------------------------------------------------- Chief Operating Officer
Thomas P. Broom and Director
*By: /s/ C. EDWARD BROOM
------------------------------------------------
C. Edward Broom
Attorney-in-fact
</TABLE>
II-8
<PAGE> 191
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1.1+** Contract for the Purchase and Sale of Real Property, dated
April 15, 1998, by and between Griffin Logging, Inc. and
Louisiana Timber Partners, LLC
2.1.2+** Partial Assignment and Assumption of Contract, dated April
23, 1998, by and between Louisiana Timber Partners, LLC and
Strategic Timber Partners, LP
2.1.3+** Contribution Agreement, dated April 23, 1998, by and among
Strategic Timber Partners, LP, Strategic Timber Operating
Co., the Registrant and Louisiana Timber Partners, LLC
2.2+** Acquisition and Contribution Agreement, dated October 9,
1998, by and among Strategic Timber Trust II, LLC, Strategic
Timber Two Operating Co., LLC, Strategic Timber Partners II,
LP, Frontier Resources, LLC and all of the former owners of
the membership interests of Pioneer Resources, LLC
2.3 Plan and Agreement of Merger with respect to the Merger of
Strategic Timber Trust II, LLC, Strategic Timber Two
Operating Co., LLC, and Strategic Timber Partners II, LP
with and into Strategic Timber Partners, LP, dated as of
January 25, 1999
3.1.1** Articles of Incorporation of the Registrant
3.1.2 Form of Amended and Restated Articles of Incorporation of
the Registrant to be effective on or prior to the
consummation of this offering
3.2.1** Bylaws of the Registrant
3.2.2 Form of Amended and Restated Bylaws of the Registrant to be
effective on or prior to the consummation of this offering
3.3** Certificate of Incorporation of Strategic Timber Operating
Co.
3.4** Bylaws of Strategic Timber Operating Co.
3.5.1** Agreement of Limited Partnership of Strategic Timber
Partners, LP
3.5.2** First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners, LP
3.5.3** First Amendment to First Amended and Restated Agreement of
Limited Partnership of Strategic Timber Partners, LP
3.5.4** Form of Second Amended and Restated Agreement of Limited
Partnership of Strategic Timber Partners, LP, to be
effective on or prior to the consummation of this offering
3.6.1** Agreement of Limited Partnership of Strategic Timber
Partners II, LP
3.6.2** First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners II, LP
3.7** Operating Agreement of Strategic Timber Trust II, LLC
3.8** Operating Agreement of Strategic Timber Two Operating Co.,
LLC
3.9** Fourth Amended and Restated Operating Agreement of Pioneer
Resources, LLC
4.1* Form of Common Stock Certificate
5.1* Opinion of Sutherland Asbill & Brennan LLP as to certain
matters regarding the shares of Common Stock offered hereby
</TABLE>
II-9
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
8.1 Opinion of Sutherland Asbill & Brennan LLP as to tax matters
(included in the prospectus that forms part of this
Registration Statement under "Federal Income Tax
Consequences")
8.2 Private Letter Ruling issued to the Registrant, dated March
19, 1999
10.1 Form of 1999 Strategic Timber Trust Omnibus Incentive Plan
10.2 Form of Indemnification Agreement to be executed between
Registrant and certain of its officers and directors
10.3 Form of Stock Option Agreement
10.4 Form of Stock Option Agreement for Outside Directors
10.5+** Replacement Credit Agreement, dated October 9, 1998, by and
among Pioneer Resources, LLC, First Union National Bank, ABN
AMRO Bank N.V., NationsBank, N.A., and the other lenders
which are or become parties thereto
10.6+** Loan Agreement, dated April 27, 1998, by and among Strategic
Timber Partners, LP, ABN AMRO Bank N.V., and the other
lenders which are or become parties thereto
10.7+** Bridge Loan Agreement, dated April 27, 1998, by and among
the Registrant, ABN AMRO Bank N.V. and the lenders named
therein
10.8+** Bridge Loan Agreement, dated October 9, 1998, by and among
Strategic Timber Trust II, LLC, ABN AMRO Bank N.V. and the
lenders named therein
10.9.1 Timber Purchase Agreement, dated December 29, 1998, between
Kinzua Resources, LLC and Pioneer Resources, LLC
10.9.2 Statutory Bargain and Sale Timber Deed between Kinzua
Resources, LLC and Pioneer Resources, LLC, dated December
29, 1998
10.10 Employment and Non-Competition Agreement between the
Registrant and C. Edward Broom
10.11 Employment and Non-Competition Agreement between the
Registrant and Christopher J. Broom
10.12 Employment and Non-Competition Agreement between the
Registrant and Thomas P. Broom
10.13 Employment and Non-Competition Agreement between the
Registrant and Kenneth L. Chute
10.14 Employment and Non-Competition Agreement between the
Registrant and Vladimir Harris
10.15 Employment and Non-Competition Agreement between the
Registrant and Nicholas C. Brunet
10.16 Employment and Non-Competition Agreement between the
Registrant and Joseph E. Rendini
21.1** Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Mason, Bruce & Girard, Inc.
23.4 Consent of Canal Forest Resources, Inc.
24.1** Power of Attorney
27.1 Financial Data Schedule
</TABLE>
II-10
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
99.1** Consent of Prospective Director Starling W. Childs, II
99.2** Consent of Prospective Director Jay S. Lucas
99.3** Consent of Prospective Director Hanns A. Pielenz
99.4** Consent of Prospective Director Richard P. Urfer
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Schedules and similar attachments to this exhibit have been omitted. A list
of these omitted schedules has been provided in this exhibit, and the
Registrant agrees to furnish supplementally to the Commission a copy of any
omitted schedule upon request.
II-11
<PAGE> 1
EXHIBIT 1.1
STRATEGIC TIMBER TRUST, INC.
16,600,000 Shares(1)
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
, 1999
Salomon Smith Barney
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
A.G. Edwards & Sons, Inc.
Warburg Dillon Read LLC
ABN AMRO Incorporated
Morgan Keegan & Company, Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Strategic Timber Trust, Inc., a corporation organized under the laws of
the State of Georgia (the "Company"), proposes to sell to the several
underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, 16,600,000 shares of Common
Stock, $.01 par value ("Common Stock"), of the Company (said shares to be issued
and sold by the Company being hereinafter called the "Underwritten Securities").
The Company also proposes to grant to the Underwriters an option to purchase up
to 2,490,000 additional shares of Common Stock to cover over-allotments (the
"Option Securities"; the Option Securities, together with the Underwritten
Securities, being hereinafter called the "Securities"). To the extent there are
no additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires. Certain terms used herein are defined in Section 17 hereof.
- --------
(1) Plus an option to purchase from the Company, up to 2,490,000
additional Securities to cover over-allotments.
<PAGE> 2
As part of the offering contemplated by this Agreement, Salomon Smith
Barney ("Salomon Smith Barney") has agreed to reserve out of the Securities set
forth opposite its name on the Schedule I to this Agreement, up to
___________________shares, for sale to the Company's employees, officers and
directors (collectively, "Participants") (the "Directed Share Program"). The
Shares to be sold by Salomon Smith Barney pursuant to the Directed Share Program
(the "Directed Shares") will be sold by Salomon Smith Barney pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by any Participants by the end of the business day on which this
Agreement is executed will be offered to the public by Salomon Smith Barney as
set forth in the Prospectus.
At or prior to the Closing Date (as defined herein), the Company,
Strategic Timber Partners, LP, a Delaware limited partnership (the
"Partnership"), and certain predecessor entities will complete a series of
transactions described in the Prospectus under the caption "Structure and
Formation of Strategic Timber". As part of these transactions, (i) the
Partnership will obtain ownership, directly or through Pioneer Resources, LLC,
an Oregon limited liability company ("Pioneer"), of approximately 448,000 acres
of timberlands (the "Timberlands") and certain other properties (together with
the Timberlands, the "Properties"), (ii) certain members of the Company's
management and certain other investors (the "Continuing Investors") will receive
an aggregate of 4,966,205 limited partnership interests ("Units") in the
Partnership and an aggregate of 671,770 shares of Common Stock and approximately
$47 million in cash, (iii) Strategic Timber Partners II, LP, a Georgia limited
partnership ("STP2"), Strategic Timber Trust II, LLC, a Georgia limited
liability company ("STT2"), and Strategic Timber Two Operating Co., LLC, a
Georgia limited liability company ("STTOC"), will be merged into the
Partnership, leaving Pioneer as a wholly owned subsidiary of the Partnership,
(iv) the Company will sell 16,600,000 shares of Common Stock and contribute
approximately $186.4 million of the net proceeds in exchange for 76.7% of the
limited partnership Units in the Partnership and approximately 1.0% of the
general partnership Units in the Partnership which will be held by Strategic
Timber Operating Co., a corporation organized under the laws of the State of
Delaware ("STOC"), (v) the Company will apply approximately $120 million of the
net proceeds from the sale of the Securities to the payment of outstanding
indebtedness and (vi) the Partnership will apply the remainder of the net
proceeds, together with amounts drawn under its new credit facility to be
implemented as of the Closing Date (the "New Credit Facility"), as described
under the caption "Use of Proceeds" in the Prospectus. To the extent any portion
of the over-allotment option is exercised at the Closing Date, the relevant
share numbers and percentages set forth in this paragraph will be adjusted
accordingly. Additionally, to the extent any portion of the over-allotment
option is exercised subsequent to the Closing Date, the Company will contribute
the proceeds from the sale of the Option Securities to the Partnership in
exchange for an equivalent number of Units. As used herein, the term "Formation
Transactions" shall mean the occurrence of the events described in this
paragraph and the transactions related thereto.
2
<PAGE> 3
1. Representations and Warranties. Each of the Company and the
Partnership, jointly and severally, represents and warrants to, and agrees with,
each Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-71291) on Form S-11, including
a related preliminary prospectus, for registration under the Act of the
offering and sale of the Securities. The Company may have filed one or
more amendments thereto, including a related preliminary prospectus,
each of which has previously been furnished to you. The Company will
file with the Commission either (1) prior to the Effective Date of such
registration statement, a further amendment to such registration
statement (including the form of final prospectus) or (2) after the
Effective Date of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b). In the case of clause (2), the
Company has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information)
required by the Act and the rules thereunder to be included in such
registration statement and the Prospectus. As filed, such amendment and
form of final prospectus, or such final prospectus, shall contain all
Rule 430A Information, together with all other such required
information, and, except to the extent the Representatives shall agree
in writing to a modification, shall be in all substantive respects in
the form furnished to you prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to
the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date and on any date on
which Option Securities are purchased, if such date is not the Closing
Date (a "Settlement Date"), the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable
requirements of the Act and the rules thereunder; on the Effective Date
and at the Execution Time, the Registration Statement did not or will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading; and, on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), will not,
and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date and any Settlement Date, the Prospectus (together with any
supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement, or the
Prospectus (or any supplement thereto) in reliance upon and in
conformity with information furnished in writing to the Company by or
on behalf of any Underwriter through the Representatives specifically
for inclusion in the Registration Statement or the Prospectus (or any
supplement thereto).
3
<PAGE> 4
(c) Each of the Company and STOC has been duly organized and
is validly existing as a corporation in good standing under the laws of
the jurisdiction in which it is chartered with full corporate power and
authority to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction where it owns or
leases material properties or conducts material business and where the
failure to be so qualified would, individually or in the aggregate,
have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
or STOC. Except with respect to the Partnership and STOC, the Company
owns no material amounts of stock or other beneficial interest in any
corporation, partnership, joint venture or other business entity.
(d) Each of Pioneer, STT2 and STTOC has been duly organized
and is validly existing as a limited liability company in good standing
under the laws of the jurisdiction in which it is organized with full
limited liability company power and authority to own or lease, as the
case may be, and to operate its properties and conduct its business as
described in the Prospectus, and is duly qualified to do business as a
foreign company and is in good standing under the laws of each
jurisdiction where it owns or leases material properties or conducts
material business and where the failure to be so qualified would,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of Pioneer, STT2 or STTOC, as the case may be. Upon
consummation of the Formation Transactions, the Partnership will own
all of the member interests in Pioneer and such member interests will
have been duly authorized and validly issued and will be fully paid and
nonassessable and will be owned by the Partnership, free and clear of
any perfected security interest or any other security interests,
claims, liens or encumbrances.
(e) The Second Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement") has been
duly and validly authorized, executed and delivered by STOC and the
Company and is a valid and binding agreement of STOC and the Company
enforceable in accordance with its terms. The Partnership has been duly
formed and is validly existing as a limited partnership in good
standing under the laws of the State of Delaware with full partnership
power and authority to own or lease, as the case may be, and to operate
its properties and conduct its business as described in the Prospectus
and is duly qualified or registered as a foreign partnership and is in
good standing in each jurisdiction where it owns or leases material
properties or conducts material business and where the failure to be so
qualified would, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Partnership. STOC is, and,
immediately after the Closing Date, will be, the sole general partner
of the Partnership. Immediately after the Closing Date, the Company,
directly or through STOC, will be the holder of approximately 77.7% of
the Units, if the over-allotment option is not exercised. The
Partnership has no subsidiaries other than Pioneer.
4
<PAGE> 5
(f) All the outstanding shares of capital stock of STOC have
been duly and validly authorized and issued and are fully paid and
nonassessable, and are owned by the Company free and clear of any
perfected security interest or any other security interests, claims,
liens or encumbrances.
(g) The Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities are
duly listed, and admitted and authorized for quotation, subject to
official notice of issuance and evidence of satisfactory distribution,
on the NASDAQ National Market; the certificates for the Securities are
in valid and sufficient form; the Company has duly reserved a
sufficient number of shares of Common Stock for issuance upon exchange
of outstanding Units in the Partnership; the holders of outstanding
shares of capital stock of the Company are not entitled to preemptive
or other rights to subscribe for the Securities; and, except as set
forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of
capital stock or Units of or ownership interests in the Company or the
Partnership are outstanding.
(h) The Units to be issued in connection with the Formation
Transactions, including, without limitation, the Units to be issued to
the Company and STOC, have been duly authorized for issuance by the
Partnership to the holders or prospective holders thereof, and on the
Closing Date will be validly issued, fully paid, nonassessable and
owned in the percentage amounts set forth in the Prospectus by the
Company and STOC and by the entities or persons described in the
Prospectus, free and clear of any perfected security interest or any
other security interests, claims, liens or encumbrances. Immediately
after the Closing Date and not including any Units issued in exchange
for proceeds received by the Company in connection with the sale of the
Option Securities, 22,237,975 Units will be issued and outstanding. The
Units have been and will be offered and sold at or prior to the Closing
Date in compliance with all applicable laws (including, without
limitation, federal and state securities laws).
(i) Consummation of each of the Formation Transactions and
compliance by the Company, Pioneer, STOC, STT2, STTOC, STP2, the
Partnership and the Continuing Investors with their respective
obligations under each of the documents relating to the Formation
Transactions (collectively, the "Transaction Documents") have been duly
authorized by all necessary corporate, partnership or limited liability
company action, as the case may be, and did not and will not violate or
conflict with or constitute a breach of, or default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
of the Properties or any other properties or assets of the Company,
Pioneer, STOC, STT2, STTOC, STP2, the Partnership or the Continuing
Investors
5
<PAGE> 6
pursuant to any indenture, contract, lease, mortgage, deed of trust,
note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument, including, without limitation, any
partnership agreement to which the Company, Pioneer, STOC, STT2, STTOC,
STP2, the Partnership or any of the Continuing Investors is or was a
party or by which it or any of them may be bound or affected, or to
which any of the Properties or any other properties or assets of the
Company, Pioneer, STOC, STT2, STTOC, STP2, the Partnership or any of
the Continuing Investors is subject, except pursuant to indentures,
contracts, leases, mortgages, deeds of trust, note agreements, loan
agreements or other agreements, obligations, conditions, covenants or
instruments which shall be paid in full or terminated as of the Closing
Date; none of the Formation Transactions resulted or will result in the
violation of any provisions of the charter, bylaws, articles of
organization or operating agreement of the Company, Pioneer, STOC,
STT2, STTOC, or any Continuing Investor or any agreement, certificate
of limited partnership or other governing document of the Partnership,
STP2 or any Continuing Investor or any applicable law, administrative
regulation or administrative or court decree; and all authorizations,
consents and approvals necessary to consummate the Formation
Transactions were, or as of the Closing Date will be, timely obtained;
and the offer, issuance and exchange of the general and limited
partnership interests in the Partnership will be exempt from the
registration requirements of the Act and applicable state securities
and blue sky laws. On or prior to the Closing Date, each of the
Formation Transactions will have occurred in the manner described in
the Prospectus under the caption "Structure and Formation of Strategic
Timber."
(j) Each of the Transaction Documents to which the Company,
the Partnership, any Continuing Investor, Pioneer, STOC, STT2, STTOC,
STP2 or any affiliate of any such entity is a party has been duly
authorized, executed and delivered by such party and constitutes the
binding agreement of such party, enforceable against such party in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general principles of
equity.
(k) The Company will be organized in conformity with the
requirements for qualification as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the "Code"), and its
operations to date and proposed method of operation will enable it to
meet the requirements for taxation as a real estate investment trust
under the Code commencing with the Company's taxable year ending
December 31, 1998.
(l) The Company, STOC, Pioneer and the Partnership own,
possess, license or have other rights to use, on reasonable terms, all
patents, patent applications, trade and service marks, trade and
service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual
property (collectively, the "Intellectual Property") necessary for the
conduct of their respective businesses as now conducted or as proposed
in the Prospectus to be conducted. There is no pending or threatened
action, suit, proceeding or claim by others challenging the rights
6
<PAGE> 7
of the Company, STOC, Pioneer or the Partnership in or to any such
Intellectual Property, and neither the Company nor the Partnership is
aware of any facts which would form a reasonable basis for any such
claim. There is no pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of any such
Intellectual Property, and neither the Company nor the Partnership is
aware of any facts which would form a reasonable basis for any such
claim. There is no pending or threatened action, suit, proceeding or
claim by others that the Company, STOC, Pioneer or the Partnership
infringes or otherwise violates any patent, trademark, copyright, trade
secret or other proprietary rights of others, and neither the Company
nor the Partnership is aware of any other fact which would form a
reasonable basis for any such claim.
(m) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required; and the statements in the Prospectus
under the headings "Federal Income Tax Consequences," "ERISA
Considerations," "Description of Capital Stock of the Strategic
Timber," "Policies With Respect to Certain Activities," "Structure and
Formation of the Strategic Timber," "Transactions with Related
Parties," "The Partnership Agreement," "Certain Provisions of Georgia
Law and Strategic Timber's Articles of Incorporation and Bylaws That
May Have an Anti-Takeover Effect," "Shares Available For Future Sale"
and "Business and Properties - Federal and State Regulations" and "-
Legal Proceedings" fairly summarize the matters therein described.
(n) This Agreement has been duly authorized, executed and
delivered by each of the Company and the Partnership and constitutes a
valid and binding obligation of the Company and the Partnership
enforceable in accordance with its terms.
(o) None of the Company, Pioneer, STOC or the Partnership is,
and, after giving effect to the offering and sale of the Securities and
the application of the proceeds thereof as described in the Prospectus,
none of the Company, Pioneer, STOC or the Partnership will be, an
"investment company" or an entity "controlled by" an "investment
company" as defined in the Investment Company Act of 1940, as amended.
(p) No consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus.
(q) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, STOC, Pioneer or the
Partnership pursuant to, (i) the charter or by-laws of the Company or
STOC or the articles
7
<PAGE> 8
of organization or operating agreement of Pioneer, (ii) the Partnership
Agreement, (iii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company,
STOC, Pioneer or the Partnership is a party or bound or to which its or
their property is subject, or (iv) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company, Pioneer, STOC or
the Partnership of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction
over the Company, Pioneer, STOC or the Partnership or any of their
properties.
(r) No holders of securities of the Company or the Partnership
have rights to the registration of such securities except as set forth
in the Prospectus.
(s) The financial statements and schedules included in the
Prospectus and the Registration Statement present fairly in all
material respects the financial condition, results of operations and
cash flows of the respective entity or entities therein as of the dates
and for the periods indicated, comply as to form with the applicable
accounting requirements of the Act and have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis throughout the periods involved. The selected financial
information set forth under the caption "Selected Historical Financial
and Operating Information" in the Prospectus and Registration Statement
fairly presents, on the basis stated in the Prospectus and the
Registration Statement, the information included therein. The pro forma
financial statements included in the Prospectus and the Registration
Statement include assumptions that provide a reasonable basis for
presenting the significant effects directly attributable to the
transactions and events described therein, and the related pro forma
adjustments give appropriate effect to those assumptions. The pro forma
financial statements included in the Prospectus and the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of Regulation S-X under the Act and
the pro forma adjustments have been properly applied to the historical
amounts in the compilation of those statements.
(t) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company, the Partnership, STOC or Pioneer or its or their property is
pending or, to the best knowledge of the Company and the Partnership,
threatened that (i) could reasonably be expected to have a material
adverse effect on the performance of this Agreement or the consummation
of any of the transactions contemplated hereby or (ii) could reasonably
be expected to have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company, the Partnership, STOC or Pioneer, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(u) Neither the Company nor STOC is in violation or default of
any provision of its charter or bylaws; Pioneer is not in violation or
default of its articles of organization
8
<PAGE> 9
or operating agreement; and the Partnership is not in violation of the
Partnership Agreement. None of the Company, STOC, Pioneer or the
Partnership is in violation or default of (i) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is
subject, or (ii) any statute, law, rule, regulation, judgment, order or
decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction
over the Company, STOC, Pioneer or the Partnership or any of their
respective properties, as applicable, which violations or defaults
would have a material adverse effect on the condition (financial or
otherwise), prospects, business, earnings or properties of the Company,
STOC, Pioneer or the Partnership.
(v) Arthur Andersen LLP, who have certified certain financial
statements and delivered their report with respect to such audited
consolidated financial statements and schedules included in the
Prospectus, are independent public accountants within the meaning of
the Act and the applicable published rules and regulations thereunder.
(w) There are no transfer taxes or other similar fees or
charges under federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance by the Company
or sale by the Company of the Securities.
(x) Each of the Company, STOC, the Partnership and Pioneer has
filed all foreign, federal, state and local tax returns that are
required to be filed or has requested extensions thereof (except in any
case in which the failure so to file would not have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company, STOC, Pioneer and the
Partnership, taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto)
and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any
of the foregoing is due and payable, except for any such assessment,
fine or penalty that is currently being contested in good faith or as
would not have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company,
STOC, Pioneer and the Partnership, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(y) No labor problem or dispute with the employees of the
Company, Pioneer or the Partnership exists or is threatened or
imminent, and neither the Partnership nor the Company is aware of any
existing or imminent labor disturbance by the employees of any of the
principal suppliers, contractors or customers of the Company, the
Partnership or Pioneer, that could have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business
or properties of the Company, STOC, Pioneer
9
<PAGE> 10
and the Partnership, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(z) The Company, Pioneer, STOC and the Partnership are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in
the businesses in which they are engaged; all policies of insurance
insuring the Company, Pioneer, STOC or the Partnership or their
respective businesses, assets, employees, officers and directors and
managers are in full force and effect; the Company, Pioneer, STOC and
the Partnership are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the
Company, Pioneer, STOC or the Partnership under any such policy or
instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; none of the Company,
Pioneer, STOC or the Partnership has been refused any insurance
coverage sought or applied for; and none of the Company, Pioneer, STOC
or the Partnership has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, Pioneer,
STOC and the Partnership, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(aa) None of Pioneer, the Partnership or STOC is currently
prohibited, directly or indirectly, from paying any dividends to the
Company, from making any other distribution on its membership
interests, partnership interests or capital stock, from repaying to the
Company any loans or advances to Pioneer or the Partnership or STOC
from the Company or from transferring any of their property or assets
to the Company or any other subsidiary of the Company, except as
described in or contemplated by the Prospectus.
(bb) The Company, STOC, Pioneer and the Partnership possess,
and operate in compliance in all material respects with, all licenses,
certificates, permits and other authorizations issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and none of the Company, STOC,
Pioneer or the Partnership has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, STOC,
Pioneer and the Partnership, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto).
10
<PAGE> 11
(cc) The Company, STOC, Pioneer, STT2 and the Partnership
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(dd) None of the Continuing Investors, the Partnership or the
Company or any of its officers, directors or controlling persons has
taken, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result,
under the Exchange Act or otherwise, in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Securities.
(ee) The Company, Pioneer, STOC, STT2, STTOC, STP2 and the
Partnership are (i) in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received and are in compliance with all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii)
have not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants, except where
such non-compliance with Environmental Laws, failure to receive
required permits, licenses or other approvals, or liability would not,
individually or in the aggregate, have a material adverse change in the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company, Pioneer, the Partnership and STOC, taken as
a whole, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto). None of the Company,
the Partnership, Pioneer, STOC, STT2, STTOC, STP2 or any of the
Continuing Investors has been named as a "potentially responsible
party" under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended.
(ff) In the ordinary course of its business, the Company and
the Partnership periodically review the effect of Environmental Laws on
the business, operations and properties of the Company, STOC, Pioneer
and the Partnership, in the course of which they identify and evaluate
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws, or any permit,
license or approval, any related constraints on operating activities
and any potential liabilities to third parties). On the basis of such
review, the Company and the Partnership have reasonably concluded that
such associated costs and liabilities would not, singly or in the
aggregate, have a material
11
<PAGE> 12
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, STOC, Pioneer and the
Partnership, taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(gg) (i) Upon consummation of the Formation Transactions, the
Partnership and Pioneer will have good and marketable title in fee
simple to all real property and improvements to be transferred to them
pursuant to the Transaction Documents, including, but not limited to,
the Properties, in each case free and clear of all liens, encumbrances
and defects other than those that are described in the Prospectus or
those which do not and will not materially affect the value of such
property or materially interfere with the use made and proposed to be
made of such property by the Partnership or Pioneer; (ii) all liens,
charges, encumbrances, claims, or restrictions on or affecting the
properties and assets to be held by the Partnership and Pioneer
pursuant to the Transaction Documents which are required to be
disclosed in the Prospectus are disclosed therein; (iii) any real
property and buildings held under lease by the Company, Pioneer, STOC
or the Partnership are held under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company, Pioneer, STOC or the Partnership;
(hh) The Partnership or Pioneer has title insurance on all
properties and assets described in the Prospectus as owned by the
Partnership or Pioneer in an amount at least equal to the cost of
acquisition of such property or assets.
(ii) None of the Company, the Partnership, Pioneer or STOC
maintains, or has at any time maintained, any "plan" (as defined in
Section 3(3) of the United States Employee Retirement Income Security
Act of 1974 ("ERISA") and the regulations and published interpretations
thereunder) that is subject to the minimum funding standards of Section
302 of ERISA.
(jj) The Partnership, Pioneer, STOC and the Company have
implemented a comprehensive, detailed program to analyze and address
the risk that their computer hardware and software may be unable to
recognize and properly execute date-sensitive functions involving
certain dates prior to and any dates after December 31, 1999 (the "Year
2000 Problem") and have determined that their computer hardware and
software are and will be able to process all date information prior to
and after December 31, 1999 without any errors, aborts, delays or other
interruptions in operations associated with the Year 2000 Problem; and
the Partnership and the Company believe, after due inquiry, that each
supplier, vendor, customer or financial service organization used or
serviced by the Company, STOC, Pioneer or the Partnership has remedied
or will remedy on a timely basis the Year 2000 Problem, except to the
extent that a failure to remedy by any such supplier, vendor, customer
or financial service organization would have a material adverse effect
on the Company, the Partnership and their subsidiaries, taken as a
whole. The Company, the Partnership, STOC
12
<PAGE> 13
and Pioneer are in compliance with the Commission's Release dated
July 29, 1998 related to Year 2000 compliance, as amended to date.
(kk) None of the environmental engineering firms or
individuals who prepared environmental inspection reports with respect
to the Timberlands, was employed for such purpose on a contingent basis
or has any interest in the Company, the Partnership, STOC or Pioneer;
none of them and none of their directors, officers or employees is
connected with the Company, the Partnership or Pioneer as a promoter,
selling agent, voting trustee, director, officer or employee.
(ll) The Company has not offered, or caused the Underwriters
to offer, Securities to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer
or supplier of the Company, Pioneer or the Partnership to alter the
customer's or supplier's level or type of business with the Company,
Pioneer or the Partnership or (ii) a trade journalist or publication to
write or publish favorable information about the Company, Pioneer or
the Partnership or their properties.
Furthermore, the Company represents and warrants to Salomon Smith
Barney that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed shares are
offered outside the United States.
Any certificate signed by any officer of the Company, STOC, Pioneer or
the Partnership and delivered to the Representatives or counsel for the
Underwriters in connection with the offering of the Securities shall be deemed a
representation and warranty by the Company, STOC, Pioneer or the Partnership,
respectively, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
$ per share, the number of the Underwritten Securities set forth opposite such
Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby
grants an option to the several Underwriters to purchase, severally and
not jointly, up to 2,490,000 Option Securities at the same purchase
price per share as the Underwriters shall pay for the Underwritten
Securities. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Securities by the Underwriters. Said
option may be exercised in whole or in part at any time
13
<PAGE> 14
(but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the
Representatives to the Company setting forth the number of shares of
the Option Securities as to which the several Underwriters are
exercising the option and the settlement date. The number of Option
Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing
of the Underwritten Securities, subject to such adjustments as you in
your absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
___________, 1999, or at such time on such later date not more than three
Business Days after the foregoing date as the Representatives shall designate,
which date and time may be postponed by agreement between the Representatives
and the Company or as provided in Section 9 hereof (such date and time of
delivery and payment for the Securities being herein called the "Closing Date").
Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the purchase price thereof to or
upon the order of the Company by wire transfer payable in same-day funds to an
account specified by the Company. Delivery of the Underwritten Securities and
the Option Securities shall be made through the facilities of The Depository
Trust Company unless the Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised
after the third Business Day prior to the Closing Date, the Company will deliver
the Option Securities (at the expense of the Company) to the Representatives, at
388 Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer payable in
same-day funds to an account specified by the Company. If settlement for the
Option Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
14
<PAGE> 15
5. Agreements. Each of the Partnership and the Company agrees
with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement unless the Company has furnished you a
copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
cause the Prospectus, properly completed, and any supplement thereto to
be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company
will promptly advise the Representatives (1) when the Registration
Statement, if not effective at the Execution Time, shall have become
effective, (2) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been
filed with the Commission, (3) when, prior to termination of the
offering of the Securities, any amendment to the Registration Statement
shall have been filed or become effective, (4) of any request by the
Commission or its staff for any amendment of the Registration
Statement, or any Rule 462(b) Registration Statement, or for any
supplement to the Prospectus or for any additional information, (5) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such
stop order or the suspension of any such qualification and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (1) notify the Representatives of any such event, (2)
prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance; and (3)
supply any supplemented Prospectus to you in such quantities as you may
reasonably request.
15
<PAGE> 16
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company and its subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule
158 under the Act.
(d) The Company will furnish to the Representatives and
counsel for the Underwriters copies of the signed Registration
Statement (including exhibits thereto) and to each other Underwriter a
copy of the Registration Statement (without exhibits thereto) and, so
long as delivery of a prospectus by an Underwriter or dealer may be
required by the Act, as many copies of each Preliminary Prospectus and
the Prospectus and any supplement thereto as the Representatives may
reasonably request.
(e) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate and will maintain
such qualifications in effect so long as required for the distribution
of the Securities; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not
now so qualified or to take any action that would subject it to service
of process in suits, other than those arising out of the offering or
sale of the Securities, in any jurisdiction where it is not now so
subject.
(f) Neither the Company nor the Partnership will, without the
prior written consent of Salomon Smith Barney, for a period of one year
from the Closing Date, offer, sell or contract to sell, or otherwise
dispose of (or enter into any transaction which is designed to result
in the disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Company or the
Partnership or any affiliate of the Company or the Partnership or any
person in privity with the Company or the Partnership or any affiliate
of the Company or the Partnership) directly or indirectly, or announce
the offering of, any other shares of Common Stock or Units or any
securities convertible into, or exchangeable for, shares of Common
Stock or Units; provided, however, that (i) the Company may issue and
sell Common Stock and issue options to purchase Common Stock pursuant
to any employee stock option plan or stock ownership plan of the
Company in effect at the Execution Time, and (ii) the Partnership may
issue Units as partial or full payment for the acquisition of
properties.
(g) Neither the Company nor the Partnership nor any of their
officers, directors or controlling persons has taken or will take,
directly or indirectly, any action designed to or which has constituted
or which might reasonably be expected to cause or result, under the
Exchange Act or otherwise, in stabilization or manipulation of the
price of any security of the Company or the Partnership to facilitate
the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating
to the following matters: (i) the preparation, printing or reproduction
and filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary
Prospectus, the Prospectus, and each amendment or supplement to any of
them;
16
<PAGE> 17
(ii) the printing (or reproduction) and delivery (including postage,
air freight charges and charges for counting and packaging) of such
copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus, and all amendments or supplements to any of them, as may,
in each case, be reasonably requested for use in connection with the
offering and sale of the Securities; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the
Securities, including any stamp or transfer taxes in connection with
the original issuance and sale of the Securities; (iv) the printing (or
reproduction) and delivery of this Agreement, any blue sky memorandum
and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Securities; (v) the
registration of the Securities under the Exchange Act and the listing
of the Securities on the NASDAQ National Market; (vi) any registration
or qualification of the Securities for offer and sale under the
securities or blue sky laws of the several states (including filing
fees and the reasonable fees and expenses of counsel for the
Underwriters relating to such registration and qualification); (vii)
any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD"), including filing fees and the
reasonable fees and expenses of counsel for the Underwriters relating
to such filings; (viii) the transportation and other expenses incurred
by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Securities; (ix) the
fees and expenses of the Company's accountants and the fees and
expenses of counsel for the Company; (x) all fees and disbursements of
counsel incurred by the Underwriters in connection with the Directed
Share Program and stamp duties, similar taxes or duties or other taxes,
if any, incurred by the Underwriters in connection with the Directed
Share Program; and (xi) all other costs and expenses incident to the
performance by the Company and the Partnership of their obligations
hereunder.
(i) The Company and the Partnership will use the net proceeds
from the sale of the Securities, together with amounts drawn under the
New Credit Facility, in the manner specified in the Prospectus under
the caption "Use of Proceeds."
(j) The Company will use its best efforts to meet the
requirements to qualify, commencing with the tax year ending December
31, 1998, as a "real estate investment trust" under the Code.
(k) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date
of the effectiveness of the Registration Statement. Salomon Smith
Barney will notify the Company as to which Participants will need to be
so restricted. The Company will direct the transfer restrictions upon
such period of time.
Furthermore, the Company covenants with Salomon Smith Barney that the
Company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.
17
<PAGE> 18
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Partnership
contained herein as of the Execution Time, the Closing Date and any Settlement
Date pursuant to Section 3 hereof, to the accuracy of the statements of the
Company and the Partnership made in any certificates pursuant to the provisions
hereof, to the performance by the Company and the Partnership of their
obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become
effective not later than (i) 6:00 PM New York City time on the date of
determination of the public offering price, if such determination
occurred at or prior to 3:00 PM New York City time on such date or (ii)
9:30 AM on the Business Day following the day on which the public
offering price was determined, if such determination occurred after
3:00 PM New York City time on such date; if filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have requested and caused Sutherland
Asbill & Brennan LLP, counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to
the Representatives, to the effect that:
(i) Each of the Company and STOC has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is
chartered or organized, with full corporate power and
authority to own or lease, as the case may be, and to operate
its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction wherein it owns or leases material properties or
conducts material business and where the failure to be so
qualified would, individually or in the aggregate, have a
material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, STOC, Pioneer and the Partnership, taken as a whole,
whether or not arising from transactions in the ordinary
course of business. Notwithstanding the foregoing, each of the
Company and STOC is duly qualified to do business as a foreign
corporation and is in good standing under the laws of
[California, Washington, Oregon, Louisiana and New Hampshire.]
(ii) All the outstanding shares of capital stock of
STOC have been duly and validly authorized and issued and are
fully paid and nonassessable, and are owned by the Company
free and clear of any perfected security interest and, to the
18
<PAGE> 19
knowledge of such counsel, after due inquiry, any other
security interest, claim, lien or encumbrance.
(iii) Pioneer has been duly organized and is validly
existing as a limited liability company in good standing under
the laws of the jurisdiction in which it is organized, with
full limited liability company power and authority to own or
lease, as the case may be, and to operate its properties and
conduct its business as described in the Prospectus, and is
duly qualified to do business as a foreign company and is in
good standing under the laws of each jurisdiction wherein it
owns or leases material properties or conducts material
business and where the failure to be so qualified would,
individually or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, STOC, Pioneer
and the Partnership, taken as a whole, whether or not arising
from transactions in the ordinary course of business.
Notwithstanding the foregoing, Pioneer is duly qualified to do
business as a foreign company and is in good standing under
the laws of [California, Washington and New Hampshire]. Upon
consummation of the Formation Transactions, the Partnership
will own all of the member interests in Pioneer and such
member interests will have been duly authorized and validly
issued and will be fully paid and nonassessable and will be
owned by the Partnership, free and clear of any perfected
security interest and, to the knowledge of such counsel, after
due inquiry, any other security interest, claim, lien or
encumbrance.
(iv) The Partnership Agreement has been duly and
validly authorized, executed and delivered by STOC and the
Company and is a valid and binding agreement of STOC and the
Company enforceable in accordance with its terms. The
Partnership has been duly formed and is validly existing as a
limited partnership in good standing under the laws of the
State of Delaware, with all requisite limited partnership
power and authority to own or lease, as the case may be, and
to operate its properties and conduct the business in which it
is engaged or proposes to engage as described in the
Prospectus and is duly qualified or registered as a foreign
partnership and is in good standing in each jurisdiction
wherein it owns or leases material properties or conducts
material business and where the failure to be so qualified
would, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company,
STOC, Pioneer and the Partnership, taken as a whole, whether
or not arising from transactions in the ordinary course of
business. Notwithstanding the foregoing, the Partnership is
duly qualified to do business as a foreign limited partnership
and is in good standing under the laws of [California,
Washington, Oregon, Louisiana and New Hampshire.] STOC is, and
immediately after the Closing Date, will be, the sole general
partner of the Partnership. The Partnership has no
subsidiaries other than Pioneer.
19
<PAGE> 20
(v) All of the issued and outstanding Units have been
duly authorized and validly issued, are fully paid and
nonassessable and are owned by the Company, STOC and the
entities or persons described in the Prospectus, free and
clear of any perfected security interest and, to the knowledge
of such counsel, after due inquiry, any other security
interest, claim, lien or encumbrance. The Units were offered
and sold at or prior to the Closing Date in compliance with
all applicable laws (including, without limitation, federal
securities laws).
(vi) The Company's authorized equity capitalization
is as set forth in the Prospectus; the capital stock of the
Company conforms in all material respects to the description
thereof contained in the Prospectus; the outstanding shares of
Common Stock have been duly and validly authorized and issued
and are fully paid and nonassessable; the Securities have been
duly and validly authorized, and, when issued and delivered to
and paid for by the Underwriters pursuant to this Agreement,
will be fully paid and nonassessable; the certificates for the
Securities are in valid and sufficient form under Georgia law
and the rules of the NASDAQ National Market; the Company has
duly reserved a sufficient number of shares of Common Stock
for issuance upon exchange of outstanding Units in the
Partnership; the holders of outstanding shares of capital
stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities; and, except as set
forth in the Prospectus, no options, warrants or other rights
to purchase, agreements or other obligations to issue, or
rights to convert any obligations into or exchange any
securities for, shares of capital stock or Units of or
ownership interests in the Company or the Partnership are
outstanding.
(vii) To the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator involving the Company, the Partnership, STOC or
Pioneer or its or their property of a character required to be
disclosed in the Registration Statement which is not
adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required
to be described in the Registration Statement or Prospectus,
or to be filed as an exhibit thereto, which is not described
or filed as required; and the statements included in the
Prospectus under the headings "Federal Income Tax
Consequences," "ERISA Considerations," "Description of Capital
Stock of the Company," "Transactions with Related Parties,"
"The Partnership Agreement," "Certain Provisions of Georgia
Law and Strategic Timber's Articles of Incorporation and
Bylaws That May Have an Anti-Takeover Effect," "Shares
Available for Future Sale,""Business and Properties - Federal
and State Regulations" and "- Legal Proceedings", to the
extent they include descriptions of agreements or other legal
documents or include summaries of law, are accurate and fair
summaries.
(viii) The Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to
20
<PAGE> 21
Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and to the knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for
that purpose have been instituted or threatened and the
Registration Statement and the Prospectus (other than the
financial statements and other financial information contained
therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act and the rules thereunder.
(ix) This Agreement has been duly authorized,
executed and delivered by the Company and the Partnership.
(x) None of the Company, Pioneer, STOC or the
Partnership is, and, after giving effect to the offering and
sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, none of the Company,
Pioneer, STOC or the Partnership will be, an "investment
company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of
1940, as amended.
(xi) No consent, approval, authorization, filing with
or order of any court or governmental agency or body is
required in connection with the transactions contemplated
herein, except such as have been obtained under the Act and
such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution
of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such
other approvals (specified in such opinion) as have been
obtained.
(xii) The Company has all legal right, power and
authority necessary to qualify as a "real estate investment
trust" under the Code; the Company has been duly organized in
conformity with the requirements for qualification and
taxation as a real estate investment trust under the Code, and
its proposed method of operation will enable it to meet the
requirements for taxation as a real estate investment trust
under the Code, commencing with the Company's taxable year
ending December 31, 1998.
(xiii) Neither the issue and sale of the Securities,
nor the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation of or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company, STOC, Pioneer or the
Partnership pursuant to, (i) the charter or by-laws of the
Company or STOC, or the articles of organization or operating
agreement of Pioneer, (ii) the Partnership Agreement, (iii)
the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the
Company, STOC, Pioneer or the Partnership is a party or
21
<PAGE> 22
bound or to which its or their property is subject, or (iv)
any statute, law, rule, regulation, judgment, order or decree
known to such counsel to be applicable to the Company, STOC,
Pioneer or the Partnership of any court, regulatory body,
administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company, STOC, Pioneer
or the Partnership or any of its or their properties, which
violation or default would, in the case of clauses (iii) and
(iv) above, either individually or in the aggregate with all
other violations and defaults referred to in this paragraph
(xiii) (if any), have a material adverse effect on the
condition (financial or otherwise), prospects, earnings,
business or properties of the Company, STOC, Pioneer and the
Partnership, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(xiv) Consummation of each of the Formation Transactions
and compliance by the Company, Pioneer, STOC, STT2, STTOC,
STP2, the Partnership and the Continuing Investors with their
respective obligations under each of the Transaction Documents
have been duly authorized by all necessary corporate,
partnership or limited liability company action, as the case
may be, and did not and will not violate or conflict with or
constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any of the Properties or any other properties or assets of the
Company, Pioneer, STOC, STT2, STTOC, STP2, the Partnership or
the Continuing Investors pursuant to any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement
or other agreement, obligation, condition, covenant or
instrument, including, without limitation, any partnership
agreement to which the Company, Pioneer, STOC, STT2, STTOC,
STP2, the Partnership or any of the Continuing Investors is or
was a party or by which it or any of them may be bound or
affected, or to which any of the Properties or any other
properties or assets of the Company, Pioneer, STOC, STT2,
STTOC, STP2, the Partnership or any of the Continuing
Investors is subject, except pursuant to indentures,
contracts, leases, mortgages, deeds of trust, note agreements,
loan agreements or other agreements, obligations, conditions,
covenants or instruments which shall be paid in full or
terminated as of the Closing Date; none of the Formation
Transactions resulted or will result in the violation of any
provisions of the charter, bylaws, articles of organization or
operating agreement of the Company, Pioneer, STOC, STT2,
STTOC, or any Continuing Investor or any agreement,
certificate of limited partnership or other governing document
of the Partnership, STP2 or any Continuing Investor or any
applicable law, administrative regulation or administrative or
court decree; and all authorizations, consents and approvals
necessary to consummate the Formation Transactions were timely
obtained; and the offer, issuance and exchange of the general
and limited partnership interests in the Partnership are
exempt from the registration requirements of the Act and
applicable state securities and blue sky laws.
22
<PAGE> 23
(xv) Each of the Transaction Documents, to which the
Company, the Partnership, any Continuing Investor, Pioneer,
STOC, STT2, STTOC, STP2 or any affiliate of any such entity is
a party has been duly authorized, executed and delivered by
such party and constitutes the binding agreement of such
party, enforceable against such party in accordance with its
terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general
principles of equity.
(xvii) No holders of securities of the Company or the
Partnership have rights to the registration of such securities
except as set forth in the Prospectus.
Such counsel shall also confirm that such counsel has no reason to
believe that on the Effective Date or at the Execution Time the
Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectus as of its date and on the Closing Date included or
includes any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading
(in each case, other than the financial statements and other financial
and statistical information contained therein, as to which such counsel
need express no opinion).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
laws of the State of Georgia, the General Corporation Laws and the
Limited Partnership Act of the State of Delaware or the Federal laws of
the United States, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and
public officials. References to the Prospectus in this paragraph (b)
include any supplements thereto at the Closing Date.
(c) The Representatives shall have received from Andrews &
Kurth L.L.P., counsel for the Underwriters, such opinion or opinions,
dated the Closing Date and addressed to the Representatives, with
respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectus (together with any supplement thereto) and
other related matters as the Representatives may reasonably require,
and the Company shall have furnished to such counsel such documents as
they reasonably request for the purpose of enabling them to pass upon
such matters.
(d) The Company and the Partnership shall have furnished to
the Representatives a certificate of such parties, signed by the
President and Chief Executive Officer and the Senior Vice President and
Chief Financial Officer of the Company, and by the general partner of
the Partnership, dated the Closing Date, to the effect that the signers
of such
23
<PAGE> 24
certificates have carefully examined the Registration Statement, the
Prospectus, any supplements to the Prospectus and this Agreement and
that:
(i) the representations and warranties of the Company
and the Partnership in this Agreement are true and correct in
all material respects on and as of the Closing Date with the
same effect as if made on the Closing Date and each of the
Company and the Partnership has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or, to the Company's
knowledge, threatened; and
(iii) since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse change
in the condition (financial or otherwise), prospects,
earnings, business or properties of the Partnership, Pioneer,
STOC, STT2, STTOC, STP2 and the Company, taken as a whole,
whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(e) The Company shall have requested and caused Arthur
Andersen LLP to have furnished to the Representatives, at the Execution
Time and at the Closing Date, letters, dated respectively as of the
Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives, and substantially in the form
heretofore approved by the Representatives.
(f) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change in
total assets or in stockholders' equity of the Company or any change in
Partners' capital of the Partnership or any increase in long-term debt
or short-term debt of the Company or the Partnership or any change in
net income or EBITDDA from that set forth or contemplated in the
Prospectus or (ii) any change, or any development involving a
prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of Pioneer, the
Partnership, the Company and STOC, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto) the effect of which, in any case referred to in
clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities
as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
24
<PAGE> 25
(g) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates
and documents as the Representatives may reasonably request.
(h) At or prior to the Closing Date, the Securities shall have
been listed and admitted and authorized for quotation on the NASDAQ
National Market, and satisfactory evidence of such actions shall have
been provided to the Representatives.
(i) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A
hereto from each officer and director of the Company and Louisiana
Timber Partners LLC, Mach One Partners LLC, Gregory M. Demers and Old
Pioneer, LLC.
(j) At or prior to the Closing Date, each of the Formation
Transactions shall have occurred.
(k) On the Closing Date, the Company shall have paid in full
the Bridge Loan, the STT2 Bridge Loan, the Old Partnership Credit
Facility and the Pioneer Credit Facility (as such terms are used in the
Prospectus).
(l) At or prior to the Execution Time, each of Mason Bruce &
Girard, Inc. and Canal Forest Resources, Inc. shall have furnished a
letter addressed to the Representatives, dated on or before the
Execution Time, and substantially in the form heretofore approved by
the Representatives.
(m) On or prior to the Closing Date, the New Credit Facility
shall have been executed and delivered and become effective in
substantially the form filed as an exhibit to the Registration
Statement.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Sutherland Asbill & Brennan, counsel for the
Company, at 999 Peachtree Street, NE, Atlanta, Georgia 30309, on the Closing
Date.
7. Reimbursement of Underwriters' Expenses. If the sale of
the Securities provided for herein is not consummated because any condition to
the obligations of the Underwriters set forth in Section 6 hereof is not
satisfied, because of any termination pursuant to Section 10
25
<PAGE> 26
hereof or because of any refusal, inability or failure on the part of the
Company or the Partnership to perform any agreement herein or comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally through Salomon Smith
Barney on demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) Each of the
Partnership and the Company, jointly and severally, agrees to indemnify and hold
harmless each Underwriter, the directors, officers, employees and agents of each
Underwriter and each person who controls any Underwriter within the meaning of
either the Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the Securities
as originally filed or in any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company and the Partnership
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein. This indemnity agreement will be in addition
to any liability which the Company or the Partnership may otherwise have.
(b) Each of the Partnership and the Company, jointly and
severally, agrees to indemnify and hold harmless Salomon Smith Barney and each
person, if any, who controls Salomon Smith Barney within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act ("Salomon
Smith Barney Entities"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i) caused by any untrue statement or alleged untrue statement
of a material fact contained in the prospectus wrapper material prepared by or
with the consent of the Company or the Partnership for distribution in foreign
jurisdictions in connection with the Directed Share Program attached to the
Prospectus or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein, when considered in conjunction with the
Prospectus or any applicable preliminary prospectus, not misleading; (ii) caused
by the failure of the Participant to pay for and accept delivery of the shares
which immediately following the effectiveness of the Registration Statement,
were subject to a properly confirmed agreement to purchase; or (iii) related to,
arising out of, or in connection with the
26
<PAGE> 27
Directed Share Program, provided that, the Company and the Partnership shall be
not responsible under this subparagraph (iii) for any losses, claims, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of Salomon
Smith Barney Entities.
(c) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company and the Partnership, each of their
directors, each of their officers who signs the Registration Statement, and each
person who controls the Company and the Partnership within the meaning of either
the Act or the Exchange Act, to the same extent as the foregoing indemnity from
the Company and the Partnership to each Underwriter, but only with reference to
written information relating to such Underwriter furnished to the Company by or
on behalf of such Underwriter through the Representatives specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any Underwriter
may otherwise have. The Company and the Partnership acknowledge that the
statements set forth in the last paragraph of the cover page regarding delivery
of the Securities, and under the heading "Underwriting", (i) the list of
Underwriters and their respective participation in the sale of the Securities,
(ii) the sentences relating to concessions and reallowances and (iii) the
paragraph relating to stabilization, syndicate covering transactions and penalty
bids in any Preliminary Prospectus and the Prospectus constitute the only
information furnished in writing by or on behalf of the several Underwriters for
inclusion in any Preliminary Prospectus or the Prospectus.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a), (b) or (c) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party shall
be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party
27
<PAGE> 28
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the indemnifying
party. Notwithstanding anything contained herein to the contrary, if indemnity
may be sought pursuant to Section 8(b) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for Salomon
Smith Barney for the defense of any losses, claims, damages and liabilities
arising out of the Directed Share Program, and all persons, if any, who control
Salomon Smith Barney within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a),
(b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company and the Partnership and the
Underwriters severally agree to contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) (collectively "Losses") to
which the Company and the Partnership and one or more of the Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Partnership on the one hand and by the
Underwriters on the other from the offering of the Securities; provided,
however, that in no case shall any Underwriter (except as may be provided in any
agreement among underwriters relating to the offering of the Securities) be
responsible for any amount in excess of the underwriting discount or commission
applicable to the Securities purchased by such Underwriter hereunder. If the
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Company and the Partnership and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Partnership
on the one hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company and the
Partnership shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses) received by the Company, and benefits
received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company or the Partnership on the one
hand or the Underwriters on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company, the Partnership and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take
28
<PAGE> 29
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls an
Underwriter within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of an Underwriter shall have the same
rights to contribution as such Underwriter, and each person who controls the
Company or the Partnership within the meaning of either the Act or the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company or the Partnership, subject in each case to the
applicable terms and conditions of this paragraph (d). For purposes of this
paragraph (d), the Company and the Partnership shall be deemed one party jointly
and severally liable for any obligations hereunder.
9. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if at any
time prior to such time (i) trading in the Company's Common Stock shall have
been suspended by the Commission or the New York Stock Exchange or trading in
securities generally on the New York Stock Exchange shall have been suspended or
limited or minimum prices shall have been established on such Exchange, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war, or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the sole judgment of the Representatives, impractical or inadvisable
to proceed with the offering or delivery of the Securities as contemplated by
the Prospectus (exclusive of any supplement thereto).
29
<PAGE> 30
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or the Partnership or their officers and of the Underwriters set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or the
Company or the Partnership or any of the officers, directors or controlling
persons referred to in Section 8 hereof, and will survive delivery of and
payment for the Securities. The provisions of Sections 7 and 8 hereof shall
survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representatives, will be
mailed, delivered or telefaxed to the Salomon Smith Barney General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney,
at 388 Greenwich Street, New York, New York, 10013, Attention: General Counsel;
or, if sent to the Company or the Partnership, will be mailed, delivered or
telefaxed to the General Counsel of Strategic Timber Trust, Inc. (fax no: (603)
526-7811) and confirmed to it at 5 North Pleasant Street, New London, NH 03257,
Attention: General Counsel.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City.
"Commission" shall mean the Securities and Exchange
Commission.
30
<PAGE> 31
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date, shall also mean such registration statement as so amended or such
Rule 462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules\
under the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule
430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the registration statement referred
to in Section 1(a) hereof.
31
<PAGE> 32
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company, the Partnership and the several Underwriters.
Very truly yours,
Strategic Timber Trust, Inc.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Strategic Timber Partners, LP
By Strategic Timber Operating Co., as
General Partner of Strategic Timber Partners, LP
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written.
Salomon Smith Barney Inc.
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
A.G. Edwards & Sons, Inc.
Warburg Dillon Read LLC
ABN AMRO Incorporated
Morgan Keegan & Company, Inc.
By: Salomon Smith Barney Inc.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
32
<PAGE> 33
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF UNDERWRITTEN
UNDERWRITER SECURITIES TO BE PURCHASED
----------- --------------------------
<S> <C>
Salomon Smith Barney Inc.....................................................
Credit Suisse First Boston Corporation.......................................
Donaldson, Lufkin & Jenrette Securities Corporation..........................
A.G. Edwards & Sons, Inc.....................................................
Warburg Dillon Read LLC......................................................
ABN AMRO Bank................................................................
Morgan Keegan & Company, Inc.................................................
----------
Total.................................................................. 16,600,000
==========
</TABLE>
<PAGE> 34
EXHIBIT A
[LETTERHEAD OF OFFICER, DIRECTOR OR MAJOR SHAREHOLDER OF
CORPORATION OR MAJOR UNITHOLDER OF THE PARTNERSHIP]
Strategic Timber Trust, Inc.
Public Offering of Common Stock
, 1999
Salomon Smith Barney Inc.
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
A.G. Edwards & Sons, Inc.
Warburg Dillon Read LLC
ABN AMRO Incorporated
Morgan Keegan & Company, Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), among Strategic
Timber Trust, Inc., a Georgia corporation (the "Company"), Strategic Timber
Partners, LP, a Delaware limited partnership (the "Partnership"), and you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Common Stock, $.01 par value (the "Common
Stock"), of the Company.
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned will not, without the prior
written consent of Salomon Smith Barney Inc., offer, sell, contract to sell,
pledge or otherwise dispose of, or file (or participate in the filing of) a
registration statement with the Securities and Exchange Commission in respect
of, or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to, any
shares of capital stock of the Company or any limited partnership interests of
the Partnership ("Units") or any securities convertible into or exercisable or
exchangeable for such capital stock or Units, or publicly announce an intention
to effect any such transaction, for a period of one year after the Closing Date
(as defined in the Underwriting Agreement), other than:
(a) shares of Common Stock or Units disposed of as bona fide
gifts approved by Salomon Smith Barney Inc. where each of the
transferees (i) is an "accredited investor" within the meaning of Rule
501(a) of Regulation D under the Securities Act of 1933, as amended,
and (ii) agrees to be bound by the terms of this letter;
<PAGE> 35
(b) shares of Common Stock or Units transferred to members of
the undersigned's family (spouse, parents, children or siblings), or to
trusts, family limited partnerships or family limited liability
companies for the benefit of any of them, so long as the undersigned or
the undersigned's family members retain the entire beneficial interest
in the Common Stock or Units, and where (i) each of the transferees is
an "accredited investor" and agrees to be bound by the terms of this
letter, and (ii) the undersigned has notified Salomon Smith Barney
Inc.; and
(c) shares of Common Stock or Units disposed of pursuant to a
pledge, grant of security interest or other encumbrance effected in a
bona fide transaction approved by Salomon Smith Barney Inc. with an
unrelated and unaffiliated pledgee where (i) the pledgee is an
"accredited investor" and agrees to be bound by the terms of this
agreement and (ii) the pledgee agrees that its will under not
circumstances foreclose with respect to such shares or Units until
after one year from the Closing date.
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting Agreement),
the agreement set forth above shall likewise be terminated.
Yours very truly,
[SIGNATURE OF OFFICER, DIRECTOR OR
MAJOR STOCKHOLDER OR MAJOR UNITHOLDER]
[NAME AND ADDRESS OF OFFICER, DIRECTOR OR MAJOR
STOCKHOLDER OR MAJOR UNITHOLDER]
<PAGE> 1
EXHIBIT 2.3
PLAN AND AGREEMENT OF MERGER
WITH RESPECT TO THE MERGER OF
STRATEGIC TIMBER TRUST II, LLC,
STRATEGIC TIMBER TWO OPERATING CO., LLC, AND
STRATEGIC TIMBER PARTNERS II, LP, WITH AND INTO
STRATEGIC TIMBER PARTNERS, LP
THIS IS A PLAN AND AGREEMENT OF MERGER (this "Plan and Agreement of
Merger") by and among Strategic Timber Trust, Inc., a Georgia corporation
("STT"), Strategic Timber Trust II, LLC, a Georgia limited liability company
("STT2"), Strategic Timber Operating Co., a Delaware corporation ("STOC"),
Strategic Timber Two Operating Co., LLC, a Georgia limited liability company
("STOC2"), Strategic Timber Partners, LP, a Delaware limited partnership
("STP"), Strategic Timber Partners II, LP, a Georgia limited partnership
("STP2"), the general and limited partners of each of STP (the "STP Partners")
and STP2 (the "STP2 Partners"), and the sole manager and members of STT2 (the
"STT2 Members"). Each of STT2, STOC2 and STP2 is hereinafter sometimes referred
to individually as a "Merging Entity" and collectively as the "Merging
Entities." STP is hereinafter sometimes referred to as the "Surviving Entity."
The Merging Entities, the Surviving Entity, STT and STOC are referred to herein
collectively as the "Constituent Entities."
