<PAGE>
FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-63905
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND +
+MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES NOR ACCEPT OFFERS TO BUY +
+THESE SECURITIES BEFORE THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS DELIVERED +
+IN FINAL FORM. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING +
+PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING +
+OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT +
+PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued December 4, 1998)
(To Prospectus dated November 18, 1998)
$67,621,346
Fort James Corporation
PASS THROUGH TRUST CERTIFICATES, SERIES 1998
-----------
Fort James Operating Company is offering two classes of its Series 1998 Pass
Through Trust Certificates: Class 1998-1 and Class 1998-2. A separate trust
will be established for each class of certificates. The trusts' assets are
secured notes issued by an owner trustee to refinance the owner trustee's cost
of acquiring our power plant and paper manufacturing assets located in Georgia
and other paper making equipment. The owner trustee has leased these assets
back to us under separate lease agreements.
-----------
The secured notes are secured by a security interest in these assets and the
rental payments we are obligated to pay under the lease agreements. The
rental payments under the lease agreements are sufficient to repay the
secured notes in full. Our lease payments will be guaranteed by our
parent company, Fort James Corporation.
-----------
Fort James Operating Company will not
list the offered certificates on any
national securities exchange or
on any automated quotation
system of any registered
securities association
such as NASDAQ.
-----------
<TABLE>
<CAPTION>
PASS INITIAL SCHEDULED FINAL
THROUGH PRINCIPAL INTEREST PRINCIPAL DISTRIBUTION DISTRIBUTION PRICE TO
CERTIFICATES AMOUNT RATE DATE DATE PUBLIC
- ------------ --------- -------- ---------------------- ------------- --------
<S> <C> <C> <C> <C> <C>
1998-1.................. $11,629,023 % January 2, 2000 July 2, 2001 100%
1998-2.................. $55,992,323 % July 2, 1999 January 2, 2010 100%
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved the offered certificates, or determined if this
prospectus supplement or the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the offered certificates
to purchasers on December 30, 1998. Interest on the offered certificates will
accrue from the date of delivery. Fort James Operating Company will pay Morgan
Stanley & Co. Incorporated a commission of $ and will pay the expense
related to this offering.
-----------
MORGAN STANLEY DEAN WITTER
December , 1998
<PAGE>
GENERAL INFORMATION
These offering materials consist of two documents: (1) this Prospectus
Supplement, which describes the terms of the certificates that we are
currently offering, and (2) the accompanying Prospectus, which provides
general information about our pass through certificates, some of which may not
apply to the certificates that we are currently offering. The information in
this Prospectus Supplement replaces any inconsistent information included in
the accompanying Prospectus.
In this Prospectus Supplement, the "Company," "we," "us" and "our" refer to
Fort James Operating Company and, unless the context requires otherwise,
references to "Fort James" refer to Fort James Corporation.
We have given certain capitalized terms specific meanings for purposes of
this Prospectus Supplement. The "Index of Terms for Prospectus Supplement"
attached as Appendix A to this Prospectus Supplement lists the page in this
Prospectus Supplement on which we have defined each such term.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary................. S-3
Ratio of Earnings to Fixed Charges
of Fort James Corporation......... S-9
Outline of the Transaction......... S-10
Use of Proceeds.................... S-12
Diagram of Payments................ S-13
Description of the Pass Through
Certificates...................... S-14
Description of the Secured Notes... S-17
Description of the Leases.......... S-30
Description of the Parent
Guarantee......................... S-38
Description of the Participation
Agreement and the Refunding
Agreement......................... S-38
ERISA Considerations............... S-38
The Underwriter.................... S-40
Legal Matters...................... S-41
Appendix A--Index of Terms for
Prospectus Supplement............. A-1
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS
Available Information................................................. 4
Incorporation of Certain Documents by Reference....................... 4
Formation of the Trusts............................................... 5
Outline of the Leveraged Lease Structure.............................. 5
Use of Proceeds....................................................... 7
The Company........................................................... 8
The Lessee............................................................ 8
Ratio of Earnings to Fixed Charges of Fort James Corporation.......... 9
Description of the Certificates....................................... 10
Description of the Secured Notes...................................... 21
Federal Income Tax Consequences....................................... 25
Certain Delaware Taxes................................................ 27
ERISA Considerations.................................................. 28
Plan of Distribution.................................................. 28
Legal Opinions........................................................ 29
Experts............................................................... 30
</TABLE>
----------------
You should rely only on the information contained in this Prospectus
Supplement and the accompanying Prospectus. We have not authorized anyone to
provide you with information different from that contained in this Prospectus
Supplement and the accompanying Prospectus. We are offering to sell pass
through trust certificates and seeking offers to buy pass through
certificates, only in jurisdictions where offers and sales are permitted. The
information contained in this Prospectus Supplement is accurate only as of the
date of this Prospectus Supplement, regardless of the time of delivery of this
Prospectus Supplement or any sale of the pass through certificates.
S-2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this Prospectus Supplement
and the accompanying Prospectus and may not contain all of the information
about the pass through certificates, the Company or Fort James. The following
summary is qualified in its entirety by the more detailed information and
financial statements and notes thereto appearing in the documents incorporated
by reference into the Prospectus. See "Incorporation of Certain Documents by
Reference" in the Prospectus.
FORT JAMES CORPORATION
Fort James is a preeminent worldwide manufacturer and marketer of paper-based
consumer products, including towel and tissue products and disposable tabletop
and food service products. Fort James' principal towel and tissue products
include bathroom tissue, paper towels, table napkins, boxed facial tissue and
wipers. Fort James' disposable tabletop and foodservice products include paper
and plastic cups, paper plates and plastic cutlery. Fort James also produces
and markets paper-based packaging for food and pharmaceuticals and
communications papers.
Fort James is the result of the merger of a wholly owned subsidiary of James
River Corporation of Virginia into Fort Howard Corporation in August 1997.
After the merger, James River was renamed "Fort James Corporation."
Fort James' principal U.S. retail tissue brands include QUILTED NORTHERN
bathroom tissue, BRAWNY paper towels, MARDI GRAS printed napkins and paper
towels, VANITY FAIR premium dinner napkins, NORTHERN paper napkins, SOFT'N
GENTLE bath and facial tissue, SO-DRI paper towels and GREEN FOREST recycled
tissue products. Fort James' principal retail tabletop brand is DIXIE brand of
disposable cups and plates. Fort James believes that it is the leading supplier
of private label tissue products and the leading supplier of both tissue and
disposable tabletop products to the growing warehouse club channel.
The U.S. away-from-home channel, where Fort James sells its products to food
service, janitorial supply and sanitary paper distributors for use in
restaurants, offices, factories, hospitals, schools and hotels, is also an
important distribution channel for Fort James. Fort James is a leading producer
of tissue products for the U.S. away-from-home channel and is also one of the
largest producers of disposable cups, plates and related products for the away-
from-home food service industry.
In Europe, sales into retail channels are supported by both branded and
private label products offerings. European branded products include LOTUS
bathroom tissue and VANIA feminine hygiene products, sold primarily in France,
COLHOGAR bathroom tissue, sold in Spain, TENDERLY bathroom tissue, sold in
Italy, and KITTENSOFT and INVERSOFT bathroom tissue, sold in the British Isles.
Fort James believes that it is among the lowest-cost producers of tissue
products in North America. Fort James believes its cost advantage in North
America is derived from a number of factors, including the size and scale of
certain of its manufacturing plants, the competitive state of its tissue-making
manufacturing assets and the benefits it realizes from its proprietary deinking
technology.
----------------
Fort James' principal executive offices are located at 1650 Lake Cook Road,
Deerfield, Illinois 60015-4753, and its telephone number is (847) 317-5000.
FORT JAMES OPERATING COMPANY
We are a wholly owned subsidiary of Fort James.
----------------
Our principal executive offices are also located at 1650 Lake Cook Road,
Deerfield, Illinois 60015-4753, and our telephone number is (847) 317-5000.
S-3
<PAGE>
THE OFFERING
Pass Through Trusts..... The Fort James 1998-1 and 1998-2 Pass Through Trusts
(the "Pass Through Trusts") will be formed pursuant
to the Pass Through Trust Agreement and the Trust
Supplements to be entered into among us, Fort James
and the Pass Through Trustees.
Pass Through Trust The Pass Through Trusts will collectively own five
Property............... series of secured notes ("Secured Notes"). The 1998-1
Trust will own the Series A-1, Series A-2 and Series
B Secured Notes. The 1998-2 Trust will own the Series
C and Series D Secured Notes. The Secured Notes will
be issued on a nonrecourse basis by the owner trustee
of an owner trust (the "Owner Trust") to refinance
secured notes issued in 1991 (the "1991 Secured
Notes"). The 1991 Secured Notes were issued by the
owner trustee to finance or refinance part of the
cost of acquiring certain assets from us in sale
leaseback transactions. These assets include our (1)
Phase IV paper manufacturing facility (the
"Facility"); (2) Phase IV Power Plant (the "Power
Plant") and (3) "1991 Equipment" and "1990
Equipment," which include three groups of certain
paper manufacturing production equipment (we will
refer to each group as an "Equipment Group" and we
will refer to the Facility, the Power Plant and each
Equipment Group as the "Assets"). Each of the Assets
has been leased to us pursuant to a separate lease
agreement (each, a "Lease"). Each of the Assets is
described under "Outline of the Transaction" in this
Prospectus Supplement.
The Secured Notes will be issued under an indenture
dated as of December 19, 1991 between State Street
Bank and Trust Company, as Owner Trustee, and
Wilmington Trust Company, as Indenture Trustee, as
amended (the "Indenture"). A separate series of
secured notes relating to each of the Facility, the
Power Plant and each Equipment Group will be issued.
Each Pass Through Trust will acquire Secured Notes
that bear interest at the same rate as the Pass
Through Certificates issued by that Pass Through
Trust. The maturity date of the Secured Notes held in
each Pass Through Trust will coincide with the Final
Distribution Date of that Pass Through Trust. The
aggregate principal amount of the Secured Notes held
in each Pass Through Trust will be the same as the
principal amount of the pass through certificates
issued by such Pass Through Trust.
PASS THROUGH
CERTIFICATES
Regular Distribution January 2 and July 2.
Dates..................
Special Distribution Any Business Day.
Dates..................
Record Dates............ The fifteenth day preceding a Regular Distribution
Date or a Special Distribution Date.
Distributions........... Each Pass Through Trustee will distribute all
payments of principal of, premium, if any, and
interest on the Secured Notes it receives to holders
of pass through certificates on the date the Pass
Through Trustee confirms
S-4
<PAGE>
receipt of such amounts, except in certain cases
where such Secured Notes are in default. Payments of
principal and interest on the Secured Notes are
scheduled to be received in specified amounts by the
Pass Through Trustees on the Regular Distribution
Dates specified above and will be distributed to the
certificateholders when received on the corresponding
Regular Distribution Date. Payments of principal,
premium, if any, and interest on the Secured Notes
resulting from prepayments thereof, if any, will be
distributed on a Special Distribution Date after not
less than 20 days' notice from the Pass Through
Trustees to the certificateholders. For a discussion
of distributions upon an Event of Default, see
"Description of the Certificates--Events of Default
and Certain Rights upon an Event of Default" in the
accompanying Prospectus.
Principal............... The Pass Through Trusts will hold the Secured Notes
whose principal is payable in scheduled amounts on
January 2 or July 2, or both, of each year,
commencing on January 2, 2000 for the Secured Notes
held by the 1998-1 Trust and July 2, 1999 for Secured
Notes held by the 1998-2 Trust, in accordance with
the principal repayment schedules set forth under the
heading "Description of the Secured Notes" in this
Prospectus Supplement.
Interest................ Interest on the pass through certificates will be
passed through at the respective rates per annum
indicated on the cover of this Prospectus Supplement,
which are the interest rates borne by the Secured
Notes to be held in each Pass Through Trust. Interest
will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Book-Entry When they are issued, the pass through certificates
Registration........... issued by each Pass Through Trust will be represented
by one fully registered global certificate. The
global certificates will be deposited with, or on
behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co. ("Cede"), or its
nominee. If you acquire an interest in a pass through
certificate you will not be entitled to receive a
definitive certificate representing your interest in
a Pass Through Trust unless definitive certificates
are issued, which will only occur under certain
limited circumstances. See "Description of the
Certificates--Book Entry Registration--General" and
"--Definitive Certificates" in the accompanying
Prospectus.
SECURED NOTES
Principal Payments..... Principal will be payable on the Secured Notes in
installments on January 2 and July 2, or both, of
each year, commencing on January 2, 2000 for the
Secured Notes held by the 1998-1 Trust and July 2,
1999 for Secured Notes held by the 1998-2 Trust, in
accordance with the principal repayment schedules set
forth under the heading "Description of the Secured
Notes" in this Prospectus Supplement.
The maturity date of the Series A-1, A-2 and B
Secured Notes is July 2, 2001. The maturity date of
the Series C and D Secured Notes is January 2, 2010.
S-5
<PAGE>
Because the maturity date of each series of Secured
Notes is prior to the end of the related Lease term,
we have agreed to cooperate in refinancing the
Secured Notes if they have not been previously
redeemed. If the Secured Notes of any series are not
refinanced, we are required to make a special rent
payment in an amount sufficient to repay such Secured
Notes in full at their maturity date.
Interest Payments....... Interest will be payable on the Secured Notes on the
unpaid principal amount on January 2 and July 2 in
each year, commencing on July 2, 1999.
Redemptions............. The Secured Notes may be redeemed under the following
circumstances:
(a) If an Event of Loss occurs with respect to an
Asset, (1) if such Asset is the Facility or the
Power Plant, all of the Secured Notes relating to
such Asset shall be redeemed and (2) if such
Asset is a piece of equipment, the appropriate
proportional amount of the Secured Notes relating
to the applicable Equipment Group shall be
redeemed (unless the piece of equipment is
replaced). The redemption price in such case will
be the unpaid principal amount of such Secured
Notes, plus accrued and unpaid interest, but
without any premium;
(b) Each Series of Secured Notes may be redeemed at
any time at the option of the Owner Trustee with
our consent. The Secured Notes shall be redeemed
if we exercise any of the options we have to
terminate the Leases or purchase the Assets
unless we assume the Secured Notes on a full
recourse basis. The redemption price in each such
case will be the unpaid principal amount of such
Secured Notes, plus accrued and unpaid interest,
plus a Make-Whole Premium; and
(c) So long as an Indenture Event of Default
resulting from a Lease Event of Default is
continuing, the Owner Trustee may elect to
purchase all of the Secured Notes with respect
to such Asset, subject to the terms of the
Indenture. The purchase price in such case will
be the unpaid principal amount of such Secured
Notes, plus accrued and unpaid interest, but
without any premium.
See "Description of the Secured Notes--Redemptions,"
"Description of the Pass Through Certificates--
Payments and Distributions" and "--Events of Default
and Certain Rights upon an Event of Default."
Security................ The Secured Notes relating to the Facility, the Power
Plant or an Equipment Group will be secured by, among
other things, a security interest in all of the
Assets and an assignment to the Indenture Trustee of
the Owner Trustee's rights under the Leases
(including the right to receive rentals payable and
other amounts payable thereunder, other than Excepted
Payments as defined in the section entitled
"Description of the Secured Notes--Security"), each
Site Lease and each Support Agreement. Each series of
Secured Notes will be secured by a lien on all of the
Assets and, consequently, a default on one series of
Secured Notes constitutes a default under each
series. The Secured Notes are secured equally and
ratably without preference, priority or distinction
on account of the series of such Secured Notes. See
"Description of the Secured Notes--Security."
S-6
<PAGE>
The Secured Notes are neither direct obligations of,
nor guaranteed by, us or Fort James. Amounts payable
by us under the Leases as rent for each Asset will be
at least sufficient to pay in full when due all
scheduled payments of principal of, premium, if any,
and interest on the related Secured Notes.
Fort James Guarantee....
Fort James will enter into a guarantee with respect
to each Lease, pursuant to which it will irrevocably
and unconditionally guarantee the prompt payment of
all amounts payable by us under the related Lease
when such amounts shall become due and payable. See
"Description of the Parent Guarantee" in this
Prospectus Supplement.
Use of Proceeds......... Pursuant to the Refunding Agreement, the proceeds
from the sale of the pass through certificates will
initially be held in escrow. The proceeds will be
invested at our discretion and for our account in
certain specified investments. We will be responsible
for any losses on such investment and will pay any
interest shortfall prior to the purchase of the
Secured Notes. On January 4, 1999, the Pass Through
Trustees will use the proceeds of the Offering to
purchase the Secured Notes from the Owner Trust in
order to refinance a portion of the Owner Trust's
cost of acquiring the Assets that have been leased to
the Company. The Owner Trust will use the proceeds to
repay the 1991 Secured Notes. See "Use of Proceeds"
and "Description of the Participation Agreement and
the Refunding Agreement" in this Prospectus
Supplement.
Pass Through Trustees...
Wilmington Trust Company will act as Pass Through
Trustee for the 1998-1 Pass Through Trust and the
1998-2 Pass Through Trust and as paying agent and
registrar for the pass through certificates.
Wilmington Trust Company is also the Indenture
Trustee under the Indenture.
Federal Income Tax
Consequences........... Each Pass Through Trust will be classified as a
grantor trust for federal income tax purposes, and
therefore you will be treated as the owner of a pro
rata undivided interest in the Secured Notes and any
other property held in that Pass Through Trust and
you will be required to report on your federal income
tax return your pro rata share of income from the
Secured Notes and any other property held in the
related Pass Through Trust in accordance with your
method of accounting. See "Federal Income Tax
Consequences" in the accompanying Prospectus.
ERISA Considerations.... In general, employee benefit plans subject to Title I
of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"), or entities which may be deemed to hold the
assets of any such plan (collectively, "ERISA Plans")
will be eligible to purchase the pass through
certificates, subject to certain conditions. See
"ERISA Considerations" in this Prospectus Supplement.
By its purchase and acceptance of a pass through
certificate, each certificateholder will be deemed to
have represented and warranted that either (i) no
ERISA Plan assets have been used to purchase such
pass
S-7
<PAGE>
through certificate or (ii) one or more prohibited
transaction statutory or administrative exemptions
applies such that the use of such ERISA Plan assets
to purchase and hold such pass through certificate
will not constitute a non-exempt prohibited
transaction under ERISA or Section 4975 of the Code.
Each ERISA Plan fiduciary (and each fiduciary for a
governmental or church plan subject to rules similar
to those imposed on ERISA Plans) should consult with
its legal advisor concerning an investment in any of
the pass through certificates.
S-8
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES OF FORT JAMES CORPORATION
The following table sets forth the ratio of earnings to fixed charges for
the periods indicated.
<TABLE>
<CAPTION>
NINE
FISCAL YEAR ENDED MONTHS ENDED
------------------------------------------------- ---------------
12/26/93 12/25/94 12/31/95 12/29/96 12/28/97 9/28/97 9/27/98
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges
(unaudited)(1)........ -- (2)(3) -- (2) 1.45x 2.06x 1.64x 2.82x 3.48x
</TABLE>
- --------
(1) In computing the ratio of earnings to fixed charges, earnings consist of
income before income taxes, extraordinary items, the cumulative effect of
changes in accounting principles, minority interests, and fixed charges
excluding capitalized interest. Fixed charges consist of interest expense,
capitalized interest, and that portion of rental expense (one-third)
deemed representative of the interest factor. Earnings and fixed charges
also include the Company's proportionate share of such amounts for
unconsolidated affiliates which are owned 50% or more and distributed
income from less than 50% owned affiliates. The ratios of earnings to
fixed charges give retroactive effect to the merger of a wholly owned
subsidiary of James River Corporation of Virginia into Fort Howard
Corporation in a transaction accounted for as a pooling of interests.
(2) For the years ended December 26, 1993 and December 25, 1994, earnings were
inadequate to cover fixed charges; the amounts of the deficiencies of
earnings compared to fixed charges were $2,056.0 million and $84.0 million
for 1993 and 1994, respectively.
(3) Includes a pretax charge of $1.98 billion related to the write-off of
goodwill.
S-9
<PAGE>
OUTLINE OF THE TRANSACTION
During 1990 and 1991, the Company, as part of the Phase IV expansion of its
Savannah River Mill located in Effingham County, Georgia, completed the
acquisition, construction and installation of a paper machine and related
structures and equipment (the "Facility"), a fluidized bed boiler and related
structures and equipment (the "Power Plant") and three groups (each an
"Equipment Group") of certain paper manufacturing production equipment and a
package boiler (the "Equipment", and together with the Facility and the Power
Plant, the "Assets"). The Facility consists of a twin wire Beloit tissue
machine and related structures and equipment, the Power Plant consists of a
coal-fired fluidized bed boiler and related structures and equipment and the
Equipment consists of various items of converting, shipping, pulp processing
and machine shop equipment and a package boiler.
In order to induce the Company to locate its mill in Effingham County,
Georgia, the Effingham County Industrial Development Authority (the "IDA")
entered into an arrangement with the Company whereby the Company makes certain
payments in lieu of ad valorem taxes otherwise due. In order to effect such
arrangement, the IDA holds legal title to all of the Company's land and
equipment at the mill (the "Project"), including the Facility, the Power Plant
and the Equipment, and leases the Project (including such Assets) to the
Company (or its assignee) under a lease (the "IDA Lease") expiring on January
2, 2027. The IDA Lease stipulates that no annual rent shall be payable
thereunder and provides that (1) the Company (or its assignee) may remove at
any time any property subject thereto, including the Facility, the Power Plant
and the Equipment and (2) the Company may acquire title to all the property
leased under the IDA Lease upon payment of one dollar.
The IDA Lease will terminate on January 2, 2027, unless the Company
terminates the IDA Lease at any time during the term thereof. Upon termination
of the IDA Lease, the IDA agrees to convey legal title to the Project to the
Company (or its assignee) for a purchase price of one dollar. To effectuate
such conveyance, the Company and the IDA entered into an escrow agreement (the
"IDA Escrow Agreement") with an escrow agent (the "Escrow Agent"), pursuant to
which the IDA has delivered to the Escrow Agent a limited warranty deed (the
"Deed") conveying legal title to the Project to the Company and the Company
has delivered to the Escrow Agent the one dollar purchase price for the
Project. Under the IDA Escrow Agreement, the Company and the IDA have directed
the Escrow Agent that upon termination of the IDA Lease, the Escrow Agent
shall deliver the one dollar purchase price to the IDA and shall deliver the
Deed conveying the Project to the Company.
On December 23, 1990, the Company consummated a sale and leaseback
transaction (the "1990 Transaction") with respect to the 1990 Equipment by
selling its interest in the 1990 Equipment to the Connecticut National Bank,
predecessor in interest to State Street Bank and Trust Company (the "Owner
Trustee") under the Owner Trust Agreement, and simultaneously leasing the 1990
Equipment from the Owner Trustee as Lessor (the "Lessor") under an equipment
lease agreement (the "1990 Equipment Lease").
On December 19, 1991, the Company consummated a sale and leaseback
transaction (the "1991 Transaction") with respect to the Facility, the Power
Plant and the 1991 Equipment and refinanced the Secured Notes issued in
connection with the 1990 Transaction. The Company sold its interest in such
Assets to the Owner Trustee and simultaneously leased such Assets from the
Owner Trustee under separate lease agreements for the Facility, the Power
Plant and the 1991 Equipment.
S-10
<PAGE>
The original Lessor's costs and the Secured Notes to be purchased by the
Pass Through Trusts are set forth below:
<TABLE>
<CAPTION>
SECURED NOTES TO BE
SERIES OF SECURED NOTES ORIGINAL PURCHASED BY
ASSET RELATING TO SUCH ASSET LESSOR'S COST PASS THROUGH TRUSTS
----- ----------------------- ------------- -------------------
<S> <C> <C> <C>
1990 Equipment....... A-1 and A-2 $ 9,456,147 $ 4,235,635
1991 Equipment....... B 14,993,208 7,393,388
Facility............. C 46,179,000 32,086,563
Power Plant.......... D 28,923,000 23,905,760
----------- -----------
Total.............. $99,551,355 $67,621,346
=========== ===========
</TABLE>
In connection with the closing of the 1990 Transaction and the 1991
Transaction, the sale of the Company's interest in the Assets was effected
through the assignment of all of the Company's right, title and interest in
and to such Assets, including all of the Company's right, title and interest
under the IDA Lease with respect to such Assets (including the right to remove
such Assets from the IDA Lease and acquire title) to the Owner Trustee. See
"Description of the Secured Notes--Security." Whenever the context requires,
references herein to ownership, title and related matters with respect to any
Asset subject to the IDA Lease at the relevant time shall refer to the rights
in and to such Asset of the Owner Trustee and the Company under the IDA Lease.
Notwithstanding that the Company has assigned all of its right, title and
interest in and to each Asset to the Owner Trustee, if upon termination of the
IDA Lease the IDA shall purport to convey legal title to any Asset to the
Company, the Company will cause legal title to such Asset to be conveyed to
the Owner Trustee. In addition, the Company has delivered to the Owner Trustee
(who has in turn delivered to the Indenture Trustee as security), an executed
deed and bill of sale to such Asset which the Owner Trustee will be authorized
to record in the event the IDA purports to convey legal title to such Asset to
the Company.
To take advantage of the current interest rate environment, the Company has
requested the Owner Trustee to refund the entire outstanding principal amount
of the 1991 Secured Notes. The 1991 Secured Notes will be refunded on January
4, 1999 with the proceeds from the issuance by the Owner Trust of the Secured
Notes and the regularly scheduled rent payment to be made by the Company on
that date.
The Pass Through Trustees will use the proceeds from the offering of the
pass through certificates to purchase the Secured Notes from the Owner Trust.
See "Use of Proceeds" in this Prospectus Supplement.
