<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1998
REGISTRATION NO. 333-63261
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
REPUBLIC GROUP INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 1-7120 75-1155922
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
811 EAST 30TH AVENUE
HUTCHINSON, KANSAS 67502
(316) 727-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DOYLE R. RAMSEY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPUBLIC GROUP INCORPORATED
811 EAST 30TH AVENUE
HUTCHINSON, KANSAS 67502
(316) 727-2700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPY TO:
BRYAN E. BISHOP, ESQ.
LOCKE PURNELL RAIN HARRELL
(A PROFESSIONAL CORPORATION)
2200 ROSS AVENUE, SUITE 2200
DALLAS, TEXAS 75201-6776
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering pur-
suant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) un-
der the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRA-
TION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION
8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SEC-
TION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGIS- +
+TRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECU- +
+RITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY OF- +
+FERS TO BUY BE ACCEPTED, PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES +
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A SOLICI- +
+TATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF, THESE SECURITIES +
+IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL +
+PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH +
+STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 IN EXCHANGE FOR
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, THE EXCHANGE
OF WHICH HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OF
REPUBLIC GROUP INCORPORATED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER ,
1998, UNLESS EXTENDED.
Republic Group Incorporated, a Delaware corporation (the "Company"), hereby of-
fers, upon the terms and subject to the conditions set forth in this Prospectus
and the accompanying Letter of Transmittal (which together constitute the "Ex-
change Offer"), to exchange an aggregate principal amount of up to $100,000,000
of its 9 1/2% Senior Subordinated Notes due 2008 (the "New Notes"), the ex-
change of which has been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 9 1/2% Senior Subordinated Notes due 2008 (the "Old Notes" and, to-
gether with the New Notes, the "Notes") from the holders (the "Holders") there-
of. The Old Notes were issued on July 15, 1998 pursuant to an offering exempt
from registration under the Securities Act and applicable state securities
laws. The New Notes are being offered hereunder in order to satisfy certain ob-
ligations of the Company contained in the Registration Rights Agreement (the
"Registration Rights Agreement"), dated as of July 15, 1998, by and among the
Company and J.P. Morgan Securities Inc., Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, and A.G. Edwards & Sons, Inc. (the "Initial Pur-
chasers") entered into in connection with the sale of the Old Notes. The Ex-
change Offer is designed to provide Holders (other than "affiliates" of the
Company, persons who are not acquiring New Notes in the ordinary course of
business and persons who intend to participate in the Exchange Offer for the
purpose of distributing the New Notes) an opportunity to acquire Notes that may
be offered for resale, resold or otherwise transferred without further compli-
ance with the registration and, except in the case of broker-dealers, the pro-
spectus delivery procedures of the Securities Act.
The New Notes and Old Notes are issued under an Indenture dated as of July 15,
1998 between the Company and UMB Bank, N.A., as Trustee (the "Indenture"). See
"Description of Notes--Certain Definitions" for the definitions of Indenture
terms used in this Prospectus and not separately defined.
The terms of the New Notes are identical in all material respects to the Old
Notes, except for certain transfer restrictions and registration rights relat-
ing to the Old Notes and except for certain provisions providing for an in-
crease in the interest rate on the Old Notes under certain circumstances relat-
ing to the timing of the Exchange Offer, which right and provisions will termi-
nate upon consummation of the Exchange Offer.
Interest on the Notes will be payable semi-annually in arrears on January 15
and July 15 of each year, commencing January 15, 1999. The Notes will mature on
July 15, 2008. The Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after July 15, 2003, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date of
redemption. The Notes are not subject to any sinking fund requirement. In addi-
tion, on or prior to July 15, 2001, the Company may redeem up to 35% of the
Notes with the net cash proceeds from one or more Public Equity Offerings by
the Company at a price equal to 109.5% of the principal amount thereof, to-
gether with accrued and unpaid interest, if any, to the date of redemption.
Upon a Change of Control, each Holder of the Notes will have the right to re-
quire the Company to purchase all or a portion of such Holder's Notes at 101%
of the aggregate principal amount thereof, together with accrued and unpaid in-
terest, if any, to the date of purchase. See "Description of Notes."
The Notes constitute general unsecured senior subordinated obligations of the
Company, subordinated in right of payment to all Senior Debt of the Company,
including all of the obligations under a credit agreement with a syndicate of
banks led by Morgan Guaranty Trust Company of New York and NationsBank, N.A.,
as co-agents (the "New Credit Facility"). As of September 30, 1998, the Company
had no Senior Debt, but the Company expects to borrow a significant amount of
the $85 million available to it under the New Credit Facility, which would con-
stitute Senior Debt and would rank senior in right of payments to the Notes. In
addition, the Notes effectively are subordinated to all outstanding indebted-
ness and other liabilities and commitments (including Trade Payables) of the
Company's subsidiaries. As of September 30, 1998, the Company's subsidiaries
had Trade Payables and other liabilities aggregating approximately $28.4 mil-
lion and no outstanding indebtedness. However, the Company's material subsidi-
aries have each guaranteed all indebtedness incurred under the New Credit Fa-
cility. Subject to certain limitations, the Indenture will permit the Company
and its subsidiaries to incur additional indebtedness. See "Description of
Notes."
For each Old Note accepted for exchange, the Holder of such Old Note will re-
ceive a New Note having a principal amount equal to that of the surrendered Old
Note. The New Notes will bear interest from the most recent date to which in-
terest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from July 15, 1998. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment of accrued interest on such Old Notes.
Subject to certain conditions described under "The Exchange Offer," the Company
will accept for exchange any and all Old Notes properly tendered on or prior to
5:00 p.m., New York City time, on November , 1998, unless extended by the Com-
pany in its sole discretion (the "Expiration Date"). Tenders of Old Notes pur-
suant to the Exchange Offer may be withdrawn at any time prior to the Expira-
tion Date. In the event the Company terminates the Exchange Offer and does not
accept for exchange any Old Notes, the Company will promptly return the Old
Notes to the Holders thereof. The Company will not receive any proceeds from
the Exchange Offer. The Company will pay all the expenses incident to the Ex-
change Offer. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no as-
surance regarding the future development of a market for the New Notes, or the
ability of Holders of New Notes to sell their New Notes or the price at which
such Holders may be able to sell their New Notes. The Company believes that the
Initial Purchasers currently intend to make a market in the New Notes. The Ini-
tial Purchasers are not obligated to do so, however, and any market-making with
respect to the New Notes may be discontinued at any time without notice. The
Company does not intend to apply for listing or quotation of the New Notes on
any securities exchange or stock market.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EX-
CHANGE OFFER OR THE ACCEPTANCE OF SUCH OLD NOTES WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SEC 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 , 1998.
<PAGE>
Based on existing interpretations by the staff of the SEC set forth in several
no-action letters to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by a Holder thereof without further compliance with the registra-
tion and prospectus delivery provisions of the Securities Act. Any purchaser of
New Notes, however, who is an "affiliate" of the Company, who is not acquiring
the New Notes in the ordinary course of its business, or who intends to partic-
ipate in the Exchange Offer for the purpose of distributing the New Notes (i)
will not be able to rely on the interpretations of the staff of the SEC, (ii)
will not be able to exchange its Old Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery provisions of the Securi-
ties Act in connection with any sale or transfer of the Old Notes unless such
sale or transfer is made pursuant to an exemption from such requirements. How-
ever, the staff of the SEC has not rendered a no-action letter with respect to
the Exchange Offer, and there can be no assurance that the staff would make a
similar determination for the Exchange Offer as in such other circumstances.
Each Holder, other than a broker-dealer, must acknowledge that it is not en-
gaged in, and does not intend to engage in, a distribution of New Notes and has
no arrangement or understanding to participate in a distribution of New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that such Old Notes were acquired by such bro-
ker-dealer as a result of market making activities or other trading activities
and that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by deliv-
ering a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of up to 180 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
AVAILABLE INFORMATION
The Company has filed with the SEC a registration statement on Form S-4 (to-
gether with all amendments, exhibits, and supplements thereto, the "Registra-
tion Statement") under the Securities Act with respect to the New Notes offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. For further information with respect to the Company and the New
Notes offered hereby, reference is made to the Registration Statement. Any
statements made in this Prospectus concerning the provisions of certain docu-
ments are not necessarily complete and, in each instance, reference is made to
the copy of such documents filed as an exhibit to the Registration Statement or
otherwise filed with the SEC.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all documents incorporated by reference herein, including exhib-
its specifically incorporated by reference in such documents but excluding all
other exhibits to such documents. Requests should be made to Ms. Janey L. Rife,
Vice President, Treasurer and Secretary, P.O. Box 1307, Hutchinson, Kansas
67504-1307, telephone number: (316) 727-2711. IN ORDER TO OBTAIN TIMELY DELIV-
ERY OF ANY REQUESTED DOCUMENTS, SECURITY HOLDERS MUST REQUEST THE INFORMATION
BY NOVEMBER , 1998.
The Company is also subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports and other information with
the SEC. The Registration Statement and all such reports and other information
may be inspected and copied at the offices of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as the following regional offices: 7
World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-
2511. Copies of such material can be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The SEC maintains a web site at http://www.sec.gov that contains regis-
tration statements, reports, proxy and information statements and other infor-
mation regarding issuers that file electronically with the SEC. In addition,
the Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "RGC." Registration statements, reports, proxy state-
ments and other information filed by the Company may be inspected at the of-
fices of the NYSE at 20 Broad Street, New York, New York 10005.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated by
reference in this Prospectus: (1) the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 (the "1998 Form 10-K"); (2) the portions of
the Proxy Statement for the Company's 1998 Annual Meeting to be held on October
22, 1998 that have been incorporated by reference into the 1998 Form 10-K; (3)
the Company's Current Reports on Form 8-K filed on September 11, 1998, July 20,
1998 and July 17, 1998; and (4) 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 this Prospectus and prior to the later of the termination of the Exchange
Offer made hereby or, if this Prospectus is used by any broker-dealer in con-
nection with the reoffer or resale of New Notes acquired pursuant to the Ex-
change Offer where the subject Old Notes were acquired by such broker-dealer as
a result of market making activities or other trading activities, the date such
reoffering is terminated (which in any event shall not be more than 180 days
after the Expiration Date).
Any statement contained in a document 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
subsequently filed document which is incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements, in-
cluding the footnotes thereto, incorporated by reference in this Prospectus.
Unless the context otherwise requires, (i) references in this Prospectus to the
"Company" or "Republic" refer to Republic Group Incorporated and its subsidiar-
ies and (ii) all references to a fiscal year refer to the Company's fiscal year
ended on June 30 in that calendar year.
THE COMPANY
Founded in 1961, Republic Group Incorporated is an integrated manufacturer and
distributor of recycled paperboard and gypsum wallboard. Management believes
that the Company is one of the leading producers of certain grades of recycled
paperboard sold to manufacturers of consumer and industrial paperboard products
such as tubes, cans, cores, spools, drums, partitions, puzzles and games as
well as one of the leading suppliers of gypsum-grade recycled paperboard to in-
dependent gypsum wallboard producers. In addition, the Company sells reclaimed
paper fiber for use in its recycled paperboard business as well as for sale to
third parties. Republic sells its products to customers located in 43 states.
In addition to its gypsum wallboard plant located in Duke, Oklahoma (the "Duke
Plant"), the Company has recycled paperboard mills in Colorado, Kansas and West
Virginia and paper fiber recycling centers in Colorado, Kansas and Missouri.
The Company had net sales and net income of approximately $128.3 million and
$17.8 million, respectively, in fiscal 1998. Before inter-company eliminations,
the Company's recycled paperboard (which includes reclaimed paper fiber) and
gypsum wallboard businesses accounted for approximately 57% and 43%, respec-
tively, of Republic's total net sales during fiscal 1998.
Management has recently undertaken a number of important strategic initiatives
designed to increase Republic's production capabilities. On June 29, 1998, the
Company commenced the construction of a mill in Lawton, Oklahoma (the "Lawton
Mill") that will be used primarily for the production of gypsum-grade recycled
paperboard with weight and surface characteristics superior to that currently
available in the United States. The Lawton Mill is expected to have a produc-
tion capacity of approximately 220,000 tons per annum, which will approximately
double Republic's recycled paperboard capacity. The Company intends to sell ap-
proximately 50% of the Lawton Mill's output pursuant to a recently executed
long-term supply agreement with James Hardie Gypsum, Inc. (the "Hardie Agree-
ment") and to use approximately 25% of the Lawton Mill's output to source its
own gypsum wallboard operations. Management estimates that the Lawton Mill will
cost approximately $160-170 million, inclusive of related working capital re-
quirements and capitalized interest, and will achieve commercial production by
the first quarter of 2000. The Company estimates that construction of the proj-
ect will be completed approximately 12 to 14 months after the date of this Pro-
spectus. Substantially all of the approximately $97 million in net proceeds to
the Company from the sale of the Old Notes either (i) are being, and will con-
tinue to be, used to finance the ongoing construction of the Lawton Mill or
(ii) were used to repay indebtedness previously incurred under the Company's
then existing Revolving and Term Credit Facility dated as of June 30, 1995 with
NationsBank, N.A. (as amended, the "Old Credit Facility") to finance the con-
struction of the Lawton Mill. Most of the proceeds of the borrowings under the
New Credit Facility will also be used to finance the construction of the Lawton
Mill.
The Company is also currently completing the second phase of a two-phase expan-
sion of the Duke Plant that will increase its capacity from 570 million to 1.2
billion square feet per year by the end of 1998. In addition, the Company has
just completed an expansion of the capacity of its recycled paperboard mills in
Commerce City, Colorado (the "Commerce City Mill") and Hutchinson, Kansas (the
"Hutchinson Mill") by approximately 25% in the aggregate. Management believes
that these initiatives, together with the construction of the Lawton Mill and
the continued expansion and incremental upgrading of its facilities, will sig-
nificantly increase Republic's overall production capabilities and enhance its
competitive position in both the recycled paperboard and gypsum wallboard busi-
ness.
RECENT FINANCIAL RESULTS
On October 13, 1998, the Company reported net sales of $33.2 million and net
income of $3.3 million, or diluted earnings per share of $0.28, for its first
fiscal quarter ended September 30, 1998. These results compare to net sales of
$31.9 million and net income of $4.3 million, or diluted earnings per share of
$0.37, for the fiscal quarter ended September 30, 1997. The decline in net in-
come was primarily attributable to poor operating results at the Company's re-
cycled paperboard mill in Halltown, West Virginia (the "Halltown Mill") and to
changes in the net effect of other income and expense, relating principally to
increased net interest expense. See "Business--Recent Financial Results."
1
<PAGE>
THE EXCHANGE OFFER
SECURITIES OFFERED...... Up to $100,000,000 aggregate principal amount of 9
1/2% Senior Subordinated Notes due 2008, the
exchange of which has been registered under the
Securities Act. The terms of the New Notes and the
Old Notes are identical in all material respects,
except for certain transfer restrictions and
registration rights relating to the Old Notes and
except for certain interest provisions relating to
the Old Notes described below under "--Summary
Description of the New Notes."
THE EXCHANGE OFFER......
The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance of
the New Notes is intended to satisfy obligations of
the Company contained in the Registration Rights
Agreement.
EXPIRATION DATE;
WITHDRAWAL RIGHTS......
The Exchange Offer will expire at 5:00 p.m., New
York City time, on November , 1998, or such later
date and time to which it is extended by the Company
in its sole discretion. The tender of Old Notes
pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any Old Note
not accepted for exchange for any reason will be
returned without expense to the tendering Holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer. See
"The Exchange Offer--Terms of the Exchange Offer;
Period for Tendering Old Notes" and "--Withdrawal
Rights."
PROCEDURES FOR
TENDERING OLD NOTES....
Each Holder of Old Notes wishing to accept the
Exchange Offer must, except as described in the
following sentence, complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with either certificates for such Old Notes or a
timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes into
the account of the exchange agent (the "Exchange
Agent") at the Depository Trust Company (the "Book-
Entry Transfer Facility"), and any other required
documentation to the Exchange Agent at the address
set forth herein. Persons holding Old Notes through
the Book-Entry Transfer Facility and wishing to
accept the Exchange Offer may also do so pursuant to
the Book-Entry Transfer Facility's Automated Tender
Offer Program ("ATOP"), by which each tendering
participant (each, a "Participant") will agree to be
bound by the Letter of Transmittal. By executing or
agreeing to be bound by the Letter of Transmittal,
each Holder will represent to the Company, among
other things, that (i) the New Notes acquired
pursuant to the Exchange Offer by the Holder and any
other person are being obtained in the ordinary
course of business of the person receiving such New
Notes, (ii) neither the Holder nor such other person
is participating in, intends to participate in or
has an arrangement or understanding with any person
to participate in the distribution of such New Notes
and (iii) neither the Holder nor such other person
is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company. Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, if such Old Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--Procedures
for Tendering Old Notes" and "Plan of Distribution."
2
<PAGE>
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS......
Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
exchange Old Notes for New Notes should contact such
registered Holder promptly and instruct such
registered Holder to exchange on such beneficial
owner's behalf. If such beneficial owner wishes to
exchange on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering
its Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered Holder. The
transfer of registered ownership may take
considerable time. See "The Exchange Offer--
Procedures for Tendering Old Notes."
GUARANTEED DELIVERY
PROCEDURES.............
Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
ACCEPTANCE OF OLD NOTES
AND DELIVERY OF NEW
NOTES..................
Subject to certain conditions described under "The
Exchange Offer," the Company will accept for
exchange any and all Old Notes properly tendered on
or prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes will be issued
promptly following acceptance of the Old Notes.
FEDERAL INCOME TAX
CONSEQUENCES...........
The exchange pursuant to the Exchange Offer will not
result in gain or loss to the Holders or the Company
for federal income tax purposes. See "Material
Federal Income Tax Considerations."
USE OF PROCEEDS......... There will be no proceeds to the Company from the
Exchange Offer.
EXCHANGE AGENT.......... UMB Bank, N.A. is serving as Exchange Agent in
connection with the Exchange Offer. See "The
Exchange Offer--Exchange Agent."
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on trans-
fer of such Old Notes as set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to an exemption from, or in a transac-
tion not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an ex-
emption from, or in a transaction not subject to, the Securities Act and appli-
cable state securities laws. The Company does not currently anticipate that it
will register the Old Notes under the Securities Act. Based on existing inter-
pretations by the staff of the SEC set forth in several no-action letters to
third parties, the Company believes that New Notes issued pursuant to the Ex-
change Offer may be offered for resale, resold and otherwise transferred by a
Holder thereof without further compliance with the registration and prospectus
delivery provisions of the Securities Act. Any purchaser of Notes, however, who
is an "affiliate" of the Company, who is not acquiring the New Notes in the or-
dinary course of its business, or who intends to participate in the Exchange
Offer for the purpose of distributing the New Notes (i) will not be able to
rely on the interpretations of the staff of the SEC, (ii) will not be able to
exchange its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery provisions of the Securities Act in con-
nection with any sale or transfer of the Old Notes unless such sale or transfer
is made pursuant to an exemption from such requirements. However, the staff of
the SEC has not rendered a no-action letter with respect to the Exchange Offer,
and there can be no assurance that the staff would make a similar determination
for the Exchange Offer as in such other circumstances. Each Holder, other than
a broker-dealer, must acknowledge that it is not
3
<PAGE>
engaged in, and does not intend to engage in, a distribution of New Notes and
has no arrangement or understanding to participate in a distribution of New
Notes. Each broker-dealer that receives New Notes for its own account in ex-
change for Old Notes must acknowledge that such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading activi-
ties and that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material re-
spects, except for certain transfer restrictions and registration rights relat-
ing to the Old Notes and except for certain provisions providing for an in-
crease in the interest rates on the Old Notes under certain circumstances re-
lating to timing of the Exchange Offer, which rights and provisions will termi-
nate upon consummation of the Exchange Offer. The New Notes will bear interest
from the most recent date to which interest has been paid on the Old Notes or,
if no interest has been paid on the Old Notes, from July 15, 1998. Accordingly,
registered Holders of New Notes on the relevant record date for the first in-
terest payment date following the consummation of the Exchange Offer will re-
ceive interest accruing from the most recent date to which interest has been
paid or, if no interest has been paid, from July 15, 1998. Old Notes accepted
for exchange will cease to accrue interest from and after the date of consumma-
tion of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted
for exchange will not receive any payment of interest on such Old Notes other-
wise payable on any interest payment date the record date for which occurs on
or after the date of consummation of the Exchange Offer, and any and all rights
to receive interest on such Old Notes will terminate upon consummation of the
Exchange Offer.