BACKGROUND STATEMENT
This Plan and Agreement of Merger is being entered into in
contemplation of STT's initial underwritten offering of its common stock (the
"STT Stock") to the public pursuant to a registration statement to be filed with
the United States Securities and Exchange Commission (the "IPO"), and will amend
in its entirety and supersede the Plan and Agreement of Merger previously
approved by the parties hereto and included as Exhibit H to the First Amended
and Restated Agreement of Limited Partnership of STP2, dated as of October 9,
1998 (the "STP2 LP Agreement") insofar as such prior Plan and Agreement of
Merger relates to the contemplated IPO. The parties hereto, by executing this
Plan and Agreement of Merger, intend that it shall amend the STP2 LP Agreement
and the First Amended and Restated Agreement of Limited Partnership of STP,
dated as of April 23, 1998 and amended as of October 9, 1998 (the "STP LP
Agreement") to the extent inconsistent therewith or otherwise necessary to give
full effect to the terms of this Plan and Agreement of Merger.
STATEMENT OF AGREEMENT
In consideration of the mutual promises and the terms and conditions
set forth below and in the STP LP Agreement and the STP2 LP Agreement, and other
good and valuable consideration (the mutuality, adequacy and sufficiency of
which are hereby acknowledged), the parties hereto hereby agree as follows with
respect to the merger of STT2, STOC2 and STP2 with and into STP (the "Merger")
and the other matters set forth herein:
- 1 -
<PAGE> 2
1. Background; Approvals. The Merger is to be effected pursuant
to the Georgia Limited Liability Company Act (the "GLLCA"), the Delaware Revised
Uniform Limited Partnership Act (the "DRULPA") and the Georgia Revised Uniform
Limited Partnership Act (the "GRULPA"). The board of directors of STT and STOC,
the management committee and sole member of STOC2, and, by executing this Plan
and Agreement of Merger, the general partner and limited partners of STP and
STP2 and the manager and the STT2 Members, have adopted this Plan and Agreement
of Merger in accordance with applicable law and their constituent documents. As
contemplated by the STP2 LP Agreement, the Merger is to be consummated shortly
before the consummation of the IPO. Prior to the consummation of the Merger, the
outstanding shares of STT Stock are to be split through a stock dividend or
otherwise. Schedule 1 hereto sets forth a list of (a) the STT2 Members and their
respective membership interests in STT2, (b) the limited partners of STP2 and
their respective partnership interests in STP2, (c) the limited partners of STP
and their respective partnership interests in STP, and (d) the shareholders of
STT and the number of shares of STT Stock that each of them now holds. Such
Schedule 1 also reflects the number of shares and units contemplated to be held
by the respective parties hereto, giving effect to the split of the STT Stock
and the Merger (subject to the potential adjustments set forth in subsection
5(i) as of the IPO.
2. The Merger and Surviving Entity. In accordance with the terms
of this Plan and Agreement of Merger: (a) the Constituent Entities shall make
appropriate filings with the Secretary of State of the States of Delaware and
Georgia, and (b) at the Merger Effective Time (as hereinafter defined), the
Merging Entities shall be merged with and into the Surviving Entity as provided
herein.
3. Merger Effective Time. The Merger shall be effective upon the
filing of articles or a certificate of merger with the Secretary of State of the
States of Delaware and Georgia, or such other time as the Constituent Entities
to such Merger may agree, as reflected in the articles or certificate of merger
as filed (the "Merger Effective Time"). In connection with the consummation of
the IPO, the Constituent Entities shall cause the Merger Effective Time to be,
to the extent reasonably practicable, contemporaneous with the consummation of
the IPO. If the IPO does not occur prior to June 30, 1999, then, thereafter,
STT, in its discretion, may either (i) abandon the IPO or (ii) if it intends to
complete the IPO, provide written notice (the "Completion Notice") to each of
the parties hereto, which Completion Notice must be received on or before the
fifteenth (15th) day prior to the Merger Effective Time, that it intends to
complete the IPO. Upon receipt of a Completion Notice, either or both of the
holders of at least seventy-five percent (75%) of the Class B and Class C
Partnership Units of STP2, or the holders of at least seventy-five percent (75%)
of the Class B and Class C Partnership Units of STP, in their respective
individual discretion, may singly terminate the Plan and Agreement of Merger by
providing written notice of such termination to and for receipt by all other
parties within ten (10) days of the date on which all holders providing the
notice of termination received the Completion Notice. In any event, if the IPO
has not been consummated on or before December 31, 1999, this Plan and Agreement
of Merger shall terminate as of 12:01 a.m. on January 1, 2000 and shall then be
of no further force and effect; provided, however, that if the IPO is abandoned
in advance of such date by STT, this Plan and Agreement of Merger shall
terminate as of such abandonment and shall then be of no further force and
effect.
- 2 -
<PAGE> 3
4. Effect of Mergers. At the Merger Effective Time: (a) STT2,
STOC2 and STP2 will merge with and into STP; (b) the separate existence of the
Merging Entities will cease; (c) the ownership interests of the Merging Entities
and of the Surviving Entity will be converted as provided in this Plan and
Agreement of Merger; and (d) the Merger will otherwise have the effect provided
under the applicable laws of the States of Delaware and Georgia.
5. Consideration for Merger; Surviving Entity Partnership
Certificate; Etc. At the Merger Effective Time:
(a) Subject to subsection 5(i) below, as to each member
of STT2, the outstanding membership interests held by such member shall, in the
aggregate, be converted into the number of partnership units (or successor class
of units) of STP, the Surviving Entity, which partnership units shall reflect
the rights of the single class of limited partners of the Surviving Entity (the
"Surviving Partnership Units"), shown next to such member's name on Schedule 1
hereto.
(b) The membership interests of STOC2 will be converted
into the right to receive an aggregate of $100.00 in cash.
(c) Each Class A Partnership Unit of STP2 will be
canceled and no consideration shall be paid in exchange therefor.
(d) Subject to subsection 5(i) below, as to each Class B
Limited Partner of STP2, the outstanding Class B Partnership Units of STP2 held
by such Class B Limited Partner shall, in the aggregate, be converted into the
number of Surviving Partnership Units and the amount of cash shown next to such
Class B Limited Partner's name on Schedule 1 hereto.
(e) Subject to subsection 5(i) below, as to the Class C
Limited Partner of STP2, the outstanding Class C Partnership Units of STP2 held
by the Class C Limited Partner shall, in the aggregate, be converted into the
number of Surviving Partnership Units and the amount of cash shown next to the
Class C Limited Partner's name on Schedule 1 hereto.
(f) As to the Class A General Partner and Class A Limited
Partner of STP, the outstanding Class A Partnership Units of STP held by such
Class A General Partner and Class A Limited Partner shall, in the aggregate, be
converted into the number of Surviving Partnership Units shown next to the name
of the Class A General Partner and the Class A Limited Partner on Schedule 1
hereto.
(g) Subject to subsection 5(i) below, as to the Class B
Limited Partner of STP, the outstanding Class B Partnership Units of STP held by
the Class B Limited Partner shall, in the aggregate, be converted into the
number of Surviving Partnership Units shown next to the Class B Limited
Partner's name on Schedule 1 hereto.
(h) Subject to subsection 5(i) below, as to the Class C
Limited Partner of STP, the outstanding Class C Partnership Units of STP held by
the Class C Limited Partner shall, in the
- 3 -
<PAGE> 4
aggregate, be converted into the number of Surviving Partnership Units and the
amount of cash shown next to the Class C Limited Partner's name on Schedule 1
hereto.
(i) If in the IPO the initial price to the public per
share of STT Stock (the "IPO Price") is less than $19, then, subject to Section
8 below:
(i) The number of Surviving Partnership Units to
be issued to all of the STT2 Members pursuant to subsection (a) above
and to the Class B Limited Partner of STP pursuant to subsection (g)
above shall, in the aggregate, be reduced by an amount (the "Adjustment
Amount") equal to the quotient obtained by dividing
1) the product obtained by multiplying
[x] the difference between the IPO Price and $19 by [y] the
total number of Surviving Partnership Units which, but for the
application of this subsection 5(i), would be issued pursuant
to subsections 5(d), (e) and (h) above, by
2) the IPO Price,
and rounding the quotient so obtained to the nearest whole
number of Surviving Partnership Units.
The number of Surviving Partnership Units to be issued to each of the
STT2 Members and the Class B Limited Partner of STP shall be reduced by
such person's pro rata portion of the Adjustment Amount, calculated
based on the number of Surviving Partnership Units which, but for the
application of this subsection 5(i), would be issued to such person
pursuant to subsection 5(a) or (g), as the case may be, over the total
number of Surviving Partnership Units which, but for the application of
this subsection 5(i), would be issued to all of such persons pursuant
to subsections 5(a) and (g). The allocation of a pro rata portion of
the Adjustment Amount to each such person shall be rounded to the
nearest tenth of a Surviving Partnership Unit.
(ii) The number of Surviving Partnership Units to
be issued to the Class C Partner of STP and to all Class B and Class C
Partners of STP2 pursuant to subsections 5(d), (e) and (h) above shall
in the aggregate be increased by the Adjustment Amount. The number of
Surviving Partnership Units to be issued to each such person shall be
increased by such person's pro rata portion of the Adjustment Amount,
calculated based on the number of Surviving Partnership Units which,
but for the application of this subsection 5(i), would be issued to
such person pursuant to subsection 5(d), (e) or (h), as the case may
be, over the total number of Surviving Partnership Units which, but for
the application of this subsection 5(i), would be issued to all of such
persons pursuant to subsections 5(d), (e) and (h) above. The allocation
of a pro rata portion of the Adjustment Amount to each such person
shall be rounded to the nearest tenth of a Surviving Partnership Unit.
As an illustration of the foregoing, if the IPO Price of STT Stock is
$18, and STT in its discretion determines to proceed with the IPO, and the total
number of Surviving Partnership Units
- 4 -
<PAGE> 5
to be issued to the Class C Partner of STP and to all Class B and Class C
Partners of STP2 is (for purposes of this illustration only) 3,800,000, then the
Adjustment Amount would be computed as follows: (i) $19 minus $18 equals $1
difference, multiplied by 3,800,000 equals 3,800,000 adjustment value, divided
by (ii) $18 IPO Price, results in an Adjustment Amount of 211,111.11, which
would be rounded to 211,111. The aggregate number of Surviving Partnership Units
to be issued to all of the STT2 members and the Class B Limited Partner of STP
would be proportionately reduced by this amount, while the aggregate number to
be issued to the Class C Limited Partner of STP and the Class B and Class C
Limited Partners of STP2 would be proportionately increased by the same amount.
(j) The certificate of limited partnership of STP, as in
effect immediately prior to the Merger Effective Time, shall continue to be the
STP's certificate of limited partnership at and after the Merger Effective Time
until amended in accordance with applicable law.
(k) The limited partnership agreement of STP, as in
effect immediately prior to the Merger Effective Time, shall continue to be
STP's limited partnership agreement at and after the Merger Effective Time until
amended in accordance with the DRULPA.
(l) STOC shall continue to be STP's general partner at
and after the Merger Effective Time until changed in accordance with STP's
limited partnership agreement.
6. Merging Entity Interests. As of the Merger Effective Time,
each certificate or other evidence of ownership of an interest (whether common
stock, membership interest or partnership interest) in any Merging Entity shall
be deemed to represent only the consideration into which such interest has been
converted pursuant to this Plan and Agreement of Merger, and may be surrendered
for such consideration immediately following the Merger Effective Time in
accordance with such procedures as established by the Surviving Entity, in its
reasonable discretion. No interest shall be accrued or paid on any portion of
the consideration paid or payable pursuant to this Plan and Agreement of Merger.
7. Lock-up and Registration Rights Agreement. Prior to the Merger
Effective Time, STT and STP will enter into a Lock-up and Registration Rights
Agreement with the parties to this Plan and Agreement of Merger who are to
receive Surviving Partnership Units, which agreement will be in substantially
the form set forth on Schedule 2 hereto, with such further changes as the
parties may agree, consistent with the customary terms of similar Lock-up and
Registration Rights Agreements executed in connection with public offerings of
shares of real estate investment trusts.
8. HSR Filing; Other Consents; Election of STT to Proceed Under
Certain Circumstances. Consummation of the Merger shall be conditioned upon
compliance with the requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, if applicable, and to the obtaining of any other
material consents or approvals of any governmental authority or third party that
are required in connection with the consummation of the Merger. In addition,
consummation of the Merger shall be conditioned upon the determination by STT
that, based on its judgment, the closing of the IPO is imminent. Nothing
contained herein obligates STT
- 5 -
<PAGE> 6
to consummate the IPO, and STT may in its discretion decide not to do so for any
reason whatsover, including, without limitation, dissatisfaction as to the IPO
Price.
9. Amendment. This Plan and Agreement of Merger may be amended at
any time prior to the Merger Effective time by the Constituent Entities without
the prior authorization of their respective boards of directors, management
committees, stockholders, members or limited partners, provided that any
amendment will be subject to any applicable restrictions imposed by the DRULPA,
the GLLCA, the GRULPA, applicable securities laws or their respective
constituent documents requiring further organizational approval. No amendment of
any provision of this Agreement and Plan of Merger shall be valid unless the
same shall be in writing and signed by all of the Constituent Entities.
10. Further Assurances. Upon the execution of this Plan and
Agreement of Merger and thereafter, each of the parties hereto agrees to do such
things as may be reasonably requested by any other party in order to more
effectively consummate or document the transactions contemplated by this Plan
and Agreement of Merger. If at any time the Surviving Entity shall consider or
be advised that any further assignments or assurances or any things are
necessary or desirable to vest in the Surviving Entity, in accordance with the
terms of this Plan and Agreement of Merger, the title of any property or rights
of any Merging Entity, then the last acting general partner or officer of such
Merging Entity or the corresponding general partner or officer of the Surviving
Entity shall execute and make all such proper assignments and assurances and do
all things necessary or proper to vest title in such property or rights in the
Surviving Entity, or otherwise to carry out the purposes of this Plan and
Agreement of Merger or the Merger.
11. Number; Gender; Captions; Certain Definitions. Whenever the
context so requires, the singular number includes the plural, the plural
includes the singular, and the gender of any pronoun includes the other genders.
Titles and captions of or in this Plan and Agreement of Merger are inserted only
as a matter of convenience and for reference and in no way affect the scope of
this Plan and Agreement of Merger or the intent of its provisions. The parties
agree: (a) that "applicable law" means all provisions of any constitution,
statute, law, rule, regulation, decision, order, decree, judgment, release,
license, permit, stipulation or other official pronouncement enacted,
promulgated or issued by any governmental authority or arbitrator or arbitration
panel; (b) that "governmental authority" means any legislative, executive,
judicial, quasi-judicial or other public authority, agency, department, bureau,
division, unit, court or other public body, person or entity; and (c) that
"including" and other words or phrases of inclusion, if any, shall not be
construed as terms of limitation, so that references to "included" matters shall
be regarded as non-exclusive, non-characterizing illustrations.
12. Copies; Counterparts; Facsimile Signatures. This Plan and
Agreement of Merger may be executed in two or more copies, each of which shall
be deemed an original, and it shall not be necessary in making proof of this
Plan and Agreement of Merger or its terms to produce or account for more than
one of such copies. This Plan and Agreement of Merger may be executed in
counterparts, in which event each counterpart shall reflect the signatures of
all the parties hereto. Execution of this Plan and Agreement of Merger may be by
facsimile signature, which shall have the same force and effect as an original
signature.
- 6 -
<PAGE> 7
13. Controlling Agreement. To the extent the provisions of this
Plan and Agreement of Merger are inconsistent with the provisions of the STP LP
Agreement or the STP2 LP Agreement, the provisions of this Agreement shall
control, and shall be deemed to amend such inconsistent provisions.
[signatures on following pages]
- 7 -
<PAGE> 8
DULY EXECUTED and delivered by each of the Constituent Entities, the
STP Partners, the STP2 Partners and the STT2 Members, as of January 25, 1999.
<TABLE>
<CAPTION>
THE CONSTITUENT ENTITIES: STRATEGIC TIMBER TRUST, INC.
- ------------------------
<S> <C>
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
STRATEGIC TIMBER TRUST II, LLC
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
STRATEGIC TIMBER OPERATING CO.
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
STRATEGIC TIMBER TWO OPERATING
CO., LLC
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
</TABLE>
- 8 -
<PAGE> 9
STRATEGIC TIMBER PARTNERS, LP
By: Strategic Timber Operating Co.,
its General Partner
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
STRATEGIC TIMBER PARTNERS II, LP
By: Strategic Timber Two Operating Co.,
LLC, its General Partner
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
- 9 -
<PAGE> 10
THE STP PARTNERS:
<TABLE>
<CAPTION>
General Partner: STRATEGIC TIMBER OPERATING CO.
- ---------------
<S> <C>
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
Limited Partners: STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
LOUISIANA TIMBER PARTNERS, LLC
By: /s/ Larry J. Woodard
------------------------------------------
Name: Larry J. Woodard
----------------------------------------
Title: Manager
---------------------------------------
</TABLE>
- 10 -
<PAGE> 11
THE STP2 PARTNERS:
<TABLE>
<CAPTION>
General Partner: STRATEGIC TIMBER TWO OPERATING CO., LLC
- ---------------
<S> <C>
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
Limited Partners: STRATEGIC TIMBER TWO OPERATING CO., LLC
By: /s/ Joseph E. Rendini
------------------------------------------
Name: Joseph E. Rendini
----------------------------------------
Title:
---------------------------------------
/s/ Gregory M. Demers
---------------------------------------------
Gregory M. Demers
OLD PIONEER, LLC
By: /s/ Gregory M. Demers
------------------------------------------
Name: Gregory M. Demers
----------------------------------------
Title: President
---------------------------------------
/s/ T. Yates Exley
---------------------------------------------
T. Yates Exley
KING INVESTMENT GROUP, INC.
By: /s/ Ed King
------------------------------------------
Name: Ed King
----------------------------------------
Title: President
---------------------------------------
</TABLE>
- 11 -
<PAGE> 12
<TABLE>
<S> <C>
/s/ Darrick Salyers
---------------------------------------------
Darrick Salyers
/s/ James A. Youel
---------------------------------------------
James A. Youel
MACH ONE PARTNERS, LLC
By: /s/ H. A. Pielenz
------------------------------------------
Name: H. A. Pielenz
----------------------------------------
Title:
---------------------------------------
THE STT2 SOLE MANAGER AND
MEMBERS:
Sole Manager: /s/ Thomas P. Broom
---------------------------------------------
Thomas P. Broom, Manager
</TABLE>
- 12 -
<PAGE> 13
<TABLE>
<S> <C>
Members: /s/ C. Edward Broom
---------------------------------------------
C. Edward Broom
/s/ Christopher J. Broom
---------------------------------------------
Christopher J. Broom
/s/ Thomas P. Broom
---------------------------------------------
Thomas P. Broom
/s/ Nicholas C. Brunet
---------------------------------------------
Nicholas C. Brunet
/s/ Vladimir Harris
---------------------------------------------
Vladimir Harris
/s/ Joseph E. Rendini
---------------------------------------------
Joseph E. Rendini
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ William H. Bradley
----------------------------------------
William H. Bradley, Partner
</TABLE>
- 13 -
<PAGE> 14
Schedule 1 to Plan and Agreement of Merger
Part A
STOCKHOLDERS OF STT AND NUMBER OF SHARES OF STT STOCK TO BE HELD FOLLOWING
STOCK SPLIT
<TABLE>
<CAPTION>
Name of Shareholder Number of Shares Now Number of Shares to be
------------------- -------------------- ----------------------
Held Held After Split
---- ----------------
<S> <C> <C>
E. Broom 4,590 167,942
T. Broom 4,590 167,942
C. Broom 4,590 167,942
Harris 1,020 37,321
Rendini 1,020 37,321
Godfrey 255 9,330
Brunet 1,020 37,321
Partners of SAB as a group 1,275 46,651
</TABLE>
<PAGE> 15
Part B
MEMBERS AND PARTNERS OF STT2, STP2 AND STP AND, SUBJECT TO SUBSECTION 5(I),
MERGER CONSIDERATION TO EACH
<TABLE>
<CAPTION>
Name of Member or Type of Interest Interest Pre- Merger Merger
- ----------------- ---------------- ------------- ------ ------
Partner Held Merger Consideration: No. Consideration:
------- ---- ------ ------------------ --------------
of Surviving Cash
------------ ----
Partnership Units
-----------------
<S> <C> <C> <C> <C>
E. Broom STT2 Member 712.4576 240,387 0
T. Broom STT2 Member 712.4576 240,387 0
C. Broom STT2 Member 712.4576 240,387 0
Harris STT2 Member 158.3239 53,419 0
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C>
Rendini STT2 Member 158.3239 53,419 0
Brunet STT2 Member 158.3239 53,419 0
SAB STT2 Member 197.9049 51,617 0
Demers Class B STP2 726 266,685 $ 2,956,191
Salyers Class B STP2 573 210,495 $ 2,333,335
Exley Class B STP2 296 108,516 $ 1,202,750
Youel Class B STP2 118 43,398 $ 481,100
Old Pioneer Class B STP2 3,795 1,393,648 $15,448,289
King Investment Class B STP2 401 147,344 $ 1,633,335
Mach One Class C STP2 909 100,110 $10,000,000
STOC Class A STP 255 222,380 0
(General Partner)
STT Class A STP 20,245 449,390 0
(Limited Partner)
Louisiana Timber Class B STP 500 160,224 0
Louisiana Timber Class C STP 4,500 1,602,750 $12,945,00
</TABLE>
* * * * *
<PAGE> 17
Schedule 2 to Plan and Agreement of Merger
Form of Lock-up and Registration Rights Agreement
(see attached)
<PAGE> 18
[FORM OF STT LOCK-UP AND REGISTRATION RIGHTS AGREEMENT]
STRATEGIC TIMBER TRUST, INC.
LOCK-UP AND REGISTRATION RIGHTS AGREEMENT
This Lock-up and Registration Rights Agreement (this "Agreement") is
entered into as of _______________ __, 1999 by and among Strategic Timber Trust,
Inc., a Georgia corporation (the "Company"), Strategic Timber Partners, LP, a
Delaware limited partnership (the "Partnership") , and the parties identified as
"Holders" on the signature pages hereto (each a "Holder" and collectively, the
"Holders").
WHEREAS, the Holder may receive shares of common stock of the Company,
$.01 par value ("Common Shares"), and has received or will receive units of
limited partnership interest ("Units") in the Partnership, in each case issued
or to be issued without registration under the Securities Act of 1933, as
amended (the "Securities Act") in connection with the consummation of an initial
public offering of the Common Shares (the "IPO");
WHEREAS, the agreements of the parties contained herein are in
contemplation of the IPO, and are conditioned upon the consummation of the IPO;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and agreements set forth herein, and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
14. Certain Definitions.
As used in this Agreement, in addition to the other terms defined
herein, the following capitalized defined terms shall have the following
meanings:
"NASD" means the National Association of Securities Dealers,
Inc.
"Person" means an individual, partnership, corporation,
limited liability company, trust, or unincorporated organization, or a
government or agency or political subdivision thereof.
"Registrable Shares" means the Shares of the Holder, excluding
(i) Shares for which a Registration Statement relating to the sale
thereof shall have become effective under the Securities Act and which
have been issued or disposed of under such Registration Statement, (ii)
Shares sold pursuant to Rule 144 or Rule 144A, or (iii) Shares eligible
for sale pursuant to Rule 144(k) (or any successor provision).
"Registration Expenses" means any and all expenses incident to
performance of or compliance with this Agreement, including, without
limitation: (i) all SEC, stock exchange
<PAGE> 19
or NASD registration and filing fees; (ii) all fees and expenses
incurred in connection with compliance with state securities or "blue
sky" laws (including reasonable fees and disbursements of counsel in
connection with "blue sky" qualification of any of the Registrable
Shares and the preparation of a Blue Sky Memorandum) and compliance
with the rules of the NASD; (iii) all expenses of any Person in
preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, certificates
and other documents relating to the performance of and compliance with
this Agreement; (iv) all fees and expenses incurred in connection with
the listing, if any, of any of the Registrable Shares on any securities
exchange or exchanges on which the Common Shares are listed; and (v)
the fees and disbursements of counsel for the Company and of the
independent public accountants of the Company, including the expenses
of any special audit or "cold comfort" letters required by or incident
to such performance and compliance. Registration Expenses shall
specifically exclude underwriting discounts and commissions relating to
the sale or disposition of Registrable Shares by the Holder, the fees
and disbursements of counsel representing the Holder in connection
therewith as provided in Section 5, and transfer taxes, if any,
relating to the sale or disposition of Registrable Shares by the
Holder, all of which shall be borne by the Holder in all cases.
"Registration Statement" means any registration statement of
the Company which covers the issuance or resale of any of the
Registrable Shares on an appropriate form, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all materials incorporated by reference
therein.
"Rule 144" means Rule 144 (or any successor provision) under
the Securities Act.
"Rule 144A" means Rule 144A (or any successor provision) under
the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Shares" means any Common Shares issued or to be issuable to
the Holder upon redemption or in exchange for Units held by the Holder.
15. Lock-up Agreement. [To Be Modeled After SSB Lock-up Letter
Agreement]
16. Registration.
(a) Registration Statement Covering Issuance of Common
Shares. If permitted by applicable law and the rules and policies of the SEC,
the Company shall cause to be filed on the first business day after one year
following consummation of the IPO, or as soon thereafter as practicable, a
registration statement (the "Issuance Registration Statement") under Rule 415
under the Securities Act relating to the issuance to the Holders of Common
Shares upon the redemption of Units or in exchange for Units. Thereupon, the
Company shall use reasonable efforts to cause such Registration Statement to be
declared effective by the SEC for all Common Shares covered thereby. The Company
agrees to use reasonable efforts to keep the Issuance Registration Statement
- 2 -
<PAGE> 20
continuously effective, with respect to the Registrable Shares of the Holders,
until the date on which the Holders have redeemed or exchanged all of their
Units for Common Shares, but in no event later than six months after the
effectiveness of such registration statement. In the event that the Company,
despite its reasonable good faith efforts, is unable to cause such Issuance
Registration Statement to be declared effective by the SEC within 90 days of the
first anniversary of the IPO or (except as otherwise permitted by Sections 8(b)
and 9) is unable to keep such Issuance Registration Statement effective until
the date on which the Holders have redeemed or exchanged the all of their Units
for Common Shares (but in no event later than six months after the effectiveness
of such registration statement) then the rights of the Holders set forth in
Section 3(b) below shall apply.
(b) Demand Registration. Subject to the conditions set
forth in this Agreement, if the Company is unable under applicable law and the
rules and policies of the SEC to file an Issuance Registration Statement, at any
time after one (1) year from the date of the IPO, the Company shall, at the
written request of a Holder who is unable to sell its Registrable Shares
pursuant to Rule 144(k) under the Securities Act, cause to be filed as soon as
practicable after the date of such request by such Holder a Registration
Statement under Rule 415 under the Securities Act relating to the sale by the
Holder of all or any integral multiple of 100,000 shares of the Registrable
Shares held by such Holder in accordance with the terms hereof, and shall use
reasonable efforts to cause such Registration Statement to be declared effective
by the SEC as soon as practicable thereafter; provided, however, that the
Company shall not be required to effect more than two demand registrations
pursuant to this Section 3(b). The Company may, in its sole discretion, elect to
file a Registration Statement with respect to any or all of the Shares before
receipt of notice from any Holder, and to combine sales by more than one Holder
into any single Registration Statement. The Company agrees to use reasonable
efforts to keep each Registration Statement continuously effective until the
earlier of (i) six months thereafter, or (ii) the date on which such Holder no
longer holds any Registrable Shares. Notwithstanding the foregoing provisions of
this Section 3(b), during any period of time which the Company has a
Registration Statement in effect under the provisions of Rule 415 of the
Securities Act relating to the original issuance by the Company of shares of
Common Stock in connection with the redemption of Holders' Units, such Holders
will not have the right to request the registration of Registrable Shares under
the provisions of this Section 3(b).
(c) Notification and Distribution of Materials. The
Company shall notify each Holder of the effectiveness of any Registration
Statement applicable to the Shares of such Holder and shall furnish to such
Holder such number of copies of the Registration Statement (including any
amendments, supplements and exhibits), the Prospectus contained therein
(including each preliminary prospectus and all related amendments and
supplements) and any documents incorporated by reference in the Registration
Statement and such other documents as the Holder may reasonably request in order
to facilitate its sale of the Registrable Shares in the manner described in the
Registration Statement.
(d) Amendments and Supplements. The Company shall prepare
and file with the SEC from time to time such amendments and supplements to the
Registration Statement and Prospectus used in connection therewith as may be
necessary to keep the Registration Statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of
- 3 -
<PAGE> 21
all the Registrable Shares until the earlier of (a) such time as all of the
Registrable Shares have been issued in accordance with the intended method of
issuance by the Company (in the case of a Registration Statement filed pursuant
to Section 3(a) hereof) or disposed of in accordance with the intended methods
of disposition by the Holder (in the case of a Registration Statement filed
pursuant to Section 3(b) hereof) or (b) the date on which the Registration
Statement ceases to be effective in accordance with the terms of this Section 3.
Upon 20 business days' notice, the Company shall file any supplement or
post-effective amendment to the Registration Statement with respect to the plan
of distribution or a Holder's ownership interests in its Registrable Shares that
is reasonably necessary to permit the sale of a Holder's Registrable Shares
pursuant to the Registration Statement. The Company shall file any necessary
listing applications or amendments to the existing applications to cause the
Shares registered under any Registration Statement to be then listed or quoted
on the primary exchange or quotation system on which the Common Shares are then
listed or quoted.
(e) Notice of Certain Events. The Company shall promptly
notify the Holders of, and confirm in writing, the filing of the Registration
Statement or any Prospectus, amendment or supplement related thereto or any
post-effective amendment to the Registration Statement and the effectiveness of
any post-effective amendment. At any time when a Prospectus relating to the
Registration Statement is required to be delivered under the Securities Act by a
Holder to a transferee, the Company shall immediately notify such Holder of the
happening of any event as a result of which the Prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. In such event, the Company shall promptly
prepare and furnish to such Holder a reasonable number of copies of a supplement
to or an amendment of such Prospectus as may be necessary so that, as thereafter
delivered to the purchasers of Registrable Shares, sold under the Prospectus,
such Prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Company will, if necessary, promptly amend the Registration
Statement of which such Prospectus is a part to reflect such amendment or
supplement.
17. State Securities Laws. Subject to the conditions set forth in
this Agreement, the Company shall, in connection with the filing of any
Registration Statement hereunder, file such documents as may be necessary to
register or qualify the Registrable Shares under the securities or "Blue Sky"
laws of such states as the Holders may reasonably request, and the Company shall
use all reasonable efforts to cause such filings to become effective in a timely
manner; provided, however, that the Company shall not be obligated to qualify as
a foreign corporation to do business under the laws of any such state in which
it is not then qualified or to file any general consent to service of process in
any such state. Once effective, the Company shall use all reasonable efforts to
keep such filings effective until the earlier of (a) such time as all of the
Registrable Shares have been disposed of in accordance with the intended methods
of disposition by the Holders as set forth in the Registration Statement, (b) in
the case of a particular state, the applicable Holder has notified the Company
that it no longer requires an effective filing in such state in accordance with
its original request for filing or (c) the date on which the Registration
Statement ceases to be effective.
- 4 -
<PAGE> 22
18. Expenses. The Company shall bear all Registration Expenses
incurred in connection with the registration of the Registrable Shares pursuant
to this Agreement, except that each Holder shall be responsible for any
brokerage or underwriting commissions and taxes of any kind (including, without
limitation, transfer taxes) with respect to any disposition, sale or transfer of
Registrable Shares sold by it and for any legal, accounting and other expenses
incurred by it.
19. Indemnification by the Company. The Company agrees to
indemnify each Holder and its officers, directors, employees, agents,
representatives and affiliates, and each person or entity, if any, that controls
the Holder within the meaning of the Securities Act, and each other person or
entity, if any, subject to liability because of his, her or its connection with
the Holder (each, an "Indemnitee"), against any and all losses, claims, damages,
actions, liabilities, costs and expenses (including without limitation
reasonable fees, expenses and disbursements of attorneys and other
professionals), joint or several, arising out of or based upon any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any Registration Statement or Prospectus, or upon any
untrue or alleged untrue statement of material fact contained in the
Registration Statement or any Prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, that the Company shall not be liable to such
Indemnitee or any person who participates as an underwriter in the offering or
sale of Registrable Shares or any other person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement or in any such Prospectus in reliance upon and in
conformity with information regarding such Indemnitee or its plan of
distribution or ownership interests which was furnished in writing to the
Company for use in connection with the Registration Statement or the Prospectus
contained therein by such Indemnitee or (ii) the Holder's failure to send or
give a copy of the final, amended or supplemented prospectus furnished to the
Holder by the Company at or prior to the time such action is required by the
Securities Act to the selling broker for delivery to the person claiming an
untrue statement or alleged untrue statement or omission or alleged omission if
such statement or omission was corrected in such final amended or supplemented
prospectus.
20. Covenants of the Holders. Each Holder hereby agrees (a) to
cooperate with the Company and to furnish to the Company all such information
concerning its plan of distribution and ownership interests with respect to its
Registrable Shares in connection with the preparation of a Registration
Statement with respect to the Holder's Registrable Shares and any filings with
any state securities commissions as the Company may reasonably request, (b) to
deliver to the selling broker or to otherwise cause delivery of the Prospectus
contained in such Registration Statement (other than an Issuance Registration
Statement) to any purchaser of the shares covered by such Registration Statement
from the Holder and (c) to indemnify the Company, its officers, directors,
employees, agents, representatives and affiliates, and each person, if any, who
controls the Company within the meaning of the Securities Act, and each other
person, if any, subject to liability because of his connection with the Company,
against any and all losses, claims, damages, actions, liabilities, costs and
expenses arising out of or based upon (i) any untrue statement or alleged untrue
statement of
- 5 -
<PAGE> 23
material fact contained in either such Registration Statement or the Prospectus
contained therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, if and to the extent that such statement or omission occurs from
reliance upon and in conformity with written information regarding the Holder,
its plan of distribution or its ownership interests, which was furnished to the
Company by the Holder for use therein unless such statement or omission was
corrected in writing to the Company not less than three business days prior to
the date of the final prospectus (as supplemented or amended, as the case may
be) or (ii) the failure by the Holder to deliver to the selling broker or to
otherwise cause to be delivered the Prospectus contained in such Registration
Statement (as amended or supplemented, if applicable) furnished by the Company
to the Holder to any purchaser of the shares covered by such Registration
Statement from the Holder through no fault of the Company.
21. Suspension of Registration Requirement; Restriction on Sales.
(a) The Company shall promptly notify each Holder of, and
confirm in writing, the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement with respect to the Holder's
Registrable Shares or the initiation of any proceedings for that purpose. The
Company shall use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of such a Registration Statement at the earliest
possible moment.
(b) Notwithstanding anything else to the contrary set
forth in this Agreement, the Company's obligation under this Agreement to cause
a Registration Statement and any filings with any state securities commission to
become effective or to amend or supplement a Registration Statement shall be
suspended in the event and during such period as unforeseen circumstances exist
(including without limitation (i) an underwritten primary offering by the
Company if the Company is advised in writing by the underwriters that the sale
of Registrable Shares under the Registration Statement would impair the pricing
or commercial practicality of the primary offering or (ii) pending negotiations
relating to, or consummation of, a transaction or the occurrence of an event
that would require additional disclosure of material information by the Company
in the Registration Statement or such filing, as to which the Company has a bona
fide business purpose for preserving confidentiality or which renders the
Company unable to comply with SEC requirements) (such unforeseen circumstances
being hereinafter referred to as a "Suspension Event") that would make it
impractical or unadvisable to cause the Registration Statement or such filings
to become effective or to amend or supplement the Registration Statement, but
such suspension shall continue only for so long as such event or its effect is
continuing. The Company shall notify the Holders of the existence and, in the
case of circumstances referred to in clause (i) of this Section 8(b), nature of
any Suspension Event.
(c) Each Holder agrees if requested in writing by the
Company in the case of a Company-initiated nonunderwritten offering or by the
managing underwriter or underwriters in a Company-initiated underwritten
offering, not to effect any public sale or distribution of any of the securities
of the Company, including a sale pursuant to Rule 144 or Rule 144A, during the
15-day period prior to, and during the 60- day period beginning on, the date of
effectiveness of the registration statement relating to such Company-initiated
offering.
- 6 -
<PAGE> 24
22. Black-Out Period. Each Holder agrees that, following the
effectiveness of any Registration Statement relating to the sale of Registrable
Shares of the Holder, the Holder will not effect any sales of the Registrable
Shares pursuant to the Registration Statement or any filings with any state
securities commission at any time after the Holder has received notice from the
Company to temporarily suspend sales as a result of the occurrence or existence
of any Suspension Event so that the Company promptly may correct or update the
Registration Statement or such filing. Each Holder may recommence effecting
sales of the Shares pursuant to the Registration Statement or such filings
following further notice to such effect from the Company, which notice shall be
given by the Company promptly after the conclusion of any such Suspension Event.
23. Additional Shares. The Company, at its option, may register,
under any Registration Statement and any filings with any state securities
commissions filed pursuant to this Agreement, any number of unissued Common
Shares of the Company or any Common Shares of the Company owned by any other
shareholder or shareholders of the Company.
24. Contribution. If the indemnification provided for in Sections
6 and 7 is unavailable to an indemnified party with respect to any losses,
claims, damages, actions, liabilities, costs or expenses referred to therein or
is insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or expenses
in such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and the Indemnitee, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
actions, liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Indemnitee, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the Company
or in writing by the Indemnitee and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission; provided, however, that in no event shall the obligation of any
indemnifying party to contribute under this Section 11 exceed the amount that
such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under Sections 6 or 7 hereof
had been available under the circumstances. The Company and the Holders agree
that it would not be just and equitable if contribution pursuant to this Section
11 were determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section
11, no Holder shall be required to contribute any amount in excess of the amount
by which the gross proceeds from the sale of Shares exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission. No indemnified party guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any indemnifying party
who was not guilty of such fraudulent misrepresentation.
- 7 -
<PAGE> 25
25. No Other Obligation to Register. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to any Holder
to register the Registrable Shares under the Securities Act.
26. Amendments and Waivers. The provisions of this Agreement may
not be amended, modified, or supplemented or waived without the prior written
consent of the Company and the affected Holder.
27. Notices. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given when and if delivered personally or sent by
telecopier (with respect to notice by telecopier, on a business day between the
hours of 8:00 a.m. and 5:00 p.m., Eastern time), five business days after being
sent if mailed by registered or certified mail (return receipt requested),
postage prepaid, or upon receipt if sent by courier or overnight delivery
service to the respective parties at the following addresses (or at such other
address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof),
and further provided that in case of directions to amend the Registration
Statement pursuant to Section 3(d) or Section 7, the Holder must confirm such
notice in writing by overnight express delivery with confirmation of receipt:
If to the Company or the Partnership:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attention: President
Telecopy: (603) 526-7800
with a copy to:
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
Attention: William H. Bradley
Telecopy: (404) 853-8806
If to a Holder:
As listed on the Holder Signature Pages hereto.
28. Successors and Assigns. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. This Agreement may not be assigned by any Holder and any attempted
assignment hereof by a Holder will be void and of no effect and the Holder shall
indemnify the Company and the Partnership against any and all losses, claims,
damages, actions, liabilities, costs and expenses (including without limitation
reasonable fees, expenses and
- 8 -
<PAGE> 26
disbursements of attorneys and other professionals), arising out of or based
upon such attempted assignment.
29. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
30. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia applicable to
contracts made and to be performed wholly within said State.
31. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
32. Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warrants or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
<TABLE>
<CAPTION>
COMPANY: STRATEGIC TIMBER TRUST, INC.
<S> <C>
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
PARTNERSHIP: STRATEGIC TIMBER PARTNERS, LP
By: Strategic Timber Operating Co.
Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
</TABLE>
- 9 -
<PAGE> 27
<TABLE>
<CAPTION>
HOLDERS:
ADDRESSES FOR NOTICES:
<S> <C>
- ------------------------------
(Name of Holder)
---------------------------------------------
By:
--------------------------- ---------------------------------------------
Name:
- ------------------------------ ---------------------------------------------
Title: Fax No.:
------------------------ -------------------------------------
</TABLE>
- 10 -
<PAGE> 28
<TABLE>
<S> <C>
- ------------------------------
(Name of Holder)
---------------------------------------------
By:
--------------------------- ---------------------------------------------
Name:
------------------------- ---------------------------------------------
Title: Fax No.:
------------------------ -------------------------------------
- ------------------------------
(Name of Holder)
---------------------------------------------
By:
--------------------------- ---------------------------------------------
Name:
------------------------- ---------------------------------------------
Title: Fax No.:
------------------------ -------------------------------------
- ------------------------------
(Name of Holder)
---------------------------------------------
By:
--------------------------- ---------------------------------------------
Name:
------------------------- ---------------------------------------------
Title: Fax No.:
------------------------ -------------------------------------
- ------------------------------
(Name of Holder)
---------------------------------------------
By:
--------------------------- ---------------------------------------------
Name:
------------------------- ---------------------------------------------
Title: Fax No.:
------------------------ -------------------------------------
- ------------------------------
(Name of Holder)
---------------------------------------------
By:
--------------------------- ---------------------------------------------
Name:
------------------------- ---------------------------------------------
Title: Fax No.:
------------------------ -------------------------------------
</TABLE>
- 11 -
<PAGE> 29
<TABLE>
<S> <C>
- ------------------------------
(Name of Holder)
---------------------------------------------
---------------------------------------------
By:
--------------------------- ---------------------------------------------
Name: Fax No.:
------------------------- -------------------------------------
Title:
------------------------
</TABLE>
- 12 -
<PAGE> 1
EXHIBIT 3.1.2
FORM OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
STRATEGIC TIMBER TRUST, INC.
Strategic Timber Trust, Inc., a corporation organized and existing
under the Georgia Business Corporation Code (the "Corporation"), certifies that
these Amended and Restated Articles of Incorporation (these "Articles of
Incorporation") were duly adopted by the Board of Directors of the corporation
on _________, 1999, and duly approved by the shareholders of the corporation in
accordance with Section 14-2-1003 of the Georgia Business Corporation Code on
_______, 1999, and that the Articles of Incorporation of the Corporation are
hereby amended and restated to read in their entirety as follows:
ARTICLE I.
The name of the Corporation is:
Strategic Timber Trust, Inc.
ARTICLE II.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Georgia Business
Corporation Code (the "GBCC").
ARTICLE III.
The total number of shares which the Corporation is authorized to issue
is Two Hundred Fifty Million (250,000,000) shares, of which Two Hundred Million
(200,000,000) are common shares (the "Common Shares") and Fifty Million
(50,000,000) are preferred shares (the "Preferred Shares"), all of which shares
shall have a par value of $.01 per share. The designations, preferences,
limitations and relative rights of or on the Common Shares and the Preferred
Shares are as set forth below and are otherwise subject to applicable law. The
Common Shares (a) shall be one and the same class, (b) subject to the rights of
the holders of Preferred Shares, if any, shall have full and unlimited voting
rights (with each share having one vote on each matter submitted to shareholders
for vote), and (c) subject to the rights of the holders of Preferred Shares, if
any, shall have equal rights of participation in dividends and distributions and
shall be entitled to receive the net assets of the Corporation ratably upon
dissolution. The Board of Directors is authorized, by causing appropriate
articles of amendment to be filed pursuant to the applicable law of the State of
Georgia, to divide the Preferred Shares into series and to determine the
preferences, limitations and relative rights thereof, including but not limited
to dividend rights, dividend rates, conversion rights, voting rights (including,
without limitation, the election of a specified number of directors by the
holders of one or more such series), redemption rights, and liquidation
preferences; and to fix the number of shares
<PAGE> 2
constituting any such series and the designation thereof; and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof then issued).
No holder of shares of any class or series shall as such holder have
any preemptive or preferential right to purchase or subscribe to (i) any shares
of any class or series of the Corporation, whether now or hereafter authorized,
(ii) any warrants, rights or options to purchase any such shares or (iii) any
obligations convertible into any such shares or into warrants, rights or options
to purchase any such shares.
ARTICLE IV.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors and shareholders are expressly authorized to
adopt, amend or repeal the Bylaws of the Corporation as provided in the Bylaws
and the GBCC.
ARTICLE V.
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for any action taken, or
any failure to take any action, as a director, except liability: (a) for any
appropriation, in violation of his or her duties, of any business opportunity of
the Corporation, (b) for acts or omissions which involve intentional misconduct
or a knowing violation of law, (c) for the types of liability set forth in
section 14-2- 832 of the GBCC, or (d) for any transaction from which the
director received an improper personal benefit. If the GBCC is hereafter amended
to further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the GBCC, as so amended. Any repeal or modification
of this Article V by the shareholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
ARTICLE VI.
The Board of Directors shall consist of such number of directors as is
fixed or changed from time to time by the Board of Directors and shall be
divided into three classes: Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each director shall serve for a term ending
on the date of the third annual meeting of shareholders following the annual
meeting at which such director was elected; provided, however, that each initial
director in Class I shall hold office until the 2000 annual meeting of
shareholders; each initial director in Class II shall hold office until the 2001
annual meeting of shareholders; and each initial director in Class III shall
hold office until the 2002 annual meeting of shareholders. Each director shall
serve until his successor is elected and qualified or until his earlier death,
resignation or removal. Any director may be removed from office only for cause
by the affirmative vote of holders of at least a majority of the votes entitled
to be cast by all of the outstanding shares of the Corporation in the election
of directors. The number of directors may be increased or decreased from time to
time by resolution of the Board of Directors; provided, however, that the total
number of directors at any time shall not be less than three. Subject to the
rights, if any, of the holders of
2
<PAGE> 3
any series of Preferred Shares, when the number of directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned, provided
that no decrease in the number of directors shall shorten the term of any
incumbent director. Any vacancies in the Board of Directors for any reason, and
any directorships resulting from any increase in the authorized number of
directors, shall be filled solely by the Board of Directors, acting by a
majority of the directors then in office, even if less than a quorum, and any
directors chosen to fill a vacancy shall hold office until the next election of
the class for which such directors shall have been chosen and until their
successors shall be elected and qualified, and any directors chosen by reason of
an increase in the number of directors or by removal of any director by the
shareholders shall hold office until the next election of directors by the
shareholders and until their successors shall be elected and qualified. Subject
to the foregoing and the GBCC, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article III, hereof, the holders of any one or more series of Preferred Shares
shall have the right, voting separately as a series or together with holders of
other such series, to elect directors at an annual or special meeting of
shareholders, the election, term of office, filling of vacancies, rights of
removal and other features of such directorships shall be governed by the terms
of these Articles of Incorporation, including any Articles of Amendment creating
such Preferred Shares applicable thereto.
In addition to any other vote required by these Articles of
Incorporation or the GBCC, the affirmative vote of holders of at least
two-thirds of the votes entitled to be cast by all of the outstanding shares of
the Corporation shall be required to amend or repeal this Article VI.
ARTICLE VII.
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the Corporation, the
Board of Directors, committees of the Board of Directors and individual
directors, in addition to considering the effects of any action on the
Corporation or its shareholders, may consider the interests of the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments and properties of the
Corporation and its subsidiaries are located, and all other factors such
directors consider pertinent; provided, however, that this Article VII shall be
deemed solely to grant discretionary authority to the directors and shall not be
deemed to provide any constituency any right to be considered.
3
<PAGE> 4
ARTICLE VIII.
The shareholders of the Corporation shall have the right to take action
in lieu of a meeting only by one or more consents in writing signed by all of
the shareholders entitled to vote on such action.
In addition to any other vote required by these Articles of
Incorporation or the GBCC, the affirmative vote of holders of at least
two-thirds of the votes entitled to be cast by all of the outstanding shares of
the Corporation shall be required to amend or repeal this Article VIII in a
manner that would permit the shareholders of the Corporation to take action by
written consent signed by less than all of the shareholders entitled to vote on
such action.
ARTICLE IX.
Any shares of the Corporation reacquired by the Corporation shall
become treasury shares.
ARTICLE X
Section 10.1 Definitions.
"Acquire" means the acquisition of Beneficial Ownership of Equity
Shares by any means whatsoever including, without limitation, (i) the
acquisition of direct ownership of shares by any Person, including through the
exercise of any option, warrant, pledge, security interest or similar right to
acquire Equity Shares, and (ii) the acquisition of indirect ownership of Equity
Shares (taking into account the constructive ownership rules of Section 544 of
the Code, as modified by Section 856(h)(1)(B) of the Code) by a Person who is an
individual within the meaning of Section 542(a)(2) of the Code, including
through the acquisition by any Person of any option, warrant, pledge, security
interest or similar right to acquire Equity Shares.
"Beneficial Ownership" means ownership of Equity Shares by a Person who
would be treated as an owner of Equity Shares either directly or indirectly
under Section 542(a)(2) of the Code, taking into account, for this purpose,
constructive ownership determined under Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code (except where expressly provided otherwise).
The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have correlative meanings. In determining the number of Equity Shares
Beneficially Owned by a Person, no Equity Shares attributed to that Person shall
be counted more than once.
"Beneficiary" means, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named by
the Corporation as the beneficiary or beneficiaries of such Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
4
<PAGE> 5
"Constructive Ownership" means ownership of Equity Shares by a Person
who is or would be treated as a direct or indirect owner of such Equity Shares
through the application of Section 318 of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have correlative meanings.
"Equity Shares" means the Common Shares and the Preferred Shares of the
Corporation.
"Excess Shares" means Equity Shares acquired by any Beneficial Owner in
violation of Section 10.2, rounded up to the nearest whole share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Initial Public Offering" means the initial sale of Common Shares to
the public pursuant to the Corporation's first effective registration statement
for such Common Shares filed under the Securities Act of 1933, as amended.
"Market Price" of Equity Shares on any date means the average of the
closing price for such Equity Shares for the five consecutive Trading Days
ending on the Trading Day immediately prior to such date. The "Closing Price" on
any date shall mean the last quoted sales price or, if no such sale takes place
on such day, the average of the high bid and low asked prices as reported on The
Nasdaq Stock Market's National Market System or, if the Equity Shares are not
quoted on The Nasdaq Stock Market's National Market System, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Equity Shares
are listed or admitted to trading or, if the Equity Shares are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the high bid and low asked prices, in the
over-the-counter market, as reported by The Nasdaq Stock Market or, if such
system is no longer in use, the principal other automated quotation system that
may be in use or, if the Equity Shares are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker selected by the Board of Directors making a market in the Equity
Shares.
"Non-Transfer Event" means an event other than a purported Transfer
that would cause or result in an increase in the percentage of any Person's
Beneficial Ownership of the outstanding Equity Shares.
"Ownership Limit" means, (i) with respect to the Common Shares, 9.8% of
the lesser of (a) the total number, or (b) the value of, the outstanding Common
Shares or (ii) with respect to Preferred Shares, 9.8% of the lesser of (a) the
total number, or (b) the value of, the outstanding Preferred Shares (or such
other number or value of Preferred Shares as the Board of Directors may
determine in fixing the terms of the Preferred Shares).
"Partnership" means Strategic Timber Partners, LP, a Delaware limited
partnership formed pursuant to the Partnership Agreement, and any successor
thereto.
5
<PAGE> 6
"Partnership Agreement" means the agreement of limited partnership
establishing the Partnership, as the same may be amended, supplemented or
restated from time to time.
"Partnership Units" shall have the meaning set forth in the Partnership
Agreement, as in effect at the time of the Initial Public Offering.
"Permitted Transferee" means any Person designated as a Permitted
Transferee in accordance with the provisions of Section 10.7.
"Person" means (a) an individual or any corporation, partnership,
limited liability company, estate, trust, association, private foundation, joint
stock company or any other entity and (b) a "group" as the term is used for
purposes of Section 13(d)(3) of the Exchange Act; but shall not include an
underwriter that participates in a public offering of Equity Shares for a period
of 90 days following purchase by such underwriter of such Equity Shares.
"Prohibited Owner" means, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from becoming or remaining the
owner of record title to Equity Shares by the provisions of Section 10.6.
"Purported Beneficial Transferee" means, with respect to any purported
Transfer of Beneficial Ownership of Equity Shares that results in the automatic
conversion of such shares into Excess Shares, the purported transferee of
Beneficial Ownership of such shares if such purported Transfer had been valid
under Section 10.2.
"Purported Record Transferee" means, with respect to any purported
Transfer of Beneficial Ownership of Equity Shares that results in the automatic
conversion of such shares into Excess Shares, the purported record transferee of
such shares if such purported Transfer had been valid under Section 10.2.
"REIT" means a real estate investment trust under Section 856 et seq.
of the Code.
"Restriction Termination Date" means such time as (i) the Board of
Directors has adopted a resolution recommending that the Corporation terminate
its status as a REIT, (ii) the Board of Directors presents a resolution to
terminate the Corporation's status as a REIT at an annual or special meeting of
shareholders of the Corporation, and (iii) such resolution is approved by a
majority of the issued and outstanding Common Shares.
"Subsidiary" means any Person in which the Corporation beneficially
owns, directly or indirectly, more than 50% of the voting power of the
outstanding voting equity securities.
"Trading Day" means a day on which the principal national securities
exchange or stock market on which any of the Equity Shares are listed or
admitted to trading is open for the transaction of business or, if none of the
Equity Shares are listed or admitted to trading on any national securities
exchange or stock market, any day other than a Saturday, a Sunday or a day on
6
<PAGE> 7
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Transfer" (as a noun) means any sale, transfer, gift, assignment,
devise or other disposition of Beneficial Ownership of shares of capital stock,
whether voluntary or involuntary and whether by operation of law or otherwise.
"Transfer" (as a verb) shall have the correlative meaning.
"Trust" means any separate trust created and administered in accordance
with the terms of Section 10.7, for the exclusive benefit of any Beneficiary.
"Trustee" means any Person, unaffiliated with both the Corporation and
any Prohibited Owner (and, if different than the Prohibited Owner, the Person
who would have had Beneficial Ownership of the shares that would have been owned
of record by the Prohibited Owner), designated by the Corporation to act as
trustee of any Trust, or any successor trustee thereof.
Section 10.2 Restrictions on Ownership and Transfer of Equity Shares.
(a) Except as provided in Section 10.3, from and after the
date of the Initial Public Offering and until the Restriction
Termination Date:
(i) no Person shall Beneficially Own Equity Shares
in excess of the Ownership Limit;
(ii) no Person shall Acquire any Equity Shares if
such would result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Code;
(iii) no Person shall Acquire any Equity Shares if
such would cause the Corporation to Constructively Own 10% or more of
the ownership interests in a tenant of the real property of the
Corporation (or of any direct or indirect subsidiary of the
Corporation), within the meaning of Section 856(d)(2)(B) of the Code;
(iv) no Person shall Acquire any Equity Shares if
such acquisition would result in Equity Shares being Beneficially Owned
by fewer than 100 persons within the meaning of Section 856(a)(5) of
the Code;
(v) no Person shall Acquire any Equity Shares if
such acquisition would result in the failure of the Corporation to
qualify as a "domestically controlled REIT" within the meaning of
Section 897(h)(4)(B) of the Code; and
(vi) no Person shall Acquire any Equity Shares if
such acquisition would cause the Corporation to fail to qualify as a
REIT.
7
<PAGE> 8
(b) Any purported Transfer (whether or not the result of a
transaction entered into through the facilities of The Nasdaq Stock
Market, The New York Stock Exchange or any other national securities
exchange or stock market, or any other automated quotation system) of
Equity Shares that, if effective, would result in a violation of the
restrictions in Section 10.2(a) shall be void ab initio as to the
Transfer of that number of Equity Shares that would cause the violation
of the applicable restriction, and the intended transferee shall
acquire no rights in such Equity Shares, and such shares shall be
converted into Excess Shares pursuant to Section 10.6(b).
Section 10.3 Owners Required to Provide Information. From the date of
the Initial Public Offering to the Restriction Termination Date:
(a) Every Beneficial Owner of more than 5%, or such lower
percentage as is then required pursuant to regulations under the Code,
of the outstanding shares of any class or series of Equity Shares of
the Corporation shall, no later than January 31 of each year, provide
to the Corporation a written statement or affidavit stating the name
and address of such Beneficial Owner, the number of Equity Shares
Beneficially Owned by such Beneficial Owner and a description of how
such shares are held. Each such Beneficial Owner shall provide to the
Corporation such additional information as the Corporation may request
in order to determine the effect, if any, of such Beneficial Ownership
on the Corporation's status as a REIT and to ensure compliance with the
Ownership Limit.
(b) Each Person who is a Beneficial Owner of Equity Shares and
each Person (including the shareholder of record) who is holding Equity
Shares for a Beneficial Owner shall provide to the Corporation a
written statement or affidavit stating such information as the
Corporation may request in order to determine the Corporation's status
as a REIT and to ensure compliance with the Ownership Limit.
Section 10.4 Modification of Ownership Limit. The Board of Directors,
upon receipt of a ruling from the Internal Revenue Service or an opinion of
counsel or other evidence or undertakings acceptable to it, may, in its sole
discretion, waive the application of the Ownership Limit to a Person subject to
such limit, provided that (a) the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain that such Person's Beneficial Ownership or Constructive Ownership of
Equity Shares will now and in the future (i) not result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code, (ii) not cause
the Corporation to Constructively Own 10% or more of the ownership interests in
a tenant of the real property of the Corporation (or of any direct or indirect
subsidiary of the Corporation) within the meaning of Section 856(d)(2)(b) of the
Code, (iii) not result in the Equity Shares of the Corporation being
beneficially owned by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code, and (iv) not result in the Corporation failing to qualify
as a "domestically controlled REIT" within the meaning of Section 897(h)(4)(B)
of the Code, and (b) such Person agrees in writing that any violation or
attempted violation of any other limitations, restrictions and conditions that
the Board of Directors may in its sole discretion impose at the time of such
waiver with respect to such Person will result, as of
8
<PAGE> 9
the time of such violation even if discovered after such violation, in the
conversion of such shares in excess of the original limit applicable to such
Person into Excess Shares pursuant to Section 10.6(b).
Section 10.5 Exchange Settlement Not Precluded. Notwithstanding any
provision contained herein to the contrary, nothing in these Articles of
Incorporation shall preclude the settlement of any transaction entered into
through the facilities of The Nasdaq Stock Market or any other automated
quotation system or The New York Stock Exchange or any other national securities
exchange. In no event shall the existence or application of the preceding
sentence have the effect of deterring or preventing the conversion of Equity
Shares into Excess Shares as contemplated herein.
Section 10.6 Remedies for Breach.
(a) If, notwithstanding the other provisions contained in this
Article X, the Board of Directors or a committee thereof shall at any
time determine in good faith that there has occurred a purported
Transfer or Non-Transfer Event that falls within the scope of Section
10.2(b) or that would result in a violation of Section 10.2(a), then
the Board of Directors or a committee thereof shall take such action as
it or they deem advisable to refuse to give effect to or to prevent
such Transfer or Non-Transfer Event, including, but not limited to,
refusing to give effect to such Transfer or Non-Transfer Event on the
books of the Corporation or instituting proceedings to enjoin such
Transfer or Non-Transfer Event.