S-11
<PAGE>
USE OF PROCEEDS
The pass through certificates are being issued in order to facilitate the
refinancing of the debt portion of the 1990 Transaction and the 1991
Transaction. The proceeds of the offering of the pass through certificates
will initially be held in escrow. Such proceeds will be invested in certain
specified investments having maturity dates in no event later than January 4,
1999 at the discretion and risk of, and for the account of, the Company. The
Company will be responsible for any losses on such investments and will pay
any interest shortfall prior to the purchase of the Secured Notes. The
proceeds from the sale of the pass through certificates will be used by the
Pass Through Trustees on behalf of the Pass Through Trusts to purchase from
the Owner Trustee the Secured Notes at 100% of the principal amount thereof
on, or about January 4, 1999. The proceeds received from the sale of the
Secured Notes plus the regularly scheduled rent payment due on that date by
the Company will then be used by the Owner Trustee to refund the 1991 Secured
Notes, also on January 4, 1999, which is an interest payment date with respect
to the 1991 Secured Notes. The Series A-1 Secured Notes to be redeemed have a
maturity date of January 2, 2005, the Series A-2 Secured Notes to be redeemed
have a maturity date of July 2, 2005, the Series B Secured Notes to be
redeemed have a maturity date of January 2, 2006, the Series C Secured Notes
to be redeemed have a maturity date of January 2, 2015, and the Series D
Secured Notes to be redeemed have a maturity date of July 2, 2016. The 1991
Secured Notes bear interest at 11% per annum and will have an aggregate
outstanding principal amount of $67,621,346 after payment of the principal
installments due on January 4, 1999.
S-12
<PAGE>
DIAGRAM OF PAYMENTS
The following diagram illustrates certain aspects of the ongoing payment
flows in this transaction among the Company, the Owner Trustee, the Indenture
Trustee, the Pass Through Trustees and the certificateholders.
The Company has leased the 1990 Equipment, 1991 Equipment, the Facility and
the Power Plant from the Owner Trustee each under a separate Lease, pursuant
to which the Company will pay rents and certain other amounts to the Owner
Trust. The Secured Notes issued by the Owner Trust under the Indenture have
been secured by all of the Assets and by an assignment to the Indenture
Trustee of certain rights under the Leases and will be secured by an
assignment to the Indenture Trustee of certain rights under the Parent
Guarantee. Rent is payable under each Lease to the Owner Trustee; however, as
a result of the assignment of each Lease, the Company will make rental
payments (other than Excepted Payments) under each Lease to the Indenture
Trustee, who, in turn, will first apply such payments on behalf of the Owner
Trustee to pay the principal of, premium, if any, and interest on the related
Secured Notes issued under the Indenture and held in the Pass Through Trusts.
The Indenture Trustee will distribute the balance of payments under the Leases
paid to the Owner Trust for the benefit of the Owner Participant. The Pass
Through Trustees will distribute to certificateholders all payments received
in respect of the Secured Notes held in the Pass Through Trusts, including
payments, if any, made by Fort James under the Parent Guarantee.
[DIAGRAM OF PAYMENTS CHART APPEARS HERE]
S-13
<PAGE>
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The pass through certificates offered hereby will be issued by the Pass
Through Trustees pursuant to the terms of the Pass Through Trust Agreement
among the Company, Fort James and the Pass Through Trustees, as supplemented
by the Pass Through Trust Supplements (the "Trust Supplements"). The following
summary of the particular terms of the pass through certificates supplements
and, to the extent inconsistent therewith, replaces the description of the
general terms and provisions of the pass through certificates set forth in the
accompanying Prospectus under the caption "Description of the Certificates."
The statements under this caption are a summary and do not purport to be
complete. This summary makes use of terms defined in, and is qualified in its
entirety by reference to all of, the provisions of the Pass Through Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement of which the accompanying Prospectus is a part, and to all of the
provisions of the Trust Supplements which, together with the forms of the
related Refunding Agreement, Participation Agreement, Secured Notes,
Indenture, Leases, Parent Guarantee and Owner Trust Agreement, have been filed
with the SEC by Fort James or the Company, or will be filed as exhibits to a
Current Report on Form 8-K. This summary should be read in conjunction with
the statements under the caption "Description of the Certificates" in the
accompanying Prospectus.
PAYMENTS AND DISTRIBUTIONS
The pass through certificates will be issued in fully registered form and
will be registered in the name of Cede & Co., as the nominee of The Depository
Trust Company. No person acquiring an interest in the pass through
certificates will be entitled to receive a definitive certificate representing
such person's interest in the Pass Through Trusts unless definitive
certificates are issued under the limited circumstances described under the
caption "Description of the Certificates--Book-Entry Registration--Definitive
Certificates" in the accompanying Prospectus.
Payments of principal of, premium, if any, and interest on the Secured Notes
held in each Pass Through Trust will be distributed by the Pass Through
Trustee to certificateholders on each Regular Distribution Date and each
Special Distribution Date as described in the following two paragraphs, except
in certain cases when some or all of the Secured Notes are in default. See
"Description of the Certificates--Events of Default and Certain Rights upon an
Event of Default" in the accompanying Prospectus. Interest paid on the Secured
Notes will be passed through to the certificateholders on January 2 and July 2
of each year, commencing on July 2, 1999 until the final distribution date for
the Pass Through Trusts (each, a "Regular Distribution Date"). Payments of
principal on the Secured Notes are scheduled to be received by the Pass
Through Trustees on January 2 or July 2, or both, in certain years, commencing
on January 2, 2000 for the Secured Notes held by the 1998-1 Trust and July 2,
1999 for the Secured Notes held by the 1998-2 Trust depending upon the terms
of the Secured Notes (such scheduled payments of principal and interest on the
Secured Notes are herein referred to as "Scheduled Payments"). Scheduled
Payments of principal on the Secured Notes held in the Pass Through Trusts are
set forth under the heading "Descriptions of the Secured Notes--Principal and
Interest Payments" in this Prospectus Supplement.
The Pass Through Trustees will distribute on each Regular Distribution Date
all Scheduled Payments the receipt of which is confirmed by the Pass Through
Trustees on such date. Each certificateholder will be entitled to receive a
pro rata share of any distribution in respect of Scheduled Payments of
principal and interest made on the Secured Notes. Each such distribution in
respect of Scheduled Payments will be made by the Pass Through Trustees to the
holders of record of the pass through certificates on the fifteenth day
preceding such Regular Distribution Date, subject to certain exceptions. If a
Scheduled Payment is not received by the Pass Through Trustees on a Regular
Distribution Date but is received within five days thereafter, it will be
distributed on the date so received by the Pass Through Trustees to such
holders of record. If it is received after such five day period, it will be
treated as a Special Payment and distributed as described below.
Payments of principal, premium, if any, and interest received by the Pass
Through Trustees on account of the early redemption, if any, of the Secured
Notes, and payments received by the Pass Through Trustees following a default
in respect of the Secured Notes relating to one or more Assets (including
payments received
S-14
<PAGE>
by the Pass Through Trustees on account of the purchase by the Owner Trust of
the Secured Notes, the sale by the Pass Through Trustees of one or more
Secured Notes or the exercise of remedies under the Indenture by the Indenture
Trustee) ("Special Payments") will be distributed on, in the case of an early
redemption or a purchase, the date of such early redemption or purchase, which
shall be a Business Day (as defined in the Pass Through Trust Agreement), and
otherwise, except as described in the next paragraph, 20 days after the Pass
Through Trustees have confirmed receipt of the funds for such Special Payment
(or the next Business Day after such 20th day if such date is not a Business
Day) (each, a "Special Distribution Date"). The Pass Through Trustees will
mail notice to the certificateholders not less than 20 days prior to the
Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Pass Through Trustees stating such anticipated Special
Distribution Date. Each distribution of a Special Payment, other than the
final distribution, on a Special Distribution Date will be made by the Pass
Through Trustees to the certificateholders of record on the fifteenth day next
preceding such Special Distribution Date. See "Description of the
Certificates--Events of Default and Certain Rights upon an Event of Default"
in the accompanying Prospectus.
In the event that as a result of unforeseen circumstances, all of the
proceeds from the sale of the pass through certificates are not used to
purchase the Secured Notes on the closing date of this offering, such Secured
Notes may be purchased by the Pass Through Trustees at any time on or prior to
February 2, 1999. In such event, the Pass Through Trustees will hold such
proceeds from the sale of the pass through certificates that are not used to
purchase Secured Notes in an escrow account pending the completion of
arrangements to purchase the Secured Notes not so purchased. Such proceeds
will be invested in certain specified investments having maturity dates in no
event later than February 2, 1999 at the discretion and risk of, and for the
account of, the Company. The Company will be responsible for any losses on
such investments and will pay to the related Pass Through Trustee any
difference between interest earned on such investments and interest payable on
the pass through certificates. To the extent that any amount of the proceeds
from the sale of any pass through certificates held in the escrow account
referred to above is not used to purchase Secured Notes on or prior to
February 2, 1999, such amount will be distributed by the Pass Through Trustees
to the holders of record of the pass through certificates on a pro rata basis
upon not less than 20 days' prior notice to them as a Special Payment. The
Special Payment will be made on a Special Distribution Date not later than
February 25, 1999, together with interest thereon at a rate equal to the rate
applicable to such pass through certificates, but without premium. The Company
will pay to the Pass Through Trustees on the Special Distribution Date an
amount equal to such interest.
POOL FACTORS
Unless there has been an early redemption or a purchase of one or more of
the Secured Notes by the Owner Trust or Owner Participant after an Indenture
Event of Default, or a default in the payment of principal in respect of one
or more of the Secured Notes, the Pool Factor for each Pass Through Trust will
decline in proportion to the scheduled repayments of principal on the Secured
Notes held in such Pass Through Trusts. In the event of such redemption,
purchase or default, the Pool Factor and the Pool Balance of the affected Pass
Through Trust will be recomputed after giving effect thereto and notice
thereof will be mailed to the certificateholders.
The "Pool Balance" indicates for each Trust, as of any Regular Distribution
Date or Special Distribution Date, the aggregate unpaid principal amount of
the Secured Notes held in such Pass Through Trust on such date plus any
amounts in respect of principal on such Secured Notes held by the Pass Through
Trustee and not yet distributed. The Pool Balance as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Secured Notes held in such
Pass Through Trust and the distribution thereof to be made on that date.
The "Pool Factor" for each Pass Through Trust as of any Regular Distribution
Date or Special Distribution Date is the quotient (rounded to the seventh
decimal place, with .00000005 being rounded upwards) computed by dividing (1)
the then outstanding Pool Balance of such Pass Through Trust by (2) the
original aggregate principal amount of the pass through certificates of such
Pass Through Trust. The Pool Factor for each Pass Through Trust as of any
Regular Distribution Date or Special Distribution Date shall be computed after
giving effect to the payment of principal, if any, on the Secured Notes and
distribution thereof to be made on that date.
S-15
<PAGE>
The Pool Factor for each Pass Through Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Pass Through Trust will decline as
described above to reflect reductions in the Pool Balance of such Pass Through
Trust. The amount of a certificateholder's pro rata share of the Pool Balance
of the Pass Through Trust can be determined by multiplying the original
denomination of such holder's pass through certificate by the Pool Factor for
such Pass Through Trust as of the applicable Regular Distribution Date or
Special Distribution Date. The Pool Factor and the Pool Balance for each Pass
Through Trust will be mailed to certificateholders of such Pass Through Trust
on each Regular Distribution Date and Special Distribution Date.
As of the date of issuance by the Pass Through Trustees of the pass through
certificates and assuming that all proceeds are used to purchase Secured Notes
on January 4, 1999 and that no early redemption, default or purchase of any
Secured Notes shall occur, the aggregate scheduled repayments of principal on
the Secured Notes held in each Trust and the resulting Pool Factor after
taking into account each such repayment are set forth below.
<TABLE>
<CAPTION>
SERIES 1998-1 SERIES 1998-2
----------------------------------- -----------------------------------
SCHEDULED SCHEDULED
DATE/REGULAR PAYMENTS OF OUTSTANDING PAYMENTS OF OUTSTANDING
DISTRIBUTION DATE PRINCIPAL* PRINCIPAL POOL FACTOR PRINCIPAL* PRINCIPAL POOL FACTOR
----------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
January 4, 1999......... 0 11,629,023 1.0000000 0 55,992,323 1.0000000
July 2, 1999............ 0 11,629,023 286,511 55,705,812
January 2, 2000......... 1,752,596 9,876,427 674,628 55,031,184
July 2, 2000............ 0 9,876,427 318,027 54,713,157
January 2, 2001......... 1,441,792 8,434,635 753,157 53,960,000
July 2, 2001............ 8,434,635 0 0.0000000 353,010 53,606,990
January 2, 2002......... 778,068 52,828,922
July 2, 2002............ 391,842 52,437,080
January 2, 2003......... 697,182 51,739,898
July 2, 2003............ 434,944 51,304,954
January 2, 2004......... 1,493,190 49,811,764
July 2, 2004............ 806,805 49,004,959
January 2, 2005......... 1,417,805 47,587,154
July 2, 2005............ 1,219,569 46,367,585
January 2, 2006......... 1,522,895 44,844,690
July 2, 2006............ 1,353,722 43,490,968
January 2, 2007......... 1,635,786 41,855,182
July 2, 2007............ 1,502,632 40,352,550
January 2, 2008......... 2,124,414 38,228,136
July 2, 2008............ 1,642,114 36,586,022
January 2, 2009......... 3,806,484 32,779,538
July 2, 2009............ 0 32,779,538
January 2, 2010......... 32,779,538 0 0.0000000
</TABLE>
- --------
* Indicative only, and therefore subject to change.
S-16
<PAGE>
DESCRIPTION OF THE SECURED NOTES
The following summary of the particular terms and provisions of the Secured
Notes supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Secured Notes set forth
in the accompanying Prospectus under the heading "Description of the Secured
Notes." The statements under this caption are summaries and do not purport to
be complete. The summaries relate to, and make use of terms defined in and are
qualified in their entirety by reference to all of the provisions of the
Secured Notes and the Indenture, the Leases, the Parent Guarantee, the
Refunding Agreement, the Participation Agreement and the Owner Trust
Agreement, forms of which have been filed by the Company or Fort James with
the SEC or will be filed as exhibits to a Current Report on Form 8-K. The
summaries should be read in conjunction with the statements under the heading
"Description of the Secured Notes" in the accompanying Prospectus.
GENERAL
Each series of Secured Notes will be issued under the Trust Indenture,
Assignment of Leases, Security Agreement and Deed to Secure Debt dated as of
December 19, 1991, as amended (the "Indenture"), between State Street Bank and
Trust Company, successor in interest to the Connecticut National Bank, as
Owner Trustee of an owner trust for the benefit of the Owner Participant, and
Wilmington Trust Company, as Indenture Trustee (the "Indenture Trustee").
The Owner Trustee has leased the Facility, the Power Plant, the 1990
Equipment and the 1991 Equipment to the Company, each pursuant to a separate
Lease between the Owner Trustee and the Company. The Company is obligated to
pay Rent to the Owner Trustee under each Lease in respect of each Asset
subject to such Lease. The amounts payable under each Lease will be at least
sufficient to pay when due all payments of principal of and interest on the
related Secured Note. The Secured Notes are not, however, obligations of, or
guaranteed by, the Company. The Company's rental obligations under each Lease
are general obligations of the Company and will be fully and unconditionally
guaranteed by Fort James.
PRINCIPAL AND INTEREST PAYMENTS
Interest will be payable on each Secured Note through the final distribution
date at the respective rates per annum corresponding to the rates to be passed
through on the related pass through certificates set forth on the cover page
of this Prospectus Supplement on the unpaid principal amount thereof on
January 2 and July 2 of each year, commencing July 2, 1999. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The principal
of each Secured Note will be payable as set forth below until the maturity
date for each Secured Note (unless earlier redeemed). The final scheduled
principal payment date for each Secured Note is one year after the Early Fixed
Price Purchase Option (as defined below) date under the related Lease. The
principal payments shown below are indicative only and therefore are subject
to change. See "Description of the Leases--Purchase Options" in this
Prospectus Supplement.
<TABLE>
<CAPTION>
SERIES A-
PAYMENT DATE SERIES A-1 2 SERIES B SERIES C SERIES D TOTAL
- ------------ ---------- --------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
July 2, 1999............ $ 0 $ 0 $ 0 $ 0 $ 286,511 $ 286,511
January 2, 2000......... 532,099 101,667 1,118,830 674,628 0 2,427,224
July 2, 2000............ 0 0 0 0 318,027 318,027
January 2, 2001......... 524,609 89,839 827,344 753,157 0 2,194,949
July 2, 2001............ 2,504,184 483,237 5,447,214 0 353,010 8,787,645
January 2, 2002......... 0 0 0 778,068 0 778,068
July 2, 2002............ 0 0 0 0 391,842 391,842
January 2, 2003......... 0 0 0 697,182 0 697,182
July 2, 2003............ 0 0 0 0 434,944 434,944
January 2, 2004......... 0 0 0 1,493,190 0 1,493,190
July 2, 2004............ 0 0 0 0 806,805 806,805
January 2, 2005......... 0 0 0 1,417,805 0 1,417,805
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
SERIES A-
PAYMENT DATE SERIES A-1 2 SERIES B SERIES C SERIES D TOTAL
- ------------ ---------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
July 2, 2005............ 0 0 0 0 1,219,569 1,219,569
January 2, 2006......... 0 0 0 1,522,895 0 1,522,895
July 2, 2006............ 0 0 0 0 1,353,722 1,353,722
January 2, 2007......... 0 0 0 1,635,786 0 1,635,786
July 2, 2007............ 0 0 0 0 1,502,632 1,502,632
January 2, 2008......... 0 0 0 2,124,414 0 2,124,414
July 2, 2008............ 0 0 0 0 1,642,114 1,642,114
January 2, 2009......... 0 0 0 2,366,132 1,440,352 3,806,484
July 2, 2009............ 0 0 0 0 0 0
January 2, 2010......... 0 0 0 18,623,306 14,156,232 32,779,538
---------- -------- ---------- ----------- ----------- -----------
Total................. $3,560,892 $674,743 $7,393,388 $32,086,563 $23,905,760 $67,621,346
========== ======== ========== =========== =========== ===========
</TABLE>
If any date scheduled for any payment of principal of or interest on the
Secured Notes is not a Business Day, such payment may be made on the next
succeeding Business Day without any additional interest.
REPAYMENT AT MATURITY
Commencing one year prior to the maturity date of each series of Secured
Notes, and continuing until such maturity date, the Company is required to or
the Owner Participant may take certain actions, including engaging an
investment banking firm, with a view to refinancing the Secured Notes prior to
such maturity date on commercially reasonable terms and conditions. In certain
cases the Company is required to use its best efforts to cooperate with the
efforts of the investment banking firm. The proceeds from any such refinancing
will be used to repay the Secured Notes at maturity. The Owner Participant
will under no circumstances be obligated to utilize its own funds in
connection with such transaction, or to provide any credit support or credit
enhancement or otherwise put itself at any additional economic risk in
facilitating such refinancing.
If, on or prior to such maturity dates, the Secured Notes are not
refinanced, the Company is required to make a special rent payment to the
Indenture Trustee (as assignee of the Owner Trustee) at least equal to the
aggregate unpaid principal amount of the Secured Notes due on such date and
accrued and unpaid interest thereon. The Owner Trustee is required to use such
funds to repay the Secured Notes then maturing. (Indenture, Section 3.02(d);
Leases, Section 3.2(b))
REDEMPTIONS
Each of the Leases provides the Company with the option (the "Early Fixed
Price Purchase Option") to purchase the Assets subject to such Lease on the
following dates: (1) for each Equipment Group on July 2, 2000 and (2) for the
Facility and the Power Plant on January 2, 2009. For a more complete
description of this purchase option, see "Description of the Leases--Purchase
Options." If an Asset is purchased pursuant to such purchase option and the
Company shall not have elected to assume the outstanding Secured Notes
relating to such Asset, the Owner Trustee shall redeem on the applicable
Purchase Redemption Date (1) if such Asset shall be the Facility or the Power
Plant, the entire unpaid principal amount of the outstanding Secured Notes
relating to such Asset and (2) if such Asset shall be an item of Equipment,
such of the unpaid principal amount of the outstanding Secured Notes relating
to the applicable Equipment Group as shall be equal to the Proportional
Amount, in all cases at a redemption price equal to 100% of the unpaid
principal amount of the Secured Notes to be redeemed on such Purchase
Redemption Date as a result of such purchase, together with any accrued and
unpaid interest thereon to the date of such redemption, plus a Make-Whole
Premium. (Indenture, Sections 3.02(c) and 3.03; Leases, Section 6;
Participation Agreement, Section 11.06)
For purposes hereof, "Proportional Amount" with respect to the Secured Notes
relating to an Equipment Group shall mean the product of (x) the entire unpaid
principal amount of the outstanding Secured Notes of the same series as such
Secured Notes and (y) a fraction, the numerator of which shall be Lessor's
Cost of the applicable item of Equipment and the denominator of which shall be
the aggregate Lessor's Cost of all items of Equipment in such Equipment Group.
(Indenture, Section 3.02(c))
S-18
<PAGE>
The Owner Trustee may at its option with the prior written consent of the
Company redeem the Secured Notes at any time, in whole, at a redemption price
equal to 100% of the unpaid principal amount of the Secured Notes, together
with any accrued and unpaid interest thereon to the date of such redemption,
plus a Make-Whole Premium. (Indenture, Section 3.03)
The Company may terminate the Lease with respect to an Asset at its option
if the Company determines that such Asset is obsolete, uneconomic or surplus
to the needs of the Company for any reason (or, in the case of the Power
Plant, if the Company has elected to terminate the Facility Lease on a
Termination Redemption Date) and the related Assets are sold, or retained by
the Owner Trustee. In the event of any such termination, the Owner Trustee
shall redeem on the applicable Termination Redemption Date:
(1) if such Asset shall be the Facility, the entire unpaid principal
amount of (x) the outstanding Secured Notes relating to the Facility and
(y) the outstanding Secured Notes relating to the Power Plant;
(2) if such Asset shall be the Power Plant, the entire unpaid principal
amount of the outstanding Secured Notes relating to such Asset; and
(3) if such Asset shall be an item of Equipment, such of the unpaid
principal amount of the outstanding Secured Notes relating to the
applicable Equipment Group as shall be equal to the Proportional Amount, in
all cases at a redemption price equal to 100% of the unpaid principal
amount of the Secured Notes to be redeemed on such Termination Redemption
Date as a result of such termination, together with any accrued and unpaid
interest thereon to the date of such redemption, plus a Make-Whole Premium.
See "Description of the Secured Notes--The Leases--Redemption." (Leases,
Section 7; Indenture, Section 3.02(b))
If an Event of Loss to an Asset shall occur, unless, if such Asset is an
item of Equipment, a functionally comparable item of equipment of equal or
greater value, estimated residual value, utility and remaining useful life is
substituted for such item of Equipment in accordance with the terms of the
applicable Lease, then the Owner Trustee shall redeem on the date on which
Stipulated Loss Value is paid pursuant to the applicable Lease (the date of
each such redemption being called a "Casualty Redemption Date"):
(1) if such Asset shall be the Facility or the Power Plant, the entire
unpaid principal amount of the outstanding Secured Notes relating to such
Asset; and
(2) if such Asset shall be an item of Equipment, such of the unpaid
principal amount of the outstanding Secured Notes relating to the applicable
Equipment Group as shall be equal to the Proportional Amount, in all cases at
a redemption price equal to 100% of the unpaid principal amount of the Secured
Notes to be redeemed on such Casualty Redemption Date as a result of such
Event of Loss, together with any accrued and unpaid interest thereon to the
date of such redemption, but without any premium.
Prior to or at the time of the substitution for any item of Equipment that
has suffered an Event of Loss, the Company is required to provide the Owner
Trustee and the Indenture Trustee with a certificate of an officer of the
Company certifying that the item of equipment replacing such item of Equipment
meets the requirements set forth above. A certificate or opinion of an
engineer, appraiser or other expert as to the fair market value of such
replacement item of equipment, however, will not be obtained. See "Description
of the Leases--Events of Loss." (Leases, Section 12; Indenture, Section
3.02(a))
So long as an Indenture Event of Default resulting from a Lease Event of
Default shall have occurred and be continuing, the Owner Trustee may, at any
time, give the Indenture Trustee and the holders of the outstanding Secured
Notes notice of its intention to purchase or redeem the outstanding Secured
Notes on the date specified in such notice, which date shall be the first
Special Distribution Date occurring more than 25 days from the date on which
such notice is given. The purchase or redemption price shall be equal to 100%
of the unpaid principal amount of the Secured Notes, together with any accrued
and unpaid interest thereon, to the date of such redemption or purchase, but
without any premium. (Indenture, Section 3.06)
S-19
<PAGE>
The Company may terminate the Leases with respect to all of the Assets at
its option at any time (the "Special Termination Option") in the event the
Company is required to pay, or is likely to be required to pay, certain tax
indemnities to the Owner Participant whereupon title to the Assets shall be
transferred to the Company. See "Description of the Leases--Termination." The
Owner Trustee shall redeem on the applicable Redemption Date the entire unpaid
principal amount of the outstanding Secured Notes at a redemption price equal
to 100% of the unpaid principal amount of the Secured Notes to be redeemed on
such Redemption Date as a result of such termination, together with any
accrued and unpaid interest thereon to the date of such redemption, plus a
Make-Whole Premium. (Indenture, Section 3.02(b); Participation Agreement,
Sections 11.06 and 16.03)
"Make-Whole Premium" means, with respect to any Secured Note, an amount (as
determined by an independent investment bank of national standing) equal to
the excess, if any, of (1) the present value of the remaining scheduled
payments of principal and interest to maturity of such Secured Note computed
by discounting such payments on a semiannual basis on each payment date under
the Indenture (assuming a 360-day year of twelve 30-day months) using a
discount rate equal to the Treasury Yield plus 50 basis points over (2) the
outstanding principal amount of such Secured Note plus accrued interest to the
date of determination.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means,
at the date of determination with respect to any Secured Note, the interest
rate (expressed as a decimal and, in the case of United States Treasury bills,
converted to a bond equivalent) determined to be the per annum rate equal to
the semiannual yield to maturity for United States Treasury securities
maturing on the Average Life Date of such Secured Note and trading in the
public securities markets either as determined by interpolation between the
most recent weekly average yield to maturity for two series of United States
Treasury securities trading in the public securities markets, (1) one maturing
as close as possible to, but earlier than, the Average Life Date of such
Secured Note and (2) the other maturing as close as possible to, but later
than the Average Life Date of such Secured Note, in each case as published in
the most recent H.15(519) or, if a weekly average yield to maturity for United
States Treasury securities maturing on the Average Life Date of such Secured
Note is reported in the most recent H.15(519), such weekly average yield to
maturity as published in such H.15(519).