ISSUER.................. Republic Group Incorporated
SECURITIES OFFERED...... $100,000,000 of 9 1/2% Senior Subordinated Notes due
2008, the exchange of which has been registered un-
der the Securities Act.
MATURITY DATE........... July 15, 2008.
INTEREST PAYMENT DATE... January 15 and July 15, commencing on January 15,
1999.
OPTIONAL REDEMPTION..... The Notes are redeemable at the option of the Compa-
ny, in whole or in part, at any time on or after
July 15, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest to the re-
demption date. In addition, on or prior to July 15,
2001, the Company may redeem up to 35% of the Notes
originally issued at a redemption price equal to
109.5% of the principal amount thereof, plus accrued
and unpaid interest thereon to the redemption date,
with the net cash proceeds of one or more Public Eq-
uity Offerings; provided, however, that at least 65%
of the aggregate principal amount of Notes origi-
nally issued shall remain outstanding after each
such redemption.
RANKING.................
The Notes constitute general unsecured obligations
of the Company and rank subordinate in right of pay-
ment to all existing and future Senior Debt, includ-
ing all of the obligations under the New Credit Fa-
cility. As of September 30, 1998, the Company had no
Senior Debt, but the Company expects to borrow a
significant amount of the $85 million available to
it under the New Credit Facility, which would con-
stitute Senior Debt and would rank senior in right
of payment to the Notes. In addition, the Notes ef-
fectively are subordinated to all outstanding in-
debtedness and other liabilities and commitments
(including Trade Payables) of the Company's subsidi-
aries. As of September 30, 1998, the Company's sub-
sidiaries had Trade Payables and other liabilities
aggregating approximately $28.4 million and no out-
standing indebtedness. However, the Company's mate-
rial subsidiaries have each guaranteed all indebted-
ness incurred under the New Credit Facility. Subject
to certain limitations, the New Credit Facility and
the Indenture permit the Company and its subsidiar-
ies to incur additional indebtedness, including Se-
nior Debt.
4
<PAGE>
CHANGE OF CONTROL.......
Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the
Company to repurchase such Holder's Notes at 101% of
the principal amount thereof, plus accrued and un-
paid interest to the date of repurchase. However,
the New Credit Facility will provide that a change
of control (as defined therein) will constitute a
default thereunder, which would permit the lenders
to cause the indebtedness under the New Credit Fa-
cility to become immediately due and payable or to
institute a payment blockage with respect to the
Notes. In order to repurchase Notes upon a Change of
Control, the Company would have to repay all of its
obligations under the New Credit Facility (and any
other agreements relating to Senior Debt that con-
tain similar change of control provisions) or would
have to obtain the consent of the holders of such
indebtedness. There can be no assurance that the
Company will have the financial resources to repur-
chase the Notes in the event of a Change of Control,
particularly if such Change of Control requires the
Company to refinance, or results in the acceleration
of, other indebtedness. See "Description of the New
Credit Facility," "Description of Notes--Repurchase
at the Option of Holders Upon a Change of Control"
and "Risk Factors--Possible Inability to Repurchase
Notes Upon a Change of Control."
CERTAIN COVENANTS....... The Indenture governing the Notes contains certain
covenants, including, but not limited to, covenants
limiting (i) the incurrence by the Company and its
Restricted Subsidiaries (as defined) of additional
indebtedness, (ii) the payment of dividends on and
the redemption of capital stock by the Company,
(iii) the creation of liens securing indebtedness,
(iv) the ability of Restricted Subsidiaries to pay
dividends, (v) transactions with affiliates, (vi)
the sale of assets and (vii) the Company's ability
to consolidate or merge with or into, or to transfer
all or substantially all of its assets to, another
person. See "Description of Notes--Certain Cove-
nants."
USE OF PROCEEDS.........
The Company will not receive any proceeds from the
Exchange Offer. The net proceeds to the Company from
the sale of the Old Notes were approximately $97
million, after deducting the discount to the Initial
Purchasers and the expenses of the sale. Substan-
tially all of those proceeds either (i) are being,
and will continue to be, used to finance the ongoing
construction of the Lawton Mill or (ii) were used to
repay indebtedness previously incurred under the Old
Credit Facility to finance the construction of the
Lawton Mill. See "Business--Business Strategy" and
"Use of Proceeds."
RISK FACTORS............ Prospective purchasers of the New Notes should care-
fully consider the specific risk factors and other
information and data included, or incorporated by
reference, in this Prospectus prior to exchanging
Old Notes for New Notes pursuant to the Exchange Of-
fer. See "Risk Factors."
5
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth certain summary historical consolidated finan-
cial data, which should be read in connection with the Company's consolidated
financial statements, including the footnotes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
summary income statement data for the years ended June 30, 1996, 1997 and 1998
and the summary balance sheet data as of June 30, 1997 and 1998, have been de-
rived and calculated from the Company's audited financial statements incorpo-
rated by reference herein. The summary income statement data for the years
ended June 30, 1994 and 1995 and the summary balance sheet data as of June 30,
1994, 1995 and 1996, have been derived and calculated from the Company's au-
dited financial statements not included or incorporated by reference herein.
Prior operating results are not necessarily indicative of the results that may
be expected for future periods. See "Risk Factors."
<TABLE>
<CAPTION>
--------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands
INCOME STATEMENT DATA:
Gross sales............. $77,131 $112,400 $135,626 $144,234 $148,627
Net sales............... 63,200 96,413 117,902 123,697 128,285
Operating profit........ 11,961 19,008 25,405 31,756 27,005
Income before income
taxes.................. 12,436 19,158 23,974 31,141 28,182
Net income.............. 7,739 11,677 14,912 19,663 17,799
BALANCE SHEET DATA:
Working capital......... 8,170 13,520 22,485 12,939 11,024
Total assets............ 53,796 95,442 106,124 100,400 125,475
Total debt (including
current portion)....... -- 28,000 24,840 -- 5,950
Stockholders' equity.... 41,173 50,569 62,664 77,845 92,179
OTHER FINANCIAL DATA:
EBITDA (1).............. 15,267 22,798 32,114 39,697 35,925
EBITDA margin (1)....... 24% 24% 27% 32% 28%
Interest expense........ 22 7 1,937 1,476 5
Depreciation and amorti-
zation................. 2,809 3,633 6,203 7,080 7,738
Capital expenditures
(2).................... 13,318 8,800 9,062 11,556 31,191
Pro forma ratio of
EBITDA to interest ex-
pense (3).............. 3.8:1
SHIPMENTS (INCLUDING
INTERCOMPANY
SHIPMENTS):
Recycled paperboard (in
thousand tons)......... 123 125 181 188 191
Gypsum wallboard (in
million sq. ft.)....... 476 494 529 570 566
Reclaimed paper fiber
(in thousand tons)..... 17 97 112 153 146
</TABLE>
6
<PAGE>
- -------
(1) EBITDA is defined as pre-tax income before interest expense, depreciation
and amortization. Although EBITDA is a non-GAAP measure, it is presented be-
cause it is a widely accepted financial indicator of a company's ability to in-
cur and service debt. However, EBITDA should not be considered in isolation as
a substitute for net income. In addition, this measure of EBITDA may not be
comparable to similar measures reported by other companies. EBITDA margin is
calculated as the ratio of EBITDA to net sales for the period presented.
(2) The data for 1995 does not include the acquisition of Halltown Paperboard
Company. The data for 1997 includes $4.1 million for the expansion of the Duke
Plant. The data for 1998 includes $16.6 million for the expansion of the Duke
Plant and a related purchase of additional railcars and $8.0 million for the
construction of the Lawton Mill.
(3) The pro forma ratio of EBITDA to interest expense has been adjusted to give
effect to the issuance and sale of the Notes at a rate of 9 1/2% and the re-
lated interest expense (including capitalized interest) as if the Notes were
issued and sold at the beginning of the period. In addition, the Company ex-
pects to borrow a significant amount of the $85 million available to it under
the New Credit Facility in order to fund the construction of the Lawton Mill,
which would significantly increase the Company's interest expense. However, the
ratio has not been adjusted to give effect to any interest expense related to
such borrowings or to any increase in earnings that the Company may realize as
a result of the upgrade to the Duke Plant or from the operation of the Lawton
Mill. See "Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations--Liquidity and Capital Resources" and "Business--The Lawton
Mill."
7
<PAGE>
RISK FACTORS
An investment in the Notes involves a high degree of risk. Prospective invest-
ors should consider carefully the principal risk factors set forth below as
well as the other information set forth, or incorporated by reference, in this
Prospectus in evaluating the Company and its business before deciding to ex-
change Old Notes in the Exchange Offer. The following risk factors are gener-
ally applicable to both the Old Notes and the New Notes.
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements within the meaning of Sec-
tion 27a of the Securities Act and Section 21e of the Exchange Act. All state-
ments regarding the Company's expected future financial position, results of
operations, cash flows, dividends, financing plans, business strategy, budgets,
projected costs and capital expenditures, competitive positions, growth oppor-
tunities, plans and objectives of management for future operations and words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and
other similar expressions are forward-looking statements. Such forward-looking
statements are inherently uncertain, and prospective purchasers of the Notes
must recognize that actual results may differ from the Company's expectations.
Actual future results and trends for the Company may differ materially depend-
ing on a variety of factors discussed in this "Risk Factors" section and else-
where in this Prospectus. Factors that may affect the plans or results of the
Company include, without limitation, (i) success in implementing the Company's
business strategies, including the continued growth of the Company's operations
through expansion of new and existing facilities and through the construction
of the Lawton Mill, (ii) the cost and availability of raw materials used in the
Company's businesses, (iii) the nature and extent of future competition and
(iv) the changes in the general economic condition and/or in the markets in
which the Company competes. Many of such factors are beyond the control of the
Company and its management.
LEVERAGE; RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Company is significantly more leveraged than it has been in the past, and a
substantial portion of its cash flow from operations will be dedicated to the
payment of principal and interest on indebtedness. As of June 30, 1998, after
giving effect to the issuance of the Notes, the Company's total consolidated
indebtedness and total stockholders' equity would have been $100 million and
$92 million, respectively, and total indebtedness would have represented 52% of
total capitalization. The Company expects to borrow a significant amount of the
$85 million available to it under the New Credit Facility in order to fund the
construction of the Lawton Mill, which will further increase the Company's lev-
erage and total indebtedness as a percentage of total capitalization. Subject
to certain limitations, the New Credit Facility and the Indenture permit the
Company and its subsidiaries to incur additional indebtedness. The Company ex-
pects to capitalize a significant amount of the cash interest expense of the
Notes and the New Credit Facility as a cost of the construction of the Lawton
Mill, and payment of such interest will have an adverse effect on the Company's
cash flows in the near term.
The ability of the Company to service its debt and to comply with the financial
and restrictive covenants contained in the New Credit Facility and the Inden-
ture depends upon its future performance and business growth, which, in turn,
are subject to financial, economic, competitive and other factors, many of
which are beyond the Company's control. While the Company believes that it will
be able to generate sufficient cash flow to cover required debt service pay-
ments, no assurance can be given to that effect. If the Company is unable to
generate sufficient funds to meet its debt service obligations, then the Com-
pany may be required to refinance some or all of such debt, sell assets or
raise additional equity. No assurance can be given that such refinancings, as-
set sales or equity sales could be accomplished or, if accomplished, would
raise sufficient funds to service the Company's indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's degree of leverage and the restrictions imposed by the financial
covenants contained in the New Credit Facility and the Indenture could have a
material adverse effect on the Company's ability to withstand competitive pres-
sures or adverse economic conditions, make material capital investments or ac-
quisitions, obtain future financing or take advantage of business opportunities
that may arise. In addition, a general downturn in economic conditions or in
the Company's industries could have a material adverse effect on the Company's
ability to meet debt service obligations or to conduct its business in the or-
dinary course. After the Company has expended the net proceeds from the sale of
the Notes and the borrowings under the New Credit Facility toward the construc-
tion of the Lawton Mill and until the Lawton Mill has been accretive to earn-
ings for a period of time, the Company's additional leverage will make it more
vulnerable to economic pressures from any delays or cost overruns with respect
to the project or from other factors that may produce adverse changes in the
results of operations generally.
8
<PAGE>
The New Credit Facility contains financial covenants that, among other things,
require the Company to maintain certain financial ratios and restrict the abil-
ity of the Company and its subsidiaries to incur indebtedness, make acquisi-
tions or investments, create or permit liens and make capital expenditures. The
Indenture likewise contains covenants that limit the Company's incurrence of
additional indebtedness, and that restrict the Company from creating liens on
its assets, making certain asset dispositions and entering into certain trans-
actions with its Affiliates. If the Company is unable to generate sufficient
cash flows or otherwise obtain the funds necessary to make required payments of
principal and interest under, or is unable to comply with the covenants of, the
New Credit Facility or the Indenture, then the Company could be in default un-
der the terms thereof. Under the terms of the New Credit Facility, the occur-
rence of such a default under either of these instruments would permit the
lenders to accelerate the maturity of the Senior Debt created pursuant thereto
and receive payment in full prior to the receipt by the Holders of Notes of any
payment of principal of, premium, if any, or interest on the Notes. See "De-
scription of the New Credit Facility" and "Description of Notes."
SUBORDINATION OF THE NOTES; RISKS ASSOCIATED WITH CORPORATE STRUCTURE
The Notes are subordinated in right of payment to all Senior Debt of the Compa-
ny, including all obligations under the New Credit Facility. As of September
30, 1998, the Company had no Senior Debt, but the Company expects to borrow a
significant amount of the $85 million available to it under the New Credit Fa-
cility, which would constitute Senior Debt and would rank senior in right of
payment to the Notes. Moreover, subject to certain limitations, the New Credit
Facility and the Indenture permit the Company and its subsidiaries to incur ad-
ditional indebtedness, including Senior Debt. In the event of a circumstance in
which the contractual subordination provisions apply, Holders of Notes will not
be entitled to receive, and will have an obligation to pay over to holders of
Senior Debt, any payments they may receive in respect of the Notes. The indebt-
edness under the New Credit Facility will become due prior to the time the
principal obligations under the Notes become due. Certain subsidiaries of the
Company have issued Guarantees under the New Credit Facility that are secured
by both the subsidiaries' pledge of their equity interests in other subsidiar-
ies and by each such subsidiary's pledge of (i) all intercompany debt owed to
it and (ii) substantially all of the personal property of that subsidiary. In
the event of a bankruptcy, liquidation or reorganization of the Company, the
assets of the Company would be available to pay obligations on the Notes only
after all Senior Debt has been paid in full, and, as a result, there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding. See "Description of the New Credit Facility" and "Description of
Notes."
The operations of the Company are primarily conducted through its subsidiaries.
Thus, the Company's ability to make required principal and interest payments
with respect to its indebtedness, including the Notes, depends on the earnings
of its subsidiaries and on its ability to receive funds from such subsidiaries
through dividends or other payments. Since the Notes are obligations of the
Company only, the Company's subsidiaries are not obliged or required to pay any
amounts due pursuant to the Notes or to make funds available therefor in the
form of dividends or advances to the Company. Furthermore, the Notes effec-
tively are subordinated to all outstanding indebtedness and other liabilities
and commitments (including Trade Payables and other liabilities) of the
Company's subsidiaries. Any right of the Company to receive assets of any of
its subsidiaries upon the latter's liquidation or reorganization (and the con-
sequent right of Holders of Notes to participate in those assets) will be sub-
ordinated to the claims of that subsidiary's creditors, except to the extent
that the Company itself is recognized as a creditor of such subsidiary, in
which case the claims of the Company would still be subordinate to any security
interest in the assets of such subsidiary and any indebtedness of such subsidi-
ary senior to that held by the Company. As of September 30, 1998, the Company's
subsidiaries had Trade Payables and other liabilities aggregating approximately
$28.4 million and no outstanding indebtedness. However, the Company's material
subsidiaries have each guaranteed all indebtedness incurred under the New
Credit Facility.
INABILITY TO SUCCESSFULLY COMPLETE OR INTEGRATE THE LAWTON MILL
Construction of the Lawton Mill may be significantly delayed or may not be com-
pleted at all as a result of problems frequently associated with construction
projects, including delays in construction, cost overruns, labor problems and
the inability to obtain required governmental approvals, licenses and permits
or the funds required to complete the project. Completion and operation of the
Lawton Mill may also be affected by general economic conditions. In addition,
no assurance can be given that the Company will be able to successfully imple-
ment the technology to be used in the operation of the Lawton Mill. The con-
struction of the Lawton Mill could also have a material adverse effect on the
Company due to the impact of start-up costs and the potential for under-utili-
zation, especially in the start-up phase. No assurance can be given that opera-
tion of the Lawton Mill will be implemented, that the Company will be able to
sell its products once production has commenced or that production will be
profitable. In addition, there also can be no assurance that the Company will
have sufficient resources available to successfully integrate the Lawton Mill
into its overall operations. The Company may
9
<PAGE>
be required to obtain additional financing should the actual costs of the Law-
ton Mill exceed the Company's then available funds. In such event, the Company
may decide to incur additional indebtedness to pay for construction costs or
expansion costs, which could have a material adverse effect on the Company.
When the Duke Plant converts to the use of recycled paperboard supplied by the
Lawton Mill, the Company will need to find replacement customers for that por-
tion of the productive capacity of the Hutchinson Mill that presently supplies
the Duke Plant. The Company expects to shift approximately one-third of the
production at the Hutchinson Mill currently used for the manufacture of gypsum-
grade recycled paperboard to other grades of recycled paperboard and to con-
tinue concentrating the Commerce City Mill on the production of gypsum-grade
recycled paperboard. However, the Company may experience a significant lag time
in converting production at the Hutchinson Mill to other grades of recycled pa-
perboard, prices available for such other grades may be significantly lower
then those currently available for existing grades or the Company might be un-
able to find replacement customers on acceptable terms.
DEPENDENCE ON HARDIE AGREEMENT
The Company expects that the amount of paperboard supplied to Hardie pursuant
to the Hardie Agreement will eventually account for approximately 50% of the
Lawton Mill's production. The Hardie Agreement provides for only minimal sales
to Hardie until October 1, 2000. Although the Company may be able to sell addi-
tional quantities to Hardie prior to that time, there can be no assurance that
such sales will occur or that the Lawton Mill will be able to produce the quan-
tities that Hardie might seek to purchase prior to commencement of its long-
term commitment. The Duke Plant is expected to utilize another 25% of the Law-
ton Mill's output. Although it is actively pursuing several potential custom-
ers, the Company does not yet have any other supply agreements for the output
of the Lawton Mill. There can be no assurance that the Company will be success-
ful in obtaining any further supply agreements, and, in that case, the Company
would attempt to sell the remaining production in the spot market or under
other short term arrangements.