(b) Without limiting Section 10.6(a), and except as otherwise
provided in Section 10.4, if the Board of Directors or a committee
thereof determines that there is a purported Transfer or Non-Transfer
Event that would result in a violation of Section 10.2, then (i) the
Purported Record Transferee (and the Purported Beneficial Transferee,
if different) shall acquire no right or interest (or, in the case of a
Non-Transfer Event, the Person holding record title to the Equity
Shares Beneficially Owned by such Beneficial Owner shall cease to own
any right or interest) in such number of Equity Shares as are acquired
in violation of Section 10.2; (ii) such number of Equity Shares
(rounded up to the nearest whole share) acquired in violation of
Section 10.2 shall be automatically converted into an equal number of
Excess Shares and transferred to a Trust in accordance with Section
10.7 and (iii) such Purported Record Transferee (and such Purported
Beneficial Transferee, if different) or, in the case of a Non-Transfer
Event, the Person who, immediately prior to such automatic conversion,
was the holder of record title to the Equity Shares automatically
converted, shall submit the certificates representing such number of
Equity Shares to the Corporation, accompanied by all requisite and duly
executed assignments of Transfer thereof, for registration in the name
of the Trustee of the Trust. Such conversion into Excess Shares and
Transfer to a Trust shall be effective as of the close of trading on
the Trading Day prior to the date of the purported Transfer or
Non-Transfer Event, as the case may be, even though the certificates
representing the Equity Shares so converted may be submitted to the
Corporation at a later date.
9
<PAGE> 10
(c) If the Corporation, or its designees, shall at any time
determine in good faith that a Transfer has taken place in violation of
Section 10.2 or that a Person intends to acquire or has attempted to
acquire Beneficial Ownership or Constructive Ownership of any Equity
Shares in violation of Section 10.2, the Corporation shall take such
action as it deems advisable to refuse to give effect to or to prevent
such Transfer or acquisition, including, but not limited to, refusing
to give effect to such Transfer on the stock transfer books of the
Corporation or instituting proceedings to enjoin such Transfer or
acquisition, but the failure to take any such action shall not affect
the automatic conversion of Equity Shares into Excess Shares pursuant
to this Section 10.6 or their Transfer to a Trust pursuant to Section
10.7.
(d) Any Person who acquires or attempts to acquire Equity
Shares in violation of Section 10.2 shall immediately give written
notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in
order to determine the effect, if any, of such Transfer or Non-Transfer
Event, as the case may be, on the Corporation's status as a REIT.
Section 10.7 Creation of Trust; Disposition of Excess Shares.
(a) Upon any purported Transfer or Non-Transfer Event that
results in Excess Shares, (i) the Corporation shall create, or cause to
be created, a Trust, and shall designate a Trustee and name a
Beneficiary thereof; and (ii) such Excess Shares shall be automatically
transferred to such Trust to be held for the exclusive benefit of the
Beneficiary. Any conversion of Equity Shares into Excess Shares and
transfer to a Trust shall be effective as of the close of trading on
the Trading Day prior to the date of the purported Transfer or
Non-Transfer Event that results in the conversion. Excess Shares so
held in trust shall be issued and outstanding shares of the
Corporation.
(b) Excess Shares shall be entitled to the same dividends and
distributions (as to both timing and amount) as may be declared by the
Board of Directors of the Corporation with respect to the Equity Shares
which were converted into such Excess Shares. The Trustee, as record
holder of the Excess Shares, shall be entitled to receive all dividends
and distributions and shall hold all such dividends or distributions in
trust for the benefit of the Beneficiary. The Prohibited Owner with
respect to such Excess Shares shall repay to the Trust the amount of
any dividends or distributions received by it (i) that are attributable
to any Equity Shares that have been converted into Excess Shares and
(ii) the record date of which was on or after the date that such shares
were converted into Excess Shares. The Corporation shall take all
measures that it determines are reasonably necessary to recover the
amount of any such dividend or distribution paid to a Prohibited Owner,
including, if necessary, withholding any portion of future dividends or
distributions payable on Equity Shares Beneficially Owned by the Person
who, but for the provisions of this Article X, would Constructively Own
or Beneficially Own the Equity Shares that were converted into Excess
Shares; and, as soon as reasonably practicable following the
Corporation's receipt or withholding thereof, shall pay over to
10
<PAGE> 11
the Trust for the benefit of the Beneficiary the dividends so received
or withheld, as the case may be.
(c) In the event of any voluntary or involuntary liquidation
of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of Excess Shares shall be entitled to receive,
ratably with each other holder of the same class and series of Equity
Shares which was converted into such Excess Shares, that portion of the
assets of the Corporation that is available for distribution to the
holders of the same class and series of Equity Shares which was
converted into such Excess Shares. The Trust shall distribute to the
Prohibited Owner the amounts received upon such liquidation,
dissolution, or winding up, or distribution; provided, however, that
the Prohibited Owner shall not be entitled to receive amounts in excess
of, in the case of a purported Transfer in which the Prohibited Owner
gave value for Equity Shares and which Transfer resulted in the
conversion of such Equity Shares into Excess Shares, the product of (i)
the price per share, if any, such Prohibited Owner paid for the Equity
Shares and (ii) the number of Equity Shares which were so converted
into Excess Shares, and, in the case of a Non-Transfer Event or
purported Transfer in which the Prohibited Owner did not give value for
such shares (e.g., if the shares were received through a gift or
devise) and which Non-Transfer Event or purported Transfer, as the case
may be, resulted in the conversion of the shares into Excess Shares,
the product of (x) the price per share equal to the Market Price on the
date of such Non-Transfer Event or purported Transfer and (y) the
number of Equity Shares which were so converted into Excess Shares. Any
remaining amount in such Trust shall be distributed to the Beneficiary.
(d) Excess Shares shall entitle the holder to no voting rights
other than those voting rights which accompany a class of capital stock
under Georgia law. The Trustee, as record holder of the Excess Shares,
shall be entitled to vote all Excess Shares. Any vote by a Prohibited
Owner as a purported holder of Equity Shares prior to the discovery by
the Corporation that such Equity Shares have been converted into Excess
Shares shall, subject to applicable law, be rescinded and shall be void
ab initio with respect to such Excess Shares.
(e) As soon as practicable after the Trustee acquires Excess
Shares and complies with the last sentence of this Section 10.7(e), but
in an orderly fashion so as not to materially and adversely affect the
trading price of the same class and series of Equity Shares from which
such Excess Shares was converted, the Trustee shall designate one or
more Persons as Permitted Transferees and sell to such Permitted
Transferees any Excess Shares held by the Trustee; provided, however,
that (i) any Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the Excess Shares
and (ii) any Permitted Transferee so designated may acquire the shares
of the same class and series of Equity Shares from which such Excess
Shares was converted without violating any of the restrictions set
forth in Section 10.2 and without such acquisition resulting in the
conversion of such Equity Shares into Excess Shares and the Transfer of
such shares to a Trust pursuant to Section 10.7. The Trustee shall have
the exclusive and absolute right to designate Permitted Transferees of
any and all Excess
11
<PAGE> 12
Shares. Prior to any Transfer by the Trustee of Excess Shares to a
Permitted Transferee, the Trustee shall give not less than five Trading
Days' prior written notice to the Corporation of such intended Transfer
and the Corporation must have waived in writing its purchase rights
under Section 10.7(i) if such intended Transfer would occur during the
90-day period referred to therein.
(f) Upon the designation by the Trustee of a Permitted
Transferee in accordance with the provisions of this Section 10.7, the
Trustee shall cause to be Transferred to the Permitted Transferee
Excess Shares acquired by the Trustee. Upon such Transfer of Excess
Shares to the Permitted Transferee, such Excess Shares shall be
automatically converted into an equal number of Equity Shares of the
same class and series from which such Excess Shares was converted. The
Trustee shall (i) cause to be recorded on the stock transfer books of
the Corporation that the Permitted Transferee is the holder of record
of such number of Equity Shares, and (ii) distribute to the Beneficiary
any and all amounts held with respect to such Excess Shares after
making payment to the Prohibited Owner pursuant to Section 10.7(h).
(g) If the Transfer of Excess Shares to a purported Permitted
Transferee would or does violate any of the transfer restrictions set
forth in Section 10.2, such Transfer shall be void ab initio as to that
number of Excess Shares that cause the violation of any such
restriction when such shares are converted into Equity Shares (as
described in Section 10.7(f) above) and the purported Permitted
Transferee shall be deemed to be a Prohibited Owner and shall acquire
no rights in such Excess Shares or Equity Shares. Such Equity Shares
shall be automatically converted into Excess Shares and transferred to
the Trust from which they were originally Transferred. Such conversion
and transfer to the Trust shall be effective as of the close of trading
on the Trading Day prior to the date of the Transfer to the purported
Permitted Transferee and the provisions of this Article X shall apply
to such shares, including, without limitation, the provisions of
Sections 10.7(e) - (i) with respect to any future transfer of such
shares by the Trust.
(h) Any Prohibited Owner shall be entitled (following
acquisition of the Excess Shares and subsequent designation of and sale
of Excess Shares to a Permitted Transferee or following the acceptance
of the offer to the Corporation to purchase such shares in accordance
with Section 10.7(i)) to receive from the Trustee following the sale or
other disposition of such Excess Shares the lesser of:
(i) in the case of a purported Transfer in which the
Prohibited Owner gave value for Equity Shares and which Transfer
resulted in the conversion of such shares into Excess Shares, the
product of (1) the price per share, if any, such Prohibited Owner paid
for the Equity Shares and (2) the number of Equity Shares which were so
converted into Excess Shares, or in the case of a Non-Transfer Event or
purported Transfer in which the Prohibited Owner did not give value for
such shares (e.g., if the shares were received through a gift or
devise) and which Non-Transfer Event or purported Transfer, as the case
may be, resulted in the conversion of such shares into Excess Shares,
the product of (1) a price per share equal to the Market Price on the
date of such Non-Transfer Event or
12
<PAGE> 13
purported Transfer and (2) the number of Equity Shares which were so
converted into Excess Shares; or
(ii) the proceeds received by the Trustee from the
sale or other disposition of such Excess Shares in accordance with
Section 10.7(e) or Section 10.7(i).
Any amounts received by the Trustee in respect of such Excess Shares
which are in excess of such amounts to be paid to the Prohibited Owner
pursuant to this Section 10.7(h) shall be distributed to the
Beneficiary in accordance with the provisions of Section 10.7(f). The
Trustee and the Trust shall not be liable for, and each Beneficiary and
Prohibited Owner shall be deemed to have irrevocably waived, any claim
by a Beneficiary or Prohibited Owner arising out of the disposition of
Excess Shares, except for claims arising out of the gross negligence or
willful misconduct of, or any failure to make payments in accordance
with this Section 10.7 by, such Trustee.
(i) Excess Shares shall be deemed to have been offered for
sale to the Corporation, or its designee, at a price per share equal to
the lesser of (a) the price per share in the transaction that created
such Excess Shares (or, in the case of a Non-Transfer Event or Transfer
in which the Prohibited Owner did not give value for the shares (e.g.,
if the shares were received through a gift or devise), the Market Price
on the date of such Non Transfer Event or Transfer in which the
Prohibited Owner did not give value for the shares) or (b) the Market
Price on the date the Corporation, or its designee, accepts such offer.
The Corporation shall have the right to accept such offer for a period
of 90 days following the later of (x) the date of the Non-Transfer
Event or purported Transfer which results in such Excess Shares or (y)
the date the Board of Directors of the Corporation first determined
that a Transfer or Non-Transfer Event resulting in Excess Shares has
occurred, if the Corporation does not receive a notice of such Transfer
or Non-Transfer Event pursuant to Section 10.6(d).
Section 10.8 Remedies Not Limited.
Except as set forth in Section 10.5, nothing contained in this Article
X shall limit the authority of the Corporation to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of its
shareholders by preservation of the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit.
Section 10.9 Ambiguity.
In the case of an ambiguity in the application of any of the provisions
of this Article X, the Board of Directors shall have the power to determine the
application of the provisions of this Article X with respect to any situation
based on the facts known to it and any such determination made in good faith
shall be binding on all shareholders of the Corporation.
13
<PAGE> 14
Section 10.10 Legend.
Each certificate for Equity Shares shall bear the following legend:
"The shares of Strategic Timber Trust, Inc. (the "Corporation")
represented by this certificate are subject to restrictions set forth
in the Corporation's Articles of Incorporation which prohibit in
general (a) any Person from Beneficially Owning Equity Shares in excess
of the Ownership Limit and (b) any Person from acquiring or maintaining
any ownership interest in the capital stock of the Corporation that is
inconsistent with (i) the requirements of the Code pertaining to real
estate investment trusts or (ii) the Articles of Incorporation of the
Corporation, and the holder of this certificate by his acceptance
hereof consents to be bound by such restrictions. Any purported
transfer of Equity Shares in violation of such restrictions shall be
void ab initio and the Equity Shares transferred in violation of such
restrictions, whether as a result of a Transfer or the Non-Transfer
Event, shall be automatically converted into Excess Shares and
transferred to a Trust for disposition as provided in the Articles of
Incorporation. Capitalized terms used in this paragraph and not defined
herein are defined in the Corporation's Articles of Incorporation. The
Corporation will furnish without charge, to each shareholder who so
requests, a copy of the Articles of Incorporation of the Corporation,
containing, among other things, a statement of the powers,
designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof that the
Corporation is authorized to issue and the qualifications, limitations
or restrictions of such preferences and/or rights. Any such request
shall be addressed to the Secretary of the Corporation.
Section 10.11 Termination of REIT Status. The Board of Directors shall
take no action to terminate the Corporation's status as a REIT or to amend the
provisions of this Article 10 until such time as (a) the Board of Directors
adopts a resolution recommending that the Corporation terminate its status as a
REIT or amend this Article 10, as the case may be, (b) the Board of Directors
presents the resolution at an annual or special meeting of the shareholders and
(c) such resolution is approved by holders of a majority of the issued and
outstanding Common Shares.
Section 10.12 Severability. Each provision of this Article X shall be
severable and any such provision determined to be invalid by a court having
jurisdiction shall in no way affect the validity of any other provision.
* * * * *
DULY EXECUTED and delivered by the undersigned on ______, 1999.
STRATEGIC TIMBER TRUST, INC.
By:
-------------------------
14
<PAGE> 1
EXHIBIT 3.2.2
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
STRATEGIC TIMBER TRUST, INC.
(a Georgia corporation)
ARTICLE I
Definitions
The following terms used in these Bylaws shall have the meanings set
forth below:
a) "Articles of Incorporation" means the Amended and Restated
Articles of Incorporation of the Company as amended from time
to time.
b) "Board" means the Board of Directors of the Company.
c) "Bylaws" means these Bylaws as amended from time to time.
d) "Company" means Strategic Timber Trust, Inc.
e) "GBCC" means the Georgia Business Corporation Code or any
successor law of the State of Georgia and a reference to a
particular section of the GBCC shall refer to successor
sections of such law or successor law.
f) "Shareholders" means the shareholders of the Company.
For purposes of the Bylaws: (i) titles and captions in, and the table of
contents of, the Bylaws are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of the
Bylaws or the intent of any of their provisions; and (ii) "including" and other
words or phrases of inclusion, if any, shall not be construed as terms of
limitation, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations.
<PAGE> 2
ARTICLE II
Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held on such date, at such time and at such place as
shall be set by the Board for the purpose of electing directors and for the
transaction of such other business as may come before the meeting.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose, unless otherwise prescribed by statute, may be
called by the Chairman of the Board (if any), the President, the Board, and by
the written demand (which demand shall state the purposes for such meeting) of
holders of outstanding shares having not less than seventy-five percent of the
votes entitled to be cast by all of the outstanding shares of the Company.
Section 3. Place of Meeting. The Board may designate any place
as the place for any annual meeting or for any special meeting of shareholders.
If no designation is made the place of the meeting shall be the principal
office of the Company.
Section 4. Notice of Meeting.
(a) Written or printed notice stating the place, day and
hour of the meeting, and, in case of a special meeting, the purpose for which
the meeting is called, shall be delivered not less than ten nor more than sixty
days before the date of the meeting, either personally or by mail, by or at the
direction of the Chairman of the Board (if any), the President or the Secretary
to each shareholder of record entitled to vote at such meeting. If mailed, the
notice shall be deemed to be delivered to a shareholder when deposited in the
United States mail addressed to such shareholder at his address as it appears
on the share transfer books of the Company, with first-class postage thereon
prepaid, or, if the Corporation has more than 500 shareholders of record
entitled to vote at a meeting, and if the notice is mailed not less than 30
days before the date of the meeting, with postage thereon prepaid for any other
class of United States mail.
(b) Notwithstanding anything herein to the contrary,
notice of a meeting of shareholders need not be given to any shareholder who
waives notice of such meeting in accordance with Section 14-2-706 of the GBCC.
Section 5. Quorum. Except as otherwise provided by the Articles
of Incorporation or the GBCC, a majority of the votes entitled to be cast on a
matter by a voting group, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a quorum is represented at a
meeting, the meeting may be adjourned without further notice if the time and
place thereof are announced at the meeting at which the adjournment is taken,
provided, however, that the period shall not exceed thirty days for any one
adjournment. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally called.
2
<PAGE> 3
Section 6. Voting Requirements. If a quorum is present, action
on a matter (other than the election of directors) is approved if the votes
cast favoring the action exceed the votes cast opposing the action, unless the
GBCC, the Articles of Incorporation or a bylaw adopted by the shareholders
under Section 14-2-1021 of the GBCC requires a greater number of affirmative
votes. Unless otherwise provided in the Articles of Incorporation, directors of
the Company shall be elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
Section 7. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy authorized by the shareholder or his duly
authorized attorney in fact in any manner authorized by the GBCC. Such proxy
shall be filed with the Secretary of the Company before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 8. Voting of Shares. Each outstanding share shall be
entitled to one vote on each matter submitted to a vote at a meeting of the
shareholders except as otherwise provided in the Articles of Incorporation or
the GBCC. Cumulative voting shall not be allowed in the election of directors.
Section 9. Action Without a Meeting. Unless otherwise provided
in the Articles of Incorporation, any action required to be taken or which may
be taken at a meeting of shareholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken and bearing the date of signature, shall be signed by
all of the shareholders entitled to vote on such action.
Section 10. Notice of Shareholder Business. At any annual
meeting of the shareholders only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board or (b)
by any shareholder of the Company entitled to vote at the meeting who complies
with the notice procedures set forth in this section and Section 12. In
addition to any other applicable requirements, for business to be properly
brought before a meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Company in accordance
with Section 12 hereof. A shareholder's notice to the Secretary shall set forth
as to each matter the shareholder proposes to bring before the meeting (a) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on the Company's books, of the shareholder proposing
such business, (c) the class and number of shares which are owned (beneficially
or of record) by the shareholder, (d) any material interest of the shareholder
in such business, (e) a description of all arrangements or understandings
between the shareholder and any other persons (including their names) in
connection with the proposal and (f) any other information as would be required
to be included in a proxy statement filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended ("Regulation 14A"). Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
meeting except in accordance with the procedures set forth in this section. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that any business proposed at the meeting was not properly brought
before the meeting in accordance with the provisions of this section, and if he
or she should
3
<PAGE> 4
so determine and declare, such business shall not be transacted. Nothing in
this section shall limit the applicability of requirements of Regulation 14A,
other applicable laws or regulations, or the rules of any stock exchange on
which the Company's securities are listed for trading.
Section 11. Notice of Shareholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this section shall be
eligible for election as directors. Nominations of persons for election to the
Board may be made at a meeting of shareholders (a) by or at the direction of
the Board or (b) by any shareholder of the Company entitled to vote for the
election of directors at the meeting who has complied with the notice
procedures set forth in this section and Section 12. Such nominations, other
than those made by or at the direction of the Board, shall be made pursuant to
timely notice in writing to the Secretary of the Company in accordance with
Section 12 hereof. A shareholder's notice to the Secretary shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations or proxies for election of directors
pursuant to Regulation 14A (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the shareholder giving the notice (i) the name and
address, as they appear on the Company's books, of such shareholder, (ii) the
class and number of shares which are owned (beneficially or of record) by such
shareholder, (iii) a description of all arrangements or understandings between
the shareholder and each proposed nominee or any other persons (including their
names) pursuant to which the nominations are to be made by the shareholder; and
(iv) any other information relating to the shareholder as would be required to
be included in a proxy statement filed pursuant to Regulation 14A. The Company
may require any person nominated for election as a director to furnish to the
Secretary of the Company such other information as may reasonably be required
by the Company to determine such person's eligibility to serve as a director.
No person shall be eligible for election as a director of the Company unless
nominated in accordance with the procedures set forth in this section. In
connection with a shareholders' meeting, the Chairman of the Board (or such
other person presiding at such meeting in accordance with these Bylaws) shall,
if the facts warrant, determine and declare to the meeting that a nomination
was not made in accordance with the provisions of this section, and if he or
she should so determine and declare, the nomination shall be disregarded.
Section 12. Timely Notice of Shareholder Business or Nominees.
To be timely, a shareholder's notice under Section 10 or 11 must be delivered
to or mailed and received at the principal executive offices of the Company,
addressed to the attention of the Secretary of the Company, not less than 90
days nor more than 120 days prior to the one year anniversary of the date on
which the Company first mailed its proxy materials for the immediately
preceding annual meeting of shareholders; provided, however, that if the annual
meeting is not within 30 days of the anniversary date of the immediately
preceding annual meeting of shareholders, then a shareholder's notice must be
so received not less than ten days following the day on which notice of the
date of the annual meeting was mailed or public disclosure of the date of the
annual meeting was made, whichever occurs first.
Section 13. List of Shareholders. The Company shall keep or
cause to be kept a complete list of its shareholders, arranged in alphabetical
order, showing the address of each shareholder and
4
<PAGE> 5
the number, class and series, if any, of shares held by each. After fixing a
record date for a meeting, the Company shall prepare, or cause to be prepared,
an alphabetical list of the names of all shareholders entitled to notice of the
meeting. The list shall show the address of and number of shares held by each
shareholder, and shall comply in all other respects with applicable law. The
list of shareholders shall be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any shareholder
who is present.
Section 14. Inspectors. The Company shall appoint one or more
inspectors (who may be officers or employees of the Company) to act at each
meeting of shareholders and make a written report of the inspectors'
determinations. Each inspector shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of the inspector's ability. The inspectors shall: (1) ascertain the number
of shares outstanding and the voting power of each; (2) determine the shares
represented at a meeting; (3) determine the validity of proxies and ballots;
(4) count all votes; and (5) determine the result.
ARTICLE III
Board
Section 1. Number and Election and Term of Board; Vacancies.
The Board shall consist of such number of directors as is fixed or changed from
time to time by the Board, and shall be divided into three classes: Class I,
Class II and Class III, which shall be as nearly equal in number as possible.
Each director shall serve for a term ending on the date of the third annual
meeting of shareholders following the annual meeting at which such director was
elected; provided, however, that each initial director in Class I shall hold
office until the 2000 annual meeting of shareholders; each initial director in
Class II shall hold office until the 2001 annual meeting of shareholders; and
each initial director in Class III shall hold office until the 2002 annual
meeting of shareholders. Each director shall serve until his successor is
elected and qualified or until his earlier death, resignation or removal. The
number of directors may be increased or decreased from time to time by
resolution of the Board; provided, however, that the total number of directors
at any time shall not be less than three. Subject to the rights, if any, of the
holders of any series of preferred shares, when the number of directors is
increased or decreased, the Board shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned, provided
that no decrease in the number of directors shall shorten the term of any
incumbent director. Any vacancies in the Board for any reason, and any
directorships resulting from any increase in the authorized number of
directors, shall be filled by the Board, acting by a majority of the directors
then in office, although less than a quorum. Any director chosen to fill a
vacancy shall hold office until the next election of the class for which such
director shall have been chosen and until his or her successor shall be elected
and qualified. Any directors chosen by reason of an increase in the number of
directors or by removal of any director by the shareholders shall hold office
until the next election of directors by the shareholders and until their
successors shall be elected and qualified. Subject to the foregoing and the
GBCC, at each annual meeting of shareholders the successors to the class of
directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting.
5
<PAGE> 6
Section 2. Resignation and Removal.
(a) Resignation. Any director may resign at any time by
giving written notice to the Board, the Chairman of the Board, or to the
Secretary of the Company. Such resignation shall take effect at the time
delivered unless a later date is specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
(b) Removal. Any director may be removed by the
shareholders only for cause, by a majority of votes entitled to be cast in the
election of directors. A director may be removed only at a meeting called for
the purpose of removing the director, and the notice of such meeting must state
that the purpose (or one of the purposes) of the meeting is removal of the
director. A vacancy resulting from the removal of a director by the
shareholders may only be filled as described in Section 1 of this Article III.
Section 3. Powers. Except as otherwise provided by the Articles
of Incorporation, these Bylaws or any lawful agreement among shareholders, the
property, business and affairs of the company shall be managed and directed by
the Board.
Section 4. Regular Meetings. A regular meeting of the Board
shall be held without notice immediately after and at the same place as the
annual meeting of shareholders. The Board may adopt a resolution as to the time
and place for the holding of additional regular meetings without notice other
than such resolution.
Section 5. Special Meetings. Special meetings of the Board may
be called by or at the request of the Chairman of the Board (if any), the
President or any two directors. The person or persons authorized to call
special meetings of the Board may fix any place as the place for holding any
special meeting of the Board called by him or them.
Section 6. Notice of Special Meetings. Notice of the date, time
and place of any special meeting of the Board shall be given at least two days
prior thereto by written notice delivered personally or mailed (first class
mail) to each director at his business address or by notice given by facsimile
to such address. Notice shall be deemed to be delivered at the time specified
in Section 14- 2-141 of the GBCC; provided that if notice is given by
facsimile, such notice shall be deemed to be delivered upon printed statement
of receipt by the transmitting facsimile machine. Any director may waive notice
of any meeting. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting unless the director at the beginning of the
meeting (or promptly upon his or her arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting. Neither the business to be transacted at nor
the purpose of any regular or special meeting of the Board need be specified in
the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the total number of directors
shall constitute a quorum for the transaction of business at any meeting of the
Board. If less than a majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice.
6
<PAGE> 7
Section 8. Manner of Action. Except as otherwise provided in
the Articles of Incorporation, the vote of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board.
Section 9. Presumption of Assent. A director of the Company who
is present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless (i) he or
she objects at the beginning of the meeting to holding or transacting business
at such meeting and does not vote in favor of the action, (ii) his or her
dissent or abstention shall be entered in the minutes of the meeting or (iii)
he or she files a written notice of dissent or abstention to such action with
the presiding officer of the meeting before the adjournment thereof or shall
forward such dissent to the Company immediately after the adjournment of the
meeting. Such right to dissent or abstain shall not apply to a director who
voted in favor of such action.
Section 10. Expenses; Compensation. The Company shall pay the
actual out-of-pocket expenses incurred by each director in connection with
attending the meetings of the Board and any committee thereof; provided, that
the Company shall not be obligated to pay for any of such expenses that are
significantly in excess of the customary out-of-pocket expenses that would have
been incurred for travel to such meetings from such director's home or office.
In addition to the payment of such expenses, each director may, by resolution
of the Board, be paid a fixed sum for attendance at each meeting or a stated
annual amount or be provided other compensation in cash, shares or other
property for service as a director. No director shall be precluded from serving
the Company in any other capacity and receiving compensation therefor;
provided, however, that directors who are serving the Corporation as employees
and who receive compensation for their services as such shall not receive any
salary or other compensation for their services as directors of the
Corporation.
Section 11. Meeting by Conference Telephone. Members of the
Board may participate in a meeting by means of a conference telephone or
similar communications equipment by which all persons participating in a
meeting can hear each other during the meeting. Such participation shall
constitute presence in person at the meeting.
Section 12. Action Without a Meeting. Any action required or
permitted to be taken at a meeting of the Board may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors and filed with the minutes of the proceedings of the
Board. Such consent shall have the same force and effect as a unanimous vote of
the directors.
Section 13. Committees. The Board may, by resolution passed by a
majority of the whole Board, appoint an executive committee and any other
committee of the Board, the composition of each of which shall consist of one
or more directors of the Company, and may delegate to any such committee any of
the authority of the Board, however conferred, other than the power or
authority to (i) approve or propose to shareholders action that the GBCC
requires be approved by shareholders; (ii) fill vacancies on the Board or any
of its committees; (iii) amend the Articles of Incorporation pursuant to
Section 14-2-1002 of the GBCC; (iv) adopt, amend or repeal the Bylaws of the
Company; or (v) approve a plan of merger not requiring shareholder approval.
Each such
7
<PAGE> 8
committee shall serve at the pleasure of the Board. The Board may designate one
or more directors as alternate members of the committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee shall keep written minutes of its meetings and report the same to the
Board at the next regular meeting of the Board. Sections 6 through 12 of this
Article III shall also apply to any committees and their members, unless
otherwise provided by the Articles of Incorporation, these Bylaws or applicable
law.
ARTICLE IV
Officers and Agents
Section 1. General. The officers of the Company shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer. The Board
may elect a Chairman of the Board (who must be a director), and the Board, the
Chairman of the Board (if any) or the President may elect or appoint such other
officers, assistant officers and agents, including assistant secretaries and
assistant treasurers, as they may consider necessary, who shall be chosen in
such a manner and hold their offices for such terms and have such authority and
duties as from time to time may be determined by the person or persons so
electing or appointing. The salaries for all the officers of the Company shall
be fixed by the Board or by a committee or officer acting with the authority of
the Board. Any number of offices may be held by the same person. In all cases
where duties of any officer, agent or employee are not prescribed by the Bylaws
or by the Board, such officer, agent or employee shall follow the orders and
instructions of the President.
Section 2. Election and Term of Office. The officers of the
Company shall be elected by the Board annually at the first meeting of the
Board held after each annual meeting of the shareholders. Each officer shall
hold office until his successor is elected and qualified or until his earlier
death, resignation or removal.
Section 3. Removal. Any officer or agent may be removed by the
Board, with or without cause, whenever in its judgment the best interests of
the Company will be served thereby.
Section 4. Vacancies. A vacancy in any office, however
occurring, may be filled by the Board.
Section 5. Chairman of the Board. The Chairman of the Board (if
any) shall preside at all meetings of the Board and of the shareholders, and
may delegate such authority to any other director or to an officer of the
Company. The Chairman of the Board (if any) may exercise any powers,
authorities or functions, granted or designated, to be performed by the
President under the Bylaws or by law.
Section 6. President. The President, subject to the direction
of the Board and the Chairman of the Board (if any), shall be responsible for
the administration of the Company (including the general supervision of the
policies of the Company, the general and active management of the financial
affairs of the Company, and the supervision and direction of the actions
8
<PAGE> 9
of the other officers of the Company), shall have the power to sign and deliver
agreements, certificates and other instruments on behalf of the Company, and
shall have all such other duties and powers that are incident to his office or
that are from time to time assigned by the Board or the Chairman of the Board.
Unless the Board assigns the title of Chief Executive Officer to the Chairman
of the Board, the President shall be the chief executive officer of the
Company. In the absence of the Chairman of the Board, if the President has not
delegated such authority, the President shall preside at meetings of the
shareholders and, if the President is a director, at meetings of the Board.
Section 7. Vice Presidents. Each Vice President shall perform
such duties and exercise such powers as the Chairman of the Board (if any), the
President or the Board shall request or delegate and, unless the Board or the
President otherwise provides, shall perform such other duties as are generally
performed by vice presidents with equivalent restrictions, if any, on title. In
the absence of the President or in the event of his death or inability or
refusal to act, the Vice Presidents shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President; provided, however, that if there is more than
one Vice President, any Vice President shall have the authority to execute
agreements, certificates and other instruments on behalf of the Company,
subject to all the restrictions upon the President relating to such functions,
but all other duties of the President shall be performed by the Vice President
designated to perform such duties at the time of his appointment, or in the
absence of any designation, then by the Vice President with the most seniority
in office (or if more than one Vice President is appointed at the same meeting,
by the Vice President first listed in the action appointing them), and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President.
Section 8. Secretary. The Secretary shall attend and prepare
minutes of all meetings of the shareholders of the Company and the Board, shall
have charge of the minute books, share records and seal of the Company, shall
be authorized to affix the seal to any document requiring it, shall
authenticate records of the Company, and shall perform such other duties and
have such other powers that are from time to time assigned by the Chairman of
the Board (if any), the President or the Board.
Section 9. Treasurer. Unless the Board assigns the title of
Chief Financial Officer to another officer, the Treasurer shall be the chief
financial officer of the Company. The Treasurer shall be charged with the
management of the financial affairs of the Company. The Treasurer shall perform
all of the duties incident to such office and such other duties that are from
time to time assigned by the Chairman of the Board (if any), the President or
the Board.
Section 10. Voting Securities of Corporation. Unless otherwise
ordered by the Board, the President shall have full power and authority on
behalf of the Company to attend and to act and vote at any meetings of security
holders of corporations or other organizations in which the Company may hold
securities, and at such meetings shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
Company might have possessed and exercised if it had been present. The Board by
resolution from time to time may confer like powers upon any other person or
persons.
9
<PAGE> 10
ARTICLE V
Shares
Section 1. Direct Registration of Shares. The Company may, with
the approval of the Board, participate in a direct registration system approved
by the Securities and Exchange Commission and by the Nasdaq Stock Market or any
securities exchange on which the shares of the Company may from time to time be
traded, whereby shares of capital stock of the Company may be registered in the
holder's name in uncertificated, book-entry form on the books of the Company.
Section 2. Share Issuance and Signatures. Except in the case of
shares represented in book-entry form pursuant to Section 1 of this Article V,
share certificates shall be issued in consecutive order to all holders of
fully-paid shares, shall be in a form or forms prescribed by the Board and
shall be numbered in the order in which they are issued. They shall be signed
by (i) the Chairman of the Board (if any), the President or a Vice President
and (ii) the Secretary or an Assistant Secretary, and if there is a seal of the
Company, such seal (or a facsimile of it) shall be affixed to share
certificates. Signatures on a share certificate may be facsimiles but in such
case the certificate must be countersigned by a transfer agent or registered by
a registrar other than the Company or an employee of the Company.
Section 3. Transfers of Shares.
(a) Except in the case of shares represented in
book-entry form pursuant to Section 1 of this Article V, and subject to the
restrictions on transfer of shares described in Article X of the Articles of
Incorporation, transfers of shares shall be made in the share records of the
Company upon surrender of the certificate for such shares signed by the person
in whose name the certificate is registered or on his behalf by a person
legally authorized so to sign (or accompanied by a separate stock transfer
power so signed) and otherwise in accordance with applicable law, and subject
to such other requirements as may be imposed by the Company.
(b) The Company shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and for all other purposes, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
(c) Except in the case of shares represented in
book-entry form pursuant to Section 1 of this Article V, shares of capital
stock may be transferred by delivery of the certificates therefor, accompanied
either by an assignment in writing on the back of the certificates or by
separate written power of attorney to sell, assign and transfer the same,
signed by the record holder thereof, or by such holder's duly authorized
attorney-in-fact, but no transfer shall affect the right of the Company to pay
any dividend upon the shares to the holder of record as the holder in fact
thereof
10
<PAGE> 11
for all purposes, and no transfer shall be valid, except between the parties
thereto, until such transfer shall have been made upon the books of the Company
as herein provided.
Section 4. Lost Certificates. The Company may issue a new share
certificate in place of any certificate previously issued by the Company and
alleged to have been lost, stolen or destroyed upon the making of an affidavit
of that fact by the person claiming the certificate to be lost, stolen or
destroyed. If the Company deems it appropriate, it may require such person to
deliver a commercial indemnity bond issued by a company approved by the Company
in such sum as the Company may direct as indemnity against any claim that may
be made against the Company with respect to the certificate alleged to have
been lost, stolen or destroyed. The Company may also authorize the Company's
transfer agent or registrar, if any, to issue replacement certificates on such
terms and conditions as the Company specifies.
Section 5. Regulations, Transfer Agents and Registrars. The
Board may make all such rules and regulations as it may deem expedient
concerning the issuance, transfer, conversion, registration and cancellation of
share certificates not inconsistent with applicable law, the Articles of
Incorporation or the Bylaws of the Company. The Board may appoint one or more
transfer agents or registrars, or both, and may require all share certificates
to bear the signature of a transfer agent or registrar or both.
ARTICLE VI
Indemnification of Officers and Directors
Section 1. General. Pursuant to Section 14-2-859(a) of the GBCC
the Company shall indemnify, and shall advance funds to pay for or reimburse
expenses to, each person who:
(a) is or was a director or officer of the Company
(including the heirs, executors, administrators or estate of such person); or
(b) while holding a status described in (a) above, is or
was serving at the request of the Company as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
to the fullest extent permitted under, and in accordance with the procedures
required by, the GBCC.
Section 2. Non-Officer/Non-Director Agents and Employees. The
Board may authorize the Company to indemnify, or advance expenses in connection
with a proceeding that may be the subject of indemnification to, a non-officer,
non-director agent or employee of the Company if, to the extent and on such
terms as the Board may from time to time determine, in accordance with the
Articles of Incorporation, these Bylaws and the GBCC.
Section 3. Subsequent Amendment. No amendment, termination or
other elimination of this Article VI or of any relevant provisions of the GBCC
or of any other applicable law shall affect or diminish in any way the rights
to indemnification under this Article VI with respect to any
11
<PAGE> 12
action, suit or proceeding arising out of, or relating to, any event or act or
omission occurring or fact or circumstance existing prior to such amendment,
termination or other elimination.
Section 4. Other Rights; Indemnification Agreements. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VI shall not be deemed exclusive of any other rights permitted
by applicable law to which a person seeking indemnification or advancement of
expenses may be entitled, whether by contract or otherwise. Nothing contained
in this Article VI shall be deemed to prohibit, and the Company is specifically
authorized to enter into, agreements which provide indemnification rights and
procedures permitted by the GBCC.
Section 5. Continuation of Right to Indemnification. All rights
to indemnification under this Article VI (including those arising pursuant to
Section 4 above) shall continue as to a person who has ceased to be a director
or officer, shall inure to the benefit of heirs, executors, administrators and
the estate of such person, and shall be deemed to be a contract between the
Company and each such person or entity. This Article VI shall be binding upon
any successor corporation to the Company, whether by way of merger,
consolidation, liquidation, dissolution or otherwise.
Section 6. Savings Clause. If this Article VI or any portion of
it shall be invalidated on any ground by any court of competent jurisdiction,
then the Company shall nevertheless indemnify persons specified in this Article
VI to the full extent permitted by any applicable portion of this Article VI
that shall not have been invalidated and to the full extent permitted by
applicable law.
Section 7. Insurance. The Company may purchase and maintain
insurance on behalf of an individual who is a director, officer, employee, or
agent of the Company or who, while a director, officer, employee, or agent of
the Company, serves at the Company's request as a director, officer, partner,
trustee, employee or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan, or other entity
against liability asserted against or incurred by him or her in that capacity
or arising from his or her status as a director, officer, employee, or agent,
whether or not the Company would have the power to indemnify or advance
expenses to him or her against the same liability under these Bylaws and the
GBCC.
ARTICLE VII
Business Combinations
Section 1. Business Combinations with Interested Shareholders.
All of the requirements of Part 3 (Business Combinations with Interested
Shareholders) of Article 11 (Merger and Share Exchange) of the GBCC shall be
applicable to the Company.
Section 2. Repeal of Business Combinations with Interested
Shareholders Bylaw. Sections 1 and 2 of this Article VII may only be repealed
by the affirmative vote of at least two-thirds of the continuing directors (as
defined in Section 14-2-1110 of the GBCC) and a majority of the votes entitled
to be cast by the voting shares of the Company other than shares beneficially
owned by an interested shareholder (as defined in Section 14-2-1110 of the
GBCC), in addition to any other vote required by the Articles of Incorporation
or these Bylaws. Any action to repeal
12
<PAGE> 13
Section 1 or 2 of this Article VII shall not be effective until 18 months after
the shareholder vote to effect such repeal and shall not apply to any business
combination (as defined in Section 14-2-1110 of the GBCC) between the Company
and any person who became an interested shareholder of the Company on or prior
to such repeal.
Section 3. Fair Price Requirements. All of the requirements of
Part 2 (Fair Price Requirements) of Article 11 (Merger and Share Exchange) of
the GBCC shall be applicable to the Company.
Section 4. Repeal of Fair Price Requirements Bylaw. Sections 3
and 4 of this Article VII may only be repealed by the affirmative vote of at
least two-thirds of the continuing directors (as defined in Section 14-2-1110
of the GBCC) and a majority of the votes entitled to be cast by the voting
shares of the Company other than shares beneficially owned by an interested
shareholder and affiliates and associates of an interested shareholder (each as
defined in Section 14-2-1110 of the GBCC), in addition to any other vote
required by the Article of Incorporation or these Bylaws.
ARTICLE VIII
Amendments
Subject to the Articles of Incorporation, these Bylaws and the GBCC,
these Bylaws may be amended (or repealed and new bylaws adopted) by the
shareholders of the Company or by a majority of the whole Board. The
shareholders of the Company may provide expressly that any bylaws adopted,
amended or repealed by them shall not be amended or repealed by the Board. A
provision of the Bylaws limiting the authority of the Board or establishing
staggered terms for directors may only be adopted, amended or repealed by the
shareholders of the Company. Sections 1 or 2 of Article III of these Bylaws may
be amended or repealed by the shareholders if and only if two-thirds of all
votes entitled to be cast on such matters are cast favoring the action.
* * * * *
13
<PAGE> 1
EXHIBIT 8.2
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Index Number: 856.01-00 Washington, DC 20224
William H. Bradley, Esq. Contact Person:
Sutherland, Asbill & Brennan LLP Mr. Bernard P. Harvey 50-03134
999 Peachtree Street N.E., #2300 Telephone Number:
Atlanta, GA 30309 (202) 622-3110
In Reference to:
CC:DOM:P&SI:6 -- PLR-112420-98
Date:
March 19, 1999
LEGEND:
Taxpayer = Strategic Timber Trust, Inc.
EIN: 02-0499201
Partnership = Strategic Timber Partners, L.P.
EIN: 02-0499203
Operating = Strategic Timber Operating Co.
EIN: 02-0499202
Dear Mr. Bradley:
This letter responds to a request for a private letter ruling filed on
behalf of Taxpayer dated June 10, 1998. You requested a ruling that gross
income derived from the disposal of timber pursuant to cutting agreements will
constitute gross income derived from gain from the sale or disposition of real
property (or interests in real property) which is not property described in ss.
1221(1) of the Internal Revenue Code, for purposes of ss. 856(c)(2)(D) and ss.
856(c)(3)(C), and that such income will not be treated as prohibited
transaction income under ss. 857(b)(6).
Taxpayer is a domestic corporation that is a limited partner of
Partnership. Taxpayer intends to qualify and elect treatment as a REIT.
Operating is a corporate general partner of Partnership, and a wholly-owned
subsidiary of Taxpayer. It is represented that Operating will be treated as a
qualified REIT subsidiary pursuant to ss. 856(i), and the income and assets of
Operating will thus be treated as the income and assets of Taxpayer. It is
anticipated that Partnership, Taxpayer, and Operating will operate in an
umbrella partnership REIT format with
<PAGE> 2
-2-
timberland assets being held by Partnership.
Partnership will invest and reinvest funds contributed by its partners
in interests in timber, timberlands, and such other assets as appropriate to
establish proper portions of liquid assets for the partnership. Partnership
will maintain, manage, and dispose of the timber growing on the timberlands
held by Partnership. Partnership will acquire timber tracts for investment
purposes with the expectation of holding and managing those tracts for
investment. When Operating, as general partner, determines that it is in the
best interest of Partnership to dispose of standing timber, Partnership will
enter into agreements calling for the cutting and removal of timber pursuant to
a cutting contract. Partnership may, on occasion, also sell or otherwise
dispose of timberland itself.
Taxpayer and Partnership anticipate that substantially all of their
income from disposals of timber will be generated by the disposal of timber
under contracts pursuant to which Partnership will retain an economic interest
in the timber. It is intended that the tax treatment of the timber disposals
under the contracts will be governed by ss. 631(b). Income from the disposals
will be based upon an agreed amount per unit of timber ultimately harvested.
Taxpayer anticipates that substantially all of its income will be derived from
contracts qualifying under ss. 631(b) pursuant to which the purchaser, rather
than Taxpayer or Partnership, will harvest the timber. Consequently, Taxpayer
represents that Partnership will retain an economic interest in the timber
disposed of pursuant to the contracts, and Partnership and Taxpayer will
receive passive income measured by the quantity of timber actually cut by the
purchaser. Partnership will not engage either in cutting timber or
merchandising the logs cut from the timber.
LAW AND ANALYSIS
Section 856(c)(2) provides that at least 95 percent of a REIT's gross
income (excluding gross income from prohibited transactions) must be derived
from, among other sources, gain from the sale or other disposition of stock,
securities, and real property (including interests in real property and
interests in mortgages on real property) which is not property described in ss.
1221(1).
Section 856(c)(3) provides that at least 75 percent of a REIT's gross
income (excluding gross income from prohibited transactions) must be derived
from, among other sources, gain from the sale or other disposition of real
property (including interests in real property and interests in mortgages on
real property) which is not property described in ss. 1221(1).
Section 856(c)(4)(A) provides that at the close of each quarter of its
tax year, at least 75 percent of the value of a REIT's total assets must be
represented by real estate assets, cash and cash items (including receivables),
and Government securities. Section 856(c)(4)(B) provides
<PAGE> 3
-3-
that not more than 25 percent of the value of a REIT's total assets may be
represented by securities (other than those includible under subparagraph (A)),
for purposes of this calculation limited in respect of any one issuer to an
amount not greater than 5 percent of the value of the total assets of the REIT
and to not more than 10 percent of the outstanding voting securities of the
issuer.
Section 856(c)(5)(B) provides that the term "real estate assets" means
real property (including interests in real property and interests in mortgages
on real property) and shares (or transferable certificates of beneficial
interest) in other qualifying REITs. Section 856(c)(5)(C) defines the term
"interests in real property" to include fee ownership and co-ownership of land
or improvements thereon, leaseholds of land or improvements thereon, options to
acquire land or improvements thereon, and options to acquire leaseholds of land
or improvements thereon, but does not include mineral, oil, or gas royalty
interests. Section 1.856-3(d) of the Income Tax Regulations provides that local
law definitions will not be controlling for purposes of determining the meaning
of the term "real property" as used in ss. 856 and the regulations thereunder.
Section 856(c)(5)(A) provides that "value" means, with respect to
securities for which market quotations are readily available, the market value
of those securities; and with respect to other securities and assets, fair
value as determined in good faith by the trustees, except that in the case of
securities of REITs, the fair value shall not exceed market value or asset
value, whichever is higher.
Under ss. 1.856-3(g), a REIT that is a partner in a partnership is
deemed to own its proportionate share of each of the assets of the partnership
and to be entitled to the income of the partnership attributable to that share.
For purposes of ss. 856, the interest of a partner in the partnership's assets
shall be determined in accordance with the partner's capital interest in the
partnership. The character of the various assets in the hands of the
partnership and items of gross income of the partnership shall retain the same
character in the hands of the partners for all purposes of ss. 856.
It is a long-standing principle of law that standing timber is treated
as real property for federal income tax purposes. In Hutchins v. King, 68 U.S.
53, 59 (1863) the Supreme Court stated that "timber growing upon the land
constituted a portion of the realty." More recently, the court in Laird v.
United States, 115 F. Supp. 931, 933 (W.D. Wis. 1953) stated that growing
timber under the common law and the law of . . . the United States, has always
been considered a portion of the real property, and the owner of that timber
had an interest in so much of the soil as was necessary to sustain it. Also,
the Service ruled in Rev. Rul. 72-515, 1972-2 C.B. 466, that timber growing on
the land is part of the land and that an exchange of timberlands of different
qualities nevertheless constitutes a like kind exchange because both are land
held for investment.
<PAGE> 4
-4-
Accordingly, we conclude that timberlands and the standing timber
thereon constitute real property and, therefore, real estate assets within the
meaning of ss. 856(c)(5)(B) and ss. 856(c)(4)(A).
Section 631(b) provides that in the case of the disposal of timber
held for more than one year before the disposal, by the owner thereof under any
form or type of contract by virtue of which the owner retains an economic
interest in the timber, the difference between the amount realized from the
disposal of the timber and the adjusted depletion basis thereof, shall be
considered as though it were a gain or loss, as the case may be, on the sale of
the timber. The date of the disposal of the timber shall be deemed to be the
date the timber is cut, but if payment is made to the owner under the contract
before the timber is cut, the owner may elect to treat the date of payment as
the date of disposal of the timber. For purposes of this section, the term
"owner" means any person who owns an interest in the timber, including a
sublessor and a holder of a contract to cut timber.
Section 1.631-2(a)(2) provides that in the case of a disposal of
timber with a retained economic interest, the provisions of ss. 1231 apply and
such timber shall be considered property used in the trade or business for the
tax year in which it is considered to have been sold, along with other property
of the taxpayer used in the trade or business as defined in ss. 1231(b),
whether or not such timber is property held by the taxpayer for sale to
customers in the ordinary course of the taxpayer's trade or business.
In order for there to be a disposal of timber under a contract for
purposes of section 631(b), the lessee must have a contractual obligation to
cut specified timber. See, e.g., Rev. Rul. 77-229, 1977-2 C.B. 210 (citing Ah
Pah Redwood Co. v. Commissioner, 251 F.2d 163 (9th Cir. 1957); Jantzer v.
Commissioner, 284 F.2d 348 (9th Cir. 1960); Patterson v. Belcher, 302 F.2d 289
(5th Cir. 1962), opinion amended and reh. den., 305 F.2d 557, cert. denied, 371
U.S. 921 (1962). Section 1.631-2(e)(2) provides that in order to be the owner
of timber a taxpayer must have a right to cut timber for sale on its own
account or for use in its trade or business.
Neither ss. 631(b) nor the regulations thereunder provide guidance on
what constitutes a retained economic interest. Section 1.611-1(b)(1), however,
provides that an economic interest is possessed when the taxpayer has acquired
by investment any interest in standing timber and secures, by any form of legal
relationship, income derived from the severance of the timber, to which the
taxpayer must look for a return of capital. In other words, an owner retains an
economic interest under a timber cutting contract if the amount of the payment
for the timber depends solely on the actual quantity of timber cut.
Section 1231(a) generally provides that gain or loss on the sale or
exchange of property
<PAGE> 5
-5-
used in a trade or business will be treated as gain or loss from the sale or
exchange of a capital asset. Section 1231(b)(2) provides that property used in
a trade or business includes timber to which ss. 631 applies.
Section 857(b)(6)(A) provides that a tax will be imposed upon a REIT
equal to 100 percent of the net income derived by the REIT from prohibited
transactions. Section 857(b)(6)(B)(iii) defines the term "prohibited
transaction" as a sale or other disposition of property described in ss.
1221(1) which is not foreclosure property.
If it is determined that the timber cutting agreements entered into by
Taxpayer are governed by ss. 631(b), the standing timber disposed of pursuant
to the agreements will be treated as property used in a trade or business under
ss. 1231, which section does not include property held for sale in the ordinary
course of business as described in ss. 1221(1). Therefore, the sale of timber
by Taxpayer pursuant to the agreements will not satisfy the definition of a
prohibited transaction.
Accordingly, provided that the timber cutting agreements entered into
by Taxpayer are governed by ss. 631(b), gross income derived from the disposal
of timber pursuant to those cutting agreements will constitute gross income
derived from gain from the sale or disposition of real property (or interests
in real property) which is not property described in ss. 1221(1), for purposes
of ss. 856(c)(2)(D) and ss. 856(c)(3)(C). Also, such income will not be treated
as prohibited transaction income under ss. 857(b)(6).
No opinion is expressed or implied as to the federal tax consequences
of this transaction under any provision not specifically addressed herein.
Furthermore, no opinion is expressed concerning whether Taxpayer will otherwise
qualify as a REIT under subchapter M, part II of Chapter 1. In addition, no
opinion is expressed concerning the federal tax consequences of Partnership's
disposal of standing timber on the timberlands other than by timber cutting
contracts governed by ss. 631(b). Further, no opinion is expressed concerning
whether the relationship between Taxpayer and any other party to a timber
cutting contract entered into by Taxpayer will cause Taxpayer to fail to
satisfy the 10 percent voting securities requirement of ss. 856 (c)(4)(B).
This ruling is directed only to the taxpayer who requested it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.
<PAGE> 6
-6-
A copy of the letter is being forwarded to the District Director, New
England District.
Sincerely yours,
/s/ Harold E. Burghart
HAROLD E. BURGHART
Assistant to the Chief, Branch 5
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)
Enclosures: 2
Copy of this letter
Copy for section 6110 purposes
<PAGE> 7
-7-
cc: Joseph E. Rendini
VP & Secretary
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, NH 03257
Daniel B. McKeithen, Esq.
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E., #2300
Atlanta, GA 30309-3996
District Director, New England District
Chief, Examination Division
<PAGE> 1
EXHIBIT 10.1
1999 STRATEGIC TIMBER TRUST
OMNIBUS INCENTIVE PLAN
1. PURPOSE; DEFINITIONS.
The purpose of the Plan is to support the Company's ongoing efforts to
develop and retain leaders of exceptional talent and to provide the Company with
the ability to provide incentives more directly linked to the profitability of
the Company's business and to increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
"Annual Incentive Award" means an Incentive Award made pursuant to
Section 5(a)(v) with a Performance Cycle of one year or less.
"Awards" mean grants under this Plan of Incentive Awards, Stock
Options, Stock Appreciation Rights, Restricted Stock or Other Stock-Based
Awards.
"Board" means the Board of Directors of the Company.
"Change in Control" is defined in Section 6 below.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
"Commission" means the Securities and Exchange Commission or any
successor agency.
"Committee" means the Compensation Committee of the Board or a
subcommittee thereof, any successor thereto or such other committee or
subcommittee as may be designated by the Board to administer the Plan.
"Common Stock" or "Stock" means the Common Stock of the Company.
"Company" means Strategic Timber Trust, Inc., a corporation organized
under the laws of the State of Georgia, or any successor thereto.
"Exercise Period" means the 60-day period from and after a Change in
Control.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
"Fair Market Value" means, as of any given date, the mean between the
highest and lowest
<PAGE> 2
reported sales prices of the Common Stock on the Nasdaq Stock Market or, if no
such sale of Common Stock is reported on such date, the fair market value of the
Stock as determined by the Committee in good faith.
"Incentive Award" means any Award that is either an Annual Incentive
Award or a Long-Term Incentive Award.
"Incentive Stock Option" means any Stock Option that complies with
Section 422 of the Code.
"Long-Term Incentive Award" means an Incentive Award made pursuant to
Section 5(a)(v) with a Performance Cycle of more than one year.
"Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Other Stock-Based Award" means an Award made pursuant to Section
5(a)(iv).
"Performance Cycle" means the period selected by the Committee during
which the performance of the Company or any subsidiary, affiliate or unit
thereof or any individual is measured for the purpose of determining the extent
to which an Award subject to Performance Goals has been earned.
"Performance Goals" mean the objectives for the Company or any
subsidiary or affiliate or any unit thereof or any individual that may be
established by the Committee for a Performance Cycle with respect to any
performance-based Awards contingently awarded under the Plan. The Performance
Goals for Awards that are intended to constitute "performance-based"
compensation within the meaning of Section 162(m) of the Code shall be based on
such criteria as are established by the Committee which may include, but are not
limited to the following: earnings per share, total shareholder return, funds
from operations, operating income, net income, cash flow, return on equity,
return on capital, and earnings before interest, taxes, depreciation, depletion
and amortization ("EBITDDA").
"Plan" means this 1999 Strategic Timber Trust Omnibus Incentive Plan,
as amended from time to time.
"Restricted Period" means the period during which an Award may not be
sold, assigned, transferred, pledged or otherwise encumbered.
"Restricted Stock" means an Award of shares of Common Stock pursuant to
Section 5(a)(iii).
"Spread Value" means, with respect to a share of Common Stock subject
to an Award, an amount equal to the excess of the Fair Market Value, on the date
such value is determined, over the
2
<PAGE> 3
Award's exercise or grant price, if any.
"Stock Appreciation Right" or "SAR" means a right granted pursuant to
Section 5(a)(ii).
"Stock Option" means an option granted pursuant to Section 5(a)(i).
In addition, the terms "Business Combination," "Change in Control," "Change in
Control Price," "Incumbent Board," "Outstanding Company Common Stock,"
"Outstanding Company Voting Securities" and "Person" have the meanings set forth
in Section 6.
2. ADMINISTRATION.
The Plan shall be administered by the Committee, which shall have the
power to interpret the terms and intent of the Plan and to adopt such rules and
guidelines for carrying out the Plan as it may deem appropriate. The Committee
shall have the authority to adopt such modifications, procedures and subplans as
may be necessary or desirable to comply with the laws, regulations, compensation
practices and tax and accounting principles of the countries in which the
Company, a subsidiary or an affiliate may operate to assure the viability of the
benefits of Awards made to individuals employed in such countries and to meet
the objectives of the Plan.
Subject to the terms of the Plan, the Committee shall have the
authority to determine those individuals eligible to receive Awards and the
amount, type and terms of each Award and to establish and administer any
Performance Goals applicable to such Awards, but, at the discretion of the
Board, such determinations may be made subject to ratification by the Board.
The Committee may delegate its authority and power under the Plan to
one or more officers of the Company, subject to guidelines prescribed by the
Committee and approved by the Board, with respect to participants who are not
subject to Section 16 of the Exchange Act.
Any determination made by the Committee or pursuant to delegated
authority in accordance with the provisions of the Plan with respect to any
Award shall be made in the sole discretion of the Committee or such delegate,
and all decisions made by the Committee or any appropriately designated officer
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Plan participants, but subject to
ratification by the Board if the Board so provides.
3. ELIGIBILITY.
All employees of the Company, its subsidiaries and affiliates, as well
as non-employee members of the Board of Directors of the Company, its
subsidiaries or affiliates are eligible to be granted Awards under the Plan.
3
<PAGE> 4
4. COMMON STOCK SUBJECT TO PLAN.
The total number of shares of Common Stock reserved and available for
distribution pursuant to the Plan shall be 2,224,000 shares, all of which may be
issued pursuant to the exercise of Stock Options awarded under the Plan. If any
Award is exercised, cashed out or terminates or expires without a payment being
made to the participant in the form of Common Stock, the shares subject to such
Award, if any, shall again be available for distribution in connection with
Awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, split-up or other change in
corporate structure affecting the Common Stock after adoption of the Plan by the
Board, the Board is authorized to make substitutions or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
number, kind and price of shares subject to outstanding Awards and in the Award
limits set forth in Section 5; provided, however, that any such substitutions or
adjustments shall be, to the extent deemed appropriate by the Board, consistent
with the treatment of shares of Common Stock not subject to the Plan, and that
the number of shares subject to any Award shall always be a whole number.
5. AWARDS.
(a) General. The types of Awards that may be granted under the
Plan are set forth below. Awards may be granted singly, in combination
or in tandem with other Awards.
(i) Stock Options. A Stock Option represents the right to
purchase a share of Stock at a predetermined grant price. Stock Options
granted under this Plan may be in the form of Incentive Stock Options
or Nonqualified Stock Options, as specified in the Award agreement. The
term of each Stock Option shall be set forth in the Award agreement,
but no Incentive Stock Option shall be exercisable more than ten years
after the grant date. The grant price per share of Common Stock
purchasable under an Incentive Stock Option shall not be less than 100%
of the Fair Market Value on the date of grant. Subject to the
applicable Award agreement, Stock Options may be exercised, in whole or
in part, by giving written notice of exercise to the Company specifying
the number of shares to be purchased. Such notice shall be accompanied
by payment in full of the purchase price by certified or bank check or
such other instrument as the Company may accept (including a copy of
instructions to a broker or bank acceptable to the Company to deliver
promptly to the Company an amount of sale or loan proceeds sufficient
to pay the purchase price). As determined by the Committee, payment in
full or in part may also be made in the form of Common Stock already
owned by the optionee valued at the Fair Market Value on the date the
Stock Option is exercised; provided, however, that such Common Stock
shall not have been acquired within the preceding six months upon the
exercise of a Stock Option or stock unit or similar Award granted under
the Plan or any other plan maintained at any time by the Company or any
subsidiary.