"H.15(519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System. The date of determination of a Make-Whole Premium shall be the
third Business Day prior to the applicable payment or redemption date and the
"most recent H.15(519)" means the H.15(519) published prior to the close of
business on the third Business Day prior to the applicable payment or
redemption date.
"Average Life Date" for any Secured Note shall be the date which follows the
time of determination by a period equal to the Remaining Weighted Average Life
of such Secured Note. "Remaining Weighted Average Life" on a given date with
respect to any Secured Note shall be the number of days equal to the quotient
obtained by dividing (1) the sum of each of the products obtained by
multiplying (a) the amount of each then remaining scheduled payment of
principal of such Secured Note by (b) the number of days from and including
such determination date to but excluding the date on which such payment of
principal is scheduled to be made, by (2) the then outstanding principal
amount of such Secured Note.
Each of the Leases provides the Company with the option (the "Competitor
Purchase Option") to purchase the Assets subject to such Lease in the event
the Owner Participant becomes a competitor of the Company's tissue paper
making business. Also, the Facility Lease and the Power Plant Lease each
provide the Company with the option (the "Substantial Modifications Purchase
Option") to purchase the Facility and the Power Plant, respectively, in the
event the Company desires or is required to make to either of such Assets
certain substantial Modifications. For a more complete description of the
above-described purchase options, see "Description of Leases--Purchase
Options." If an Asset is purchased and the Company shall not have elected to
assume the outstanding Secured Notes relating to such Asset (in the case of
its election to exercise the Competitor Purchase Option or, under certain
circumstances, the Substantial Modifications Purchase Option) or, pursuant to
the terms of the Participation Agreement, purchase the Owner Participant's
beneficial interest in the Assets (in the case of its election to exercise the
Substantial Modifications Purchase Option), the Owner Trustee shall redeem on
the applicable Purchase Redemption Date:
S-20
<PAGE>
(1) if such Asset shall be the Facility or the Power Plant, the entire
unpaid principal amount of the outstanding Secured Notes relating to such
Asset; and
(2) if such Asset shall be an item of Equipment, such of the unpaid
principal amount of the outstanding Secured Notes relating to the applicable
Equipment Group as shall be equal to the Proportional Amount, in all cases at
a redemption price equal to 100% of the unpaid principal amount of the Secured
Notes to be redeemed on such Purchase Redemption Date as a result of such
purchase, together with any accrued and unpaid interest thereon to the date of
such redemption, plus a Make-Whole Premium.
(Leases, Section 6; Indenture, Section 3.02(c); Participation Agreement,
Sections 11.06 and 16)
In the event of any partial or complete redemption of the Secured Notes as
described above, the proceeds received by the Pass Through Trustees with
respect to such redemption shall be deposited in the Special Payments Account,
may be invested in certain obligations of the United States of America at the
direction and risk of the Company and shall be distributed to the
certificateholders on a Special Distribution Date. See "Description of the
Pass Through Certificates--Payments and Distributions." (Pass Through Trust
Agreement, Section 4.1)
ASSUMPTION OF SECURED NOTES BY THE COMPANY
Upon the exercise by the Company of
(1) its Early Fixed Price Purchase Option under the Facility Lease and the
Power Plant Lease at a time when no other Secured Notes are outstanding other
than the Secured Notes relating to the Facility and the Power Plant and any
Additional Notes (as defined below) issued in connection with the financing of
a Modification to the Facility or the Power Plant;
(2) its Competitor Purchase Option under each of the Leases still in effect;
(3) its Special Termination Option; or
(4) under certain circumstances, its Substantial Modifications Purchase
Option,
the Company may assume on a full recourse basis all of the obligations of the
Owner Trustee (other than its obligations in its individual capacity) under
the Secured Notes. Such assumption may occur only if, among other things, the
Indenture Trustee has received an opinion of counsel to the effect that
holders of the Secured Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such assumption and will be subject
to federal income tax in the same amount and in the same manner and at the
same times, as would have been the case if such assumption had not occurred.
(Indenture, Section 3.04; Participation Agreement, Section 11.06)
In such event, certain relevant provisions of the Leases, including (among
others) provisions relating to maintenance, possession and use of the Assets,
Liens, insurance and events of default will be incorporated into the
Indenture, and the outstanding Secured Notes issued under the Indenture will
not be redeemed and will continue to be secured by the Assets. (Indenture,
Section 3.04)
DEFEASANCE OF THE INDENTURE AND THE SECURED NOTES IN CERTAIN CIRCUMSTANCES
After an assumption by the Company of the Secured Notes the Indenture
provides that it and the obligations of the Indenture Trustee and the Company
thereunder will be deemed to be discharged in full (except for certain
obligations, including the obligation to hold money for payment in trust) on
the 91st day after the date of irrevocable deposit with the Indenture Trustee
of money or certain obligations of the United States which will provide money
in an aggregate amount sufficient to pay when due all Secured Notes in
accordance with the terms of the Indenture. Such discharge may occur only if,
among other things, there has been published by the Internal Revenue Service a
ruling to the effect that holders of the Secured Notes will not recognize
income, gain or loss
S-21
<PAGE>
for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same time as would have been the case if such
deposit, defeasance and discharge had not occurred. (Indenture, Sections 10.01
and 10.03)
After an assumption by the Company of the Secured Notes the Indenture
provides that upon such defeasance, or upon deposit with the Indenture Trustee
of money sufficient to pay in full all Secured Notes issued under the
Indenture no earlier than one year prior to the maturity or redemption
thereof, the holders of the Secured Notes will have no beneficial interest in
or other rights with respect to the Assets or other property subject to the
Lien of the Indenture and such Lien shall terminate. (Indenture, Section
10.01)
SECURITY
The Secured Notes will be secured by, among other things:
(1) an assignment by the Owner Trustee to the Indenture Trustee of the Owner
Trustee's rights (other than certain excepted rights described below) under
each Lease, including the right to receive payments of Rent thereunder;
(2) a security interest held by the Indenture Trustee in each Asset (or
leasehold or other interest in each Asset), subject to the rights of the
Company under the Lease with respect to such Asset;
(3) an assignment by the Owner Trustee to the Indenture Trustee of the Owner
Trustee's rights under each Assignment (including all of the interest of the
Owner Trustee in and to the IDA Lease and the IDA Project Agreement) and each
related document;
(4) an assignment by the Owner Trustee to the Indenture Trustee of the Owner
Trustee's rights under each Site Lease and each Support Agreement described
below, including all estate, right, title and interest of the Owner Trustee in
and to the land demised under each Site Lease; and
(5) an assignment by the Owner Trustee to the Indenture Trustee of certain
of the Owner Trustee's rights relating to such Leased Property under the
Parent Guaranty.
(Indenture, Granting Clauses; Parent Guarantee).
Pursuant to the Facility Site Lease and the Power Plant Site Lease, the
Company has:
(1) subleased to the Owner Trustee the real property subject to the IDA
Lease and necessary for the operation of the Facility (the "Facility Land")
and the Power Plant (the "Power Plant Land") for a term equal to the economic
useful life of the Facility and the Power Plant, respectively; and
(2) granted easements of ingress and egress and other necessary rights of
access (the "Facility Easements" and "Power Plant Easements", respectively).
(Facility Site Lease, Sections 2 and 3; Power Plant Site Lease, Sections 2 and
3) In addition, the Facilities Agreement and the Power Plant Facilities
Agreement require that the Company provide (or make suitable alternative
arrangements by which third parties will directly provide) such additional
materials and services as may be necessary for the Owner Trustee to operate
the Facility or the Power Plant, as the case may be, on a commercially
reasonable basis for the period from the expiration or earlier termination of
the applicable Lease to the end of the economic useful life of such Asset,
including, under the Facilities Agreement, arranging for sales of Facility
output for the Owner Trustee. The Facilities Agreement provides that (except
in certain limited circumstances) the Company will operate the Facility during
such period. The Power Plant Facilities Agreement provides that if requested
by the Owner Trustee, the Company will continue to operate, or arrange to have
another person operate the Power Plant during such period. The Power Plant
Facilities Agreement provides that during such period the Company will be
obligated to purchase at fair market value all steam produced by the Power
Plant not otherwise sold to third parties or utilized by the Owner Trustee. In
addition, the Facilities
S-22
<PAGE>
Agreement and the Power Plant Facilities Agreement will provide the Company
with the right during such period to use certain equipment in the Facility and
the Power Plant, respectively, which have previously been utilized in the
integrated operation of the entire Savannah River Mill and that are necessary
for and incidental to the commercially reasonable operations of those portions
of the Savannah River Mill not constituting the Facility or Power Plant.
(Facilities Agreement, Section 2; Power Plant Facilities Agreement, Section 2)
In order to induce the Company to locate its Savannah River Mill in
Effingham County, Georgia, the Effingham County Industrial Development
Authority (the "IDA") has entered into an arrangement with the Company whereby
the Company makes certain payments in lieu of ad valorem taxes otherwise due.
In order to effect such arrangements, the IDA holds legal title to all of the
Company's land and equipment at the mill (the "Project"), including the
Facility, the Power Plant and the Equipment, and leases the Project (including
such Assets) to the Company or its assignee under a lease (the "IDA Lease")
expiring on January 2, 2027. The IDA Lease stipulates that no annual rent
shall be payable thereunder and provides that:
(1) the Company or its assignee may remove at any time any property subject
thereto, including the Facility, the Power Plant and the Equipment; and
(2) the Company may acquire title to all of the property leased under the
IDA Lease upon payment of one dollar.
In connection with the closing of the 1990 Transaction, the sale of the
Company's interest in the 1990 Equipment was effected, and in connection with
the closing of the 1991 Transaction, the sale of the Company's interest in the
Facility, the Power Plant and the 1991 Equipment was effected, through the
assignment of all of the Company's right, title and interest in and to such
Assets, including all of the Company's right, title and interest under the IDA
Lease with respect to such Assets (including the right to remove such Assets
from the IDA Lease and acquire title thereto) to the Owner Trustee. The Leases
provide that the Owner Trustee will not remove any Asset from the IDA Lease
except under certain circumstances. (Leases, Section 19.11) Notwithstanding
that the Company has assigned all of its right, title and interest in and to
each Asset to the Owner Trustee, if upon termination of the IDA Lease the IDA
shall purport to convey legal title to any Asset to the Company, the Company
will cause legal title to such Asset to be conveyed to the Owner Trustee. In
addition, in connection with the closing of the sale and leaseback
transactions in 1991 with respect to each Asset, the Company delivered to the
Owner Trustee (who in turn delivered to the Indenture Trustee as security), an
executed deed and bill of sale to such Asset which the Owner Trustee is
authorized to record in event the IDA purports to convey legal title to such
Asset to the Company.
The assignment by the Owner Trustee to the Indenture Trustee of its rights
under each Lease excludes certain rights of the Owner Trustee and the Owner
Participant (collectively, the "Excepted Payments") such as rights relating to
(including payments of) indemnification by the Company for certain matters,
any letter of credit in favor of the Owner Participant provided by the Company
and amounts drawn thereunder, insurance proceeds payable to the Owner Trustee
or the Owner Participant under certain casualty insurance maintained
separately by the Owner Trustee or the Owner Participant with respect to any
Asset and insurance proceeds payable to the Owner Trustee or to the Owner
Participant under liability insurance maintained by the Company under such
Lease or by the Owner Trustee or the Owner Participant. (Indenture, Granting
Clause and Section 1.01)
If the Indenture Trustee from time to time holds any funds with respect to
any Asset, including funds held as the result of an Event of Loss to such
Asset or termination of the Lease with respect thereto, the Indenture Trustee
will invest and reinvest the funds, (1) at the direction of the Company
(except in the case of a Lease Event of Default), if such funds would be
payable to the Company, and (2) at the discretion of the Owner
S-23
<PAGE>
Participant (except in the case of an Indenture Event of Default) in the case
of all other funds, will invest and reinvest the funds in certain investments
described in the Indenture and the Leases. The Company will be responsible for
any loss resulting from any such investment. (Leases, Section 19.7; Indenture,
Section 7.04)
ADDITIONAL NOTES
Additional notes of one or more series ("Additional Notes") may be issued
under the Indenture at any time for the purpose of financing the cost of any
Modification to any Asset. The Owner Participant will have the right to
participate in the financing of any such Modification on terms and conditions
mutually acceptable to the Owner Participant and the Company. If mutually
acceptable terms and conditions are not agreed to by the Owner Participant and
the Company, the Owner Participant will consider in good faith the request of
the Company to effect the financing of such cost through the issuance and sale
by the Owner Trustee of Additional Notes in accordance with the terms of the
Indenture and subject to certain conditions, including:
(1) if such Modification is not required by any Governmental Rule or
Governmental Action, the principal amount of the Additional Notes may not
exceed the increase in the fair market sales value of such Asset resulting
from such Modification;
(2) no Lease Event of Default or Indenture Event of Default shall have
occurred and be continuing as of the date of such issuance; and
(3) the Additional Notes shall not rank senior in any respect to the Secured
Notes.
In connection with any such issuance of Additional Notes, the rent payable
for the Asset or Assets, as the case may be, subject to such Lease pursuant to
Section 3.1 of such Lease ("Basic Rent") and the other amounts payable by the
Company under the applicable Lease will be adjusted to the extent necessary to
provide sufficient funds to pay when due the scheduled payments of principal
of and interest on the Secured Notes corresponding to such Lease. (Indenture,
Section 2.09; Participation Agreement, Section 14.01)
LIMITATION OF LIABILITY
The Secured Notes are nonrecourse notes. None of the Company, the Owner
Trustee (in its individual capacity) or the Indenture Trustee (whether in its
individual or trust capacity) shall be personally liable to any holder of a
Secured Note for any amounts payable under the Secured Notes or, except as
provided in the Indenture or any related document, for any amounts payable or
any liability under the Indenture. All payments of principal of and interest
on the Secured Notes (other than payments made in connection with an optional
purchase or redemption by the Owner Trustee) will be made only from the
property subject to the Lien of the Indenture or the income and proceeds
received by the Indenture Trustee therefrom (including Rent payable by the
Company under the Leases) and only to the extent that the Indenture Trustee
shall have received sufficient income and proceeds therefrom to make such
payments in accordance with the terms thereof. (Indenture, Section 2.03)
Except as otherwise provided in the Indenture, the Participation Agreement
and any related document, the Owner Trustee in its individual capacity shall
not be answerable or accountable under the Indenture or under the Secured
Notes under any circumstances except for its own willful misconduct or gross
negligence. The Owner Participant will not be liable to the Indenture Trustee
or to any holder of any Secured Note under any circumstances for any reason
whatsoever except to the extent expressly provided in any Operative Document.
(Participation Agreement, Sections 17.11 and 17.15)
INDENTURE EVENTS OF DEFAULT, NOTICE AND WAIVER
Indenture Events of Default under the Indenture include:
(1) the failure to pay principal of or interest on any Secured Note within
10 days after the same shall have become due and payable;
S-24
<PAGE>
(2) the failure of the Owner Participant to perform or observe certain of
its covenants or agreements contained in the Participation Agreement,
including covenants requiring the discharge of Owner Participant's Liens, and
restricting the appointment of successor Owner Trustees, and the termination
of the Trust Agreement;
(3) the failure of the Owner Trustee to perform certain of its covenants or
agreements contained in the Participation Agreement or the Indenture,
including covenants requiring the discharge of Lessor's Liens, and restricting
the transfer of Assets, the termination of the Owner Trust Agreement, its
permitted activities, the release of it or the Company from any obligations
under the Operative Documents (except as permitted thereby) and so long as the
Indenture is in effect, (a) its right to assign any of its right, title or
interest to anyone other than the Indenture Trustee, and (b) except as
provided in the Operative Documents, its right to (i) accept any payment from
the Company, (ii) terminate or consent to the cancellation of any Lease, Site
Lease or Support Agreement, (iii) enter into any agreement amending any
Operative Document, (iv) execute any waiver or modification of the terms of
any Operative Document, (v) settle any claim arising under any Operative
Document, or (vi) submit any dispute arising under any Operative Document to
arbitration thereunder;
(4) the failure by either the Owner Participant or the Owner Trustee, as the
case may be, to perform or observe in any material respect any other covenant
or agreement to be performed or observed by it under the Indenture or any
other Operative Document (other than the Tax Indemnity Agreement), which
failure shall continue for 30 days after receipt by the Owner Participant or
the Owner Trustee of written notice from the Indenture Trustee specifying such
failure and requiring it to be remedied; provided, however, that the
continuation of any such failure for such 30 day period or such longer period
which shall not exceed 180 days shall not constitute an Indenture Event of
Default so long as such failure is curable or correctable and the Owner
Participant or the Owner Trustee is diligently pursuing the cure or correction
thereof;
(5) representations or warranties of the Owner Trustee (in respect of (a)
organizational matters, (b) the enforceability of the Operative Documents to
which it is a party, (c) compliance with certain laws and (d) title to the
Assets) which prove to be inaccurate in any material respect when made, unless
such inaccuracy is no longer material or any material adverse impact thereof
is cured within 30 days after receipt by the Owner Trustee of written notice
thereof from the Indenture Trustee;
(6) representations and warranties of the Owner Participant (in respect of
(a) organizational matters, (b) the enforceability of the Operative Documents
to which it is a party and (c) compliance with certain laws) which prove to be
inaccurate in any material respect when made, unless such inaccuracy is no
longer material or any material adverse impact thereof is cured within 30 days
after receipt by the Owner Participant of written notice thereof from the
Indenture Trustee;
(7) (a) either of the Owner Participant or the Owner Trustee commences a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of its or any substantial part of its property, or consenting to any
such relief or to the appointment or taking possession by any such official or
agency in an involuntary case or other proceeding commenced against it, or
making a general assignment for the benefit of creditors, or taking any
corporate action to authorize any of the foregoing, or (b) an involuntary case
or other proceeding commenced against either of the Owner Participant or the
Owner Trustee seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official or agency of its or any
substantial part of its property, and such involuntary case or other
proceeding remains undismissed and unstayed for a period of ninety (90) days;
and
(8) any Lease Event of Default (other than any Lease Event of Default
arising from the failure of the Company to make any Excepted Payment) which
shall have occurred and be continuing.
S-25
<PAGE>
(Indenture, Section 5.02) For a more complete description of the Lease Events
of Default, see "Description of the Leases--Lease Events of Defaults."
If there shall occur an Indenture Event of Default arising from the failure
of the Company to make any payment of Rent when due under any Lease, and if,
within 30 days after notice of such Indenture Event of Default, the Owner
Trustee shall pay or cause to be paid all principal and interest then due on
the outstanding Secured Notes and/or such other amount of Rent as was not paid
by the Company, then such failure by the Company shall not constitute an
Indenture Event of Default, in which case the Indenture Trustee and the
holders of the outstanding Secured Notes shall not be entitled to exercise any
remedies otherwise available under the Indenture or such Lease as the result
of the failure of the Company to make such payment of Rent. Notwithstanding
the foregoing, the Owner Trustee's right to cure an Indenture Event of Default
resulting from the failure by the Company to pay Basic Rent will be limited to
the right to cure two Indenture Events of Default occasioned by successive
defaults in the payment of Basic Rent or an aggregate of four Indenture Events
of Default occasioned by such defaults in the payment of Basic Rent. The Owner
Trustee may also cure any other default by the Company in the performance of
its obligations under any Lease in which case such default shall not
constitute an Indenture Event of Default so long as (1) such default is
curable and correctable and the Owner Trustee is diligently pursuing the cure
or correction of such default and (2) the Owner Trustee takes or causes to be
taken, within 20 days (or such longer specified period not to exceed 270 days)
after the date the Owner Trustee receives actual knowledge of such default,
such action as is necessary to cure such default. (Indenture, Section 5.03)
During the occurrence and continuance of an Indenture Event of Default, the
Indenture Trustee may withhold any portion of the Rent otherwise payable to
the Owner Trustee under the Indenture until the earlier to occur of (1) the
curing, waiving or discontinuance of such Indenture Event of Default and (2)
180 days after the occurrence of such Indenture Event of Default, after which
time, unless the Indenture Trustee shall have given notice to declare any of
the Leases to be in default or any of the Secured Notes shall have been
declared or otherwise shall have become immediately due and payable, such Rent
shall be distributed to the Owner Trustee and no further withholding of Rent
on account of such Indenture Event of Default shall be effected. (Indenture,
Section 4.01)
The holders of a majority in aggregate principal amount of the outstanding
Secured Notes, by written instruction to the Indenture Trustee, may on behalf
of all holders waive any past default under the Indenture except a default in
the payment of principal or interest on any Secured Note or a default in
respect of any covenant or provision of the Indenture that cannot be modified
or amended without the consent of each holder of a Secured Note then
outstanding. (Indenture, Section 5.08)
REMEDIES
If an Indenture Event of Default (other than a default caused by the
commencement of bankruptcy, liquidation or similar proceedings with respect to
the Owner Participant or the Owner Trustee (Indenture, Section 5.02(f)) or the
Company (Leases, Section 15(f)) (other than certain Lease Events of Default)
shall occur and be continuing under the Indenture, the Indenture Trustee may
declare the unpaid principal of all (but not less than all) of the Secured
Notes outstanding to be immediately due and payable, together with all accrued
and unpaid interest thereon. If an Indenture Event of Default caused by the
commencement of bankruptcy, liquidation or similar proceedings with respect to
the Company, the Owner Participant or the Owner Trustee shall occur and be
continuing thereunder, the unpaid principal of all Secured Notes then
outstanding, together with accrued interest thereon and any other amounts due
thereunder, automatically becomes due and payable without any action on the
part of the Indenture Trustee. (Indenture, Section 5.04)
The Indenture also provides that if an Indenture Event of Default thereunder
shall occur and be continuing, the Indenture Trustee may exercise certain
rights or remedies available to it under applicable law, including (if a Lease
has been declared in default) one or more of the remedies under such Lease,
subject to the Owner Trustee's rights to cure such default or redeem or
purchase the Secured Notes under the Indenture. See "Description of
S-26
<PAGE>
the Leases--Lease Events of Default." Such remedies may be exercised by the
Indenture Trustee to the exclusion of the Owner Trustee and, subject to the
terms of each Lease, the Company. Any Asset sold in the exercise of such
remedies will be free and clear of any rights of those parties, including the
rights of the Company under the Lease with respect to such Asset; provided
that no exercise of any remedies by the Indenture Trustee may affect the
rights of the Company under any Lease unless a Lease Event of Default under
any Lease has occurred and is continuing and each Lease shall have been
declared to be in default. (Leases, Section 9.1; Indenture, Sections 5.04,
5.05 and 5.09)
The Indenture provides that the Indenture Trustee will not exercise
foreclosure remedies under the Indenture for an Indenture Event of Default
which results from a Lease Event of Default unless it has exercised or is
exercising material remedies seeking to dispossess the Company under each
Lease, unless exercising such remedies under such Lease shall be prohibited by
law, governmental authority or court order. (Indenture, Section 5.04(a))
In addition, if an Indenture Event of Default results from a Lease Event of
Default, the Indenture Trustee shall not exercise remedies under the Indenture
with respect to such Indenture Event of Default for a period of 20 days after
notice of such Indenture Event of Default by the Indenture Trustee to the
Owner Trustee and each registered holder of a Secured Note (each a "Loan
Participant").
The holders of a majority in aggregate unpaid principal amount of the
Secured Notes outstanding under the Indenture may cause the Indenture Trustee
to give such notice, consent or direction or exercise such right, remedy or
power under the Indenture or under any Lease or any other related agreement,
but in such event the Indenture Trustee shall not be required to take any
action under the Indenture or expend or risk its own funds or otherwise incur
any financial liability in the performance of its duties thereunder or in the
exercise of any of its rights and powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk is not reasonably assured to it. (Indenture, Sections 6.02 and 6.04)
If an Indenture Event of Default under the Indenture occurs and is
continuing and either the Indenture Trustee (as assignee of the Owner Trustee)
shall have declared any of the Leases to be in default or any of the Secured
Notes shall have been declared or otherwise shall have become immediately due
and payable, any sums held or received by the Indenture Trustee may be applied
to reimburse the Indenture Trustee for any unpaid fees for its services under
the Indenture and any unreimbursed tax, expense or other loss incurred by it
prior to any payments to holders of the Secured Notes. (Indenture, Section
4.03)
An important purpose of the owner trust structure is to ensure that the
right of certificateholders to receive payments on the pass through
certificates would not be impaired in the event of the bankruptcy of the Owner
Participant. The terms of the Owner Trust Agreement and provisions of the
United States Bankruptcy Code, as amended (the "Bankruptcy Code") should cause
the Owner Trust to be ineligible to be a debtor under the Bankruptcy Code and
should prevent the Assets and the rights of the Owner Trustee in the related
Operative Documents from being treated as part of the Owner Participant's
bankruptcy estate. In the event of the bankruptcy of the Owner Participant, it
is possible, however, that the structure might be disregarded and the Assets,
Leases and Secured Notes and certain other related documents might become part
of the bankruptcy proceeding. In such event, payments under the Leases or on
the Secured Notes might be interrupted and the ability of the Indenture
Trustee to exercise its remedies under the Indenture might be restricted,
although the Indenture Trustee would retain its status as a secured creditor
in respect of the Leases and the Assets.