Pursuant to the Hardie Agreement, three of Hardie's plants will purchase at
least 90% of their requirements of gypsum-grade recycled paperboard from the
Lawton Mill beginning in October 2000-January 2001 until the later of October
1, 2010 or ten years after the start of commercial production. Each sale will
be made at a fixed base price determined at the execution of the Hardie Agree-
ment that is subject to adjustment based on changes in the major variable costs
of production of recycled paperboard, including the cost of power, transporta-
tion and the primary raw materials, and changes in the purchaser price index
for industrial commodities and a reference employment cost index. The Hardie
Agreement also contains a "most favored nations" clause requiring the Company
to offer Hardie the lowest price that is available from the Company to other
third-party purchasers of its recycled paperboard. As a result of the pricing
formula, Hardie may be able to make purchases at substantially below market
prices if market prices rise faster than the cost of production. Because of the
"most favored nations" clause, if the Company were unable to sell its uncommit-
ted production from the Lawton Mill to third parties at prices equal to or ex-
ceeding the prices offered to Hardie, then it either would have to forego such
third party sales or lower the selling price offered to Hardie. Because of the
expected volume of product to be sold to Hardie, any such decrease in sales
price could have a material adverse effect on the Company.
In addition, the Hardie Agreement is a "requirements" contract, and a termina-
tion or reduction of Hardie's production of gypsum wallboard could have a mate-
rial adverse effect on the Company. If, after October 1, 2004, technology
changes make it substantially more economical for Hardie to utilize paperboard
of a kind not presently commercially available and that is not contemplated for
the Lawton Mill, then Hardie and the Company are obligated to negotiate in good
faith to include such recycled paperboard within the scope of the Hardie Agree-
ment. However, any failure to reach an agreement on this point could result in
a reduction or termination of Hardie's purchases from the Lawton Mill and, as a
result, could have a material adverse effect on the Company.
The Hardie Agreement also imposes detailed specifications for the gypsum-grade
recycled paperboard sold to Hardie. The Company believes that the production
from its Lawton Mill will be able to meet such specifications. However, if the
Company were unable to produce gypsum-grade recycled paperboard meeting such
specifications or were unable to complete the Lawton Mill or achieve commercial
production in a timely fashion, the Company would be obligated to supply Hardie
with gypsum-grade recycled paperboard from its other mills or from purchases
from third parties or otherwise compensate Hardie for its additional costs in
obtaining replacement paperboard. If the Company is unable to give notice that
commercial production has been achieved at the Lawton Mill by July 1, 2001,
Hardie may terminate the Hardie Agreement. See "Business--The Hardie Agree-
ment."
10
<PAGE>
COMPETITION
Recycled Paperboard Industry. The recycled paperboard industry is highly com-
petitive. The Company's competitors include large, vertically integrated pa-
perboard and packaging products companies, numerous smaller companies and, to
a lesser extent, manufacturers of virgin paperboard and recycled
containerboard. In selling recycled paperboard to the packaging industry, the
Company competes with approximately 75 producers, many of which have substan-
tially greater financial resources than the Company. In selling the portion of
its gypsum-grade recycled paperboard not consumed by its own gypsum wallboard
operations, the Company competes with approximately eight other manufacturers,
six of which have gypsum wallboard manufacturing operations and substantially
all of which have greater financial resources than the Company. The primary
competitive factors in the recycled paperboard industry are price, quality,
personal relationships and timeliness of deliveries, with varying emphasis on
these factors depending on the specific product line. To the extent that one
or more of the Company's competitors becomes more successful with respect to
any key competitive factor, the Company's business could be adversely affect-
ed. In recent years, there has been a trend toward consolidation within the
paperboard and packaging products industries, and the Company believes that
this trend is likely to continue. If the independent gypsum wallboard produc-
ers or independent manufacturers of commercial and industrial paperboard prod-
ucts to whom the Company sells recycled paperboard acquire the capability to
manufacture recycled paperboard, then the Company may experience a loss of
customers, which could have a material adverse effect on the Company.
Gypsum Wallboard Industry. The gypsum wallboard industry is also highly com-
petitive. There are approximately 11 manufacturers of gypsum wallboard in the
United States, many of which have significantly greater financial resources
than the Company. Overall market share is dominated by a small number of pro-
ducers, including Georgia-Pacific Corporation ("Georgia-Pacific"), National
Gypsum Company ("National") and USG Corporation ("USG"), which companies pro-
duce, in the aggregate, approximately 75% to 80% of the gypsum wallboard sold
in the United States. The relative ease of entry into the gypsum wallboard in-
dustry, coupled with high demand and increasing prices, encouraged the expan-
sion of capacity in the industry in the mid-1980s, resulting in overcapacity
and increased competition. Although demand for gypsum wallboard has been rela-
tively strong in recent years, the Company is unable to predict future wall-
board demand and prices and there can be no assurance that current levels of
demand and pricing will continue or that any future price increases can be
sustained. Further expansion of capacity within the industry may also occur
during the current period of increased demand. In addition to the Company's
expansion of the Duke Plant, the Company is aware of at least two other gypsum
wallboard manufacturers that have recently completed expansions of their gyp-
sum wallboard plants. Additional gypsum wallboard manufacturers have begun or
are beginning the process of adding gypsum wallboard capacity and are expected
to complete this process during the next 18 to 36 months. As a result of these
and other expansions, the Company believes that a significant amount of new
capacity may be on line in the near future, which could have a material ad-
verse effect on gypsum wallboard selling prices. Furthermore, because high
exit barriers exist in the gypsum wallboard industry, plants that are contrib-
uting to the excess capacity may not be dismantled during periods of low de-
mand or low prices and may, therefore, be capable of a quick reentry into the
market when the market improves. In addition, larger, multiple-plant gypsum
wallboard manufacturers often have a competitive advantage over the Company in
markets outside the Company's primary markets because of the strategic loca-
tion of their plants as well as other cost efficiencies, such as the ability
to spread fixed costs over several plants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--Gyp-
sum Wallboard Operations--Competition."
CYCLICAL AND SEASONAL NATURE OF BUSINESSES
The Company's results of operations during any given period depend signifi-
cantly on the amount of gypsum wallboard and gypsum-grade paperboard sold and
the prevailing prices of such products. The demand for, and price of, gypsum
wallboard and gypsum-grade paperboard, in turn, depend heavily on both the
level of new residential and nonresidential construction activity and the
level of repair and remodel activity undertaken at existing residential and
nonresidential properties. As a result of strong construction and repair and
remodel activity, the demand for such products has increased during the last
few years, resulting in the Commerce City Mill, the Hutchinson Mill and the
Duke Plant operating at or near capacity and a general increase in the pre-
vailing prices for gypsum wallboard. While the demand for gypsum wallboard and
gypsum-grade paperboard remained strong throughout fiscal 1998, there can be
no assurances that the current level of demand and pricing will continue or
that any future price increases can be sustained. Both the construction and
the repair and remodel industries are cyclical in nature and are sensitive to
larger macroeconomic factors, including fluctuations in economic activity,
movement in interest rates and the availability of short and long-term financ-
ing. As a result of this cyclicality, the Company has experienced, and in the
future may experience, reduced revenues and margins, which could have a mate-
rial adverse effect on the Company and could impair the Company's ability to
satisfy its debt service obligations on a timely basis. The business of the
Company may also be deemed to be seasonal to the extent inclement winter
weather impacts building and construction activity and the collection of re-
claimed paper fiber.
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PRICING VOLATILITY AND RISK OF UNAVAILABILITY OF RAW MATERIALS AND UTILITIES
Reclaimed paper fiber, which is a commodity product, is the principal raw ma-
terial used by the Company in the production of recycled paperboard. Although
the Company does collect, process and ship reclaimed paper fiber internally,
and controls over one-half of its present requirements, it also purchases re-
claimed paper fiber from a number of third parties. In fiscal 1998, the Com-
pany purchased approximately 67% of its required reclaimed paper fiber from
other manufacturers, and the cost of reclaimed paper fiber accounted for ap-
proximately 30% of the Company's total recycled paperboard operating expense.
Increases early in fiscal year 1998 in the price of reclaimed paper fiber had
an adverse impact on the margins of the Company's recycled paperboard opera-
tions during fiscal 1998. The Company generally does not enter into long-term
contractual relationships or forward contracts at predetermined prices with
its suppliers of reclaimed paper fiber. A significant increase in the price of
reclaimed paper fiber that the Company is unable to pass on, or is delayed in
passing on, to its customers could have a material adverse effect on the Com-
pany.
The Company obtains its electricity, natural gas, coal and other utilities
(which accounted for approximately 14% of the Company's operating expenses in
fiscal 1998) at standard industrial and negotiated rates under short and long-
term contracts, and significant price increases or shortages of supply could
have a material adverse effect on the Company.
LIMITED CONTRACTUAL RELATIONSHIPS; DEPENDENCE ON KEY CUSTOMERS
As is typical in the Company's industry, the Company does not enter into long-
term contractual relationships with the majority of its customers. Most cus-
tomers may unilaterally reduce their purchases of the Company's products or,
in certain cases, terminate existing orders for which the Company may have in-
curred significant production costs. Moreover, in the absence of binding com-
mitments, customers are free to quickly switch their sources of supply away
from the Company. Any such action by a significant customer could have a mate-
rial adverse effect on the Company. In fiscal 1998, sales to Sonoco Products
Company ("Sonoco") and Centex American Gypsum ("Centex") each accounted for
approximately 9% of consolidated gross sales and approximately 16% and 15%,
respectively, of the recycled paperboard segment's gross sales. Sonoco has not
entered into a contractual arrangement with the Company, and it may discon-
tinue purchases from the Company at any time. The loss of either or both of
these customers could have a material adverse effect on the Company. When the
Hardie Agreement is implemented, Hardie is expected to account for a signifi-
cant percentage of consolidated gross sales. See "--Dependence on Hardie
Agreement."
ENVIRONMENTAL CONSIDERATIONS
The Company's operations are subject to various federal, state and local envi-
ronmental laws and regulations, including, but not limited to, those governing
discharges into the air and water, the storage, handling and disposal of solid
and hazardous wastes, the remediation of soil and groundwater contaminated by
petroleum products or hazardous substances or wastes, and the health and
safety of employees. The nature of the Company's current and former operations
potentially expose the Company to the risk of liabilities or claims with re-
spect to environmental and worker health and safety matters. Compliance with
environmental laws, stricter interpretations of, or amendments to, such laws,
or more vigorous enforcement policies by regulatory agencies may require mate-
rial expenditures by the Company. See "Business--Legal Proceedings."
In October 1997, the West Virginia Division of Environmental Quality (the
"DEQ") filed a complaint against Republic Paperboard Company of West Virginia
(the "West Virginia Subsidiary") in the Circuit Court of Jefferson County,
West Virginia. The complaint alleges that the West Virginia Subsidiary has vi-
olated and continues to violate an order entered into between the West Vir-
ginia Subsidiary and the DEQ on January 17, 1995 and further alleges that the
West Virginia Subsidiary has violated and continues to violate certain provi-
sions of its wastewater discharge permit. The West Virginia Subsidiary has ne-
gotiated an agreement in principle with the DEQ to settle the complaint for a
$25,000 payment to the DEQ. This settlement has not yet been finalized into an
agreed dismissal order or approved by the court, and there can be no assurance
that such an order will be finalized or approved by the court. See "Business--
Legal Proceedings."
A number of the Company's facilities have a history of industrial use. Under
certain environmental laws, a current or previous owner or operator of proper-
ty, or the generator of wastes disposed of offsite, may be jointly and sever-
ally liable for the costs of site cleanup, without regard to negligence or
fault. Responsible parties also may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site. See "Business--Environmental Regulation."
Although the Company does not believe that costs incurred in connection with
compliance with environmental laws, including remedial costs, are likely to
have a material adverse effect on the Company, there can be no assurance that
future
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events, such as changes in existing laws, the promulgation of new laws or the
development of new facts or conditions, will not require the Company to incur
significant costs that could have a material adverse effect on the Company.
WATER SUPPLY
The manufacture of recycled paperboard involves the use of large volumes of wa-
ter in the production process and for cooling purposes. In Colorado and Kansas,
the Company's water rights are subject to the legal rights of prior appropria-
tors of the same water source and to limitations on the permitted uses of such
water, as decreed by the courts. The Halltown Mill uses water from a stream
running through its property and has done so for over 100 years. The Company's
right to use the water from the stream is subject to the riparian rights of
other property owners in the area. Although adequate sources of water have his-
torically been available to all of the Company's mills, an extended period of
general water shortages, legal curtailment of any mill's current water sources
or uses, or deterioration of the current quality of water sources could affect
that mill's operations and limit its productive capacity. Any such limitation
could have a material adverse effect on the Company.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, each Holder of Notes will have the right to require
the Company to purchase all of the outstanding Notes owned by such Holder at a
price equal to 101% of the aggregate principal amount thereof, together with
accrued and unpaid interest. However, the Company's ability to repurchase the
Notes upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company and its subsidiaries. For example, the
Indenture does not prohibit the Company from incurring future indebtedness (in-
cluding Senior Debt) otherwise permitted by the Indenture that contains Change
of Control provisions. Furthermore, the New Credit Facility provides that a
Change of Control constitutes a default thereunder, thereby permitting the
lenders to cause the indebtedness under the New Credit Facility to become imme-
diately due and payable or to institute a payment blockage with respect to the
Notes. In order to repurchase Notes upon a Change of Control, the Company will
have to repay all of its obligations under the New Credit Facility (and any
other agreements relating to Senior Debt that contain similar Change of Control
provisions) or will have to obtain the consent of the holders of such indebted-
ness. Thus, there can be no assurance that the Company will have adequate fi-
nancial resources to repurchase the Notes upon a Change of Control, particu-
larly if such Change of Control requires the Company to refinance its indebted-
ness, or results in the acceleration of other indebtedness. If the Company
fails to repurchase all of the Notes tendered for purchase upon the occurrence
of a Change of Control, then such failure will constitute an event of default
under the Indenture. See "Description of Notes--Repurchase at the Option of
Holders upon a Change of Control."
The Change of Control provision may not necessarily afford the Holders protec-
tion in the event of a highly leveraged transaction, including a reorganiza-
tion, restructuring, merger or other similar transaction involving the Company
that may adversely affect the Holders, because such transactions may not in-
volve a shift in voting power, beneficial ownership or management control or,
even if they do, may not involve a shift of the magnitude required under the
definition of Change of Control to trigger such provision. Except as described
under "Description of Notes--Repurchase at the Option of the Holders upon a
Change of Control," the Indenture does not contain provisions that permit Hold-
ers of the Notes to require the Company to repurchase or redeem the Notes in
the event of a takeover, recapitalization or similar transaction.
LACK OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old Notes
were issued on July 15, 1998 to a small number of institutional investors and
are eligible for trading in the Private Offerings, Resale and Trading through
Automated Linkages ("PORTAL") market. To the extent that Old Notes are ex-
changed in the Exchange Offer, the trading market for the remaining unexchanged
Old Notes could be adversely affected. There is no existing trading market for
the New Notes, and there can be no assurance regarding the future development
of a market for the New Notes, or the ability of Holders of New Notes to sell
their New Notes or the price at which such Holders may be able to sell their
New Notes. If such a market were to develop, the New Notes could trade at
prices that may be higher or lower than the initial offering price of the Old
Notes depending on many factors, including prevailing interest rates, the
Company's operating results and the market for similar securities. The Company
does not intend to apply for listing of the New Notes on any securities ex-
change or for quotation through the National Association of Securities Dealers
Automated Quotation System. Although the Company believes that the Initial Pur-
chasers currently intend to make a market in the New Notes, the Initial Pur-
chasers are not obligated to do so, and any such market making may be discon-
tinued at any time without notice. Moreover, such market making activity will
be subject to the limits imposed by the Securities Act and the Exchange Act and
may be
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<PAGE>
limited during the Exchange Offer and the pendency of any shelf registration
statement. The liquidity of any market for the Notes will depend upon the num-
ber of Holders of the Notes, the interest of securities dealers in making a
market in the Notes and other factors. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Notes.
Historically, the market for noninvestment grade debt has been subject to dis-
ruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market, if any, for
the Notes will not be subject to similar disruptions. Any such disruptions may
have an adverse effect on the Holders of the Notes.
RESTRICTIONS ON RESALE OF OLD NOTES
The Old Notes have not been registered under the Securities Act or any state
securities laws and, unless so registered, may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject to, the regis-
tration requirements of the Securities Act and applicable state securities
laws.
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<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal (which together constitute the Ex-
change Offer), the Company will accept for exchange Old Notes that are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted be-
low. As used herein, the term "Expiration Date" means 5:00 p.m., New York City
time, on November , 1998; provided, however, that if the Company, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer has been extended.
As of the date of this Prospectus, $100 million aggregate principal amount of
Old Notes is outstanding. This Prospectus, together with the Letter of Trans-
mittal, is first being sent on or about November , 1998, to all Holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth under "--Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving oral or written no-
tice of such extension to the Holders thereof as described below. During any
such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Old Notes
not accepted for exchange will be returned without expense to the tendering
Holder thereof as promptly as practicable after the expiration or termination
of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of principal
amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange Of-
fer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions to the Exchange Offer
specified below under "--Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, nonacceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day following the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth below
and the acceptance thereof by the Company will constitute a binding agreement
between the tendering Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder (which term, for purposes of
the Exchange Offer, includes any participant in The Depository Trust Company
(the "Book -Entry Transfer Facility") system whose name appears on the security
position listing as the holder of such Old Notes) who wishes to exchange Old
Notes pursuant to the Exchange Offer must either comply with the Book-Entry
Transfer Facility's Automated Tender Offer Program described below or transmit
a properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to the Exchange Agent
at the address set forth below under "Exchange Agent" on or prior to the Expi-
ration Date, accompanied by either (i) certificates for such Old Notes or (ii)
a Book-Entry Confirmation of the transfer of such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the procedure
for book-entry transfer described below. Persons holding Old Notes through the
Book-Entry Transfer Facility and wishing to accept the Exchange Offer may do so
pursuant to ATOP, by which each tendering Participant will agree to be bound by
the terms of the Letter of Transmittal. A Holder who is unable to timely comply
with the above-described procedure prior to the Expiration Date may effect a
tender of Old Notes by complying with the guaranteed delivery procedures de-
scribed below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF EACH HOLDER. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY IN-
SURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to ten-
der should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf. If such beneficial owner
wishes to tender on his own behalf, such beneficial owner must, prior to com-
pleting and executing the Letter of Transmittal and delivering Old Notes, ei-
ther make appropriate
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<PAGE>
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed bond power from the registered Holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange are
tendered (i) by a registered Holder of the Old Notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on the Letter of Transmittal or (ii) for the account of an Eligible Institution
(as defined below). If signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, then such guar-
antees must be by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as "an eligible guarantor institution," including (as such terms
are defined therein) (i) a bank, (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer, (iii) a credit
union, (iv) a national securities exchange, registered securities association
or clearing agency, or (v) a savings association that is a participant in a Se-
curities Transfer Association (collectively, "Eligible Institutions"). If Old
Notes are registered in the name of a person other than the signatory of the
Letter of Transmittal, then the Old Notes surrendered for exchange must be en-
dorsed by, or be accompanied by a written instrument or instruments of transfer
or exchange, in satisfactory form as determined by the Company in its sole dis-
cretion, duly executed by the registered Holder with the signature thereon
guaranteed by an Eligible Institution, in either case signed exactly as the
name or names of the registered Holder or Holders appear on the Old Notes.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance of Old Notes tendered for exchange will be determined by the
Company in its sole discretion, which determination shall be final and binding.