4
<PAGE> 5
(ii) Stock Appreciation Rights. An SAR represents
the right to receive a payment, in cash, shares of Common
Stock or both (as determined by the Committee), equal to the
Spread Value on the date the SAR is exercised. The grant price
of an SAR shall be set forth in the applicable Award
agreement. Subject to the terms of the applicable Award
agreement, an SAR shall be exercisable, in whole or in part,
by giving written notice of exercise to the Company.
(iii) Restricted Stock. Shares of Restricted Stock
are shares of Common Stock that are awarded to a participant
and that during the Restricted Period may be forfeitable to
the Company upon such conditions as may be set forth in the
applicable Award agreement. Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered during
the Restricted Period. Except as provided in this subsection
(iii) and in the applicable Award agreement, a participant
shall have all the rights of a holder of Common Stock,
including the rights to receive dividends and to vote during
the Restricted Period. Dividends with respect to Restricted
Stock that are payable in Common Stock shall be paid in the
form of Restricted Stock.
(iv) Other Stock-Based Awards. Other Stock-Based
Awards are Awards, other than Stock Options, SARs or
Restricted Stock, that are denominated in, valued in whole or
in part by reference to, or otherwise based on or related to,
Common Stock. The purchase, exercise, exchange or conversion
of Other Stock-Based Awards granted under this subsection (iv)
shall be on such terms and conditions and by such methods as
shall be specified by the Committee.
(v) Incentive Awards. Incentive Awards are
performance-based Awards that are expressed in U.S. currency.
Incentive Awards shall either be Annual Incentive Awards or
Long-Term Incentive Awards.
(b) Maximum Awards. The total number of shares of Restricted
Stock and other shares of Common Stock subject to or underlying Stock
Options, SARs and Other Stock-Based Awards awarded to any participant
during the term of this Plan shall not exceed 25% of the shares of
Common Stock originally reserved for distribution pursuant to the Plan.
An Annual Incentive Award paid to a participant with respect to any
Performance Cycle shall not exceed $1,000,000. A Long-Term Incentive
Award paid to a participant with respect to any Performance Cycle shall
not exceed $1,000,000 times the number of years in the Performance
Cycle.
(c) Performance-Based Awards. Any Awards granted pursuant to
the Plan may be in the form of performance-based Awards through the
application of Performance Goals and Performance Cycles.
5
<PAGE> 6
6. CHANGE IN CONTROL PROVISIONS.
Notwithstanding any other provision of the Plan to the contrary, if
approved by the Board, in the event of a Change in Control:
(a) All Stock Options and Stock Appreciation Rights
outstanding as of the date such Change in Control occurs shall become
fully vested and exercisable.
(b) The restrictions and other conditions applicable to any
Restricted Stock or Other Stock-Based Awards, including vesting
requirements, shall lapse, and such Awards shall become free of all
restrictions and fully vested.
(c) The value of all outstanding Stock Options, Stock
Appreciation Rights, Restricted Stock and Other Stock-Based Awards
shall, unless otherwise determined by the Board of Directors at or
after grant, be cashed out on the basis of the "Change in Control
Price," as defined in Section 6(e), as of the date such Change in
Control occurs or such other date as the Committee may determine prior
to the Change in Control.
(d) Any Incentive Awards relating to Performance Cycles prior
to the Performance Cycle in which the Change in Control occurs that
have been earned but not paid shall become immediately payable in cash.
In addition, each participant who has been awarded an Incentive Award
shall be deemed to have earned a pro rata Incentive Award equal to the
product of (y) such participant's maximum award opportunity for such
Performance Cycle, and (z) a fraction, the numerator of which is the
number of full or partial months that have elapsed since the beginning
of such Performance Cycle to the date on which the Change in Control
occurs, and the denominator of which is the total number of months in
such Performance Cycle.
(e) A "Change in Control" means the happening, subsequent to
completion of the initial public offering of shares of Stock of the
Company, of any of the following events:
(i) The acquisition, other than in a transaction
approved by the Incumbent Board, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act (a "Person")) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then outstanding shares of
Common Stock (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change in Control: (1) any
acquisition directly from the Company, (2) any acquisition by
the Company,(3) any acquisition by any employee benefit plan
(or related trust)sponsored or maintained by the Company or
6
<PAGE> 7
any corporation controlled by the Company or (4) any
acquisition by any Person pursuant to a transaction described
in clauses (A), (B) and (C) of paragraph (iii) of this Section
6(e); or
(ii) Individuals who, as of the effective date of the
Plan, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to such effective date whose election, or
nomination for election by the stockholders of the Company,
was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) Approval by the stockholders of the Company of
a reorganization, merger, share exchange or consolidation (a
"Business Combination"), unless, in each case following such
Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that
as a result of such transaction owns the Company through one
or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B)
no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such Person owned 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities prior to the Business Combination and (C) at least
a majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board,
providing for such Business Combination; or
7
<PAGE> 8
(iv) Approval by the stockholders of the Company of
(A) a complete liquidation or dissolution of the Company or
(B) the sale or other disposition of all or substantially all
of the assets of the Company, other than to a corporation with
respect to which, following such sale or other disposition,
(1) more than 50% of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2)
less than 20% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by any Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation), except to the extent that such
Person owned 20% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities prior to the
sale or disposition and (3) at least a majority of the members
of the board of directors of such corporation were members of
the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing
for such sale or other disposition of assets of the Company or
were elected, appointed or nominated by the Board.
(f) "Change in Control Price" means the highest price per
share paid in any transaction reported on the Nasdaq Stock Market or
paid or offered in any bona fide transaction related to a potential or
actual Change in Control of the Company at any time during the
preceding 60-day period as determined by the Committee, except that, in
the case of Incentive Stock Options, unless the Committee otherwise
provides, such price shall be based only on transactions reported for
the date on which such Incentive Stock Options are cashed out.
(g) Notwithstanding any other provision of this Plan, upon a
Change in Control, unless the Committee shall determine otherwise at
grant, or after grant but before the Change in Control, an Award
recipient shall have the right, by giving notice to the Company within
the Exercise Period, to elect to surrender all or part of the Stock
Option, SAR or Other Stock-Based Award to the Company and to receive in
cash, within 30 days of such notice, an amount equal to the amount by
which the "Change in Control Price" on the date of such notice exceeds
the exercise or grant price under such Award, multiplied by the number
of shares of Stock as to which the right granted under this Section 6
shall have been exercised.
8
<PAGE> 9
(h) Notwithstanding the foregoing, if any right granted
pursuant to this Section 6 would make a Change in Control transaction
ineligible for pooling of interests accounting under generally accepted
accounting principles that but for this Section 6 would otherwise be
eligible for such accounting treatment, the Committee shall have the
ability to substitute the cash payable pursuant to this Section 6 with
Common Stock with a Fair Market Value equal to the cash that would
otherwise be payable hereunder.
7. PLAN AMENDMENT AND TERMINATION.
The Board may amend or terminate the Plan at any time, provided that no
such amendment shall be made without stockholder approval if such approval is
required under applicable law, or if such amendment would increase the total
number of shares of Common Stock that may be distributed under the Plan.
Except as set forth in any Award agreement, no amendment or termination
of the Plan may materially and adversely affect any outstanding Award under the
Plan without the Award recipient's consent.
8. PAYMENTS AND PAYMENT DEFERRALS.
Payment of Awards may be in the form of cash, Stock, other Awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee, either at the time of grant or by
subsequent amendment, may require or permit deferral of the payment of Awards
under such rules and procedures as it may establish. It also may provide that
deferred settlements include the payment or crediting of interest or other
earnings on the deferred amounts, or the payment or crediting of dividend
equivalents when the deferred amounts are denominated in Common Stock
equivalents.
9. DIVIDENDS AND DIVIDEND EQUIVALENTS.
The Committee may provide that any Awards under the Plan earn dividends
or dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's Plan account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in additional
shares of Common Stock or Common Stock equivalents.
10. TRANSFERABILITY.
Except to the extent permitted by the Award agreement, either initially
or by subsequent amendment, Awards shall not be transferable or assignable other
than by will or the laws of descent and distribution and shall be exercisable
during the lifetime of the recipient only by him.
9
<PAGE> 10
11. AWARD AGREEMENTS.
Each Award under the Plan shall be evidenced by a written agreement
(which need not be signed by the recipient unless otherwise specified by the
Committee) that sets forth the terms, conditions and limitations for each Award.
Such terms may include, but are not limited to, the term of the Award, vesting
and forfeiture provisions, and the provisions applicable in the event the
recipient's employment terminates. The Committee may amend an Award agreement,
provided that no such amendment may materially and adversely affect an Award
without the Award recipient's consent.
12. UNFUNDED STATUS OF PLAN.
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or make payments; provided, however, that,
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
13. GENERAL PROVISIONS.
(a) The Committee may require each person acquiring shares of
Common Stock pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a
view to the distribution thereof. The certificates for such shares may
include any legend that the Committee deems appropriate to reflect any
restrictions on vesting and transfer.
All certificates for shares of Common Stock or other
securities delivered under the Plan shall be subject to such stock
transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Commission, any stock exchange upon which the Common Stock is then
listed and any applicable Federal, state or foreign securities law, and
the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Company,
a subsidiary or an affiliate from adopting other or additional
compensation arrangements for its employees or directors.
(c) The adoption of the Plan shall not confer upon any
employee any right to continued employment nor shall it interfere in
any way with the right of the Company, a subsidiary or an affiliate to
terminate the employment of any employee at any time.
10
<PAGE> 11
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income
tax purposes with respect to any Award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the
Company regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, withholding
obligations arising from an Award may be settled with Common Stock,
including Common Stock that is part of, or is received upon exercise or
conversion of, the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company, its
subsidiaries and its affiliates shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment otherwise due
to the participant. The Committee may establish such procedures as it
deems appropriate, including the making of irrevocable elections, for
the settling of withholding obligations with Common Stock.
(e) On receipt of written notice of exercise, the Committee
may elect to cash out all or a portion of the shares of Common Stock
for which a Stock Option is being exercised by paying the optionee an
amount, in cash or Common Stock, equal to the Spread Value of such
shares on the date such notice of exercise is received.
(f) The Plan and all Awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Georgia.
(g) If any provision of the Plan is held invalid or
unenforceable, the invalidity or unenforceability shall not affect the
remaining parts of the Plan, and the Plan shall be enforced and
construed as if such provision had not been included.
(h) The Plan shall be effective on the date of the closing of
the Company's initial public offering of Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as
amended. Except as otherwise provided by the Board, no Awards shall be
granted after the date that is ten years thereafter, but any Awards
granted theretofore may extend beyond that date.
* * * * *
11
<PAGE> 1
EXHIBIT 10.2
STRATEGIC TIMBER TRUST, INC.
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made on this _____ day of ____________ 1999, by and
between Strategic Timber Trust, Inc., a Georgia corporation ("STT"), and the
undersigned ("Director").
WITNESSETH:
WHEREAS, Director is currently serving or intends to serve as a
director of STT and in such capacity performs a valuable service for STT;
WHEREAS, the Georgia Business Corporation Code, as now in effect or
hereafter amended (the "GBCC") as well as STT's Bylaws (the "Bylaws")
specifically provide that the indemnification provided thereunder is not
exclusive of any other rights with respect to indemnification or otherwise to
which those seeking indemnification may be entitled under any contract or
resolution approved or ratified by the shareholders by a majority of the votes
entitled to be cast;
WHEREAS, the GBCC and the Bylaws contemplate that contracts may be
entered into between STT and its directors with respect to indemnification of
such directors;
WHEREAS, in order to encourage Director to continue his service or
begin to serve as a director of STT, STT has determined and agreed to enter into
this Agreement with Director;
NOW, THEREFORE, in consideration of Director's service or continued
service to STT as a director from and after the date hereof, the parties hereby
agree as follows:
1. INDEMNITY OF DIRECTOR. STT shall defend, hold harmless and
indemnify Director to the full extent permitted by the provisions of the GBCC,
as currently in effect or as it may hereafter be amended, or by the provisions
of any other applicable statute authorizing or permitting such indemnification,
whether currently in effect or hereafter adopted.
2. INSURANCE POLICIES.
(a) STT represents that it has purchased and presently maintains a
policy of directors' and officers' liability insurance ("D&O Insurance") with
____________________ in the amount of $______________. Subject to the provisions
of Section 2(b) hereof, for so long as Director shall continue in such capacity
and thereafter if Director shall then be subject to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative), by reason of
<PAGE> 2
the fact that Director was a director of STT, STT will use reasonable
efforts to maintain in effect for the benefit of Director one or more
policies of D&O Insurance providing coverage comparable to that
presently in effect.
(b) STT shall not be required to maintain said policy or
policies of D&O Insurance in effect if said insurance is not reasonably
available or if, in the reasonable business judgment of the then
directors of STT, the premium cost for such insurance is
disproportionate to the amount or extent of coverage.
3. ADDITIONAL INDEMNITY. Subject to the provisions of Section 4
hereof and without limiting the Bylaws, STT shall defend, hold harmless and
indemnify Director:
(a) in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(other than an action, suit or proceeding by or in the right of STT),
by reason of the fact that he is or was a director of STT, or is or was
serving at the request of STT as a director, officer, partner, trustee,
employee, or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan or other
entity, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding, if he conducted
himself in good faith and reasonably believed: (i) in the case of
conduct in his official capacity, that such conduct was in the best
interests of STT; (ii) in all other cases, that such conduct was at
least not opposed to the best interests of STT; and (iii) in the case
of any criminal proceeding, that he had no reasonable cause to believe
such conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, or conviction, or upon a
plea of nolo contendere or its equivalent is not, of itself,
determinative that Director met the standard of conduct under this
Section 3(a); and
(b) in any threatened, pending or completed action, suit
or proceeding by or in the right of STT to procure a judgment in its
favor, by reason of the fact he is or was a director of STT or is or
was serving at the request of STT as a director, officer, partner,
trustee, employee, or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan or other
entity, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding, if he acted in a
manner he believed in good faith to be in or not opposed to the best
interests of STT. The termination of any action, suit or proceeding by
judgment, order or settlement shall not, of itself, create a
presumption that Director did not act in a manner which he believed in
good faith to be in or not opposed to the best interests of STT.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by STT:
-2-
<PAGE> 3
(a) to the extent it would reduce or eliminate any
payments under any D&O Insurance covering Director;
(b) to the extent of any liability for which Director is
indemnified pursuant to Sections 1 and 2 of this Agreement or pursuant
to any D&O Insurance carried by STT;
(c) on account of any claim against Director for an
accounting of profits made from the purchase or sale of securities of
STT pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or the similar provisions
of any other applicable law;
(d) on account of any claim against Director arising out
of the trading of STT stock while possessing material non-public
information, whether pursuant to the Insider Trading Sanctions Act of
1984 or otherwise;
(e) if a final judgment or other final adjudication by a
court having jurisdiction in the matter shall determine that such
indemnity is not lawful;
(f) in respect to remuneration paid to Director if a
final judgment or other final adjudication by a court having
jurisdiction in the matter shall determine that such remuneration was
not lawful;
(g) for any appropriation, in violation of his duties, of
any business opportunity of STT;
(h) for acts or omissions which involve intentional
misconduct or a knowing violation of law;
(i) for unlawful distributions as set forth in GBCC s.
14-2-832 (or any successor provision); or
(j) for any transaction from which he received an
improper personal benefit.
5. NOTIFICATION AND DEFENSE OF CLAIM.
(a) Promptly after receipt by Director of notice of the
commencement of any action, suit or proceeding, Director will, if a
claim in respect thereto is to be made against STT under this
Agreement, notify STT of the commencement thereof, but the failure to
so notify STT will not relieve it from any liability which it may have
to Director otherwise than under this Agreement. With respect to any
such action, suit or proceeding as to which Director so notifies STT:
(i) STT will be entitled to participate therein
at its own expense; and
-3-
<PAGE> 4
(ii) except as otherwise provided below, to the
extent that it may wish, STT may assume the defense thereof.
(b) After notice from STT to Director of its election to
assume the defense thereof, STT will not be liable to Director under
this Agreement or otherwise for any legal or other expenses
subsequently incurred by Director in connection with the defense
thereof other than reasonable costs of investigation or as otherwise
provided below. Director shall have the right to employ counsel of his
choosing in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from STT of its assumption of the
defense thereof shall be at the expense of Director unless (i) the
employment of counsel by Director has been authorized in writing by
STT, (ii) STT and Director shall have reasonably concluded that there
may be a conflict of interest between STT and Director in the conduct
of the defense of such action, or (iii) STT shall not in fact have
employed counsel to assume the defense of such action, in each of which
cases the reasonable fees and expenses of Director's counsel shall be
paid by STT.
(c) STT shall not be liable to Director under this
Agreement for any amounts paid in settlement of any threatened or
pending action, suit or proceeding without its prior written consent.
STT shall not settle any such action, suit or proceeding in any manner
which would impose any penalty or limitation on Director without
Director's prior written consent. Neither STT nor Director will
unreasonably withhold his or its consent to any proposed settlement.
6. PREPAYMENT OF EXPENSES. Unless Director otherwise elects,
expenses incurred in defending any civil or criminal action, suit or proceeding
will be paid by STT in advance of the final disposition of such action, suit or
proceeding upon receipt of a written agreement from Director in form and
substance satisfactory to STT (i) affirming the Director's good faith belief
that his conduct does not constitute behavior of the kind described in Sections
4(c) through (j) of this Agreement, and (ii) agreeing to repay any advances if
it shall be ultimately determined that he is not entitled to be indemnified by
STT under this Agreement.
7. CONTINUATION OF INDEMNITY. All agreements and obligations of
STT contained in this Agreement shall continue during the period Director is a
member of the Board of Directors of STT and shall continue thereafter so long as
Director shall be subject to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that Director was a director of STT, or is or was serving at
the request of STT as a director, officer, partner, trustee, employee, or agent
of another domestic or foreign corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
8. ALLOWANCE FOR COMPLIANCE WITH SEC REQUIREMENTS. Director
acknowledges that the Securities and Exchange Commission ("SEC") has expressed
the opinion that indemnification of directors and officers from liabilities
under the Securities Act of 1933 (the "Act") is against public policy and
therefore unenforceable. Director hereby agrees
-4-
<PAGE> 5
that it will not be a breach of this Agreement for STT to agree with the SEC in
connection with the registration for sale of any stock or other securities of
STT from time to time that, in the event a claim for indemnification against
such liabilities (other than the payment by STT of expenses incurred or paid by
a director or officer of STT in the successful defense of any action, suit or
proceeding) is asserted in connection with such stock or other securities being
registered, STT will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of competent jurisdiction
the question of whether or not such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue. Director further agrees that such submission to a court of competent
jurisdiction shall not be a breach of this Agreement.
9. RELIANCE. STT has entered into this Agreement in order to
induce Director to serve or continue as a member of the Board of Directors of
STT, and acknowledges that Director is relying upon this Agreement with respect
thereto.
10. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
11. GOVERNING LAW; ASSIGNMENT; BINDING EFFECT; AMENDMENT AND
TERMINATION; GENDER.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to
agreements made and to be performed entirely within such State.
(b) Neither this Agreement nor any rights or obligations
hereunder shall be assigned or transferred by Director.
(c) This Agreement shall be binding upon Director and
upon STT, its successors and assigns, including successors by merger or
consolidation, and shall inure to the benefit of Director, his heirs,
personal representatives and permitted assigns and to the benefit of
STT, its successors and assigns.
(d) No amendment, modification or termination of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(e) References herein to the male gender herein shall
include references to the female gender.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
-5-
<PAGE> 6
STRATEGIC TIMBER TRUST, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
-----------------------------------
[NAME OF DIRECTOR], Director
<PAGE> 1
EXHIBIT 10.3
[FORM OF STOCK OPTION AGREEMENT -- OFFICERS AND EMPLOYEES]
STRATEGIC TIMBER TRUST, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is made
and entered into between Strategic Timber Trust, Inc., a Georgia corporation
(the "Company"), and _______________________ ("Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option and Effective Date.
1.1 Grant. The Company hereby grants to Optionee pursuant to
the Company's 1999 Omnibus Incentive Plan, as amended (the "Plan"), a stock
option (the or this "Option") to purchase all or any part of an aggregate of
__________________________________________ (______) of the Company's $.01 par
value common shares ("Common Stock") on the terms and conditions set forth
herein and in the Plan as in effect on the Effective Date (as defined below), a
copy of which is attached hereto as Exhibit A and incorporated in this
Agreement. This Option shall not be treated as an incentive stock option under
Section 422 of the Internal Revenue Code (the "Code"), and all provisions of
this Agreement shall be construed to effect such intent.
1.2 Effective Date. The date this Option is granted is
__________________ ("Effective Date").
2. Exercise Price. The exercise price for the shares of Common
Stock covered by this Option shall be __________________________________________
($________) per share ("Exercise Price"), which shall be not less than the fair
market value of a share of Common Stock on the Effective Date.
3. Adjustment and Termination of Options. Subject to the other
restrictions in the Plan and this Agreement, the Company shall adjust the number
and kind of shares and the Exercise Price thereof proportionately for any
increase or decrease in the number of issued shares of Common Stock resulting
from a subdivision or combination of shares or the payment of a stock dividend
in shares of Common Stock to holders of outstanding shares of Common Stock or
any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company. If the Company shall be the surviving
corporation in any merger or consolidation (other than as a subsidiary of
another corporation), recapitalization, reclassification of shares or similar
reorganization, the Optionee shall be entitled to purchase, at the same times
and upon the same terms and conditions as are provided in this Agreement, the
number and class of shares of stock or other securities to which a holder of the
number of shares of Common Stock subject to the Stock Option
<PAGE> 2
at the time of such transaction would have been entitled to receive as a result
of such transaction. In the event of a dissolution or liquidation of the
Company, a sale of all or substantially all of the stock or all or substantially
all of the assets of the Company, a direct or indirect merger or consolidation
in which the Company is not the surviving corporation or survives only as a
subsidiary of another corporation, or any other transaction having a similar
result or effect, each outstanding Option shall terminate except to the extent
that another corporation assumes such Option or substitutes another option or
stock incentive therefor.
4. Exercise of Options.
4.1 When Exercisable.
(a) Rate of Exercise. Optionee shall not be
vested with the right to exercise this Option to purchase any shares of Common
Stock ("Shares") until ________________ after the Effective Date. Subject to the
other restrictions in the Plan and this Agreement, Optionee shall acquire the
vested right to exercise this Option to purchase:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) Partial Exercise. Subject to the other
restrictions in the Plan and this Agreement, this Option may be exercised for
all or a part of the Shares with respect to which this Option is exercisable
under Section 4.1(a).
4.2 Method of Exercise; Withholding. Subject to Section
4.1 and the other restrictions in the Plan and this Agreement, this Option is
exercisable from time to time by the Optionee, who shall complete, execute and
deliver to the Company a Form of Exercise of Stock Option (the "Form") in a form
established by the Company from time to time. Except as otherwise provided in
the Plan, the Form shall be accompanied by payment in full for the stock to be
purchased. Payment of the purchase price may be made by delivery of Common Stock
valued at its fair market value on the date of delivery. Upon due exercise of
the Option, subject to the terms and conditions in this Agreement and the Plan,
the Company shall issue in the name of Optionee and deliver to him
certificate(s) for the Shares in respect of which the Option shall have been
exercised, but no Shares will be issued until arrangements satisfactory to the
Company have been made for appropriate income tax withholding.
4.3 Exercise After Termination of Employment. Upon any
termination of employment of Optionee for any reason other than for cause (as
defined below), death or disability, this Option may, to the extent exercisable,
be exercised within three months after the date of such employment termination.
Upon any termination of employment of Optionee by reason of disability,
2
<PAGE> 3
within the meaning of Section 22(e)(3) of the Code or any successor provision,
this Option may, to the extent exercisable, be exercised within twelve months
after the date of such employment termination. If Optionee dies, this Option
may, to the extent exercisable, be exercised by a legatee or legatees of the
Optionee under the Optionee's last will, or by the Optionee's personal
representatives or distributees, within twelve months after the Optionee's
death. This Section 4.3 shall not extend the term of this Option specified in
Section 4.4. For purposes of this Section 4.3, the employment of Optionee shall
not be deemed terminated so long as Optionee is employed by the Company, by a
subsidiary of the Company or by another corporation (or a parent or subsidiary
corporation of such other corporation) which has assumed this Option in a
transaction to which Section 424(a) of the Code or any successor provision is
applicable. For purposes of this Section 4.3, the extent to which this Option is
exercisable shall be determined as of the date of termination of employment.
4.4 Option Term.
(a) Termination for Cause. The Option shall
terminate immediately upon termination by the Company or any subsidiary of the
Company of the employment of Optionee for "cause." For purposes of this
Agreement, the term "cause" shall be deemed to mean (i) habitual neglect by
Optionee of his employment-related duties, with "habitual neglect" meaning
neglect which occurs again after one written warning from the Company or any
subsidiary of the Company specifying such neglect and after Optionee's failure
within a reasonable time (defined for the purposes of this Section 4.4(a) as the
earlier of two weeks or 10 business days) thereafter to correct the problem;
(ii) habitual use of alcohol or drugs; or (iii) indictment for a felony or for a
misdemeanor or other illegal conduct involving dishonesty or fraud.
(b) Termination for Breach. The Option shall
terminate upon the expiration of a 30-day period from the date of written notice
to Optionee of a material breach or default by him of any provision of any
agreement between Optionee and the Company or any subsidiary of the Company
unless such breach or default is remedied within such 30- day period, and no
Option shall be exercisable during any period within which any such material
breach or default is unremedied.
(c) Other Termination. In addition to the
foregoing provisions of this Section 4.4, the Option shall not be exercisable
after the earliest of (i) a dissolution or liquidation of the Company, a sale of
all or substantially all of the stock or all or substantially all of the assets
of the Company, a direct or indirect merger or consolidation in which the
Company is not the surviving corporation or survives only as a subsidiary of
another corporation, or any other transaction having a similar result or effect,
except to the extent that another corporation assumes the Option or substitutes
another option therefor; or (ii) ten years from the Effective Date.
5. Non-transferability of Options. The Option shall not be transferable
or assignable except upon Optionee's death by will or the laws of descent and
distribution and shall be exercisable, during Optionee's lifetime, only by
Optionee.
3
<PAGE> 4
6. Purchase for Investment; Other Representations of Optionee; Legends.
If the offering of Shares with respect to which the Option is being exercised is
not registered under the Securities Act of 1933, as amended (the "Act"), but an
exemption is available that requires an investment representation or other
representation, Optionee, if electing to purchase Shares, will be required to
represent that such Shares are being acquired for investment and not with a view
to distribution thereof, and to make such other representations as are deemed
necessary by counsel to the Company. Stock certificates evidencing such
unregistered Shares that are acquired upon exercise of the Option shall bear
restrictive legends in substantially the following form and such other
restrictive legends as are required or advisable under the provisions of any
applicable laws:
The shares represented by this stock certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
nor under any state securities laws and shall not be transferred at any
time in the absence of (i) an effective registration statement under
the Act and applicable state securities laws with respect to such
Shares at such time; or (ii) an opinion of counsel satisfactory to the
Company and its counsel, to the effect that such transfer at such time
will not violate the Act or any applicable state securities laws.
7. Restriction on Issuance of Shares. The Company shall not be
obligated to sell or issue any Shares pursuant to this Agreement if such
issuance would result in the violation of any laws, including the Act or any
applicable state securities laws. If at any time the Company shall determine
that the listing, registration or qualification of the Shares upon any
securities exchange or under any state or federal law is necessary or desirable
as a condition of or in connection with the purchase or delivery of the Shares,
the delivery of any or all Shares may be withheld unless and until such listing,
registration or qualification shall have been effected.
8. Rights as a Stockholder. Optionee shall have no rights as a
stockholder with respect to any Shares covered by the Option until the date of
issuance of a stock certificate for such Shares. Subject to Section 3, no
adjustment shall be made by reason of any dividends, distributions or other
rights granted to stockholders for which the record date is prior to the date
such stock certificate is issued.
9. No Employment Rights. This Agreement shall not confer upon Optionee
any right with respect to the continuance of employment by the Company or any
subsidiary.
10. Severability. In the event that any court of competent jurisdiction
shall determine that any provision of this Agreement is invalid, such
determination shall not affect the validity of any other provision of this
Agreement, which shall remain in full force and effect and which shall be
construed as to be valid under applicable law.
11. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Georgia.
12. Notices. All notices and other communications under this Agreement
shall be in
4
<PAGE> 5
writing, and shall be deemed to have been duly given on the date of delivery if
delivered personally or when received if mailed to the party to whom notice is
to be given, by certified mail, return receipt requested, postage prepaid, to
the following address, or any other address specified by notice duly given:
To Optionee at:
----------------------------------------
----------------------------------------
----------------------------------------
To the Company at: Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attention: President
13. Counterparts; Copies. This Agreement may be signed by each party
upon a separate copy and in such case one counterpart of this Agreement shall
consist of enough copies to reflect the signature of each party to this
Agreement. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and it shall not be necessary in making proof
of this Agreement or its terms to produce or account for more than one of such
counterparts.
DULY EXECUTED and delivered by the parties to this Agreement, effective
as set forth above.
STRATEGIC TIMBER TRUST, INC.
By:
--------------------------------------
Title:
-----------------------------------
OPTIONEE:
-----------------------------------------
[Signature of Optionee]
Name:
-----------------------------------
[Please Print]
5
<PAGE> 1
EXHIBIT 10.4
[FORM OF STOCK OPTION AGREEMENT -- OUTSIDE DIRECTORS]
STRATEGIC TIMBER TRUST, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is made
and entered into between Strategic Timber Trust, Inc., a Georgia corporation
(the "Company"), and _______________________ ("Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option and Effective Date.
1.1 Grant. The Company hereby grants to Optionee pursuant to
the Company's 1999 Omnibus Incentive Plan, as amended (the "Plan"), a stock
option (the or this "Option") to purchase all or any part of an aggregate of
__________________________________________ (______) of the Company's $.01 par
value common shares ("Common Stock") on the terms and conditions set forth
herein and in the Plan as in effect on the Effective Date (as defined below), a
copy of which is attached hereto as Exhibit A and incorporated in this
Agreement. This Option shall not be treated as an incentive stock option under
Section 422 of the Internal Revenue Code (the "Code"), and all provisions of
this Agreement shall be construed to effect such intent.
1.2 Effective Date. The date this Option is granted is
________________ ("Effective Date").
2. Exercise Price. The exercise price for the shares of Common Stock
covered by this Option shall be __________________________________________
($________) per share ("Exercise Price"), which shall be not less than the fair
market value of a share of Common Stock on the Effective Date.
3. Adjustment and Termination of Options. Subject to the other
restrictions in the Plan and this Agreement, the Company shall adjust the number
and kind of shares and the Exercise Price thereof proportionately for any
increase or decrease in the number of issued shares of Common Stock resulting
from a subdivision or combination of shares or the payment of a stock dividend
in shares of Common Stock to holders of outstanding shares of Common Stock or
any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company. If the Company shall be the surviving
corporation in any merger or consolidation (other than as a subsidiary of
another corporation), recapitalization, reclassification of shares or similar
reorganization, the Optionee shall be entitled to purchase, at the same times
and upon the same terms and conditions as are provided in this Agreement, the
number and class of shares of stock or other
<PAGE> 2
securities to which a holder of the number of shares of Common Stock subject to
the Stock Option at the time of such transaction would have been entitled to
receive as a result of such transaction. In the event of a dissolution or
liquidation of the Company, a sale of all or substantially all of the stock or
all or substantially all of the assets of the Company, a direct or indirect
merger or consolidation in which the Company is not the surviving corporation or
survives only as a subsidiary of another corporation, or any other transaction
having a similar result or effect, each outstanding Option shall terminate
except to the extent that another corporation assumes such Option or substitutes
another option or stock incentive therefor.
4. Exercise of Options.
4.1 When Exercisable.
(a) Rate of Exercise. Optionee shall not be
vested with the right to exercise this Option to purchase any shares of Common
Stock ("Shares") until ________________ after the Effective Date. Subject to the
other restrictions in the Plan and this Agreement, Optionee shall acquire the
vested right to exercise this Option to purchase:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) Partial Exercise. Subject to the other
restrictions in the Plan and this Agreement, this Option may be exercised for
all or a part of the Shares with respect to which this Option is exercisable
under Section 4.1(a).
4.2 Method of Exercise; Withholding. Subject to Section 4.1
and the other restrictions in the Plan and this Agreement, this Option is
exercisable from time to time by the Optionee, who shall complete, execute and
deliver to the Company a Form of Exercise of Stock Option (the "Form") in a form
established by the Company from time to time. Except as otherwise provided in
the Plan, the Form shall be accompanied by payment in full for the stock to be
purchased. Payment of the purchase price may be made by delivery of Common Stock
valued at its fair market value on the date of delivery. Upon due exercise of
the Option, subject to the terms and conditions in this Agreement and the Plan,
the Company shall issue in the name of Optionee and deliver to him
certificate(s) for the Shares in respect of which the Option shall have been
exercised, but no Shares will be issued until arrangements satisfactory to the
Company have been made for appropriate income tax withholding.
4.3 Exercise After Termination of Directorship. Upon any
termination of Optionee's status as a director of the Company, this Option may,
to the extent exercisable, be exercised within three months after the date of
such termination. If Optionee dies, this Option may,
2
<PAGE> 3
to the extent exercisable, be exercised by a legatee or legatees of the Optionee
under the Optionee's last will, or by the Optionee's personal representatives or
distributees, within twelve months after the Optionee's death. This Section 4.3
shall not extend the term of this Option specified in Section 4.4.
4.4 Option Term.
(a) Termination for Breach. The Option shall
terminate upon the expiration of a 30-day period from the date of written notice
to Optionee of a material breach or default by him of any provision of any
agreement between Optionee and the Company or any subsidiary of the Company
unless such breach or default is remedied within such 30- day period, and no
Option shall be exercisable during any period within which any such material
breach or default is unremedied.
(b) Other Termination. In addition to the
foregoing provisions of this Section 4.4, the Option shall not be exercisable
after the earliest of (i) a dissolution or liquidation of the Company, a sale of
all or substantially all of the stock or all or substantially all of the assets
of the Company, a direct or indirect merger or consolidation in which the
Company is not the surviving corporation or survives only as a subsidiary of
another corporation, or any other transaction having a similar result or effect,
except to the extent that another corporation assumes the Option or substitutes
another option therefor; or (ii) ten years from the Effective Date.
5. Non-transferability of Options. The Option shall not be transferable
or assignable except upon Optionee's death by will or the laws of descent and
distribution and shall be exercisable, during Optionee's lifetime, only by
Optionee.
6. Purchase for Investment; Other Representations of Optionee; Legends.
If the offering of Shares with respect to which the Option is being exercised is
not registered under the Securities Act of 1933, as amended (the "Act"), but an
exemption is available that requires an investment representation or other
representation, Optionee, if electing to purchase Shares, will be required to
represent that such Shares are being acquired for investment and not with a view
to distribution thereof, and to make such other representations as are deemed
necessary by counsel to the Company. Stock certificates evidencing such
unregistered Shares that are acquired upon exercise of the Option shall bear
restrictive legends in substantially the following form and such other
restrictive legends as are required or advisable under the provisions of any
applicable laws:
The shares represented by this stock certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
nor under any state securities laws and shall not be transferred at any
time in the absence of (i) an effective registration statement under
the Act and applicable state securities laws with respect to such
Shares at such time; or (ii) an opinion of counsel satisfactory to the
Company and its counsel, to the effect that such transfer at such time
will not violate the Act or any applicable state securities laws.
3
<PAGE> 4
7. Restriction on Issuance of Shares. The Company shall not be
obligated to sell or issue any Shares pursuant to this Agreement if such
issuance would result in the violation of any laws, including the Act or any
applicable state securities laws. If at any time the Company shall determine
that the listing, registration or qualification of the Shares upon any
securities exchange or under any state or federal law is necessary or desirable
as a condition of or in connection with the purchase or delivery of the Shares,
the delivery of any or all Shares may be withheld unless and until such listing,
registration or qualification shall have been effected.
8. Rights as a Stockholder. Optionee shall have no rights as a
stockholder with respect to any Shares covered by the Option until the date of
issuance of a stock certificate for such Shares. Subject to Section 3, no
adjustment shall be made by reason of any dividends, distributions or other
rights granted to stockholders for which the record date is prior to the date
such stock certificate is issued.
9. Severability. In the event that any court of competent jurisdiction
shall determine that any provision of this Agreement is invalid, such
determination shall not affect the validity of any other provision of this
Agreement, which shall remain in full force and effect and which shall be
construed as to be valid under applicable law.
10. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Georgia.
11. Notices. All notices and other communications under this Agreement
shall be in writing, and shall be deemed to have been duly given on the date of
delivery if delivered personally or when received if mailed to the party to whom
notice is to be given, by certified mail, return receipt requested, postage
prepaid, to the following address, or any other address specified by notice duly
given:
To Optionee at:
----------------------------------------
----------------------------------------
----------------------------------------
To the Company at: Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attention: President
12. Counterparts; Copies. This Agreement may be signed by each party
upon a separate copy and in such case one counterpart of this Agreement shall
consist of enough copies to reflect the signature of each party to this
Agreement. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and it shall not be necessary in making proof
of this Agreement or its terms to produce or account for more than one of such
counterparts.
4
<PAGE> 5
DULY EXECUTED and delivered by the parties to this Agreement, effective
as set forth above.
STRATEGIC TIMBER TRUST, INC.
By:
-----------------------------------------
Title:
-------------------------------------
OPTIONEE:
-------------------------------------------
[Signature of Optionee]
Name:
--------------------------------------
[Please Print]
5
<PAGE> 1
EXHIBIT 10.9.1
TIMBER PURCHASE AGREEMENT
By this Agreement, executed as of the 29th day of December, 1998,
KINZUA RESOURCES, LLC ("Kinzua"), an Oregon Limited Liability Company, and
PIONEER RESOURCES, LLC ("Pioneer"), an Oregon limited liability company, agree
as follows:
1. PURCHASE AND SALE. Kinzua hereby purchases from Pioneer and
Pioneer hereby sells to Kinzua "the Timber" (as defined in Section 2, below) on
the real property described on Exhibit A attached hereto, which is approximately
42,420 acres situated in Wheeler, Morrow, Umatilla and Grant Counties, Oregon
(hereinafter "the Premises").
2. THE TIMBER. The term "the Timber" shall mean the merchantable
timber standing or lying on the Premises during the term of this Agreement which
is included in the following description:
2.1 VOLUME. 19,295 MBF, net short log Scribner scale, to
be selected by Kinzua from the timber located on the Premises in accordance with
the logging plan described in Section 12.2 below.
2.2 SPECIES. Ponderosa pine, Douglas fir, western larch,
white fir, Engelmann spruce, and lodgepole pine.
2.3 SIZE. For standing trees, tree segments which will
produce a 16' log to a minimum 6" top, inside bark diameter. For down trees,
tree segments which will produce an 8' log to a minimum 6" top, inside bark
diameter.
3. PRICE. The purchase price for the Timber is Five Million Five
Hundred Fifty-Six Thousand Nine Hundred Sixty Dollars ($5,556,960). Kinzua shall
account for and report to Pioneer, in accordance with Sections 6 and 7 of this
Agreement, all volumes of the Timber harvested from the Premises and all volumes
of timber in excess of 19,295 MBF harvested from the Premises. Kinzua shall pay
Pioneer, in addition to said purchase price, the following stumpage price for
any excess volumes of timber incidentally cut or removed by Kinzua: $288/MBF,
net short log Scribner scale, all species, camp run. However, nothing in the two
preceding sentences shall be construed to allow Kinzua to cut or remove any
volume of timber substantially in excess of the volume set forth in Section 2.1,
above, or unilaterally to make any material variance in the logging plan
approved by Pioneer pursuant to the provisions of Section 12.2, below.
4. REMOVAL SCHEDULE. Subject to unusual weather conditions or
other events of force majeure, Kinzua will use its best efforts to complete
harvest and removal of the Timber not later than September 30, 1999. Kinzua will
promptly notify and confer with Pioneer as soon as Kinzua knows of circumstances
that may prevent compliance with the schedule set forth above. Notwithstanding
any such unusual weather conditions or other events of force majeure, the
<PAGE> 2
period within which Kinzua shall be required to harvest and remove the Timber
shall not extend beyond December 31, 1999.
5. TERMS OF PAYMENT.
5.1 On execution of this Agreement, Kinzua will pay to
Pioneer Five Million Five Hundred Fifty-Six Thousand Nine Hundred Sixty Dollars
($5,556,960) in full satisfaction of the purchase price for the Timber. Upon
receipt of the $5,556,960, Pioneer shall deliver to Kinzua a Timber Deed in the
form attached hereto as Exhibit B.
5.2 If, for any reason, the volume of merchantable logs
removed from the Premises is less than 19,295 MBF, the purchase price shall not
be adjusted and no portion thereof shall be refundable or rebatable, it being
understood and agreed that Kinzua shall have all risk with respect to existing
and future volumes of timber on the Premises and all risk of loss.
5.3 Unless directed otherwise in writing, Kinzua shall
make payments to Pioneer at its address set forth in this Agreement for the
purpose of providing notice.
6. UTILIZATION STANDARDS. Kinzua shall remove from the Premises
any merchantable log manufactured from severed timber. Merchantable logs shall
be those logs containing 5 board feet or more of sound, usable wood, and having
a minimum log diameter of 6" inside the bark at the small end and having a
minimum of 8 feet in length. Any log containing less than one-third net
merchantable volume that is inadvertently transported to a log yard shall be the
property of Kinzua, but Kinzua shall have no obligation to pay for such culls.
7. SCALING.
7.1 All loads shall be weighed at the Kinzua log yards
with a scale ticket that notes gross, tare, and net weights. All mixed species
loads will be 100 percent rollout scaled. Loads sorted by species shall be
scaled one in five on a random basis to determine the applicable board foot per
pound conversion factor to be used to calculate the volume of those loads
weighed, but not scaled. Scaling will follow the rules and procedures identified
under the U.S. Forest Service Handbook, FSH2409.11, and/or the "Official Rules"
of the Columbia River Log Scaling and Grading Bureau, January 1, 1982 Edition,
Reprinted January 1, 1995. All scaling will be done at the expense of Kinzua and
through an independent third party log scaling and grading bureau using one of
the above identified procedures.
7.2 Kinzua shall provide Pioneer monthly with copies of
volume reports showing the amount of Timber removed from the Premises during the
preceding month and the amount of any timber in excess of 19,295 MBF so removed.
Each such volume report shall be accompanied by payment from Kinzua to Pioneer
for any such excess timber.
8. TERM.
8.1 Kinzua shall have from the date hereof until
September 30, 1999 (the
2
<PAGE> 3
"Termination Date"), to cut and remove the Timber from the Premises, provided
that in the case of an event of force majeure the Termination Date shall be
extended for the period of delay caused by such event of force majeure, but in
no event shall such Termination Date be extended beyond December 31, 1999.
Thereafter, all right, title, and interest to the Timber shall revert to
Pioneer. Upon the expiration of the term of this Agreement or any earlier
termination of this Agreement, Kinzua shall execute and deliver to Pioneer a
recordable termination and release of all rights, titles, interests, powers and
privileges of Kinzua under this Agreement, in form and substance reasonably
acceptable to Pioneer.
8.2 Pioneer acknowledges that Kinzua will finance all or
a portion of the purchase price with a secured loan from U.S. Bank. Should
Kinzua default on its loan payments to U.S. Bank pursuant to said secured loan,
such that U.S. Bank or a Successor (as hereinafter defined) by the terms of U.S.
Bank's security agreement with Kinzua commences action to succeed to Kinzua's
rights under this Agreement, then and only then the Termination Date shall be
extended for the benefit of U.S. Bank or such Successor to the extent reasonably
necessary to cut and remove the balance of the Timber not yet cut and removed by
Kinzua from the Premises, but in any event not later than September 30, 2000;
provided, however, if U.S. Bank or such Successor shall at any time discontinue
or abandon such action to succeed, then the extension pursuant to this Section
8.2 shall be deemed to be rescinded and no longer effective. For purposes of
this Section 8.2, the term "Successor" shall mean any successor or assignee of
U.S. Bank other than Kinzua or Greg Demers or any person or entity affiliated
with or related to Kinzua or Greg Demers.
8.3 During the term of this Agreement as defined in
Sections 8.1 and 8.2, above, Pioneer will not cut or remove any merchantable
timber standing on the Premises.
9. PIONEER'S TITLE. Pioneer hereby warrants that it has not
granted or created any liens, claims, and encumbrances of any kind against the
Timber or the Premises since October 9, 1998, except those specified on Exhibit
C, attached hereto and by this reference made a part hereof.
10. PASSAGE OF TITLE; RISK OF LOSS. Title to the Timber shall pass
to Kinzua upon Pioneer's execution and delivery of the Timber Deed. Kinzua
assumes all risk of loss, damage, or injury to the Timber by fire, windstorm,
pestilence, act of God, act of government or other casualty not caused by
Pioneer's negligence.
11. TAXES. Pioneer shall pay all taxes levied against the
Premises, including fire patrol tax, during the term hereof, and Kinzua shall
pay all taxes levied by reason by Kinzua's harvest and removal of the Timber and
any excess timber, including without limitation, the harvest, severance and
privilege tax.
12. HARVEST PRACTICES. Kinzua shall conduct its logging operations
on the Premises in an efficient, workmanlike manner, in accordance with standard
good logging practices as the same prevail in eastern Oregon and pursuant to the
provisions of the Oregon Forest Practices Act and in accordance with the
following special provisions:
3
<PAGE> 4
12.1 Kinzua shall at Kinzua's expense perform all
requirements of the Oregon Forest Practices Act applicable to Kinzua's activity
on the Premises, including filing and delivering all notices to the State
Forester required by the Oregon Forest Practices Act.
12.2 Kinzua shall prepare a logging plan for each of the
operations listed in Exhibit A. These plans must be submitted to and approved by
Pioneer prior to commencement of any activity pursuant to this Agreement and
Pioneer shall not withhold approval unreasonably. These plans shall include,
among other things, the names, addresses, and telephone numbers of the logging
contractor and his field representatives, type of logging equipment to be used,
roads to be used, and dates for cutting, yarding, hauling, and current brush
piling and cleanup operations. The plan shall conform to the terms of this
Agreement. A breach of any logging plan approved by Pioneer pursuant to this
Section shall be considered a breach of this Agreement.
12.3 Felling of merchantable trees shall be done so as to
minimize breakage and waster.
12.4 Kinzua shall pay all costs of labor and materials and
shall keep the properties of Pioneer free from liens and encumbrances.
12.5 Pioneer may temporarily suspend Kinzua's operations
in periods of extreme fire danger or whenever, in Pioneer's reasonable judgment,
they might cause excessive damage to lands, water quality, roads or forest soils
because of weather conditions during extreme wet periods.
12.6 Upon completion of all logging operations under this
Agreement, Kinzua shall promptly remove all equipment, refuse, wire rope,
litter, scrap and trash brought onto the Premises or deposited along access
roads by Kinzua, its agents, contractors or employees. All lunch-box garbage,
empty oil and grease containers, empty cans or anything of a nonbiodegradable
nature shall be removed from the Premises on a daily basis.
12.7 Kinzua shall be responsible for any trespass outside
the Premises boundary marked on the ground by Pioneer.
12.8 In the event any fuel oil, petroleum products, or
other hazardous wastes are deposited on any part of the Premises or along any
access roads as a result of any activities of Kinzua or Kinzua's contractors,
Kinzua shall promptly notify Pioneer of such fact and shall also immediately
remove and clean up the same in full compliance with all provisions of State and
Federal law. Kinzua shall defend, indemnify and save harmless Pioneer against
any and all losses, expenses, damages, claims, fines, charges, liens,
liabilities, actions, causes of action or proceedings of any kind relating to
the environmental condition of the Premises and arising directly or indirectly
out of or in connection with the acts or omissions of Kinzua or any of its
agents, contractors or employees.
13. ROAD CONSTRUCTION, USE AND MAINTENANCE. Kinzua agrees to and
shall comply
4
<PAGE> 5
with the following terms and provisions in constructing, using and maintaining
all logging roads:
13.1 Kinzua shall have the right to build such temporary
roads upon the Premises as may be necessary to log the Premises. No road shall
be constructed, and no existing road shall be used, until such planned
construction or use has been disclosed to and approved by Pioneer as part of the
logging plan. In constructing any road, Kinzua shall abide by applicable State
and Federal laws.
13.2 Pioneer shall be responsible for deferred maintenance
charges assessed under the Cooperative Maintenance Agreement with the US Forest
Service for any volume hauled over costs share roads. Kinzua shall be
responsible for any other current maintenance or for paying for maintenance of
roads used in performing this Agreement except that if there are other users for
commercial hauling, performance of or payment for maintenance will be a
responsibility shared in proportion to use with such other users. Road
maintenance shall include keeping culverts, culvert catch basins, and ditches
free of debris, grading the road surface, and adding of rock to maintain road
surface during periods of log hauling. Within a reasonable period of time after
termination of log hauling, Kinzua shall leave roads in a condition equal to or
better than existed prior to Kinzua's logging and hauling operations. Kinzua
shall pay all costs in connection with maintenance work attributable to Kinzua's
use of the roads.
14. PRESERVATION OF SURVEY MONUMENTS. Kinzua is responsible for
preservation of survey monuments. Should Kinzua destroy or damage any said
monument during Kinzua's operations, Kinzua shall have the monuments replaced by
a registered professional land surveyor licensed in Oregon, and shall effect the
appropriate filing of the resurvey with the County Surveyor.
15. DAMAGE TO RESERVED TREES. Reserved trees are those on or off
the Premises, including wildlife trees, not to be cut by Kinzua. If Kinzua's
activities result in damage to reserved trees as determined by Pioneer, Kinzua
shall take such trees and pay for such trees as liquidated damages double the
fair market value therefor. If the State Forest Practices Officer determines
that Kinzua has damaged wildlife trees or logs, then Kinzua will be required to
remedy the problem in accordance with the State's instructions at Kinzua's
expense.
16. SLASH DISPOSAL. Kinzua will be responsible for disposal of
slash as required by the Oregon Forest Practice Rules and Statutes except for
burning. Pioneer will be responsible for burning.
17. REFORESTATION. Pioneer shall be responsible for reforestation
work and costs complying with State requirements except in situations where a
violation of the logging plans (referenced in paragraph 12.2) by Kinzua or its
contractor has created a reforestation liability. In that case Kinzua is liable
for the costs of reforestation to a level acceptable to Pioneer in its
reasonable discretion.
18. FIRE PRECAUTIONS AND SUPPRESSION. During the time that this
Agreement remains in force, Kinzua shall independently make every reasonable
effort to prevent and
5
<PAGE> 6
suppress forest fires on the Premises. Kinzua shall be responsible for any
expense, liability, or claims of liability resulting from any default by Kinzua
in performance of its obligations under this Section 18. Kinzua shall defend,
indemnify and hold harmless Pioneer from all liability to governmental
authorities or to public or private parties arising out of Kinzua's violation of
law, or from fire resulting from Kinzua's negligent acts or omissions or willful
misconduct.
19. ASSUMPTION OF RISKS AND INDEMNITY.
19.1 Pioneer has made no representations as to the present
or future conditions of or on its property or the character or amount of traffic
on any access roads. Kinzua assumes all risks of personal injury or property
damage to itself and its employees, agents and contractors in connection with
operations under this Agreement.
19.2 Kinzua shall pay for all damage to Pioneer's property
and to the property of any third parties resulting directly or indirectly from
negligent acts or omissions or willful misconduct by Kinzua, its employees,
agents, or contractors in performing this Agreement.
19.3 Kinzua shall defend, indemnify and save harmless
Pioneer against any and all losses, expenses, damages, claims, fines, charges,
liens, liabilities, actions, causes of action or proceeding of any kind
whatsoever (whether or not arising on account of damage to or loss of property,
or injury to or death of any person) arising directly or indirectly out of or in
connection with the acts or omissions of Kinzua or any of its agents,
contractors or employees, except those caused solely by Pioneer's negligence.
The foregoing indemnification in favor of Pioneer includes, without limitations,
any claim for injury to persons or property, nuisance, mechanics' and
materialmen' liens, workers' compensation or unemployment taxes, fines and
penalties, and any environmental damages. Kinzua shall perform all its
obligations and carry on all its operations and activities hereunder as an
independent contractor and entirely at its own risk and responsibility. Kinzua
shall be responsible for activities of its subcontractors. Kinzua will reimburse
Pioneer for all costs reasonably incurred by Pioneer to defend against such
claims through attorneys of Pioneer's choice.
19.4 Pioneer expressly disclaims, and Kinzua expressly
acknowledges such disclaimer, making or giving any warranty regarding the costs
or feasibility of logging such timber; Kinzua acknowledges relying solely upon
Kinzua's own estimates of said costs and feasibility.
20. INSURANCE. At all times during the period of this Agreement
and any extension thereof or until all work required by this Agreement is
completed, Kinzua shall have in effect comprehensive property damage and
personal injury liability insurance, including coverage for motor vehicles, as
required by this section. The insurance shall be in the amounts specified and
shall afford the coverage as described below.
Kinzua shall have worker's compensation insurance meeting statutory
requirements for all Kinzua's employees, and shall require Kinzua's contractors
and subcontractors to have worker's compensation insurance covering all
employees involved in operations hereunder.
6
<PAGE> 7
Kinzua shall furnish to Pioneer certificates of insurance evidencing
that the required insurance has been issued to Kinzua or to its contractors or
subcontractors, as the case may be, and is in force on the date of the
certificates. The insurance shall be written by a company or companies
authorized to do business in the State of Oregon. The issuing company or
companies shall agree on the certificate or an attachment thereto that Pioneer
shall be given thirty (30) days prior written notice of intended cancellation of
the insurance. Pioneer, its agents, owners and employees shall be named as
additional insured parties under all said property damage, comprehensive and
personal injury liability insurance policies. Kinzua shall at all times during
the period of this Agreement and any extension thereof or until all work
required by this Agreement is completed have in effect loggers broad form
property damage and public liability insurance coverage, with the contractual
liability exclusion deleted, in the amounts specified below:
Bodily Injury or Death:
Each Person $2,000,000
Each Occurrence $2,000,000
Property Damage:
Any One Occurrence $2,000,000
If any said policy shall lapse or shall be canceled at any time during
the life of this Agreement, Pioneer shall have the right immediately to suspend
all of Kinzua's logging activities hereunder until insurance requirements are
fully met by Kinzua.
21. EXAMINATION OF LOCATIONS AND CONDITIONS. It is understood that
Kinzua, before signing this Agreement, has made a careful examination thereof
and an analysis of all requirements and specifications set forth herein; that
Kinzua has independently evaluated the character of the work required, and has
not relied upon estimates by Pioneer, and that Kinzua has made a careful
examination of the Premises and the location and conditions of work. Pioneer in
no case will be responsible for any loss or cost that may be suffered by Kinzua
as a result of the failure of Kinzua to be so informed.
22. AUTHORIZED REPRESENTATIVE; INSPECTION. Pioneer and its
designated field representative or representatives shall have the right to
inspect progress of work, and to issue instructions in regard to required
compliance with the terms of this Agreement. Pioneer, through its authorized and
designated representative or representatives, shall at all times be allowed
access to all parts of the logging operations and work locations of Kinzua, and
shall be furnished such information and assistance by Kinzua, or the designated
representative or representatives of Kinzua, as may be required to make a
complete and detailed inspection.
23. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration, except any claim for
injunctive relief pursuant to Section 24.2.1 below or any action in equity to
enforce specific performance pursuant to Section 24.2.3 below. Arbitration shall
take place before a panel of three arbitrators, one chosen by Pioneer, one by
Kinzua and the third chosen by the first two. The arbitration shall be held in
7
<PAGE> 8
such place in the metropolitan Portland, Oregon area as may be specified by the
arbitrators or a majority of them and shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
decision of the panel shall be final and binding and may be enforced, if
necessary, in any court of competent jurisdiction. The determination of which
party (or combination of them) bears the costs and expenses incurred in
connection with any such arbitration proceeding shall be determined by the
panel. The panel shall have no power or jurisdiction to consider evidence with
respect to or to render any award of or judgment for punitive damages
24. DEFAULT.
24.1 Time and strict performance hereunder are the essence
of this Agreement, and it is agreed that any one of the following shall
constitute an event of default:
24.1.1 Failure by Kinzua to pay any amount owing to
Pioneer under this Agreement on or before the due date thereof.
24.1.2 Failure by either party to keep and perform
any agreement, covenant or condition hereunder (other than a payment default by
Kinzua under Section 24.1.1), if such failure shall continue for a period of
thirty (30) days after written notice thereof from the other party, provided,
however, if such failure to perform is not curable within such 30-day period, it
shall not be an event of default if the non-performing party, promptly after
such notice, commences such actions as shall be necessary to cure such failure,
diligently pursues such curative action and completes the cure of such failure
as soon as reasonably possible.
24.2 In the event Kinzua defaults in any manner set forth
herein, Pioneer shall have the right to exercise any one or more of the
following rights, powers, and remedies, which shall, to the full extent
permitted by law, be cumulative and not alternative:
24.2.1 to obtain injunctive relief with respect to
any breach of or default under this Agreement; provided, however, Pioneer shall
not have the right to enjoin harvest practices which comply with the provisions
of this Agreement; and provided further, no injunction against Kinzua with
respect to a breach or default by Kinzua shall be effective against the Bank or
a Successor (as defined in Section 8.2), but nothing in this section shall
prevent Pioneer from obtaining an injunction against the Bank or such Successor
for its own acts or omissions in breach or violations of this Agreement.
24.2.2 to recover damages from Kinzua's breach of
contract;
24.2.3 to specifically enforce this Agreement by
suit in equity.
24.3 Nothing contained in this Section 24 shall be deemed
or construed to extend the Termination Date as determined under Section 8 above.
25. ATTORNEY'S FEE. In the event any arbitration, suit or action
is filed by either party
8
<PAGE> 9
hereto to enforce any of the terms, covenants or provisions of this Agreement,
or to rescind the same, the party prevailing in any such proceeding, or any
appeal therefrom, shall be entitled to reasonable attorney's fees at the trial
level and on appeal or review to be established by the arbitration panel or
Court, and expert witness fees, together with all costs otherwise recoverable
under Oregon law, from the non-prevailing party.
26. ACCESS. Pioneer makes no representations or warranties,
express or implied, with respect to rights of access to any portion of the
Premises.
Pioneer hereby assigns to Kinzua, which assignment shall terminate upon
the expiration or earlier termination of this Agreement, Pioneer's rights in any
easements, permits, or licenses granting Pioneer ingress and egress to the
Premises over or through land owned by third parties, provided that such
assignment shall be non-exclusive and Pioneer shall continue to have and may
also exercise all such rights.
27. ASSIGNMENT. Pioneer shall have the right to assign this
Agreement, in whole or in part, without the consent of Kinzua. Kinzua shall not
have the right, without Pioneer's prior written consent, to assign this
Agreement, in whole or in part, either voluntarily or by operation of law;
except that Pioneer agrees that it will not unreasonably withhold its consent to
(i) Kinzua's assignment of a security interest in its interest in this Agreement
and the Timber to its bank; and (ii) Kinzua's assignment of its interest in this
Agreement and in the Timber to a purchaser(s) of Kinzua's manufacturing
facilities.