POSSIBLE REJECTION OF CERTAIN OPERATIVE DOCUMENTS IN BANKRUPTCY
If the Company were to become a debtor in a bankruptcy or reorganization
case under the Bankruptcy Code, the Company or its bankruptcy trustee could
reject any Lease. Similarly, in such event, the Company or its bankruptcy
trustee could reject other of the Operative Documents, such as the Site Leases
(pursuant to which the Company subleases and grants easements with respect to
the Sites to the Owner Trustee) and the Support Agreements (pursuant to which
the Company agrees to provide certain services to the Owner Trustee in the
event of the termination of the Facility Lease or the Power Plant Lease). In
such event, there could be no assurance
S-27
<PAGE>
that the amount of any claim for damages that would be allowed in such
bankruptcy case would be in an amount sufficient to provide for the repayment
of the Secured Notes, or if allowed, that the Company would have sufficient
assets to pay such claim.
Under Section 502(b)(6) of the Bankruptcy Code, a claim by a lessor for
damages resulting from the rejection of a lease of real property in connection
with bankruptcy proceedings affecting the lessee may be limited to an amount
equal to the rent reserved under the lease, without acceleration, for the
greater of 1 year or 15 percent (but not more than 3 years) of the remaining
term of the lease, plus rent already due but unpaid. Although each of the
Leases purports not to be a lease of real property, there can be no assurance
that a bankruptcy court could not find it subject to these limitations. The
characterization of the property comprising the Assets as personal or real
property involves the interpretation of Georgia law. Because there is a lack
of clear precedent, the Company is unable to predict how a bankruptcy court
would rule on this question.
In any case, rejection of a Lease by the Company or its bankruptcy trustee
would not deprive the Indenture Trustee of its security interest in the
applicable Assets. However, rejection of a Site Lease or Support Agreement by
the Company or its bankruptcy trustee could make it impossible to operate the
Assets or certain of the Assets at the Sites and, in addition, could require
the removal of some or all of the Assets to another location. There can be no
assurance that it would be economical to remove certain of the Assets to
another location.
MODIFICATION OF INDENTURE AND OTHER OPERATIVE DOCUMENTS
The Indenture contains provisions permitting the Owner Trustee and the
Indenture Trustee to enter into supplements and amendments to the Indenture,
without the consent of the holders of the Secured Notes:
(1) to subject additional property to the Lien of the Indenture or to
correct or amplify the description of property subject to the Lien of the
Indenture;
(2) to add to the covenants of the Owner Trustee for the benefit of the
holders, or to surrender any right or power of the Owner Trustee, the Owner
Participant or the Company under the Indenture;
(3) to cure or correct any ambiguity or defective or inconsistent provision
of the Indenture, provided that such action shall not adversely affect the
interests of any holder of the Secured Notes;
(4) to provide for the assumption by the Company of the obligations of the
Owner Trustee under the Indenture;
(5) to evidence the succession of a new Owner Trustee or new Indenture
Trustee or the appointment or removal of any co-trustee or separate trustee;
(6) to convey, transfer, assign, mortgage or pledge any property to or with
the indenture or to make any other provisions with respect to matters or
questions arising under the Indenture so long as such action shall not
adversely affect the interests of the holders of the Secured Notes;
(7) to add to the rights of the holders of the Secured Notes;
(8) to include on the Secured Notes any legend as may be required by law; or
(9) in connection with (a) Additional Notes or (b) the refinancing or
refunding of the Secured Notes or (c) the sale of the Secured Notes to a third
party (Indenture, Section 9.01)
The Indenture also contains provisions permitting the Owner Trustee and the
Indenture Trustee, with the consent of a majority in unpaid principal amount
of the Secured Notes outstanding under the Indenture, to amend or supplement
the Indenture for the purpose of adding provisions to, or changing or
eliminating provisions of, the Indenture, except that without the consent of
the holder of each Secured Note outstanding under the Indenture, no amendment
or modification of the Indenture may:
S-28
<PAGE>
(1) change the stated maturity of the principal of, or any installment of
interest on, or any mandatory or optional repayment or redemption provision
with respect to, any Secured Note, or change the principal amount thereof or
any other amount payable in respect thereof or reduce the interest thereon, or
change the place of payment where, or the coin or currency in which, any
Secured Note or the interest thereon is payable;
(2) permit the creation of any Lien on the assets subject to the Indenture
not otherwise permitted thereunder or deprive any holder of the benefit of the
Lien of the Indenture upon such assets, or any portion thereof, for the
security of its Secured Notes;
(3) change the percentage of the aggregate principal amount of the Secured
Notes required to take or approve any action under the Indenture or any other
Operative Document;
(4) adversely affect any indemnities in favor of any holder of the Secured
Notes under the Operative Documents (except as may be consented to by such
holder); or
(5) modify the order of priorities in which distributions of the income and
proceeds of the Indenture Estate are to be made or certain other specified
provisions.
(Indenture, Section 9.02(a)) The Indenture also provides that certain
provisions of the other Operative Documents may be amended or modified by the
parties thereto without the consent of any holder of the Secured Notes
outstanding under the Indenture. However, no such amendment or modification
shall, without the consent of the holder of each outstanding Secured Note,
amend or modify any Lease in such manner (1) as to reduce the amounts payable
by the Company under such Lease or change the time for the payment thereof,
including the payment of Supplemental Rent due on the final distribution date,
so that such payments are less than the amounts necessary to pay the principal
of and interest on the outstanding Secured Notes as they become due under the
Indenture, or change any of the circumstances under which Stipulated Loss
Value or Termination Value is payable or (2) as would release the Company from
its obligation in respect of payment of Basic Rent, Supplemental Rent
Stipulated Loss Value or Termination Value or change the absolute and
unconditional character of such obligations as set forth in such Lease.
(Indenture, Section 9.02(a))
S-29
<PAGE>
DESCRIPTION OF THE LEASES
The following summary of the particular terms and provisions of the Leases
supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Leases set forth in the
accompanying Prospectus under the heading "Outline of the Leveraged Lease
Structure." The statements under this caption are summaries and do not purport
to be complete. The summaries relate to, and make use of terms defined in and
are qualified in their entirety by reference to all of the provisions of the
Leases, the Secured Notes, the Indentures, the Parent Guarantee, the Refunding
Agreement, the Participation Agreement and the Owner Trust Agreement, forms of
which have been filed by the Company or Fort James with the SEC or will be
filed as exhibits to a Current Report on Form 8-K. The summaries should be
read in conjunction with the statements under the heading "Outline of the
Leveraged Lease Structure" in the accompanying Prospectus.
TERM AND RENTALS
Each of the Facility, the Power Plant, the 1990 Equipment and the 1991
Equipment has been leased separately by the Owner Trustee to the Company for a
basic lease term (the "Basic Lease Term") and, at the option of the Company,
certain renewal terms. The Basic Lease Term commenced on January 2, 1991 for
the 1990 Equipment and commenced on January 2, 1992 for the Facility, the
Power Plant and the 1991 Equipment and will expire for each Asset on the dates
specified below with respect to such Asset or Assets unless previously
terminated in accordance with the terms of the applicable Lease.
<TABLE>
<CAPTION>
BASIC LEASE TERM
ASSET OR ASSETS EXPIRATION DATE
--------------- ----------------
<S> <C>
Facility................................................. July 1, 2016
Power Plant.............................................. January 1, 2017
1990 Equipment........................................... January 1, 2006
1991 Equipment........................................... July 1, 2006
</TABLE>
The Basic Rent payments by the Company under each Lease are payable on each
January 2 and July 2 (or if such a day is not a Business Day, on the next
succeeding Business Day) (each, a "Basic Rent Payment Date"), and are to be
paid to the Indenture Trustee as assignee of the Owner Trustee so long as any
Secured Notes relating to such Lease are outstanding. Such payments will be
used to make payments of principal and interest due on the Secured Notes
relating to such Lease, which will in turn furnish the funds to be distributed
by the Pass Through Trustees to the certificateholders on January 2 and July 2
of each year, commencing July 2, 1999. (Indenture, Section 4.01) Rental
payments that the Company is obligated to make under each Lease will not be
less than the scheduled payments of principal of and interest on the Secured
Notes related to such Lease. (Leases, Section 3.5) Although in certain cases,
the semiannual Basic Rent payments under a Lease may be adjusted, under no
circumstances will rent payments that the Company is obligated to make under
such Leases be less than the scheduled payments of principal of and interest
on the Secured Notes corresponding to such Lease. (Leases, Section 3.5) The
balance of the Basic Rent payments under all of the Leases, after payment of
the scheduled principal of and interest on the Secured Notes, will be paid
over to the Owner Trustee for the account of the Owner Participant.
(Indenture, Section 4.01) The Company's obligation to pay Rent and to make
other payments under each Lease is a general obligation of the Company.
(Leases, Section 15) Fort James has irrevocably and unconditionally guaranteed
the full and prompt payment of all amounts payable by the Company under each
Lease, the Participation Agreement and each of the other related Operative
Documents when and as the same shall become due and payable.
NET LEASE, MAINTENANCE AND USE
The Company's obligations under each Lease are those of a lessee under a
"net lease." Accordingly, the Company is obligated, at its own expense, to pay
all costs and expenses of operating the Assets and to operate and maintain
each Asset:
S-30
<PAGE>
(1) in accordance with good industry and sound engineering practice and the
Company's established maintenance and repair programs so as to keep such Asset
in good working order and condition, ordinary wear and tear excepted;
(2) in compliance with contractors' and manufacturers' warranty
requirements; and
(3) subject to certain exceptions, in compliance with all applicable
Governmental Rules and Governmental Actions as such terms are defined in the
applicable Lease.
(Leases, Section 11.1) The Company is obligated to promptly repair or replace
any Component or Replacement Component of each Asset (other than obsolete,
redundant or unnecessary Components or Replacement Components that the Company
is permitted to remove to the extent described below) which from time to time
fails to function in accordance with its intended use, or becomes worn out,
destroyed, damaged beyond repair, lost, condemned, confiscated, stolen or
seized for any reason whatsoever. The Company shall maintain all Replacement
Components of such Asset in as good operating condition as, and with a value,
utility and remaining useful life at least equal to, the Components or
Replacement Components of such Asset replaced, assuming such replaced
Components or Replacement Components were in at least the condition, utility
and repair required to be maintained under the Lease corresponding to such
Asset and shall not discriminate against such Asset or any Component or
Replacement Component of such Asset (as compared to other property of the same
or similar type owned or leased by the Company) with respect to maintenance.
Title to all Components and Replacement Components of each Asset shall vest in
the Owner Trustee. Notwithstanding the foregoing, if at any time during the
lease term for any Asset the Company shall conclude that any property included
in such Asset is obsolete, redundant or unnecessary and can be removed without
diminishment of the value, estimated residual value or utility of such Asset
or reduction of the remaining useful life of such Asset, the Company may
remove such property. (Leases, Section 11.8)
MODIFICATIONS AND ADDITIONAL NOTES
The Company is obligated, at its expense, to make all Modifications to each
Asset as may be required from time to time to meet the requirements of all
applicable Governmental Rules and Governmental Actions unless the Company
elects to terminate the Lease with respect to such Asset pursuant to the terms
thereof. See "Description of the Leases--Termination." The Company also has
the right to make other Modifications to any Asset not required by any
Governmental Rule or Governmental Action. All Modifications to an Asset shall
be completed in a manner (but only to the extent practicable in the case of
Modifications to such Asset required by any Governmental Rule or Governmental
Action) which does not decrease the fair market sales value of such Asset or
decrease the remaining useful life, utility or estimated residual value of
such Asset. Severable Modifications to any Asset not required by any
Governmental Rule or Governmental Action will remain the property of the
Company but may be purchased by the Owner Trustee at fair market value upon
termination of the Lease corresponding to such Asset if not theretofore
removed (or, under certain circumstances, if removed within 18 months prior to
the end of the lease term for such Asset) and if such Asset shall not have
been transferred to the Company pursuant to the applicable Lease or the
Participation Agreement. Title to all severable Modifications to any Asset
required by any Governmental Rule or Governmental Action and to all
nonseverable Modifications to any Asset shall vest in the Owner Trustee and
will be subject equally and ratably to the Lien of the Indenture. In addition,
the Company will have the right to request the Owner Participant to consider
in good faith effecting the financing of the cost of any Modification through
the issuance and sale by the Owner Trustee of Additional Notes under the
Indenture. (Leases, Section 11; Participation Agreement, Section 14;
Indenture, Section 2.09) See "Description of the Secured Notes--Additional
Notes."
SUBLEASE
The Company may sublease any Asset to another Person (including in any such
sublease of the Facility or the Power Plant, a sub-sublease of the applicable
land and commensurate grant of the applicable Easements) so long as such
sublease shall be subject and subordinate to the Lease corresponding to such
Asset. Each such sublease shall:
S-31
<PAGE>
(1) prohibit a further assignment, sublease or disposition of the interests
covered thereby;
(2) be deemed assigned to the Owner Trustee during the continuation of a
Lease Event of Default; and
(3) in no event continue beyond the lease term for such Asset.
The Company shall remain primarily liable under the applicable Lease with
respect to such Asset, and all terms and conditions thereof and of the other
Operative Documents shall be complied with as though no such sublease was in
existence. (Leases, Section 14.2)
LIENS
The Assets will be maintained free of any Liens other than:
(1) the respective rights of the Company, the Owner Participant, the Owner
Trustee, the Indenture Trustee and the holders of the Secured Notes, as
provided in the Operative Documents;
(2) Lessor's Liens, Owner Participant's Liens and Indenture Trustee's Liens;
(3) Liens for Taxes (as defined in the applicable Lease) either not
delinquent or being contested in good faith and by appropriate proceedings;
(4) material men's, mechanics' and other like Liens arising in the ordinary
course of business or in the course of constructing, repairing, equipping or
installing, modifying or expanding the Assets or any part thereof, for amounts
either not more than 60 days past due or being contested in good faith and by
appropriate proceedings;
(5) Liens arising out of judgments or awards against the Company with
respect to which at the time an appeal or proceeding for review is being
prosecuted in good faith;
(6) the rights and interests of the IDA in the Assets and the Sites as
provided in the IDA Lease;
(7) Site Liens (as defined in the applicable Lease); and
(8) assignments and subleases permitted by each Lease.
The Company may not, however, contest any lien described in clauses (3), (4)
and (5) above, if such contest involves any material danger of, the sale,
forfeiture or loss of the applicable Asset or materially interferes with the
use thereof, or disposition of title thereto, in which case the Company is
required to discharge such lien. (Leases, Sections 10 and Appendix A)
INSURANCE
The Company, at its own cost and expense, is obligated to carry and maintain
or cause to be carried and maintained at all times during the lease term for
each Asset:
(1) insurance with respect to such Asset against loss or damage by fire,
lightning and other risks from time to time included under "all-risk" policies
and against loss or damage by sprinkler leakage, water damage, collapse,
vandalism and malicious mischief, in amounts sufficient to prevent the Owner
Trustee, the Owner Participant, the Pass Through Trustees, the Company or the
Indenture Trustee from becoming co-insurers of any partial loss under the
applicable policies, and in amounts equal to the sum of Stipulated Loss Value
for the Facility, the Power Plant or any item of Equipment, as the case may
be, on a "stated value" basis, to the extent such insurance coverage is
available on commercially reasonable terms and conditions;
(2) public liability, including personal injury and property damage and
comprehensive general liability, insurance against claims arising out of or
connected with the possession, use, leasing, operation or condition of
S-32
<PAGE>
any Asset then subject to a Lease in such amounts as are usually carried by
persons operating similar properties in the same general locality but in any
event with a combined single limit of not less than $10,000,000 for personal
injury and property damage with respect to any one occurrence;
(3) explosion insurance in respect of any steam and pressure boilers and
similar apparatus located on the real property subject to the IDA Lease in
amounts not less than those required by clause (2) above;
(4) appropriate workers' compensation insurance with respect to any work on
or about the real property subject to the IDA Lease; and
(5) such other insurance with respect to such Asset against loss or damage
of the kinds from time to time customarily insured against by persons owning
or using similar property in such amounts as shall be deemed adequate by an
expert selected by the Company and approved by the Owner Trustee.
The insurance required under clause (1), (2) or (3) above may be subject to
deductible amounts and self-insured retention not exceeding $5,000,000 in the
aggregate, over all of the Leases. The insurance required under clause (4)
above may be subject to deductible amounts and self-insured retention not
exceeding $300,000 per occurrence and $5,000,000 in the aggregate over all of
the Leases. All proceeds of such insurance on account of any damage to or
destruction of any Asset shall be payable to the Indenture Trustee for any
loss in excess of a specified amount (the greatest such amount being
$10,000,000) and applied to the repair or restoration of such Asset. Such
insurers shall be of recognized responsibility authorized to insure risks in
the State of Georgia having an A.M. Best rating of at least "A" and an A.M.
Best capital and surplus designation of at least "X" or shall be reasonably
satisfactory to the Owner Trustee. Such insurance may be carried under blanket
policies maintained by the Company so long as such policies otherwise comply
with the provisions of the Leases. The Owner Trustee, the Owner Participant,
the Indenture Trustee, the Pass Through Trustees and the IDA are included as
additional insured under all third-party liability policies which the Company
maintains pursuant to the Leases and, with respect to each Asset, the Owner
Trustee and the Indenture Trustee (for so long as such Asset is subject to the
Lien of the Indenture) will be included as insured and, to the extent proceeds
are payable to it as provided in the Lease corresponding to such Asset, loss
payees under the "all-risk" insurance maintained by the Company pursuant
thereto. In addition, the insurance policies maintained under the Leases will
provide that, in respect of the respective interests of the Owner Trustee, the
Indenture Trustee, the Pass Through Trustees and the Owner Participant, the
insurance will not be invalidated by any action or inaction of the Company or
any other Person and such insurance shall insure the Owner Trustee, the
Indenture Trustee, the Pass Through Trustees and the Owner Participant as
their interests may appear, regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by the Company
and that if the insurers cancel such insurance for any reason whatsoever or
any materially adverse change is made in policy terms or conditions, or if
such insurance is allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective as to the Owner Trustee,
the Owner Participant, the Pass Through Trustees or the Indenture Trustee for
30 days after receipt by the Owner Trustee, the Owner Participant, the Pass
Through Trustees or the Indenture Trustee, respectively, of written notice
from such insurers of such cancellation, change or lapse. (Leases,
Section 13)
PURCHASE OPTIONS
Each Lease provides for various purchase options that may be exercised by
the Company prior to the end of the Basic Lease Term for the Assets subject to
such Lease. So long as no Lease Event of Default or payment default or
bankruptcy default shall have occurred and be continuing under any Lease on
the date the Company gives notice of its irrevocable election to exercise the
purchase option described in this sentence, the Company shall have the right
under each Lease (the "Early Fixed Price Purchase Option") to purchase all of
the Assets subject to such Lease on the Basic Rent Payment Date specified
below with respect to such Asset or Assets at a purchase price to be
calculated in accordance with the terms of the applicable Lease:
S-33
<PAGE>
<TABLE>
<CAPTION>
BASIC RENT
ASSET OR ASSETS PAYMENT DATE
--------------- ---------------
<S> <C>
Facility.................................................. January 2, 2009
Power Plant............................................... January 2, 2009
1990 Equipment............................................ July 2, 2000
1991 Equipment............................................ July 2, 2000
</TABLE>
Each Lease also provides the Company with the right (the "Competitor
Purchase Option") to purchase all the Assets subject to such Lease under
certain circumstances if the Owner Participant becomes a competitor of the
Company's tissue paper making business at a purchase price to be calculated in
accordance with the terms of the applicable Lease. In addition, under the
Facility Lease and the Power Plant Lease, the Company has the right (the
"Substantial Modifications Purchase Option"), so long as no Lease Event of
Default or payment default or bankruptcy default (with or without the giving
of notice or lapse of time, or both) shall have occurred and be continuing
thereunder at the time the Company gives notice of its irrevocable election to
exercise such purchase option, to purchase the Facility and the Power Plant,
respectively, in the event the Company desires or is required to make to
either of such Assets (1) a nonseverable Modification or series of related
nonseverable Modifications or (2) a severable Modification or series of
severable Modifications required by law, in either case with an estimated cost
in excess of 20% of Lessor's Cost thereof that are not financed by the Owner
Trustee.
In order to exercise either the Early Fixed Price Purchase Option or the
Substantial Modifications Purchase Option under the Facility Lease or the
Power Plant Lease, the Company must also purchase the Power Plant or the
Facility, respectively, pursuant to the Lease corresponding to such Asset. In
addition, in order to exercise the Competitor Purchase Option with respect to
any Asset under the applicable Lease, the Company must at the same time
purchase all of the other Assets then subject to any Lease. (Leases, Section
6.1)
In the event the Company has the right to exercise its Substantial
Modifications Purchase Option with respect to the Facility or the Power Plant,
it shall also have the option, instead of purchasing such Assets, to purchase
the Owner Participant's beneficial interest in all of the Assets or, under
certain circumstances, assume the Secured Notes. In such event, the Secured
Notes applicable to such Asset will not be redeemed and will continue to be
secured by such Asset and the related Lease. (Participation Agreement, Section
16) In the event the Secured Notes relating to any Asset are outstanding at
the time the Company purchases such Asset pursuant to one of the purchase
options described above and the Company does not assume the Secured Notes or
purchase the Owner Participant's beneficial interest in the Assets, as
applicable, the purchase price for such Asset will be an amount at least
sufficient to pay the principal of and interest on such Secured Notes and the
Make-Whole Premium. (Indenture, Section 3.02(c); Leases, Section 6.1)
TERMINATION
Subject to certain conditions, if the Company determines that any Asset is
obsolete, uneconomic or surplus to the needs of the Company for any reason
(including, without limitation, by reason of burdensome Governmental Rules),
the Company is permitted to terminate the Lease, with respect to such Asset
during the Basic Lease Term for such Asset. To exercise its right to terminate
the Lease with respect to any Asset, the Company shall be obligated to provide
the Owner Trustee and the Indenture Trustee with notice prior to the Basic
Rent Payment Date as of which the Company elects to terminate the Lease with
respect to such Asset (a "Termination Date"). The Company shall be permitted
under certain circumstances at its option by written notice to the Owner
Trustee and the Indenture Trustee to revoke any such notice of termination, in
which event the Lease will not terminate with respect to such Asset. Following
such notice of termination, the Company will, as agent for the Owner Trustee,
solicit bids for the cash purchase of such Asset on such Termination Date. The
Owner Trustee may also solicit bids for the cash purchase of such Asset on
such Termination Date independent of the Company. The Owner Trustee shall sell
such Asset on such Termination Date to such Person which shall have submitted
the highest such bid and the proceeds of such sale shall be paid to the Owner
Trustee. If the net proceeds from such sale are less than the Termination
Value for the Asset, the Company shall pay the Owner Trustee an amount equal
to the difference between such proceeds and such Termination Value, together
with
S-34
<PAGE>
certain other amounts. Except as contemplated by the final sentence of this
paragraph, in the event that such Asset is not so sold (including, without
limitation, under circumstances where no bids are received) on such
Termination Date, the Company shall pay to the Owner Trustee the Termination
Value for such Asset, together with certain other amounts, including any Make-
Whole Premium. All funds to be paid to or deposited with the Owner Trustee as
described in this paragraph shall, so long as such Asset is subject to the
Lien of the Indenture, be deposited directly with the Indenture Trustee.
Amounts in excess of the outstanding principal amount of the Secured Notes
related to such Asset, and the then accrued and unpaid interest thereon and
Make-Whole Premium, if any, will be distributed by the Indenture Trustee to
the Owner Trustee for the benefit of the Owner Participant. The Lien of the
Indenture with respect to such Asset shall terminate after the full
Termination Value for such Asset has been received by the Indenture Trustee
and, if all amounts due the Owner Participant have also been paid, the Lease
with respect to such Asset shall terminate and the obligation of the Company
to make rental payments with respect thereto shall cease. The Company shall
not be permitted to terminate the Facility Lease in this manner unless, on or
prior to the Termination Date, the Power Plant Lease is similarly terminated.
In the event that the Company shall have exercised its right to revoke its
notice of termination with respect to any Asset or in the event that the high
bidder therefor shall have failed to purchase such Asset (such failure not
being attributable to the fault of the Company), the Lease shall continue in
full force and effect with respect to such Asset. (Leases, Sections 7.2 and
7.3)
The Owner Trustee shall have the option to retain an Asset with respect to
which the Company has given a notice of termination. In such event, the Owner
Trustee shall pay to the Indenture Trustee an amount equal to the unpaid
principal amount of and accrued interest on the Secured Notes then outstanding
relating to such Asset or the applicable Equipment Group to be redeemed on
such Termination Date and the Company will pay any Make-Whole Premium.