The Company reserves the absolute right to reject any and all tenders of any
particular Old Notes not properly tendered or to not accept any particular Old
Note which acceptance might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date (includ-
ing the Letter of Transmittal and the instructions thereto) by the Company
shall be final and binding on all parties. Unless waived, any defects or irreg-
ularities in connection with tenders of Old Notes for exchange must be cured
within such reasonable period of time as the Company shall determine. Neither
the Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Old Notes for exchange, nor shall any of them incur any liability for failure
to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
then such persons should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being ob-
tained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, and that neither the Holder
nor such other person has any arrangement or understanding with any person to
participate in the distribution of the New Notes. In the case of a Holder that
is not a broker-dealer, each such Holder, by tendering, will also represent to
the Company that such Holder is not engaged in and does not intend to engage
in, a distribution of the New Notes. If any Holder or any such other person is
an "affiliate," as defined in Rule 405 under the Securities Act, of the Compa-
ny, or is engaged in or intends to engage in or has an arrangement or under-
standing with any person to participate in a distribution of such New Notes to
be acquired pursuant to the Exchange Offer, such Holder or any such other per-
son (i) will not be able to rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus de-
livery requirements of the Securities Act in connection with any resale trans-
action. Each broker-dealer that receives New Notes for its own account in ex-
change for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must ac-
knowledge that it will deliver a prospectus meeting the requirements of the Se-
curities Act in connection with any resale of such New Notes. See "Plan of Dis-
tribution." The Letter of Transmittal states that by so acknowledging and by
delivering such a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
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<PAGE>
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all conditions to the Exchange Offer, the Com-
pany will accept, promptly after the Expiration Date, all Old Notes properly
tendered and will issue the New Notes promptly after acceptance of the Old
Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly ten-
dered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder will receive a New Note
having a principal amount equal to that of the surrendered Old Note. The New
Notes will bear interest from the most recent date to which interest has been
paid on the Old Notes or, if no interest has been paid on the Old Notes, from
July 15, 1998. Accordingly, Holders of New Notes on the relevant record date
for the first interest payment date following the consummation of the Exchange
offer will receive interest accruing from the most recent date to which inter-
est has been paid or, if no interest has been paid, from July 15, 1998. Old
Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer. Holders of Old Notes whose Old
Notes are accepted for exchange will not receive any payment in respect of ac-
crued interest on such Old Notes otherwise payable on any interest payment date
the record date for which occurs on or after the date of consummation of the
Exchange Offer, and any and all rights to receive interest on such Old Notes
will terminate upon consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for ex-
change pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of (i) certificates for such Old Notes (or a timely Book-En-
try Confirmation of the transfer of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), (ii) a properly completed and
duly executed Letter of Transmittal or an agent's message from the Book-Entry
Transfer Facility confirming that it has received ATOP instructions from a Par-
ticipant with respect thereto and (iii) all other required documents. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the Holder desires to exchange, such unaccepted or non-
exchanged Old Notes will be returned without expense to the tendering Holder
(or, in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as prac-
ticable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect to
the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange
Offer within two (2) business days after the date of this Prospectus, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although de-
livery of Old Notes may be effected through book-entry transfer at the Book-En-
try Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth below under "--Exchange
Agent" on or prior to the Expiration Date or in accordance with the guaranteed
delivery procedures described below.
ATOP may be used to process exchange offers through the Book-Entry Transfer Fa-
cility. To accept the Exchange Offer through ATOP, Participants in the Book-
Entry Transfer Facility must send electronic instructions to the Book-Entry
Transfer Facility through the Book-Entry Transfer Facility communication system
by which they agree to be bound by the terms of the Letter of Transmittal in
place of sending a signed, hard copy Letter of Transmittal. The Book-Entry
Transfer Facility is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic instruc-
tions sent to the Book-Entry Transfer Facility and transmitted by the Book-En-
try Transfer Facility to the Exchange Agent must contain the character by which
the Participant acknowledges its receipt of and agrees to be bound by the Let-
ter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a Holder of the Old Notes desires to tender such Old Notes and the Old Notes
are not immediately available, or if time will not permit such Holder's Old
Notes or other required documents to reach the Exchange Agent before the Expi-
ration Date, or if the procedure for book-entry transfer or a tender pursuant
to ATOP cannot be completed on a timely basis, then a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the Expi-
ration Date, the Exchange Agent has received from such Eligible Institution (by
facsimile transmission, mail or hand delivery) a properly
17
<PAGE>
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form provided by the Company, (a) setting forth the name and address of the
Holder of Old Notes and the amount of Old Notes tendered, (b) stating that the
tender is being made thereby and (c) guaranteeing that, (I) within five NYSE
trading days after the execution of the Notice of Guaranteed Delivery, the cer-
tificates for all tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, (II) the Letter of Transmittal (or an
agent's message from the Book-Entry Transfer Facility confirming that it has
received ATOP instructions from a Participant with respect thereto) and (III)
any other documents required by the Letter of Transmittal will all be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all tendered Old Notes, in proper form for transfer, or a Book-Entry Con-
firmation, as the case may be, the Letter of Transmittal (or an agent's message
as described above) and all other documents required by the Letter of Transmit-
tal, are all received by the Exchange Agent within five NYSE trading days after
the execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be re-
ceived by the Exchange Agent at the address or, in the case of Eligible Insti-
tutions, at the facsimile number, set forth below under "--Exchange Agent" or
the appropriate procedures of ATOP must be complied with prior to 5:00 p.m.,
New York City time, on the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having tendered the Old Notes to be with-
drawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including
the certificate number or numbers and principal amount of such Old Notes),
(iii) contain a statement that such person is withdrawing his election to have
such Old Notes exchanged, (iv) be signed by the person in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer to have the Trustee with respect to the Old Notes reg-
ister the transfer of such Old Notes in the name of the person withdrawing the
tender, and (v) specify the name in which such Old Notes are registered, if
different from that of the Depositor. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer described above, any notice of with-
drawal must specify the name and number of the account at the Book-Entry Trans-
fer Facility to be credited with the withdrawn Old Notes and otherwise comply
with the procedures of such facility. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer, and no New Notes will be issued
with respect thereto, unless the Old Notes so withdrawn are validly re-ten-
dered. Any Old Notes that have been tendered for exchange but that are not ex-
changed for any reason will be returned to the tendering Holder without cost to
such Holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to
the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with the Book-Entry Transfer Facility for the
Old Notes) as soon as practicable after withdrawal, rejection of tender or ter-
mination of the Exchange Offer. Properly withdrawn Old Notes may be retendered
by following the procedures described under "--Procedures for Tendering Old
Notes" above at any time on or prior to 5:00 p.m., New York City time, on the
Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue Notes in exchange for, any
Old Notes and may terminate or amend the Exchange Offer if, at any time before
the acceptance of such Old Notes for exchange or the exchange of the Notes for
such Old Notes, the Company determines that the Exchange Offer violates any ap-
plicable law, any applicable interpretation of the staff of the Commission or
any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be as-
serted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes tendered,
and no Notes will be issued in exchange for any such Old Notes, if at such time
any stop order shall be threatened or in effect with respect to (i) the Regis-
tration Statement of which this Prospectus constitutes a part or (ii) the qual-
ification of the Indenture under the Trust Indenture Act of 1939, as amended.
In any such event, the Company is required to use its reasonable best efforts
to obtain the withdrawal of any stop order at the earliest possible time.
18
<PAGE>
EXCHANGE AGENT
UMB Bank, N.A. has been appointed as the Exchange Agent for the Exchange Offer.
All executed Letters of Transmittal should be directed to the Exchange Agent at
the address set forth below. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
UMB Bank, N.A., Exchange Agent
By Mail or Hand Delivery: By Facsimile Transmission
UMB Bank, N.A. (for Eligible Institutions only):
Corporate Trust Department (816) 221-0438
928 Grand Boulevard Attention: Mr. R. William Bloemker
Kansas City, Missouri 64106 Confirm by Telephone:
Attention: Mr. R. William Bloemker (816) 860-7446
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer. The estimated cash expenses to be incurred
in connection with the Exchange Offer will be paid by the Company and are esti-
mated in the aggregate to be $200,000.
TRANSFER TAXES
Holders who exchange their Old Notes will not be obligated to pay any transfer
taxes in connection therewith, except that Holders who instruct the Company to
register New Notes in the name of, or request that Old Notes not tendered or
not accepted in the Exchange Offer be returned to, a person other than the reg-
istered tendering Holder will be responsible for the payment of any applicable
transfer tax.
PAYMENT OF INTEREST
The New Notes will bear interest from the most recent date to which interest
has been paid on the Old Notes or, if no interest has been paid on the Old
Notes, from July 15, 1998. Accordingly, registered Holders of New Notes on the
relevant record date for the first interest payment date following the consum-
mation of the Exchange Offer will receive interest accruing from the most re-
cent date to which interest has been paid or, if no interest has been paid,
from July 15, 1998. Old Notes accepted for exchange will cease to accrue inter-
est from and after the date of consummation of the Exchange Offer. Holders of
Old Notes whose Old Notes are accepted for exchange will not receive any pay-
ment of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after the date of consummation of
the Exchange Offer, and any and all rights to receive interest on such Old
Notes will terminate upon consummation of the Exchange Offer.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the provisions in the In-
denture regarding transfer and exchange of the Old Notes and the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a conse-
quence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under, pursuant to an exemption from or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register Old Notes
under the Securities Act. Based on existing interpretations by the staff of the
SEC, as set forth in several no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in ex-
change for Old Notes may be offered for resale, resold or otherwise transferred
by Holders thereof (other than any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without com-
pliance with the registration and prospectus delivery provisions of the Securi-
ties Act,
19
<PAGE>
provided that such New Notes were acquired in the ordinary course of such Hold-
ers' business and such Holders have no arrangement or understanding with any
person to participate in the distribution of such New Notes. However, the staff
of the SEC has not rendered a no-action letter with respect to the Exchange Of-
fer, and there can be no assurance that the staff would make a similar determi-
nation for the Exchange Offer as in such other circumstances. Each Holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and
does not intend to engage in, a distribution of New Notes and has no arrange-
ment or understanding to participate in a distribution of New Notes. If any
Holder who is an affiliate of the Company is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of the
New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) will
not be able to rely on the applicable interpretations of the staff of the SEC
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. Each broker-
dealer that receives New Notes for its own account in exchange for Old Notes
must acknowledge that such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and that it will
deliver a prospectus in connection with any resale of such New Notes. See "Plan
of Distribution."
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
A summary of the material United States federal income tax consequences asso-
ciated with the exchange of Old Notes for New Notes and the ownership and dis-
position of the New Notes by Holders who acquired the New Notes pursuant to the
Exchange Offer is included herein under "Material Federal Income Tax Considera-
tions."
20
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds to the Company from the sale of the Old Notes were approximately $97
million, after deducting the discount to the Initial Purchasers and the ex-
penses of the sale. Substantially all of those net proceeds either (i) are be-
ing, and will continue to be, used to finance the ongoing construction of the
Lawton Mill or (ii) were used to repay indebtedness previously incurred under
the Old Credit Facility to finance the construction of the Lawton Mill. Most
of the proceeds of borrowings under the New Credit Facility will also be used
to finance the construction of the Lawton Mill. Pending the use of the net
proceeds from the sale of the Old Notes for the purposes described above, the
Company expects to invest the proceeds in short-term interest-bearing invest-
ments.
Absent prepayment or extension by mutual agreement, the revolving credit fa-
cility under the Old Credit Facility would have expired on June 30, 1999. Out-
standing balances under the Old Credit Facility bore interest at a rate equal
to LIBOR plus an agreed margin (ranging from 50 to 150 basis points) or the
bank lender's prime rate less 0.75%.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 and as adjusted to give effect to the issuance of the Notes. See "Use
of Proceeds."
<TABLE>
<CAPTION>
-------------------
AS OF JUNE 30, 1998
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
Dollars in thousands
Short-term debt, including current portion of long term
debt..................................................... -- --
Long-term debt (less current portion):
Old Credit Facility(1).................................... $ 5,950
New Credit Facility(2).................................... -- --
9 1/2% Senior subordinated notes due 2008................. -- $100,000
------- --------
Total long-term debt..................................... 5,950 100,000
------- --------
Stockholders' equity:
Common stock and additional paid-in capital............... 39,845 39,845
Treasury stock--common stock--at cost..................... (210) (210)
Retained earnings......................................... 52,544 52,544
------- --------
Total stockholders' equity............................... 92,179 92,179
------- --------
Total capitalization.................................... $98,129 $192,179
======= ========
</TABLE>
- -------
(1) The Old Credit Facility provided for borrowings of up to $50 million in
aggregate principal amount. The outstanding balance was repaid on July 15,
1998 with the proceeds of the sale of the Notes. The Old Credit Facility was
superseded by the New Credit Facility.
(2) The New Credit Facility provides for borrowings of up to $85 million in
aggregate principal amount. The Company expects to borrow a significant amount
of the $85 million available to it under the New Credit Facility in order to
fund the construction of the Lawton Mill. See " Description of the New Credit
Facility."
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected consolidated financial data,
which should be read in connection with the Company's consolidated financial
statements, including the footnotes thereto, and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
income statement data for the years ended June 30, 1996, 1997 and 1998 and the
selected balance sheet data as of June 30, 1997 and 1998, have been derived and
calculated from the Company's audited financial statements incorporated by ref-
erence herein. The selected income statement data for the years ended June 30,
1994 and 1995 and the selected balance sheet data as of June 30, 1994, 1995 and
1996 have been derived and calculated from the Company's audited financial
statements not included or incorporated by reference herein. Prior operating
results are not necessarily indicative of the results that may be expected for
future periods. See "Risk Factors."
<TABLE>
<CAPTION>
---------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per
share amounts, ratios,
shipments and percent-
ages
INCOME STATEMENT DATA:
Gross sales............. $77,131 $112,400 $135,626 $144,234 $148,627
Net sales............... 63,200 96,413 117,902 123,697 128,285
Operating profit........ 11,961 19,008 25,405 31,756 27,005
Other income (expenses),
net.................... 475 150 (1,431) (615) 1,177
Income before income
taxes.................. 12,436 19,158 23,974 31,141 28,182
Provision for income
taxes.................. 4,697 7,481 9,062 11,478 10,383
Net income.............. 7,739 11,677 14,912 19,663 17,799
Basic earnings per share
(1).................... 0.67 1.01 1.28 1.68 1.52
Basic weighted average
shares outstanding
(1).................... 11,590 11,603 11,640 11,698 11,705
Diluted earnings per
share (1).............. 0.66 1.00 1.27 1.67 1.51
Diluted weighted average
shares outstanding
(1).................... 11,667 11,669 11,736 11,795 11,798
BALANCE SHEET DATA:
Working capital......... 8,170 13,520 22,485 12,939 11,024
Total assets............ 53,796 95,442 106,124 100,400 125,475
Total debt (including
current portion)....... -- 28,000 24,840 -- 5,950
Stockholders' equity.... 41,173 50,569 62,664 77,845 92,179
OTHER FINANCIAL DATA:
EBITDA (2).............. 15,267 22,798 32,114 39,697 35,925
EBITDA margin (2)....... 24% 24% 27% 32% 28%
Interest expense........ 22 7 1,937 1,476 5
Depreciation and
amortization........... 2,809 3,633 6,203 7,080 7,738
Capital expenditures
(3).................... 13,318 8,800 9,062 11,556 31,191
Cash dividends per
share.................. 0.16 0.21 0.26 0.34 0.36
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
RATIOS:
Ratio of earnings to fixed
charges (4).................. N/A N/A 13:1 22:1 N/A
Pro forma ratio of earnings to
fixed charges (5)............ 3.0:1
Pro forma ratio of EBITDA to
interest expense (5) 3.8:1
SHIPMENTS (INCLUDING
INTERCOMPANY SHIPMENTS):
Recycled paperboard (in
thousand tons)............... 123 125 181 188 191
Gypsum wallboard (in million
sq. ft.)..................... 476 494 529 570 566
Reclaimed paper fiber (in
thousand tons)............... 17 97 112 153 146
</TABLE>
- -------
(1) See Note 9 of Notes to Consolidated Financial Statements for the fiscal
years ended June 30, 1996, 1997 and 1998 that are incorporated by reference
herein for information concerning the calculation of basic and diluted net in-
come per share. Such calculations reflect the adoption by the Company of State-
ment of Financial Accounting Standards No 128, "Earnings per Share" (FAS 128),
effective October 1, 1997, which requires the restatement of all periods pre-
sented in the Company's Consolidated Financial Statements included in this Pro-
spectus and incorporated by reference herein.
(2) EBITDA is defined as pre-tax income before interest, depreciation and amor-
tization. Although EBITDA is a non-GAAP measure, it is presented because it is
a widely accepted financial indicator of a company's ability to incur and serv-
ice debt. However, EBITDA should not be considered in isolation as a substitute
for net income. In addition, this measure of EBITDA may not be comparable to
similar measures reported by other companies. EBITDA margin is calculated as
the ratio of EBITDA to net sales for the period presented.
(3) The data for 1995 does not include the acquisition of Halltown Paperboard
Company. The data for 1997 includes $4 million for the expansion of the Duke
Plant. The data for 1998 includes $16.6 million for the expansion of the Duke
Plant and a related purchase of additional railcars and $8.0 million for the
construction of the Lawton Mill.
(4) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings represent earnings before income taxes and fixed charges and (ii)
fixed charges consist of interest expense. The ratio of earnings to fixed
charges is not meaningful for the years ended June 30, 1994, 1995 and 1998, due
to the insignificance of interest expense in such periods.
(5) The pro forma ratios of earnings to fixed charges and of EBITDA to interest
expense have been adjusted to give effect to the issuance and sale of the Notes
at a rate of 9 1/2% and the related interest expense (including capitalized in-
terest) as if the Notes were issued and sold at the beginning of the period.
The Company expects to borrow a significant amount of the $85 million available
to it under the New Credit Facility in order to fund the construction of the
Lawton Mill, which would significantly increase the Company's interest expense.
However, neither ratio has been adjusted to give effect to any interest expense
related to such borrowings or to any increase in earnings that the Company may
realize as a result of the upgrade to the Duke Plant or from the operation of
the Lawton Mill. See "Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations--Liquidity and Capital Resources" and "Busi-
ness--The Lawton Mill."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto incorporated by reference in this Pro-
spectus.
OVERVIEW
Republic Group Incorporated is an integrated manufacturer and distributor of
gypsum wallboard and recycled paperboard and also sells reclaimed paper fiber.
The Company's operations are split into two operating segments: (i) recycled
paperboard operations (which includes its reclaimed paper fiber operations),
which accounted for approximately 57% of the Company's total net sales in fis-
cal 1998 prior to intercompany eliminations, and (ii) gypsum wallboard opera-
tions, which accounted for approximately 43% of the Company's total net sales
in fiscal 1998 prior to intercompany eliminations.
The Company's revenues and income from its recycled paperboard business segment
have increased significantly in recent years as a result of the Company's 1995
acquisition of the Halltown Mill and continuing, recent increases in the pro-
ductive capacity of the Commerce City Mill and the Hutchinson Mill pursuant to
a capital expansion plan implemented over the course of the past five years.
The Commerce City Mill and Hutchinson Mill have been operating at near capacity
the last two years, and management expects that further incremental upgrades
and expansions will be completed as production schedules and time permit. When
the Lawton Mill is completed, the Company will approximately double its recy-
cled paperboard manufacturing capacity. The Company will need to find customers
for approximately 25% of the Lawton Mill's capacity and replacement customers
for that portion of its existing sales that will be switched to the Lawton
Mill.