28. REPRESENTATIONS. Each party represents that: it is a limited
liability company duly organized, and validly existing, and in good standing
under the laws of Oregon and is qualified and licensed to do business in Oregon;
it has full power and authority to execute and perform this Agreement and that
all action necessary to confirm such authority has been duly and lawfully taken,
except that, with respect to Pioneer, the consent and/or subordination of
Pioneer's lenders may be necessary; upon execution hereof, this Agreement shall
constitute its valid, legally binding obligation; neither execution nor
performance of this Agreement will violate the terms of any provision of its
Articles of Incorporation, Bylaws, Operating Agreement or any note, loan
agreement, commitment agreement, lease or other material contract or agreement
to which it is a party, except that, with respect to Pioneer, the consent and/or
subordination of Pioneer's lenders may be necessary. Each party shall delivery
to the other a certified copy of a resolution of its Management Committee
authorizing the execution of this Agreement or such other evidence of authority
that is reasonably acceptable to the other.
29. NOTICES. Any notice or demand required or permitted to be
given under the terms of this Agreement shall be deemed to have been duly given
or made if given by any of the following methods:
29.1 Deposited in the United States mail, in a sealed
envelope, postage prepaid, by registered or certified mail, return receipt
requested, or hand delivered, respectively addressed as follows:
9
<PAGE> 10
If to Pioneer: James A. Mehrwein
Pioneer Resources, LLC
65 N. Bertelsen Road
Eugene, OR 97402
If to Kinzua Greg Demers
Kinzua Resources, LLC
25310 Jeans Road
Veneta, OR 97487
29.2 Sent to the above address via an established national
overnight delivery service (such as Federal Express) charges prepaid; or
29.3 Sent via any electronic communications method,
provided the sender obtains written confirmation of receipt of the
communications by the electronic communication equipment at the office of the
addressee listed above; provided also that, if this method is used, the party
shall immediately follow such notice with a second notice in one of the methods
set forth in subsections 29.1 or 29.2 above.
Notices shall be effective three business days after mailing if sent by
United States mail, one business day after dispatch is sent by overnight
delivery service, and upon receipt if hand delivered or sent by an electronic
communications method.
30. MODIFICATION. No modification of this Agreement shall be valid
unless made in writing and duly executed by Pioneer and Kinzua.
31. NO WAIVER. The failure of either party to insist upon prompt
and strict performance of any of the terms or conditions in this Agreement shall
not constitute a waiver of such party's right to insist upon strict performance
thereafter or in other instances.
32. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the state of Oregon, except for its
rules pertaining to conflicts of laws.
33. COUNTERPARTS, EXECUTION BY FACSIMILE. This Agreement may be
executed in several counterparts, each of which will be deemed to be an original
and all of which will together constitute one in the same instrument.
Delivery of an executed copy of this Agreement by facsimile
transmission will be deemed to be an execution and delivery of this Agreement on
the date of such transmission by the party so delivering such a copy, provided
that the party so delivering such a copy via facsimile transmission shall
deliver the executed original of this Agreement to the other party herein within
three (3) days of the date of delivery of the copy sent via the facsimile
transmission.
10
<PAGE> 11
34. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This document
constitutes the entire agreement between the parties and merges and replaces all
prior negotiations, discussions, representations, warranties, and agreements of
the parties with respect to the subject matter hereof. Because this Agreement
has been the subject of negotiation between the parties, the rule of
construction that any ambiguity is to be construed against the drafter shall not
apply. This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of the parties. In the event of any
conflict between this Agreement and any exhibit attached hereto, the terms of
this Agreement shall be controlling.
35. CLOSING.
35.1 This transaction shall close in escrow at Oregon
Title Insurance Company, Eugene, Oregon, on or before December 29, 1998,
provided that if (a) the conditions set forth in Section 35.2 have not been
satisfied or waived by Kinzua and (b) Pioneer has not unconditionally received
the $5,556,960 purchase price in cash, both on or before December 30, 1998, then
this Agreement shall be deemed automatically terminated and neither party shall
have any further rights or obligations hereunder.
35.2 Kinzua's obligations to close are subject to and
conditioned upon written approval from its Lender, U.S. Bank, of (i) this
Agreement, (ii) the Timber Deed attached hereto as Exhibit B, (iii) the
Subordination Agreement to be provided by Pioneer's Lender, First Union National
Bank, and (iv) a commitment from a title insurance company to insure the first
lien of U.S. Bank's security interest in the Timber, subject only to exceptions
to title which U.S. Bank shall approve.
35.3 Kinzua shall pay all title insurance costs, recording
fees and other closing costs in connection with such closing.
Executed as of the date first set forth above.
PIONEER RESOURCES, LLC KINZUA RESOURCES, LLC
By: /s/ James A. Mehrwein By: /s/ Greg Demers
------------------------------------ ----------------------------
Name: James A. Mehrwein Name:
--------------------------
Title: Vice President Title: President
Schedule of Exhibits:
A: Legal Description of Premises
B: $5,556,960 Timber Deed
C: Exceptions to Title
11
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT A
LEGAL DESCRIPTION OF PREMISES
(THE PORTIONS OF THE FOLLOWING DESCRIBED PROPERTIES OWNED BY PIONEER RESOURCES, LLC)
- ---------------------------------------------------------------------------------------------------------------------------------
PIONEER RESOURCES, LLC STUMPAGE CONTRACT TO KINZUA RESOURCES, LLC
- ---------------------------------------------------------------------------------------------------------------------------------
UNIT BLOCK SALE NAME LEGAL DESCRIPTION ACRES
==================================================================================================================================
<S> <C> <C> <C> <C>
Pilot Rock Desolation Bomber T7S, R32E, Sec 35 640
- ---------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Desolation Starveout T8S, R32E, Secs 1, 2, 11, 12 1,500
- ---------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Desolation Spring T6S, R33E, Sec 6; T8S, R32E, Sec 1 (portion Northeast of 380
Desolation Creek)
- ---------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Buckaroo Horn, Hunter, No T6S, R30E, Secs 1-5, 8-17, 20-24, 26-29; T6S, R31E, Secs 5-9 16,920
Name, Rush, Snake
- ---------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Wilkins Wilkins T5S, R30E, Secs 24, 25, 36; T5S, R31E, Secs 19, 29-32 4,360
- ---------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Brown T6S, R24E, Secs 13, 22-26, 36 2,760
- ---------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Camas T6S, R25E, Secs 5, 7, 8, 16-23, 26-33, 34 (North half), 35 (North 9,300
of 21 road)
- ---------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Porter T6S, R25E, Secs 34 (South half), 35 (South of 21 road) 600
- ---------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Hollywood T5S, R26E, Secs 23-26, 35, 36 2,600
- ---------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Thorn Creek T5S, R27E, Secs 5-9, 16-18, 20 3,360
- ---------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL 42,420
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
EXHIBIT B
STATUTORY BARGAIN AND SALE TIMBER DEED
PIONEER RESOURCES, LLC, an Oregon limited liability company ("Grantor")
conveys to KINZUA RESOURCES, LLC, an Oregon limited liability company
("Grantee"), without any covenants or warranties of title except as expressly
set forth below, all of the "Timber" (as defined below) on those certain parcels
of land situated in Wheeler, Morrow, Umatilla and Grant Counties, Oregon,
described below:
SEE EXHIBIT A ATTACHED HERETO
AND INCORPORATED HEREIN (the "Land")
Together with the rights to enter upon the Land, to cut and remove the
Timber and to build, maintain and repair roads, all subject to and in accordance
with the provisions of the Timber Purchase Agreement, which is defined below.
The true consideration for this conveyance is the sum of $5,556,960.
As used herein, the term "Timber" shall mean the merchantable timber
standing or lying on the Land during the term of this Deed which is included in
the definition of "Timber" set forth in the Timber Purchase Agreement.
Grantee shall have until September 30, 1999 (the "Termination Date") to
cut and remove the Timber. Provided however, at the election of Grantee, the
Termination Date shall be extended for the period of any delay(s) in Grantee's
harvest and removal of the Timber due to acts of God, acts of government, labor
disputes, strikes, weather conditions or other events of force majeure beyond
the reasonable control of Grantee. If any such extension shall apply, Grantee
shall use its best efforts to complete its full performance hereunder as soon as
possible thereafter. Notwithstanding the foregoing, in no event shall the
Termination Date be extended beyond December 31, 1999; provided, however, the
Termination Date may be extended under certain other limited circumstances, to
the extent expressly provided in the Timber Purchase Agreement, to a date not
later than September 30, 2000.
On the Termination Date, all right, title and interest in and to any
remaining Timber shall revert automatically to the Grantor herein, it successors
and assigns, without the requirement of any action by any party hereto.
Grantor hereby warrants to Grantee that Grantor has not granted or
created any liens, claims, and encumbrances of any kind against the Timber or
the Land since October 9, 1998, except those specified on EXHIBIT B attached
hereto and incorporated herein.
This Timber Deed has been executed and delivered, and accepted, subject
to the terms and provisions of that certain Timber Purchase Agreement dated as
of December 29, 1998 between Grantor and Grantee ("Timber Purchase Agreement"),
which by this reference is hereby incorporated herein.
<PAGE> 14
EXECUTED as of the 29th day of December, 1998.
GRANTOR:
PIONEER RESOURCES, LLC, an Oregon
limited liability company
By:
---------------------------------
Name: James A. Mehrwein
Its: Vice President
STATE OF )
--------------------
)ss.
County of )
--------------------
This instrument was acknowledged before me on December ___, 1998, by
James A. Mehrwein, Vice President of PIONEER RESOURCES, LLC, an Oregon limited
liability company.
------------------------------------
NOTARY PUBLIC FOR OREGON
My Commission Expires:
--------------
[NOTARIAL SEAL]
Upon recording return to:
Kinzua Resources, LLC
25310 Jeans Road
Veneta, OR 97487
15
<PAGE> 15
EXHIBIT C
TO TIMBER PURCHASE AGREEMENT
Exceptions to Title
1. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefit of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Wheeler County,
Oregon.
2. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefits of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Morrow County,
Oregon.
3. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefit of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Umatilla County,
Oregon.
4. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefit of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Grant County,
Oregon.
16
<PAGE> 1
EXHIBIT 10.9.2
STATUTORY BARGAIN AND SALE TIMBER DEED
PIONEER RESOURCES, LLC, an Oregon limited liability company ("Grantor")
conveys to KINZUA RESOURCES, LLC, an Oregon limited liability company
("Grantee"), without any covenants or warranties of title except as expressly
set forth below, all of the "Timber" (as defined below) on those certain parcels
of land situated in Wheeler, Morrow, Umatilla and Grant Counties, Oregon,
described below:
SEE EXHIBIT A ATTACHED HERETO
AND INCORPORATED HEREIN (the "Land")
Together with the rights to enter upon the Land, to cut and remove the
Timber and to build, maintain and repair roads, all subject to and in accordance
with the provisions of the Timber Purchase Agreement, which is defined below.
The true consideration for this conveyance is the sum of $5,556,960.
As used herein, the term "Timber" shall mean the merchantable timber
standing or lying on the Land during the term of this Deed which is included in
the definition of "Timber" set forth in the Timber Purchase Agreement.
Grantee shall have until September 30, 1999 (the "Termination Date") to
cut and remove the Timber. Provided however, at the election of Grantee, the
Termination Date shall be extended for the period of any delay(s) in Grantee's
harvest and removal of the Timber due to acts of God, acts of government, labor
disputes, strikes, weather conditions or other events of force majeure beyond
the reasonable control of Grantee. If any such extension shall apply, Grantee
shall use its best efforts to complete its full performance hereunder as soon as
possible thereafter. Notwithstanding the foregoing, in no event shall the
Termination Date be extended beyond December 31, 1999, provided, however, the
Termination Date may be extended under certain other limited circumstances, to
the extent expressly provided in the Timber Purchase Agreement, to a date not
later than September 30, 2000.
On the Termination Date, all right, title and interest in and to any
remaining Timber shall revert automatically to the Grantor herein, it successors
and assigns, without the requirement of any action by any party hereto.
Grantor hereby warrants to Grantee that Grantor has not granted or
created any liens, claims, and encumbrances of any kind against the Timber or
the Land since October 9, 1998, except those specified on EXHIBIT B attached
hereto and incorporated herein.
This Timber Deed has been executed and delivered, and accepted, subject
to the terms and provisions of that certain Timber Purchase Agreement dated as
of December 29, 1998 between Grantor and Grantee ("Timber Purchase Agreement"),
which by this reference is hereby incorporated herein.
<PAGE> 2
EXECUTED as of the 29th day of December, 1998.
GRANTOR:
PIONEER RESOURCES, LLC, an Oregon
limited liability company
By: /s/ James A. Mehrwein
-----------------------------
Name: James A. Mehrwein
Its: Vice President
STATE OF Oregon )
---------------------------
)ss.
County of Lane )
---------------------------
This instrument was acknowledged before me on December 30, 1998, by
James A. Mehrwein, Vice President of PIONEER RESOURCES, LLC, an Oregon limited
liability company.
/s/ Gayle Beare
---------------------------------
NOTARY PUBLIC FOR OREGON
My Commission Expires: 8/26/2001
-----------
[NOTARIAL SEAL]
Upon recording return to:
Kinzua Resources, LLC
25310 Jeans Road
Veneta, OR 97487
2
<PAGE> 3
<TABLE>
<CAPTION>
EXHIBIT A
LEGAL DESCRIPTION OF PREMISES
(THE PORTIONS OF THE FOLLOWING DESCRIBED PROPERTIES OWNED BY PIONEER RESOURCES, LLC)
- ------------------------------------------------------------------------------------------------------------------------------
PIONEER RESOURCES, LLC STUMPAGE CONTRACT TO KINZUA RESOURCES, LLC
UNIT BLOCK SALE NAME LEGAL DESCRIPTION ACRES
===============================================================================================================================
<S> <C> <C> <C> <C>
Pilot Rock Desolation Bomber T7S, R32E, Sec 35 640
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Desolation Starveout T8S, R32E, Secs 1, 2, 11, 12 1,500
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Desolation Spring T6S, R33E, Sec 6; T8S, R32E, Sec 1 (portion Northeast of 380
Desolation Creek)
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Buckaroo Horn, Hunter, No T6S, R30E, Secs 1-5, 8-17, 20-24, 26-29; T6S, R31E, Secs 5-9 16,920
Name, Rush, Snake
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Rock Wilkins Wilkins T5S, R30E, Secs 24, 25, 36; T5S, R31E, Secs 19, 29-32 4,360
- ------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Brown T6S, R24E, Secs 13, 22-26, 36 2,760
- ------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Camas T6S, R25E, Secs 5, 7, 8, 16-23, 26-33, 34 (North half), 35 (North 9,300
of 21 road)
- ------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Porter T6S, R25E, Secs 34 (South half), 35 (South of 21 road) 600
- ------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Hollywood T5S, R26E, Secs 23-26, 35, 36 2,600
- ------------------------------------------------------------------------------------------------------------------------------
Heppner Area 3 Thorn Creek T5S, R27E, Secs 5-9, 16-18, 20 3,360
- ------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL 42,420
</TABLE>
3
<PAGE> 4
EXHIBIT "A"
Page 1 of 5
UMATILLA COUNTY, OREGON:
Township 5 South, Range 20, East of the Willamette Meridian, Umatilla County,
Oregon:
Section 24: All.
Section 25: All.
Section 36: All.
SUBJECT TO any and all water rights of way and roads.
Township 5 South, Range 31, East of the Willamette Meridian, Umatilla County,
Oregon:
Section 19: West Half of East Half. East Half of West Half. Lots 1, 2, 3, and 4.
Section 29: Southwest Quarter of Northeast Quarter. Southwest Quarter of
Northwest Quarter. Southwest Quarter.
Section 30: Northwest Quarter of Northeast Quarter. South Half of Northeast
Quarter. East Half of West Half. Lots 1, 2, 3, and 4. Southeast Quarter.
Section 31: All.
Section 32: West Half. West Half of East Half.
SUBJECT TO any and all water rights of way and roads.
Township 6 South, Range 30, East of the Willamette Meridian, Umatilla County,
Oregon:
Section 1: All.
Section 2: All.
Section 3: All.
Section 4: All.
Section 5: All.
<PAGE> 5
Exhibit "A", Pg 2 of 5
Section 8: All.
Section 9: All.
Section 10: All.
Section 11: All.
Section 12: All.
Section 13: Northeast Quarter of Southeast Quarter.
Section 14: All.
Section 15: All.
Section 16: All.
Section 17: All.
Section 20: All.
Section 21: All.
Section 22: All.
Section 23: All.
Section 24: All.
Section 26: Northeast Quarter. Northwest Quarter of Northwest Quarter. Southwest
Quarter of Southwest Quarter. East Half of Southwest Quarter. Southeast Quarter.
Section 27: All.
Section 28: All.
Section 29: All.
SUBJECT TO any and all water rights of way and roads.
Township 6 South, Range 31, East of the Willamette Meridian, Umatilla County,
Oregon:
<PAGE> 6
Exhibit "A", Pg 3 of 5
Section 5: Lots 1, 2, 3, and 4. South Half of North Half. Southwest Quarter.
West Half of Southeast Quarter.
Section 6: All.
Section 7: North Half. Southwest Quarter. West Half of Southeast Quarter.
Northeast Quarter of Southeast Quarter.
Section 8: West Half of Northeast Quarter. Northwest Quarter. Northwest Quarter.
North Half of Southwest Quarter. Southeast Quarter of Southwest Quarter. West
Half of Southeast Quarter.
Section 9: South 1/2 of Southeast 1/4
SUBJECT TO any and all water rights of way and roads.
GRANT COUNTY, OREGON:
Township 7 South, Range 32 East, Willamette Meridian, Grant County, Oregon:
Section 35: All.
(Portion of Tax Acct. 17 7-32 700, Ref. 63611
Township 8 South, Range 32 East, Willamette Meridian, Grant County, Oregon:
Section 1 Lots 1, 2, 3, and 4; S1/2N1/2; S1/2.
Section 2: Lots 1, 2, 3, and 4; S1/2N1/2; S1/2.
Section 11: N1/2NW1/2; SE1/4NW1/4; NE1/4.
Section 12: N1/2NW1/4; SW1/4NW1/4; NW1/4NE1/4.
(Tax Accts. 17 8-32 100 & 300; Refs. 6474 & 8437)
Township 8 South, Range 33 East, Willamette Meridian, Grant County, Oregon:
Section 6: Lots 3, 4, and 5; SE1/4NW1/4.
(Tax Acct. 17 8-33 200; Ref. 6477)
Located in WHEELER COUNTY, OREGON:
Township 6 South, Range 24 East of the Willamette Meridian:
Section 13: E1/2SE1/4.
Section 22: S1/2NE1/4; SE1/4SW1/4; SE1/4; Lot 4.
Section 23: Lots 2, 3, 4; SE1/4NW1/4; E1/2SW1/4; SE1/4.
<PAGE> 7
Exhibit "A", Pg 4 of 5
Section 24: E1/2NE1/4; Lot 4; SE1/4.
Section 25: ALL.
Section 26: Lot 1; NE1/4NW1/4; E1/2.
Section 36: ALL.
MORROW COUNTY, OREGON:
In Township 5 South, Range 26 East, of the Willamette Meridian:
Section 23: NE 1/4 SW 1/4; NW 1/4 SE 1/4.
Section 24: SE 1/4 NE 1/4; E 1/2 SE 1/4; SW 1/4 SE 1/4.
Section 25: ALL.
Section 26: ALL.
Section 35: E 1/2; N 1/2 NW 1/4; SE 1/4 SW 1/4.
Section 36: ALL.
In Township 5 South, Range 27 East, of the Willamette Meridian:
Section 5: E 1/2 SE 1/4.
Section 6: SE 1/4 SW 1/4.
Section 7: Lot 2; W 1/2 NE 1/4; SE 1/4 NE 1/4; E 1/2 NW 1/4;
NE 1/4 SW 1/4; SE 1/4.
Section 8: E 1/2; W 1/2 W 1/2; NE 1/4 SW 1/4.
Section 9: S 1/2 NE 1/4; NW 1/4 NE 1/4; NW 1/4; S 1/2.
Section 16: ALL.
Section 17: NE 1/4; SW 1/4; W 1/2 SE 1/4; SE 1/4 SE 1/4.
Section 18: Lots 2, 3 and 4; NE 1/4; E 1/2 W 1/2; N 1/2 SE 1/4.
Section 20: W 1/2 NW 1/4.
In Township 6 South, Range 25 East, of the Willamette Meridian:
Section 5: SW 1/4 SE 1/4.
Section 7: Lots 2, 3 and 4; SW 1/4 NE 1/4; SE 1/4 NW 1/4;
E 1/2 SW 1/4; W 1/2 SE 1/4; SE 1/4 SE 1/4.
Section 8: NW 1/4 NE 1/4; E 1/2 W 1/2; SW 1/4 NW 1/4; SW 1/4
SW 1/4.
Section 16: W 1/2 SW 1/4.
Section 17: S 1/2 NE 1/4; W 1/2; SE 1/4.
Section 18: ALL.
Section 19: Lots 1 and 2; E 1/2; E 1/2 NW 1/4; NE 1/4 SW 1/4.
Section 20: ALL.
Section 21: W 1/2.
Section 22: S 1/2 SE 1/4; NE 1/4 SE 1/4.
<PAGE> 8
Exhibit "A", Pg 5 of 5
Section 23: NE 1/4; E 1/2 NW 1/4; S 1/2 SW 1/4; E 1/2 SE 1/4.
Section 26: ALL.
Section 27: E 1/2; W 1/2 W 1/2; E 1/2 SW 1/4; SE 1/4 NW 1/4.
Section 28: E 1/2; S 1/2 NW 1/4; SW 1/4.
Section 29: W 1/2; W 1/2 NE 1/4; SE 1/4.
Section 30: Lots 1, 2, 3 and 4; E 1/2 E 1/2; SW 1/4 NE 1/4;
SE 1/4 NW 1/4; E 1/2 SW 1/4; W 1/2 SE 1/4.
Section 31: ALL.
Section 32: ALL.
Section 33: N 1/2 NE 1/4; SW 1/4 NE 1/4; W 1/2; SW 1/4 SE 1/4.
Section 34: N 1/2; E 1/2 SW 1/4; SW 1/4 SW 1/4; SE 1/4.
Section 35: ALL.
<PAGE> 9
EXHIBIT B
to Statutory Bargain and Sale Timber Deed
Exceptions to Title
1. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefit of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Wheeler County,
Oregon.
2. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefits of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Morrow County,
Oregon.
3. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefit of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Umatilla County,
Oregon.
4. Deed of Trust, Fixture Filing and Security Agreement With Assignment of
Rents, dated as of October 9, 1998, from Pioneer Resources, LLC
("Grantor") to Oregon Title Insurance Company, as Trustee ("Trustee"),
in trust for the benefit of First Union National Bank, as
Administrative Agent for the Lenders referred to therein
("Beneficiary"), as recorded in the public records of Grant County,
Oregon.
State of Oregon )
)
County of Umatilla )
This instrument was
received and recorded on
01-05-99 at 12:45 In the
record of document code
type DE-TI
Location R343-0222
Document number 1999-3430222
Fee 45.00
Office of County Records
Received by /s/ Jean Hempkiss
------------------------------
Records Officer
<PAGE> 1
EXHIBIT 10.10
STRATEGIC TIMBER TRUST, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Strategic Timber Trust, Inc., a Georgia corporation (hereinafter "STT" or
"Employer") and C. Edward Broom ("Executive") hereby agree as follows:
1. EMPLOYMENT
This Agreement is entered into by STT and Executive in contemplation of a
registered initial public offering of STT's common stock ("the IPO"). Executive
acknowledges that he has special knowledge, expertise, contacts and other
information with respect to the Restricted Business (as defined below), that he
will be provided with confidential information (as defined below) and that STT's
employment of Executive upon the consummation of the IPO is in consideration of
the promises and agreements contained in this Agreement. This Agreement shall
govern the employment of Executive as an officer of STT.
2. EFFECTIVENESS OF AGREEMENT; TERM
This Agreement shall become effective on the consummation of the IPO ("the
Effective Date"), but shall be void and of no further effect if the IPO has not
been consummated by December 31, 1999. The term of Executive's employment
pursuant to this Agreement shall be for the period from and including the
Effective Date until and including the fourth anniversary of the Effective Date,
and for additional, consecutive one-year periods thereafter, all unless earlier
terminated as provided in Section 8, below.
3. DUTIES AND RESPONSIBILITIES
During Executive's employment pursuant to this Agreement, Executive shall hold
such office or offices as he shall be elected to by the Board of Directors of
STT, shall perform the duties of such office or offices pursuant to the
direction of the Board of Directors of STT (or any committee thereof) , shall
perform such duties to the best of his ability, shall use his good faith efforts
to promote the success of the business of STT, shall devote substantially all of
his business time to the affairs of STT and shall not engage in any other
business activity or occupation during normal business hours for gain, profit,
or other pecuniary advantage; provided, however, that the foregoing shall not be
construed as preventing Executive from investing or trading for his own benefit
or for that of the members of his family in stocks, bonds, securities or other
similar forms of investment in public securities markets, serving as a director
of another corporation or engaging in any family enterprise or in charitable,
civic or other similar pursuits, so long as they do not materially interfere
with Executive's performance of his duties under this Agreement. Further, and
notwithstanding any of the foregoing to the contrary, it is acknowledged that
Executive serves and may continue to serve on the board of directors, advisory
board, or in a similar capacity for one or more timber investment funds which
are engaged in the acquisition and management of timberlands located outside the
<PAGE> 2
United States (each an "Other Fund"), and that STT's timberland ownership may
expand to include ownership of timberlands outside the United States. Therefore,
if STT wishes to bid on a property and any Other Fund is the seller of the
property or also wishes to bid on the property, Executive will not participate
in the transaction on behalf of such Other Fund. In addition, Executive agrees
that he will devote no more than five percent (5%) of his business time to his
interest in Other Funds.
4. COMPENSATION AND RELATED MATTERS
(a) BASIC: During the Executive's employment pursuant to this
Agreement, STT:
(i) shall pay Executive a minimum salary of $ 225,000.00
per annum in accordance with STT's normal and usual
payroll schedule ("Salary), and
(ii) shall include Executive in all retirement plans,
insurance plans and other fringe benefits and
arrangements that may be authorized and adopted for
the benefit of executives of STT generally.
("Benefits" ).
(b) RAISES AND BONUSES: STT's Board of Directors, acting directly
or through its Compensation Committee, may, in its sole
discretion and for any reason, increase Executive's salary
and/or grant Executive additional compensation as a bonus (a
"Bonus") .
(c) VACATIONS, HOLIDAYS AND SICK LEAVE: Executive shall be
entitled to vacation, holidays and sick days with pay as
determined by STT.
(d) NO DIVESTMENT: No termination of Executive's employment shall
divest Executive of his right to receive all or any unpaid
portion or installment of any of his Salary or Bonus to which
he is otherwised entitled pursuant to the terms of this
Agreement.
5. NONCOMPETITION; NO INTERFERENCE
(a) CERTAIN DEFINED TERMS: For purposes of this Agreement, the
following words and phrases have the meanings set forth below:
(i) "CUSTOMER" means any purchaser of timber from
Employer, and any potential purchaser solicited by
Employer, with which Executive had contact during the
term of his employment hereunder.
(ii) "PROPERTY OWNERS" means persons and entities with
whom Employer has contracted for, or with whom
Employer has undertaken any phase of negotiation
regarding, the acquisition of timberlands, timber
cutting rights, timber deeds, or any other types of
property rights, with which Executive had contact
during the term of his employment hereunder.
2
<PAGE> 3
(iii) "RESTRICTED BUSINESS" means the business of owning
timberland, selling or purchasing timberland, and
selling timber or cut logs, or any of the foregoing,
whether undertaken directly or indirectly.
(iv) "TERRITORY" means North America, Central America and
South America.
(v) "RESTRICTED PERIOD" means the period of Executive's
employment with STT pursuant to this Agreement (i.e.,
the period extending from the Effective Date until
the Termination Date, as defined in paragraph no.
8(b)(vi), below) plus one year from the Termination
Date.
(vi) "EMPLOYER," for purposes of this Section 5 only,
means STT, Strategic Timber Operating Co. ("STOC"),
Strategic Timber Partners, LP ("STP") and their
subsidiaries and affiliates which were in existence
on the Effective Date or which came into existence
during the term of this Agreement as set forth in
Section 2, above, up to and including the Termination
Date.
(b) NONCOMPETITION: During the Restricted Period, Executive shall
not, either directly or indirectly:
(i) have any ownership interest (whether as proprietor,
partner, stockholder or otherwise) in, or
(ii) be an officer, director or general or managing
partner of, or hold a similar position in, or
(iii) act as agent, broker or distributor for, or advisor
or consultant to, or
(iv) be employed in an executive or management position
with
any business however organized or conducted which is engaged
or which Executive knows or reasonably should know plans to
become engaged in the Restricted Business in the Territory
without the permission of the disinterested members of STT's
Board of Directors. Further, any ownership interest held by
Executive at the time of the execution of this Agreement shall
be deemed so permitted. However, notwithstanding any of the
foregoing, the ownership by Executive of less than one percent
(1%) of the shares of the capital stock of a publicly held
entity shall in no event be deemed a violation of any
provision of this paragraph.
(c) NO INTERFERENCE WITH CUSTOMERS OR PROPERTY OWNERS: During the
Restricted Period, Executive will not in any way, directly or
indirectly:
(i) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, from
Employer the business of any Customer; or
3
<PAGE> 4
(ii) attempt or seek to cause any Customer to refrain, in
any respect, from doing business with Employer, or
intentionally interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise,
between Employer and Customer; or
(iii) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, any
pending or contemplated acquisition of timberlands,
timber cutting rights, timber deeds, or any other
type of property rights, from a Property Owner; or
(iv) attempt or seek to cause any Property Owner to
refrain from consummating any pending or contemplated
transaction with Employer, or intentionally interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Employer and any
Property Owner.
(d) NO INTERFERENCE WITH EMPLOYEES. During the Restricted Period,
Executive will not in any way, directly or indirectly, request
or induce any other employee of Employer to terminate his
employment with Employer.
(e) NO EFFECT OF TERMINATION OF EMPLOYMENT. The termination of
Executive's employment with STT shall not limit or otherwise
affect the agreements set forth in this Section 5, which shall
continue and expressly survive the termination of Executive's
employment and this Agreement.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES
(a) GENERAL: All records, financial statements and similar
documents obtained, reviewed or compiled by Executive as part
of the performance of his services for or duties to Employer
pursuant to this Agreement shall be the exclusive property of
Employer, and Executive shall have no rights in such documents
on or after the earlier of Executive's Termination Date (as
defined in paragraph no. 8(b)(vi), below) or the last day of
the term of this Agreement as set forth in Section 2, above.
(b) CONFIDENTIAL INFORMATION AND TRADE SECRETS: Executive will not
disclose to any person or entity or use for his own benefit or
gain, any confidential information or trade secrets of the
Employer obtained by him incident to his employment with STT.
Executive shall take all reasonable steps to safeguard any
confidential information and trade secrets and to protect same
against disclosure, misuse, loss or theft. The term
"Confidential Information" includes, without limitation,
financial information, business plans, prospects and
opportunities which have been discussed or considered by the
management of Employer, but does not include any information
which has become part of the public domain by means other than
Executive's failure to observe his obligations hereunder.
However, nothing in this paragraph shall be construed as
prohibiting, restricting or preventing Executive from making
any disclosure required by applicable law, the rules of the
New York Stock Exchange or of any other securities market on
which STT's securities are listed, or which are otherwise
called for in connection with
4
<PAGE> 5
the performance of his duties and responsibilities thereunder
or pursuant to this Agreement.
(c) SURVIVAL: The agreements set forth in this Section 6 shall
survive beyond the term of Executive's employment, as set
forth in Section 2, above, and shall remain in full force and
effect for seven (7) years thereafter.
7. CERTAIN GENERAL PROVISIONS
(a) REPRESENTATIONS AND WARRANTIES: Executive represents and
warrants to STT:
(i) that, excluding any statutory or case law generally
applicable to all persons or entities, he is not
subject to any decision, order, decree or judgment
issued by any governmental authority or arbitrator or
arbitration panel involving noncompetition,
nonsolicitation, rights to inventions, work product
or intellectual property;
(ii) that he will not use in his employment pursuant to
this Agreement, disclose to Employer or induce
Employer to use any trade secrets or proprietary or
confidential information or materials belonging to
others.
(b) REMEDIES: Any violation of any provision of the foregoing
Sections 5 and 6 may cause irreparable harm to Employer, and
damages may not be an adequate remedy. Employer shall
therefore be entitled to seek injunctive relief from any court
of competent jurisdiction in the United States of America
enjoining, prohibiting and restraining Executive from the
continuance of any such violation. However, should Employer
seek injunctive relief in any such court, Executive may then
elect to have any or all controversies or claims, including
any claim for injunctive relief, arising out of or relating to
this Agreement or the breach thereof heard and determined by
such court or by any other court of competent jurisdiction in
the United States of America or to have any or all such
controversies or claims settled by arbitration pursuant to the
provisions of paragraph no. 10(b), below.
(c) NOTICE TO OTHERS: Executive hereby agrees that,
notwithstanding any other provision of this Agreement,
Employer may disclose the prohibitions contained in Sections 5
and 6 hereof to any person or entity, including one that at
the time employs or is considering employing Executive.
(d) MODIFICATION: Should any provision of the foregoing Section 5
or 6 be deemed too broad to permit enforcement to its full
extent, then it shall be enforced to the maximum extent
permitted by law, and its scope may be judicially modified
accordingly in any proceeding brought to enforce such
restriction.
5
<PAGE> 6
8. TERMINATION
(a) CERTAIN DEFINED TERMS
(i) CHANGE OF CONTROL: A "Change of Control" shall be
deemed to have occurred when any of the following
events occurs:
(A) Any "person" (other than (1) any employee
plan established by STT, (2) STT, (3) an
underwriter temporarily holding securities
pursuant to an offering of such securities,
or (4) a corporation owned, directly or
indirectly, by stockholders of STT in
substantially the same proportions as their
ownership of STT) is or becomes the
beneficial owner, directly or indirectly, of
securities of STT representing 50% or more
of the combined voting power of STT's then
outstanding voting securities [as used in
this paragraph, "person" shall have the same
meaning as that term does as used in
Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")]; or
(B) During any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
director (other than an individual whose
nomination for election is in connection
with an actual or threatened election
contest relating to the election of the
directors of STT, as such terms are used in
Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment, election,
or nomination for election by STT's
shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose
appointment, election or nomination for
election was previously so approved, cease
for any reason to constitute a majority of
the Board; or
(C) There is consummated a merger or
consolidation of STT with or into any other
corporation or other entity, or a
transaction having a similar result or
effect, other than a merger, consolidation,
or other transaction which would result in
the holders of the voting securities of STT
outstanding immediately prior thereto
holding securities which represent
immediately after such merger or
consolidation more than 65% of the combined
voting power of the voting securities of
either STT or the other entity which
survives such merger or consolidation or the
parent of the entity which survives such
merger or consolidation; or
(D) There is consummated a sale or disposition
by STT of all or substantially all of STT's
assets.
6
<PAGE> 7
(ii) DISABILITY: The term "disabled" and variations of it
mean a physical condition of Executive which is of a
nature and duration sufficient to require payment
under the provisions of STT's long-term disability
insurance covering Executive, if such a policy is in
effect at the time the disability commences, and, if
no such policy is then in effect, a disability
determined by a physician mutually agreed upon by STT
and the Executive to substantially interfere with the
Executive's ability to perform the essential duties
of his employment.
(iii) FOR CAUSE: The phrase "for cause" and variations of
it mean because of:
(A) willful failure (other than by reason of
disability) to perform any of the duties or
to fulfill any of the obligations set forth
in the provisions of Sections 3, 5 or 6,
above;
(B) willful failure (other than by reason of
disability) to respond to a request by the
Board of Directors or Chief Executive
Officer of STT which is reasonable in light
of Executive's duties as described in
Section 3 and of the resources and support
provided to him by Employer after notice and
reasonable opportunity to cure or comply;
(C) willful disclosure to any of Employer's then
or prospective competitors of any trade
secrets or confidential or proprietary
information of Employer; or Executive's
giving any such competitor material
assistance in the conduct of such
competitor's business;
(D) willfully giving any of Employer's then or
prospective competitors material assistance
in the conduct of its business;
(E) willfully engaging in any act that
constitutes a material conflict of interest
with Employer, except as is expressly
permitted under this Agreement with respect
to Other Funds;
(F) willful usurpation of a material business
opportunity of Employer;
(G) willful misappropriation of a material
amount of Employer's funds or property;
(H) willfully attempting to secure any personal
profit in connection with any transaction
entered into on behalf of Employer, except
as is expressly permitted under this
Agreement with respect to Other Funds;
(I) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to fraud, theft, embezzlement or any other
felony demonstrated to have a direct,
material, adverse financial effect on
Employer or on a customer or property owner;
or
7
<PAGE> 8
(J) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to a felony which demonstrably and
materially impairs or harms Employer's
ability to conduct its business.
(iv) FOR GOOD REASON: For purposes of this Agreement, the
phrase "for good reason" and variations of it shall
mean because of:
(A) Employer's assignment of Executive, without
his consent, to a position, responsibilities
or duties of any materially lesser status or
degree of responsibility or authority than
his position, responsibilities or duties at
the Effective Date; or
(B) Employer's diminution of, or refusal to pay
when due, Executive's Salary under paragraph
no. 4(a)(i), above, or any Bonus awarded to
Executive under paragraph no. 4(b), above,
(provided that, in the case of any such
Bonus only, any conditions placed upon the
payment of same have been satisfied); or
(C) Employer's material diminution of the
aggregate of Executive's Benefits under
paragraph no. 4(a)(ii), above, or of the
aggregate of Executive's vacations, holidays
and sick leave under paragraph no. 4(c),
above;
(D) Employer's material reduction or diminution
of the conditions of Executive's employment
including, without limitation, Employer's
failure to provide Executive with office,
secretarial services and such other
facilities and support services as are
reasonably appropriate and necessary for the
performance of Executive's duties under this
Agreement.
(E) Any Change in Control as defined in
paragraph no. 8(a)(i), above.
(b) EVENTS: Executive's employment pursuant to this Agreement
shall terminate upon the first to occur of any of the
following events:
(i) TERMINATION BY EXECUTIVE: Executive may terminate his
employment pursuant to this Agreement for any reason
or "for good reason" (as defined above) upon prior
written notice to STT, and such termination shall be
effective upon the expiration of the time period in
such notice (or such earlier time as STT and
Executive may agree). For purposes of this paragraph,
the time period for said prior written notice shall
be six months, if said notice is given during the
first two years of the term of this Agreement, and
ninety days if given thereafter.
(ii) TERMINATION WITHOUT CAUSE BY STT: STT may terminate
Executive's employment pursuant to this Agreement
without cause upon prior written notice to Executive,
and such termination shall be effective upon the
expiration of the time period in such notice (or such
earlier time as STT and Executive may agree). For
8
<PAGE> 9
purposes of this paragraph, the time period for said
prior written notice shall be six months, if said
notice is given during the first two years of the
term of this Agreement, and ninety days if given
thereafter.
(iii) WITH CAUSE BY STT: STT may immediately terminate
Executive's employment pursuant to this Agreement for
cause upon written notice to Executive, and such
termination shall be effective upon the giving of
such notice.
(iv) TERMINATION ON ACCOUNT OF DEATH OR DISABILITY: Upon
the death or disability of Executive, Executive's
employment pursuant to this Agreement shall
terminate, and such termination shall be effective on
the date upon which the death or disability of
executive occurs.
(v) NON-RENEWAL OF TERM: Should Executive give STT
written notice at least thirty (30) days prior to the
expiration of either the orginal four-year term of
his employment or any of the subsequent, consecutive
one-year terms set forth in Section 2, above,
Executive's employment pursuant to this Agreement
shall terminate upon the last day of said term and
such termination shall be effective on said day.
(vi) "TERMINATION DATE" means the date upon which
Executive's termination becomes effective.
(c) TERMINATION PAY: Effective upon the termination of Executive's
employment pursuant to this Agreement, STT shall be obligated
to pay Executive (or in the event of his death, his estate, or
in the event a personal representative is appointed, his
personal representative) only such compensation as is provided
in this paragraph no. 8(c). ("Termination Pay"):
(i) COMPENSATION UPON TERMINATION BY EXECUTIVE OTHER THAN
FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreementother than for
good reason, then STT shall pay Executive all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(ii) COMPENSATION UPON TERMINATION BY STT WITHOUT CAUSE OR
BY EXECUTIVE FOR GOOD REASON: If STT terminates
Executive's employment pursuant to this Agreement
without cause, or if Executive terminates said
employment for good reason, then STT shall pay
Executive (A) his Salary for the remainder of the
Restricted Period, at the rate at which it was paid
at the Termination Date, and (B) an amount equal to
either (i) the amount of his target Bonus in respect
of the fiscal year in which the Termination Date
occurs, if the amount of such target Bonus has been
established as of the Termination Date, or (ii) if
the amount of such target Bonus has not been
determined as of the Termination Date, the amount of
the Bonus he received in respect of the immediately
preceding fiscal year, and STT shall continue to
provide Executive with the medical Benefits he
received as of the Termination Date through the last
day of the Restricted Period only.
9
<PAGE> 10
(iii) COMPENSATION UPON TERMINATION BY STT FOR CAUSE: If
STT terminates Executive's employment pursuant to
this Agreement for cause, then STT shall pay
Executive all his compensation owed him under Section
4, above, through and including the Termination Date
only.
(iv) COMPENSATION UPON TERMINATION BY DEATH OR DISABILITY:
If Executive's employment pursuant to this Agreement
is terminated by reason of the death or disability of
Executive, then STT shall pay Executive or his
estate, as appropriate, all his compensation owed him
under Section 4, above, through and including the
Termination Date only.
(V) COMPENSATION UPON NON-RENEWAL OF TERM: If Executive's
employment is terminated by non-renewal of its term
under paragraph no. 8(b)(v), above, STT shall, in its
sole discretion, determine whether Executive shall
thereafter be subject to the restrictions set forth
in paragraphs nos. 5(b), 5(c) and 5(d), above, for a
period of up to but not exceeding one (1) year from
the Termination Date. If STT determines that
Executive shall be subject to said restrictions, then
it shall pay him as if he were terminated without
good cause or for good reason as specified in
paragraph no. 8(b)(ii), above, during whatever period
STT determines said restrictions shall apply. If STT
determines that Executive shall not be subject to any
such restrictions, then it shall pay him all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(VI) AWARDS UNDER STT INCENTIVE PLANS: Executive shall
receive all rights and benefits granted to Executive
under STT's 1999 Omnibus Incentive Plan and any other
incentive plans of STT in which Executive
participates, and any agreements with Executive
pursuant thereto. The vesting and exercise of any
stock options and the forfeitability of any
stock-based grants held by Executive shall be
governed by the terms of such plans and the related
agreements between Executive and STT rather than this
Agreement.
(d) TIMING OF TERMINATION PAY:
(i) FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement for Good Reason
(except for any Change in Control, in which case the
provisions of the following paragraph shall control)
or Executive's employment hereunder is terminated by
reason of death, then the full amount of any
Termination Pay owed to Executive or his estate
pursuant to the provisions of this Section shall
become due and payable upon the Termination Date.
Employer shall make payment at the time(s) and in the
manner(s) specified by Executive, or by the executor
of his estate, as appropriate, in written notice to
Employer. Executive, or the executor of his estate,
as appropriate, shall have the right to specify
whether payment of the Termination Pay shall be made
in whole or in part, and the specification of the
payment of any part shall not waive or limit
Executive's or his estate's right to receive the
remainder of the whole.
10
<PAGE> 11
(ii) FOR OTHER REASON: If Executive or STT terminates his
employment pursuant to this Agreement for any reason
other than than set forth in the preceding paragraph,
then any Termination Pay owed to Executive or to his
estate shall be paid in accordance with STT's normal
payroll schedule.
(e) RELEASE AND WAIVER OF OTHER CAUSES OF ACTION: Payment by STT
of the full amount of any Termination Pay owed Executive
pursuant to this Agreement shall be made promptly by STT upon
receipt of a full and final release and waiver by Executive,
in form and substance reasonably satisfactory to STT, of any
and every claim and cause of action which Executive may have
against STT, STOC, STP or any of their affiliates and
subsidiaries arising out of or relating to his employment
pursuant to this Agreement, whether such action is at equity
or common law or arises out of any federal, state or local
statute or regulation (including, but not limited to, the
termination of such employment. Further, as long as STT makes
timely payment of any portions or installments of Executive's
Termination Pay pursuant to the provisions of paragraph no.
8(d), above, Executive shall not commence any such claim or
action in any court or before any administrative body or
arbitration panel. However, nothing in this paragraph shall be
construed to limit Executive's right to bring an action
arising out of the breach of any provision of this Agreement
in any appropriate court or before any appropriate arbitration
panel, consistent with the terms otherwise set forth herein.
9. LITIGATION AND REGULATORY COOPERATION AFTER TERMINATION
(a) EXTENT OF COOPERATION: After the termination of Executive's
employment hereunder, Executive shall reasonably cooperate
with STT in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of STT and which relate to events or
occurrences that transpired while Executive was employed by
STT, but if and only if such cooperation shall not materially
and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or
action shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on
behalf of STT at mutually convenient times. After Executive's
employment, Executive also shall cooperate fully with STT in
connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation
or review relates to events or occurrences that transpired
while Executive was employed by STT, but if and only if such
cooperation shall not materially and adversely affect
Executive or expose Executive to an increased probability of
civil or criminal litigation. However, notwithstanding any of
the foregoing, nothing in this paragraph shall be construed to
require Executive to cooperate or provide any services to, on
or on behalf of STT in excess of four (4) hours in any one day
or for a total of more than twenty (20) hours, nor to require
Executive to travel more than fifty (50) miles from his home
in order to render such cooperation, nor to provide any
cooperation under this paragraph after seven (7) years from
Executive's Termination Date.
11
<PAGE> 12
(b) COMPENSATION FOR COOPERATION: STT shall compensate Executive for all
cooperation or other services rendered pursuant to this Section 9 by
paying him the greater of (i) a sum equal to all of his lost salary,
earnings and profits attributable to his provision of such cooperation
and services, or (ii) compensation on an hourly basis calculated at his
final hourly Salary rate. STT shall also reimburse Executive for all
costs and expenses incurred in connection with his performance under
this Section 9, including, without limitation, all reasonable
attorneys' fees and costs.
10. MISCELLANEOUS
(a) GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION: The
parties shall in good faith undertake to perform their
agreements in this Agreement, to satisfy all conditions and to
cause the purposes of this Agreement to be accomplished
promptly in accordance with its terms.
(b) ARBITRATION: Any controversy or claim arising out of or
relating to this Agreement or the breach thereof not subject
to paragraph no. 7(b), above, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Said arbitration shall be
before a panel of three arbitrators. Executive shall choose
one arbitrator, STT shall choose one arbitrator and the two
arbitrators so chosen shall choose the third arbitrator. Said
arbitration shall take place in the state of New Hampshire
within sixty days of notice by one party to the other, unless
they shall mutually agree to a longer or shorter time.
Judgment upon the award rendered by the panel may be entered
by any court of competent jurisdiction. Executive and STT
shall each pay fifty percent (50%) of the panel's fees. The
panel shall award reasonable interest, attorneys' fees and
costs to the prevailing party but shall have no power to award
punitive damages.
(c) NOTICES: Each notice, communication and delivery under this
Agreement:
(i) shall be made in writing signed by the party giving
it;
(ii) shall specify the section of this Agreement pursuant
to which it is given;
(iii) shall either be delivered in person, by any form of
United States Mail if a return receipt is provided
therewith, by telecopier or by a nationally
recognized next business day delivery service (such
as Federal Express, United Parcel Service, DHL or any
other similar delivery service provider);
(iv) shall be given to the address specified below;
(v) shall be deemed to be given:
(A) if delivered in person, on the date
delivered, or
12
<PAGE> 13
(B) if sent by telecopier, on the date of
confirmation of receipt, by telephone or
otherwise, or
(C) if sent by a nationally recognized next
business day courier service with all costs
paid, on the date of confirmation of
receipt.
The addresses are as follows:
If to Executive, to:
339 Rt 103 A
New London, NH 03257
Telecopier:
Confirm:
If to STT:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attn: Secretary
Telecopier: 603/526-7811
Confirm: 603/526-7800
Such notice shall be given to such other representatives or at
such other addresses as a party may furnish to the other
parties pursuant to the foregoing. If notice is given pursuant
to this Section of a permitted successor or assign of a party,
then notice shall thereafter be given as set forth above also
to such successor or assign of such party.
(d) COMPUTATION OF TIME: Whenever the last day for the exercise of
any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or
legal holiday, whether federal or of a state in which the
person or entity having such privilege or duty resides or has
its principal place of business, the party to this Agreement
having such privilege or duty shall have until 5:00 p.m.
(Eastern time) on the next succeeding regular business day to
exercise such privilege or to discharge such duty.
(e) ASSIGNMENT; SUCCESSOR IN INTEREST:
(i) BY STT: Except with the prior written consent of
Executive, no assignment, transfer or delegation by
STT of any of its rights and obligations under this
Agreement may be made to any other entity, except
that STT may make any such assignment, transfer or
delegation:
(A) to STOC or STP or any of STT's affiliates or
subsidiaries; and
13
<PAGE> 14
(B) if STT is merged into or acquired by another
business entity such that there is a Change
in Control, to the business entity into
which STT is merged or by which it is
acquired.
(ii) BY EXECUTIVE: Executive (or, under appropriate
circumstances, the executor of Executive's estate)
may transfer or assign any of his rights to receive
Executive's Total Compensation or any component of
Executive's Total Compensation, in whole or in part,
to any of Executive's heirs, devisees, legatees or
beneficiaries upon written notice to STT. No other
transfer or assignment may be made to any party by
Executive of any of his rights or obligations under
this Agreement.
(f) BINDING NATURE: This Agreement shall be binding upon the
parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and
successors and assigns; shall inure to the benefit of the
parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees, beneficiaries and
other permitted successors and assigns (and to or for the
benefit of no other person or entity, whether an employee or
otherwise, whatsoever); and upon a permitted assignment, any
reference to a party to this Agreement shall also be a
reference to a permitted successor or assign.
(g) REMEDIES CUMULATIVE: The rights and remedies specified in any
provision of this Agreement shall be in addition to all other
rights and remedies a party may have under any other agreement
or applicable law, including any right to equitable relief and
any right to sue for damages as a result of a breach of this
Agreement (whether or not it elects to terminate this
Agreement), and all such rights and remedies shall be
cumulative.
(h) DEFENSE/INDEMNIFICATION/HOLD HARMLESS: STT shall, to the
greatest extent allowed by applicable law, provide Executive a
defense, indemnify Executive and hold Executive harmless from
any civil or criminal claim, award or judgment which arises
out of Executive's acts performed or omissions committed in
the course of, or which Executive reasonably believed he
performed or committed in the course of, the performance of
his duties pursuant to this Agreement. However, nothing in
this paragraph shall require STT to provide Executive a
defense, indemnify Executive or hold Executive harmless from
any such claim, award or judgment which arises out of any such
act or omission which, at the time of same, Executive knew or
reasonably should have known constituted cause for termination
as set forth in paragraph no. 8(a)(iii), above.
(i) INSURANCE: STT shall cause Executive to appear as an
additional named insured on any policy of Directors' and
Officers' Liability Insurance which STT procures on behalf of
itself and/or on behalf of any of its Executive Officers.
Should Executive not appear as an additional named insured on
any such policy, STT shall be liable to Executive for the full
amount of insurance coverage which Executive would have had
pursuant to such policy had STT fulfilled its obligation under
this paragraph.
14
<PAGE> 15
(j) EXPENSES OF ENFORCING THIS AGREEMENT: Subject to the
provisions of paragraph no. 10(b), above, any expense incurred
in enforcing any or all of the provisions of this Agreement
shall be reimbursed to the prevailing party.
(k) INTEGRATION; AMENDMENT: This Agreement:
(i) supersedes all prior negotiations, agreements and
understandings between the parties to this Agreement
with respect to its subject matter, and
(ii) constitutes the entire agreement between the parties
to this Agreement with respect to its subject matter,
and
(iii) may not be altered or amended, nor may any material
provision be waived, except in writing signed by
Executive and STT.
(l) WAIVER: No waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed or
construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement
(m) CONTROLLING LAW: This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the
State of New Hampshire (except the laws of that jurisdiction
that would render such choice of laws ineffective).
(n) COPIES: This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to
produce or account for more than one of such copies.
(o) COUNTERPARTS: This Agreement may be executed in one or more
counterparts (one counterpart reflecting the signatures of all
parties), each of which shall be deemed to be an original, and
it shall not be necessary in making proof of this Agreement or
its terms to account for more than one of such counterparts.
This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one
copy of this Agreement and attached to another copy in order
to form one or more counterparts.
(p) RESIGNATIONS: Upon Executive's Termination Date, Executive
shall be deemed to have resigned from any and all offices he
may have held and from any employment he had with STT, STOC,
STP and any and all subsidiaries and affiliates of STT, STOC
or STP which were in existence on the Effective Date or which
came into existence during the term of this Agreement as set
forth in Section 2, above, up to and including the Termination
Date.
(q) INDEPENDENT: The agreements set forth above (or any part of
them) are, shall be deemed and shall be construed as separate
and independent agreements. If any such
15
<PAGE> 16
agreement or any part of such agreement is held invalid, void
or unenforceable by any court or arbitration panel of
competent jurisdiction, such holding shall in no way render
invalid, void or unenforceable any other part or provision
thereof or any separate agreement.
DULY EXECUTED and delivered by the parties to this Agreement as of the
dates set forth below.
Executive: /s/ C. Edward Broom
--------------------------------------------
Name: C. Edward Broom
Title: Chairman, President & CEO
Date: 3/20/99
STT: STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
--------------------------------------------
Name: Joseph E. Rendini
Title: Secretary and Vice President
Date: 3/24/99
16
<PAGE> 1
EXHIBIT 10.11
STRATEGIC TIMBER TRUST, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Strategic Timber Trust, Inc., a Georgia corporation (hereinafter "STT" or
"Employer") and Christopher J. Broom ("Executive") hereby agree as follows:
1. EMPLOYMENT
This Agreement is entered into by STT and Executive in contemplation of a
registered initial public offering of STT's common stock ("the IPO"). Executive
acknowledges that he has special knowledge, expertise, contacts and other
information with respect to the Restricted Business (as defined below), that he
will be provided with confidential information (as defined below) and that STT's
employment of Executive upon the consummation of the IPO is in consideration of
the promises and agreements contained in this Agreement. This Agreement shall
govern the employment of Executive as an officer of STT.
2. EFFECTIVENESS OF AGREEMENT; TERM
This Agreement shall become effective on the consummation of the IPO ("the
Effective Date"), but shall be void and of no further effect if the IPO has not
been consummated by December 31, 1999. The term of Executive's employment
pursuant to this Agreement shall be for the period from and including the
Effective Date until and including the fourth anniversary of the Effective Date,
and for additional, consecutive one-year periods thereafter, all unless earlier
terminated as provided in Section 8, below.
3. DUTIES AND RESPONSIBILITIES
During Executive's employment pursuant to this Agreement, Executive shall hold
such office or offices as he shall be elected to by the Board of Directors of
STT, shall perform the duties of such office or offices pursuant to the
direction of the Board of Directors of STT (or any committee thereof) or of the
Chief Executive Officer of STT, shall perform such duties to the best of his
ability, shall use his good faith efforts to promote the success of the business
of STT, shall devote his entire business time to the affairs of STT and shall
not engage in any other business activity or occupation during normal business
hours for gain, profit, or other pecuniary advantage; provided, however, that
the foregoing shall not be construed as preventing Executive from investing or
trading for his own benefit or for that of the members of his family in stocks,
bonds, securities or other similar forms of investment in public securities
markets, serving as a director of another corporation or engaging in any family
enterprise or in charitable, civic or other similar pursuits, so long as they do
not materially interfere with Executive's performance of his duties under this
Agreement.
<PAGE> 2
4. COMPENSATION AND RELATED MATTERS
(a) BASIC: During the Executive's employment pursuant to this
Agreement, STT:
(i) shall pay Executive a minimum salary of $ 175,000.00
per annum in accordance with STT's normal and usual
payroll schedule ("Salary), and
(ii) shall include Executive in all retirement plans,
insurance plans and other fringe benefits and
arrangements that may be authorized and adopted for
the benefit of executives of STT generally.
("Benefits" ).
(b) RAISES AND BONUSES: STT's Board of Directors, acting directly
or through its Compensation Committee, may, in its sole
discretion and for any reason, increase Executive's salary
and/or grant Executive additional compensation as a bonus (a
"Bonus") .
(c) VACATIONS, HOLIDAYS AND SICK LEAVE: Executive shall be
entitled to vacation, holidays and sick days with pay as
determined by STT.
(d) NO DIVESTMENT: No termination of Executive's employment shall
divest Executive of his right to receive all or any unpaid
portion or installment of any of his Salary or Bonus to which
he is otherwised entitled pursuant to the terms of this
Agreement.
5. NONCOMPETITION; NO INTERFERENCE
(a) CERTAIN DEFINED TERMS: For purposes of this Agreement, the
following words and phrases have the meanings set forth below:
(i) "CUSTOMER" means any purchaser of timber from
Employer, and any potential purchaser solicited by
Employer, with which Executive had contact during the
term of his employment hereunder.
(ii) "PROPERTY OWNERS" means persons and entities with
whom Employer has contracted for, or with whom
Employer has undertaken any phase of negotiation
regarding, the acquisition of timberlands, timber
cutting rights, timber deeds, or any other types of
property rights, with which Executive had contact
during the term of his employment hereunder.
(iii) "RESTRICTED BUSINESS" means the business of owning
timberland, selling or purchasing timberland, and
selling timber or cut logs, or any of the foregoing,
whether undertaken directly or indirectly.
(iv) "TERRITORY" means North America, Central America and
South America.
2
<PAGE> 3
(v) "RESTRICTED PERIOD" means the period of Executive's
employment with STT pursuant to this Agreement (i.e.,
the period extending from the Effective Date until
the Termination Date, as defined in paragraph no.
8(b)(vi), below) plus one year from the Termination
Date.
(vi) "EMPLOYER,"for purposes of this Section 5 only, means
STT, Strategic Timber Operating Co. ("STOC"),
Strategic Timber Partners, LP ("STP") and their
subsidiaries and affiliates which were in existence
on the Effective Date or which came into existence
during the term of this Agreement as set forth in
Section 2, above, up to and including the Termination
Date.
(b) NONCOMPETITION: During the Restricted Period, Executive shall
not, either directly or indirectly:
(i) have any ownership interest (whether as proprietor,
partner, stockholder or otherwise) in, or
(ii) be an officer, director or general or managing
partner of, or hold a similar position in, or
(iii) act as agent, broker or distributor for, or advisor
or consultant to, or
(iv) be employed in an executive or management position
with
any business however organized or conducted which is engaged
or which Executive knows or reasonably should know plans to
become engaged in the Restricted Business in the Territory
without the permission of the disinterested members of STT's
Board of Directors. Further, any ownership interest held by
Executive at the time of the execution of this Agreement shall
be deemed so permitted. However, notwithstanding any of the
foregoing, the ownership by Executive of less than one percent
(1%) of the shares of the capital stock of a publicly held
entity shall in no event be deemed a violation of any
provision of this paragraph.