(Leases, Section 7.4)
In the event the Company is required to pay, or is likely to be required to
pay, certain tax indemnities to the Owner Participant, the Company has the
option (the "Special Termination Option") to terminate the Leases with respect
to all of the Assets upon payment of the greater of Special Termination Value
for such Assets and fair market value and certain other amounts, including any
Make-Whole Premium, at which time title to the Assets will be transferred to
the Company. (Participation Agreement, Sections 11.06 and 16.03)
EVENT OF LOSS
If an Event of Loss occurs with respect to an Asset, the Company shall pay
to the Owner Trustee the Stipulated Loss Value for such Asset, together with
certain additional amounts, or, if such Asset is an item of Equipment, the
Company may elect to replace such item of Equipment. In the event the Company
elects to replace an item of Equipment subject to an Event of Loss, it must do
so within 180 days with a functionally comparable item of equipment having a
value, estimated residual value, utility and remaining useful life at least
equal to, and in as good operating condition as, the item of Equipment
suffering such Event of Loss, assuming such item of Equipment was in the
condition and repair required to be maintained under the applicable Lease.
Prior to or at the time of the substitution for any item of Equipment that has
suffered an Event of Loss, the Company is required to provide the Owner
Trustee and the Indenture Trustee with a certificate of an officer of the
Company certifying that the item of equipment replacing such item of Equipment
meets the requirements set forth above. A certificate or opinion of an
engineer, appraiser or other expert as to the fair market value of such
replacement item of equipment, however, will not be obtained. If the Company
pays the Stipulated Loss Value for an Asset subject to an Event of Loss,
together with certain additional amounts, which in all circumstances will be
at least sufficient to pay in full as of the date of payment thereof the
aggregate unpaid principal amount of the outstanding Secured Notes related to
such Asset, together with all unpaid interest thereon accrued to the date on
which such payment is made, the Lien of the Indenture and the Lease shall
terminate with respect to such Asset, title thereto shall be transferred to
the Company and the obligation of the Company to make rental payments with
respect thereto shall cease. The Stipulated Loss Value and other payments made
by the Company shall be deposited with the Indenture Trustee so long as such
Asset is subject to the Lien of the Indenture. Amounts in excess of the
outstanding principal amount of the Secured Notes related to such Asset and
the then
S-35
<PAGE>
accrued and unpaid interest thereon shall be distributed by the Indenture
Trustee to the Owner Trustee for the benefit of the Owner Participant. The
Stipulated Loss Value for an Asset that is not replaced must be paid on the
business day occurring not later than 180 days after the Event of Loss of such
Asset. (Indenture, Section 3.02(a); Leases, Section 12)
An Event of Loss with respect to any Asset means any of the following events
as a consequence of any event whatsoever, including but not limited to
anything affecting the applicable Site:
(1) the (a) loss, theft, destruction or disappearance of, or (b) occurrence
of damage (which, in the Company's reasonable, good faith opinion renders
repair or replacement uneconomic) to, such Asset (or substantially the
entirety of such Asset);
(2) the permanent condemnation, confiscation or seizure of, or requisition
of title to, such Asset by any Governmental Authority (as defined in the
applicable Lease) (or any other condemnation, confiscation or seizure by a
Governmental Authority that continues for a period of more than two years
without a fixed date for termination of such action and provided that the
deferral of an Event of Loss pursuant hereto shall not diminish the Company's
obligations with respect to maintenance of the affected Asset to the extent
practicable in light of such action);
(3) the requisition of use of such Asset by any Governmental Authority for a
period which shall exceed the lesser of (a) two years and (b) the remaining
portion of the lease term for such Asset; or
(4) the receipt of insurance proceeds based upon an actual or constructive
total loss with respect to such Asset.
(Leases, Appendix A)
LEASE EVENTS OF DEFAULT
Events of default (each, a "Lease Event of Default") under each Lease
include, among other things:
(1) the Company's failure to pay Basic Rent, Stipulated Loss Value or
Termination Value for any Asset with respect to such Lease or the Company's
failure to pay rent in an amount sufficient to redeem the related Secured
Notes at their maturity date in the event they are not refinanced prior
thereto, in each case within 10 days after the date the same becomes due;
(2) the Company's failure to pay Supplemental Rent or make any other payment
(other than Basic Rent, Stipulated Loss Value, Termination Value or Special
Termination Value for any Asset or the rent payment referred to in clause (1)
above) required to be made by the Company under such Lease or any other
Operative Document (with certain exceptions including Excepted Payments and
payments to be made by the Company to the Pass Through Trustees under the Pass
Through Trust Agreement) for more than 15 Business Days after the Company has
received written notice from the Owner Trustee or the Indenture Trustee
stating that such payment is due;
(3) the Company's failure to maintain the insurance required to be
maintained under such Lease or, at the option of the Owner Participant, the
Company's failure to maintain certain letters of credit for the benefit of the
Owner Participant;
(4) the Company's failure in any material respect to perform or observe any
other covenant or agreement to be performed or observed by it under such Lease
or any other Operative Document (with certain exceptions including covenants
or agreements with respect to Excepted Payments and payments to be made by the
Company to the Pass Through Trustees under the Pass Through Trust Agreement)
and such failure shall continue unremedied for thirty days after receipt by
the Company of written notice from the Owner Trustee or the Indenture Trustee
specifying such failure and requiring it to be remedied, provided that the
continuation of any such failure for such 30 day period or such longer period
which shall not exceed 180 days shall not constitute a Lease Event of Default
so long as such failure is curable or correctable and the Company is
diligently pursuing the cure or correction thereof;
S-36
<PAGE>
(5) any representation or warranty made by the Company in the Participation
Agreement or certain related documents proving to have been inaccurate in any
material respect when made, unless such inaccuracy shall not be material to
the recipient at the time when the notice referred to below shall have been
received by the Company or any adverse impact thereof shall have been cured
within 30 days after receipt by the Company of written notice thereof from the
Owner Trustee or the Indenture Trustee;
(6) (a) the performance by the Company of any of the following actions:
commencing by the Company of a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or consenting to any such relief or to the appointment or taking
possession by any such official or agency in an involuntary case or other
proceeding commenced against it, or making a general assignment for the
benefit of creditors, or taking any corporate action to authorize any of the
foregoing, or (b) an involuntary case or other proceeding is commenced against
the Company seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official or agency of it or any
substantial part of its property, and such involuntary case or other
proceeding remains undismissed and unstayed for a period of ninety (90) days;
(7) the Company's default with respect to any term of any loan agreement,
mortgage, indenture or other agreement relating to any indebtedness of the
Company in an individual principal amount of $15,000,000 or more or items of
indebtedness with an aggregate principal amount of $30,000,000 or more, if the
effect of such default is to cause such indebtedness to become due or be
declared due prior to its stated maturity; or
(8) a Lease Event of Default under any other Lease.
(Leases, Section 15)
If a Lease Event of Default under a Lease has occurred and is continuing,
and such Lease has been declared in default, the Indenture Trustee, as
assignee of the Owner Trustee's rights under the Lease, may exercise one or
more of the remedies provided in the Lease with respect to the Assets subject
thereto. These remedies include the right to repossess and use or operate the
Assets, to sell or release the Assets free and clear of the Company's rights
and retain the proceeds and to require the Company to pay as liquidated
damages any unpaid rent plus, at the Indenture Trustee's option (as assignee
of the Owner Trustee), any of the following:
(1) an amount equal to the excess of the Stipulated Loss Value of the Asset
over, at the Indenture Trustee's option (a) the discounted fair market rental
value thereof for the remainder of the term of such Asset; (b) the fair market
sales value thereof; or (c) if the Asset has been sold, the net sales proceeds
thereof;
(2) an amount equal to the excess of the discounted present value of all
installments of Basic Rent for the Asset over the discounted fair market
rental value thereof for the remainder of the term of such Asset; or
(3) an amount equal to the greatest of (a) Stipulated Loss Value of the
Asset, (b) the discounted fair market rental value for the remaining useful
life thereof; and (c) the fair market sales value thereof, in which case the
Owner Trustee shall transfer such Asset to the Company, whereupon the Lease
and the Company's obligations thereunder with respect to such Asset shall
cease. (Leases, Section 16)
For a possible limitation on damages, see "Description of the Secured Notes--
Possible Rejection of Certain Operative Documents in Bankruptcy."
S-37
<PAGE>
DESCRIPTION OF THE PARENT GUARANTEE
Pursuant to the Parent Guarantee with respect to each Leased Property, Fort
James has irrevocably and unconditionally guaranteed the full and prompt
payment of all amounts payable by the Company under the related Lease,
Participation Agreement and each of the other related Operative Documents when
and as the same shall become due and payable. The Parent Guarantee is an
unsecured obligation of Fort James and is enforceable without any need first
to enforce the related Lease against the Company.
DESCRIPTION OF THE PARTICIPATION AGREEMENT AND REFUNDING AGREEMENT
The Company is required to indemnify the related Owner Participant, Owner
Trust, Indenture Trustee and the Pass Through Trustees for certain losses,
fees and expenses and for certain other matters. In addition, the Company is
required to indemnify the related Owner Participant, the Owner Trust and the
Indenture Trustee for certain taxes in connection with the ownership, lease,
sale or use of the related Assets. (Participation Agreement, Section 12)
Subject to certain restrictions, the Owner Participant may transfer its
interest in an Asset. (Participation Agreement, Section 13)
Pursuant to the Refunding Agreement, the Company, the Owner Trustee, the
Indenture Trustee, the Pass Through Trustees and all other parties to the
Operative Documents have agreed, subject to the compliance or waiver of
various conditions contained in the Refunding Agreement, the Participation
Agreement and the Indenture, to participate in the refunding of the entire
principal amount of the 1991 Secured Notes as allowed by the Operative
Documents.
ERISA CONSIDERATIONS
Pass through certificates may, subject to certain conditions, be purchased
by an employee benefit plan subject to Title I of ERISA or Section 4975 of the
Code or entities which may be deemed to hold the assets of any such plan
(collectively, "ERISA Plans"). A fiduciary of an ERISA Plan must determine
that the purchase of a pass through certificate is consistent with its
fiduciary duties under ERISA and does not result in a non-exempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code (a
"Prohibited Transaction"). Employee benefit plans which are governmental plans
(as defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA) are not subject to the fiduciary responsibility
provisions of ERISA.
Each of the Owner Participant, the holders of the Secured Notes, the Company
and Fort James may be a "party in interest" or a "disqualified person" (as
defined for purposes of the Prohibited Transaction rules) with respect to an
ERISA Plan purchasing the pass through certificates; therefore, the purchase
by an ERISA Plan of the pass through certificates may give rise to a direct or
indirect Prohibited Transaction. Any person who is, or who in acquiring the
pass through certificates is or may be using the assets of, an ERISA Plan may
purchase the pass through certificates, if such person determines that a
statutory or an administrative exemption from the Prohibited Transaction rules
discussed below or otherwise available is applicable to such person's purchase
and holding of the pass through certificates.
Certain statutory or administrative exemptions from the Prohibited
Transaction rules under ERISA and the Code may be available to an ERISA Plan
which is purchasing the pass through certificates. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1,
regarding investments by insurance company pooled separate accounts; PTCE 91-
38, regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by a qualified professional asset manager;
PTCE 95-60, regarding investments by insurance company general accounts or
PTCE 96-23, regarding investments by an in-house professional asset manager.
Certain of the exemptions, however, do not afford relief from the Prohibited
Transaction rules under Section 406(b) of ERISA and Section 4975(c)(1)(E)-(F)
of the Code.
S-38
<PAGE>
Each fiduciary of an ERISA Plan should also consider that, under regulations
promulgated by the Department of Labor, 29 C.F.R. Section 2510.3-101 (the
"Regulation"), if an ERISA Plan acquires a pass through certificate, then the
ERISA Plan's assets may include both the pass through certificate it acquires
and an undivided interest in the underlying assets of the applicable Pass
Through Trust (because such Pass Through Trust is deemed to hold assets of the
ERISA Plan), unless the actual level of investment by "benefit plan investors"
in the pass through certificates is not "significant" within the meaning of
the Regulation.
Under the terms of the Regulation, if a Pass Through Trust were deemed to
hold assets of an ERISA Plan by reason of an ERISA Plan's investment in a pass
through certificate, such ERISA Plan assets would include an undivided
interest in the Pass Through Trust, the Secured Notes and other assets held by
the Pass Through Trust. In such an event, the persons providing services with
respect to the assets of the Pass Through Trust, including the Secured Notes,
may be subject to the fiduciary responsibility provisions of Title I of ERISA
and the Prohibited Transaction provisions of ERISA and the Code with respect
to transactions involving such assets, unless such transactions are subject to
a statutory or administrative exemption.
Insurance companies considering the purchase of pass through certificates
should also consult their own counsel as to the application of the decision by
the United States Supreme Court in John Hancock Mutual Life Insurance Co. v.
Harris Trust and Savings Bank, 114 S. Ct. 517 (1993) to such a purchase. Under
that decision, assets held in an insurance company's general account may be
deemed plan assets under certain circumstances.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of an ERISA Plan or a governmental or church plan
considering the purchase of pass through certificates should consult its legal
advisors regarding the consequences of such purchase under ERISA and the Code
(and, particularly in the case of non-ERISA plans, concerning any state law
considerations). By its purchase and acceptance of a pass through certificate,
each certificateholder will be deemed to have represented and warranted that
either (1) no ERISA Plan assets have been used to purchase such pass through
certificate or (2) one or more prohibited transaction statutory or
administrative exemptions applies such that the use of such ERISA Plan assets
to purchase and hold such pass through certificate will not constitute a non-
exempt Prohibited Transaction.
S-39
<PAGE>
THE UNDERWRITER
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), Morgan Stanley
& Co. Incorporated as the underwriter has agreed to purchase, and the Company
has agreed to cause the Pass Through Trustees to sell to the underwriter,
$67,621,346 principal amount of pass through certificates.
The underwriter is offering the pass through certificates subject to its
acceptance of the pass through certificates from the Pass Through Trustees and
subject to prior sale. The Underwriting Agreement provides that the obligation
of the underwriter to pay for and accept delivery of the pass through
certificates is subject to the approval of certain legal matters by its
counsel and to certain other conditions. The underwriter is obligated to take
and pay for all the certificates if any are taken.
The underwriter initially proposes to offer part of the pass through
certificates directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of % of the principal amount of the pass through
certificates. The underwriter may allow, and such dealers may reallow, a
concession not in excess of % of the principal amount of the pass through
certificates to certain other dealers. After the initial offering of the pass
through certificates, the offering price and other selling terms may from time
to time be varied by the underwriter.
The Company does not intend to apply for listing of the pass through
certificates on a national securities exchange, but has been advised by the
underwriter that it presently intends to make a market in the pass through
certificates, as permitted by applicable laws and regulations. The underwriter
is not obligated, however, to make a market in the pass through certificates
and any such market making may be discontinued at any time at the sole
discretion of the underwriter. Accordingly, no assurance can be given as to
the liquidity of, or trading markets for, the certificates.
In order to facilitate the offering of the pass through certificates, the
underwriter may engage in transactions that stabilize, maintain or otherwise
affect the price of the pass through certificates. Specifically, the
underwriter may over-allot in connection with the offering, creating a short
position in the pass through certificates for their own account. In addition,
to cover over-allotments or to stabilize the price of the pass through
certificates, the underwriter may bid for, and purchase, the pass through
certificates on the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing the pass through certificates in the offering, if the syndicate
repurchases previously distributed common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the pass
through certificates above independent market levels. The underwriter is not
required to engage in these activities, and may end any of these activities at
any time.
From time to time, the underwriter has provided, and continues to provide,
investment banking services to the Company and Fort James.
The Company and Fort James have agreed to indemnify the underwriter against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
It is expected that delivery of the pass through certificates will be made
against payment therefor on or about the date specified in the last paragraph
of the cover page of this Prospectus Supplement, which will be the business
day following the date of pricing of the certificates (such settlement cycle
being herein referred to as "T+ "). Pursuant to the Rule 15c6-1 under the
Securities Exchange Act of 1934, as amended, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade pass through certificates on the date of pricing or the next business
days will be required, by virtue of the fact that the pass through
certificates initially will settle in T+ , to specify an alternate settlement
cycle at the time of any such trade to prevent a failed settlement. Purchasers
of pass through certificates who wish to trade pass through certificates on
the date of pricing or the next business days should consult their own
advisor.
S-40
<PAGE>
LEGAL MATTERS
The validity of the pass through trust certificates offered hereby will be
passed upon for the Company and Fort James by Clifford A. Cutchins, IV, Senior
Vice President and General Counsel of Fort James, and for the Underwriter by
Shearman & Sterling, New York, New York. Mr. Cutchins and Shearman & Sterling
will rely on the opinion of Richards, Layton & Finger, P.A. counsel to
Wilmington Trust Company, as to matters of Delaware Law relating to the pass
through certificates.
S-41
<PAGE>
APPENDIX A
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
1990 Equipment............................................................. S-4
1990 Equipment Lease....................................................... S-10
1990 Transaction........................................................... S-10
1991 Equipment............................................................. S-4
1991 Secured Notes......................................................... S-4
1991 Transaction........................................................... S-10
Additional Notes........................................................... S-24
Assets..................................................................... S-4
Average Life Date.......................................................... S-20
Bankruptcy Code............................................................ S-27
Basic Lease Term........................................................... S-30
Basic Rent................................................................. S-24
Basic Rent Payment Date.................................................... S-30
Casualty Redemption Date................................................... S-19
Cede....................................................................... S-5
Code....................................................................... S-7
Company.................................................................... S-2
Competitor Purchase Option................................................. S-20
Deed....................................................................... S-10
DTC........................................................................ S-5
Early Fixed Price Purchase Option.......................................... S-18
Equipment.................................................................. S-4
Equipment Group............................................................ S-4
ERISA...................................................................... S-7
ERISA Plan................................................................. S-7
Escrow Agent............................................................... S-10
Event of Loss.............................................................. S-35
Excepted Payments.......................................................... S-23
Facility................................................................... S-4
Facility Easements......................................................... S-22
Facility Land.............................................................. S-22
Fort James................................................................. S-2
H.15(519).................................................................. S-20
IDA Escrow Agreement....................................................... S-10
IDA........................................................................ S-10
IDA Lease.................................................................. S-10
Indenture.................................................................. S-4
Indenture Event of Default................................................. S-24
Indenture Trustee.......................................................... S-17
Lease...................................................................... S-4
Lease Event of Default..................................................... S-36
Lessor..................................................................... S-10
Loan Participant........................................................... S-27
Make-Whole Premium......................................................... S-20
Most Recent H.15(519)...................................................... S-20
Owner Trust................................................................ S-4
Owner Trustee.............................................................. S-10
Pass Through Trusts........................................................ S-4
Pass Through Trustees...................................................... S-7
Pass Through Trust Agreement............................................... S-14
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
Pool Factor................................................................ S-15
Pool Balance............................................................... S-15
Power Plant................................................................ S-4
Power Plant Easements...................................................... S-22
Power Plant Land........................................................... S-22
Prohibited Transaction..................................................... S-38
Project.................................................................... S-10
Proportional Amount........................................................ S-18
PTCE....................................................................... S-38
Regular Distribution Date.................................................. S-14
Regulation................................................................. S-39
Remaining Weighted Average Life............................................ S-20
Scheduled Payments......................................................... S-14
Secured Notes.............................................................. S-4
Special Distribution Date.................................................. S-15
Special Payments........................................................... S-15
Special Termination Option................................................. S-20
Substantial Modifications Purchase Option.................................. S-20
Termination Date........................................................... S-34
Treasury Yield............................................................. S-20
Underwriting Agreement..................................................... S-40
</TABLE>
A-2
<PAGE>
PROSPECTUS
$150,000,000
PASS THROUGH CERTIFICATES
----------------
FORT JAMES OPERATING COMPANY
APPLICABLE UNDERLYING PAYMENTS FULLY AND
UNCONDITIONALLY GUARANTEED BY
FORT JAMES CORPORATION
Up to $150,000,000 aggregate public offering price of Pass Through
Certificates (the "Certificates") (or its equivalent (based on the applicable
exchange rate at the time of sale) in one or more foreign currencies or units
based on or related to currencies, including European Currency Units) may be
offered for sale from time to time pursuant to this Prospectus and related
Prospectus Supplements (as defined below). Certificates may be issued in one
or more series in amounts, at prices and on terms to be determined at the time
of the offering. In respect of each offering of Certificates, a separate Fort
James Pass Through Trust for each series of Certificates being offered (each,
a "Pass Through Trust") will be formed, in each case pursuant to a Pass
Through Trust Agreement (the "Basic Agreement"), among Fort James Operating
Company (the "Lessee"), Fort James Corporation ("Fort James" or the "Company")
and Wilmington Trust Company (the "Trustee"), as trustee under each Pass
Through Trust, and a supplement thereto (each, a "Trust Supplement") relating
to such Pass Through Trust to be entered into among the Lessee, Fort James and
the Trustee. Each Certificate in a series will represent a fractional
undivided interest in the related Pass Through Trust and will have no rights,
benefits or interests in respect of any other Pass Through Trust. The property
of each Pass Through Trust will consist of notes (the "Secured Notes") issued
on a nonrecourse basis by one or more owner trustees (each, an "Owner
Trustee") of one or more separate owner trusts (each, an "Owner Trust") in
connection with one or more separate leveraged lease transactions to finance
or refinance all or a portion of the cost of certain real or personal property
to be specified in a Prospectus Supplement, which property may consist of
title to, an estate for years or a leasehold or similar interest in,
equipment, manufacturing or production facilities and other real or personal
property or undivided interests therein (each such specified property, "Leased
Property"). Each Leased Property has been or will be leased or chartered to
the Lessee pursuant to separate lease agreements, sublease agreements,
charters or similar agreements (each, a "Lease"). Although neither the
Certificates nor the Secured Notes will be obligations of, or guaranteed by,
the Lessee or Fort James, the amounts unconditionally payable under the Lease
or Leases related to a Pass Through Trust will be at least sufficient to pay
in full when due all payments of principal and interest and, except in the
limited circumstances set forth in the applicable Prospectus Supplement,
premium, if any, due in respect of the Secured Notes held in that Pass Through
Trust. In the case of each Pass Through Trust, Fort James will fully and
unconditionally guarantee to the holders of Certificates from time to time
(each, a "Parent Guaranty") the full and prompt payment of amounts payable by
the Lessee under a related Lease when and as the same shall become due and
payable.
(Continued on next page)
----------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER 18, 1998.
<PAGE>
(Continued from previous page)
The specific terms of the particular Certificates in respect of which this
Prospectus is being delivered will be set forth in a supplement to this
Prospectus (each, a "Prospectus Supplement") which will be delivered together
with this Prospectus, and which will include, where applicable, the specific
designation, form, aggregate principal amount, initial public offering price
and distribution dates relating to such Certificates, the currency in which
such Certificates will be payable, and the use of the net proceeds from the
offering of such Certificates. The Prospectus Supplement will also describe
the Pass Through Trust or Pass Through Trusts relating to such Certificates,
the Secured Notes to be purchased by such Pass Through Trust or Pass Through
Trusts, each Leased Property relating to such Secured Notes, the leveraged
lease transactions relating to such Secured Notes and other special terms
relating to such Certificates.
If so specified in a Prospectus Supplement related to an offering of
Certificates, the Trust Property (as defined below) of a Pass Through Trust
will consist of Secured Notes related to Leased Property which are
subordinated in right of payment to other Secured Notes related to the same
Leased Property. In respect of such offering, only Secured Notes having the
same priority of payment may be held in the same Pass Through Trust. In
addition, the related Prospectus Supplement may provide that the Trustees on
behalf of the applicable Pass Through Trusts may enter into an intercreditor
or subordination agreement establishing priorities among series of
Certificates or that one or more payments of interest on the related Secured
Notes of one or more series or distributions made by the Trustee of the
related Pass Through Trust will be supported by a liquidity facility issued by
an institution identified in the related Prospectus Supplement.
Secured Notes may be issued in respect of one or more items of Leased
Property. Secured Notes in respect of a particular item of Leased Property may
be issued in one or more series, each of which may have a different interest
rate and a different final maturity date. For each series of Certificates, the
Trustee will purchase one or more Secured Notes issued with respect to one or
more items of Leased Property such that all of the Secured Notes held in the
related Pass Through Trust will have identical interest rates (in each case
equal to the rate applicable to the Certificates issued by such Pass Through
Trust), and such that the latest maturity date for such Secured Notes will
occur on or before the final distribution date for such Certificates. Interest
paid on the Secured Notes held in each Pass Through Trust will be passed
through to the holders of the Certificates relating to such Pass Through Trust
on the dates and at the rate per annum set forth in the Prospectus Supplement
relating to such Certificates until the final distribution date for such Pass
Through Trust. Principal paid on the Secured Notes held in each Pass Through
Trust will be passed through to the holders of the Certificates relating to
such Pass Through Trust in scheduled amounts on the dates set forth in the
Prospectus Supplement relating to such Certificates until the final
distribution date for such Pass Through Trust. The Secured Notes to be held in
a Pass Through Trust will be secured by (i) an assignment of certain of the
issuing Owner Trustee's rights as lessor or charterer under the Lease relating
to the Leased Property to which such Secured Notes relate, including the right
to receive rentals and certain other payments from the Lessee, (ii) an
assignment of certain of such Owner Trustee's rights under the Parent Guaranty
relating to such Leased Property and (iii) to the extent specified in the
applicable Prospectus Supplement, a mortgage or other security interest in
such Leased Property or in construction contracts or other agreements,
collateral accounts or other security, in each case subject to the rights of
the Lessee under the related Lease and other rights, if any, described in the
applicable Prospectus Supplement.
The Certificates may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." Each Prospectus
Supplement will set forth the names of any underwriters, dealers or agents
involved in the sale of the Certificates in respect of which that Prospectus
Supplement is being delivered, the proposed amounts, if any, to be purchased
by underwriters and the compensation, if any, of such underwriters or agents.
See "Plan of Distribution" for information concerning secondary trading of the
Certificates.