In recent years, the primary variable affecting the results of the Company's
recycled paperboard segment has been the price of reclaimed paper fiber. The
price of reclaimed paper fiber can fluctuate quickly and significantly. Histor-
ically, except for increases of short duration, the Company has been able to
raise its recycled paperboard selling prices as the cost of reclaimed paper fi-
ber increases, but there is usually a 30 to 90 day time lag which causes recy-
cled paperboard operating margins to be adversely impacted. Conversely, during
fiscal 1996, the Company became the beneficiary of slowly declining selling
prices and rapidly declining raw material costs, resulting in operating margins
for the recycled paperboard segment of approximately 20%. In fiscal 1997, re-
claimed paper fiber costs declined slowly early in the year and began to in-
crease again later in the year while net selling prices continued to decline,
resulting in operating margins of approximately 19%. Reclaimed paper fiber
costs rose sharply during the first quarter of fiscal 1998 but gradually de-
clined during the remainder of fiscal 1998. As the Company commenced to in-
crease net selling prices during the first half of fiscal 1998, the cost of re-
claimed paper fiber started to decline thus not allowing the implementation of
the pricing increases. As a result, the Company's operating margin in its recy-
cled paperboard segment declined to 12% in fiscal 1998 from 19% in fiscal 1997
and 20% in fiscal 1996.
During fiscal 1998, the Company's recycled paperboard operations purchased ap-
proximately 33% of their needs from the Company's reclaimed paper fiber opera-
tions and the remainder from several non-affiliated suppliers. The Company gen-
erally has not entered into long-term, or forward, contracts with its reclaimed
paper fiber suppliers. The Company believes that its sales of recycled paper-
board and reclaimed paper fiber to third parties at increased prices partially
hedge against increased costs of these products incurred by the Company's gyp-
sum wallboard and recycled paperboard operations, respectively.
The Company's gypsum wallboard segment has experienced strong results in the
last several years as a result of the continued strength of the economy. The
price of and demand for gypsum wallboard depends on the level of new construc-
tion and home repair and remodel activity, which, in turn, depends on general
economic conditions, interest rates and the availability of short and long-term
financing. Low interest rates and a strong domestic economy caused demand for
gypsum wallboard to be very strong throughout 1996, 1997 and 1998. New con-
struction activity continues to be robust as does repair and remodel demand for
gypsum wallboard. As a result of consistent demand for gypsum wallboard, pre-
vailing selling prices have generally increased during the same periods.
The Duke Plant has been operating at near capacity the last five years. As a
result of the strong performance of this segment, the Company undertook a capi-
tal expenditures program in 1997 to effectively double the productive capacity
of the Duke Plant. Construction is scheduled to be completed by the end of the
second quarter of fiscal 1999. Expenditures related to the expansion of the
Company's gypsum wallboard operations are estimated to total approximately $26
million for construction and production equipment improvements and $5 million
for additional railcars. Through fiscal 1998, these expenditures totaled ap-
proximately $21 million. In addition to the Company's expansion of the Duke
Plant, the Company is aware of at least two other gypsum wallboard manufactur-
ers that have recently completed expansions of their gypsum wallboard plants.
Additional gypsum wallboard manufacturers are also in the process of adding new
gypsum wallboard capacity and are expected to complete this process by during
the next 18 to 36 months. Completion of these two expansions and the added ca-
pacity from the other new plants may reduce prevailing prices. See "Risk Fac-
tors--Competition--
24
<PAGE>
Gypsum Wallboard Industry." The Company's gypsum wallboard business segment re-
ceives substantially all of its recycled paperboard requirements from the Com-
merce City Mill and the Hutchinson Mill.
The Company issued the Notes and entered into the New Credit Facility in order
to finance the construction of the Lawton Mill. The Company anticipates that
the Lawton Mill will begin commercial production by the first quarter of 2000.
Until such time, the Lawton Mill will not generate any revenues, but the Com-
pany will incur interest expense associated with the Notes and the New Credit
Facility and other non-capitalizable expenses associated with building manage-
ment and employee infrastructure prior to commencement of commercial operation.
The Company expects to capitalize a significant amount of the cash interest ex-
pense of the Notes and the New Credit Facility as a cost of the construction of
the Lawton Mill, mitigating the impact of such interest expense on the
Company's net income. However, payment of such interest will have an adverse
effect on the Company's cash flows in the near term. Additionally, after the
Company has expended the net proceeds from the sale of the Old Notes and the
borrowings under the New Credit Facility toward the construction of the Lawton
Mill and until the Lawton Mill begins commercial production and can be
accretive to earnings for a period of time, the Company's additional leverage
will make it more vulnerable to economic pressures from any delays in the proj-
ect or cost overruns or from other factors that may produce adverse changes in
the results of operations generally.
PRESENTATION OF FINANCIAL INFORMATION
In the following discussion of the Company's results of operations, segment re-
sults are presented prior to intercompany eliminations. Sales of recycled pa-
perboard to the Duke Plant are accounted for as sales by the recycled paper-
board segment and included in cost of sales by the gypsum wallboard segment.
These intersegment sales during fiscal year 1998, 1997 and 1996 accounted for
approximately 13%, 15% and 14%, respectively, of the recycled paperboard seg-
ment's net sales. Unless otherwise stated, sales of reclaimed paper fiber
within the recycled paperboard segment are eliminated in determining recycled
paperboard segment results of operations. The Company believes that its
intercompany sales are made at prevailing market prices. In determining operat-
ing profits for each segment, corporate general and administrative expenses
have not been allocated to that segment.
Financial results for the Company's quarter ended September 30, 1998 are dis-
cussed under "Business--Recent Financial Results."
FISCAL 1998 COMPARED TO FISCAL 1997
General. In fiscal 1998, consolidated net sales increased approximately 4% to
$128.3 million, from $123.7 million for fiscal 1997. This increase resulted
largely from an increase of approximately 7% in the net selling price of gypsum
wallboard and an increase of approximately 4% in shipments of recycled paper-
board to unaffiliated customers.
The Company had operating profits of approximately $27.0 million in fiscal
1998, compared with operating profits of approximately $31.8 million in fiscal
1997. In fiscal 1998, the operating margins of the gypsum wallboard operations
were generally similar to those experienced in fiscal 1997. However, operating
margins of the recycled paperboard segment decreased from approximately 19% in
fiscal 1997 to approximately 12% in fiscal 1998. This reduction in the operat-
ing profits of the recycled paperboard segment resulted largely from (i) an in-
crease in variable per unit costs for raw materials (primarily reclaimed paper
fiber) of approximately 18%, (ii) an increase in variable per unit costs for
utilities of approximately 12% and (iii) to a lesser extent, downtime experi-
enced at one of the Company's mill in connection with unscheduled equipment
maintenance. Selling and administrative expenses as a percent of net sales re-
mained at 12% in fiscal 1998.
In fiscal 1998, net income was augmented by $1.0 million of non-taxable life
insurance income from a policy owned by the Company on an executive officer.
During fiscal 1998, the Company had minimal interest-bearing debt and, as a re-
sult, realized a decrease of approximately $1.5 million in interest expense.
This decrease in interest expense was partially offset by a corresponding de-
crease of approximately $0.7 million in interest income. The Company's effec-
tive tax rate remained at 37% in fiscal 1998.
As a result of the factors listed above, the Company's net income decreased to
approximately $17.8 million in fiscal 1998 from approximately $19.7 million in
fiscal 1997, a decrease of approximately 9%. Diluted earnings per share de-
creased in fiscal 1998 to $1.51 per share, down from $1.67 per share in fiscal
1997.
Recycled Paperboard. In fiscal 1998, shipments of recycled paperboard to unaf-
filiated customers increased approximately 4% from fiscal 1997, primarily as a
result of a significant improvement in shipments of recycled paperboard from
the Halltown Mill. Total paperboard shipments increased to 190,614 tons from
187,845 tons in fiscal 1997. While overall reclaimed paper fiber operating re-
sults improved substantially during fiscal 1998, shipments of reclaimed paper
fiber to
unaffiliated customers dropped approximately 15% from fiscal 1997, primarily as
a result of the loss of two large suppliers of reclaimed paper fiber to the
Company's reclaimed paper fiber operations. Net sales for the recycled paper-
board segment decreased slightly to approximately $79.2 million in fiscal 1998
from approximately $79.5 million in fiscal 1997. Total
25
<PAGE>
costs for the segment increased approximately 8%, to approximately $69.6 mil-
lion in fiscal 1998 from approximately $64.6 million in fiscal 1997. In fiscal
1998, the segments recycled paperboard operations experienced (i) an increase
of approximately 22% in reclaimed paper fiber per unit manufacturing costs,
(ii) an increase of approximately 12% in the variable per unit costs of utili-
ties, mainly natural gas, and (iii) an overall increase in shipments of recy-
cled paperboard. Variable per unit costs for both reclaimed paper fiber and
utilities have receded in recent months.
Gypsum Wallboard. For fiscal 1998, shipments of gypsum wallboard were 566 MMSF
as compared to 570 MMSF in fiscal 1997. The slight decrease in shipments was
due primarily to the inherent difficulty in operating a plant when a large ex-
pansion project is occurring in the same facility. The continued strong demand
for gypsum wallboard raised the net selling price of gypsum wallboard by ap-
proximately 7% in fiscal 1998, which, in turn, caused net sales to increase
approximately 6%, to approximately $59.5 million in fiscal 1998 from approxi-
mately $56.2 million in fiscal 1997. Total costs for the Company's gypsum
wallboard operations also increased to approximately $35.1 million in fiscal
1998 from approximately $33.0 million in fiscal 1997, primarily from increased
labor, overhead, and selling and administrative costs incurred in connection
with the expansion of the Duke Plant. Nevertheless, the increase in net sales
outpaced the increase in total costs and, as a result, operating profits in-
creased to approximately $24.3 million in fiscal 1998 from approximately $23.2
million in fiscal 1997. Operating margins for the gypsum wallboard segment
were approximately 41% in both fiscal 1998 and fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
General. In fiscal 1997, consolidated net sales were $123.7 million, as com-
pared to consolidated net sales of $117.9 million in fiscal 1996. The increase
of approximately 5% in consolidated net sales resulted largely from an in-
crease of approximately 17% in the net selling price of gypsum wallboard and
an increase of approximately 4% in shipments of recycled paperboard to unaf-
filiated customers.
Selling and administrative expenses as a percent of net sales were flat at ap-
proximately 12% in fiscal 1997 and in fiscal 1996.
The Company had operating profits of $31.8 million in fiscal 1997, as compared
with operating profits of $25.4 million in fiscal 1996. This increase of ap-
proximately 25% in operating profits resulted largely from a large increase in
operating profits in the gypsum wallboard operations partially offset by a re-
duction in operating profits in recycled paperboard operations.
Interest expense totaled $1.5 million in fiscal 1997 compared to $1.9 million
in fiscal 1996, and the Company repaid all interest-bearing debt by fiscal
year-end 1997.
The Company's effective tax rate was 39% in fiscal 1995, 38% in fiscal 1996
and 37% in fiscal 1997. The Company believes its effective tax rate for fiscal
1998 will be in the range experienced over the last three years.
As a result of the factors described above, the Company's net income increased
to $19.7 million in fiscal 1997 from $14.9 million in fiscal 1996, an increase
of approximately 32%. Diluted earnings per share also increased in fiscal 1997
to $1.67 per share from $1.27 per share in fiscal 1996.
Recycled Paperboard. During fiscal 1997, approximately 59% of the Company's
total consolidated net sales before eliminations were contributed by the recy-
cled paperboard segment. Operating profits for the segment were $17.7 million
in fiscal 1996 and $15.2 million in fiscal 1997, a decrease of approximately
14%. Operating margins for recycled paperboard operations were approximately
19% in fiscal 1997 as compared to approximately 20% in fiscal 1996. The de-
crease in operating margins was primarily the result of a decrease in net
selling prices that was only partially offset by a decrease in raw material
and variable production costs.
Both the Commerce City Mill and the Hutchinson Mill operated at near capacity
in fiscal 1997. Shipments of recycled paperboard increased approximately 4%
from fiscal 1996 to fiscal 1997, to approximately 188,000 tons, primarily as a
result of an increase of approximately 4% in shipments to unaffiliated custom-
ers. Over this same period, shipments of reclaimed paper fiber increased ap-
proximately 37%, to approximately 153,000 tons, largely due to a higher level
of vertical integration within the Company.
Net sales for the segment prior to intercompany eliminations decreased approx-
imately 7% in fiscal 1997. This decrease resulted primarily from a decline of
approximately 9% in net selling prices of recycled paperboard and a decrease
of approximately 24% in net selling prices of reclaimed paper fiber during the
year. The decline in net selling prices resulted primarily from a decline in
raw material costs. Raw material costs, consisting primarily of the cost of
reclaimed paper fiber used in the production of recycled paperboard, declined
approximately 15% from fiscal 1996 to fiscal 1997. Per unit variable produc-
tion costs, other than the cost of raw materials, also decreased approximately
3% from fiscal 1996 to fiscal 1997.
26
<PAGE>
The Company's reclaimed paper fiber operations had a similar experience. Net
selling prices eroded during the year, while the acquisition cost of baled and
unbaled paper also declined, but not to the same extent as net selling prices.
Gypsum Wallboard. The Duke Plant operated at near capacity during fiscal 1997.
Shipments of gypsum wallboard increased approximately 8%, to 570 million square
feet in fiscal 1997 from 529 million square feet in fiscal 1996. Incremental
improvements in the Company's manufacturing process and continued strong growth
in the construction industry constituted the primary causes of the increase in
shipments of gypsum wallboard in fiscal 1997.
Net sales for the gypsum wallboard segment increased approximately 26% from
fiscal 1996 to fiscal 1997 due primarily to an increase of approximately 17% in
net selling prices and an increase of approximately 8% in shipments of gypsum
wallboard.
The Company's cost per unit for gypsum wallboard remained essentially unchanged
from fiscal 1996 to fiscal 1997. Segment operating profit margins increased to
approximately 41% in fiscal 1997 from approximately 32% in fiscal 1996. In fis-
cal 1997, the Company, like other producers, experienced strong demand for its
gypsum wallboard products, precipitating a rise in selling prices and which,
when combined with stable manufacturing costs, provided improved results for
the Company and the gypsum industry as a whole.
YEAR 2000 COMPLIANCE
The Company uses a number of computer software programs, operating systems, and
types of equipment with computer chips in its internal operations, including
applications used in the Company's financial business systems, manufacturing
processes and administrative functions. To the extent that the programs, oper-
ating systems, and equipment contain source code or computer chips that are un-
able to interpret appropriately the upcoming calendar year 2000, some level of
modification or possible replacement will be necessary. The costs necessary to
modify or replace the items mentioned above, or the interruption of administra-
tive or manufacturing processes resulting from compliance failure, may have a
material adverse effect on the Company's business and financial condition or
its results of operations.
The Company has appointed a team of employees to address the year 2000 issue.
The Company is following a six-step process evaluating critical software, oper-
ating systems and equipment for year 2000 compliance -- awareness, inventory,
assessment, remediation, testing and risk management (contingency planning).
Currently, the Company is in the inventory/assessment phase with some
remediation and testing taking place. The inventory phase is substantially com-
plete. The Company does not yet have a contingency plan in place to deal with
the most reasonably likely worst-case scenario. The Company will begin devising
its contingency plan in the first quarter of calendar year 1999. The Company
has established a goal of July 1, 1999 for completing the entire process. The
Company has received a certification from the vendor of its financial and pay-
roll software that such software is year 2000 compliant. However, this software
will be analyzed by the same processes outlined above.
To date, expenses associated with year 2000 compliance have been minimal. How-
ever, from fiscal 1995 through the present, the Company, in its normal course
of business, replaced substantially all of its business systems hardware and
software. The Company estimates expenditures of approximately $300,000 in fis-
cal 1999 and approximately $200,000 in fiscal 2000 for periodic, scheduled up-
grades of hardware and software as well as a portion for year 2000 compliance.
The Company believes that internally generated cash together with proceeds from
the New Credit Facility will be sufficient to fund these expenditures.
Furthermore, there can be no assurance that the Company's customers and suppli-
ers are, or will be, year 2000 compliant. The Company believes the most reason-
ably likely worst-case year 2000 scenario would be the failure of key customers
to achieve year 2000 compliance, resulting in the loss of sales to such custom-
ers for an indefinite period of time. Currently, the Company is not aware of
any customers that are not year 2000 compliant. In order to address the poten-
tial non-compliance with the year 2000 by the Company's customers and suppli-
ers, the Company is in the process of distributing and collecting question-
naires to its customers and vendors asking them to respond with their year 2000
plans. Until this process is substantially complete, the Company will not be in
a position to fully assess its year 2000 risks.
EFFECT OF INFLATION
Management believes that general inflation has not had a material impact on the
Company's net sales or operating income during the last three fiscal years. The
cost of reclaimed paper fiber, which is the principal raw material component
used in the manufacture of recycled paperboard, has both increased and de-
creased significantly during the past three years. The Company believes that
these shifts were caused by changes in supply and demand and not general infla-
tion or deflation.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operations have generated sufficient cash for work-
ing capital purposes, and the Company has borrowed money only for acquisitions
and major capital improvements. The Company generated $23.3 million, $28.7 mil-
lion and $28.0 million in cash from operations during fiscal 1996, 1997 and
1998, respectively. On May 15, 1998, in order to provide funds primarily for
the construction of the Lawton Mill until permanent financing could be ob-
tained, the Company increased its then existing revolving line of credit under
the Old Credit Facility to $50.0 million. On July 15, 1998, in order to provide
permanent financing for the Lawton Mill construction and the Company's working
capital needs, the Company issued the Old Notes and entered into the New Credit
Facility. The Old Credit Facility was repaid and terminated in connection with
the issuance of the Old Notes and the effectiveness of the New Credit Facility.
The Company expects that its principal capital and liquidity needs during the
next several years will consist of (i) capital expenditures, including con-
struction of the Lawton Mill, expansion of the Duke Plant and other capital im-
provements of its facilities, (ii) interest payments on the Notes and payments
of principal and interest under the New Credit Facility, (iii) dividend pay-
ments to stockholders and (iv) working capital.
At the date of this Prospectus, the Company is not in negotiations, and does
not have any agreements, to acquire additional facilities or companies. Howev-
er, if the Company should, in the future, determine to acquire an additional
facility or company, then, depending on the size of the acquisition, the Com-
pany would be required to obtain the prior consent of the lenders under the New
Credit Facility. The Company would likely finance such an acquisition by incur-
ring additional indebtedness, by issuing equity securities, or by a combination
of such methods. If the Company should determine to finance such an acquisition
by incurring additional indebtedness, then, depending upon the amount to be fi-
nanced, the Company would be required to obtain the prior consent of the lend-
ers under a separate provision of the New Credit Facility and to obtain the
consent of the holders of a majority in principal amount of the Notes.
The Company invested $31.2 million in capital expenditures in fiscal 1998, in-
cluding approximately $8 million on construction of the Lawton Mill and $16.6
million on the expansion of the Duke Plant and a related purchase of additional
railcars. The Company estimates that capital expenditures for fiscal 1999 will
total approximately $145.5 million, including approximately $122 million on the
Lawton Mill, $13 million to complete the expansion of the Duke Plant and the
purchase of the related railcars and an additional $10.5 million to be used
principally for equipment upgrades (including an estimated $4.5 million for
capital expenditures associated with routine replacement of existing production
equipment). The Company estimates that it will spend $30-40 million in fiscal
2000 to complete the Lawton Mill and to provide working capital for the mill.
The New Credit Facility imposes limits on the Company's ability to make capital
expenditures, but the Company believes that those limits will not prevent it
from implementing its capital expenditure program.