(c) NO INTERFERENCE WITH CUSTOMERS OR PROPERTY OWNERS: During the
Restricted Period, Executive will not in any way, directly or
indirectly:
(i) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, from
Employer the business of any Customer; or
(ii) attempt or seek to cause any Customer to refrain, in
any respect, from doing business with Employer, or
intentionally interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise,
between Employer and Customer; or
3
<PAGE> 4
(iii) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, any
pending or contemplated acquisition of timberlands,
timber cutting rights, timber deeds, or any other
type of property rights, from a Property Owner; or
(iv) attempt or seek to cause any Property Owner to
refrain from consummating any pending or contemplated
transaction with Employer, or intentionally interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Employer and any
Property Owner.
(d) NO INTERFERENCE WITH EMPLOYEES. During the Restricted Period,
Executive will not in any way, directly or indirectly, request
or induce any other employee of Employer to terminate his
employment with Employer.
(e) NO EFFECT OF TERMINATION OF EMPLOYMENT. The termination of
Executive's employment with STT shall not limit or otherwise
affect the agreements set forth in this Section 5, which shall
continue and expressly survive the termination of Executive's
employment and this Agreement.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES
(a) GENERAL: All records, financial statements and similar
documents obtained, reviewed or compiled by Executive as part
of the performance of his services for or duties to Employer
pursuant to this Agreement shall be the exclusive property of
Employer, and Executive shall have no rights in such documents
on or after the earlier of Executive's Termination Date (as
defined in paragraph no. 8(b)(vi), below) or the last day of
the term of this Agreement as set forth in Section 2, above.
(b) CONFIDENTIAL INFORMATION AND TRADE SECRETS: Executive will not
disclose to any person or entity or use for his own benefit or
gain, any confidential information or trade secrets of the
Employer obtained by him incident to his employment with STT.
Executive shall take all reasonable steps to safeguard any
confidential information and trade secrets and to protect same
against disclosure, misuse, loss or theft. The term
"Confidential Information" includes, without limitation,
financial information, business plans, prospects and
opportunities which have been discussed or considered by the
management of Employer, but does not include any information
which has become part of the public domain by means other than
Executive's failure to observe his obligations hereunder.
However, nothing in this paragraph shall be construed as
prohibiting, restricting or preventing Executive from making
any disclosure required by applicable law, the rules of the
New York Stock Exchange or of any other securities market on
which STT's securities are listed, or which are otherwise
called for in connection with the performance of his duties
and responsibilities thereunder or pursuant to this Agreement.
4
<PAGE> 5
(c) SURVIVAL: The agreements set forth in this Section 6 shall
survive beyond the term of Executive's employment, as set
forth in Section 2, above, and shall remain in full force and
effect for seven (7) years thereafter.
7. CERTAIN GENERAL PROVISIONS
(a) REPRESENTATIONS AND WARRANTIES: Executive represents and
warrants to STT:
(i) that, excluding any statutory or case law generally
applicable to all persons or entities, he is not
subject to any decision, order, decree or judgment
issued by any governmental authority or arbitrator or
arbitration panel involving noncompetition,
nonsolicitation, rights to inventions, work product
or intellectual property;
(ii) that he will not use in his employment pursuant to
this Agreement, disclose to Employer or induce
Employer to use any trade secrets or proprietary or
confidential information or materials belonging to
others.
(b) REMEDIES: Any violation of any provision of the foregoing
Sections 5 and 6 may cause irreparable harm to Employer, and
damages may not be an adequate remedy. Employer shall
therefore be entitled to seek injunctive relief from any court
of competent jurisdiction in the United States of America
enjoining, prohibiting and restraining Executive from the
continuance of any such violation. However, should Employer
seek injunctive relief in any such court, Executive may then
elect to have any or all controversies or claims, including
any claim for injunctive relief, arising out of or relating to
this Agreement or the breach thereof heard and determined by
such court or by any other court of competent jurisdiction in
the United States of America or to have any or all such
controversies or claims settled by arbitration pursuant to the
provisions of paragraph no. 10(b), below.
(c) NOTICE TO OTHERS: Executive hereby agrees that,
notwithstanding any other provision of this Agreement,
Employer may disclose the prohibitions contained in Sections 5
and 6 hereof to any person or entity, including one that at
the time employs or is considering employing Executive.
(d) MODIFICATION: Should any provision of the foregoing Section 5
or 6 be deemed too broad to permit enforcement to its full
extent, then it shall be enforced to the maximum extent
permitted by law, and its scope may be judicially modified
accordingly in any proceeding brought to enforce such
restriction.
5
<PAGE> 6
8. TERMINATION
(a) CERTAIN DEFINED TERMS
(i) CHANGE OF CONTROL: A "Change of Control" shall be
deemed to have occurred when any of the following
events occurs:
(A) Any "person" (other than (1) any employee
plan established by STT, (2) STT, (3) an
underwriter temporarily holding securities
pursuant to an offering of such securities,
or (4) a corporation owned, directly or
indirectly, by stockholders of STT in
substantially the same proportions as their
ownership of STT) is or becomes the
beneficial owner, directly or indirectly, of
securities of STT representing 50% or more
of the combined voting power of STT's then
outstanding voting securities [as used in
this paragraph, "person" shall have the same
meaning as that term does as used in
Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")]; or
(B) During any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
director (other than an individual whose
nomination for election is in connection
with an actual or threatened election
contest relating to the election of the
directors of STT, as such terms are used in
Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment, election,
or nomination for election by STT's
shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose
appointment, election or nomination for
election was previously so approved, cease
for any reason to constitute a majority of
the Board; or
(C) There is consummated a merger or
consolidation of STT with or into any other
corporation or other entity, or a
transaction having a similar result or
effect, other than a merger, consolidation,
or other transaction which would result in
the holders of the voting securities of STT
outstanding immediately prior thereto
holding securities which represent
immediately after such merger or
consolidation more than 65% of the combined
voting power of the voting securities of
either STT or the other entity which
survives such merger or consolidation or the
parent of the entity which survives such
merger or consolidation; or
(D) There is consummated a sale or disposition
by STT of all or substantially all of STT's
assets.
6
<PAGE> 7
(ii) DISABILITY: The term "disabled" and variations of it
mean a physical condition of Executive which is of a
nature and duration sufficient to require payment
under the provisions of STT's long-term disability
insurance covering Executive, if such a policy is in
effect at the time the disability commences, and, if
no such policy is then in effect, a disability
determined by a physician mutually agreed upon by STT
and the Executive to substantially interfere with the
Executive's ability to perform the essential duties
of his employment.
(iii) FOR CAUSE: The phrase "for cause" and variations of
it mean because of:
(A) willful failure (other than by reason of
disability) to perform any of the duties or
to fulfill any of the obligations set forth
in the provisions of Sections 3, 5 or 6,
above;
(B) willful failure (other than by reason of
disability) to respond to a request by the
Board of Directors or Chief Executive
Officer of STT which is reasonable in light
of Executive's duties as described in
Section 3 and of the resources and support
provided to him by Employer after notice and
reasonable opportunity to cure or comply;
(C) willful disclosure to any of Employer's then
or prospective competitors of any trade
secrets or confidential or proprietary
information of Employer; or Executive's
giving any such competitor material
assistance in the conduct of such
competitor's business;
(D) willfully giving any of Employer's then or
prospective competitors material assistance
in the conduct of its business;
(E) willfully engaging in any act that
constitutes a material conflict of interest
with Employer;
(F) willful usurpation of a material business
opportunity of Employer;
(G) willful misappropriation of a material
amount of Employer's funds or property;
(H) willfully attempting to secure any personal
profit in connection with any transaction
entered into on behalf of Employer;
(I) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to fraud, theft, embezzlement or any other
felony demonstrated to have a direct,
material, adverse financial effect on
Employer or on a customer or property owner;
or
7
<PAGE> 8
(J) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to a felony which demonstrably and
materially impairs or harms Employer's
ability to conduct its business.
(iv) FOR GOOD REASON: For purposes of this Agreement, the
phrase "for good reason" and variations of it shall
mean because of:
(A) Employer's assignment of Executive, without
his consent, to a position, responsibilities
or duties of any materially lesser status or
degree of responsibility or authority than
his position, responsibilities or duties at
the Effective Date; or
(B) Employer's diminution of, or refusal to pay
when due, Executive's Salary under paragraph
no. 4(a)(i), above, or any Bonus awarded to
Executive under paragraph no. 4(b), above,
(provided that, in the case of any such
Bonus only, any conditions placed upon the
payment of same have been satisfied); or
(C) Employer's material diminution of the
aggregate of Executive's Benefits under
paragraph no. 4(a)(ii), above, or of the
aggregate of Executive's vacations, holidays
and sick leave under paragraph no. 4(c),
above;
(D) Employer's material reduction or diminution
of the conditions of Executive's employment
including, without limitation, Employer's
failure to provide Executive with office,
secretarial services and such other
facilities and support services as are
reasonably appropriate and necessary for the
performance of Executive's duties under this
Agreement.
(E) Any Change in Control as defined in
paragraph no. 8(a)(i), above.
(b) EVENTS: Executive's employment pursuant to this Agreement
shall terminate upon the first to occur of any of the
following events:
(i) TERMINATION BY EXECUTIVE: Executive may terminate his
employment pursuant to this Agreement for any reason
or "for good reason" (as defined above) upon prior
written notice to STT, and such termination shall be
effective upon the expiration of the time period in
such notice (or such earlier time as STT and
Executive may agree). For purposes of this paragraph,
the time period for said prior written notice shall
be six months, if said notice is given during the
first two years of the term of this Agreement, and
ninety days if given thereafter.
(ii) TERMINATION WITHOUT CAUSE BY STT: STT may terminate
Executive's employment pursuant to this Agreement
without cause upon prior written notice to Executive,
and such termination shall be effective upon the
expiration of the time period in such notice (or such
earlier time as STT and Executive may agree). For
purposes of this paragraph, the time period for said
prior written notice shall be six
8
<PAGE> 9
months, if said notice is given during the first two
years of the term of this Agreement, and ninety days
if given thereafter.
(iii) WITH CAUSE BY STT: STT may immediately terminate
Executive's employment pursuant to this Agreement for
cause upon written notice to Executive, and such
termination shall be effective upon the giving of
such notice.
(iv) TERMINATION ON ACCOUNT OF DEATH OR DISABILITY: Upon
the death or disability of Executive, Executive's
employment pursuant to this Agreement shall
terminate, and such termination shall be effective on
the date upon which the death or disability of
executive occurs.
(v) NON-RENEWAL OF TERM: Should Executive give STT
written notice at least thirty (30) days prior to the
expiration of either the orginal four-year term of
his employment or any of the subsequent, consecutive
one-year terms set forth in Section 2, above,
Executive's employment pursuant to this Agreement
shall terminate upon the last day of said term and
such termination shall be effective on said day.
(vi) "TERMINATION DATE" means the date upon which
Executive's termination becomes effective.
(c) TERMINATION PAY: Effective upon the termination of Executive's
employment pursuant to this Agreement, STT shall be obligated
to pay Executive (or in the event of his death, his estate, or
in the event a personal representative is appointed, his
personal representative) only such compensation as is provided
in this paragraph no. 8(c). ("Termination Pay"):
(i) COMPENSATION UPON TERMINATION BY EXECUTIVE OTHER THAN
FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreementother than for
good reason, then STT shall pay Executive all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(ii) COMPENSATION UPON TERMINATION BY STT WITHOUT CAUSE OR
BY EXECUTIVE FOR GOOD REASON: If STT terminates
Executive's employment pursuant to this Agreement
without cause, or if Executive terminates said
employment for good reason, then STT shall pay
Executive (A) his Salary for the remainder of the
Restricted Period, at the rate at which it was paid
at the Termination Date, and (B) an amount equal to
either (i) the amount of his target Bonus in respect
of the fiscal year in which the Termination Date
occurs, if the amount of such target Bonus has been
established as of the Termination Date, or (ii) if
the amount of such target Bonus has not been
determined as of the Termination Date, the amount of
the Bonus he received in respect of the immediately
preceding fiscal year, and STT shall continue to
provide Executive with the medical Benefits he
received as of the Termination Date through the last
day of the Restricted Period only.
9
<PAGE> 10
(iii) COMPENSATION UPON TERMINATION BY STT FOR CAUSE: If
STT terminates Executive's employment pursuant to
this Agreement for cause, then STT shall pay
Executive all his compensation owed him under Section
4, above, through and including the Termination Date
only.
(iv) COMPENSATION UPON TERMINATION BY DEATH OR DISABILITY:
If Executive's employment pursuant to this Agreement
is terminated by reason of the death or disability of
Executive, then STT shall pay Executive or his
estate, as appropriate, all his compensation owed him
under Section 4, above, through and including the
Termination Date only.
(v) COMPENSATION UPON NON-RENEWAL OF TERM: If Executive's
employment is terminated by non-renewal of its term
under paragraph no. 8(b)(v), above, STT shall, in its
sole discretion, determine whether Executive shall
thereafter be subject to the restrictions set forth
in paragraphs nos. 5(b), 5(c) and 5(d), above, for a
period of up to but not exceeding one (1) year from
the Termination Date. If STT determines that
Executive shall be subject to said restrictions, then
it shall pay him as if he were terminated without
good cause or for good reason as specified in
paragraph no. 8(b)(ii), above, during whatever period
STT determines said restrictions shall apply. If STT
determines that Executive shall not be subject to any
such restrictions, then it shall pay him all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(vi) AWARDS UNDER STT INCENTIVE PLANS: Executive shall
receive all rights and benefits granted to Executive
under STT's 1999 Omnibus Incentive Plan and any other
incentive plans of STT in which Executive
participates, and any agreements with Executive
pursuant thereto. The vesting and exercise of any
stock options and the forfeitability of any
stock-based grants held by Executive shall be
governed by the terms of such plans and the related
agreements between Executive and STT rather than this
Agreement.
(d) TIMING OF TERMINATION PAY:
(i) FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement for Good Reason
(except for any Change in Control, in which case the
provisions of the following paragraph shall control)
or Executive's employment hereunder is terminated by
reason of death, then the full amount of any
Termination Pay owed to Executive or his estate
pursuant to the provisions of this Section shall
become due and payable upon the Termination Date.
Employer shall make payment at the time(s) and in the
manner(s) specified by Executive, or by the executor
of his estate, as appropriate, in written notice to
Employer. Executive, or the executor of his estate,
as appropriate, shall have the right to specify
whether payment of the Termination Pay shall be made
in whole or in part, and the specification of the
payment of any part shall not waive or limit
Executive's or his estate's right to receive the
remainder of the whole.
10
<PAGE> 11
(ii) FOR OTHER REASON: If Executive or STT terminates his
employment pursuant to this Agreement for any reason
other than than set forth in the preceding paragraph,
then any Termination Pay owed to Executive or to his
estate shall be paid in accordance with STT's normal
payroll schedule.
(e) RELEASE AND WAIVER OF OTHER CAUSES OF ACTION: Payment by STT
of the full amount of any Termination Pay owed Executive
pursuant to this Agreement shall be made promptly by STT upon
receipt of a full and final release and waiver by Executive,
in form and substance reasonably satisfactory to STT, of any
and every claim and cause of action which Executive may have
against STT, STOC, STP or any of their affiliates and
subsidiaries arising out of or relating to his employment
pursuant to this Agreement, whether such action is at equity
or common law or arises out of any federal, state or local
statute or regulation (including, but not limited to, the
termination of such employment. Further, as long as STT makes
timely payment of any portions or installments of Executive's
Termination Pay pursuant to the provisions of paragraph no.
8(d), above, Executive shall not commence any such claim or
action in any court or before any administrative body or
arbitration panel. However, nothing in this paragraph shall be
construed to limit Executive's right to bring an action
arising out of the breach of any provision of this Agreement
in any appropriate court or before any appropriate arbitration
panel, consistent with the terms otherwise set forth herein.
9. LITIGATION AND REGULATORY COOPERATION AFTER TERMINATION
(a) EXTENT OF COOPERATION: After the termination of Executive's
employment hereunder, Executive shall reasonably cooperate
with STT in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of STT and which relate to events or
occurrences that transpired while Executive was employed by
STT, but if and only if such cooperation shall not materially
and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or
action shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on
behalf of STT at mutually convenient times. After Executive's
employment, Executive also shall cooperate fully with STT in
connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation
or review relates to events or occurrences that transpired
while Executive was employed by STT, but if and only if such
cooperation shall not materially and adversely affect
Executive or expose Executive to an increased probability of
civil or criminal litigation. However, notwithstanding any of
the foregoing, nothing in this paragraph shall be construed to
require Executive to cooperate or provide any services to, on
or on behalf of STT in excess of four (4) hours in any one day
or for a total of more than twenty (20) hours, nor to require
Executive to travel more than fifty (50) miles from his home
in order to render such cooperation, nor to provide any
cooperation under this paragraph after seven (7) years from
Executive's Termination Date.
11
<PAGE> 12
(b) COMPENSATION FOR COOPERATION: STT shall compensate Executive
for all cooperation or other services rendered pursuant to
this Section 9 by paying him the greater of (i) a sum equal to
all of his lost salary, earnings and profits attributable to
his provision of such cooperation and services, or (ii)
compensation on an hourly basis calculated at his final hourly
Salary rate. STT shall also reimburse Executive for all costs
and expenses incurred in connection with his performance under
this Section 9, including, without limitation, all reasonable
attorneys' fees and costs.
10. MISCELLANEOUS
(a) GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION: The
parties shall in good faith undertake to perform their
agreements in this Agreement, to satisfy all conditions and to
cause the purposes of this Agreement to be accomplished
promptly in accordance with its terms.
(b) ARBITRATION: Any controversy or claim arising out of or
relating to this Agreement or the breach thereof not subject
to paragraph no. 7(b), above, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Said arbitration shall be
before a panel of three arbitrators. Executive shall choose
one arbitrator, STT shall choose one arbitrator and the two
arbitrators so chosen shall choose the third arbitrator. Said
arbitration shall take place in the state of New Hampshire
within sixty days of notice by one party to the other, unless
they shall mutually agree to a longer or shorter time.
Judgment upon the award rendered by the panel may be entered
by any court of competent jurisdiction. Executive and STT
shall each pay fifty percent (50%) of the panel's fees. The
panel shall award reasonable interest, attorneys' fees and
costs to the prevailing party but shall have no power to award
punitive damages.
(c) NOTICES: Each notice, communication and delivery under this
Agreement:
(i) shall be made in writing signed by the party giving
it;
(ii) shall specify the section of this Agreement pursuant
to which it is given;
(iii) shall either be delivered in person, by any form of
United States Mail if a return receipt is provided
therewith, by telecopier or by a nationally
recognized next business day delivery service (such
as Federal Express, United Parcel Service, DHL or any
other similar delivery service provider);
(iv) shall be given to the address specified below;
(v) shall be deemed to be given:
(A) if delivered in person, on the date
delivered, or
12
<PAGE> 13
(B) if sent by telecopier, on the date of
confirmation of receipt, by telephone or
otherwise, or
(C) if sent by a nationally recognized next
business day courier service with all costs
paid, on the date of confirmation of
receipt.
The addresses are as follows:
If to Executive, to:
5 Morgan Lane
Post Office Box 903
New London, NH 03257
Telecopier:
Confirm:
If to STT:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attn: Secretary
Telecopier: 603/526-7811
Confirm: 603/526-7800
Such notice shall be given to such other representatives or at
such other addresses as a party may furnish to the other
parties pursuant to the foregoing. If notice is given pursuant
to this Section of a permitted successor or assign of a party,
then notice shall thereafter be given as set forth above also
to such successor or assign of such party.
(d) COMPUTATION OF TIME: Whenever the last day for the exercise of
any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or
legal holiday, whether federal or of a state in which the
person or entity having such privilege or duty resides or has
its principal place of business, the party to this Agreement
having such privilege or duty shall have until 5:00 p.m.
(Eastern time) on the next succeeding regular business day to
exercise such privilege or to discharge such duty.
(e) ASSIGNMENT; SUCCESSOR IN INTEREST:
(i) BY STT: Except with the prior written consent of
Executive, no assignment, transfer or delegation by
STT of any of its rights and obligations under this
Agreement may be made to any other entity, except
that STT may make any such assignment, transfer or
delegation:
(A) to STOC or STP or any of STT's affiliates or
subsidiaries; and
13
<PAGE> 14
(B) if STT is merged into or acquired by another
business entity such that there is a Change
in Control, to the business entity into
which STT is merged or by which it is
acquired.
(ii) BY EXECUTIVE: Executive (or, under appropriate
circumstances, the executor of Executive's estate)
may transfer or assign any of his rights to receive
Executive's Total Compensation or any component of
Executive's Total Compensation, in whole or in part,
to any of Executive's heirs, devisees, legatees or
beneficiaries upon written notice to STT. No other
transfer or assignment may be made to any party by
Executive of any of his rights or obligations under
this Agreement.
(f) BINDING NATURE: This Agreement shall be binding upon the
parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and
successors and assigns; shall inure to the benefit of the
parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees, beneficiaries and
other permitted successors and assigns (and to or for the
benefit of no other person or entity, whether an employee or
otherwise, whatsoever); and upon a permitted assignment, any
reference to a party to this Agreement shall also be a
reference to a permitted successor or assign.
(g) REMEDIES CUMULATIVE: The rights and remedies specified in any
provision of this Agreement shall be in addition to all other
rights and remedies a party may have under any other agreement
or applicable law, including any right to equitable relief and
any right to sue for damages as a result of a breach of this
Agreement (whether or not it elects to terminate this
Agreement), and all such rights and remedies shall be
cumulative.
(h) DEFENSE/INDEMNIFICATION/HOLD HARMLESS: STT shall, to the
greatest extent allowed by applicable law, provide Executive a
defense, indemnify Executive and hold Executive harmless from
any civil or criminal claim, award or judgment which arises
out of Executive's acts performed or omissions committed in
the course of, or which Executive reasonably believed he
performed or committed in the course of, the performance of
his duties pursuant to this Agreement. However, nothing in
this paragraph shall require STT to provide Executive a
defense, indemnify Executive or hold Executive harmless from
any such claim, award or judgment which arises out of any such
act or omission which, at the time of same, Executive knew or
reasonably should have known constituted cause for termination
as set forth in paragraph no. 8(a)(iii), above.
(i) INSURANCE: STT shall cause Executive to appear as an
additional named insured on any policy of Directors' and
Officers' Liability Insurance which STT procures on behalf of
itself and/or on behalf of any of its Executive Officers.
Should Executive not appear as an additional named insured on
any such policy, STT shall be liable to Executive for the full
amount of insurance coverage which Executive would have had
pursuant to such policy had STT fulfilled its obligation under
this paragraph.
14
<PAGE> 15
(j) EXPENSES OF ENFORCING THIS AGREEMENT: Subject to the
provisions of paragraph no. 10(b), above, any expense incurred
in enforcing any or all of the provisions of this Agreement
shall be reimbursed to the prevailing party.
(k) INTEGRATION; AMENDMENT: This Agreement:
(i) supersedes all prior negotiations, agreements and
understandings between the parties to this Agreement
with respect to its subject matter, and
(ii) constitutes the entire agreement between the parties
to this Agreement with respect to its subject matter,
and
(iii) may not be altered or amended, nor may any material
provision be waived, except in writing signed by
Executive and STT.
(l) WAIVER: No waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed or
construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement
(m) CONTROLLING LAW: This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the
State of New Hampshire (except the laws of that jurisdiction
that would render such choice of laws ineffective).
(n) COPIES: This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to
produce or account for more than one of such copies.
(o) COUNTERPARTS: This Agreement may be executed in one or more
counterparts (one counterpart reflecting the signatures of all
parties), each of which shall be deemed to be an original, and
it shall not be necessary in making proof of this Agreement or
its terms to account for more than one of such counterparts.
This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one
copy of this Agreement and attached to another copy in order
to form one or more counterparts.
(p) RESIGNATIONS: Upon Executive's Termination Date, Executive
shall be deemed to have resigned from any and all offices he
may have held and from any employment he had with STT, STOC,
STP and any and all subsidiaries and affiliates of STT, STOC
or STP which were in existence on the Effective Date or which
came into existence during the term of this Agreement as set
forth in Section 2, above, up to and including the Termination
Date.
(q) INDEPENDENT: The agreements set forth above (or any part of
them) are, shall be deemed and shall be construed as separate
and independent agreements. If any such agreement or any part
of such agreement is held invalid, void or unenforceable by
any court or arbitration panel of competent jurisdiction, such
holding shall in no way render invalid, void or unenforceable
any other part or provision thereof or any separate agreement.
15
<PAGE> 16
DULY EXECUTED and delivered by the parties to this Agreement as of the
dates set forth below.
Executive: /s/ Christopher J. Broom
--------------------------------------------
Name: Christopher J. Broom
Title: Executive Vice President
Date: March 24, 1999
STT: STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
--------------------------------------------
Name: Joseph E. Rendini
Title: Secretary & VP
Date: 3/24/99
16
<PAGE> 1
EXHIBIT 10.12
STRATEGIC TIMBER TRUST, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Strategic Timber Trust, Inc., a Georgia corporation (hereinafter "STT" or
"Employer") and Thomas P. Broom ("Executive") hereby agree as follows:
1. EMPLOYMENT
This Agreement is entered into by STT and Executive in contemplation of a
registered initial public offering of STT's common stock ("the IPO"). Executive
acknowledges that he has special knowledge, expertise, contacts and other
information with respect to the Restricted Business (as defined below), that he
will be provided with confidential information (as defined below) and that STT's
employment of Executive upon the consummation of the IPO is in consideration of
the promises and agreements contained in this Agreement. This Agreement shall
govern the employment of Executive as an officer of STT.
2. EFFECTIVENESS OF AGREEMENT; TERM
This Agreement shall become effective on the consummation of the IPO ("the
Effective Date"), but shall be void and of no further effect if the IPO has not
been consummated by December 31, 1999. The term of Executive's employment
pursuant to this Agreement shall be for the period from and including the
Effective Date until and including the fourth anniversary of the Effective Date,
and for additional, consecutive one-year periods thereafter, all unless earlier
terminated as provided in Section 8, below.
3. DUTIES AND RESPONSIBILITIES
During Executive's employment pursuant to this Agreement, Executive shall hold
such office or offices as he shall be elected to by the Board of Directors of
STT, shall perform the duties of such office or offices pursuant to the
direction of the Board of Directors of STT (or any committee thereof) or of the
Chief Executive Officer of STT, shall perform such duties to the best of his
ability, shall use his good faith efforts to promote the success of the business
of STT, shall devote his entire business time to the affairs of STT and shall
not engage in any other business activity or occupation during normal business
hours for gain, profit, or other pecuniary advantage; provided, however, that
the foregoing shall not be construed as preventing Executive from investing or
trading for his own benefit or for that of the members of his family in stocks,
bonds, securities or other similar forms of investment in public securities
markets, serving as a director of another corporation or engaging in any family
enterprise or in charitable, civic or other similar pursuits, so long as they do
not materially interfere with Executive's performance of his duties under this
Agreement.
<PAGE> 2
4. COMPENSATION AND RELATED MATTERS
(a) BASIC: During the Executive's employment pursuant to this
Agreement, STT:
(i) shall pay Executive a minimum salary of $ 175,000.00
per annum in accordance with STT's normal and usual
payroll schedule ("Salary"), and
(ii) shall include Executive in all retirement plans,
insurance plans and other fringe benefits and
arrangements that may be authorized and adopted for
the benefit of executives of STT generally.
("Benefits" ).
(b) RAISES AND BONUSES: STT's Board of Directors, acting directly
or through its Compensation Committee, may, in its sole
discretion and for any reason, increase Executive's salary
and/or grant Executive additional compensation as a bonus (a
"Bonus") .
(c) VACATIONS, HOLIDAYS AND SICK LEAVE: Executive shall be
entitled to vacation, holidays and sick days with pay as
determined by STT.
(d) NO DIVESTMENT: No termination of Executive's employment shall
divest Executive of his right to receive all or any unpaid
portion or installment of any of his Salary or Bonus to which
he is otherwise entitled pursuant to the terms of this
Agreement.
5. NONCOMPETITION; NO INTERFERENCE
(a) CERTAIN DEFINED TERMS: For purposes of this Agreement, the
following words and phrases have the meanings set forth below:
(i) "CUSTOMER" means any purchaser of timber from
Employer, and any potential purchaser solicited by
Employer, with which Executive had contact during the
term of his employment hereunder.
(ii) "PROPERTY OWNERS" means persons and entities with
whom Employer has contracted for, or with whom
Employer has undertaken any phase of negotiation
regarding, the acquisition of timberlands, timber
cutting rights, timber deeds, or any other types of
property rights, with which Executive had contact
during the term of his employment hereunder.
(iii) "RESTRICTED BUSINESS" means the business of owning
timberland, selling or purchasing timberland, and
selling timber or cut logs, or any of the foregoing,
whether undertaken directly or indirectly.
(iv) "TERRITORY" means North America, Central America and
South America.
2
<PAGE> 3
(v) "RESTRICTED PERIOD" means the period of Executive's
employment with STT pursuant to this Agreement (i.e.,
the period extending from the Effective Date until
the Termination Date, as defined in paragraph no.
8(b)(vi), below) plus one year from the Termination
Date.
(vi) "EMPLOYER," for purposes of this Section 5 only,
means STT, Strategic Timber Operating Co. ("STOC"),
Strategic Timber Partners, LP ("STP") and their
subsidiaries and affiliates which were in existence
on the Effective Date or which came into existence
during the term of this Agreement as set forth in
Section 2, above, up to and including the Termination
Date.
(b) NONCOMPETITION: During the Restricted Period, Executive shall
not, either directly or indirectly:
(i) have any ownership interest (whether as proprietor,
partner, stockholder or otherwise) in, or
(ii) be an officer, director or general or managing
partner of, or hold a similar position in, or
(iii) act as agent, broker or distributor for, or advisor
or consultant to, or
(iv) be employed in an executive or management position
with
any business however organized or conducted which is engaged
or which Executive knows or reasonably should know plans to
become engaged in the Restricted Business in the Territory
without the permission of the disinterested members of STT's
Board of Directors. Further, any ownership interest held by
Executive at the time of the execution of this Agreement shall
be deemed so permitted. However, notwithstanding any of the
foregoing, the ownership by Executive of less than one percent
(1%) of the shares of the capital stock of a publicly held
entity shall in no event be deemed a violation of any
provision of this paragraph.
(c) NO INTERFERENCE WITH CUSTOMERS OR PROPERTY OWNERS: During the
Restricted Period, Executive will not in any way, directly or
indirectly:
(i) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, from
Employer the business of any Customer; or
(ii) attempt or seek to cause any Customer to refrain, in
any respect, from doing business with Employer, or
intentionally interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise,
between Employer and Customer; or
3
<PAGE> 4
(iii) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, any
pending or contemplated acquisition of timberlands,
timber cutting rights, timber deeds, or any other
type of property rights, from a Property Owner; or
(iv) attempt or seek to cause any Property Owner to
refrain from consummating any pending or contemplated
transaction with Employer, or intentionally interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Employer and any
Property Owner.
(d) NO INTERFERENCE WITH EMPLOYEES. During the Restricted Period,
Executive will not in any way, directly or indirectly, request
or induce any other employee of Employer to terminate his
employment with Employer.
(e) NO EFFECT OF TERMINATION OF EMPLOYMENT. The termination of
Executive's employment with STT shall not limit or otherwise
affect the agreements set forth in this Section 5, which shall
continue and expressly survive the termination of Executive's
employment and this Agreement.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES
(a) GENERAL: All records, financial statements and similar
documents obtained, reviewed or compiled by Executive as part
of the performance of his services for or duties to Employer
pursuant to this Agreement shall be the exclusive property of
Employer, and Executive shall have no rights in such documents
on or after the earlier of Executive's Termination Date (as
defined in paragraph no. 8(b)(vi), below) or the last day of
the term of this Agreement as set forth in Section 2, above.
(b) CONFIDENTIAL INFORMATION AND TRADE SECRETS: Executive will not
disclose to any person or entity or use for his own benefit or
gain, any confidential information or trade secrets of the
Employer obtained by him incident to his employment with STT.
Executive shall take all reasonable steps to safeguard any
confidential information and trade secrets and to protect same
against disclosure, misuse, loss or theft. The term
"Confidential Information" includes, without limitation,
financial information, business plans, prospects and
opportunities which have been discussed or considered by the
management of Employer, but does not include any information
which has become part of the public domain by means other than
Executive's failure to observe his obligations hereunder.
However, nothing in this paragraph shall be construed as
prohibiting, restricting or preventing Executive from making
any disclosure required by applicable law, the rules of the
New York Stock Exchange or of any other securities market on
which STT's securities are listed, or which are otherwise
called for in connection with the performance of his duties
and responsibilities thereunder or pursuant to this Agreement.
4
<PAGE> 5
(c) SURVIVAL: The agreements set forth in this Section 6 shall
survive beyond the term of Executive's employment, as set
forth in Section 2, above, and shall remain in full force and
effect for seven (7) years thereafter.
7. CERTAIN GENERAL PROVISIONS
(a) REPRESENTATIONS AND WARRANTIES: Executive represents and
warrants to STT:
(i) that, excluding any statutory or case law generally
applicable to all persons or entities, he is not
subject to any decision, order, decree or judgment
issued by any governmental authority or arbitrator or
arbitration panel involving noncompetition,
nonsolicitation, rights to inventions, work product
or intellectual property;
(ii) that he will not use in his employment pursuant to
this Agreement, disclose to Employer or induce
Employer to use any trade secrets or proprietary or
confidential information or materials belonging to
others.
(b) REMEDIES: Any violation of any provision of the foregoing
Sections 5 and 6 may cause irreparable harm to Employer, and
damages may not be an adequate remedy. Employer shall
therefore be entitled to seek injunctive relief from any court
of competent jurisdiction in the United States of America
enjoining, prohibiting and restraining Executive from the
continuance of any such violation. However, should Employer
seek injunctive relief in any such court, Executive may then
elect to have any or all controversies or claims, including
any claim for injunctive relief, arising out of or relating to
this Agreement or the breach thereof heard and determined by
such court or by any other court of competent jurisdiction in
the United States of America or to have any or all such
controversies or claims settled by arbitration pursuant to the
provisions of paragraph no. 10(b), below.
(c) NOTICE TO OTHERS: Executive hereby agrees that,
notwithstanding any other provision of this Agreement,
Employer may disclose the prohibitions contained in Sections 5
and 6 hereof to any person or entity, including one that at
the time employs or is considering employing Executive.
(d) MODIFICATION: Should any provision of the foregoing Section 5
or 6 be deemed too broad to permit enforcement to its full
extent, then it shall be enforced to the maximum extent
permitted by law, and its scope may be judicially modified
accordingly in any proceeding brought to enforce such
restriction.
5
<PAGE> 6
8. TERMINATION
(a) CERTAIN DEFINED TERMS
(i) CHANGE OF CONTROL: A "Change of Control" shall be
deemed to have occurred when any of the following
events occurs:
(A) Any "person" (other than (1) any employee
plan established by STT, (2) STT, (3) an
underwriter temporarily holding securities
pursuant to an offering of such securities,
or (4) a corporation owned, directly or
indirectly, by stockholders of STT in
substantially the same proportions as their
ownership of STT) is or becomes the
beneficial owner, directly or indirectly, of
securities of STT representing 50% or more
of the combined voting power of STT's then
outstanding voting securities [as used in
this paragraph, "person" shall have the same
meaning as that term does as used in
Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")]; or
(B) During any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
director (other than an individual whose
nomination for election is in connection
with an actual or threatened election
contest relating to the election of the
directors of STT, as such terms are used in
Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment, election,
or nomination for election by STT's
shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose
appointment, election or nomination for
election was previously so approved, cease
for any reason to constitute a majority of
the Board; or
(C) There is consummated a merger or
consolidation of STT with or into any other
corporation or other entity, or a
transaction having a similar result or
effect, other than a merger, consolidation,
or other transaction which would result in
the holders of the voting securities of STT
outstanding immediately prior thereto
holding securities which represent
immediately after such merger or
consolidation more than 65% of the combined
voting power of the voting securities of
either STT or the other entity which
survives such merger or consolidation or the
parent of the entity which survives such
merger or consolidation; or
(D) There is consummated a sale or disposition
by STT of all or substantially all of STT's
assets.
6
<PAGE> 7
(ii) DISABILITY: The term "disabled" and variations of it
mean a physical condition of Executive which is of a
nature and duration sufficient to require payment
under the provisions of STT's long-term disability
insurance covering Executive, if such a policy is in
effect at the time the disability commences, and, if
no such policy is then in effect, a disability
determined by a physician mutually agreed upon by STT
and the Executive to substantially interfere with the
Executive's ability to perform the essential duties
of his employment.
(iii) FOR CAUSE: The phrase "for cause" and variations of
it mean because of:
(A) willful failure (other than by reason of
disability) to perform any of the duties or
to fulfill any of the obligations set forth
in the provisions of Sections 3, 5 or 6,
above;
(B) willful failure (other than by reason of
disability) to respond to a request by the
Board of Directors or Chief Executive
Officer of STT which is reasonable in light
of Executive's duties as described in
Section 3 and of the resources and support
provided to him by Employer after notice and
reasonable opportunity to cure or comply;
(C) willful disclosure to any of Employer's then
or prospective competitors of any trade
secrets or confidential or proprietary
information of Employer; or Executive's
giving any such competitor material
assistance in the conduct of such
competitor's business;
(D) willfully giving any of Employer's then or
prospective competitors material assistance
in the conduct of its business;
(E) willfully engaging in any act that
constitutes a material conflict of interest
with Employer;
(F) willful usurpation of a material business
opportunity of Employer;
(G) willful misappropriation of a material
amount of Employer's funds or property;
(H) willfully attempting to secure any personal
profit in connection with any transaction
entered into on behalf of Employer;
(I) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to fraud, theft, embezzlement or any other
felony demonstrated to have a direct,
material, adverse financial effect on
Employer or on a customer or property owner;
or
7
<PAGE> 8
(J) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to a felony which demonstrably and
materially impairs or harms Employer's
ability to conduct its business.
(iv) FOR GOOD REASON: For purposes of this Agreement, the
phrase "for good reason" and variations of it shall
mean because of:
(A) Employer's assignment of Executive, without
his consent, to a position, responsibilities
or duties of any materially lesser status or
degree of responsibility or authority than
his position, responsibilities or duties at
the Effective Date; or
(B) Employer's diminution of, or refusal to pay
when due, Executive's Salary under paragraph
no. 4(a)(i), above, or any Bonus awarded to
Executive under paragraph no. 4(b), above,
(provided that, in the case of any such
Bonus only, any conditions placed upon the
payment of same have been satisfied); or
(C) Employer's material diminution of the
aggregate of Executive's Benefits under
paragraph no. 4(a)(ii), above, or of the
aggregate of Executive's vacations, holidays
and sick leave under paragraph no. 4(c),
above;
(D) Employer's material reduction or diminution
of the conditions of Executive's employment
including, without limitation, Employer's
failure to provide Executive with office,
secretarial services and such other
facilities and support services as are
reasonably appropriate and necessary for the
performance of Executive's duties under this
Agreement.
(E) Any Change in Control as defined in
paragraph no. 8(a)(i), above.
(b) EVENTS: Executive's employment pursuant to this Agreement
shall terminate upon the first to occur of any of the
following events:
(i) TERMINATION BY EXECUTIVE: Executive may terminate his
employment pursuant to this Agreement for any reason
or "for good reason" (as defined above) upon prior
written notice to STT, and such termination shall be
effective upon the expiration of the time period in
such notice (or such earlier time as STT and
Executive may agree). For purposes of this paragraph,
the time period for said prior written notice shall
be six months, if said notice is given during the
first two years of the term of this Agreement, and
ninety days if given thereafter.
(ii) TERMINATION WITHOUT CAUSE BY STT: STT may terminate
Executive's employment pursuant to this Agreement
without cause upon prior written notice to Executive,
and such termination shall be effective upon the
expiration of the time period in such notice (or such
earlier time as STT and Executive may agree). For
purposes of this paragraph, the time period for said
prior written notice shall be six
8
<PAGE> 9
months, if said notice is given during the first two
years of the term of this Agreement, and ninety days
if given thereafter.
(iii) WITH CAUSE BY STT: STT may immediately terminate
Executive's employment pursuant to this Agreement for
cause upon written notice to Executive, and such
termination shall be effective upon the giving of
such notice.
(iv) TERMINATION ON ACCOUNT OF DEATH OR DISABILITY: Upon
the death or disability of Executive, Executive's
employment pursuant to this Agreement shall
terminate, and such termination shall be effective on
the date upon which the death or disability of
executive occurs.
(v) NON-RENEWAL OF TERM: Should Executive give STT
written notice at least thirty (30) days prior to the
expiration of either the original four-year term of
his employment or any of the subsequent, consecutive
one-year terms set forth in Section 2, above,
Executive's employment pursuant to this Agreement
shall terminate upon the last day of said term and
such termination shall be effective on said day.
(vi) "TERMINATION DATE" means the date upon which
Executive's termination becomes effective.
(c) TERMINATION PAY: Effective upon the termination of Executive's
employment pursuant to this Agreement, STT shall be obligated
to pay Executive (or in the event of his death, his estate, or
in the event a personal representative is appointed, his
personal representative) only such compensation as is provided
in this paragraph no. 8(c). ("Termination Pay"):
(i) COMPENSATION UPON TERMINATION BY EXECUTIVE OTHER THAN
FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement other than for
good reason, then STT shall pay Executive all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(ii) COMPENSATION UPON TERMINATION BY STT WITHOUT CAUSE OR
BY EXECUTIVE FOR GOOD REASON: If STT terminates
Executive's employment pursuant to this Agreement
without cause, or if Executive terminates said
employment for good reason, then STT shall pay
Executive (A) his Salary for the remainder of the
Restricted Period, at the rate at which it was paid
at the Termination Date, and (B) an amount equal to
either (i) the amount of his target Bonus in respect
of the fiscal year in which the Termination Date
occurs, if the amount of such target Bonus has been
established as of the Termination Date, or (ii) if
the amount of such target Bonus has not been
determined as of the Termination Date, the amount of
the Bonus he received in respect of the immediately
preceding fiscal year, and STT shall continue to
provide Executive with the medical Benefits he
received as of the Termination Date through the last
day of the Restricted Period only.
9
<PAGE> 10
(iii) COMPENSATION UPON TERMINATION BY STT FOR CAUSE: If
STT terminates Executive's employment pursuant to
this Agreement for cause, then STT shall pay
Executive all his compensation owed him under Section
4, above, through and including the Termination Date
only.
(iv) COMPENSATION UPON TERMINATION BY DEATH OR DISABILITY:
If Executive's employment pursuant to this Agreement
is terminated by reason of the death or disability of
Executive, then STT shall pay Executive or his
estate, as appropriate, all his compensation owed him
under Section 4, above, through and including the
Termination Date only.
(v) COMPENSATION UPON NON-RENEWAL OF TERM: If Executive's
employment is terminated by non-renewal of its term
under paragraph no. 8(b)(v), above, STT shall, in its
sole discretion, determine whether Executive shall
thereafter be subject to the restrictions set forth
in paragraphs nos. 5(b), 5(c) and 5(d), above, for a
period of up to but not exceeding one (1) year from
the Termination Date. If STT determines that
Executive shall be subject to said restrictions, then
it shall pay him as if he were terminated without
good cause or for good reason as specified in
paragraph no. 8(b)(ii), above, during whatever period
STT determines said restrictions shall apply. If STT
determines that Executive shall not be subject to any
such restrictions, then it shall pay him all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(vi) AWARDS UNDER STT INCENTIVE PLANS: Executive shall
receive all rights and benefits granted to Executive
under STT's 1999 Omnibus Incentive Plan and any other
incentive plans of STT in which Executive
participates, and any agreements with Executive
pursuant thereto. The vesting and exercise of any
stock options and the forfeitability of any
stock-based grants held by Executive shall be
governed by the terms of such plans and the related
agreements between Executive and STT rather than this
Agreement.
(d) TIMING OF TERMINATION PAY:
(i) FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement for Good Reason
(except for any Change in Control, in which case the
provisions of the following paragraph shall control)
or Executive's employment hereunder is terminated by
reason of death, then the full amount of any
Termination Pay owed to Executive or his estate
pursuant to the provisions of this Section shall
become due and payable upon the Termination Date.
Employer shall make payment at the time(s) and in the
manner(s) specified by Executive, or by the executor
of his estate, as appropriate, in written notice to
Employer. Executive, or the executor of his estate,
as appropriate, shall have the right to specify
whether payment of the Termination Pay shall be made
in whole or in part, and the specification of the
payment of any part shall not waive or limit
Executive's or his estate's right to receive the
remainder of the whole.
10
<PAGE> 11
(ii) FOR OTHER REASON: If Executive or STT terminates his
employment pursuant to this Agreement for any reason
other than than set forth in the preceding paragraph,
then any Termination Pay owed to Executive or to his
estate shall be paid in accordance with STT's normal
payroll schedule.
(e) RELEASE AND WAIVER OF OTHER CAUSES OF ACTION: Payment by STT
of the full amount of any Termination Pay owed Executive
pursuant to this Agreement shall be made promptly by STT upon
receipt of a full and final release and waiver by Executive,
in form and substance reasonably satisfactory to STT, of any
and every claim and cause of action which Executive may have
against STT, STOC, STP or any of their affiliates and
subsidiaries arising out of or relating to his employment
pursuant to this Agreement, whether such action is at equity
or common law or arises out of any federal, state or local
statute or regulation (including, but not limited to, the
termination of such employment. Further, as long as STT makes
timely payment of any portions or installments of Executive's
Termination Pay pursuant to the provisions of paragraph no.
8(d), above, Executive shall not commence any such claim or
action in any court or before any administrative body or
arbitration panel. However, nothing in this paragraph shall be
construed to limit Executive's right to bring an action
arising out of the breach of any provision of this Agreement
in any appropriate court or before any appropriate arbitration
panel, consistent with the terms otherwise set forth herein.
9. LITIGATION AND REGULATORY COOPERATION AFTER TERMINATION
(a) EXTENT OF COOPERATION: After the termination of Executive's
employment hereunder, Executive shall reasonably cooperate
with STT in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of STT and which relate to events or
occurrences that transpired while Executive was employed by
STT, but if and only if such cooperation shall not materially
and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or
action shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on
behalf of STT at mutually convenient times. After Executive's
employment, Executive also shall cooperate fully with STT in
connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation
or review relates to events or occurrences that transpired
while Executive was employed by STT, but if and only if such
cooperation shall not materially and adversely affect
Executive or expose Executive to an increased probability of
civil or criminal litigation. However, notwithstanding any of
the foregoing, nothing in this paragraph shall be construed to
require Executive to cooperate or provide any services to, on
or on behalf of STT in excess of four (4) hours in any one day
or for a total of more than twenty (20) hours, nor to require
Executive to travel more than fifty (50) miles from his home
in order to render such cooperation, nor to provide any
cooperation under this paragraph after seven (7) years from
Executive's Termination Date.
11
<PAGE> 12
(b) COMPENSATION FOR COOPERATION: STT shall compensate Executive
for all cooperation or other services rendered pursuant to
this Section 9 by paying him the greater of (i) a sum equal to
all of his lost salary, earnings and profits attributable to
his provision of such cooperation and services, or (ii)
compensation on an hourly basis calculated at his final hourly
Salary rate. STT shall also reimburse Executive for all costs
and expenses incurred in connection with his performance under
this Section 9, including, without limitation, all reasonable
attorneys' fees and costs.
10. MISCELLANEOUS
(a) GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION: The
parties shall in good faith undertake to perform their
agreements in this Agreement, to satisfy all conditions and to
cause the purposes of this Agreement to be accomplished
promptly in accordance with its terms.
(b) ARBITRATION: Any controversy or claim arising out of or
relating to this Agreement or the breach thereof not subject
to paragraph no. 7(b), above, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Said arbitration shall be
before a panel of three arbitrators. Executive shall choose
one arbitrator, STT shall choose one arbitrator and the two
arbitrators so chosen shall choose the third arbitrator. Said
arbitration shall take place in the state of New Hampshire
within sixty days of notice by one party to the other, unless
they shall mutually agree to a longer or shorter time.
Judgment upon the award rendered by the panel may be entered
by any court of competent jurisdiction. Executive and STT
shall each pay fifty percent (50%) of the panel's fees. The
panel shall award reasonable interest, attorneys' fees and
costs to the prevailing party but shall have no power to award
punitive damages.
(c) NOTICES: Each notice, communication and delivery under this
Agreement:
(i) shall be made in writing signed by the party giving
it;
(ii) shall specify the section of this Agreement pursuant
to which it is given;
(iii) shall either be delivered in person, by any form of
United States Mail if a return receipt is provided
therewith, by telecopier or by a nationally
recognized next business day delivery service (such
as Federal Express, United Parcel Service, DHL or any
other similar delivery service provider);
(iv) shall be given to the address specified below;
(v) shall be deemed to be given:
(A) if delivered in person, on the date
delivered, or
12
<PAGE> 13
(B) if sent by telecopier, on the date of
confirmation of receipt, by telephone or
otherwise, or
(C) if sent by a nationally recognized next
business day courier service with all costs
paid, on the date of confirmation of
receipt.
The addresses are as follows:
If to Executive, to:
Thomas P. Broom
101 Mountain Road
New London, NH 03257
Telecopier:
Confirm: (603) 529-5854
If to STT:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attn: Secretary
Telecopier: 603/526-7811
Confirm: 603/526-7800
Such notice shall be given to such other representatives or at
such other addresses as a party may furnish to the other
parties pursuant to the foregoing. If notice is given pursuant
to this Section of a permitted successor or assign of a party,
then notice shall thereafter be given as set forth above also
to such successor or assign of such party.
(d) COMPUTATION OF TIME: Whenever the last day for the exercise of
any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or
legal holiday, whether federal or of a state in which the
person or entity having such privilege or duty resides or has
its principal place of business, the party to this Agreement
having such privilege or duty shall have until 5:00 p.m.
(Eastern time) on the next succeeding regular business day to
exercise such privilege or to discharge such duty.
(e) ASSIGNMENT; SUCCESSOR IN INTEREST:
(i) BY STT: Except with the prior written consent of
Executive, no assignment, transfer or delegation by
STT of any of its rights and obligations under this
Agreement may be made to any other entity, except
that STT may make any such assignment, transfer or
delegation:
(A) to STOC or STP or any of STT's affiliates or
subsidiaries; and
13
<PAGE> 14
(B) if STT is merged into or acquired by another
business entity such that there is a Change
in Control, to the business entity into
which STT is merged or by which it is
acquired.
(ii) BY EXECUTIVE: Executive (or, under appropriate
circumstances, the executor of Executive's estate)
may transfer or assign any of his rights to receive
Executive's Total Compensation or any component of
Executive's Total Compensation, in whole or in part,
to any of Executive's heirs, devisees, legatees or
beneficiaries upon written notice to STT. No other
transfer or assignment may be made to any party by
Executive of any of his rights or obligations under
this Agreement.
(f) BINDING NATURE: This Agreement shall be binding upon the
parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and
successors and assigns; shall inure to the benefit of the
parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees, beneficiaries and
other permitted successors and assigns (and to or for the
benefit of no other person or entity, whether an employee or
otherwise, whatsoever); and upon a permitted assignment, any
reference to a party to this Agreement shall also be a
reference to a permitted successor or assign.
(g) REMEDIES CUMULATIVE: The rights and remedies specified in any
provision of this Agreement shall be in addition to all other
rights and remedies a party may have under any other agreement
or applicable law, including any right to equitable relief and
any right to sue for damages as a result of a breach of this
Agreement (whether or not it elects to terminate this
Agreement), and all such rights and remedies shall be
cumulative.
(h) DEFENSE/INDEMNIFICATION/HOLD HARMLESS: STT shall, to the
greatest extent allowed by applicable law, provide Executive a
defense, indemnify Executive and hold Executive harmless from
any civil or criminal claim, award or judgment which arises
out of Executive's acts performed or omissions committed in
the course of, or which Executive reasonably believed he
performed or committed in the course of, the performance of
his duties pursuant to this Agreement. However, nothing in
this paragraph shall require STT to provide Executive a
defense, indemnify Executive or hold Executive harmless from
any such claim, award or judgment which arises out of any such
act or omission which, at the time of same, Executive knew or
reasonably should have known constituted cause for termination
as set forth in paragraph no. 8(a)(iii), above.
(i) INSURANCE: STT shall cause Executive to appear as an
additional named insured on any policy of Directors' and
Officers' Liability Insurance which STT procures on behalf of
itself and/or on behalf of any of its Executive Officers.
Should Executive not appear as an additional named insured on
any such policy, STT shall be liable to Executive for the full
amount of insurance coverage which Executive would have had
pursuant to such policy had STT fulfilled its obligation under
this paragraph.
14
<PAGE> 15
(j) EXPENSES OF ENFORCING THIS AGREEMENT: Subject to the
provisions of paragraph no. 10(b), above, any expense incurred
in enforcing any or all of the provisions of this Agreement
shall be reimbursed to the prevailing party.
(k) INTEGRATION; AMENDMENT: This Agreement:
(i) supersedes all prior negotiations, agreements and
understandings between the parties to this Agreement
with respect to its subject matter, and
(ii) constitutes the entire agreement between the parties
to this Agreement with respect to its subject matter,
and
(iii) may not be altered or amended, nor may any material
provision be waived, except in writing signed by
Executive and STT.
(l) WAIVER: No waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed or
construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement
(m) CONTROLLING LAW: This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the
State of New Hampshire (except the laws of that jurisdiction
that would render such choice of laws ineffective).
(n) COPIES: This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to
produce or account for more than one of such copies.
(o) COUNTERPARTS: This Agreement may be executed in one or more
counterparts (one counterpart reflecting the signatures of all
parties), each of which shall be deemed to be an original, and
it shall not be necessary in making proof of this Agreement or
its terms to account for more than one of such counterparts.
This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one
copy of this Agreement and attached to another copy in order
to form one or more counterparts.
(p) RESIGNATIONS: Upon Executive's Termination Date, Executive
shall be deemed to have resigned from any and all offices he
may have held and from any employment he had with STT, STOC,
STP and any and all subsidiaries and affiliates of STT, STOC
or STP which were in existence on the Effective Date or which
came into existence during the term of this Agreement as set
forth in Section 2, above, up to and including the Termination
Date.
15
<PAGE> 16
(q) INDEPENDENT: The agreements set forth above (or any part of
them) are, shall be deemed and shall be construed as separate
and independent agreements. If any such agreement or any part
of such agreement is held invalid, void or unenforceable by
any court or arbitration panel of competent jurisdiction, such
holding shall in no way render invalid, void or unenforceable
any other part or provision thereof or any separate agreement.
DULY EXECUTED and delivered by the parties to this Agreement as of the
dates set forth below.
Executive: /s/ Thomas P. Broom
--------------------------------------------
Name: Thomas P. Broom
Title: EVP
Date: 3/24/99
STT: STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
--------------------------------------------
Name: Joseph E. Rendini
Title: Secretary and Vice President
Date: 3/24/99
16
<PAGE> 1
EXHIBIT 10.13
STRATEGIC TIMBER TRUST, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Strategic Timber Trust, Inc., a Georgia corporation (hereinafter "STT" or
"Employer") and Kenneth L. Chute ("Executive") hereby agree as follows:
1. EMPLOYMENT
This Agreement is entered into by STT and Executive in contemplation of a
registered initial public offering of STT's common stock ("the IPO"). Executive
acknowledges that he has special knowledge, expertise, contacts and other
information with respect to the Restricted Business (as defined below), that he
will be provided with confidential information (as defined below) and that STT's
employment of Executive upon the consummation of the IPO is in consideration of
the promises and agreements contained in this Agreement. This Agreement shall
govern the employment of Executive as an officer of STT.
2. EFFECTIVENESS OF AGREEMENT; TERM
This Agreement shall become effective on the consummation of the IPO ("the
Effective Date"), but shall be void and of no further effect if the IPO has not
been consummated by December 31, 1999. The term of Executive's employment
pursuant to this Agreement shall be for the period from and including the
Effective Date until and including the fourth anniversary of the Effective Date,
and for additional, consecutive one-year periods thereafter, all unless earlier
terminated as provided in Section 8, below.
3. DUTIES AND RESPONSIBILITIES
During Executive's employment pursuant to this Agreement, Executive shall hold
such office or offices as he shall be elected to by the Board of Directors of
STT, shall perform the duties of such office or offices pursuant to the
direction of the Board of Directors of STT (or any committee thereof) or of the
Chief Executive Officer of STT, shall perform such duties to the best of his
ability, shall use his good faith efforts to promote the success of the business
of STT, shall devote his entire business time to the affairs of STT and shall
not engage in any other business activity or occupation during normal business
hours for gain, profit, or other pecuniary advantage; provided, however, that
the foregoing shall not be construed as preventing Executive from investing or
trading for his own benefit or for that of the members of his family in stocks,
bonds, securities or other similar forms of investment in public securities
markets, serving as a director of another corporation or engaging in any family
enterprise or in charitable, civic or other similar pursuits, so long as they do
not materially interfere with Executive's performance of his duties under this
Agreement.
<PAGE> 2
4. COMPENSATION AND RELATED MATTERS
(a) BASIC: During the Executive's employment pursuant to this
Agreement, STT:
(i) shall pay Executive a minimum salary of $ 150,000.00
per annum in accordance with STT's normal and usual
payroll schedule ("Salary"), and
(ii) shall include Executive in all retirement plans,
insurance plans and other fringe benefits and
arrangements that may be authorized and adopted for
the benefit of executives of STT generally.
("Benefits").
(b) RAISES AND BONUSES: STT's Board of Directors, acting directly
or through its Compensation Committee, may, in its sole
discretion and for any reason, increase Executive's salary
and/or grant Executive additional compensation as a bonus (a
"Bonus") .
(c) VACATIONS, HOLIDAYS AND SICK LEAVE: Executive shall be
entitled to vacation, holidays and sick days with pay as
determined by STT.
(d) NO DIVESTMENT: No termination of Executive's employment shall
divest Executive of his right to receive all or any unpaid
portion or installment of any of his Salary or Bonus to which
he is otherwise entitled pursuant to the terms of this
Agreement.
5. NONCOMPETITION; NO INTERFERENCE
(a) CERTAIN DEFINED TERMS: For purposes of this Agreement, the
following words and phrases have the meanings set forth below:
(i) "CUSTOMER" means any purchaser of timber from
Employer, and any potential purchaser solicited by
Employer, with which Executive had contact during the
term of his employment hereunder.
(ii) "PROPERTY OWNERS" means persons and entities with
whom Employer has contracted for, or with whom
Employer has undertaken any phase of negotiation
regarding, the acquisition of timberlands, timber
cutting rights, timber deeds, or any other types of
property rights, with which Executive had contact
during the term of his employment hereunder.
(iii) "RESTRICTED BUSINESS" means the business of owning
timberland, selling or purchasing timberland, and
selling timber or cut logs, or any of the foregoing,
whether undertaken directly or indirectly.
(iv) "TERRITORY" means North America, Central America and
South America.
2
<PAGE> 3
(v) "RESTRICTED PERIOD" means the period of Executive's
employment with STT pursuant to this Agreement (i.e.,
the period extending from the Effective Date until
the Termination Date, as defined in paragraph no.
8(b)(vi), below) plus one year from the Termination
Date.