2
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY RELATED PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND SUCH
PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FORT
JAMES, THE LESSEE OR ANY UNDERWRITERS, AGENTS OR DEALERS. THIS PROSPECTUS AND
ANY RELATED PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS AND ANY RELATED PROSPECTUS SUPPLEMENT NOR ANY SALE
MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FORT JAMES OR ANY
LESSEE SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 4
FORMATION OF THE TRUSTS.................................................... 5
OUTLINE OF THE LEVERAGED LEASE STRUCTURE................................... 5
USE OF PROCEEDS............................................................ 7
THE COMPANY................................................................ 8
THE LESSEE................................................................. 8
RATIO OF EARNINGS TO FIXED CHARGES OF FORT JAMES CORPORATION............... 9
DESCRIPTION OF THE CERTIFICATES............................................ 10
DESCRIPTION OF THE SECURED NOTES........................................... 21
FEDERAL INCOME TAX CONSEQUENCES............................................ 25
CERTAIN DELAWARE TAXES..................................................... 27
ERISA CONSIDERATIONS....................................................... 28
PLAN OF DISTRIBUTION....................................................... 28
LEGAL OPINIONS............................................................. 29
EXPERTS.................................................................... 30
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION
Fort James and the Lessee have filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (together
with any amendments thereto, the "Registration Statement") under the
Securities and Exchange Act of 1933, as amended (the "Securities Act"), with
respect to Certificates offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, omits certain information contained in the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to Fort James, the Lessee or
the Certificates offered hereby, reference is made to the Registration
Statement, exhibits, financial statements, notes and schedules filed as part
thereof, which may be inspected at the public reference facilities of the
Commission at the addresses set forth below. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the
document or matter involved, and each such statement made herein with respect
to such contract, agreement or document shall be deemed to be qualified in its
entirety by such reference.
Fort James is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other
information with the Commission. Such reports, proxy and information
statements, and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can also be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such information may also be accessed electronically by
means of the Commission's website on the Internet (http://www.sec.gov). Fort
James' common stock is listed on the New York Stock Exchange, and such
reports, proxy and information statements, and other information concerning
the Company can be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
No separate financial statements of the Lessee have been included or
incorporated by reference herein. Fort James and the Lessee do not consider
that such financial statements would be material to holders of the
Certificates because (i) all of the voting securities of the Lessee are owned,
directly or indirectly, by Fort James, a reporting company under the Exchange
Act and (ii) the obligations of the Lessee are fully and unconditionally
guaranteed by Fort James pursuant to Parent Guaranties as and to the extent
described herein. See "The Lessee," "Description of the Certificates," and
"Parent Guaranties."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are hereby incorporated by
reference into this Prospectus (File No. 1-7911):
(a) the Annual Report of Fort James on Form 10-K for the fiscal year
ended December 28, 1997;
(b) the Quarterly Reports of Fort James on Form 10-Q for the quarters
ended March 29, 1998, June 28, 1998 and September 27, 1998; and
(c) the Current Reports of Fort James on Form 8-K dated February 3, 1998,
March 2, 1998, March 9, 1998 and March 24, 1998, respectively.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date of the Registration Statement
on Form S-3 of which this Prospectus is a part and prior to the effectiveness
thereof and prior to the termination of the offering of the Certificates made
hereby shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the respective dates of
4
<PAGE>
filing of such documents. Any statement contained herein or in a document all
or any portion of which is incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. As used herein, the
terms "Prospectus" and "herein" mean this Prospectus, including the documents
incorporated by reference, as the same may be amended, supplemented, or
otherwise modified from time to time. Statements contained in this Prospectus
as to the contents of any contract or other document referred to herein do not
purport to be complete and are qualified in all respects by reference to all
of the provisions of such contract or other document.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may
be incorporated in this Prospectus by reference, other than exhibits to such
documents which are not specifically incorporated by reference in such
documents. Requests for such copies should be directed to Celeste Gunter,
Director, Investor Relations, Fort James Corporation, 120 Tredegar Street,
Richmond, Virginia 23219 (telephone (804) 649-4307).
FORMATION OF THE TRUSTS
In respect of each offering of Certificates, a separate Pass Through Trust
for each series of Certificates being offered will be formed pursuant to the
Basic Agreement and a Trust Supplement to be entered into among Fort James,
the Trustee and the Lessee. Following the execution and delivery of a Trust
Supplement, the Trustee, on behalf of the related Pass Through Trust, will
purchase the Secured Notes to be held in such Pass Through Trust having an
interest rate (or, in the case of Secured Notes with a zero coupon, accrual
rate) equal to the interest rate (or accrual rate) applicable to the
Certificates evidencing interests in such Pass Through Trust. The maturity
date of the Secured Notes acquired by a Pass Through Trust will occur not
later than the final scheduled distribution date applicable to the
Certificates evidencing an interest in such Pass Through Trust. The Trustee
will distribute all payments of principal, premium, if any, and interest
received by it as holder of such Secured Notes to the holders of Certificates
evidencing an interest in the Pass Through Trust in which such Secured Notes
are held. See "Description of the Certificates."
OUTLINE OF THE LEVERAGED LEASE STRUCTURE
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates offered pursuant to any Prospectus Supplement will be issued to
facilitate the acquisition or refinancing by one or more Owner Trustees, each
acting not in its individual capacity (except as expressly set forth in such
Prospectus Supplement) but solely as trustee under a separate trust agreement
(each, an "Owner Trust Agreement") for one or more equity investors (each an
"Owner Participant"), of certain items of Leased Property. Owner Participants
may include affiliates of Fort James. Not later than the delivery date of the
applicable Leased Property to an Owner Trustee, such Owner Trustee will lease
or charter such Leased Property to a Lessee pursuant to a separate Lease. Such
Lessee may initially sublease or subcharter such Leased Property to an
affiliate of Fort James.
The Owner Trustees will obtain a portion of the funding for the Leased
Property from the equity investments of the related Owner Participants, which
will be the beneficiaries of the related Owner Trusts. The Owner Trustee will
obtain the remainder of the funding from the issuance on a nonrecourse basis
of the Secured Notes to be held in the related Pass Through Trusts and, to the
extent set forth in the applicable Prospectus Supplement, additional debt
secured by such Leased Property or other sources. The Secured Notes to be held
in the Pass Through Trusts will be acquired by the Trustee with the proceeds
from the sale of Certificates.
5
<PAGE>
Secured Notes relating to Leased Property will be issued under an indenture
and security agreement or a similar agreement (each, an "Indenture") with
respect to such Leased Property. Each Indenture will be entered into by and
among a financial institution (the "Corporate Indenture Trustee") and, where
required by applicable law, an individual who may be an officer or employee of
the Corporate Indenture Trustee (the "Individual Indenture Trustee"), as
trustees thereunder (the Corporate Indenture Trustee and the Individual
Indenture Trustee, in such capacities, the "Indenture Trustees"), and the
issuing Owner Trustee. No Owner Trustee or Owner Participant will be
personally liable for any amount payable under the related Indenture or the
Secured Notes issued thereunder.
The Secured Notes issued under each Indenture and held in each Pass Through
Trust will be secured by (i) an assignment of certain of the related Owner
Trustee's rights as lessor or charterer under the Lease with respect to the
applicable Leased Property, including the right to receive certain rentals and
other payments from the Lessee, (ii) an assignment of certain of such Owner
Trustee's rights under the Parent Guaranty relating to such Leased Property,
and (iii) to the extent specified in the applicable Prospectus Supplement, a
mortgage or other security interest in such Leased Property, or in
construction contracts or other agreements, collateral accounts or other
security, in each case subject to the rights of the Lessee under the related
Lease and other rights, if any, described in the applicable Prospectus
Supplement. (Such security with respect to each Indenture shall be referred to
as the "Indenture Estate.") Unless otherwise set forth in the applicable
Prospectus Supplement, the Secured Notes issued under an Indenture will not be
secured by any of the Leased Properties securing the Secured Notes issued
under any other Indenture (including any other Leased Properties acquired by
the related Owner Trustee) and will not be cross-defaulted with Secured Notes
issued under any other Indenture (including any other Indenture entered into
by such Owner Trustee).
The rents and other amounts payable by the Lessee under the related Lease
will be sufficient to pay in full when due all payments of principal and
interest and, except in the limited circumstances set forth in the applicable
Prospectus Supplement, premium, if any, due in respect of the Secured Notes
issued under the Indenture. The Secured Notes will not be recourse obligations
of any Owner Participant or issuing Owner Trustee, but will be payable solely
from the rents or charter hire and other amounts payable under the Lease of
the Leased Property securing such Secured Notes and amounts realized from the
exercise of the Indenture Trustee's remedies under the Indenture against the
related Indenture Estate. Pursuant to a Parent Guaranty, Fort James will fully
and unconditionally guarantee the full and prompt payments payable by the
Lessee under the related Lease when and as the same shall become due and
payable. See "Description of the Secured Notes."
6
<PAGE>
USE OF PROCEEDS
The Certificates offered pursuant to this Prospectus and a related
Prospectus Supplement will be issued in order to facilitate the financing or
refinancing of all or a portion of the cost of certain Leased Property
specified in such Prospectus Supplement. Except as set forth in a Prospectus
Supplement for a specific offering of Certificates, the proceeds from the sale
of the Certificates will be used by the Trustee or Trustees on behalf of the
applicable Pass Through Trust or Pass Through Trusts to purchase Secured
Notes. See "Description of the Certificates" and "Description of the Secured
Notes." In the event that, at the time Certificates are issued, the Secured
Notes to be purchased by the applicable Pass Through Trust or Pass Through
Trusts are not available for purchase, the proceeds of the sale of such
Certificates may be used by the Trustee to purchase certain limited
investments on an interim basis, as described in the applicable Prospectus
Supplement. In such event, any portion of the proceeds of the sale of such
Certificates not used for the purchase of Secured Notes on or prior to the
date set forth in such Prospectus Supplement will be distributed on a Special
Distribution Date (as defined below) to the applicable Certificateholders,
together with interest, but without premium. See "Description of the
Certificates--Delayed Purchase."
7
<PAGE>
THE COMPANY
Fort James is a preeminent worldwide manufacturer and marketer of paper-
based consumer products, including towel and tissue products as well as
disposable tabletop and food service products. The Company's principal towel
and tissue products include bathroom tissue, paper towels, table napkins,
boxed facial tissue and wipers. Disposable tabletop and food service products
include paper and plastic cups, paper plates and plastic cutlery. Fort James
also produces and markets paper-based packaging for food and pharmaceuticals
and communications papers.
Fort James is the result of the merger of a wholly owned subsidiary of James
River Corporation of Virginia ("James River") into Fort Howard Corporation
("Fort Howard") in August 1997 (the "Merger"). In connection with the Merger,
James River was renamed "Fort James Corporation."
Fort James' principal U.S. retail tissue brands include QUILTED NORTHERN
bathroom tissue, BRAWNY paper towels, MARDI GRAS printed napkins and paper
towels, VANITY FAIR premium dinner napkins, NORTHERN paper napkins, SOFT'N
GENTLE bath and facial tissue, SO-DRI paper towels and GREEN FOREST recycled
tissue products. The Company's principal retail tabletop brand is its DIXIE
brand of disposable cups and plates. Fort James also believes it is the
leading supplier of private label tissue products and the leading supplier of
both tissue and disposable tabletop products to the growing warehouse club
channel.
The U.S. away-from-home channel, where the Company sells its products to
food service, janitorial supply and sanitary paper distributors for use in
restaurants, offices, factories, hospitals, schools and hotels, is also an
important distribution channel for the Company. The Company is a leading
producer of tissue products for the U.S. away-from-home channel and is also
one of the largest producers of disposable cups, plates and related products
for the away-from-home food service industry.
In Europe, sales into retail channels are supported by both branded and
private label products offerings. European branded products include LOTUS
bathroom tissue and VANIA feminine hygiene products, sold primarily in France,
COLHOGAR bathroom tissue, sold in Spain, TENDERLY bathroom tissue, sold in
Italy, and KITTENSOFT and INVERSOFT bathroom tissue, sold in the British
Isles.
The Company believes that it is among the lowest-cost producers of tissue
products in North America. The Company believes its cost advantage in North
America is derived from a number of factors, including the size and scale of
certain of its manufacturing plants, the competitive state of its tissue-
making manufacturing assets and the benefits it realizes from the Fort Howard
proprietary deinking technology.
The Company's principal executive offices are located at 1650 Lake Cook
Road, Deerfield, Illinois 60015-4753, telephone (847) 317-5000.
THE LESSEE
The Lessee is a wholly owned subsidiary of Fort James. The Lessee is a
principal operating subsidiary of the Company. The Lessee's offices are
located at 1650 Lake Cook Road, Deerfield, Illinois 60015-4753, telephone
(847) 317-5000.
8
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES OF FORT JAMES CORPORATION
The following table sets forth the ratio of earnings to fixed charges for
the periods indicated.
<TABLE>
<CAPTION>
NINE
FISCAL YEAR ENDED MONTHS ENDED
------------------------------------------------- ---------------
12/26/93 12/25/94 12/31/95 12/29/96 12/28/97 9/28/97 9/27/98
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges
(unaudited)(1)........ -- (2)(3) -- (2) 1.45x 2.06x 1.64x 2.82x 3.48x
</TABLE>
- --------
(1) In computing the ratio of earnings to fixed charges, earnings consist of
income before income taxes, extraordinary items, the cumulative effect of
changes in accounting principles, minority interests, and fixed charges
excluding capitalized interest. Fixed charges consist of interest expense,
capitalized interest, and that portion of rental expense (one-third)
deemed representative of the interest factor. Earnings and fixed charges
also include the Company's proportionate share of such amounts for
unconsolidated affiliates which are owned 50% or more and distributed
income from less than 50% owned affiliates. The ratios of earnings to
fixed charges give retroactive effect to the Merger in a transaction
accounted for as a pooling of interests.
(2) For the years ended December 26, 1993 and December 25, 1994, earnings were
inadequate to cover fixed charges; the amounts of the deficiencies of
earnings compared to fixed charges were $2,056.0 million and $84.0 million
for 1993 and 1994, respectively.
(3) Includes a pretax charge of $1.98 billion related to the write-off of
goodwill.
9
<PAGE>
DESCRIPTION OF THE CERTIFICATES
In connection with each offering of Certificates, one or more separate Pass
Through Trusts will be formed and one or more series of Certificates will be
issued pursuant to the Basic Agreement and one or more separate Trust
Supplements will be entered into among Fort James, the Lessee and the Trustee
on behalf of the related Pass Through Trust. The statements made under this
caption are summaries and do not purport to be complete. Reference is made to,
and the summaries are qualified in their entirety by reference to, the
detailed provisions of the Basic Agreement, the form of which has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part
and which will be qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The summaries relate to the Basic Agreement to be
entered into and each of the Trust Supplements, the Pass Through Trusts to be
formed thereby and the Certificates to be issued by each Pass Through Trust
except to the extent, if any, described in the applicable Prospectus
Supplement. Reference is also made to, and the summaries are qualified in
their entirety by reference to, the detailed provisions of the form of Parent
Guaranty, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Trust Supplement relating to each series
of Certificates and the forms of the related Indenture, Lease, Participation
Agreement or similar agreements will be filed as exhibits to a post-effective
amendment to the Registration Statement of which this Prospectus is a part, a
Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an Annual
Report on Form 10-K, as applicable, to be filed by Fort James with the
Commission.
The Certificates offered pursuant to this Prospectus will be limited to
$150,000,000 aggregate public offering price (or its equivalent (based on the
applicable exchange rate at the time of sale) in one or more foreign
currencies or units based on or related to currencies, including European
Currency Units).
Certain provisions of the description of the Certificates in this Prospectus
do not necessarily apply to one Certificate of each Pass Through Trust which
may be issued in a denomination of less than $1,000.
To the extent that any provision in any Prospectus Supplement is
inconsistent with any provision in this summary, the provision of such
Prospectus Supplement will control.
GENERAL
Each Certificate will represent a fractional undivided interest in the Pass
Through Trust created by the Trust Supplement pursuant to which such
Certificate was issued and all payments and distributions shall be made only
from the related Trust Property. The property of each Pass Through Trust (the
"Trust Property") will include the Secured Notes held in such Pass Through
Trust, all monies at any time paid thereon and all monies due and to become
due thereunder and funds from time to time deposited with the Trustee in
accounts relating to such Pass Through Trust. Each Certificate will represent
a pro rata share of the outstanding principal amount of the Secured Notes held
in the related Pass Through Trust and, unless otherwise specified in the
applicable Prospectus Supplement, will be issued in minimum denominations of
$1,000 or any integral multiple thereof. The Certificates do not represent an
interest in or obligation of Fort James, the Lessee, the Trustee, any of the
Indenture Trustees or Owner Trustees in their individual capacities, any Owner
Participant, or any of their respective affiliates. Each Certificateholder by
its acceptance of a Certificate agrees to look solely to the income and
proceeds from the Trust Property as provided in the Basic Agreement and the
applicable Trust Supplement.
No holder of a Certificate issued with respect to a Pass Through Trust will
have any rights, benefits or interests in respect of any other Pass Through
Trust or in the property held by any other Pass Through Trust. All payments
and distributions on the Certificates will be made only from the related Trust
Property, or pursuant to intercreditor, subordination or similar agreements to
which the related Trustee may be a party.
Secured Notes issued under an Indenture may be held in more than one Pass
Through Trust and one Pass Through Trust may hold Secured Notes issued under
more than one Indenture.
10
<PAGE>
Interest will be passed through to Certificateholders of each Pass Through
Trust at the rate per annum payable on the Secured Notes held in such Pass
Through Trust, as set forth for such Pass Through Trust on the cover page of
the applicable Prospectus Supplement.
None of the Basic Agreement, the Indentures nor the Leases will include
financial covenants or "event risk" provisions that would afford
Certificateholders protection in the event of a highly leveraged or other
transaction involving Fort James or the Lessee. The Certificateholders will
have the benefit of a lien on the Leased Property and the other property in
each Indenture Estate securing the Secured Notes held in the related Pass
Through Trust, as discussed under "Description of the Secured Notes--
Security."
Reference is made to the Prospectus Supplement that accompanies this
Prospectus for a description of the specific series of Certificates being
offered thereby, including: (1) the specific designation and title of such
Certificates; (2) the Regular Distribution Dates (as defined below) and
Special Distribution Dates (as defined below) applicable to such Certificates;
(3) the currency or currencies (including currency units) in which such
Certificates may be denominated; (4) the specific form of such Certificates,
including whether or not such Certificates are to be issued in accordance with
a book-entry system; (5) a description of the Secured Notes to be purchased by
the related Pass Through Trust, including the period or periods within which,
the price or prices at which, and the terms and conditions upon which such
Secured Notes may or must be redeemed, purchased or defeased in whole or in
part, by the Lessee or the related Owner Trustee or Owner Participant, (6) a
description of the related Leased Property and the rights and interests of the
related Owner Trustee, the Lessee and others therein; (7) a description of the
related Indenture, including a description of the events of default under the
related Indenture, the remedies exercisable upon the occurrence of such events
of default and any limitations on the exercise of such remedies with respect
to such Secured Notes; (8) a description of the related Lease, Owner Trust
Agreement and Participation Agreement, including (a) the names of the related
Owner Trustees, (b) a description of the events of default under the related
Leases, the remedies exercisable upon the occurrence of such events of default
and any limitations on the exercise of such remedies with respect thereto, and
(c) the rights of the related Owner Trustee, if any, and/or Owner Participant,
if any, to cure failures of the Lessee to pay rent under the related Lease;
(9) the extent, if any, to which the provisions of the operative documents
applicable to such Secured Notes may be amended by the parties thereto without
the consent of the holders of, or only upon the consent of the holders of a
specified percentage of aggregate principal amount of, such Secured Notes;
(10) the terms of the related Parent Guaranty; (11) the terms of any
intercreditor, subordination or similar agreement relating to the Certificates
or Secured Notes or of any liquidity or credit facility; and (12) any other
special terms pertaining to such Certificates or Secured Notes, including any
modification of the terms set forth herein.
If any Certificates are denominated in one or more foreign currencies or
currency units, the restrictions, certain United States federal income tax
considerations, specific terms and other information with respect to such
Certificates and such foreign currency or currency units will be set forth in
the applicable Prospectus Supplement.
If any Certificates relate to Secured Notes that were sold at a substantial
discount below the stated principal amount of such Secured Notes, certain
United States federal income tax considerations, specific terms and other
information with respect to such Certificates will be set forth in the
applicable Prospectus Supplement.
BOOK-ENTRY REGISTRATION
General
If specified in the applicable Prospectus Supplement, the Certificates
issued thereunder will be subject to the provisions described below and under
the caption "--Definitive Certificates." Upon issuance, each series of
Certificates will be represented by one fully registered global certificate.
Each global certificate will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co.
("Cede"), or its nominee. No person acquiring an interest in such Certificates
("Certificate Owner") will be entitled to receive a certificate representing
such person's interest in such Certificates, except as set forth below under
"--Definitive Certificates." Unless and until Definitive Certificates (as
defined below) are issued under
11
<PAGE>
the limited circumstances described herein and in the applicable Prospectus
Supplement, all references to actions by Certificateholders shall refer to
actions taken by DTC upon instructions from DTC Participants (as defined
below), and all references herein to distributions, notices, reports and
statements to Certificateholders shall refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of such Certificates, or to DTC Participants for
distribution to Certificate Owners in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to section 17A of the Exchange Act. DTC holds
securities for its participants ("DTC Participants") and facilitates the
clearance and settlement of securities transactions between DTC Participants
through electronic computerized book-entries in DTC Participants' accounts,
thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a DTC Participant either
directly or indirectly ("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Certificates may do so only through DTC Participants and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC
Participants or Indirect Participants, as the case may be. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, because such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments in same-day funds to DTC
Participants who are credited with ownership of the Certificates in amounts
proportionate to the principal amount of each such DTC Participant's
respective holdings of beneficial interests in the Certificates. DTC
Participants will thereafter forward payments to Indirect Participants or
Certificate Owners, as the case may be, in accordance with customary industry
practices. The forwarding of such distributions to the Certificate Owners will
be the responsibility of such DTC Participants. Unless and until the
Definitive Certificates are issued under the limited circumstances described
herein, the only "Certificateholder" will be Cede, as nominee of DTC.
Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Basic Agreement, and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Certificates among DTC Participants on whose behalf it acts with respect
to the Certificates and to receive and transmit to DTC Participants
distributions of principal, premium, if any, and interest with respect to the
Certificates. DTC Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective customers. Accordingly, although
Certificate Owners will not possess the Certificates, the Rules provide a
mechanism by which Certificate Owners will receive payments and will be able
to transfer their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
the Certificates to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Certificates, may be limited
due to the lack of a physical certificate for such Certificates.
DTC will take any action permitted to be taken by a Certificateholder under
the Basic Agreement only at the direction of one or more DTC Participants to
whose accounts with DTC the Certificates are credited. Additionally, in the
event any action requires approval by Certificateholders of a certain
percentage of beneficial interest in each Pass Through Trust, DTC will take
such action only at the direction of and on behalf of DTC Participants whose
holders include undivided interests that satisfy any such percentage. DTC may
take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of DTC Participants whose holders
include such undivided interests.
12
<PAGE>
None of Fort James, the Lessee or the Trustee will have any liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Certificates held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The applicable Prospectus Supplement will specify any additional book-entry
registration procedures applicable to Certificates denominated in a currency
other than United States dollars.
The information in this section concerning DTC and DTC's book-entry system
has been attained from sources that Fort James believes to be reliable, but
neither Fort James nor the Lessee has independently verified such information
or takes responsibility for its accuracy.
Definitive Certificates
Certificates will be issued in fully registered certificated form
("Definitive Certificates") to Certificate Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Lessee advises the Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Certificates and the
Trustee or such Lessee is unable to locate a qualified successor, (ii) the
Lessee, at its option, elects to terminate the book-entry system through DTC
or (iii) after the occurrence of certain events of default or other events
specified in the related Prospectus Supplement, Certificate Owners of
Certificates evidencing fractional undivided interests aggregating not less
than a majority in interest in the related Pass Through Trust advise the
Trustee, the Lessee and DTC through DTC Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Certificate Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners
through DTC Participants of the availability of Definitive Certificates. Upon
surrender by DTC of the global certificates representing the Certificates and
receipt of instructions for re-registration, the Trustee will reissue the
Certificates as Definitive Certificates to Certificate Owners.
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the Trustee directly in accordance
with the procedures set forth in the Basic Agreement and the applicable Trust
Supplements, to holders in whose names the Definitive Certificates were
registered at the close of business on the applicable record date. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Trustee. The final payment on any
Certificate, however, will be made only upon presentation and surrender of
such Certificate at the office or agency specified in the notice of final
distribution to Certificateholders.
Definitive Certificates will be freely transferable and exchangeable at the
office of the Trustee upon compliance with the requirements set forth in the
Basic Agreement and the applicable Trust Supplements. No service charge will
be imposed for any registration of transfer or exchange, but payment of a sum
sufficient to cover any tax or other governmental charge shall be required.
Payments and Distributions
Payments of principal, premium, if any, and interest with respect to the
Secured Notes held in each Pass Through Trust will be distributed by the
Trustee, upon receipt, to Certificateholders of such Pass Through Trust on the
dates and in the currency specified in the applicable Prospectus Supplement,
except in certain cases when some or all of such Secured Notes are in default
as described in the applicable Prospectus Supplement. Payments of principal
of, and interest on, the Secured Notes held in each Pass Through Trust will be
scheduled to be received by the Trustee on the dates specified in the
applicable Prospectus Supplement (such scheduled payments of interest and
principal on the Secured Notes to the Trustee are herein referred to as
"Scheduled Payments," and the dates specified in the applicable Prospectus
Supplement for distribution of Scheduled Payments by the Trustee are herein
referred to as "Regular Distribution Dates"). Each Certificateholder of each
Pass Through Trust will be entitled to receive a pro rata share of any
distribution in respect of Scheduled Payments of principal
13
<PAGE>
and interest made on the Secured Notes held in such Pass Through Trust. The
Regular Distribution Dates on which, and the amounts in which, Scheduled
Payments of principal on the Secured Notes held in each Pass Through Trust are
payable will be set forth in the accompanying Prospectus Supplement.