Interest on the Notes will be payable semi-annually in arrears on January 15
and July 15 of each year, commencing January 15, 1999. Each interest payment
will be $4,750,000. The New Credit Facility does not require principal amorti-
zation until after conversion of the then outstanding revolving credit loan to
a term loan on the Conversion Date (defined in the New Credit Facility as, in
general, the earlier of the start-up of the Lawton Mill and 24 months after the
establishment of the New Credit Facility). However, interest accrued under the
New Credit Facility will be payable quarterly (in the case of loans bearing in-
terest based on the prime rate) or at the end of an applicable interest period
(in the case of loans bearing interest based on a LIBOR rate). After the Con-
version Date, the principal of the term loan created on such date (anticipated
to be $50 million) will amortize (through quarterly payments) at a rate of 10%,
20%, 30% and 40% in the first, second, third and fourth years, respectively,
following the Conversion Date. See "Description of the New Credit Facility."
The Company paid cash dividends of approximately $3.0 million, $4.0 million and
$4.2 million in fiscal 1996, 1997 and 1998, respectively. Quarterly dividends
historically have been paid in September, December, March and June. The sched-
ule and payment of cash dividends have been and remain subject to the approval
of the Company's board of directors. The New Credit Facility and the Indenture
impose limits on the Company's ability to pay dividends. In most cases, the
limits imposed by the New Credit Facility are the most restrictive. Under those
limits, the Company may pay cash dividends and/or redeem its stock in aggregate
amounts of not more than (a) $5.3 million in each fiscal year ending on or be-
fore the Conversion Date, (b) $5.5 million in each of the first and second fis-
cal years ending after the Conversion Date, and (c) $6.0 million in each of the
third and fourth fiscal years ending after the Conversion Date. The Company
does not anticipate that such limits will prevent the payment of dividends at
historical levels.
The Company received net proceeds from the sale of the Old Notes of approxi-
mately $97 million. In addition, $85 million is available to the Company under
the New Credit Facility, subject to its terms and conditions. The Company be-
lieves that these funds, together with cash generated by operations, will be
sufficient (i) to finance the construction of the Lawton Mill, (ii) to finance
the other capital expenditure requirements identified above, (iii) to finance
the Company's working capital requirements and (iv) to pay dividends to stock-
holders.
28
<PAGE>
BUSINESS
GENERAL
Founded in 1961, Republic Group Incorporated is an integrated manufacturer and
distributor of recycled paperboard and gypsum wallboard. Management believes
that the Company is one of the leading producers of certain grades of recycled
paperboard sold to manufacturers of consumer and industrial paperboard products
such as tubes, cans, cores, spools, drums, partitions, puzzles and games as
well as one of the leading suppliers of gypsum-grade recycled paperboard to in-
dependent gypsum wallboard producers. In addition, the Company sells reclaimed
paper fiber for use in its recycled paperboard business as well as for sale to
third parties. Republic sells its products to customers located in 43 states.
In addition to the Duke Plant, the Company has recycled paperboard mills in
Colorado, Kansas and West Virginia and paper fiber recycling centers in Colora-
do, Kansas and Missouri. The Company had net sales and net income of approxi-
mately $128.3 million and $17.8 million, respectively, in fiscal 1998. Before
inter-company eliminations, the Company's recycled paperboard (which includes
reclaimed paper fiber) and gypsum wallboard businesses accounted for approxi-
mately 57% and 43%, respectively, of Republic's total net sales during fiscal
1998.
The following table summarizes the Company's businesses:
<TABLE>
<CAPTION>
PERCENT OF
FISCAL 1998
CONSOLIDATED
BUSINESS PRODUCT END-USE MARKET SITE(S) NET SALES
-------- ------------------------- ------------------------ ------------------------ -------------
(INCLUDING
INTERCOMPANY)
<C> <C> <S> <C> <C>
Recycled Paperboard Gypsum-grade recycled Internal (approximately Commerce City, Colorado; 18%
paperboard 13% of fiscal 1998 Hutchinson, Kansas
recycled paperboard net
sales) and third-party
use in the manufacture
of gypsum wallboard
Recycled paperboard rolls Sale to manufacturers of Commerce City, Colorado; 35%
and sheets paperboard tubes, cans, Hutchinson, Kansas;
cores, spools, drums, Halltown, West Virginia
partitions, puzzles and
games for sale to third-
parties
Reclaimed paper fiber Internal (approximately Denver, Colorado; 4%
50% of fiscal 1998 Topeka, Kansas;
reclaimed paper fiber Kansas City, Missouri
net sales) and third-
party use in the
manufacture of recycled
paperboard
Gypsum Wallboard Gypsum wallboard Gypsum wallboard Duke, Oklahoma 43%
distributors and
residential and
commercial builders and
remodelers
</TABLE>
Management has recently undertaken a number of important strategic initiatives
designed to increase Republic's production capabilities. On June 29, 1998 the
Company commenced the construction of the Lawton Mill. The Company intends to
use the Lawton Mill primarily for the production of gypsum-grade recycled pa-
perboard with weight and surface characteristics superior to that currently
available in the United States. The Lawton Mill is expected to have a produc-
tive capacity of approximately 220,000 tons per annum, which will approximately
double Republic's recycled paperboard capacity. The Company intends to sell ap-
proximately 50% of the Lawton Mill's output pursuant to the Hardie Agreement
and to use approximately 25% of the Lawton Mill's output to source its own gyp-
sum wallboard operations. Management estimates that the Lawton Mill will cost
approximately $160-170 million, inclusive of related working capital require-
ments and capitalized interest, and will achieve commercial production by the
first quarter of 2000. The Company estimates that construction of the project
will be completed approximately 12 to 14 months after the date of this Prospec-
tus.
29
<PAGE>
The Company is also currently completing the second phase of a two-phase expan-
sion of the Duke Plant that will increase its capacity from 570 million to 1.2
billion square feet per year by the end of 1998. In addition, the Company has
just completed an expansion of the capacity of the Commerce City Mill and the
Hutchinson Mill by approximately 25% in the aggregate. Management believes that
these initiatives, together with the construction of the Lawton Mill and the
continued expansion and incremental upgrading of its facilities, will signifi-
cantly increase Republic's overall production capabilities as well as enhance
its competitive position in both the recycled paperboard and gypsum wallboard
business.
COMPETITIVE STRENGTHS
The Company believes that it has the following competitive strengths:
Low Cost Production. The Company believes that its production costs are among
the lowest in the industry and continually seeks to improve efficiency and al-
locate production in order to maximize capacity utilization. Management be-
lieves that the use of high-speed manufacturing equipment in particular has en-
abled the Company to significantly reduce labor costs, waste and production
time. In addition, management believes that the strategic locations of the
Company's facilities provide it with cost advantages, including reduced trans-
portation and warehousing costs.
Product Line and Geographic Diversification. The Company's growth in the recy-
cled paperboard business has reduced its dependence on the construction and
housing industry in which gypsum wallboard is used. Management believes that
such diversification has lessened the effect of cyclical housing and construc-
tion markets on the Company's overall operations. In addition, the Company pro-
duces a number of specialty grades of recycled paperboard that are sold to man-
ufacturers of consumer and industrial paperboard products and used for packag-
ing and other products, thereby reducing its dependence on sales of any one
grade. Management believes that the various locations of the Company's facili-
ties reduce its dependence on any single geographic market.
Well-Integrated Operations. Management believes that the Company's well-inte-
grated operations reduce its dependence on third-parties and its overall pro-
duction costs. The Duke Plant obtains substantially all of its requirements for
raw gypsum from quarries owned and operated by the Company and purchases sub-
stantially all of its requirements for recycled paperboard from the Commerce
City Mill and the Hutchinson Mill. The Company's recycled paperboard mills, in
turn, purchase approximately 33% of their reclaimed paper fiber needs from the
Company's own reclaimed paper fiber operations. The Company also owns and oper-
ates a short-line railroad that it uses to transport approximately one-third of
its gypsum wallboard to major carriers located 15 miles from the Duke Plant for
distribution throughout the United States.
High-Quality Products and Services; Strong Customer Relationships. The Company
has adopted strict quality control standards and procedures, which it regularly
reviews and updates. The Company believes that its ability to consistently man-
ufacture high quality products and to provide timely delivery and superior cus-
tomer service is an important element of the Company's success. As a result of
its focus on quality and customer service, the Company believes that it has
earned a reputation in the industry as a dependable supplier of products, en-
abling the Company to develop long-standing customer relationships.
Management Experience. The Company, which was founded by its current president
and chief executive officer in 1961, has assembled a management team with a
strong track record and an average of approximately 16 years of service per ex-
ecutive officer. The Company's current management team has successfully diver-
sified product lines, increased sales, strengthened customer and supplier rela-
tionships, improved manufacturing efficiencies and productivity and selected
and integrated strategic acquisitions, all of which have enhanced the competi-
tive strength of the Company.
BUSINESS STRATEGY
The Company intends to take advantage of its competitive strengths by pursuing
the following business strategy:
Expand Productive Capabilities. The Lawton Mill is expected to have a produc-
tion capacity of approximately 220,000 tons per annum, which will approximately
double Republic's recycled paperboard capacity. The Company expects the Lawton
Mill to produce gypsum-grade recycled paperboard that is 20-30% lighter, supe-
rior in quality and equal in strength characteristics to the gypsum-grade recy-
cled paperboard that is otherwise currently available in the United States.
Management believes that being the first producer to bring a technologically-
improved gypsum-grade recycled paperboard to
30
<PAGE>
market will provide Republic with a distinct competitive advantage and increase
the ability of the Company to sell its product in new markets. The Company in-
tends to sell approximately 50% of the Lawton Mill's output pursuant to the
Hardie Agreement and expects to use an additional 25% of output to support its
gypsum wallboard business. Management also expects the operation of the Lawton
Mill to allow Republic to redeploy some of its existing gypsum-grade paperboard
capacity for non-wallboard use, thereby allowing the Company to continue to
grow and diversify its recycled paperboard business. The Lawton Mill will also
be capable of producing tube stock and other consumer and industrial paperboard
products, which management believes will help mitigate the impact of any future
downturns in the housing and construction industry.
Management also believes that the ongoing upgrades and expansions to its exist-
ing facilities will further enhance and increase the Company's overall produc-
tive capacity. The improvements to the existing production line, together with
the addition of a second production line at the Duke Plant, will provide the
Company with the capability of producing both specialty products, such as the
Company's recently introduced 54-inch wallboard, and increased volumes of its
core products, which management believes will allow Republic to increase its
sales to existing customers as well as obtain new customers. The Company ex-
pects to begin transitioning the Hutchinson Mill to tube stock and other con-
sumer and industrial paperboard products before the Lawton Mill comes on line.
In addition, management believes that the improvements made at the Commerce
City Mill will produce a higher quality gypsum-grade paperboard that can be
used in conjunction with the output from the Lawton Mill.
Continue to Operate as Low Cost Producer. In order to maintain and improve its
cost position, Republic expects to continue to identify opportunities for ongo-
ing cost reductions. The Lawton Mill is expected to be an efficient high-speed
mill with lower than average operating costs as a result of its design specifi-
cations. In addition, management expects the production of lighter gypsum-grade
paperboard at the Lawton Mill to result in freight cost savings as well as re-
duced drying and delivery costs to gypsum wallboard producers. The expansions
and improvements at the Duke Plant, the Commerce City Mill and the Hutchinson
Mill should also provide increased economies of scale. The Company continuously
scrutinizes its manufacturing processes and overhead infrastructure to conserve
material and energy, reduce set-up time and lower overhead expenses. To this
end, the Company has identified additional cost-saving opportunities it expects
to implement in fiscal year 1999, including incremental process equipment up-
grades at the Company's existing recycled paperboard mills.
Pursue Strategic Acquisitions. The Company may from time to time pursue small
to medium-sized strategic acquisitions, particularly in the recycled paperboard
business. Management believes that such acquisitions may provide opportunities
to further diversify its product lines as well as consolidate operations and
lower per unit costs. At the date of this Prospectus, the Company is not in ne-
gotiations, and does not have any agreements, to acquire additional facilities
or companies.
RECENT FINANCIAL RESULTS
On October 13, 1998, the Company reported net sales of $33.2 million and net
income of $3.3 million, or diluted earnings per share of $0.28, for its first
fiscal quarter ended September 30, 1998. These results compare to net sales of
$31.9 million and net income of $4.3 million, or diluted earnings per share of
$0.37, for the fiscal quarter ended September 30, 1997.
The increase in net sales from the 1997 fiscal quarter to the 1998 fiscal quar-
ter was primarily attributable to a 14% increase in gypsum wallboard selling
prices, which was partially offset by a 3% decrease in gypsum wallboard ship-
ments from the 1997 fiscal quarter resulting from manufacturing interruptions
caused by construction of the second production line at the Duke Plant. The
gypsum wallboard operations also experienced increased unit manufacturing costs
related to inefficiencies attributable to operating the Duke Plant while ef-
fecting the changes necessary to add the second production line and adding and
training new employees for the new production line.
Both shipments to unaffiliated customers and net selling prices of recycled pa-
perboard were essentially unchanged from the 1997 fiscal quarter to the 1998
fiscal quarter. However, the operating profit of the recycled paperboard seg-
ment declined 28% during the same period principally due to poor operating re-
sults at the Halltown Mill. Shipments from the Halltown Mill decreased 11% from
the 1997 fiscal quarter to the 1998 fiscal quarter. The primary factors con-
tributing to the decline in shipments from the Halltown Mill were increased
competition in the mill's east coast markets, a general slowdown in business
for the types of non-gypsum wallboard paperboard products produced at the
Halltown Mill and a later start in the demand for a seasonal paperboard product
manufactured by the Halltown Mill. While there was also a slight decrease in
demand for certain other types of non-gypsum wallboard paperboard products pro-
duced at the Hutchinson Mill, the Company was able to offset this decrease with
increased shipments of gypsum-grade recycled paperboard at that mill so that
operating profits from the Hutchinson Mill increased slightly from the prior
year. Operating profits for the Commerce City Mill, which produces principally
gypsum-grade recycled paperboard, were also up slightly for the quarter.
31
<PAGE>
Net income for the 1998 fiscal quarter was also affected negatively by a $0.8
million change in the net effect of other income and expense, principally due
to increased net interest expense. The Company is permitted to capitalize only
the interest expense associated with actual capital expenditures as construc-
tion at the Lawton Mill and the Duke Plant expansion progress.
The Company's selling and administrative costs as a percentage of net sales
increased from 11.4% in the 1997 fiscal quarter to 13.6% in the 1998 fiscal
quarter due primarily to (i) the need to build management infrastructure in
connection with the construction of the Lawton Mill and in anticipation of the
startup of the second production line at the Duke Plant and (ii) the amortiza-
tion of costs associated with obtaining debt financing for the Lawton Mill.
COMPANY BACKGROUND AND HISTORY
The Company began manufacturing gypsum wallboard at the Duke Plant in 1965,
and, for the next 18 years, the Company operated almost exclusively as a pro-
ducer of gypsum wallboard. Then, in 1983, in an effort to diversify and inte-
grate its operations so as to make the Company more resistant to cyclical
downturns in the construction industry, the Company began to shift its primary
strategic focus away from the production of gypsum wallboard and toward the
production of recycled paperboard. In 1983, the Company purchased the Commerce
City Mill and the Hutchinson Mill; in 1993, the Company began an expansion
program to increase the productive capacity of these mills; in 1994, the Com-
pany purchased paper fiber recycling centers in Topeka, Kansas and Kansas
City, Missouri; in 1995, the Company acquired the Halltown Mill; and, in 1996,
the Company opened a paper fiber recycling center in Denver, Colorado. This
shift in strategic focus diversified the Company both geographically and in
terms of productive business segments. Moreover, by adding new operations that
complement its core gypsum business, the Company has become significantly more
integrated vertically. The Company's current operations provide it with access
to both a steady supply of quality gypsum-grade recycled paperboard for its
gypsum wallboard operations and additional supplies of reclaimed paper fiber
for the Company's recycled paperboard mills.
RECYCLED PAPERBOARD OPERATIONS
Manufacturing. The Company's recycled paperboard manufacturing operations are
conducted at the Commerce City Mill, the Halltown Mill and the Hutchinson
Mill. All of the paperboard products manufactured at the Company's paperboard
mills are produced from 100% reclaimed paper fiber and are classified by the
industry as recycled paperboard. These recycled paperboard products include
the facing paper used in the manufacture of gypsum wallboard and recycled pa-
perboard used by manufacturers of consumer and industrial paperboard products
such as tubes, cans, cores, spools, drums, partitions, puzzles and games.
Recycled paperboard is manufactured at the Company's existing mills in a con-
tinuous process during which reclaimed paper fiber is mixed with water and
pulped to separate the individual fibers. The slurry is then applied to a se-
ries of rotating wire-covered cylinders, not unlike making a sandwich, so that
a multi-ply sheet of paper is formed as excess water is drained through the
rotating wire. The multi-ply paper mat is then mechanically pressed, dried,
trimmed to size and packaged. The finished product can be packaged either in
roll form or in sheets, according to customer specifications.
In 1998, the Company completed a program to expand and develop its recycled
paperboard business which involved the expenditure of approximately $16 mil-
lion and expanded the productive capacity of the Commerce City Mill and the
Hutchinson Mill by approximately 25%. As of June 30, 1998, the rated produc-
tive capacity of the Company's three recycled paperboard mills was 213,500
tons per year.
Raw Materials. The principal raw materials used by the Company's recycled pa-
perboard mills are reclaimed paper fiber, water and chemicals. Reclaimed paper
fiber is currently purchased from several sources, including the Company's own
paper fiber recycling centers. Management believes that adequate supplies of
reclaimed paper fiber will continue to be available from wholesalers located
in cities near its recycled paperboard mills and its own paper fiber recycling
centers. Since reclaimed paper fiber is a commodity, its cost is subject to
quick corrections based on supply and demand. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
Chemicals, including size, retention aids and bactericides, used by the Com-
pany in its recycled paperboard operations are also readily available from
several manufacturers at competitive prices. Size is used principally as a wa-
ter resisting agent or strength enhancer in the production of recycled paper-
board. Retention aids are agents used to retain fiber and chemicals in the
papermaking process and not lose them into the waste stream. Bactericides are
agents used to control bacteria and other organisms in the papermaking proc-
ess.
The manufacture of recycled paperboard involves the use of large volumes of
water both in the production process and for cooling purposes. In Colorado and
Kansas, where two of the Company's recycled paperboard mills are located, the
appropriation of water is regulated by state laws. The Commerce City Mill uses
water pumped from wells located on, or adjacent to,
32
<PAGE>
the Company's property. Most of these wells have been in use for more than 20
years. In connection with the purchase of the Commerce City Mill, the Company
acquired an approximate 80% interest in certain of these water wells as tenant-
in-common with Packaging Corporation of America (now Tenneco Packaging) and the
right to use up to approximately 80% of the water produced by the wells. The
Company's water rights are subject, however, to the legal rights of prior ap-
propriators of the same water source and to court-decreed limitations on the
permitted uses for such water. The Hutchinson Mill uses large volumes of water
pumped from wells located on owned or controlled property near the mill. The
Company is authorized to appropriate water from those wells for beneficial use,
subject to vested rights and prior appropriations, under state permits and or-
ders. The Halltown Mill uses water from a stream running through the Company's
property and has done so for over 100 years. The Company's rights to use the
water from the stream are subject to the riparian rights of other property own-
ers in the area. Although adequate sources of water have historically been
available to all of the Company's recycled paperboard mills, an extended period
of general water shortages, legal curtailment of any mill's current water
sources or uses, or deterioration of the current quality of water sources could
affect that mill's operations and limit its productive capacity.