(vi) "EMPLOYER," for purposes of this Section 5 only,
means STT, Strategic Timber Operating Co. ("STOC"),
Strategic Timber Partners, LP ("STP") and their
subsidiaries and affiliates which were in existence
on the Effective Date or which came into existence
during the term of this Agreement as set forth in
Section 2, above, up to and including the Termination
Date.
(b) NONCOMPETITION: During the Restricted Period, Executive shall
not, either directly or indirectly:
(i) have any ownership interest (whether as proprietor,
partner, stockholder or otherwise) in, or
(ii) be an officer, director or general or managing
partner of, or hold a similar position in, or
(iii) act as agent, broker or distributor for, or advisor
or consultant to, or
(iv) be employed in an executive or management position
with
any business however organized or conducted which is engaged
or which Executive knows or reasonably should know plans to
become engaged in the Restricted Business in the Territory
without the permission of the disinterested members of STT's
Board of Directors. Further, any ownership interest held by
Executive at the time of the execution of this Agreement shall
be deemed so permitted. However, notwithstanding any of the
foregoing, the ownership by Executive of less than one percent
(1%) of the shares of the capital stock of a publicly held
entity shall in no event be deemed a violation of any
provision of this paragraph.
(c) NO INTERFERENCE WITH CUSTOMERS OR PROPERTY OWNERS: During the
Restricted Period, Executive will not in any way, directly or
indirectly:
(i) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, from
Employer the business of any Customer; or
(ii) attempt or seek to cause any Customer to refrain, in
any respect, from doing business with Employer, or
intentionally interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise,
between Employer and Customer; or
3
<PAGE> 4
(iii) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, any
pending or contemplated acquisition of timberlands,
timber cutting rights, timber deeds, or any other
type of property rights, from a Property Owner; or
(iv) attempt or seek to cause any Property Owner to
refrain from consummating any pending or contemplated
transaction with Employer, or intentionally interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Employer and any
Property Owner.
(d) NO INTERFERENCE WITH EMPLOYEES. During the Restricted Period,
Executive will not in any way, directly or indirectly, request
or induce any other employee of Employer to terminate his
employment with Employer.
(e) NO EFFECT OF TERMINATION OF EMPLOYMENT. The termination of
Executive's employment with STT shall not limit or otherwise
affect the agreements set forth in this Section 5, which shall
continue and expressly survive the termination of Executive's
employment and this Agreement.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES
(a) GENERAL: All records, financial statements and similar
documents obtained, reviewed or compiled by Executive as part
of the performance of his services for or duties to Employer
pursuant to this Agreement shall be the exclusive property of
Employer, and Executive shall have no rights in such documents
on or after the earlier of Executive's Termination Date (as
defined in paragraph no. 8(b)(vi), below) or the last day of
the term of this Agreement as set forth in Section 2, above.
(b) CONFIDENTIAL INFORMATION AND TRADE SECRETS: Executive will not
disclose to any person or entity or use for his own benefit or
gain, any confidential information or trade secrets of the
Employer obtained by him incident to his employment with STT.
Executive shall take all reasonable steps to safeguard any
confidential information and trade secrets and to protect same
against disclosure, misuse, loss or theft. The term
"Confidential Information" includes, without limitation,
financial information, business plans, prospects and
opportunities which have been discussed or considered by the
management of Employer, but does not include any information
which has become part of the public domain by means other than
Executive's failure to observe his obligations hereunder.
However, nothing in this paragraph shall be construed as
prohibiting, restricting or preventing Executive from making
any disclosure required by applicable law, the rules of the
New York Stock Exchange or of any other securities market on
which STT's securities are listed, or which are otherwise
called for in connection with the performance of his duties
and responsibilities thereunder or pursuant to this Agreement.
4
<PAGE> 5
(c) SURVIVAL: The agreements set forth in this Section 6 shall
survive beyond the term of Executive's employment, as set
forth in Section 2, above, and shall remain in full force and
effect for seven (7) years thereafter.
7. CERTAIN GENERAL PROVISIONS
(a) REPRESENTATIONS AND WARRANTIES: Executive represents and
warrants to STT:
(i) that, excluding any statutory or case law generally
applicable to all persons or entities, he is not
subject to any decision, order, decree or judgment
issued by any governmental authority or arbitrator or
arbitration panel involving noncompetition,
nonsolicitation, rights to inventions, work product
or intellectual property;
(ii) that he will not use in his employment pursuant to
this Agreement, disclose to Employer or induce
Employer to use any trade secrets or proprietary or
confidential information or materials belonging to
others.
(b) REMEDIES: Any violation of any provision of the foregoing
Sections 5 and 6 may cause irreparable harm to Employer, and
damages may not be an adequate remedy. Employer shall
therefore be entitled to seek injunctive relief from any court
of competent jurisdiction in the United States of America
enjoining, prohibiting and restraining Executive from the
continuance of any such violation. However, should Employer
seek injunctive relief in any such court, Executive may then
elect to have any or all controversies or claims, including
any claim for injunctive relief, arising out of or relating to
this Agreement or the breach thereof heard and determined by
such court or by any other court of competent jurisdiction in
the United States of America or to have any or all such
controversies or claims settled by arbitration pursuant to the
provisions of paragraph no. 10(b), below.
(c) NOTICE TO OTHERS: Executive hereby agrees that,
notwithstanding any other provision of this Agreement,
Employer may disclose the prohibitions contained in Sections 5
and 6 hereof to any person or entity, including one that at
the time employs or is considering employing Executive.
(d) MODIFICATION: Should any provision of the foregoing Section 5
or 6 be deemed too broad to permit enforcement to its full
extent, then it shall be enforced to the maximum extent
permitted by law, and its scope may be judicially modified
accordingly in any proceeding brought to enforce such
restriction.
5
<PAGE> 6
8. TERMINATION
(a) CERTAIN DEFINED TERMS
(i) CHANGE OF CONTROL: A "Change of Control" shall be
deemed to have occurred when any of the following
events occurs:
(A) Any "person" (other than (1) any employee
plan established by STT, (2) STT, (3) an
underwriter temporarily holding securities
pursuant to an offering of such securities,
or (4) a corporation owned, directly or
indirectly, by stockholders of STT in
substantially the same proportions as their
ownership of STT) is or becomes the
beneficial owner, directly or indirectly, of
securities of STT representing 50% or more
of the combined voting power of STT's then
outstanding voting securities [as used in
this paragraph, "person" shall have the same
meaning as that term does as used in
Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")]; or
(B) During any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
director (other than an individual whose
nomination for election is in connection
with an actual or threatened election
contest relating to the election of the
directors of STT, as such terms are used in
Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment, election,
or nomination for election by STT's
shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose
appointment, election or nomination for
election was previously so approved, cease
for any reason to constitute a majority of
the Board; or
(C) There is consummated a merger or
consolidation of STT with or into any other
corporation or other entity, or a
transaction having a similar result or
effect, other than a merger, consolidation,
or other transaction which would result in
the holders of the voting securities of STT
outstanding immediately prior thereto
holding securities which represent
immediately after such merger or
consolidation more than 65% of the combined
voting power of the voting securities of
either STT or the other entity which
survives such merger or consolidation or the
parent of the entity which survives such
merger or consolidation; or
(D) There is consummated a sale or disposition
by STT of all or substantially all of STT's
assets.
6
<PAGE> 7
(ii) DISABILITY: The term "disabled" and variations of it
mean a physical condition of Executive which is of a
nature and duration sufficient to require payment
under the provisions of STT's long-term disability
insurance covering Executive, if such a policy is in
effect at the time the disability commences, and, if
no such policy is then in effect, a disability
determined by a physician mutually agreed upon by STT
and the Executive to substantially interfere with the
Executive's ability to perform the essential duties
of his employment.
(iii) FOR CAUSE: The phrase "for cause" and variations of
it mean because of:
(A) willful failure (other than by reason of
disability) to perform any of the duties or
to fulfill any of the obligations set forth
in the provisions of Sections 3, 5 or 6,
above;
(B) willful failure (other than by reason of
disability) to respond to a request by the
Board of Directors or Chief Executive
Officer of STT which is reasonable in light
of Executive's duties as described in
Section 3 and of the resources and support
provided to him by Employer after notice and
reasonable opportunity to cure or comply;
(C) willful disclosure to any of Employer's then
or prospective competitors of any trade
secrets or confidential or proprietary
information of Employer; or Executive's
giving any such competitor material
assistance in the conduct of such
competitor's business;
(D) willfully giving any of Employer's then or
prospective competitors material assistance
in the conduct of its business;
(E) willfully engaging in any act that
constitutes a material conflict of interest
with Employer;
(F) willful usurpation of a material business
opportunity of Employer;
(G) willful misappropriation of a material
amount of Employer's funds or property;
(H) willfully attempting to secure any personal
profit in connection with any transaction
entered into on behalf of Employer;
(I) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to fraud, theft, embezzlement or any other
felony demonstrated to have a direct,
material, adverse financial effect on
Employer or on a customer or property owner;
or
7
<PAGE> 8
(J) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to a felony which demonstrably and
materially impairs or harms Employer's
ability to conduct its business.
(iv) FOR GOOD REASON: For purposes of this Agreement, the
phrase "for good reason" and variations of it shall
mean because of:
(A) Employer's assignment of Executive, without
his consent, to a position, responsibilities
or duties of any materially lesser status or
degree of responsibility or authority than
his position, responsibilities or duties at
the Effective Date; or
(B) Employer's diminution of, or refusal to pay
when due, Executive's Salary under paragraph
no. 4(a)(i), above, or any Bonus awarded to
Executive under paragraph no. 4(b), above,
(provided that, in the case of any such
Bonus only, any conditions placed upon the
payment of same have been satisfied); or
(C) Employer's material diminution of the
aggregate of Executive's Benefits under
paragraph no. 4(a)(ii), above, or of the
aggregate of Executive's vacations, holidays
and sick leave under paragraph no. 4(c),
above;
(D) Employer's material reduction or diminution
of the conditions of Executive's employment
including, without limitation, Employer's
failure to provide Executive with office,
secretarial services and such other
facilities and support services as are
reasonably appropriate and necessary for the
performance of Executive's duties under this
Agreement.
(E) Any Change in Control as defined in
paragraph no. 8(a)(i), above.
(b) EVENTS: Executive's employment pursuant to this Agreement
shall terminate upon the first to occur of any of the
following events:
(i) TERMINATION BY EXECUTIVE: Executive may terminate his
employment pursuant to this Agreement for any reason
or "for good reason" (as defined above) upon prior
written notice to STT, and such termination shall be
effective upon the expiration of the time period in
such notice (or such earlier time as STT and
Executive may agree). For purposes of this paragraph,
the time period for said prior written notice shall
be six months, if said notice is given during the
first two years of the term of this Agreement, and
ninety days if given thereafter.
(ii) TERMINATION WITHOUT CAUSE BY STT: STT may terminate
Executive's employment pursuant to this Agreement
without cause upon prior written notice to Executive,
and such termination shall be effective upon the
expiration of the time period in such notice (or such
earlier time as STT and Executive may agree). For
purposes of this paragraph, the time period for said
prior written notice shall be six
8
<PAGE> 9
months, if said notice is given during the first two
years of the term of this Agreement, and ninety days
if given thereafter.
(iii) WITH CAUSE BY STT: STT may immediately terminate
Executive's employment pursuant to this Agreement for
cause upon written notice to Executive, and such
termination shall be effective upon the giving of
such notice.
(iv) TERMINATION ON ACCOUNT OF DEATH OR DISABILITY: Upon
the death or disability of Executive, Executive's
employment pursuant to this Agreement shall
terminate, and such termination shall be effective on
the date upon which the death or disability of
executive occurs.
(v) NON-RENEWAL OF TERM: Should Executive give STT
written notice at least thirty (30) days prior to the
expiration of either the orginal four-year term of
his employment or any of the subsequent, consecutive
one-year terms set forth in Section 2, above,
Executive's employment pursuant to this Agreement
shall terminate upon the last day of said term and
such termination shall be effective on said day.
(vi) "TERMINATION DATE" means the date upon which
Executive's termination becomes effective.
(c) TERMINATION PAY: Effective upon the termination of Executive's
employment pursuant to this Agreement, STT shall be obligated
to pay Executive (or in the event of his death, his estate, or
in the event a personal representative is appointed, his
personal representative) only such compensation as is provided
in this paragraph no. 8(c). ("Termination Pay"):
(i) COMPENSATION UPON TERMINATION BY EXECUTIVE OTHER THAN
FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreementother than for
good reason, then STT shall pay Executive all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(ii) COMPENSATION UPON TERMINATION BY STT WITHOUT CAUSE OR
BY EXECUTIVE FOR GOOD REASON: If STT terminates
Executive's employment pursuant to this Agreement
without cause, or if Executive terminates said
employment for good reason, then STT shall pay
Executive (A) his Salary for the remainder of the
Restricted Period, at the rate at which it was paid
at the Termination Date, and (B) an amount equal to
either (i) the amount of his target Bonus in respect
of the fiscal year in which the Termination Date
occurs, if the amount of such target Bonus has been
established as of the Termination Date, or (ii) if
the amount of such target Bonus has not been
determined as of the Termination Date, the amount of
the Bonus he received in respect of the immediately
preceding fiscal year, and STT shall continue to
provide Executive with the medical Benefits he
received as of the Termination Date through the last
day of the Restricted Period only.
9
<PAGE> 10
(iii) COMPENSATION UPON TERMINATION BY STT FOR CAUSE: If
STT terminates Executive's employment pursuant to
this Agreement for cause, then STT shall pay
Executive all his compensation owed him under Section
4, above, through and including the Termination Date
only.
(iv) COMPENSATION UPON TERMINATION BY DEATH OR DISABILITY:
If Executive's employment pursuant to this Agreement
is terminated by reason of the death or disability of
Executive, then STT shall pay Executive or his
estate, as appropriate, all his compensation owed him
under Section 4, above, through and including the
Termination Date only.
(v) COMPENSATION UPON NON-RENEWAL OF TERM: If Executive's
employment is terminated by non-renewal of its term
under paragraph no. 8(b)(v), above, STT shall, in its
sole discretion, determine whether Executive shall
thereafter be subject to the restrictions set forth
in paragraphs nos. 5(b), 5(c) and 5(d), above, for a
period of up to but not exceeding one (1) year from
the Termination Date. If STT determines that
Executive shall be subject to said restrictions, then
it shall pay him as if he were terminated without
good cause or for good reason as specified in
paragraph no. 8(b)(ii), above, during whatever period
STT determines said restrictions shall apply. If STT
determines that Executive shall not be subject to any
such restrictions, then it shall pay him all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(vi) AWARDS UNDER STT INCENTIVE PLANS: Executive shall
receive all rights and benefits granted to Executive
under STT's 1999 Omnibus Incentive Plan and any other
incentive plans of STT in which Executive
participates, and any agreements with Executive
pursuant thereto. The vesting and exercise of any
stock options and the forfeitability of any
stock-based grants held by Executive shall be
governed by the terms of such plans and the related
agreements between Executive and STT rather than this
Agreement.
(d) TIMING OF TERMINATION PAY:
(i) FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement for Good Reason
(except for any Change in Control, in which case the
provisions of the following paragraph shall control)
or Executive's employment hereunder is terminated by
reason of death, then the full amount of any
Termination Pay owed to Executive or his estate
pursuant to the provisions of this Section shall
become due and payable upon the Termination Date.
Employer shall make payment at the time(s) and in the
manner(s) specified by Executive, or by the executor
of his estate, as appropriate, in written notice to
Employer. Executive, or the executor of his estate,
as appropriate, shall have the right to specify
whether payment of the Termination Pay shall be made
in whole or in part, and the specification of the
payment of any part shall not waive or limit
Executive's or his estate's right to receive the
remainder of the whole.
10
<PAGE> 11
(ii) FOR OTHER REASON: If Executive or STT terminates his
employment pursuant to this Agreement for any reason
other than than set forth in the preceding paragraph,
then any Termination Pay owed to Executive or to his
estate shall be paid in accordance with STT's normal
payroll schedule.
(e) RELEASE AND WAIVER OF OTHER CAUSES OF ACTION: Payment by STT
of the full amount of any Termination Pay owed Executive
pursuant to this Agreement shall be made promptly by STT upon
receipt of a full and final release and waiver by Executive,
in form and substance reasonably satisfactory to STT, of any
and every claim and cause of action which Executive may have
against STT, STOC, STP or any of their affiliates and
subsidiaries arising out of or relating to his employment
pursuant to this Agreement, whether such action is at equity
or common law or arises out of any federal, state or local
statute or regulation (including, but not limited to, the
termination of such employment. Further, as long as STT makes
timely payment of any portions or installments of Executive's
Termination Pay pursuant to the provisions of paragraph no.
8(d), above, Executive shall not commence any such claim or
action in any court or before any administrative body or
arbitration panel. However, nothing in this paragraph shall be
construed to limit Executive's right to bring an action
arising out of the breach of any provision of this Agreement
in any appropriate court or before any appropriate arbitration
panel, consistent with the terms otherwise set forth herein.
9. LITIGATION AND REGULATORY COOPERATION AFTER TERMINATION
(a) EXTENT OF COOPERATION: After the termination of Executive's
employment hereunder, Executive shall reasonably cooperate
with STT in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of STT and which relate to events or
occurrences that transpired while Executive was employed by
STT, but if and only if such cooperation shall not materially
and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or
action shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on
behalf of STT at mutually convenient times. After Executive's
employment, Executive also shall cooperate fully with STT in
connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation
or review relates to events or occurrences that transpired
while Executive was employed by STT, but if and only if such
cooperation shall not materially and adversely affect
Executive or expose Executive to an increased probability of
civil or criminal litigation. However, notwithstanding any of
the foregoing, nothing in this paragraph shall be construed to
require Executive to cooperate or provide any services to, on
or on behalf of STT in excess of four (4) hours in any one day
or for a total of more than twenty (20) hours, nor to require
Executive to travel more than fifty (50) miles from his home
in order to render such cooperation, nor to provide any
cooperation under this paragraph after seven (7) years from
Executive's Termination Date.
11
<PAGE> 12
(b) COMPENSATION FOR COOPERATION: STT shall compensate Executive
for all cooperation or other services rendered pursuant to
this Section 9 by paying him the greater of (i) a sum equal to
all of his lost salary, earnings and profits attributable to
his provision of such cooperation and services, or (ii)
compensation on an hourly basis calculated at his final hourly
Salary rate. STT shall also reimburse Executive for all costs
and expenses incurred in connection with his performance under
this Section 9, including, without limitation, all reasonable
attorneys' fees and costs.
10. MISCELLANEOUS
(a) GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION: The
parties shall in good faith undertake to perform their
agreements in this Agreement, to satisfy all conditions and to
cause the purposes of this Agreement to be accomplished
promptly in accordance with its terms.
(b) ARBITRATION: Any controversy or claim arising out of or
relating to this Agreement or the breach thereof not subject
to paragraph no. 7(b), above, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Said arbitration shall be
before a panel of three arbitrators. Executive shall choose
one arbitrator, STT shall choose one arbitrator and the two
arbitrators so chosen shall choose the third arbitrator. Said
arbitration shall take place in the state of New Hampshire
within sixty days of notice by one party to the other, unless
they shall mutually agree to a longer or shorter time.
Judgment upon the award rendered by the panel may be entered
by any court of competent jurisdiction. Executive and STT
shall each pay fifty percent (50%) of the panel's fees. The
panel shall award reasonable interest, attorneys' fees and
costs to the prevailing party but shall have no power to award
punitive damages.
(c) NOTICES: Each notice, communication and delivery under this
Agreement:
(i) shall be made in writing signed by the party giving
it;
(ii) shall specify the section of this Agreement pursuant
to which it is given;
(iii) shall either be delivered in person, by any form of
United States Mail if a return receipt is provided
therewith, by telecopier or by a nationally
recognized next business day delivery service (such
as Federal Express, United Parcel Service, DHL or any
other similar delivery service provider);
(iv) shall be given to the address specified below;
(v) shall be deemed to be given:
(A) if delivered in person, on the date
delivered, or
12
<PAGE> 13
(B) if sent by telecopier, on the date of
confirmation of receipt, by telephone or
otherwise, or
(C) if sent by a nationally recognized next
business day courier service with all costs
paid, on the date of confirmation of
receipt.
The addresses are as follows:
If to Executive, to:
Kenneth L. Chute
4 Gerrish Drive
Durham, NH 03824
Telecopier:
Confirm: (603) 68-7028
If to STT:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attn: Secretary
Telecopier: 603/526-7811
Confirm: 603/526-7800
Such notice shall be given to such other representatives or at
such other addresses as a party may furnish to the other
parties pursuant to the foregoing. If notice is given pursuant
to this Section of a permitted successor or assign of a party,
then notice shall thereafter be given as set forth above also
to such successor or assign of such party.
(d) COMPUTATION OF TIME: Whenever the last day for the exercise of
any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or
legal holiday, whether federal or of a state in which the
person or entity having such privilege or duty resides or has
its principal place of business, the party to this Agreement
having such privilege or duty shall have until 5:00 p.m.
(Eastern time) on the next succeeding regular business day to
exercise such privilege or to discharge such duty.
(e) ASSIGNMENT; SUCCESSOR IN INTEREST:
(i) BY STT: Except with the prior written consent of
Executive, no assignment, transfer or delegation by
STT of any of its rights and obligations under this
Agreement may be made to any other entity, except
that STT may make any such assignment, transfer or
delegation:
(A) to STOC or STP or any of STT's affiliates or
subsidiaries; and
13
<PAGE> 14
(B) if STT is merged into or acquired by another
business entity such that there is a Change
in Control, to the business entity into
which STT is merged or by which it is
acquired.
(ii) BY EXECUTIVE: Executive (or, under appropriate
circumstances, the executor of Executive's estate)
may transfer or assign any of his rights to receive
Executive's Total Compensation or any component of
Executive's Total Compensation, in whole or in part,
to any of Executive's heirs, devisees, legatees or
beneficiaries upon written notice to STT. No other
transfer or assignment may be made to any party by
Executive of any of his rights or obligations under
this Agreement.
(f) BINDING NATURE: This Agreement shall be binding upon the
parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and
successors and assigns; shall inure to the benefit of the
parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees, beneficiaries and
other permitted successors and assigns (and to or for the
benefit of no other person or entity, whether an employee or
otherwise, whatsoever); and upon a permitted assignment, any
reference to a party to this Agreement shall also be a
reference to a permitted successor or assign.
(g) REMEDIES CUMULATIVE: The rights and remedies specified in any
provision of this Agreement shall be in addition to all other
rights and remedies a party may have under any other agreement
or applicable law, including any right to equitable relief and
any right to sue for damages as a result of a breach of this
Agreement (whether or not it elects to terminate this
Agreement), and all such rights and remedies shall be
cumulative.
(h) DEFENSE/INDEMNIFICATION/HOLD HARMLESS: STT shall, to the
greatest extent allowed by applicable law, provide Executive a
defense, indemnify Executive and hold Executive harmless from
any civil or criminal claim, award or judgment which arises
out of Executive's acts performed or omissions committed in
the course of, or which Executive reasonably believed he
performed or committed in the course of, the performance of
his duties pursuant to this Agreement. However, nothing in
this paragraph shall require STT to provide Executive a
defense, indemnify Executive or hold Executive harmless from
any such claim, award or judgment which arises out of any such
act or omission which, at the time of same, Executive knew or
reasonably should have known constituted cause for termination
as set forth in paragraph no. 8(a)(iii), above.
(i) INSURANCE: STT shall cause Executive to appear as an
additional named insured on any policy of Directors' and
Officers' Liability Insurance which STT procures on behalf of
itself and/or on behalf of any of its Executive Officers.
Should Executive not appear as an additional named insured on
any such policy, STT shall be liable to Executive for the full
amount of insurance coverage which Executive would have had
pursuant to such policy had STT fulfilled its obligation under
this paragraph.
14
<PAGE> 15
(j) EXPENSES OF ENFORCING THIS AGREEMENT: Subject to the
provisions of paragraph no. 10(b), above, any expense incurred
in enforcing any or all of the provisions of this Agreement
shall be reimbursed to the prevailing party.
(k) INTEGRATION; AMENDMENT: This Agreement:
(i) supersedes all prior negotiations, agreements and
understandings between the parties to this Agreement
with respect to its subject matter, and
(ii) constitutes the entire agreement between the parties
to this Agreement with respect to its subject matter,
and
(iii) may not be altered or amended, nor may any material
provision be waived, except in writing signed by
Executive and STT.
(l) WAIVER: No waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed or
construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement
(m) CONTROLLING LAW: This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the
State of New Hampshire (except the laws of that jurisdiction
that would render such choice of laws ineffective).
(n) COPIES: This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to
produce or account for more than one of such copies.
(o) COUNTERPARTS: This Agreement may be executed in one or more
counterparts (one counterpart reflecting the signatures of all
parties), each of which shall be deemed to be an original, and
it shall not be necessary in making proof of this Agreement or
its terms to account for more than one of such counterparts.
This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one
copy of this Agreement and attached to another copy in order
to form one or more counterparts.
(p) RESIGNATIONS: Upon Executive's Termination Date, Executive
shall be deemed to have resigned from any and all offices he
may have held and from any employment he had with STT, STOC,
STP and any and all subsidiaries and affiliates of STT, STOC
or STP which were in existence on the Effective Date or which
came into existence during the term of this Agreement as set
forth in Section 2, above, up to and including the Termination
Date.
15
<PAGE> 16
(q) INDEPENDENT: The agreements set forth above (or any part of
them) are, shall be deemed and shall be construed as separate
and independent agreements. If any such agreement or any part
of such agreement is held invalid, void or unenforceable by
any court or arbitration panel of competent jurisdiction, such
holding shall in no way render invalid, void or unenforceable
any other part or provision thereof or any separate agreement.
DULY EXECUTED and delivered by the parties to this Agreement as of the
dates set forth below.
Executive: /s/ Kenneth L. Chute
--------------------------------------------
Name: Kenneth L. Chute
Title: Senior Vice President and CFO
Date: 3/24/99
STT: STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
--------------------------------------------
Name: Joseph E. Rendini
Title: Secretary and VP
Date: 3/24/99
16
<PAGE> 1
EXHIBIT 10.14
STRATEGIC TIMBER TRUST, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Strategic Timber Trust, Inc., a Georgia corporation (hereinafter "STT" or
"Employer") and Vladimir Harris ("Executive") hereby agree as follows:
1. EMPLOYMENT
This Agreement is entered into by STT and Executive in contemplation of a
registered initial public offering of STT's common stock ("the IPO"). Executive
acknowledges that he has special knowledge, expertise, contacts and other
information with respect to the Restricted Business (as defined below), that he
will be provided with confidential information (as defined below) and that STT's
employment of Executive upon the consummation of the IPO is in consideration of
the promises and agreements contained in this Agreement. This Agreement shall
govern the employment of Executive as an officer of STT.
2. EFFECTIVENESS OF AGREEMENT; TERM
This Agreement shall become effective on the consummation of the IPO ("the
Effective Date"), but shall be void and of no further effect if the IPO has not
been consummated by December 31, 1999. The term of Executive's employment
pursuant to this Agreement shall be for the period from and including the
Effective Date until and including the fourth anniversary of the Effective Date,
and for additional, consecutive one-year periods thereafter, all unless earlier
terminated as provided in Section 8, below.
3. DUTIES AND RESPONSIBILITIES
During Executive's employment pursuant to this Agreement, Executive shall hold
such office or offices as he shall be elected to by the Board of Directors of
STT, shall perform the duties of such office or offices pursuant to the
direction of the Board of Directors of STT (or any committee thereof) or of the
Chief Executive Officer of STT, shall perform such duties to the best of his
ability, shall use his good faith efforts to promote the success of the business
of STT, shall devote his entire business time to the affairs of STT and shall
not engage in any other business activity or occupation during normal business
hours for gain, profit, or other pecuniary advantage; provided, however, that
the foregoing shall not be construed as preventing Executive from investing or
trading for his own benefit or for that of the members of his family in stocks,
bonds, securities or other similar forms of investment in public securities
markets, serving as a director of another corporation or engaging in any family
enterprise or in charitable, civic or other similar pursuits, so long as they do
not materially interfere with Executive's performance of his duties under this
Agreement.
<PAGE> 2
4. COMPENSATION AND RELATED MATTERS
(a) BASIC: During the Executive's employment pursuant to this
Agreement, STT:
(i) shall pay Executive a minimum salary of $ 135,000.00
per annum in accordance with STT's normal and usual
payroll schedule ("Salary), and
(ii) shall include Executive in all retirement plans,
insurance plans and other fringe benefits and
arrangements that may be authorized and adopted for
the benefit of executives of STT generally.
("Benefits" ).
(b) RAISES AND BONUSES: STT's Board of Directors, acting directly
or through its Compensation Committee, may, in its sole
discretion and for any reason, increase Executive's salary
and/or grant Executive additional compensation as a bonus (a
"Bonus") .
(c) VACATIONS, HOLIDAYS AND SICK LEAVE: Executive shall be
entitled to vacation, holidays and sick days with pay as
determined by STT.
(d) NO DIVESTMENT: No termination of Executive's employment shall
divest Executive of his right to receive all or any unpaid
portion or installment of any of his Salary or Bonus to which
he is otherwised entitled pursuant to the terms of this
Agreement.
5. NONCOMPETITION; NO INTERFERENCE
(a) CERTAIN DEFINED TERMS: For purposes of this Agreement, the
following words and phrases have the meanings set forth below:
(i) "CUSTOMER" means any purchaser of timber from
Employer, and any potential purchaser solicited by
Employer, with which Executive had contact during the
term of his employment hereunder.
(ii) "PROPERTY OWNERS" means persons and entities with
whom Employer has contracted for, or with whom
Employer has undertaken any phase of negotiation
regarding, the acquisition of timberlands, timber
cutting rights, timber deeds, or any other types of
property rights, with which Executive had contact
during the term of his employment hereunder.
(iii) "RESTRICTED BUSINESS" means the business of owning
timberland, selling or purchasing timberland, and
selling timber or cut logs, or any of the foregoing,
whether undertaken directly or indirectly.
(iv) "TERRITORY" means North America, Central America and
South America.
2
<PAGE> 3
(v) "RESTRICTED PERIOD" means the period of Executive's
employment with STT pursuant to this Agreement (i.e.,
the period extending from the Effective Date until
the Termination Date, as defined in paragraph no.
8(b)(vi), below) plus one year from the Termination
Date.
(vi) "EMPLOYER,"for purposes of this Section 5 only, means
STT, Strategic Timber Operating Co. ("STOC"),
Strategic Timber Partners, LP ("STP") and their
subsidiaries and affiliates which were in existence
on the Effective Date or which came into existence
during the term of this Agreement as set forth in
Section 2, above, up to and including the Termination
Date.
(b) NONCOMPETITION: During the Restricted Period, Executive shall
not, either directly or indirectly:
(i) have any ownership interest (whether as proprietor,
partner, stockholder or otherwise) in, or
(ii) be an officer, director or general or managing
partner of, or hold a similar position in, or
(iii) act as agent, broker or distributor for, or advisor
or consultant to, or
(iv) be employed in an executive or management position
with
any business however organized or conducted which is engaged
or which Executive knows or reasonably should know plans to
become engaged in the Restricted Business in the Territory
without the permission of the disinterested members of STT's
Board of Directors. Further, any ownership interest held by
Executive at the time of the execution of this Agreement shall
be deemed so permitted. However, notwithstanding any of the
foregoing, the ownership by Executive of less than one percent
(1%) of the shares of the capital stock of a publicly held
entity shall in no event be deemed a violation of any
provision of this paragraph.
(c) NO INTERFERENCE WITH CUSTOMERS OR PROPERTY OWNERS: During the
Restricted Period, Executive will not in any way, directly or
indirectly:
(i) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, from
Employer the business of any Customer; or
(ii) attempt or seek to cause any Customer to refrain, in
any respect, from doing business with Employer, or
intentionally interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise,
between Employer and Customer; or
3
<PAGE> 4
(iii) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, any
pending or contemplated acquisition of timberlands,
timber cutting rights, timber deeds, or any other
type of property rights, from a Property Owner; or
(iv) attempt or seek to cause any Property Owner to
refrain from consummating any pending or contemplated
transaction with Employer, or intentionally interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Employer and any
Property Owner.
(d) NO INTERFERENCE WITH EMPLOYEES. During the Restricted Period,
Executive will not in any way, directly or indirectly, request
or induce any other employee of Employer to terminate his
employment with Employer.
(e) NO EFFECT OF TERMINATION OF EMPLOYMENT. The termination of
Executive's employment with STT shall not limit or otherwise
affect the agreements set forth in this Section 5, which shall
continue and expressly survive the termination of Executive's
employment and this Agreement.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES
(a) GENERAL: All records, financial statements and similar
documents obtained, reviewed or compiled by Executive as part
of the performance of his services for or duties to Employer
pursuant to this Agreement shall be the exclusive property of
Employer, and Executive shall have no rights in such documents
on or after the earlier of Executive's Termination Date (as
defined in paragraph no. 8(b)(vi), below) or the last day of
the term of this Agreement as set forth in Section 2, above.
(b) CONFIDENTIAL INFORMATION AND TRADE SECRETS: Executive will not
disclose to any person or entity or use for his own benefit or
gain, any confidential information or trade secrets of the
Employer obtained by him incident to his employment with STT.
Executive shall take all reasonable steps to safeguard any
confidential information and trade secrets and to protect same
against disclosure, misuse, loss or theft. The term
"Confidential Information" includes, without limitation,
financial information, business plans, prospects and
opportunities which have been discussed or considered by the
management of Employer, but does not include any information
which has become part of the public domain by means other than
Executive's failure to observe his obligations hereunder.
However, nothing in this paragraph shall be construed as
prohibiting, restricting or preventing Executive from making
any disclosure required by applicable law, the rules of the
New York Stock Exchange or of any other securities market on
which STT's securities are listed, or which are otherwise
called for in connection with the performance of his duties
and responsibilities thereunder or pursuant to this Agreement.
4
<PAGE> 5
(c) SURVIVAL: The agreements set forth in this Section 6 shall
survive beyond the term of Executive's employment, as set
forth in Section 2, above, and shall remain in full force and
effect for seven (7) years thereafter.
7. CERTAIN GENERAL PROVISIONS
(a) REPRESENTATIONS AND WARRANTIES: Executive represents and
warrants to STT:
(i) that, excluding any statutory or case law generally
applicable to all persons or entities, he is not
subject to any decision, order, decree or judgment
issued by any governmental authority or arbitrator or
arbitration panel involving noncompetition,
nonsolicitation, rights to inventions, work product
or intellectual property;
(ii) that he will not use in his employment pursuant to
this Agreement, disclose to Employer or induce
Employer to use any trade secrets or proprietary or
confidential information or materials belonging to
others.
(b) REMEDIES: Any violation of any provision of the foregoing
Sections 5 and 6 may cause irreparable harm to Employer, and
damages may not be an adequate remedy. Employer shall
therefore be entitled to seek injunctive relief from any court
of competent jurisdiction in the United States of America
enjoining, prohibiting and restraining Executive from the
continuance of any such violation. However, should Employer
seek injunctive relief in any such court, Executive may then
elect to have any or all controversies or claims, including
any claim for injunctive relief, arising out of or relating to
this Agreement or the breach thereof heard and determined by
such court or by any other court of competent jurisdiction in
the United States of America or to have any or all such
controversies or claims settled by arbitration pursuant to the
provisions of paragraph no. 10(b), below.
(c) NOTICE TO OTHERS: Executive hereby agrees that,
notwithstanding any other provision of this Agreement,
Employer may disclose the prohibitions contained in Sections 5
and 6 hereof to any person or entity, including one that at
the time employs or is considering employing Executive.
(d) MODIFICATION: Should any provision of the foregoing Section 5
or 6 be deemed too broad to permit enforcement to its full
extent, then it shall be enforced to the maximum extent
permitted by law, and its scope may be judicially modified
accordingly in any proceeding brought to enforce such
restriction.
5
<PAGE> 6
8. TERMINATION
(a) CERTAIN DEFINED TERMS
(i) CHANGE OF CONTROL: A "Change of Control" shall be
deemed to have occurred when any of the following
events occurs:
(A) Any "person" (other than (1) any employee
plan established by STT, (2) STT, (3) an
underwriter temporarily holding securities
pursuant to an offering of such securities,
or (4) a corporation owned, directly or
indirectly, by stockholders of STT in
substantially the same proportions as their
ownership of STT) is or becomes the
beneficial owner, directly or indirectly, of
securities of STT representing 50% or more
of the combined voting power of STT's then
outstanding voting securities [as used in
this paragraph, "person" shall have the same
meaning as that term does as used in
Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")]; or
(B) During any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
director (other than an individual whose
nomination for election is in connection
with an actual or threatened election
contest relating to the election of the
directors of STT, as such terms are used in
Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment, election,
or nomination for election by STT's
shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose
appointment, election or nomination for
election was previously so approved, cease
for any reason to constitute a majority of
the Board; or
(C) There is consummated a merger or
consolidation of STT with or into any other
corporation or other entity, or a
transaction having a similar result or
effect, other than a merger, consolidation,
or other transaction which would result in
the holders of the voting securities of STT
outstanding immediately prior thereto
holding securities which represent
immediately after such merger or
consolidation more than 65% of the combined
voting power of the voting securities of
either STT or the other entity which
survives such merger or consolidation or the
parent of the entity which survives such
merger or consolidation; or
(D) There is consummated a sale or disposition
by STT of all or substantially all of STT's
assets.
6
<PAGE> 7
(ii) DISABILITY: The term "disabled" and variations of it
mean a physical condition of Executive which is of a
nature and duration sufficient to require payment
under the provisions of STT's long-term disability
insurance covering Executive, if such a policy is in
effect at the time the disability commences, and, if
no such policy is then in effect, a disability
determined by a physician mutually agreed upon by STT
and the Executive to substantially interfere with the
Executive's ability to perform the essential duties
of his employment.
(iii) FOR CAUSE: The phrase "for cause" and variations of
it mean because of:
(A) willful failure (other than by reason of
disability) to perform any of the duties or
to fulfill any of the obligations set forth
in the provisions of Sections 3, 5 or 6,
above;
(B) willful failure (other than by reason of
disability) to respond to a request by the
Board of Directors or Chief Executive
Officer of STT which is reasonable in light
of Executive's duties as described in
Section 3 and of the resources and support
provided to him by Employer after notice and
reasonable opportunity to cure or comply;
(C) willful disclosure to any of Employer's then
or prospective competitors of any trade
secrets or confidential or proprietary
information of Employer; or Executive's
giving any such competitor material
assistance in the conduct of such
competitor's business;
(D) willfully giving any of Employer's then or
prospective competitors material assistance
in the conduct of its business;
(E) willfully engaging in any act that
constitutes a material conflict of interest
with Employer;
(F) willful usurpation of a material business
opportunity of Employer;
(G) willful misappropriation of a material
amount of Employer's funds or property;
(H) willfully attempting to secure any personal
profit in connection with any transaction
entered into on behalf of Employer;
(I) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to fraud, theft, embezzlement or any other
felony demonstrated to have a direct,
material, adverse financial effect on
Employer or on a customer or property owner;
or
7
<PAGE> 8
(J) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to a felony which demonstrably and
materially impairs or harms Employer's
ability to conduct its business.
(iv) FOR GOOD REASON: For purposes of this Agreement, the
phrase "for good reason" and variations of it shall
mean because of:
(A) Employer's assignment of Executive, without
his consent, to a position, responsibilities
or duties of any materially lesser status or
degree of responsibility or authority than
his position, responsibilities or duties at
the Effective Date; or
(B) Employer's diminution of, or refusal to pay
when due, Executive's Salary under paragraph
no. 4(a)(i), above, or any Bonus awarded to
Executive under paragraph no. 4(b), above,
(provided that, in the case of any such
Bonus only, any conditions placed upon the
payment of same have been satisfied); or
(C) Employer's material diminution of the
aggregate of Executive's Benefits under
paragraph no. 4(a)(ii), above, or of the
aggregate of Executive's vacations, holidays
and sick leave under paragraph no. 4(c),
above;
(D) Employer's material reduction or diminution
of the conditions of Executive's employment
including, without limitation, Employer's
failure to provide Executive with office,
secretarial services and such other
facilities and support services as are
reasonably appropriate and necessary for the
performance of Executive's duties under this
Agreement.
(E) Any Change in Control as defined in
paragraph no. 8(a)(i), above.
(b) EVENTS: Executive's employment pursuant to this Agreement
shall terminate upon the first to occur of any of the
following events:
(i) TERMINATION BY EXECUTIVE: Executive may terminate his
employment pursuant to this Agreement for any reason
or "for good reason" (as defined above) upon prior
written notice to STT, and such termination shall be
effective upon the expiration of the time period in
such notice (or such earlier time as STT and
Executive may agree). For purposes of this paragraph,
the time period for said prior written notice shall
be six months, if said notice is given during the
first two years of the term of this Agreement, and
ninety days if given thereafter.
(ii) TERMINATION WITHOUT CAUSE BY STT: STT may terminate
Executive's employment pursuant to this Agreement
without cause upon prior written notice to Executive,
and such termination shall be effective upon the
expiration of the time period in such notice (or such
earlier time as STT and Executive may agree). For
purposes of this paragraph, the time period for said
prior written notice shall be six
8
<PAGE> 9
months, if said notice is given during the first two
years of the term of this Agreement, and ninety days
if given thereafter.
(iii) WITH CAUSE BY STT: STT may immediately terminate
Executive's employment pursuant to this Agreement for
cause upon written notice to Executive, and such
termination shall be effective upon the giving of
such notice.
(iv) TERMINATION ON ACCOUNT OF DEATH OR DISABILITY: Upon
the death or disability of Executive, Executive's
employment pursuant to this Agreement shall
terminate, and such termination shall be effective on
the date upon which the death or disability of
executive occurs.
(v) NON-RENEWAL OF TERM: Should Executive give STT
written notice at least thirty (30) days prior to the
expiration of either the orginal four-year term of
his employment or any of the subsequent, consecutive
one-year terms set forth in Section 2, above,
Executive's employment pursuant to this Agreement
shall terminate upon the last day of said term and
such termination shall be effective on said day.
(vi) "TERMINATION DATE" means the date upon which
Executive's termination becomes effective.
(c) TERMINATION PAY: Effective upon the termination of Executive's
employment pursuant to this Agreement, STT shall be obligated
to pay Executive (or in the event of his death, his estate, or
in the event a personal representative is appointed, his
personal representative) only such compensation as is provided
in this paragraph no. 8(c). ("Termination Pay"):
(i) COMPENSATION UPON TERMINATION BY EXECUTIVE OTHER THAN
FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreementother than for
good reason, then STT shall pay Executive all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(ii) COMPENSATION UPON TERMINATION BY STT WITHOUT CAUSE OR
BY EXECUTIVE FOR GOOD REASON: If STT terminates
Executive's employment pursuant to this Agreement
without cause, or if Executive terminates said
employment for good reason, then STT shall pay
Executive (A) his Salary for the remainder of the
Restricted Period, at the rate at which it was paid
at the Termination Date, and (B) an amount equal to
either (i) the amount of his target Bonus in respect
of the fiscal year in which the Termination Date
occurs, if the amount of such target Bonus has been
established as of the Termination Date, or (ii) if
the amount of such target Bonus has not been
determined as of the Termination Date, the amount of
the Bonus he received in respect of the immediately
preceding fiscal year, and STT shall continue to
provide Executive with the medical Benefits he
received as of the Termination Date through the last
day of the Restricted Period only.
9
<PAGE> 10
(iii) COMPENSATION UPON TERMINATION BY STT FOR CAUSE: If
STT terminates Executive's employment pursuant to
this Agreement for cause, then STT shall pay
Executive all his compensation owed him under Section
4, above, through and including the Termination Date
only.
(iv) COMPENSATION UPON TERMINATION BY DEATH OR DISABILITY:
If Executive's employment pursuant to this Agreement
is terminated by reason of the death or disability of
Executive, then STT shall pay Executive or his
estate, as appropriate, all his compensation owed him
under Section 4, above, through and including the
Termination Date only.
(v) COMPENSATION UPON NON-RENEWAL OF TERM: If Executive's
employment is terminated by non-renewal of its term
under paragraph no. 8(b)(v), above, STT shall, in its
sole discretion, determine whether Executive shall
thereafter be subject to the restrictions set forth
in paragraphs nos. 5(b), 5(c) and 5(d), above, for a
period of up to but not exceeding one (1) year from
the Termination Date. If STT determines that
Executive shall be subject to said restrictions, then
it shall pay him as if he were terminated without
good cause or for good reason as specified in
paragraph no. 8(b)(ii), above, during whatever period
STT determines said restrictions shall apply. If STT
determines that Executive shall not be subject to any
such restrictions, then it shall pay him all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(vi) AWARDS UNDER STT INCENTIVE PLANS: Executive shall
receive all rights and benefits granted to Executive
under STT's 1999 Omnibus Incentive Plan and any other
incentive plans of STT in which Executive
participates, and any agreements with Executive
pursuant thereto. The vesting and exercise of any
stock options and the forfeitability of any
stock-based grants held by Executive shall be
governed by the terms of such plans and the related
agreements between Executive and STT rather than this
Agreement.
(d) TIMING OF TERMINATION PAY:
(i) FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement for Good Reason
(except for any Change in Control, in which case the
provisions of the following paragraph shall control)
or Executive's employment hereunder is terminated by
reason of death, then the full amount of any
Termination Pay owed to Executive or his estate
pursuant to the provisions of this Section shall
become due and payable upon the Termination Date.
Employer shall make payment at the time(s) and in the
manner(s) specified by Executive, or by the executor
of his estate, as appropriate, in written notice to
Employer. Executive, or the executor of his estate,
as appropriate, shall have the right to specify
whether payment of the Termination Pay shall be made
in whole or in part, and the specification of the
payment of any part shall not waive or limit
Executive's or his estate's right to receive the
remainder of the whole.
10
<PAGE> 11
(ii) FOR OTHER REASON: If Executive or STT terminates his
employment pursuant to this Agreement for any reason
other than than set forth in the preceding paragraph,
then any Termination Pay owed to Executive or to his
estate shall be paid in accordance with STT's normal
payroll schedule.
(e) RELEASE AND WAIVER OF OTHER CAUSES OF ACTION: Payment by STT
of the full amount of any Termination Pay owed Executive
pursuant to this Agreement shall be made promptly by STT upon
receipt of a full and final release and waiver by Executive,
in form and substance reasonably satisfactory to STT, of any
and every claim and cause of action which Executive may have
against STT, STOC, STP or any of their affiliates and
subsidiaries arising out of or relating to his employment
pursuant to this Agreement, whether such action is at equity
or common law or arises out of any federal, state or local
statute or regulation (including, but not limited to, the
termination of such employment. Further, as long as STT makes
timely payment of any portions or installments of Executive's
Termination Pay pursuant to the provisions of paragraph no.
8(d), above, Executive shall not commence any such claim or
action in any court or before any administrative body or
arbitration panel. However, nothing in this paragraph shall be
construed to limit Executive's right to bring an action
arising out of the breach of any provision of this Agreement
in any appropriate court or before any appropriate arbitration
panel, consistent with the terms otherwise set forth herein.
9. LITIGATION AND REGULATORY COOPERATION AFTER TERMINATION
(a) EXTENT OF COOPERATION: After the termination of Executive's
employment hereunder, Executive shall reasonably cooperate
with STT in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of STT and which relate to events or
occurrences that transpired while Executive was employed by
STT, but if and only if such cooperation shall not materially
and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or
action shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on
behalf of STT at mutually convenient times. After Executive's
employment, Executive also shall cooperate fully with STT in
connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation
or review relates to events or occurrences that transpired
while Executive was employed by STT, but if and only if such
cooperation shall not materially and adversely affect
Executive or expose Executive to an increased probability of
civil or criminal litigation. However, notwithstanding any of
the foregoing, nothing in this paragraph shall be construed to
require Executive to cooperate or provide any services to, on
or on behalf of STT in excess of four (4) hours in any one day
or for a total of more than twenty (20) hours, nor to require
Executive to travel more than fifty (50) miles from his home
in order to render such cooperation, nor to provide any
cooperation under this paragraph after seven (7) years from
Executive's Termination Date.
11
<PAGE> 12
(b) COMPENSATION FOR COOPERATION: STT shall compensate Executive
for all cooperation or other services rendered pursuant to
this Section 9 by paying him the greater of (i) a sum equal to
all of his lost salary, earnings and profits attributable to
his provision of such cooperation and services, or (ii)
compensation on an hourly basis calculated at his final hourly
Salary rate. STT shall also reimburse Executive for all costs
and expenses incurred in connection with his performance under
this Section 9, including, without limitation, all reasonable
attorneys' fees and costs.
10. MISCELLANEOUS
(a) GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION: The
parties shall in good faith undertake to perform their
agreements in this Agreement, to satisfy all conditions and to
cause the purposes of this Agreement to be accomplished
promptly in accordance with its terms.
(b) ARBITRATION: Any controversy or claim arising out of or
relating to this Agreement or the breach thereof not subject
to paragraph no. 7(b), above, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Said arbitration shall be
before a panel of three arbitrators. Executive shall choose
one arbitrator, STT shall choose one arbitrator and the two
arbitrators so chosen shall choose the third arbitrator. Said
arbitration shall take place in the state of New Hampshire
within sixty days of notice by one party to the other, unless
they shall mutually agree to a longer or shorter time.
Judgment upon the award rendered by the panel may be entered
by any court of competent jurisdiction. Executive and STT
shall each pay fifty percent (50%) of the panel's fees. The
panel shall award reasonable interest, attorneys' fees and
costs to the prevailing party but shall have no power to award
punitive damages.
(c) NOTICES: Each notice, communication and delivery under this
Agreement:
(i) shall be made in writing signed by the party giving
it;
(ii) shall specify the section of this Agreement pursuant
to which it is given;
(iii) shall either be delivered in person, by any form of
United States Mail if a return receipt is provided
therewith, by telecopier or by a nationally
recognized next business day delivery service (such
as Federal Express, United Parcel Service, DHL or any
other similar delivery service provider);
(iv) shall be given to the address specified below;
(v) shall be deemed to be given:
(A) if delivered in person, on the date
delivered, or
12
<PAGE> 13
(B) if sent by telecopier, on the date of
confirmation of receipt, by telephone or
otherwise, or
(C) if sent by a nationally recognized next
business day courier service with all costs
paid, on the date of confirmation of
receipt.
The addresses are as follows:
If to Executive, to:
154 Packers Falls Rd.
Durham, NH 03824
Telecopier:
Confirm:
If to STT:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 0325
Attn: Secretary
Telecopier: 603/526-7811
Confirm: 603/526-7800
Such notice shall be given to such other representatives or at
such other addresses as a party may furnish to the other
parties pursuant to the foregoing. If notice is given pursuant
to this Section of a permitted successor or assign of a party,
then notice shall thereafter be given as set forth above also
to such successor or assign of such party.
(d) COMPUTATION OF TIME: Whenever the last day for the exercise of
any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or
legal holiday, whether federal or of a state in which the
person or entity having such privilege or duty resides or has
its principal place of business, the party to this Agreement
having such privilege or duty shall have until 5:00 p.m.
(Eastern time) on the next succeeding regular business day to
exercise such privilege or to discharge such duty.
(e) ASSIGNMENT; SUCCESSOR IN INTEREST:
(i) BY STT: Except with the prior written consent of
Executive, no assignment, transfer or delegation by
STT of any of its rights and obligations under this
Agreement may be made to any other entity, except
that STT may make any such assignment, transfer or
delegation:
(A) to STOC or STP or any of STT's affiliates or
subsidiaries; and
13
<PAGE> 14
(B) if STT is merged into or acquired by another
business entity such that there is a Change
in Control, to the business entity into
which STT is merged or by which it is
acquired.
(ii) BY EXECUTIVE: Executive (or, under appropriate
circumstances, the executor of Executive's estate)
may transfer or assign any of his rights to receive
Executive's Total Compensation or any component of
Executive's Total Compensation, in whole or in part,
to any of Executive's heirs, devisees, legatees or
beneficiaries upon written notice to STT. No other
transfer or assignment may be made to any party by
Executive of any of his rights or obligations under
this Agreement.
(f) BINDING NATURE: This Agreement shall be binding upon the
parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and
successors and assigns; shall inure to the benefit of the
parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees, beneficiaries and
other permitted successors and assigns (and to or for the
benefit of no other person or entity, whether an employee or
otherwise, whatsoever); and upon a permitted assignment, any
reference to a party to this Agreement shall also be a
reference to a permitted successor or assign.
(g) REMEDIES CUMULATIVE: The rights and remedies specified in any
provision of this Agreement shall be in addition to all other
rights and remedies a party may have under any other agreement
or applicable law, including any right to equitable relief and
any right to sue for damages as a result of a breach of this
Agreement (whether or not it elects to terminate this
Agreement), and all such rights and remedies shall be
cumulative.
(h) DEFENSE/INDEMNIFICATION/HOLD HARMLESS: STT shall, to the
greatest extent allowed by applicable law, provide Executive a
defense, indemnify Executive and hold Executive harmless from
any civil or criminal claim, award or judgment which arises
out of Executive's acts performed or omissions committed in
the course of, or which Executive reasonably believed he
performed or committed in the course of, the performance of
his duties pursuant to this Agreement. However, nothing in
this paragraph shall require STT to provide Executive a
defense, indemnify Executive or hold Executive harmless from
any such claim, award or judgment which arises out of any such
act or omission which, at the time of same, Executive knew or
reasonably should have known constituted cause for termination
as set forth in paragraph no. 8(a)(iii), above.
(i) INSURANCE: STT shall cause Executive to appear as an
additional named insured on any policy of Directors' and
Officers' Liability Insurance which STT procures on behalf of
itself and/or on behalf of any of its Executive Officers.
Should Executive not appear as an additional named insured on
any such policy, STT shall be liable to Executive for the full
amount of insurance coverage which Executive would have had
pursuant to such policy had STT fulfilled its obligation under
this paragraph.
14
<PAGE> 15
(j) EXPENSES OF ENFORCING THIS AGREEMENT: Subject to the
provisions of paragraph no. 10(b), above, any expense incurred
in enforcing any or all of the provisions of this Agreement
shall be reimbursed to the prevailing party.
(k) INTEGRATION; AMENDMENT: This Agreement:
(i) supersedes all prior negotiations, agreements and
understandings between the parties to this Agreement
with respect to its subject matter, and
(ii) constitutes the entire agreement between the parties
to this Agreement with respect to its subject matter,
and
(iii) may not be altered or amended, nor may any material
provision be waived, except in writing signed by
Executive and STT.
(l) WAIVER: No waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed or
construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement
(m) CONTROLLING LAW: This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the
State of New Hampshire (except the laws of that jurisdiction
that would render such choice of laws ineffective).
(n) COPIES: This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to
produce or account for more than one of such copies.
(o) COUNTERPARTS: This Agreement may be executed in one or more
counterparts (one counterpart reflecting the signatures of all
parties), each of which shall be deemed to be an original, and
it shall not be necessary in making proof of this Agreement or
its terms to account for more than one of such counterparts.
This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one
copy of this Agreement and attached to another copy in order
to form one or more counterparts.
(p) RESIGNATIONS: Upon Executive's Termination Date, Executive
shall be deemed to have resigned from any and all offices he
may have held and from any employment he had with STT, STOC,
STP and any and all subsidiaries and affiliates of STT, STOC
or STP which were in existence on the Effective Date or which
came into existence during the term of this Agreement as set
forth in Section 2, above, up to and including the Termination
Date.
(q) INDEPENDENT: The agreements set forth above (or any part of
them) are, shall be deemed and shall be construed as separate
and independent agreements. If any such
15
<PAGE> 16
agreement or any part of such agreement is held invalid, void
or unenforceable by any court or arbitration panel of
competent jurisdiction, such holding shall in no way render
invalid, void or unenforceable any other part or provision
thereof or any separate agreement.
DULY EXECUTED and delivered by the parties to this Agreement
as of the dates set forth below.
Executive: /s/ Vladimir Harris
--------------------------------------------
Name: Vladimir Harris
Title: Senior Vice President and Director of
Acquisitions
Date: 3/23/99
STT: STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
--------------------------------------------
Name: Joseph E. Rendini
Title: Secretary and VP
Date: 3/24/99
16
<PAGE> 1
EXHIBIT 10.15
STRATEGIC TIMBER TRUST, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Strategic Timber Trust, Inc., a Georgia corporation (hereinafter "STT" or
"Employer") and Nicolas C. Brunet ("Executive") hereby agree as follows:
1. EMPLOYMENT
This Agreement is entered into by STT and Executive in contemplation of a
registered initial public offering of STT's common stock ("the IPO"). Executive
acknowledges that he has special knowledge, expertise, contacts and other
information with respect to the Restricted Business (as defined below), that he
will be provided with confidential information (as defined below) and that STT's
employment of Executive upon the consummation of the IPO is in consideration of
the promises and agreements contained in this Agreement. This Agreement shall
govern the employment of Executive as an officer of STT.
2. EFFECTIVENESS OF AGREEMENT; TERM
This Agreement shall become effective on the consummation of the IPO ("the
Effective Date"), but shall be void and of no further effect if the IPO has not
been consummated by December 31, 1999. The term of Executive's employment
pursuant to this Agreement shall be for the period from and including the
Effective Date until and including the fourth anniversary of the Effective Date,
and for additional, consecutive one-year periods thereafter, all unless earlier
terminated as provided in Section 8, below.
3. DUTIES AND RESPONSIBILITIES
During Executive's employment pursuant to this Agreement, Executive shall hold
such office or offices as he shall be elected to by the Board of Directors of
STT, shall perform the duties of such office or offices pursuant to the
direction of the Board of Directors of STT (or any committee thereof) or of the
Chief Executive Officer of STT, shall perform such duties to the best of his
ability, shall use his good faith efforts to promote the success of the business
of STT, shall devote his entire business time to the affairs of STT and shall
not engage in any other business activity or occupation during normal business
hours for gain, profit, or other pecuniary advantage; provided, however, that
the foregoing shall not be construed as preventing Executive from investing or
trading for his own benefit or for that of the members of his family in stocks,
bonds, securities or other similar forms of investment in public securities
markets, serving as a director of another corporation or engaging in any family
enterprise or in charitable, civic or other similar pursuits, so long as they do
not materially interfere with Executive's performance of his duties under this
Agreement.
<PAGE> 2
4. COMPENSATION AND RELATED MATTERS
(a) BASIC: During the Executive's employment pursuant to this
Agreement, STT:
(i) shall pay Executive a minimum salary of $ 90,000.00
per annum in accordance with STT's normal and usual
payroll schedule ("Salary), and
(ii) shall include Executive in all retirement plans,
insurance plans and other fringe benefits and
arrangements that may be authorized and adopted for
the benefit of executives of STT generally.
("Benefits" ).
(b) RAISES AND BONUSES: STT's Board of Directors, acting directly
or through its Compensation Committee, may, in its sole
discretion and for any reason, increase Executive's salary
and/or grant Executive additional compensation as a bonus (a
"Bonus") .
(c) VACATIONS, HOLIDAYS AND SICK LEAVE: Executive shall be
entitled to vacation, holidays and sick days with pay as
determined by STT.
(d) NO DIVESTMENT: No termination of Executive's employment shall
divest Executive of his right to receive all or any unpaid
portion or installment of any of his Salary or Bonus to which
he is otherwised entitled pursuant to the terms of this
Agreement.