Payments of principal, premium, if any, and interest received by the Trustee
on account of the redemption or purchase, if any, of any of the Secured Notes
held in a Pass Through Trust, and payments received by the Trustee following
an Event of Default (as defined below) in respect of any of the Secured Notes
held in a Pass Through Trust (including payments received by the Trustee on
account of the purchase by the related Owner Trustees or Owner Participants of
such Secured Notes or payments received on account of the sale of such Secured
Notes by the Trustee) ("Special Payments") will be distributed on a date or
dates described in the accompanying Prospectus Supplement (each, a "Special
Distribution Date"). The Trustee will mail notice to the Certificateholders of
record of the related Pass Through Trust not less than 20 days prior to the
Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Trustee in the event the Secured Notes are to be redeemed
or purchased prior to their maturity and, in all other instances, as soon as
practicable after the Trustee has received the Special Payment. The notice
will specify the anticipated Special Distribution Date, the amount of such
anticipated Special Payment, the reason for the Special Payment and the total
amount to be distributed if such Special Distribution Date is the same date as
a Regular Distribution Date. Each distribution of a Special Payment, other
than a final distribution, on a Special Distribution Date for a Pass Through
Trust will be made by the Trustee to the Certificateholders of such Pass
Through Trust on the record date prior to such Special Distribution Date.
The Basic Agreement requires that the Trustee establish and maintain, for
the benefit of the Certificateholders of each Pass Through Trust, one or more
non-interest bearing accounts (with respect to each such Pass Through Trust,
the "Certificate Account") for the deposit of payments representing Scheduled
Payments on the Secured Notes held in the related Pass Through Trust. The
Basic Agreement also requires that the Trustee establish and maintain, for the
benefit of the Certificateholders of each Pass Through Trust, one or more non-
interest bearing accounts (with respect to each such Pass Through Trust, the
"Special Payments Account") for the deposit of payments representing Special
Payments. Pursuant to the terms of the Basic Agreement, the Trustee is
required to deposit any Scheduled Payments on the Secured Notes held in the
applicable Pass Through Trust received by it in the Certificate Account for
such Pass Through Trust and to deposit any Special Payments so received by it
in the Special Payments Account for such Pass Through Trust. All amounts so
deposited will be distributed by the Trustee on a Regular Distribution Date or
a Special Distribution Date, as the case may be, to the Certificateholders of
such Pass Through Trust.
If any Regular Distribution Date or Special Distribution Date is not a
business day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding business
day without interest.
Pool Factors
Unless there has been an early redemption, or a purchase of one or more of
the Secured Notes held in a Pass Through Trust by the related Owner Trustee or
Owner Participant after an Indenture Event of Default (as defined below), a
default in the payment of principal in respect of one or more issues of the
Secured Notes held in a Pass Through Trust or certain actions have been taken
following a default thereon, as described in the applicable Prospectus
Supplement, the Pool Factor (as defined below) for each Pass Through Trust
will decline in proportion to the scheduled repayments of principal on the
Secured Notes held in such Pass Through Trust as described in the applicable
Prospectus Supplement. In the event of such redemption, purchase or default,
the Pool Factor and the Pool Balance (as defined below) of each Pass Through
Trust so affected will be recomputed after giving effect thereto and notice
thereof will be mailed to the Certificateholders of such Pass Through Trust.
Each Pass Through Trust will have a separate Pool Factor.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Pass Through Trust indicates, as of any Regular
Distribution Date or Special Distribution Date, the aggregate unpaid
14
<PAGE>
principal amount of the Secured Notes held in such Pass Through Trust on such
date plus any amounts in respect of principal on such Secured Notes held by
the Trustee and not yet distributed. The Pool Balance for each Pass Through
Trust as of any Regular Distribution Date or Special Distribution Date shall
be computed after giving effect to the payment of principal, if any, on the
Secured Notes held in such Pass Through Trust and the distribution thereof to
be made on that date.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Factor" for each Pass Through Trust as of any Regular Distribution Date
or Special Distribution Date is the quotient (rounded to the seventh decimal
place) computed by dividing (i) the then outstanding Pool Balance by (ii) the
aggregate original principal amount of the Certificates issued by such Pass
Through Trust. The Pool Factor for each Pass Through Trust as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Secured Notes held in such
Pass Through Trust and distribution thereof to be made on that date. The Pool
Factor for each Pass Through Trust will initially be 1.0000000; thereafter,
the Pool Factor for each Pass Through Trust will decline as described above to
reflect reductions in the Pool Balance of such Pass Through Trust. The amount
of a Certificateholder's pro rata share of the Pool Balance of a Pass Through
Trust can be determined by multiplying the original denomination of the
holder's Certificate of such Pass Through Trust by the Pool Factor for such
Pass Through Trust as of the applicable Regular Distribution Date or Special
Distribution Date. The Pool Factor and the Pool Balance for each Pass Through
Trust will be mailed to Certificateholders of such Pass Through Trust on each
Regular Distribution Date and Special Distribution Date.
Reports to Certificateholders
On each Regular Distribution Date and Special Distribution Date, the Trustee
will include with each distribution of a Scheduled Payment or Special Payment
to Certificateholders of the related Pass Through Trust a statement, giving
effect to such distribution to be made on such Regular Distribution Date or
Special Distribution Date, as the case may be, setting forth the following
information (per $1,000 aggregate principal amount of Certificate for such
Pass Through Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the amount
allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Pass Through Trust.
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, on the record date prior to each Regular Distribution Date and
Special Distribution Date, the Trustee will request from DTC a Securities
Position Listing setting forth the names of all DTC Participants reflected on
DTC's books as holding interests in the Certificates on such record date. On
each Regular Distribution Date and Special Distribution Date, the Trustee will
mail to each such DTC Participant the statement described above and will make
available additional copies as requested by such DTC Participant for
forwarding to Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of each Pass Through Trust at any time during the
preceding calendar year a report containing the sum of the amounts determined
pursuant to clauses (i) and (ii) above with respect to the Pass Through Trust
for such calendar year or, in the event such person was a Certificateholder
during only a portion of such calendar year, for the applicable portion of
such calendar year, and such other items as are readily available to the
Trustee and which a Certificateholder shall reasonably request as necessary
for the purpose of such Certificateholder's preparation of its federal income
tax returns. Such report and such other items shall be prepared on the basis
of information supplied to the Trustee by the DTC Participants and shall be
delivered by the Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificate Owners in the manner
described above.
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates, the Trustee will prepare and deliver the information
described above to each Certificateholder of record of each Pass Through Trust
as the name and period of beneficial ownership of such Certificateholder
appears on the records of the registrar of the Certificates.
15
<PAGE>
Voting of Secured Notes
The Trustee, as holder of the Secured Notes held in a Pass Through Trust,
will have the right to vote and give consents and waivers with respect to such
Secured Notes under the related Indenture. The Basic Agreement and related
Trust Supplement will set forth (i) the circumstances in which a Trustee may
direct any action or cast any vote, as the holder of the Secured Notes held in
the applicable Pass Through Trust, in its own discretion, (ii) the
Circumstances in which such Trustee shall seek instructions from the
Certificateholders of such Pass Through Trust and (iii) the percentage of
Certificateholders required to direct such Trustee to take any such action.
Events of Default and Certain Rights upon an Event of Default
The Basic Agreement defines an event of default with respect to a Trust (an
"Event of Default") as the occurrence and continuance of an event of default
under one or more of the related Indentures (an "Indenture Event of Default").
The Prospectus Supplement for a series of Certificates will specify the
Indenture Events of Default under the related Indentures. Certain of the
Indenture Events of Default will arise with reference to events of default
under the relevant Lease (a "Lease Event of Default"). Since the Secured Notes
issued under an Indenture may be held in more than one Pass Through Trust, a
continuing Indenture Event of Default under such Indenture would result in an
Event of Default under each Pass Through Trust holding such Secured Notes.
Unless otherwise provided in a Prospectus Supplement, all of the Secured Notes
issued under the same Indenture will relate only to specified Leased Property,
there will be no cross-collateralization or cross-default provisions in the
Indentures, and events resulting in an Indenture Event of Default under any
particular Indenture will not necessarily result in an Indenture Event of
Default occurring under any other Indentures. If an Indenture Event of Default
occurs in fewer than all of the Indentures related to a Pass Through Trust,
notwithstanding the treatment of Secured Notes issued under any related
Indenture under which an Indenture Event of Default has occurred, payments of
principal and interest on the Secured Notes issued pursuant to any related
Indenture with respect to which an Indenture Event of Default has not occurred
will continue to be made as originally scheduled.
The ability of the applicable Owner Trustee or Owner Participant under the
related Indenture to cure Indenture Events of Default, including Indenture
Events of Default that result from the occurrence of a Lease Event of Default
under the related Lease, will be described in the applicable Prospectus
Supplement.
The ability of the Certificateholders with respect to any one Pass Through
Trust to cause the Indenture Trustee with respect to any Secured Notes held in
such Pass Through Trust to accelerate the Secured Notes under the related
Indenture or to direct the exercise of remedies by the Indenture Trustee under
the related Indenture will depend, in part, upon the proportion between the
aggregate principal amount of the Secured Notes outstanding under such
Indenture and held in such Pass Through Trust and the aggregate principal
amount of all Secured Notes outstanding under such Indenture. If Secured Notes
outstanding under an Indenture are held by more than one Pass Through Trust,
then each Pass Through Trust will hold Secured Notes with different terms from
the Secured Notes held in the other Pass Through Trusts and therefore the
Certificateholders of a Pass Through Trust may have divergent or conflicting
interests from those of the Certificateholders of the other Pass Through
Trusts holding Secured Notes relating to the same Indenture. In addition, so
long as the same institution acts as Trustee of each Pass Through Trust, in
the absence of instructions from the Certificateholders of any such Pass
Through Trust, the Trustee for such Pass Through Trust could for the same
reason be faced with a potential conflict of interest upon an Indenture Event
of Default. In such event, the Basic Agreement will provide that the Trustee
will resign as trustee of one or all such Pass Through Trusts, and a successor
trustee will be appointed in accordance with the terms of the Basic Agreement.
As an additional remedy, if an Indenture Event of Default under an Indenture
shall have occurred and be continuing, the Basic Agreement provides that the
Trustee of a Pass Through Trust holding Secured Notes issued under such
Indenture may, and upon the direction of the holders of Certificates
evidencing fractional undivided interests aggregating not less than a majority
in interest of such Pass Through Trust shall, sell all or part of such Secured
Notes for cash to any person. Any proceeds received by the Trustee upon any
such sale shall be
16
<PAGE>
deposited in the Special Payments Account for the Certificateholders of such
series and shall be distributed to the Certificateholders of the related Pass
Through Trust on a Special Distribution Date. The market for Secured Notes in
default may be very limited, and there can be no assurance that they could be
sold for a reasonable price. Furthermore, so long as the same institution acts
as Trustee of multiple Pass Through Trusts, it may be faced with a conflict in
deciding from which Pass Through Trust to sell Secured Notes to available
buyers. If the Trustee sells any such Secured Notes with respect to which an
Indenture Event of Default exists for less than their outstanding principal
amount, the Certificateholders of such Pass Through Trust will receive a
smaller amount of principal distributions than anticipated and will not have
any claim for the shortfall against Fort James, the Lessee, any Owner Trustee,
any Owner Participant or the Trustee. Furthermore, neither the Trustee nor the
Certificateholders of such Pass Through Trust could take any action with
respect to any remaining Secured Notes held in such Pass Through Trust so long
as no Indenture Events of Default exist with respect thereto.
Any amount, other than Scheduled Payments received on a Regular Distribution
Date, distributed to the Trustee of any Pass Through Trust by the Indenture
Trustee under any Indenture on account of the Secured Notes held in such Pass
Through Trust following an Indenture Event of Default under such Indenture
shall be deposited in the Special Payments Account for such Pass Through Trust
and shall be distributed to the Certificateholders of such Pass Through Trust
on a Special Distribution Date. In addition, if a Prospectus Supplement
provides that the applicable Owner Trustee or Owner Participant may, under
circumstances specified therein, redeem or purchase the outstanding Secured
Notes issued under the related Indenture, the price paid by such Owner Trustee
or Owner Participant to the Trustee of any Pass Through Trust for the Secured
Notes issued under such Indenture and held in such Pass Through Trust shall be
deposited in the Special Payments Account for such Pass Through Trust and
shall be distributed to the Certificateholders of such Pass Through Trust on a
Special Distribution Date.
Any funds representing payments received with respect to any Secured Notes
in default held in a Pass Through Trust, or the proceeds from the sale by the
Trustee of any such Secured Notes, held by the Trustee in the Special Payments
Account for such Pass Through Trust shall, to the extent practicable, be
invested and reinvested by the Trustee in Permitted Investments pending the
distribution of such funds on a Special Distribution Date. "Permitted
Investments" are obligations of the United States maturing in not more than 60
days or such lesser time as is required for the distribution of any such funds
on a Special Distribution Date.
The Basic Agreement will provide that the Trustee of a Pass Through Trust
shall, within 90 days after the occurrence of a default in respect of such
Pass Through Trust, give to the Certificateholders of such Pass Through Trust
notice, transmitted by mail, of all uncured or unwaived defaults with respect
to such Pass Through Trust known to it, provided that, except in the case of
default in the payment of principal, premium, if any, or interest on any of
the Secured Notes held in such Pass Through Trust, the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interests of such Certificateholders. The
term "default" as used in this paragraph only means the occurrence of an Event
of Default with respect to a Pass Through Trust as described above, except
that in determining whether any such Event of Default has occurred, any grace
period or notice in connection therewith shall be disregarded.
The Basic Agreement contains a provision entitling the Trustee of each Pass
Through Trust, subject to the duty of the Trustee during a default to act with
the required standard of care, to be offered reasonable security or indemnity
by the Certificateholders of such Pass Through Trust before proceeding to
exercise any right or power under the Basic Agreement at the request of such
Certificateholders.
In certain cases, the holders of Certificates of a Pass Through Trust
evidencing fractional undivided interests aggregating not less than a majority
in interest of such Pass Through Trust may on behalf of the holders of all
Certificates of such Pass Through Trust waive any past default or Event of
Default with respect to such Pass Through Trust and its consequences, except
(i) a default in payment of the principal of, premium, if any, or interest on
any of the Secured Notes held in such Pass Through Trust and (ii) a default in
respect of any covenant or provision of the Basic Agreement or the related
Trust Supplement that cannot be modified or amended without the consent of
each Certificateholder of such Pass Through Trust affected thereby. Each
Indenture will provide that, with certain exceptions, the holders of a
majority in aggregate unpaid principal amount of the Secured Notes
17
<PAGE>
issued thereunder and held in a related Pass Through Trust may on behalf of
all such holders waive any past default or Indenture Event of Default
thereunder. In the event of a waiver with respect to a Pass Through Trust as
described above, the principal amount of the Secured Notes issued under the
related Indenture held in such Pass Through Trust shall be counted as waived
in the determination of the majority in aggregate unpaid principal amount of
Secured Notes required to waive a default or an Indenture Event of Default
under such Indenture. Therefore, if the Certificateholders of a Pass Through
Trust or Pass Through Trusts waive a past default or Event of Default such
that the principal amount of the Secured Notes held either individually in
such Pass Through Trust or in the aggregate in such Pass Through Trusts
constitutes the required majority in aggregate unpaid principal amount under
the applicable Indenture, such past default or Indenture Event of Default
under such Indenture shall be waived.
Modifications of the Basic Agreement
The Basic Agreement contains provisions permitting Fort James, the Lessee
and the Trustee of each Pass Through Trust to enter into a supplemental trust
agreement, without the consent of the holders of any of the Certificates of
such Pass Through Trust, (i) to provide for the formation of such Pass Through
Trust and the issuance of a series of Certificates, (ii) to evidence the
succession of another corporation to Fort James or the Lessee and the
assumption by such corporation of Fort James' or the Lessee's obligations with
respect to one or more series of Certificates under the Basic Agreement and
the applicable Trust Supplement, (iii) to add to the covenants of Fort James
or the Lessee for the benefit of holders of such Certificates, or to surrender
any right or power in the Basic Agreement conferred upon Fort James or the
Lessee, (iv) to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the Basic Agreement or the applicable Trust
Supplement or to make any other provisions with respect to matters or
questions arising under the Basic Agreement as may be necessary or desirable,
provided such action shall not adversely affect the interests of the holders
of such Certificates, or to correct any mistake, (v) to modify, eliminate or
add to the provisions of the Basic Agreement or the applicable Trust
Supplement to the extent as shall be necessary to continue the qualification
of the Basic Agreement (including any supplemental agreement) under the Trust
Indenture Act and to add to the Basic Agreement such other provisions as may
be expressly permitted by the Trust Indenture Act, (vi) to provide for a
successor Trustee or to add to or change any provision of the Basic Agreement
or the applicable Trust Supplement as shall be necessary to facilitate the
administration of the Pass Through Trusts thereunder by more than one Trustee,
(vii) to correct or supplement the description of any property constituting
property of such Pass Through Trust and (viii) to make any other amendments or
modifications to the Basic Agreement or applicable Trust Supplement, provided
such amendments or modifications shall only apply to Certificates issued
thereafter.
The Basic Agreement also contains provisions permitting Fort James, the
Lessee and the Trustee of a related Pass Through Trust, with the consent of
the Certificateholders of such Pass Through Trust evidencing fractional
undivided interests aggregating not less than a majority in interest of such
Pass Through Trust, and, with respect to any Leased Property, with the consent
of the applicable Owner Trustee (such consent not to be unreasonably
withheld), to execute supplemental trust agreements adding any provisions to
or changing or eliminating any of the provisions of the Basic Agreement, to
the extent relating to such Pass Through Trust and the applicable Trust
Supplement, or modifying the rights of the Certificateholders, except that no
such supplemental trust agreement may, without the consent of each
Certificateholder so affected thereby, (a) reduce in any manner the amount of,
or delay the timing of, any receipt by the Trustee of payments on the Secured
Notes held in such Pass Through Trust or distributions in respect of any
Certificate related to such Pass Through Trust, or change the date or place of
any payment in respect of any such Certificate, or make distributions payable
in coin or currency other than that provided for in such Certificates, or
impair the right of any Certificateholder of such Pass Through Trust to
institute suit for the enforcement of any such payment when due, (b) permit
the disposition of any Secured Note held in such Pass Through Trust, except as
provided in the Basic Agreement or the applicable Trust Supplement, or
otherwise deprive any Certificateholder of the benefit of the ownership of the
applicable Secured Notes, (c) reduce the percentage of the aggregate
fractional undivided interests of such Pass Through Trust provided for in the
Basic Agreement or the applicable Trust Supplement, the consent of the holders
of which is required for any
18
<PAGE>
such supplemental trust agreement or for any waiver provided for in the Basic
Agreement or such Trust Supplement, or (d) modify any of the provisions
relating to the rights of the Certificateholders in respect of the waiver of
events of default or receipt of payment except to increase the percentage of
the aggregate fractional undivided interests of such Pass Through Trust
required for such a waiver.
Modification of Indenture and Related Agreements
In the event that the Trustee, as the holder of any Secured Notes held in a
Pass Through Trust, receives a request for its consent to any amendment,
modification or waiver under the Lease or other document relating to such
Secured Notes, the Trustee shall mail a notice of such proposed amendment,
modification or waiver to each Certificateholder of such Pass Through Trust as
of the date of such notice. The Trustee shall request instructions from the
Certificateholders of such Pass Through Trust as to whether or not to consent
to such amendment, modification or waiver. The Trustee shall vote or consent
with respect to such Secured Notes in such Pass Through Trust in the same
proportion as the Certificates of such Pass Through Trust were actually voted
by the holders thereof by a certain date. Notwithstanding the foregoing, if an
Event of Default in respect of such Pass Through Trust shall have occurred and
be continuing, the Trustee may in its own discretion consent to such
amendment, modification or waiver, and may so notify the Indenture Trustee to
which such consent relates.
Termination of the Pass Through Trusts
The obligations of Fort James, the Lessee and the Trustee with respect to a
Pass Through Trust will terminate upon the distribution to the
Certificateholders of such Pass Through Trust of all amounts required to be
distributed to them pursuant to the Basic Agreement and the applicable Trust
Supplement and the disposition of all property held in such Pass Through
Trust. The Trustee will send to each Certificateholder of record of such Pass
Through Trust notice of the termination of such Pass Through Trust, the amount
of the proposed final payment and the proposed date for the distribution of
such final payment for such Pass Through Trust. The final distribution to any
Certificateholder of such Pass Through Trust will be made only upon surrender
of such Certificateholder's Certificates at the office or agency of the
Trustee specified in such notice of termination.
Delayed Purchase
A Prospectus Supplement may specify that, pending availability of some or
all of the Secured Notes intended to be purchased with the proceeds of an
issuance of Certificates, such proceeds may, as more fully described in such
Prospectus Supplement, be (a) invested by the Trustee in United States
government obligations or certain other limited investments described in such
Prospectus Supplement ("Specified Investments"), in which event Fort James or
the Lessee would be responsible for paying to the Trustee amounts equal to any
loss on such investments and any deficiency in the earnings of such
investments under the amount scheduled to be distributed on such Certificates
in respect of interest and would be entitled to receive any earnings on such
investments in excess of the amount so needed for distribution on the
Certificates, or (b) used by the Trustee to acquire debt instruments issued on
an interim basis by Fort James or by the Lessee and guaranteed by Fort James,
in each case having an interest rate and payment provisions corresponding to
the interest rate and payment provisions of the Secured Notes intended to be
purchased with such proceeds and requiring repayment to the Trustee at the
time the Trustee is to purchase such Secured Notes. Any such debt instruments
will be secured by a collateral account that may be invested in Specified
Investments or by other security described in the applicable Prospectus
Supplement.
To the extent that the full amount of the proceeds from the sale of any
Certificates is not used to purchase Secured Notes on or prior to the date set
forth in the applicable Prospectus Supplement, an amount equal to the unused
proceeds will be distributed by the Trustee to the holders of record of such
Certificates on a pro rata basis on a Special Distribution Date, together with
interest thereon at a rate equal to the rate applicable to such Certificates,
but without premium.
19
<PAGE>
The Trustee
Except as otherwise provided in the Prospectus Supplement, Wilmington Trust
Company will be the Trustee for each of the Pass Through Trusts. With certain
exceptions, the Trustee will make no representations as to the validity or
sufficiency of the Basic Agreement, the Trust Supplements, the Certificates,
the Secured Notes, the Indentures, the Leases or other related documents. The
Trustee shall not be liable with respect to any series of Certificates for any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of a majority in principal amount of outstanding
Certificates of such series. Subject to such provisions, such Trustee shall be
under no obligation to exercise any of its rights or powers under the Basic
Agreement at the request of any holders of Certificates issued thereunder
unless they shall have offered to the Trustee indemnity satisfactory to it.
The Basic Agreement provides that the Trustee in its individual or any other
capacity may acquire and hold Certificates issued thereunder and, subject to
certain conditions, may otherwise deal with Fort James and the Lessee and,
with respect to the Leased Property, with any Owner Trustee and Owner
Participant with the same rights it would have if it were not the Trustee.
The Trustee may resign with respect to any or all of the Pass Through Trusts
at any time, in which event Fort James and the Lessee will be obligated to
appoint a successor trustee. If the Trustee ceases to be eligible to continue
as Trustee with respect to a Pass Through Trust or becomes incapable of acting
as Trustee or becomes insolvent, Fort James and the Lessee may remove such
Trustee, or any Certificateholder of such Pass Through Trust for at least six
months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the removal of such Trustee and the
appointment of a successor trustee. Any resignation or removal of the Trustee
with respect to a Pass Through Trust and appointment of a successor trustee
for such Pass Through Trust does not become effective until acceptance of the
appointment by the successor trustee. Pursuant to such resignation and
successor trustee provisions, it is possible that a different trustee could be
appointed to act as the successor trustee with respect to each Pass Through
Trust related to a single offering of Certificates. All references in this
Prospectus to the Trustee should be read to take into account the possibility
that the Pass Through Trusts could have different successor trustees in the
event of such a resignation or removal.
The Basic Agreement provides that Fort James or the Lessee will pay the
Trustee's fees and expenses and indemnify the Trustee against certain
liabilities.
20
<PAGE>
DESCRIPTION OF THE SECURED NOTES
The statements made under this caption are summaries and do not purport to
be complete. Such statements are qualified in their entirety by, and reference
is made to, the entire Prospectus and detailed information appearing in the
applicable Prospectus Supplement.
To the extent that any provision in any Prospectus Supplement is
inconsistent with any provision in this summary, the provision of such
Prospectus Supplement will control.
GENERAL
All Secured Notes related to Leased Property and held in a Pass Through
Trust will be issued under an Indenture between the related Owner Trustee of
an Owner Trust for the benefit of the related Owner Participant, and the
related Indenture Trustee. Such Secured Notes will be nonrecourse obligations
of the applicable Owner Trust. Each such Secured Note will be authenticated
under an Indenture by the Indenture Trustee.