Electricity, natural gas and other utilities are available to the plants either
at contracted rates or at standard industrial rates in adequate supplies, sub-
ject to standard industrial curtailment provisions. Management believes there
are adequate supplies of coal available to the Halltown Mill on either a con-
tracted or spot basis. The Hutchinson Mill generates approximately 42% of the
electricity it uses, and the Halltown Mill generates approximately 21% of its
total requirements. During periods of natural gas curtailment, the Commerce
City Mill and the Hutchinson Mill are equipped to use fuel oil. The Halltown
Mill can use either coal or fuel oil.
The prevailing market price for natural gas and coal was stable to slightly
higher in 1997 than in 1996 and was moderately higher during 1998. All of the
Company's recycled paperboard mills periodically contract fuel supplies in ad-
vance for varying time limits to hedge against fluctuations in the market. The
Company has historically been successful at contracting future supplies at fa-
vorable rates. However, because natural gas and coal are commodities, there is
always the possibility of contracting future requirements at higher prices than
actual spot prices.
Sales, Marketing and Distribution. The recycled paperboard products manufac-
tured by the Company are sold to gypsum wallboard manufacturers and to convert-
ers that manufacture composite cans, cores, tubes and other packaging and spe-
cialty products. During fiscal 1998, approximately 14% of the recycled paper-
board manufactured and shipped by the Company's recycled paperboard mills was
consumed by the Company's gypsum wallboard manufacturing operations, another
approximately 20% was shipped to other gypsum wallboard manufacturers and the
balance was shipped to over 150 different converter customers. Sonoco and
Centex each accounted for approximately 9% of consolidated gross sales and ap-
proximately 16% and 15%, respectively, of the recycled paperboard segment's
gross sales. When the Hardie Agreement is fully implemented, Hardie is expected
to account for a significant percentage of consolidated gross sales. See "--
The Hardie Agreement."
In fiscal 1998, approximately 50% of the Company's reclaimed paper fiber sales
were to the Company's recycled paperboard mills. The balance was sold to exter-
nal customers. Most customers are located within 600 miles of the particular
paper fiber recycling center. The Company's paper fiber recycling centers have
the capability to sort and bale reclaimed paper fiber purchased from generators
and haulers. In addition, the Company's paper fiber recycling centers act as
brokers for certain generators of reclaimed paper fiber by arranging for direct
shipments from the generator to the purchaser of the reclaimed fiber.
Sales of recycled paperboard and reclaimed paper fiber are typically made on
credit terms in accordance with normal industry practice. Currently, recycled
paperboard production normally occurs after an order is received, and recycled
paperboard is rarely produced for general inventory purposes. The backlog of
orders for recycled paperboard is usually not significant. Deliveries of recy-
cled paperboard and reclaimed paper fiber are made to customers by common car-
riers, as well as by rail, although some customers pick up their orders at the
Company's facilities.
Competition. In selling the portion of its production not consumed by its own
gypsum wallboard manufacturing operations, the Company competes with approxi-
mately eight other manufacturers of gypsum-grade paperboard, six of which have
gypsum wallboard manufacturing operations. Substantially all of these competi-
tors have greater financial resources than the Company. During periods of peak
demand for gypsum wallboard, the demand for recycled paperboard typically
matches or exceeds the productive capacities of the gypsum-grade paperboard
producers. During periods of reduced demand for gypsum wallboard, the demand
for recycled paperboard falls, and selling prices may decrease. In selling re-
cycled paperboard to the packaging industry, the Company competes with approxi-
mately 75 producers, many of whom have substantially greater financial re-
sources than the Company. Management believes that its sales constitute less
than approximately 5% of total sales of recycled paperboard nationally.
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Price, quality, personal relationships and timeliness of deliveries are the
principal methods of competition among paperboard producers. The locations of
the Company's recycled paperboard mills allow the Company to serve a variety
of markets, including several gypsum wallboard plants in the central and
southwestern United States. The Halltown Mill is within an hour and a half
from the metropolitan centers of Baltimore, Maryland and Washington, D.C. The
centralized location of the Commerce City Mill and the Hutchinson Mill does,
however, make some of the Company's operations farther from packaging, fiber
tube, fiber can and fiber core customers located in or near the population
centers of the east and west coasts. Moreover, many of the Company's competi-
tors are more vertically integrated than the Company and produce end-use prod-
ucts utilizing recycled paperboard manufactured from their own recycled paper-
board mills. See "Risk Factors--Competition."
THE LAWTON MILL
The Lawton Mill is being constructed in southwestern Oklahoma. The Lawton Mill
is being designed to manufacture gypsum-grade recycled paperboard utilizing
technologies that have been successfully employed in recycled paper mills that
manufacture products other than recycled paperboard and in European gypsum-
grade recycled paperboard mills, but that have not yet been entirely incorpo-
rated into any gypsum-grade recycled paperboard mills in the United States.
These technologies include (i) the use of an advanced paper forming section
using the "Fourdrinier" process, which has a pressurized headbox and forms pa-
per sheets on a long wire table that permits machine speeds to be increased
two to three times that of other formers, thereby allowing reduced labor costs
per ton produced, (ii) an advanced control system, which immediately senses
changes in the paper as it is being formed and adjusts the forming section of
the paper machine to maintain the uniformity of the paper and also monitors
and adjusts the reclaimed paper fiber cleaning process to maintain the quality
of this raw material, (iii) modern pressing technology, which permits water
removal in a way that provides more uniformity and enhances the properties of
the paper, (iv) dryer felts on all dryer sections, which improve drying effi-
ciency and reduce shrinkage, and (v) an enhanced cleaning and screening proc-
ess for the reclaimed paper fiber that enhances the strength, surface charac-
teristics and overall surface uniformity of the paperboard.
The Company expects that the Lawton Mill will be able to produce recycled pa-
perboard that is superior in surface characteristics to and approximately 20%-
30% lighter than that currently produced in the United States, but that has
equal strength characteristics. The Company believes that being the first to
produce higher quality, lower basis-weight recycled paperboard will give it a
competitive advantage over other recycled paperboard manufacturers until other
mills using similar technology come on-line. Because gypsum-grade recycled pa-
perboard generally is sold on the basis of surface area, manufacturing lighter
paper potentially translates into higher profit margins per ton for the recy-
cled paperboard manufacturer. Lighter recycled paperboard also reduces drying
costs associated with the production of gypsum wallboard by approximately 10%
to 20% and reduces inbound and outbound freight costs for both recycled paper-
board and gypsum wallboard. In addition, because the Lawton Mill is being de-
signed as an efficient, high-speed mill, operating costs are expected to be
lower than existing mills now producing recycled paperboard for the wallboard
industry. In addition to producing a product which should be more attractive
to customers, it is anticipated that the lighter weight, better quality recy-
cled paperboard from the Lawton Mill will reduce production and transportation
costs at the Duke Plant.
The Lawton Mill is expected to have the capacity to produce approximately 11
billion square feet, or approximately 220,000 tons, of gypsum-grade recycled
paperboard annually. Production from the Lawton Mill will be used both inter-
nally at the Duke Plant and sold externally to other gypsum wallboard manufac-
turers. Upon completion of the expansion of the Duke Plant, the Company's in-
ternal demand for gypsum-grade recycled paperboard is expected to be approxi-
mately 2.5 billion square feet, or approximately 50,000-60,000 tons per year,
which represents approximately 25% of the Lawton Mill's capacity. An addi-
tional 5.2 billion square feet, or approximately 100,000-110,000 tons, com-
prising an additional approximate 50% of the Lawton Mill's output, is expected
to be purchased by Hardie pursuant to a long-term "requirements" agreement.
The Company is actively pursuing potential customers for the Lawton Mill's re-
maining output. Although primarily designed for the production of gypsum-grade
recycled paperboard, the Lawton Mill is also capable of producing recycled pa-
perboard for other uses.
Construction of the Lawton Mill commenced on June 29, 1998. The Company esti-
mates that construction will be completed approximately 12 to 14 months after
the date of this Prospectus and that the total cost of the Lawton Mill, inclu-
sive of related working capital requirements and capitalized interest, will be
$160 to $170 million. Management expects that the Lawton Mill will achieve
commercial production by the first quarter of 2000.
The Company has entered into an agreement for the design and construction of
the Lawton Mill with Fluor Daniel, Inc. ("Fluor Daniel"), an engineering and
construction firm with substantial background in the construction of recycled
paper mills. Fluor Daniel has entered into a subcontract for the paper machine
to be used at the Lawton Mill with Voith Sulzer, a
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manufacturer with extensive experience in the design and fabrication of paper
machines using the Fourdrinier process. Of the estimated $160 to $170 million
cost of the Lawton Mill, approximately $42 million represents the cost of the
paper machine.
The agreement with Fluor Daniel is a "cost plus" contract under which the Com-
pany bears the cost of construction and pays fees to Fluor Daniel for its
services. Portions of Fluor Daniel's fee are tied to the successful completion
of the Lawton Mill within a target cost and on schedule. If costs are below
the target, then Fluor Daniel's fee is increased, and, if the costs exceed the
target, then the fee is reduced. Similarly, if the Lawton Mill is completed
ahead of schedule, then the fee is increased, and, if it is completed behind
schedule, then the fee is reduced. In addition, if Fluor Daniel identifies
cost savings that are used on the project, then a portion of the savings will
be shared with Fluor Daniel.
There can be no assurance that the construction of the Lawton Mill will pro-
ceed on schedule and without cost overruns. Construction of the Lawton Mill
may be significantly delayed or may not be completed at all as a result of
problems frequently associated with construction projects, including delays in
construction, cost overruns, labor problems, the inability to obtain required
governmental approvals, licenses and permits or to obtain the funds required
to complete the project. Completion and operation of the Lawton Mill may also
be affected by general economic conditions. In addition, no assurance can be
given that the Company will be able to successfully implement the technology
to be used in the operation of the Lawton Mill into its operation. Other un-
foreseen expenses, difficulties, complications or delays may be encountered in
connection with the construction and initial operations of the Lawton Mill.
Construction of the Lawton Mill is subject to the satisfaction of certain con-
ditions, including approval by various state and local regulatory agencies.
There also can be no assurance that the Company will have sufficient resources
available to integrate the Lawton Mill successfully into its overall opera-
tions. In addition, after construction of the Lawton Mill is completed, it is
expected that there will be a period during which further testing and refine-
ment of its recycled paperboard products will occur and during which the Law-
ton Mill's line speed will be incrementally increased up to normal operating
levels. During this transition period, which is expected to last for approxi-
mately eight months, the Lawton Mill will not be able to contribute to earn-
ings at its full potential. In addition, if production problems or quality
problems with the recycled paperboard produced at the Lawton Mill should oc-
cur, then the contribution to earnings of the Lawton Mill could be further de-
layed. See "Risk Factors--Inability to Successfully Complete or Integrate The
Lawton Mill."
When the Duke Plant converts to the use of recycled paperboard supplied by the
Lawton Mill, the Company will need to find replacement customers for that por-
tion of the productive capacity of the Hutchinson Mill that presently supplies
the Duke Plant. The Company expects to shift production at the Hutchinson Mill
away from the manufacture of gypsum-grade recycled paperboard to other grades
of recycled paperboard and to continue concentrating the Commerce City Mill on
the production of gypsum-grade recycled paperboard. However, the Company may
experience a significant lag time in converting production to such other
grades, prices available to the Company may be significantly lower, or the
Company might be unable to find replacement customers.
One factor in the decision to locate the new mill in Lawton was the incentive
package offered by the State of Oklahoma, Comanche County and the City of Law-
ton, which includes the provision of the real property upon which the Lawton
Mill is to be located, a cash incentive payment, certain income tax, sales tax
and property tax benefits, the construction of a rail spur and an additional
roadway to serve the site, the extension of a water line toward the site,
pricing advantages on fresh water supplies and sewage and employee training
and related services. In return for the incentive package, the Company has
agreed not to sell the Lawton Mill for a period of 15 years from completion,
other than to an affiliate or successor, and to employ approximately 110 full
time employees at the Lawton Mill during the first five years of operation,
subject to a reduction of up to 25% in the number of employees if technology
and manufacturing processes or market conditions dictate that such a reduction
is prudent.
The Company intends to use municipal water to supply the Lawton Mill and mu-
nicipal sewer systems to discharge its waste water after it is processed and
treated at the mill. The Company believes that adequate supplies of electric-
ity and natural gas are available to the Lawton Mill and is in the process of
negotiating for both electricity and natural gas requirements with several po-
tential suppliers. The Company believes that these utilities will be adequate
for operations at the Lawton Mill under normal circumstances. The Lawton Mill
will be served by a rail spur that will tie in to a major rail line operated
by Burlington Northern Santa Fe Corporation. Lawton is located on an inter-
state highway and other major highways that will facilitate transportation by
truck. The Company believes that adequate supplies of reclaimed paper fiber
are available within reasonable distances from the Lawton Mill.
THE HARDIE AGREEMENT
On May 14, 1998, the Company entered into the Hardie Agreement, pursuant to
which the Company has agreed to supply at least approximately 90% of the gyp-
sum-grade recycled paperboard requirements of Hardie's three gypsum wallboard
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plants with the bulk of such sales beginning in October 2000-January 2001. The
Company expects the amount of paperboard supplied to Hardie pursuant to the
Hardie Agreement eventually to account for approximately 50% of the Lawton
Mill's production. The Duke Plant is expected to utilize another approximately
25% of the Lawton Mill's output. Although it is actively pursuing several po-
tential customers, the Company does not yet have any other supply agreements
for the output of the Lawton Mill. There can be no assurance that the Company
will be successful in obtaining any further supply agreements, and, in that
case, the Company would attempt to sell the excess production in the spot mar-
ket or under other short term arrangements.
Subject to earlier termination, the current term of the Hardie Agreement will
terminate on the later of October 1, 2010 or ten years after the start of com-
mercial production. The Hardie Agreement specifies that commercial production
has been achieved when the Lawton Mill has produced, for two consecutive
months, recycled paperboard meeting the required product specifications in an
amount equal to or greater than approximately 30% of the Lawton Mill's planned
monthly capacity. Under the Hardie Agreement, the Company has agreed to provide
to Hardie, and Hardie has agreed to purchase, the following volumes of recycled
gypsum-grade paperboard: (i) approximately 7% of the requirements of Hardie's
gypsum wallboard plant near Nashville, Arkansas until December 31, 2000; (ii)
at least 90% of the requirements of Hardie's gypsum wallboard plant near Nash-
ville, Arkansas beginning January 1, 2001; and (iii) at least 90% of the re-
quirements of Hardie's gypsum wallboard plants near Las Vegas, Nevada and Seat-
tle, Washington beginning October 1, 2000. Although the Company may be able to
sell additional quantities to Hardie prior to that time, there can be no assur-
ance that such sales will occur or that the Lawton Mill will be able to produce
the quantities that Hardie might seek to purchase prior to commencement of its
long-term commitment. Under the Hardie Agreement, the Company will maintain a
minimum inventory of 2,000 tons of gypsum-grade recycled paperboard at the Law-
ton Mill as to which Hardie will have priority of shipment.
Initially, each sale to Hardie will be made at a fixed base price determined at
the execution of the Hardie Agreement that is subject to adjustment based on
changes in the major variable costs of production of recycled paperboard, in-
cluding the cost of power, transportation and the primary raw materials, and
changes in the purchaser price index for industrial commodities and a reference
employment cost index. The Hardie Agreement also contains a "most favored na-
tions" clause requiring the Company to offer Hardie the lowest price that is
available from the Company to other third-party purchasers of its recycled pa-
perboard. The "most favored nations" clause requires the Company to offer the
same price on an equivalent volume as the volume being sold to the third party
at such price, but makes the price applicable to all sales while such third-
party pricing remains in effect if the third-party price offered is pursuant to
a long-term agreement of more than two years. As a result of the pricing formu-
la, Hardie may be able to make purchases at substantially below market prices
if market prices rise faster than the cost of production. Because of the "most
favored nations" clause, if the Company were unable to sell its uncommitted
production from the Lawton Mill to third parties at prices equal to or exceed-
ing the pricing to Hardie, then it either would have to forego such third party
sales or lower the selling price to Hardie.
In addition, the Hardie Agreement is a "requirements" contract, and a termina-
tion or reduction of Hardie's production of gypsum wallboard could have a mate-
rial adverse effect on the Company. If, after October 1, 2004, technology
changes make it substantially more economical for Hardie to utilize paperboard
of a kind not presently commercially available and that is not contemplated for
the Lawton Mill, then Hardie and the Company are obligated to negotiate in good
faith to include such recycled paperboard within the scope of the Hardie Agree-
ment. However, any failure to reach an agreement on this point could result in
a reduction or termination of Hardie's purchases from the Lawton Mill, and, as
a result, could have a material adverse effect on the Company.
The Hardie Agreement imposes detailed specifications for the gypsum-grade recy-
cled paperboard sold to Hardie. The Company believes that the production from
its Lawton Mill will be able to meet such specifications. However, if the Com-
pany were unable to produce gypsum-grade recycled paperboard meeting such spec-
ifications or were unable to complete the Lawton Mill or achieve satisfactory
commercial production in a timely fashion, then the Company would be obligated
to supply Hardie with gypsum-grade recycled paperboard from its other mills or
from purchases from third parties or otherwise compensate Hardie for its addi-
tional costs in obtaining replacement gypsum-grade recycled paperboard. If Re-
public is unable to give notice that commercial production has been achieved at
the Lawton Mill by July 1, 2001, then Hardie may terminate the Hardie Agree-
ment. The inability of the Company to complete construction of, or to achieve
commercial production at, the Lawton Mill could have a material adverse effect
on the Company. See "Risk Factors--Dependence on Hardie Agreement."
The Hardie Agreement provides that, during the two year period beginning on the
later of October 1, 2005 or the fifth anniversary of commercial production, the
parties will negotiate in good faith toward a long-term extension of the agree-
ment past its initial term on mutually acceptable terms.
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GYPSUM WALLBOARD OPERATIONS
Manufacturing. The Company's gypsum wallboard manufacturing operations are
conducted at the Duke Plant near the Company's principal gypsum deposit. Based
on the Company's historical product mix, the Duke Plant's current rated pro-
ductive capacity is 570 million square feet of gypsum wallboard per year, when
operating three shifts per day and six and two-thirds days per week. This rep-
resents an increase in rated capacity of approximately 40 million feet of gyp-
sum wallboard per year over 1996. The increase resulted largely from incremen-
tal productivity improvements made at the Duke Plant, which operated at or
near capacity during 1996, 1997 and 1998. The Company is also currently com-
pleting a second phase expansion of the Duke Plant that will increase its ca-
pacity to 1.2 billion square feet per year by the end of 1998. Construction is
progressing satisfactorily, and expenditures in connection with this project
are estimated to total approximately $26 million for production equipment im-
provements and $5 million for additional railcars. Through fiscal 1998, these
expenditures totaled approximately $21 million. See "Management's Discussion
and Analysis--Overview" and""--Liquidity and Capital Resources."
The Company produces gypsum wallboard by a method common to most gypsum wall-
board manufacturers. Initially, crude gypsum is quarried by open-face mining
methods and crushed on site by an impact crusher. The raw gypsum is hauled to
the Duke Plant and pulverized. The powdered gypsum is then placed in kettles
for a continuous calcining process that converts it into plaster of Paris. The
plaster of Paris is cooked and then mixed with chemicals, other raw materials
and water to produce a slurry that is placed on the production line between
two continuous sheets of recycled paperboard and allowed to harden while in
motion. After the slurry hardens between the recycled paperboard, the sheet is
cut into appropriate lengths, dried in kilns and packaged for sale. The Com-
pany produces gypsum wallboard in standard industry thicknesses and varieties,
and also produces 54-inch wallboard, a premium product used in commercial and
residential applications with 9-foot ceilings, which management believes is
currently produced at only a limited number of manufacturing facilities in the
United States.