5. NONCOMPETITION; NO INTERFERENCE
(a) CERTAIN DEFINED TERMS: For purposes of this Agreement, the
following words and phrases have the meanings set forth below:
(i) "CUSTOMER" means any purchaser of timber from
Employer, and any potential purchaser solicited by
Employer, with which Executive had contact during the
term of his employment hereunder.
(ii) "PROPERTY OWNERS" means persons and entities with
whom Employer has contracted for, or with whom
Employer has undertaken any phase of negotiation
regarding, the acquisition of timberlands, timber
cutting rights, timber deeds, or any other types of
property rights, with which Executive had contact
during the term of his employment hereunder.
(iii) "RESTRICTED BUSINESS" means the business of owning
timberland, selling or purchasing timberland, and
selling timber or cut logs, or any of the foregoing,
whether undertaken directly or indirectly.
(iv) "TERRITORY" means North America, Central America and
South America.
2
<PAGE> 3
(v) "RESTRICTED PERIOD" means the period of Executive's
employment with STT pursuant to this Agreement (i.e.,
the period extending from the Effective Date until
the Termination Date, as defined in paragraph no.
8(b)(vi), below) plus one year from the Termination
Date.
(vi) "EMPLOYER,"for purposes of this Section 5 only, means
STT, Strategic Timber Operating Co. ("STOC"),
Strategic Timber Partners, LP ("STP") and their
subsidiaries and affiliates which were in existence
on the Effective Date or which came into existence
during the term of this Agreement as set forth in
Section 2, above, up to and including the Termination
Date.
(b) NONCOMPETITION: During the Restricted Period, Executive shall
not, either directly or indirectly:
(i) have any ownership interest (whether as proprietor,
partner, stockholder or otherwise) in, or
(ii) be an officer, director or general or managing
partner of, or hold a similar position in, or
(iii) act as agent, broker or distributor for, or advisor
or consultant to, or
(iv) be employed in an executive or management position
with
any business however organized or conducted which is engaged
or which Executive knows or reasonably should know plans to
become engaged in the Restricted Business in the Territory
without the permission of the disinterested members of STT's
Board of Directors. Further, any ownership interest held by
Executive at the time of the execution of this Agreement shall
be deemed so permitted. However, notwithstanding any of the
foregoing, the ownership by Executive of less than one percent
(1%) of the shares of the capital stock of a publicly held
entity shall in no event be deemed a violation of any
provision of this paragraph.
(c) NO INTERFERENCE WITH CUSTOMERS OR PROPERTY OWNERS: During the
Restricted Period, Executive will not in any way, directly or
indirectly:
(i) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, from
Employer the business of any Customer; or
(ii) attempt or seek to cause any Customer to refrain, in
any respect, from doing business with Employer, or
intentionally interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise,
between Employer and Customer; or
3
<PAGE> 4
(iii) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, any
pending or contemplated acquisition of timberlands,
timber cutting rights, timber deeds, or any other
type of property rights, from a Property Owner; or
(iv) attempt or seek to cause any Property Owner to
refrain from consummating any pending or contemplated
transaction with Employer, or intentionally interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Employer and any
Property Owner.
(d) NO INTERFERENCE WITH EMPLOYEES. During the Restricted Period,
Executive will not in any way, directly or indirectly, request
or induce any other employee of Employer to terminate his
employment with Employer.
(e) NO EFFECT OF TERMINATION OF EMPLOYMENT. The termination of
Executive's employment with STT shall not limit or otherwise
affect the agreements set forth in this Section 5, which shall
continue and expressly survive the termination of Executive's
employment and this Agreement.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES
(a) GENERAL: All records, financial statements and similar
documents obtained, reviewed or compiled by Executive as part
of the performance of his services for or duties to Employer
pursuant to this Agreement shall be the exclusive property of
Employer, and Executive shall have no rights in such documents
on or after the earlier of Executive's Termination Date (as
defined in paragraph no. 8(b)(vi), below) or the last day of
the term of this Agreement as set forth in Section 2, above.
(b) CONFIDENTIAL INFORMATION AND TRADE SECRETS: Executive will not
disclose to any person or entity or use for his own benefit or
gain, any confidential information or trade secrets of the
Employer obtained by him incident to his employment with STT.
Executive shall take all reasonable steps to safeguard any
confidential information and trade secrets and to protect same
against disclosure, misuse, loss or theft. The term
"Confidential Information" includes, without limitation,
financial information, business plans, prospects and
opportunities which have been discussed or considered by the
management of Employer, but does not include any information
which has become part of the public domain by means other than
Executive's failure to observe his obligations hereunder.
However, nothing in this paragraph shall be construed as
prohibiting, restricting or preventing Executive from making
any disclosure required by applicable law, the rules of the
New York Stock Exchange or of any other securities market on
which STT's securities are listed, or which are otherwise
called for in connection with the performance of his duties
and responsibilities thereunder or pursuant to this Agreement.
4
<PAGE> 5
(c) SURVIVAL: The agreements set forth in this Section 6 shall
survive beyond the term of Executive's employment, as set
forth in Section 2, above, and shall remain in full force and
effect for seven (7) years thereafter.
7. CERTAIN GENERAL PROVISIONS
(a) REPRESENTATIONS AND WARRANTIES: Executive represents and
warrants to STT:
(i) that, excluding any statutory or case law generally
applicable to all persons or entities, he is not
subject to any decision, order, decree or judgment
issued by any governmental authority or arbitrator or
arbitration panel involving noncompetition,
nonsolicitation, rights to inventions, work product
or intellectual property;
(ii) that he will not use in his employment pursuant to
this Agreement, disclose to Employer or induce
Employer to use any trade secrets or proprietary or
confidential information or materials belonging to
others.
(b) REMEDIES: Any violation of any provision of the foregoing
Sections 5 and 6 may cause irreparable harm to Employer, and
damages may not be an adequate remedy. Employer shall
therefore be entitled to seek injunctive relief from any court
of competent jurisdiction in the United States of America
enjoining, prohibiting and restraining Executive from the
continuance of any such violation. However, should Employer
seek injunctive relief in any such court, Executive may then
elect to have any or all controversies or claims, including
any claim for injunctive relief, arising out of or relating to
this Agreement or the breach thereof heard and determined by
such court or by any other court of competent jurisdiction in
the United States of America or to have any or all such
controversies or claims settled by arbitration pursuant to the
provisions of paragraph no. 10(b), below.
(c) NOTICE TO OTHERS: Executive hereby agrees that,
notwithstanding any other provision of this Agreement,
Employer may disclose the prohibitions contained in Sections 5
and 6 hereof to any person or entity, including one that at
the time employs or is considering employing Executive.
(d) MODIFICATION: Should any provision of the foregoing Section 5
or 6 be deemed too broad to permit enforcement to its full
extent, then it shall be enforced to the maximum extent
permitted by law, and its scope may be judicially modified
accordingly in any proceeding brought to enforce such
restriction.
5
<PAGE> 6
8. TERMINATION
(a) CERTAIN DEFINED TERMS
(i) CHANGE OF CONTROL: A "Change of Control" shall be
deemed to have occurred when any of the following
events occurs:
(A) Any "person" (other than (1) any employee
plan established by STT, (2) STT, (3) an
underwriter temporarily holding securities
pursuant to an offering of such securities,
or (4) a corporation owned, directly or
indirectly, by stockholders of STT in
substantially the same proportions as their
ownership of STT) is or becomes the
beneficial owner, directly or indirectly, of
securities of STT representing 50% or more
of the combined voting power of STT's then
outstanding voting securities [as used in
this paragraph, "person" shall have the same
meaning as that term does as used in
Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")]; or
(B) During any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
director (other than an individual whose
nomination for election is in connection
with an actual or threatened election
contest relating to the election of the
directors of STT, as such terms are used in
Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment, election,
or nomination for election by STT's
shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose
appointment, election or nomination for
election was previously so approved, cease
for any reason to constitute a majority of
the Board; or
(C) There is consummated a merger or
consolidation of STT with or into any other
corporation or other entity, or a
transaction having a similar result or
effect, other than a merger, consolidation,
or other transaction which would result in
the holders of the voting securities of STT
outstanding immediately prior thereto
holding securities which represent
immediately after such merger or
consolidation more than 65% of the combined
voting power of the voting securities of
either STT or the other entity which
survives such merger or consolidation or the
parent of the entity which survives such
merger or consolidation; or
(D) There is consummated a sale or disposition
by STT of all or substantially all of STT's
assets.
6
<PAGE> 7
(ii) DISABILITY: The term "disabled" and variations of it
mean a physical condition of Executive which is of a
nature and duration sufficient to require payment
under the provisions of STT's long-term disability
insurance covering Executive, if such a policy is in
effect at the time the disability commences, and, if
no such policy is then in effect, a disability
determined by a physician mutually agreed upon by STT
and the Executive to substantially interfere with the
Executive's ability to perform the essential duties
of his employment.
(iii) FOR CAUSE: The phrase "for cause" and variations of
it mean because of:
(A) willful failure (other than by reason of
disability) to perform any of the duties or
to fulfill any of the obligations set forth
in the provisions of Sections 3, 5 or 6,
above;
(B) willful failure (other than by reason of
disability) to respond to a request by the
Board of Directors or Chief Executive
Officer of STT which is reasonable in light
of Executive's duties as described in
Section 3 and of the resources and support
provided to him by Employer after notice and
reasonable opportunity to cure or comply;
(C) willful disclosure to any of Employer's then
or prospective competitors of any trade
secrets or confidential or proprietary
information of Employer; or Executive's
giving any such competitor material
assistance in the conduct of such
competitor's business;
(D) willfully giving any of Employer's then or
prospective competitors material assistance
in the conduct of its business;
(E) willfully engaging in any act that
constitutes a material conflict of interest
with Employer;
(F) willful usurpation of a material business
opportunity of Employer;
(H) willful misappropriation of a material
amount of Employer's funds or property;
(H) willfully attempting to secure any personal
profit in connection with any transaction
entered into on behalf of Employer;
(I) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to fraud, theft, embezzlement or any other
felony demonstrated to have a direct,
material, adverse financial effect on
Employer or on a customer or property owner;
or
7
<PAGE> 8
(J) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to a felony which demonstrably and
materially impairs or harms Employer's
ability to conduct its business.
(iv) FOR GOOD REASON: For purposes of this Agreement, the
phrase "for good reason" and variations of it shall
mean because of:
(A) Employer's assignment of Executive, without
his consent, to a position, responsibilities
or duties of any materially lesser status or
degree of responsibility or authority than
his position, responsibilities or duties at
the Effective Date; or
(B) Employer's diminution of, or refusal to pay
when due, Executive's Salary under paragraph
no. 4(a)(i), above, or any Bonus awarded to
Executive under paragraph no. 4(b), above,
(provided that, in the case of any such
Bonus only, any conditions placed upon the
payment of same have been satisfied); or
(C) Employer's material diminution of the
aggregate of Executive's Benefits under
paragraph no. 4(a)(ii), above, or of the
aggregate of Executive's vacations, holidays
and sick leave under paragraph no. 4(c),
above;
(D) Employer's material reduction or diminution
of the conditions of Executive's employment
including, without limitation, Employer's
failure to provide Executive with office,
secretarial services and such other
facilities and support services as are
reasonably appropriate and necessary for the
performance of Executive's duties under this
Agreement.
(E) Any Change in Control as defined in
paragraph no. 8(a)(i), above.
(b) EVENTS: Executive's employment pursuant to this Agreement
shall terminate upon the first to occur of any of the
following events:
(i) TERMINATION BY EXECUTIVE: Executive may terminate his
employment pursuant to this Agreement for any reason
or "for good reason" (as defined above) upon prior
written notice to STT, and such termination shall be
effective upon the expiration of the time period in
such notice (or such earlier time as STT and
Executive may agree). For purposes of this paragraph,
the time period for said prior written notice shall
be six months, if said notice is given during the
first two years of the term of this Agreement, and
ninety days if given thereafter.
(ii) TERMINATION WITHOUT CAUSE BY STT: STT may terminate
Executive's employment pursuant to this Agreement
without cause upon prior written notice to Executive,
and such termination shall be effective upon the
expiration of the time period in such notice (or such
earlier time as STT and Executive may agree). For
purposes of this paragraph, the time period for said
prior written notice shall be six
8
<PAGE> 9
months, if said notice is given during the first two
years of the term of this Agreement, and ninety days
if given thereafter.
(iii) WITH CAUSE BY STT: STT may immediately terminate
Executive's employment pursuant to this Agreement for
cause upon written notice to Executive, and such
termination shall be effective upon the giving of
such notice.
(iv) TERMINATION ON ACCOUNT OF DEATH OR DISABILITY: Upon
the death or disability of Executive, Executive's
employment pursuant to this Agreement shall
terminate, and such termination shall be effective on
the date upon which the death or disability of
executive occurs.
(v) NON-RENEWAL OF TERM: Should Executive give STT
written notice at least thirty (30) days prior to the
expiration of either the orginal four-year term of
his employment or any of the subsequent, consecutive
one-year terms set forth in Section 2, above,
Executive's employment pursuant to this Agreement
shall terminate upon the last day of said term and
such termination shall be effective on said day.
(vi) "TERMINATION DATE" means the date upon which
Executive's termination becomes effective.
(c) TERMINATION PAY: Effective upon the termination of Executive's
employment pursuant to this Agreement, STT shall be obligated
to pay Executive (or in the event of his death, his estate, or
in the event a personal representative is appointed, his
personal representative) only such compensation as is provided
in this paragraph no. 8(c). ("Termination Pay"):
(i) COMPENSATION UPON TERMINATION BY EXECUTIVE OTHER THAN
FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreementother than for
good reason, then STT shall pay Executive all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(ii) COMPENSATION UPON TERMINATION BY STT WITHOUT CAUSE OR
BY EXECUTIVE FOR GOOD REASON: If STT terminates
Executive's employment pursuant to this Agreement
without cause, or if Executive terminates said
employment for good reason, then STT shall pay
Executive (A) his Salary for the remainder of the
Restricted Period, at the rate at which it was paid
at the Termination Date, and (B) an amount equal to
either (i) the amount of his target Bonus in respect
of the fiscal year in which the Termination Date
occurs, if the amount of such target Bonus has been
established as of the Termination Date, or (ii) if
the amount of such target Bonus has not been
determined as of the Termination Date, the amount of
the Bonus he received in respect of the immediately
preceding fiscal year, and STT shall continue to
provide Executive with the medical Benefits he
received as of the Termination Date through the last
day of the Restricted Period only.
9
<PAGE> 10
(iii) COMPENSATION UPON TERMINATION BY STT FOR CAUSE: If
STT terminates Executive's employment pursuant to
this Agreement for cause, then STT shall pay
Executive all his compensation owed him under Section
4, above, through and including the Termination Date
only.
(iv) COMPENSATION UPON TERMINATION BY DEATH OR DISABILITY:
If Executive's employment pursuant to this Agreement
is terminated by reason of the death or disability of
Executive, then STT shall pay Executive or his
estate, as appropriate, all his compensation owed him
under Section 4, above, through and including the
Termination Date only.
(v) COMPENSATION UPON NON-RENEWAL OF TERM: If Executive's
employment is terminated by non-renewal of its term
under paragraph no. 8(b)(v), above, STT shall, in its
sole discretion, determine whether Executive shall
thereafter be subject to the restrictions set forth
in paragraphs nos. 5(b), 5(c) and 5(d), above, for a
period of up to but not exceeding one (1) year from
the Termination Date. If STT determines that
Executive shall be subject to said restrictions, then
it shall pay him as if he were terminated without
good cause or for good reason as specified in
paragraph no. 8(b)(ii), above, during whatever period
STT determines said restrictions shall apply. If STT
determines that Executive shall not be subject to any
such restrictions, then it shall pay him all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(vi) AWARDS UNDER STT INCENTIVE PLANS: Executive shall
receive all rights and benefits granted to Executive
under STT's 1999 Omnibus Incentive Plan and any other
incentive plans of STT in which Executive
participates, and any agreements with Executive
pursuant thereto. The vesting and exercise of any
stock options and the forfeitability of any
stock-based grants held by Executive shall be
governed by the terms of such plans and the related
agreements between Executive and STT rather than this
Agreement.
(d) TIMING OF TERMINATION PAY:
(i) FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement for Good Reason
(except for any Change in Control, in which case the
provisions of the following paragraph shall control)
or Executive's employment hereunder is terminated by
reason of death, then the full amount of any
Termination Pay owed to Executive or his estate
pursuant to the provisions of this Section shall
become due and payable upon the Termination Date.
Employer shall make payment at the time(s) and in the
manner(s) specified by Executive, or by the executor
of his estate, as appropriate, in written notice to
Employer. Executive, or the executor of his estate,
as appropriate, shall have the right to specify
whether payment of the Termination Pay shall be made
in whole or in part, and the specification of the
payment of any part shall not waive or limit
Executive's or his estate's right to receive the
remainder of the whole.
10
<PAGE> 11
(ii) FOR OTHER REASON: If Executive or STT terminates his
employment pursuant to this Agreement for any reason
other than than set forth in the preceding paragraph,
then any Termination Pay owed to Executive or to his
estate shall be paid in accordance with STT's normal
payroll schedule.
(e) RELEASE AND WAIVER OF OTHER CAUSES OF ACTION: Payment by STT
of the full amount of any Termination Pay owed Executive
pursuant to this Agreement shall be made promptly by STT upon
receipt of a full and final release and waiver by Executive,
in form and substance reasonably satisfactory to STT, of any
and every claim and cause of action which Executive may have
against STT, STOC, STP or any of their affiliates and
subsidiaries arising out of or relating to his employment
pursuant to this Agreement, whether such action is at equity
or common law or arises out of any federal, state or local
statute or regulation (including, but not limited to, the
termination of such employment. Further, as long as STT makes
timely payment of any portions or installments of Executive's
Termination Pay pursuant to the provisions of paragraph no.
8(d), above, Executive shall not commence any such claim or
action in any court or before any administrative body or
arbitration panel. However, nothing in this paragraph shall be
construed to limit Executive's right to bring an action
arising out of the breach of any provision of this Agreement
in any appropriate court or before any appropriate arbitration
panel, consistent with the terms otherwise set forth herein.
9. LITIGATION AND REGULATORY COOPERATION AFTER TERMINATION
(a) EXTENT OF COOPERATION: After the termination of Executive's
employment hereunder, Executive shall reasonably cooperate
with STT in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of STT and which relate to events or
occurrences that transpired while Executive was employed by
STT, but if and only if such cooperation shall not materially
and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or
action shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on
behalf of STT at mutually convenient times. After Executive's
employment, Executive also shall cooperate fully with STT in
connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation
or review relates to events or occurrences that transpired
while Executive was employed by STT, but if and only if such
cooperation shall not materially and adversely affect
Executive or expose Executive to an increased probability of
civil or criminal litigation. However, notwithstanding any of
the foregoing, nothing in this paragraph shall be construed to
require Executive to cooperate or provide any services to, on
or on behalf of STT in excess of four (4) hours in any one day
or for a total of more than twenty (20) hours, nor to require
Executive to travel more than fifty (50) miles from his home
in order to render such cooperation, nor to provide any
cooperation under this paragraph after seven (7) years from
Executive's Termination Date.
11
<PAGE> 12
(b) COMPENSATION FOR COOPERATION: STT shall compensate Executive
for all cooperation or other services rendered pursuant to
this Section 9 by paying him the greater of (i) a sum equal to
all of his lost salary, earnings and profits attributable to
his provision of such cooperation and services, or (ii)
compensation on an hourly basis calculated at his final hourly
Salary rate. STT shall also reimburse Executive for all costs
and expenses incurred in connection with his performance under
this Section 9, including, without limitation, all reasonable
attorneys' fees and costs.
10. MISCELLANEOUS
(a) GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION: The
parties shall in good faith undertake to perform their
agreements in this Agreement, to satisfy all conditions and to
cause the purposes of this Agreement to be accomplished
promptly in accordance with its terms.
(b) ARBITRATION: Any controversy or claim arising out of or
relating to this Agreement or the breach thereof not subject
to paragraph no. 7(b), above, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Said arbitration shall be
before a panel of three arbitrators. Executive shall choose
one arbitrator, STT shall choose one arbitrator and the two
arbitrators so chosen shall choose the third arbitrator. Said
arbitration shall take place in the state of New Hampshire
within sixty days of notice by one party to the other, unless
they shall mutually agree to a longer or shorter time.
Judgment upon the award rendered by the panel may be entered
by any court of competent jurisdiction. Executive and STT
shall each pay fifty percent (50%) of the panel's fees. The
panel shall award reasonable interest, attorneys' fees and
costs to the prevailing party but shall have no power to award
punitive damages.
(c) NOTICES: Each notice, communication and delivery under this
Agreement:
(i) shall be made in writing signed by the party giving
it;
(ii) shall specify the section of this Agreement pursuant
to which it is given;
(iii) shall either be delivered in person, by any form of
United States Mail if a return receipt is provided
therewith, by telecopier or by a nationally
recognized next business day delivery service (such
as Federal Express, United Parcel Service, DHL or any
other similar delivery service provider);
(iv) shall be given to the address specified below;
(v) shall be deemed to be given:
(A) if delivered in person, on the date
delivered, or
12
<PAGE> 13
(B) if sent by telecopier, on the date of
confirmation of receipt, by telephone or
otherwise, or
(C) if sent by a nationally recognized next
business day courier service with all costs
paid, on the date of confirmation of
receipt.
The addresses are as follows:
If to Executive, to:
N. Brunet
8 Matthew Drive
Auburn, NH 03032
Telecopier:
Confirm: (603) 647-2061
If to STT:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attn: Secretary
Telecopier: 603/526-7811
Confirm: 603/526-7800
Such notice shall be given to such other representatives or at
such other addresses as a party may furnish to the other
parties pursuant to the foregoing. If notice is given pursuant
to this Section of a permitted successor or assign of a party,
then notice shall thereafter be given as set forth above also
to such successor or assign of such party.
(d) COMPUTATION OF TIME: Whenever the last day for the exercise of
any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or
legal holiday, whether federal or of a state in which the
person or entity having such privilege or duty resides or has
its principal place of business, the party to this Agreement
having such privilege or duty shall have until 5:00 p.m.
(Eastern time) on the next succeeding regular business day to
exercise such privilege or to discharge such duty.
(e) ASSIGNMENT; SUCCESSOR IN INTEREST:
(i) BY STT: Except with the prior written consent of
Executive, no assignment, transfer or delegation by
STT of any of its rights and obligations under this
Agreement may be made to any other entity, except
that STT may make any such assignment, transfer or
delegation:
(A) to STOC or STP or any of STT's affiliates or
subsidiaries; and
13
<PAGE> 14
(B) if STT is merged into or acquired by another
business entity such that there is a Change
in Control, to the business entity into
which STT is merged or by which it is
acquired.
(ii) BY EXECUTIVE: Executive (or, under appropriate
circumstances, the executor of Executive's estate)
may transfer or assign any of his rights to receive
Executive's Total Compensation or any component of
Executive's Total Compensation, in whole or in part,
to any of Executive's heirs, devisees, legatees or
beneficiaries upon written notice to STT. No other
transfer or assignment may be made to any party by
Executive of any of his rights or obligations under
this Agreement.
(f) BINDING NATURE: This Agreement shall be binding upon the
parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and
successors and assigns; shall inure to the benefit of the
parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees, beneficiaries and
other permitted successors and assigns (and to or for the
benefit of no other person or entity, whether an employee or
otherwise, whatsoever); and upon a permitted assignment, any
reference to a party to this Agreement shall also be a
reference to a permitted successor or assign.
(g) REMEDIES CUMULATIVE: The rights and remedies specified in any
provision of this Agreement shall be in addition to all other
rights and remedies a party may have under any other agreement
or applicable law, including any right to equitable relief and
any right to sue for damages as a result of a breach of this
Agreement (whether or not it elects to terminate this
Agreement), and all such rights and remedies shall be
cumulative.
(h) DEFENSE/INDEMNIFICATION/HOLD HARMLESS: STT shall, to the
greatest extent allowed by applicable law, provide Executive a
defense, indemnify Executive and hold Executive harmless from
any civil or criminal claim, award or judgment which arises
out of Executive's acts performed or omissions committed in
the course of, or which Executive reasonably believed he
performed or committed in the course of, the performance of
his duties pursuant to this Agreement. However, nothing in
this paragraph shall require STT to provide Executive a
defense, indemnify Executive or hold Executive harmless from
any such claim, award or judgment which arises out of any such
act or omission which, at the time of same, Executive knew or
reasonably should have known constituted cause for termination
as set forth in paragraph no. 8(a)(iii), above.
(i) INSURANCE: STT shall cause Executive to appear as an
additional named insured on any policy of Directors' and
Officers' Liability Insurance which STT procures on behalf of
itself and/or on behalf of any of its Executive Officers.
Should Executive not appear as an additional named insured on
any such policy, STT shall be liable to Executive for the full
amount of insurance coverage which Executive would have had
pursuant to such policy had STT fulfilled its obligation under
this paragraph.
14
<PAGE> 15
(j) EXPENSES OF ENFORCING THIS AGREEMENT: Subject to the
provisions of paragraph no. 10(b), above, any expense incurred
in enforcing any or all of the provisions of this Agreement
shall be reimbursed to the prevailing party.
(k) INTEGRATION; AMENDMENT: This Agreement:
(i) supersedes all prior negotiations, agreements and
understandings between the parties to this Agreement
with respect to its subject matter, and
(ii) constitutes the entire agreement between the parties
to this Agreement with respect to its subject matter,
and
(iii) may not be altered or amended, nor may any material
provision be waived, except in writing signed by
Executive and STT.
(l) WAIVER: No waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed or
construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement
(m) CONTROLLING LAW: This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the
State of New Hampshire (except the laws of that jurisdiction
that would render such choice of laws ineffective).
(n) COPIES: This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to
produce or account for more than one of such copies.
(o) COUNTERPARTS: This Agreement may be executed in one or more
counterparts (one counterpart reflecting the signatures of all
parties), each of which shall be deemed to be an original, and
it shall not be necessary in making proof of this Agreement or
its terms to account for more than one of such counterparts.
This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one
copy of this Agreement and attached to another copy in order
to form one or more counterparts.
(p) RESIGNATIONS: Upon Executive's Termination Date, Executive
shall be deemed to have resigned from any and all offices he
may have held and from any employment he had with STT, STOC,
STP and any and all subsidiaries and affiliates of STT, STOC
or STP which were in existence on the Effective Date or which
came into existence during the term of this Agreement as set
forth in Section 2, above, up to and including the Termination
Date.
15
<PAGE> 16
(q) INDEPENDENT: The agreements set forth above (or any part of
them) are, shall be deemed and shall be construed as separate
and independent agreements. If any such agreement or any part
of such agreement is held invalid, void or unenforceable by
any court or arbitration panel of competent jurisdiction, such
holding shall in no way render invalid, void or unenforceable
any other part or provision thereof or any separate agreement.
DULY EXECUTED and delivered by the parties to this Agreement
as of the dates set forth below.
Executive: /s/ Nicolas C. Brunet
-------------------------------------
Name: Nicolas C. Brunet
Title: Senior V.P.
Date: 3/24/99
STT: STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
-------------------------------------
Name: Joseph E. Rendini
Title: Secretary and VP
Date: 3/24/99
16
<PAGE> 1
EXHIBIT 10.16
STRATEGIC TIMBER TRUST, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Strategic Timber Trust, Inc., a Georgia corporation (hereinafter "STT" or
"Employer") and Joseph E. Rendini ("Executive") hereby agree as follows:
1. EMPLOYMENT
This Agreement is entered into by STT and Executive in contemplation of a
registered initial public offering of STT's common stock ("the IPO"). Executive
acknowledges that he has special knowledge, expertise, contacts and other
information with respect to the Restricted Business (as defined below), that he
will be provided with confidential information (as defined below) and that STT's
employment of Executive upon the consummation of the IPO is in consideration of
the promises and agreements contained in this Agreement. This Agreement shall
govern the employment of Executive as an officer of STT.
2. EFFECTIVENESS OF AGREEMENT; TERM
This Agreement shall become effective on the consummation of the IPO ("the
Effective Date"), but shall be void and of no further effect if the IPO has not
been consummated by December 31, 1999. The term of Executive's employment
pursuant to this Agreement shall be for the period from and including the
Effective Date until and including the fourth anniversary of the Effective Date,
and for additional, consecutive one-year periods thereafter, all unless earlier
terminated as provided in Section 8, below.
3. DUTIES AND RESPONSIBILITIES
During Executive's employment pursuant to this Agreement, Executive shall hold
such office or offices as he shall be elected to by the Board of Directors of
STT, shall perform the duties of such office or offices pursuant to the
direction of the Board of Directors of STT (or any committee thereof) or of the
Chief Executive Officer of STT, shall perform such duties to the best of his
ability, shall use his good faith efforts to promote the success of the business
of STT, shall devote his entire business time to the affairs of STT and shall
not engage in any other business activity or occupation during normal business
hours for gain, profit, or other pecuniary advantage; provided, however, that
the foregoing shall not be construed as preventing Executive from investing or
trading for his own benefit or for that of the members of his family in stocks,
bonds, securities or other similar forms of investment in public securities
markets, serving as a director of another corporation or engaging in any family
enterprise or in charitable, civic or other similar pursuits, so long as they do
not materially interfere with Executive's performance of his duties under this
Agreement.
<PAGE> 2
4. COMPENSATION AND RELATED MATTERS
(a) BASIC: During the Executive's employment pursuant to this
Agreement, STT:
(i) shall pay Executive a minimum salary of $ 100,000.00
per annum in accordance with STT's normal and usual
payroll schedule ("Salary), and
(ii) shall include Executive in all retirement plans,
insurance plans and other fringe benefits and
arrangements that may be authorized and adopted for
the benefit of executives of STT generally.
("Benefits" ).
(b) RAISES AND BONUSES: STT's Board of Directors, acting directly
or through its Compensation Committee, may, in its sole
discretion and for any reason, increase Executive's salary
and/or grant Executive additional compensation as a bonus (a
"Bonus") .
(c) VACATIONS, HOLIDAYS AND SICK LEAVE: Executive shall be
entitled to vacation, holidays and sick days with pay as
determined by STT.
(d) NO DIVESTMENT: No termination of Executive's employment shall
divest Executive of his right to receive all or any unpaid
portion or installment of any of his Salary or Bonus to which
he is otherwised entitled pursuant to the terms of this
Agreement.
5. NONCOMPETITION; NO INTERFERENCE
(a) CERTAIN DEFINED TERMS: For purposes of this Agreement, the
following words and phrases have the meanings set forth below:
(i) "CUSTOMER" means any purchaser of timber from
Employer, and any potential purchaser solicited by
Employer, with which Executive had contact during the
term of his employment hereunder.
(ii) "PROPERTY OWNERS" means persons and entities with
whom Employer has contracted for, or with whom
Employer has undertaken any phase of negotiation
regarding, the acquisition of timberlands, timber
cutting rights, timber deeds, or any other types of
property rights, with which Executive had contact
during the term of his employment hereunder.
(iii) "RESTRICTED BUSINESS" means the business of owning
timberland, selling or purchasing timberland, and
selling timber or cut logs, or any of the foregoing,
whether undertaken directly or indirectly.
(iv) "TERRITORY" means North America, Central America and
South America.
2
<PAGE> 3
(v) "RESTRICTED PERIOD" means the period of Executive's
employment with STT pursuant to this Agreement (i.e.,
the period extending from the Effective Date until
the Termination Date, as defined in paragraph no.
8(b)(vi), below) plus one year from the Termination
Date.
(vi) "EMPLOYER,"for purposes of this Section 5 only, means
STT, Strategic Timber Operating Co. ("STOC"),
Strategic Timber Partners, LP ("STP") and their
subsidiaries and affiliates which were in existence
on the Effective Date or which came into existence
during the term of this Agreement as set forth in
Section 2, above, up to and including the Termination
Date.
(b) NONCOMPETITION: During the Restricted Period, Executive shall
not, either directly or indirectly:
(i) have any ownership interest (whether as proprietor,
partner, stockholder or otherwise) in, or
(ii) be an officer, director or general or managing
partner of, or hold a similar position in, or
(iii) act as agent, broker or distributor for, or advisor
or consultant to, or
(iv) be employed in an executive or management position
with
any business however organized or conducted which is engaged
or which Executive knows or reasonably should know plans to
become engaged in the Restricted Business in the Territory
without the permission of the disinterested members of STT's
Board of Directors. Further, any ownership interest held by
Executive at the time of the execution of this Agreement shall
be deemed so permitted. However, notwithstanding any of the
foregoing, the ownership by Executive of less than one percent
(1%) of the shares of the capital stock of a publicly held
entity shall in no event be deemed a violation of any
provision of this paragraph.
(c) NO INTERFERENCE WITH CUSTOMERS OR PROPERTY OWNERS: During the
Restricted Period, Executive will not in any way, directly or
indirectly:
(i) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, from
Employer the business of any Customer; or
(ii) attempt or seek to cause any Customer to refrain, in
any respect, from doing business with Employer, or
intentionally interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise,
between Employer and Customer; or
3
<PAGE> 4
(iii) call upon, compete for, solicit, divert or take away,
or attempt to solicit, divert or take away, any
pending or contemplated acquisition of timberlands,
timber cutting rights, timber deeds, or any other
type of property rights, from a Property Owner; or
(iv) attempt or seek to cause any Property Owner to
refrain from consummating any pending or contemplated
transaction with Employer, or intentionally interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Employer and any
Property Owner.
(d) NO INTERFERENCE WITH EMPLOYEES. During the Restricted Period,
Executive will not in any way, directly or indirectly, request
or induce any other employee of Employer to terminate his
employment with Employer.
(e) NO EFFECT OF TERMINATION OF EMPLOYMENT. The termination of
Executive's employment with STT shall not limit or otherwise
affect the agreements set forth in this Section 5, which shall
continue and expressly survive the termination of Executive's
employment and this Agreement.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES
(a) GENERAL: All records, financial statements and similar
documents obtained, reviewed or compiled by Executive as part
of the performance of his services for or duties to Employer
pursuant to this Agreement shall be the exclusive property of
Employer, and Executive shall have no rights in such documents
on or after the earlier of Executive's Termination Date (as
defined in paragraph no. 8(b)(vi), below) or the last day of
the term of this Agreement as set forth in Section 2, above.
(b) CONFIDENTIAL INFORMATION AND TRADE SECRETS: Executive will not
disclose to any person or entity or use for his own benefit or
gain, any confidential information or trade secrets of the
Employer obtained by him incident to his employment with STT.
Executive shall take all reasonable steps to safeguard any
confidential information and trade secrets and to protect same
against disclosure, misuse, loss or theft. The term
"Confidential Information" includes, without limitation,
financial information, business plans, prospects and
opportunities which have been discussed or considered by the
management of Employer, but does not include any information
which has become part of the public domain by means other than
Executive's failure to observe his obligations hereunder.
However, nothing in this paragraph shall be construed as
prohibiting, restricting or preventing Executive from making
any disclosure required by applicable law, the rules of the
New York Stock Exchange or of any other securities market on
which STT's securities are listed, or which are otherwise
called for in connection with the performance of his duties
and responsibilities thereunder or pursuant to this Agreement.
4
<PAGE> 5
(c) SURVIVAL: The agreements set forth in this Section 6 shall
survive beyond the term of Executive's employment, as set
forth in Section 2, above, and shall remain in full force and
effect for seven (7) years thereafter.
7. CERTAIN GENERAL PROVISIONS
(a) REPRESENTATIONS AND WARRANTIES: Executive represents and
warrants to STT:
(i) that, excluding any statutory or case law generally
applicable to all persons or entities, he is not
subject to any decision, order, decree or judgment
issued by any governmental authority or arbitrator or
arbitration panel involving noncompetition,
nonsolicitation, rights to inventions, work product
or intellectual property;
(ii) that he will not use in his employment pursuant to
this Agreement, disclose to Employer or induce
Employer to use any trade secrets or proprietary or
confidential information or materials belonging to
others.
(b) REMEDIES: Any violation of any provision of the foregoing
Sections 5 and 6 may cause irreparable harm to Employer, and
damages may not be an adequate remedy. Employer shall
therefore be entitled to seek injunctive relief from any court
of competent jurisdiction in the United States of America
enjoining, prohibiting and restraining Executive from the
continuance of any such violation. However, should Employer
seek injunctive relief in any such court, Executive may then
elect to have any or all controversies or claims, including
any claim for injunctive relief, arising out of or relating to
this Agreement or the breach thereof heard and determined by
such court or by any other court of competent jurisdiction in
the United States of America or to have any or all such
controversies or claims settled by arbitration pursuant to the
provisions of paragraph no. 10(b), below.
(c) NOTICE TO OTHERS: Executive hereby agrees that,
notwithstanding any other provision of this Agreement,
Employer may disclose the prohibitions contained in Sections 5
and 6 hereof to any person or entity, including one that at
the time employs or is considering employing Executive.
(d) MODIFICATION: Should any provision of the foregoing Section 5
or 6 be deemed too broad to permit enforcement to its full
extent, then it shall be enforced to the maximum extent
permitted by law, and its scope may be judicially modified
accordingly in any proceeding brought to enforce such
restriction.
5
<PAGE> 6
8. TERMINATION
(a) CERTAIN DEFINED TERMS
(i) CHANGE OF CONTROL: A "Change of Control" shall be
deemed to have occurred when any of the following
events occurs:
(A) Any "person" (other than (1) any employee
plan established by STT, (2) STT, (3) an
underwriter temporarily holding securities
pursuant to an offering of such securities,
or (4) a corporation owned, directly or
indirectly, by stockholders of STT in
substantially the same proportions as their
ownership of STT) is or becomes the
beneficial owner, directly or indirectly, of
securities of STT representing 50% or more
of the combined voting power of STT's then
outstanding voting securities [as used in
this paragraph, "person" shall have the same
meaning as that term does as used in
Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")]; or
(B) During any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
director (other than an individual whose
nomination for election is in connection
with an actual or threatened election
contest relating to the election of the
directors of STT, as such terms are used in
Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment, election,
or nomination for election by STT's
shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors at
the beginning of the period or whose
appointment, election or nomination for
election was previously so approved, cease
for any reason to constitute a majority of
the Board; or
(C) There is consummated a merger or
consolidation of STT with or into any other
corporation or other entity, or a
transaction having a similar result or
effect, other than a merger, consolidation,
or other transaction which would result in
the holders of the voting securities of STT
outstanding immediately prior thereto
holding securities which represent
immediately after such merger or
consolidation more than 65% of the combined
voting power of the voting securities of
either STT or the other entity which
survives such merger or consolidation or the
parent of the entity which survives such
merger or consolidation; or
(D) There is consummated a sale or disposition
by STT of all or substantially all of STT's
assets.
6
<PAGE> 7
(ii) DISABILITY: The term "disabled" and variations of it
mean a physical condition of Executive which is of a
nature and duration sufficient to require payment
under the provisions of STT's long-term disability
insurance covering Executive, if such a policy is in
effect at the time the disability commences, and, if
no such policy is then in effect, a disability
determined by a physician mutually agreed upon by STT
and the Executive to substantially interfere with the
Executive's ability to perform the essential duties
of his employment.
(iii) FOR CAUSE: The phrase "for cause" and variations of
it mean because of:
(A) willful failure (other than by reason of
disability) to perform any of the duties or
to fulfill any of the obligations set forth
in the provisions of Sections 3, 5 or 6,
above;
(B) willful failure (other than by reason of
disability) to respond to a request by the
Board of Directors or Chief Executive
Officer of STT which is reasonable in light
of Executive's duties as described in
Section 3 and of the resources and support
provided to him by Employer after notice and
reasonable opportunity to cure or comply;
(C) willful disclosure to any of Employer's then
or prospective competitors of any trade
secrets or confidential or proprietary
information of Employer; or Executive's
giving any such competitor material
assistance in the conduct of such
competitor's business;
(D) willfully giving any of Employer's then or
prospective competitors material assistance
in the conduct of its business;
(E) willfully engaging in any act that
constitutes a material conflict of interest
with Employer;
(F) willful usurpation of a material business
opportunity of Employer;
(G) willful misappropriation of a material
amount of Employer's funds or property;
(H) willfully attempting to secure any personal
profit in connection with any transaction
entered into on behalf of Employer;
(I) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to fraud, theft, embezzlement or any other
felony demonstrated to have a direct,
material, adverse financial effect on
Employer or on a customer or property owner;
or
7
<PAGE> 8
(J) conviction of or the entering of a guilty
plea in any court of competent jurisdiction
in the United States of America with respect
to a felony which demonstrably and
materially impairs or harms Employer's
ability to conduct its business.
(iv) FOR GOOD REASON: For purposes of this Agreement, the
phrase "for good reason" and variations of it shall
mean because of:
(A) Employer's assignment of Executive, without
his consent, to a position, responsibilities
or duties of any materially lesser status or
degree of responsibility or authority than
his position, responsibilities or duties at
the Effective Date; or
(B) Employer's diminution of, or refusal to pay
when due, Executive's Salary under paragraph
no. 4(a)(i), above, or any Bonus awarded to
Executive under paragraph no. 4(b), above,
(provided that, in the case of any such
Bonus only, any conditions placed upon the
payment of same have been satisfied); or
(C) Employer's material diminution of the
aggregate of Executive's Benefits under
paragraph no. 4(a)(ii), above, or of the
aggregate of Executive's vacations, holidays
and sick leave under paragraph no. 4(c),
above;
(D) Employer's material reduction or diminution
of the conditions of Executive's employment
including, without limitation, Employer's
failure to provide Executive with office,
secretarial services and such other
facilities and support services as are
reasonably appropriate and necessary for the
performance of Executive's duties under this
Agreement.
(E) Any Change in Control as defined in
paragraph no. 8(a)(i), above.
(b) EVENTS: Executive's employment pursuant to this Agreement
shall terminate upon the first to occur of any of the
following events:
(i) TERMINATION BY EXECUTIVE: Executive may terminate his
employment pursuant to this Agreement for any reason
or "for good reason" (as defined above) upon prior
written notice to STT, and such termination shall be
effective upon the expiration of the time period in
such notice (or such earlier time as STT and
Executive may agree). For purposes of this paragraph,
the time period for said prior written notice shall
be six months, if said notice is given during the
first two years of the term of this Agreement, and
ninety days if given thereafter.
(ii) TERMINATION WITHOUT CAUSE BY STT: STT may terminate
Executive's employment pursuant to this Agreement
without cause upon prior written notice to Executive,
and such termination shall be effective upon the
expiration of the time period in such notice (or such
earlier time as STT and Executive may agree). For
purposes of this paragraph, the time period for said
prior written notice shall be
8
<PAGE> 9
six months, if said notice is given during the first
two years of the term of this Agreement, and ninety
days if given thereafter.
(iii) WITH CAUSE BY STT: STT may immediately terminate
Executive's employment pursuant to this Agreement for
cause upon written notice to Executive, and such
termination shall be effective upon the giving of
such notice.
(iv) TERMINATION ON ACCOUNT OF DEATH OR DISABILITY: Upon
the death or disability of Executive, Executive's
employment pursuant to this Agreement shall
terminate, and such termination shall be effective on
the date upon which the death or disability of
executive occurs.
(v) NON-RENEWAL OF TERM: Should Executive give STT
written notice at least thirty (30) days prior to the
expiration of either the orginal four-year term of
his employment or any of the subsequent, consecutive
one-year terms set forth in Section 2, above,
Executive's employment pursuant to this Agreement
shall terminate upon the last day of said term and
such termination shall be effective on said day.
(vi) "TERMINATION DATE" means the date upon which
Executive's termination becomes effective.
(c) TERMINATION PAY: Effective upon the termination of Executive's
employment pursuant to this Agreement, STT shall be obligated
to pay Executive (or in the event of his death, his estate, or
in the event a personal representative is appointed, his
personal representative) only such compensation as is provided
in this paragraph no. 8(c). ("Termination Pay"):
(i) COMPENSATION UPON TERMINATION BY EXECUTIVE OTHER THAN
FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreementother than for
good reason, then STT shall pay Executive all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(ii) COMPENSATION UPON TERMINATION BY STT WITHOUT CAUSE OR
BY EXECUTIVE FOR GOOD REASON: If STT terminates
Executive's employment pursuant to this Agreement
without cause, or if Executive terminates said
employment for good reason, then STT shall pay
Executive (A) his Salary for the remainder of the
Restricted Period, at the rate at which it was paid
at the Termination Date, and (B) an amount equal to
either (i) the amount of his target Bonus in respect
of the fiscal year in which the Termination Date
occurs, if the amount of such target Bonus has been
established as of the Termination Date, or (ii) if
the amount of such target Bonus has not been
determined as of the Termination Date, the amount of
the Bonus he received in respect of the immediately
preceding fiscal year, and STT shall continue to
provide Executive with the medical Benefits he
received as of the Termination Date through the last
day of the Restricted Period only.
9
<PAGE> 10
(iii) COMPENSATION UPON TERMINATION BY STT FOR CAUSE: If
STT terminates Executive's employment pursuant to
this Agreement for cause, then STT shall pay
Executive all his compensation owed him under Section
4, above, through and including the Termination Date
only.
(iv) COMPENSATION UPON TERMINATION BY DEATH OR DISABILITY:
If Executive's employment pursuant to this Agreement
is terminated by reason of the death or disability of
Executive, then STT shall pay Executive or his
estate, as appropriate, all his compensation owed him
under Section 4, above, through and including the
Termination Date only.
(v) COMPENSATION UPON NON-RENEWAL OF TERM: If Executive's
employment is terminated by non-renewal of its term
under paragraph no. 8(b)(v), above, STT shall, in its
sole discretion, determine whether Executive shall
thereafter be subject to the restrictions set forth
in paragraphs nos. 5(b), 5(c) and 5(d), above, for a
period of up to but not exceeding one (1) year from
the Termination Date. If STT determines that
Executive shall be subject to said restrictions, then
it shall pay him as if he were terminated without
good cause or for good reason as specified in
paragraph no. 8(b)(ii), above, during whatever period
STT determines said restrictions shall apply. If STT
determines that Executive shall not be subject to any
such restrictions, then it shall pay him all his
compensation owed him under Section 4, above, through
and including the Termination Date only.
(vi) AWARDS UNDER STT INCENTIVE PLANS: Executive shall
receive all rights and benefits granted to Executive
under STT's 1999 Omnibus Incentive Plan and any other
incentive plans of STT in which Executive
participates, and any agreements with Executive
pursuant thereto. The vesting and exercise of any
stock options and the forfeitability of any
stock-based grants held by Executive shall be
governed by the terms of such plans and the related
agreements between Executive and STT rather than this
Agreement.
(d) TIMING OF TERMINATION PAY:
(i) FOR GOOD REASON: If Executive terminates his
employment pursuant to this Agreement for Good Reason
(except for any Change in Control, in which case the
provisions of the following paragraph shall control)
or Executive's employment hereunder is terminated by
reason of death, then the full amount of any
Termination Pay owed to Executive or his estate
pursuant to the provisions of this Section shall
become due and payable upon the Termination Date.
Employer shall make payment at the time(s) and in the
manner(s) specified by Executive, or by the executor
of his estate, as appropriate, in written notice to
Employer. Executive, or the executor of his estate,
as appropriate, shall have the right to specify
whether payment of the Termination Pay shall be made
in whole or in part, and the specification of the
payment of any part shall not waive or limit
Executive's or his estate's right to receive the
remainder of the whole.
10
<PAGE> 11
(ii) FOR OTHER REASON: If Executive or STT terminates his
employment pursuant to this Agreement for any reason
other than than set forth in the preceding paragraph,
then any Termination Pay owed to Executive or to his
estate shall be paid in accordance with STT's normal
payroll schedule.
(e) RELEASE AND WAIVER OF OTHER CAUSES OF ACTION: Payment by STT
of the full amount of any Termination Pay owed Executive
pursuant to this Agreement shall be made promptly by STT upon
receipt of a full and final release and waiver by Executive,
in form and substance reasonably satisfactory to STT, of any
and every claim and cause of action which Executive may have
against STT, STOC, STP or any of their affiliates and
subsidiaries arising out of or relating to his employment
pursuant to this Agreement, whether such action is at equity
or common law or arises out of any federal, state or local
statute or regulation (including, but not limited to, the
termination of such employment. Further, as long as STT makes
timely payment of any portions or installments of Executive's
Termination Pay pursuant to the provisions of paragraph no.
8(d), above, Executive shall not commence any such claim or
action in any court or before any administrative body or
arbitration panel. However, nothing in this paragraph shall be
construed to limit Executive's right to bring an action
arising out of the breach of any provision of this Agreement
in any appropriate court or before any appropriate arbitration
panel, consistent with the terms otherwise set forth herein.
9. LITIGATION AND REGULATORY COOPERATION AFTER TERMINATION
(a) EXTENT OF COOPERATION: After the termination of Executive's
employment hereunder, Executive shall reasonably cooperate
with STT in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of STT and which relate to events or
occurrences that transpired while Executive was employed by
STT, but if and only if such cooperation shall not materially
and adversely affect Executive or expose Executive to an
increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or
action shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on
behalf of STT at mutually convenient times. After Executive's
employment, Executive also shall cooperate fully with STT in
connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation
or review relates to events or occurrences that transpired
while Executive was employed by STT, but if and only if such
cooperation shall not materially and adversely affect
Executive or expose Executive to an increased probability of
civil or criminal litigation. However, notwithstanding any of
the foregoing, nothing in this paragraph shall be construed to
require Executive to cooperate or provide any services to, on
or on behalf of STT in excess of four (4) hours in any one day
or for a total of more than twenty (20) hours, nor to require
Executive to travel more than fifty (50) miles from his home
in order to render such cooperation, nor to provide any
cooperation under this paragraph after seven (7) years from
Executive's Termination Date.
11
<PAGE> 12
(b) COMPENSATION FOR COOPERATION: STT shall compensate Executive
for all cooperation or other services rendered pursuant to
this Section 9 by paying him the greater of (i) a sum equal to
all of his lost salary, earnings and profits attributable to
his provision of such cooperation and services, or (ii)
compensation on an hourly basis calculated at his final hourly
Salary rate. STT shall also reimburse Executive for all costs
and expenses incurred in connection with his performance under
this Section 9, including, without limitation, all reasonable
attorneys' fees and costs.
10. MISCELLANEOUS
(a) GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION: The
parties shall in good faith undertake to perform their
agreements in this Agreement, to satisfy all conditions and to
cause the purposes of this Agreement to be accomplished
promptly in accordance with its terms.
(b) ARBITRATION: Any controversy or claim arising out of or
relating to this Agreement or the breach thereof not subject
to paragraph no. 7(b), above, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Said arbitration shall be
before a panel of three arbitrators. Executive shall choose
one arbitrator, STT shall choose one arbitrator and the two
arbitrators so chosen shall choose the third arbitrator. Said
arbitration shall take place in the state of New Hampshire
within sixty days of notice by one party to the other, unless
they shall mutually agree to a longer or shorter time.
Judgment upon the award rendered by the panel may be entered
by any court of competent jurisdiction. Executive and STT
shall each pay fifty percent (50%) of the panel's fees. The
panel shall award reasonable interest, attorneys' fees and
costs to the prevailing party but shall have no power to award
punitive damages.
(c) NOTICES: Each notice, communication and delivery under this
Agreement:
(i) shall be made in writing signed by the party giving
it;
(ii) shall specify the section of this Agreement pursuant
to which it is given;
(iii) shall either be delivered in person, by any form of
United States Mail if a return receipt is provided
therewith, by telecopier or by a nationally
recognized next business day delivery service (such
as Federal Express, United Parcel Service, DHL or any
other similar delivery service provider);
(iv) shall be given to the address specified below;
(v) shall be deemed to be given:
(A) if delivered in person, on the date
delivered, or
12
<PAGE> 13
(B) if sent by telecopier, on the date of
confirmation of receipt, by telephone or
otherwise, or
(C) if sent by a nationally recognized next
business day courier service with all costs
paid, on the date of confirmation of
receipt.
The addresses are as follows:
If to Executive, to:
Joseph E. Rendini
Post Office Box 392
New London, NH 03257
Telecopier:
Confirm: (603) 763-9636
If to STT:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attn: Secretary
Telecopier: 603/526-7811
Confirm: 603/526-7800
Such notice shall be given to such other representatives or at
such other addresses as a party may furnish to the other
parties pursuant to the foregoing. If notice is given pursuant
to this Section of a permitted successor or assign of a party,
then notice shall thereafter be given as set forth above also
to such successor or assign of such party.
(d) COMPUTATION OF TIME: Whenever the last day for the exercise of
any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or
legal holiday, whether federal or of a state in which the
person or entity having such privilege or duty resides or has
its principal place of business, the party to this Agreement
having such privilege or duty shall have until 5:00 p.m.
(Eastern time) on the next succeeding regular business day to
exercise such privilege or to discharge such duty.
(e) ASSIGNMENT; SUCCESSOR IN INTEREST:
(i) BY STT: Except with the prior written consent of
Executive, no assignment, transfer or delegation by
STT of any of its rights and obligations under this
Agreement may be made to any other entity, except
that STT may make any such assignment, transfer or
delegation:
(A) to STOC or STP or any of STT's affiliates or
subsidiaries; and
13
<PAGE> 14
(B) if STT is merged into or acquired by another
business entity such that there is a Change
in Control, to the business entity into
which STT is merged or by which it is
acquired.
(ii) BY EXECUTIVE: Executive (or, under appropriate
circumstances, the executor of Executive's estate)
may transfer or assign any of his rights to receive
Executive's Total Compensation or any component of
Executive's Total Compensation, in whole or in part,
to any of Executive's heirs, devisees, legatees or
beneficiaries upon written notice to STT. No other
transfer or assignment may be made to any party by
Executive of any of his rights or obligations under
this Agreement.
(f) BINDING NATURE: This Agreement shall be binding upon the
parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and
successors and assigns; shall inure to the benefit of the
parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees, beneficiaries and
other permitted successors and assigns (and to or for the
benefit of no other person or entity, whether an employee or
otherwise, whatsoever); and upon a permitted assignment, any
reference to a party to this Agreement shall also be a
reference to a permitted successor or assign.
(g) REMEDIES CUMULATIVE: The rights and remedies specified in any
provision of this Agreement shall be in addition to all other
rights and remedies a party may have under any other agreement
or applicable law, including any right to equitable relief and
any right to sue for damages as a result of a breach of this
Agreement (whether or not it elects to terminate this
Agreement), and all such rights and remedies shall be
cumulative.
(h) DEFENSE/INDEMNIFICATION/HOLD HARMLESS: STT shall, to the
greatest extent allowed by applicable law, provide Executive a
defense, indemnify Executive and hold Executive harmless from
any civil or criminal claim, award or judgment which arises
out of Executive's acts performed or omissions committed in
the course of, or which Executive reasonably believed he
performed or committed in the course of, the performance of
his duties pursuant to this Agreement. However, nothing in
this paragraph shall require STT to provide Executive a
defense, indemnify Executive or hold Executive harmless from
any such claim, award or judgment which arises out of any such
act or omission which, at the time of same, Executive knew or
reasonably should have known constituted cause for termination
as set forth in paragraph no. 8(a)(iii), above.
(i) INSURANCE: STT shall cause Executive to appear as an
additional named insured on any policy of Directors' and
Officers' Liability Insurance which STT procures on behalf of
itself and/or on behalf of any of its Executive Officers.
Should Executive not appear as an additional named insured on
any such policy, STT shall be liable to Executive for the full
amount of insurance coverage which Executive would have had
pursuant to such policy had STT fulfilled its obligation under
this paragraph.
14
<PAGE> 15
(j) EXPENSES OF ENFORCING THIS AGREEMENT: Subject to the
provisions of paragraph no. 10(b), above, any expense incurred
in enforcing any or all of the provisions of this Agreement
shall be reimbursed to the prevailing party.
(k) INTEGRATION; AMENDMENT: This Agreement:
(i) supersedes all prior negotiations, agreements and
understandings between the parties to this Agreement
with respect to its subject matter, and
(ii) constitutes the entire agreement between the parties
to this Agreement with respect to its subject matter,
and
(iii) may not be altered or amended, nor may any material
provision be waived, except in writing signed by
Executive and STT.
(l) WAIVER: No waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed or
construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement
(m) CONTROLLING LAW: This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the
State of New Hampshire (except the laws of that jurisdiction
that would render such choice of laws ineffective).
(n) COPIES: This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to
produce or account for more than one of such copies.
(o) COUNTERPARTS: This Agreement may be executed in one or more
counterparts (one counterpart reflecting the signatures of all
parties), each of which shall be deemed to be an original, and
it shall not be necessary in making proof of this Agreement or
its terms to account for more than one of such counterparts.
This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one
copy of this Agreement and attached to another copy in order
to form one or more counterparts.
(p) RESIGNATIONS: Upon Executive's Termination Date, Executive
shall be deemed to have resigned from any and all offices he
may have held and from any employment he had with STT, STOC,
STP and any and all subsidiaries and affiliates of STT, STOC
or STP which were in existence on the Effective Date or which
came into existence during the term of this Agreement as set
forth in Section 2, above, up to and including the Termination
Date.
15
<PAGE> 16
(q) INDEPENDENT: The agreements set forth above (or any part of
them) are, shall be deemed and shall be construed as separate
and independent agreements. If any such agreement or any part
of such agreement is held invalid, void or unenforceable by
any court or arbitration panel of competent jurisdiction, such
holding shall in no way render invalid, void or unenforceable
any other part or provision thereof or any separate agreement.
DULY EXECUTED and delivered by the parties to this Agreement as of the
dates set forth below.
Executive: /s/ Joseph E. Rendini
-----------------------------------------
Name: Joseph E. Rendini
Title: Secretary, General Counsel and VP
Date: 3/24/99
STT: STRATEGIC TIMBER TRUST, INC.
By: /s/ Thomas P. Broom
-----------------------------------------
Name: Thomas P. Broom
Title: EVP
Date: 3/24/99
16
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 25, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
Pursuant to Rule 436 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to the reference to our firm under the
heading "Experts" in the prospectus constituting part of this Registration
Statement on Form S-11 and to the filing of this consent as an exhibit to such
Registration Statement.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Thomas C. Herman
-----------------------------
Thomas C. Herman, Partner
Atlanta, Georgia
March 25, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT FORESTERS
We consent to the reference to our firm under the heading "Experts" in the
prospectus constituting part of this Registration Statement on Form S-11.
MASON, BRUCE & GIRARD, INC.
/s/ KENNETH M. VROMAN
Portland, Oregon
March 24, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT FORESTERS
We consent to the reference to our firm under the heading "Experts" in the
prospectus constituting part of this Registration Statement on Form S-11.
CANAL FOREST RESOURCES, INC.
/s/ PETER J. STEWART
Technical Services Manager
Charlotte, North Carolina
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-21-1998
<PERIOD-END> OCT-09-1998
<CASH> 1,376,761
<SECURITIES> 0
<RECEIVABLES> 41,222
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,717,983
<PP&E> 7,389
<DEPRECIATION> 125
<TOTAL-ASSETS> 261,722,218
<CURRENT-LIABILITIES> 223,398,684
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 9,513,845
<TOTAL-LIABILITY-AND-EQUITY> 261,722,218
<SALES> 111,107
<TOTAL-REVENUES> 152,299
<CGS> 179,400
<TOTAL-COSTS> 179,400
<OTHER-EXPENSES> 2,408,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,024,331
<INCOME-PRETAX> 9,513,845
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,513,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,513,845
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