With respect to each Leased Property, the related Owner Trustee has acquired
or will acquire such Leased Property and, unless otherwise provided in the
Prospectus Supplement, has granted or will grant a lien on and a security
interest in such Leased Property to the related Indenture Trustee as security
for the payments of the related Secured Notes, and has leased or will lease
such Leased Property to the Lessee pursuant to the related Lease which has
been or will be assigned to the related Indenture Trustee. Pursuant to each
such Lease, the Lessee will be obligated to make or cause to be made rental
and other payments to the related Indenture Trustee on behalf of the related
Owner Trustee in amounts that will be sufficient to make payments of the
principal and interest and, except in the limited circumstances set forth in
the applicable Prospectus Supplement, premium, if any, due in respect of such
Secured Notes when and as due and payable.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Trustee on the Secured Notes held in each Pass
Through Trust will be passed through to the Certificateholders of such Pass
Through Trust on the dates and at the rate per annum set forth in the
applicable Prospectus Supplement until the final distribution date for such
Pass Through Trust. Principal received by the Trustee on the Secured Notes
held in each Pass Through Trust will be passed through to the
Certificateholders of such Pass Through Trust in scheduled amounts on the
dates set forth in the applicable Prospectus Supplement until the final
distribution date for such Pass Through Trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Secured Notes is not a business day, such payment
will be made on the next succeeding business day without any additional
interest.
REDEMPTION
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the Secured Notes may be
redeemed or purchased prior to the stated maturity date thereof, in whole or
in part, the premium, if any, applicable upon certain redemptions or purchases
and other terms applying to the redemptions or purchases of such Secured
Notes.
SECURITY
The Secured Notes to be held in the Pass Through Trusts will be secured by
(i) an assignment by the related Owner Trustee to the related Indenture
Trustee of such Owner Trustee's rights (except for certain rights, including
those described below) under the Lease or Leases with respect to the related
Leased Property including the right to receive payments of rent thereunder,
(ii) an assignment of certain of such Owner Trustee's rights under the Parent
Guaranty relating to such Leased Property, and (iii) to the extent provided in
the applicable Prospectus Supplement, a mortgage or other security interest in
such Leased Property or in construction contracts
21
<PAGE>
or other agreements, collateral accounts or other security, in each case
subject to the rights of the Lessee under the Lease related thereto and other
rights, if any, described in the applicable Prospectus Supplement.
Under the terms of each Lease, the Lessee's obligations in respect of the
related Leased Property will be those of a lessee under a "net lease."
Accordingly, such Lessee will be obligated, among other things, to pay all
costs and expenses of operating and maintaining the Leased Property. With
respect to the Leased Property, the assignment by the related Owner Trustee to
the related Indenture Trustee of its rights under the related Lease will
exclude, among other things, rights of such Owner Trustee and the related
Owner Participant relating to indemnification by such Lessee for certain
matters, insurance proceeds payable to such Owner Trustee in its individual
capacity and to such Owner Participant under liability insurance maintained by
such Lessee pursuant to such Lease or by such Owner Trustee or such Owner
Participant, insurance proceeds payable to such Owner Trustee in its
individual capacity or to such Owner Participant under certain casualty
insurance maintained by such Owner Trustee or such Owner Participant pursuant
to such Lease and any rights of such Owner Participant or such Owner Trustee
to enforce payment of the foregoing amounts and their respective rights to the
proceeds of the foregoing. Such rights excluded from the assignment shall be
referred to as "Excepted Payments."
The applicable Prospectus Supplement will specify the required insurance
coverage, if any, with respect to the Leased Property.
Unless otherwise specified in the applicable Prospectus Supplement, the
Secured Notes will not be cross-collateralized and consequently the Secured
Notes issued in respect of any Leased Property will not be secured by any
other Leased Property or the Lease related thereto. Unless and until an
Indenture Event of Default with respect to a Leased Property has occurred and
is continuing, the related Indenture Trustee may exercise only limited rights
of the related Owner Trustee under the related Lease.
Funds, if any, held from time to time by the Indenture Trustee with respect
to any Leased Property, prior to the distribution thereof, will be invested
and reinvested by such Indenture Trustee. Such investment and reinvestment
will be at the direction of the Lessee, as agent for the related Owner Trustee
(except in the case of a related Lease Event of Default under the applicable
Lease) in certain investments described in the related Indenture. The net
amount of any loss resulting from any such investments will be paid by such
Lessee, as agent for such Owner Trustee.
ADDITIONAL NOTES
Under certain circumstances and conditions as described in the applicable
Prospectus Supplement, for the purpose of providing funds to finance the cost
of certain modifications, alterations, additions, improvements or replacement
parts to any particular item of Leased Property, a Lessee may cause the
financing of such additional costs through the issuance and sale by the Owner
Trustee of additional Secured Notes (the "Additional Notes").
The terms, conditions and designations of such Additional Notes will be set
forth in a supplement to the related Indenture. All rent and other amounts
payable by the Lessee under the related Lease will be adjusted to the extent
necessary to provide for rent and other amounts sufficient to provide for the
payment, when due, of all scheduled payments of principal of, premium (except
for those instances where such Lessee shall not be responsible for such
premium), if any, and interest on the Secured Notes, including the Additional
Notes so issued.
PAYMENTS AND LIMITATION OF LIABILITY
Each Leased Property will be leased by the applicable Owner Trustee to the
Lessee pursuant to a Lease for a term commencing not later than the delivery
date thereof to such Owner Trustee and expiring on a date not earlier than the
latest maturity date of the related Secured Notes, unless previously
terminated as permitted by the terms of such Lease. The basic rent or charter
hire and other payments under each such Lease will be payable by the Lessee in
accordance with the terms specified in such Lease and will be described in the
applicable
22
<PAGE>
Prospectus Supplement, and (other than Excepted Payments) will be assigned by
the applicable Owner Trustee under the applicable Indenture to an Indenture
Trustee to provide the funds necessary to pay principal and interest and,
except in the limited circumstances set forth in the applicable Prospectus
Supplement, premium, if any, due in respect of the Secured Notes issued under
such Indenture. In certain cases, the basic rent payments under a Lease may be
adjusted, but each Lease will provide that under no circumstances will the
rental payments which the Lessee is obligated to make or cause to be made be
less than the scheduled payments of principal and interest on the related
Secured Notes. The balance of any basic rent payment under each Lease, after
payment of amounts due on the Secured Notes issued under the Indenture
corresponding to such Lease, will be paid over to the applicable Owner
Trustee. The Lessee's obligation to pay rent and to cause other payments to be
made under each Lease will be general obligations of such Lessee.
Except in certain circumstances involving a Lessee's purchase of Leased
Property and the assumption of the Secured Notes related thereto, the Secured
Notes will not be obligations of, or guaranteed by, the Lessee or Fort James.
None of the Owner Trustees, the Owner Participants or the Indenture Trustees
shall be personally liable to any holder of such Secured Notes for amounts
payable under such Secured Notes, or, except as provided in the Indentures
relating thereto in the case of the Owner Trustees and the Indenture Trustees,
for any liability under such Indentures. Except in the circumstances referred
to above, all amounts payable under any Secured Notes (other than payments
made in connection with an optional redemption or purchase by the related
Owner Trustee or the related Owner Participant) will be made only from the
assets subject to the lien of the related Indenture with respect to such
Leased Property or the income and proceeds received by the related Indenture
Trustee therefrom (including rent payable by the Lessee under the related
Lease).
Except as otherwise provided in the related Indentures, no Owner Trustee
shall be personally liable for any amount payable or for any statements,
representations, warranties, agreements or obligations under such Indentures
or under the Secured Notes except for its own willful misconduct or gross
negligence. None of the Owner Participants shall have any duty or
responsibility under the Indentures or under such Secured Notes to the related
Indenture Trustee or to any holder of any such Secured Note.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
The Lessee and Fort James are prohibited from consolidating with or merging
into any other corporation or transferring substantially all of its assets to
another corporation unless the Lessee or Fort James, as the case may be, is
the continuing corporation or, among other things, (a) the successor
corporation shall be a corporation organized and existing under the laws of
the United States or any State or the District of Columbia or, in the case of
Fort James, any other jurisdiction, and (b) the successor corporation shall
expressly assume the due and punctual performance and observance of all the
covenants and conditions of the operative documents to which the Lessee or
Fort James, as the case may be, is a party and which are to be performed
thereby.
DEFEASANCE OF THE INDENTURES AND THE SECURED NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable Prospectus Supplement, the
applicable Indenture will provide that the obligations of the related
Indenture Trustee and the related Owner Trustee in respect of any series of
Secured Notes issued in accordance with the terms of such Indenture shall be
deemed to have been discharged and paid in full (except for certain
obligations, including the obligations to register the transfer or exchange of
Secured Notes, to replace stolen, lost, destroyed or mutilated Secured Notes
and to maintain paying agencies and hold money for payment in trust) upon the
irrevocable deposit with the related Indenture Trustee of money or certain
obligations of the United States or any agency or instrumentality thereof the
payment of which is backed by the full faith and credit of the United States
which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an aggregate amount
sufficient to pay when due (including as a consequence of redemption in
respect of which notice is given on or prior to the date of such deposit)
principal of, premium, if any, and interest on such Secured Notes. Such
discharge may occur only if, among other things, there has been published by
the Internal Revenue Service a ruling to the effect that holders of such
Secured Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such
23
<PAGE>
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount and in the same manner and at the same time as would have been
the case if such deposit, defeasance and discharge had not occurred.
Upon such defeasance, or upon payment in full of the principal of, premium,
if any, and interest on all Secured Notes issued under any Indenture on the
maturity date therefor or deposit with the applicable Indenture Trustee of
money sufficient therefor no earlier than one year prior to the date of such
maturity, the holders of such Secured Notes will have no beneficial interest
in or other rights with respect to the related Leased Property or other assets
subject to the lien of such Indenture (other than amounts or obligations
deposited to effect such discharge) and such lien shall terminate.
ASSUMPTION OF OBLIGATIONS BY LESSEE
A Prospectus Supplement may specify that, with respect to any Leased
Property and subject to the satisfaction of the conditions described in such
Prospectus Supplement, the Lessee may, upon the exercise of any purchase and
certain other termination options it may have under the related Lease, assume
on a full recourse basis all of the obligations of the related Owner Trustee
under the Indenture with respect to such Leased Property, including the
obligations to make payments in respect of the related Secured Notes. In such
event, the Lessee shall execute a supplemental indenture to the related
Indenture (such supplemental indenture, together with the related Indenture, a
"Company Indenture"). The Parent Guaranty will continue to apply to the
Lessee's obligations. Unless otherwise specified in the applicable Prospectus
Supplement, the Leased Property will continue to be subject to the lien of the
Company Indenture, and the Company Indenture will incorporate certain relevant
provisions of the Lease so terminated, including (among others) provisions
relating to maintenance, possession and use of the related Leased Property,
liens, insurance, possession and events of default.
THE PARENT GUARANTIES
As described in the applicable Prospectus Supplement, Fort James will
unconditionally guarantee the full and prompt payment of all amounts payable
by the Lessee under the related Lease when and as such amounts shall become
due and payable. Each Parent Guaranty shall be enforceable against Fort James
without any requirement to enforce a Lease against the Lessee prior to
enforcing such Lease against Fort James. Each Parent Guaranty will be an
unsecured obligation of Fort James.
24
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates by a Certificate Owner purchasing Certificates and should be read
in conjunction with any additional discussion of federal income tax
consequences included in the applicable Prospectus Supplement. This summary is
based on laws, regulations, rulings and decisions now in effect, all of which
are subject to change by legislative, administrative or judicial action,
possibly with retroactive effect, or to different interpretations. The
discussion below does not purport to address federal income tax consequences
applicable to particular categories of investors, some of which (for example,
insurance companies, dealers in securities, banks, tax-exempt organizations,
foreign persons and corporations and Certificate Owners that hold Certificates
as part of a hedging or conversion transaction or a straddle and persons whose
functional currency is not U.S. dollars) may be subject to special rules and
is restricted to a summary relating to Certificates and Secured Notes
denominated in U.S. dollars. The Pass Through Trusts are not indemnified for
any federal income taxes that may be imposed upon them, and the imposition of
any such taxes could result in a reduction in the amounts available for
distribution to the Certificate Owners of a Pass Through Trust. In connection
with each offering of Certificates, Fort James and the Lessee will receive an
opinion from counsel specified in the applicable Prospectus Supplement, that,
based upon the applicable law then in effect, the following discussion, as
amended or supplemented by the applicable Prospectus Supplement, properly
describes in general the anticipated principal United States federal income
tax consequences of acquiring, holding and disposing of the Certificates.
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE,
LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE CERTIFICATES, INCLUDING THE ADVISABILITY OF
MAKING ANY ELECTION DISCUSSED BELOW, IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
GENERAL
Based upon an interpretation of analogous authorities under currently
applicable law, each Pass Through Trust will be classified as a grantor trust
(and not as an association taxable as a corporation) and each Certificate
Owner will be treated as the owner of a pro rata undivided interest in the
Secured Notes or any other property held in the applicable Pass Through Trust.
Each Certificate Owner will be required to report on its federal income tax
return its pro rata share of the entire income from the Secured Notes and any
other property in the applicable Pass Through Trust, in accordance with such
Certificate Owner's method of accounting. Thus, a Certificate Owner using the
cash method of accounting will take into account its pro rata share of income
as and when received by the Trustee in respect of the applicable Pass Through
Trust, and a Certificate Owner using an accrual method of accounting will take
into account its pro rata share of income as it accrues or is received by the
Trustee in respect of the applicable Pass Through Trust, whichever is earlier.
If a Pass Through Trust will hold more than one Secured Note, a purchaser of
a Certificate will be treated as purchasing an interest in each Secured Note
and any other property in the related Pass Through Trust at a price determined
by allocating the purchase price paid for the Certificate among such Secured
Notes and other property in proportion to their fair market values at the time
of purchase of the Certificate.
SALES OF CERTIFICATES
A Certificate Owner that sells a Certificate will recognize gain or loss (in
the aggregate) equal to the difference between the amount realized on the sale
(except to the extent attributable to accrued interest, which will be taxable
as interest income) and the Certificate Owner's adjusted tax basis in the
Certificate. Subject to the market discount provisions of the Internal Revenue
Code of 1986, as amended (the "Code") (described below), any such gain or loss
will be capital gain or loss if the Certificate was held as a capital asset
and, if the Certificate was held for more than one year, will be long-term
capital gain or loss. Any long-term capital gains
25
<PAGE>
realized generally will be taxable to corporate taxpayers at the rates
applicable to ordinary income and to certain noncorporate taxpayers at a
maximum marginal rate of 20%. Any capital losses realized will be deductible
by a corporate taxpayer only to the extent of capital gains and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income.
MARKET DISCOUNT
A purchaser of a Certificate (other than an original purchaser of a
Certificate at the offering price set forth in the applicable Prospectus
Supplement) will be considered to have acquired an interest in a Secured Note
held in the applicable Pass Through Trust at a "market discount" to the extent
the remaining principal amount of such Secured Note allocable to such
Certificate exceeds the purchaser's tax basis allocable to such Secured Note,
unless the excess does not exceed a prescribed de minimis amount. In the event
such excess exceeds the de minimis amount, the Certificate Owner will be
subject to the market discount rules with regard to its interest in the
Secured Note.
In the case of a sale or other disposition of indebtedness subject to the
market discount rules, gain, if any, from such sale or disposition must be
treated as ordinary income to the extent such gain represents market discount
that has accrued during the period in which the indebtedness was held. If such
indebtedness is disposed of in a nontaxable transaction, the accrued market
discount (subject to certain exceptions) will be includible in ordinary income
as if the Certificate Owner had sold the Certificate at its then market value.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, such payment must be included in gross income as
ordinary income to the extent such payment does not exceed the market discount
that has accrued during the period such indebtedness was held. The amount of
any accrued market discount later required to be included in income upon a
disposition or subsequent partial principal payment will be reduced by the
amount of accrued market discount previously included in income.
Generally, market discount accrues under a straight line method, or, at the
election of the taxpayer, under a constant interest method. A Certificate
Owner may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described below regarding deferral of interest deductions will not apply. This
election to include market discount in income currently , once made, applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies and may not be revoked without the consent of
the IRS.
If in any taxable year interest paid or accrued on a loan incurred or
continued to purchase or carry indebtedness subject to the market discount
rules exceeds the interest currently includible in income with respect to such
indebtedness, deduction of the excess interest must be deferred to the extent
of the market discount allocable to the taxable year. The deferred portion of
any interest expense will generally be deductible when such market discount is
included in income upon the sale or other disposition (including repayment) of
the indebtedness.
A taxpayer may elect to include market discount in its gross income
currently. If such election is made, the rules described above regarding the
treatment of certain gain as ordinary income and the deferral of interest
expense will not apply to the taxpayer.
PREMIUM
A Certificate Owner generally will be considered to have acquired an
interest in a Secured Note held in the applicable Pass Through Trust at a
premium to the extent the Certificate Owner's tax basis allocable to such
Secured Note exceeds the remaining principal amount of the Secured Note
allocable to such Certificate Owner's Certificate. In that event, a
Certificate Owner who holds such Certificate as a capital asset may elect to
amortize that premium as an offset to interest income with corresponding
reductions in the Certificate Owner's tax basis in its interest in the Secured
Note. This election is made by claiming the bond premium on the Certificate
26
<PAGE>
Owner's tax return. Generally, if the foregoing election is made such
amortization is taken on a constant yield basis.
Under current Treasury regulations, a holder of an obligation that may be
called at a premium prior to maturity generally would not be entitled to
determine the amount of amortizable bond premium by reference to an early call
date, but may be allowed, if an early call occurred, to deduct all or part of
any unamortized bond premium in the year of such call.
Due to the complexities of the amortizable premium rules, particularly if
there is more than one possible call date and the amount of any premium is
uncertain, Certificate Owners are urged to consult their own tax advisors as
to the amount of any such amortizable premium and the advisability of making
an amortization election.
ORIGINAL ISSUE DISCOUNT
Unless otherwise specified in the applicable Prospectus Supplement, subject
to the aggregation rules discussed below, the Secured Notes will not be issued
with original issue discount. Under the aggregation rules set forth in the
current Treasury Regulations, if one investor purchases Certificates issued by
more than one Pass Through Trust, certain of that investor's interests in the
Secured Notes in those Trusts must in certain circumstances be treated
together as a single debt instrument, which, for purposes of calculating and
amortizing any original issue discount, has a single issue price, maturity
date, stated redemption price at maturity, and yield to maturity. If such
aggregation rules were applicable to an investor, such Secured Notes could be
treated with respect to such investor as having been issued with original
issue discount. Generally, a holder of a debt instrument issued with original
issue discount that is not de minimis must include such original issue
discount in income for federal income tax purposes as it accrues, in advance
of the receipt of the cash attributable to such income, under a method that
takes into account the compounding of interest. Certificate Owners are urged
to consult their own tax advisors regarding the application of the aggregation
rules.
BACKUP WITHHOLDING
Payments made on the Certificates, and proceeds from the sale of the
Certificates to or through certain brokers, may be subject to a "backup"
withholding tax of 31% unless the Certificate Owner complies with certain
reporting procedures or is exempt from such requirements. Any such withheld
amounts are allowed as a credit against the Certificate Owner's federal income
tax and may entitle such Certificate Owner to a refund, provided the required
information is furnished to the Internal Revenue Service (the "IRS").
Furthermore, certain penalties may be imposed by the IRS on a Certificate
Owner who is required to supply information but who does not do so in the
proper manner.
CERTAIN DELAWARE TAXES
The Trustee is a Delaware banking corporation with its principal corporate
trust office in Delaware. Richards, Layton & Finger, counsel to the Trustee,
has advised Fort James that, in its opinion, under currently applicable law,
assuming that each Pass Through Trust will not be taxable as a corporation,
but, rather, will be classified as a grantor trust for federal income tax
purposes, (i) the Pass Through Trusts should not be subject to any tax
(including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the State of Delaware or any political
subdivision thereof, and (ii) Certificate Owners who are not residents of or
otherwise subject to tax in Delaware will not be subject to any tax
(including, without limitation, net or gross income, tangible or intangible
property, net worth, capital franchise or doing business tax), fee or other
governmental charge under the laws of the State of Delaware or any political
subdivision thereof as a result of purchasing, holding (including
27
<PAGE>
receiving payments with respect to) or selling a Certificate or an interest
therein. Neither the Pass Through Trusts nor the Certificate Owners will be
indemnified for any state or local taxes imposed on them, and the imposition
of any such taxes on any Pass Through Trust could result in a reduction in the
amounts available for distribution to the Certificate Owners of such Pass
Through Trust. In general, should a Certificate Owner or a Pass Through Trust
be subject to any state or local tax which would not be imposed if the Trustee
were located in a different jurisdiction in the United States, the Trustee
will resign and a new trustee in such other jurisdiction will be appointed.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan (a "Plan") subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase and holding of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a nonexempt prohibited transaction as defined in section 406 of
ERISA or section 4975 of the Code. Employee benefit plans which are
governmental plans (as defined in section 3(32) of ERISA) and certain church
plans (as defined in section 3(33) of ERISA) are not subject to Title I of
ERISA or section 4975 of the Code. The Certificates may, subject to certain
legal restrictions, be purchased and held by such plans.
PLAN OF DISTRIBUTION
Certificates may be sold to one or more underwriters for public offering and
sale by them or to investors or other persons directly or through one or more
dealers or agents. Any such underwriter, dealer or agent involved in the offer
and sale of the Certificates will be named in the applicable Prospectus
Supplement.
The Certificates may be sold at a fixed price or prices, which may be
changed, or from time to time at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices.
Dealer trading may take place in certain of the Certificates, including
Certificates not listed on any securities exchange. Neither Fort James nor the
Lessee intends to apply for listing of the Certificates on a national
securities exchange. Fort James and the Lessee also may, from time to time,
authorize underwriters acting as their agents to offer and sell the
Certificates upon the terms and conditions as shall be set forth in any
Prospectus Supplement. In connection with the sale of Certificates,
underwriters may be deemed to have received compensation from Fort James and
the Lessee in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Certificates for whom they may act as
agent. Underwriters may sell Certificates to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions (which may be changed
from time to time) from the purchasers for whom they may act as agent.
If a dealer is used directly by Fort James or the Lessee in the sale of
Certificates in respect of which this Prospectus is delivered, such
Certificates will be sold to the dealer, as principal. The dealer may then
resell such Certificates to the public at varying prices to be determined by
such dealer at the time of resale. Any such dealer and the terms of any such
sale will be set forth in the Prospectus Supplement relating thereto.
Certificates may be offered and sold through agents designated by Fort James
and the Lessee from time to time. Any such agent involved in the offer or sale
of the Certificates in respect of which this Prospectus is delivered will be
named in, and any commissions payable by Fort James and the Lessee to such
agent will be set forth in, the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent
will be acting on a best efforts basis for the period of its appointment.
28
<PAGE>
Offers to purchase Certificates may be solicited directly by Fort James and
the Lessee and sales thereof may be made by Fort James and the Lessee directly
to institutional investors or others who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale thereof.
The terms of any such sales will be described in the Prospectus Supplement
relating thereto. Except as set forth in the applicable Prospectus Supplement,
no director, officer or employee of Fort James or the Lessee will solicit or
receive a commission in connection with direct sales by Fort James or the
Lessee of the Certificates, although such persons may respond to inquiries by
potential purchasers and perform ministerial and clerical work in connection
with any such direct sales.
Any underwriting compensation paid by Fort James and the Lessee to
underwriters, dealers or agents in connection with the offering of
Certificates, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in an applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Certificates may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Certificates may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements with Fort James and the Lessee, to indemnification
against and contribution toward certain civil liabilities, including
liabilities under the Securities Act, and to reimbursement by Fort James and
the Lessee for certain expenses.
Underwriters, dealers and agents and their affiliates may engage in
transactions with, or perform services for, Fort James and its subsidiaries
from time to time.
If so indicated in an applicable Prospectus Supplement and subject to
existing market conditions, Fort James and the Lessee will authorize dealers
acting as Fort James' and the Lessee's agents to solicit offers by certain
institutions to purchase Certificates at the public offering price set forth
in such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated
in such Prospectus Supplement. Each Contract will be for an amount not less
than, and the aggregate principal amount of Certificates sold pursuant to
Contracts shall not be less nor more than, the respective amounts stated in
such Prospectus Supplement. Institutions with whom Contracts, when authorized,
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to the approval of Fort James
and the Lessee. Contracts will not be subject to any conditions except the
purchase by an institution of the Certificates covered by its Contracts shall
not at the time of delivery be prohibited under the laws of any jurisdiction
in the United States to which such institution is subject. A commission
indicated in the applicable Prospectus Supplement will be granted to
underwriters and agents soliciting purchases of Certificates pursuant to
Contracts accepted by Fort James and the Lessee. Agents and underwriters will
have no responsibility in respect of the delivery or performance of Contracts.
If an underwriter or underwriters are utilized in the sale of any
Certificates, the applicable Prospectus Supplement will contain a statement as
to the intention, if any, of such underwriters at the date of such Prospectus
Supplement to make a market in the Certificates. No assurances can be given
that there will be a market for the Certificates.
The place and time of delivery for the Certificates in respect of which this
Prospectus is delivered will be set forth in the applicable Prospectus
Supplement.
LEGAL OPINIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Certificates and the Parent Guaranties will be passed upon for
Fort James and the Lessee by Clifford A. Cutchins, IV, Senior Vice President,
General Counsel and Corporate Secretary of Fort James, and for any agents or
underwriters by Shearman & Sterling, 599 Lexington Avenue, New York, New York
10022.
29
<PAGE>
EXPERTS
The consolidated balance sheets of Fort James and subsidiaries as of
December 31, 1997 and December 29, 1996, and the related consolidated
statements of operations, cash flows and changes in capital accounts for each
of the three years in the period ended December 31, 1997, included in Fort
James 1997 Annual Report on Form 10-K, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon included therein, and incorporated by reference herein. Such
consolidated financial statements and supplemental consolidated financial
statements have been incorporated herein by reference in reliance on such
reports given on the authority of such firm as experts in accounting and
auditing.
30
<PAGE>
[FORT JAMES LOGO]