Gypsum Supply. The Company owns in fee simple all surface rights and mineral
rights to gypsum, gypsite and anhydride with respect to 2,374 acres of land
near the Duke Plant. Additionally, approximately 740 acres of mineral rights
for gypsum, gypsite and anhydrite are leased by the Company with an option to
lease approximately another 720 acres. The Company estimates that the reserves
of these gypsum deposits should be sufficient to supply the Duke Plant, after
the completion of its present expansion and operating at capacity, for approx-
imately 15 years. The land on which the deposits are located is adjacent ei-
ther to paved or rock-surfaced roads and near a paved state highway which can
be used during inclement weather for transporting the raw gypsum to the plant
site. In the Company's opinion, other gypsum deposits are located in the imme-
diate area and may be obtained at a reasonable cost. Ordinarily, a four to
six-week supply of crushed raw gypsum is maintained at the Duke Plant. The
Company also owns substantial non-producing gypsum reserves in Nova Scotia,
Canada.
Other Raw Materials, Utilities and Fuel. Other than gypsum, the principal raw
material used by the Company in manufacturing gypsum wallboard is recycled pa-
perboard. The primary sources of this recycled paperboard currently are the
Commerce City Mill and the Hutchinson Mill. See "Business--Recycled Paperboard
Operations."
Water, electricity and natural gas are also required by the Company's manufac-
turing process. Water wells located near the Duke Plant produce sufficient
quantities of water for current and anticipated plant requirements. A 125,000
gallon overhead water storage tank is also situated adjacent to the Duke
Plant. In addition, the Duke Plant can purchase water from the public water
supply system of the town of Duke, Oklahoma. Electric power is supplied to the
Company at standard industrial rates by a local electric cooperative.
Sales, Marketing and Distribution. In 1998, approximately 62% of the Company's
shipments of gypsum wallboard products went to customers located in its pri-
mary historical markets of Texas, Oklahoma, Colorado and Kansas. The remaining
38% of shipments went to customers in other states, with an emphasis on the
midwestern and southeastern regions of the United States.
Gypsum wallboard is sold directly to building materials dealers and, in areas
where custom of the trade dictates, to contractors and applicators. The
Company's largest gypsum wallboard customer accounted for less than 4% of the
Company's consolidated sales in 1998. Sales representatives, working in sepa-
rate territories, market gypsum wallboard for the Company. Most of these sales
representatives have significant experience in the building materials indus-
try.
Sales are made on credit terms allowing a cash discount for prompt payment in
accordance with normal industry practice. Typically, orders are filled upon
receipt. The Company produces to inventory, but balances inventories with or-
ders. The backlog of orders for the Company's gypsum wallboard generally is
not significant.
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The Company utilizes contract and common carriers with dedicated tractors and
trailers to meet the majority of the Company's trucking delivery requirements.
The Company supplements the services provided by these dedicated carriers with
other common carriers. The Company's strategy has enabled the Company to ship
economically without affecting the timeliness of deliveries. Additionally, the
Company ships approximately one-third of its product by rail. Rail shipments
are facilitated by the Company's subsidiary, the Hollis & Eastern Railroad Com-
pany, a short-line railroad that connects the Duke Plant with major rail lines
located 15 miles away, thus enabling the Company to ship to distant markets ec-
onomically. The Company also owns 115 railcars that operate in, and are dis-
patched through, the national rail system. In order to effectively and effi-
ciently transport the additional product produced by the Duke Plant, the Com-
pany has ordered an additional 40 railcars, a portion of which have been re-
ceived by the Company and the remainder of which are expected to be delivered
in October and/or November 1998. The Company receives car hire revenues from
its railcars.
The Company also ships gypsum wallboard by rail to public warehouses located in
Birmingham, Alabama and Cincinnati, Ohio. The warehouses unload and store the
gypsum wallboard until the Company instructs them to arrange deliveries by
truck to customers located in the region surrounding the warehouses. Freight
cost savings can be achieved to many destinations in this manner because the
majority of the shipping distance is by rail which, at these distances, is typ-
ically cheaper than truck delivery.
Competition. Each of the products sold by the Company competes with several
different brands of the same product and with different products designed for
the same purposes. Very little differentiation currently exists between the
gypsum wallboard produced by the Company and its competitors. The Company be-
lieves, however, that the lower weight and the enhanced surface characteristics
of the recycled paperboard to be produced by the Lawton Mill will give the gyp-
sum wallboard produced with it a competitive advantage. The Company also be-
lieves that price, personal relationships with customers, quality and timeli-
ness of deliveries will continue to be important methods of competition among
gypsum wallboard manufacturers.
There are approximately 11 manufacturers of gypsum wallboard in the United
States, many of which have significantly greater financial resources than the
Company. Three of these companies, Georgia-Pacific, National and USG, sell, in
the aggregate, an estimated 75% to 80% of the wallboard in the United States.
The Company believes that its sales represent approximately 2% of the total
gypsum wallboard sold nationally and approximately 10% of the total gypsum
wallboard sold in its primary historical markets. See "Risk Factors--Competi-
tion."
In addition to the Company's expansion of the Duke Plant, the Company is aware
of at least two other gypsum wallboard manufacturers that have recently com-
pleted expansions of their gypsum wallboard plants. Additional gypsum wallboard
manufacturers have begun or are beginning the process of adding gypsum wall-
board capacity and are expected to complete this process during the next 18 to
36 months. As a result of these and other expansions, the Company believes that
a significant amount of new capacity may be on line in the near future, which
could have a material adverse effect on gypsum wallboard selling prices. Fur-
thermore, because high exit barriers exist in the gypsum wallboard industry,
plants that are contributing to the excess capacity may not be dismantled dur-
ing periods of low demand or low prices and may, therefore, be capable of a
quick reentry into the market when the market improves.
Larger, multiple-plant gypsum wallboard manufacturers often have a competitive
advantage over the Company in markets outside the Company's primary markets be-
cause of the strategic location of their plants as well as other cost efficien-
cies, such as the ability to spread fixed costs over several plants. See "Man-
agement's Discussion and Analysis of Financial Condition and Results of Opera-
tions" and "Risk Factors--Competition--Gypsum Wallboard Industry."
EMPLOYEES AND EMPLOYEE RELATIONS
The Company employs approximately 800 people, approximately 590 of whom are
covered by collective bargaining agreements with four labor unions. The expira-
tions of current collective bargaining agreements range from 1999 to 2003. The
Company believes that its relations with employees are satisfactory.
ENVIRONMENTAL REGULATION
The Company's operations are subject to various federal, state and local envi-
ronmental laws and regulations, including those governing discharges into the
air and water, the storage, handling and disposal of wastes, the remediation of
contaminated soil and groundwater and the health and safety of employees. The
nature of the Company's operations, which include quarrying gypsum by open-face
mining methods and the manufacture of recycled paperboard, which involves the
discharge of large volumes of waste water and solid waste, expose it to the
risk of liability or claims with respect to environmental and worker health and
safety matters. Although the Company believes that it is in material compliance
with applicable
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federal, state and local environmental laws and regulations governing surface
quarrying and reclamation of quarried property near its gypsum plant and the
discharge of waste from its recycled paperboard mills, the DEQ has filed a com-
plaint alleging that the West Virginia Subsidiary is in violation of certain
provisions of its wastewater discharge permit at the Halltown Mill and an ad-
ministrative order entered into between the DEQ and the West Virginia Subsidi-
ary. See "--Legal Proceedings."
A number of the Company's facilities have a history of industrial use. Under
certain environmental laws a current or previous owner or operator of property,
or the generator of wastes disposed of offsite, may be jointly and severally
liable for site cleanup costs, regardless of fault. Responsible parties may
also be subject to common law claims by third parties based on damages and
costs resulting from environmental contamination emanating from a site. In con-
nection with the Company's preparation for a warehouse addition to the Commerce
City Mill, the Company discovered and has been investigating the presence of
subsurface petroleum hydrocarbons. The Company retained an environmental con-
sultant who concluded that fuel oil, jet fuel, and gasoline additives had mi-
grated in the subsurface of the Company's property from an adjacent property.
The Company and the adjacent property owner have both conducted their own in-
vestigations and have additionally sponsored joint investigations. Discussions
between the parties continue. The Company has completed the construction of the
warehouse addition under approval of the Colorado Department of Health. At this
time, the Company has not ascertained the future liability, if any, resulting
from this matter. Aggregate environmental expenditures were $12,000 in 1998,
$11,000 in 1997 and $3,000 in 1996. These costs have been accounted for as
selling and administrative expenses.
Management believes that compliance with environmental laws and regulations is
a cost of manufacturing that has widespread applicability to the members of the
industries in which the Company is competing. Historically, the Company has not
incurred material costs or penalties with respect to the remediation of envi-
ronmental problems; however, the discovery of new facts and future events, in-
cluding changes in the law, unknown practices by prior owners and spills by
neighboring facilities, could result in material environmental problems, and
there can be no assurance that such matters will not adversely affect the Com-
pany in the future.
LEGAL PROCEEDINGS
In October 1997, the DEQ filed a complaint against the West Virginia Subsidiary
in the Circuit Court of Jefferson County, West Virginia. The complaint alleges
that the West Virginia Subsidiary has violated and continues to violate a pre-
vious order entered into between the West Virginia Subsidiary and the DEQ on
January 17, 1995 and further alleges that the West Virginia Subsidiary has vio-
lated and continues to violate certain provisions of its wastewater discharge
permit. The West Virginia Subsidiary discharges treated process wastewater into
a creek running through the Halltown Mill pursuant to a permit issued to the
West Virginia Subsidiary by the DEQ. The permit requires that the quality of
the water that may be discharged into the creek under the permit comply with
certain effluent limitations. The complaint alleges 33 violations over a time
period from October 1995 to March 1997. The complaint also alleges that the
earlier administrative order has been violated because of the failure of the
West Virginia Subsidiary to pay a stipulated penalty of $1,000 for two alleged
violations of the permit that occurred between January 1995 and October 1995.
The DEQ is seeking by virtue of the complaint to require the West Virginia Sub-
sidiary to enter into a consent agreement that sets forth a compliance schedule
for correcting the alleged deficiencies in the wastewater treatment facilities
of the West Virginia Subsidiary that have led to the alleged effluent excesses.
The DEQ is also requesting a civil monetary penalty of unspecified amount but
which, according to the complaint, may not exceed $10,000 per day for each of
the alleged violations many of which involved monthly limitations and may be
treated as involving the entire number of days in the month in question, but
none of which involve more than the month in question. The DEQ is also seeking
to recover all of its costs of court including attorneys fees. The West Vir-
ginia Subsidiary has responded in a timely manner to the allegations of the
complaint. Moreover, the West Virginia Subsidiary has negotiated an agreement
in principle with the DEQ that resolves all of the issues raised in the com-
plaint and that requires the West Virginia Subsidiary to pay $25,000 to the
DEQ. This settlement has not yet been finalized into an agreed dismissal order
or approved by the court, and there can be no assurance that such an order will
be finalized or approved by the court. As a result, the Company has not yet de-
finitively ascertained the future liability, if any, of the above matter.
Other than as set forth above there are no material pending legal proceedings
involving the Company, other than ordinary routine litigation incidental to the
business of the Company.
39
<PAGE>
MANAGEMENT
The names, ages and titles of the Company's directors and officers are listed
below. Each director is elected at the annual meeting of the stockholders of
the Company to serve a one year term until the next annual meeting or until a
successor is elected and qualified, or until his earlier resignation. Each ex-
ecutive officer holds his office until a successor is chosen and qualified or
until his earlier resignation or removal.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME AGE POSITION
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Phil Simpson............ 63 Chairman of the Board, President and Chief Executive Officer
Doyle R. Ramsey......... 47 Executive Vice President and Chief Financial Officer
Geary D. Cribbs......... 55 Senior Vice President
Todd T. Brown........... 44 Vice President
Susan G. Hall........... 52 Vice President
Joe T. Brown, Jr........ 54 Vice President
Lon D. Lewis............ 55 Vice President
James M. Britz.......... 47 Vice President
Janey L. Rife........... 53 Vice President, Treasurer and Secretary
Michael W. Dirks........ 36 Vice President and Principal Accounting Officer
Bert A. Nelson.......... 67 Director
C. William Claypool..... 62 Director
Talbot Rain............. 78 Director
Gerald L. Ray........... 65 Director
Robert F. Sexton........ 64 Director
L.L. Wallace............ 83 Director
David B. Yarbrough...... 79 Director
</TABLE>
Mr. Phil Simpson has been Chairman of the Board of Directors since 1967. He has
been President since 1965 with the exception of years 1968 to 1973, 1975 to
1985, and the years of 1987 to 1990. He has been Chief Executive Officer since
1965 with the exception of the years 1968 to 1973 and the years 1982 to 1986.
Mr. Doyle R. Ramsey was elected Executive Vice President in August 1998 and
continues to hold the additional post of Chief Financial Officer. Mr. Ramsey
has overall responsibility for the paperboard segment and for finance, treasury
and credit, accounting, management information services and human resources.
Previously, he served as Vice President--Finance and Chief Financial Officer
from 1992 to 1998.
Mr. Geary D. Cribbs was elected Senior Vice President in March 1998. He is re-
sponsible for the Company's gypsum wallboard operations. Previously, Mr. Cribbs
served as Vice President, from 1992 to 1998, and as General Manager of the Duke
Plant.
Mr. Todd T. Brown was elected Vice President in September 1992. He is responsi-
ble for the Company's recycled paperboard operations. Previously, he served as
Mill Manager of the Commerce City and Hutchinson Mills.
Ms. Susan G. Hall was elected Vice President in October 1993. She is responsi-
ble for gypsum sales. She served as Gypsum Sales Manager from October 1991 to
October 1993.
Mr. Joe T. Brown, Jr. was elected Vice President in March 1998. He is responsi-
ble for the Company's gypsum wallboard manufacturing operations. Previously,
Mr. Brown held senior management positions in manufacturing with Temple-Inland,
Inc., a diversified manufacturing and financial services company, and its af-
filiates.
Mr. James M. Britz was elected Vice President in August 1994. He is responsible
for the environmental compliance, safety and human resource functions of the
Company. He served as Director of Environmental, Safety and Health, and Human
Resources from February 1993 to August 1994. Previously, he held similar posi-
tions with the Genlyte Group, Inc, a maker of lighting products.
40
<PAGE>
Ms. Janey L. Rife was elected Vice President and Treasurer of the Company in
August 1998. She has served as Treasurer and Secretary since May 1993. Previ-
ously, she served as Credit Manager.
Mr. Lon D. Lewis was elected Vice President in September 1996. He is responsi-
ble for the Company's recycled paperboard sales and assumed responsibilities
for the Company's recovered fiber operations in August 1998. He served as Di-
rector of Engineering from March 1996 to October 1996. Previously, he held var-
ious management positions with Simkins Industries Inc. and Jefferson Smurfit
Corporation, both producers of recycled paperboard.
Mr. Michael W. Dirks was elected Vice President and Principal Accounting Offi-
cer in August 1998. He has direct responsibility for accounting and management
information services. Since 1991 Mr. Dirks has held the positions of Mill Con-
troller, Corporate Accounting Manager, Special Projects Manager and Manager of
Internal Audit and Management Information Services. From May 1995 to December
1996, Mr. Dirks was employed by a public accounting and consulting firm.
Mr. C. William Claypool has been a director of the Company since January 1998.
He retired as Corporate Vice President and General Manager-Paper Division of
Sonoco Products Company, a multinational packaging products company, in June
1997.
Mr. Bert A. Nelson has been a director of the Company since 1990. He is engaged
in the management of his own personal investments in Dallas, Texas.
Mr. Talbot Rain has been a director of the Company since 1967. Additionally, he
is of Counsel to Locke Purnell Rain Harrell (A Professional Corporation), which
law firm represented the Company with respect to various legal matters during
fiscal year 1998.
Mr. Gerald L. Ray has been a director of the Company since 1969. Additionally,
he is President of Gerald L. Ray & Associates, an investment advisory company.
Mr. Robert F. Sexton has been a director of the Company since 1990. Addition-
ally, he is President of Bakery Associates, Inc., a food industry supplier, and
a director of Ultrak, Inc, a manufacturer and distributor of video closed cir-
cuit television systems.
Mr. L. L. Wallace has been a director of the Company since 1980. Mr. Wallace
retired from business in 1980. Prior to that time, he was Vice President of
Packaging Corporation of America (now Tenneco Packaging), a manufacturer of pa-
per products.
Mr. David B. Yarbrough has been a director of the Company since 1973. Mr.
Yarbrough retired from business in 1987. Prior to that time, he was President
of Yarbrough Construction Co., Inc., a general contractor.
Mr. Stephen L. Gagnon, who had served as Executive Vice President of the Com-
pany since September 1992, died on June 19, 1998, from complications during
treatment for leukemia.
41
<PAGE>
DESCRIPTION OF THE NEW CREDIT FACILITY
On July 15, 1998, the Company entered into a credit agreement with a syndicate
of banks led by Morgan Guaranty Trust Company of New York and NationsBank,
N.A., as co-agents, establishing a credit facility (the "New Credit Facility").
All information relating to the New Credit Facility is qualified in its en-
tirety by reference to the complete text of the documents entered into in con-
nection with the New Credit Facility. For purposes of this description only,
the term "Company" refers only to Republic Group Incorporated. Capitalized
terms used but not defined herein have the meanings ascribed to them in the New
Credit Facility.
GENERAL
The New Credit Facility provides for up to $85 million in principal amount of
revolving loans during a period ending on the earlier of the start-up of the
Lawton Mill or the date two years after the establishment of the New Credit Fa-
cility. At the end of that period, the New Credit Facility will convert into a
term loan in the principal amount of up to $50 million and a revolving credit
facility with a $35 million maximum principal amount. (If the funded amount un-
der the New Credit Facility is less than $50 million in principal amount at the
time of conversion, then the principal amount of the term loan will be such
lesser, funded amount, instead of $50 million.) The Company is permitted to use
up to $5 million of amounts available under the New Credit Facility for the is-
suance of letters of credit, which usage is subject to standard fees. The term
loan will amortize as to principal quarterly over a period of four years after
the date of conversion, with 10% due during the first year, 20% during the sec-
ond year, 30% during the third year and the balance during the fourth year. The
revolving credit facility will mature four years after the date of conversion.
Availability under the New Credit Facility is not subject to a borrowing base
but is subject to, among other things, a condition that the construction of the
Lawton Mill be progressing on a satisfactory schedule and within agreed-upon
cost parameters. The Company expects to use the proceeds of the New Credit Fa-
cility to finance, in part, the construction of the Lawton Mill and for general
corporate purposes, including working capital. See "Business--Business Strate-
gy" and "Use of Proceeds."
INTEREST RATES
The New Credit Facility bears interest at a rate equal to, at the election of
the Company, the Base Rate plus an applicable margin (between 0% and 0.75%) per
annum or (ii) one-, two-, three- or six-month LIBOR plus an applicable margin
(between 0.75% and 1.75%) per annum. The variable percentage is determined
based on a formula and decreases as the ratio of the Consolidated Debt of the
Company and its subsidiaries to Consolidated EBITDA decreases.
SECURITY AND GUARANTEE
The New Credit Facility is a direct obligation of the Company and is fully
guaranteed by all of the Company's material subsidiaries. Such obligations and
Guarantees rank senior in right of payment to the Notes. The Company's obliga-
tions under the New Credit Facility are secured by (i) a mortgage on the real
estate and permanent improvements at the Lawton Mill site, (ii) a pledge by the
Company of all of the outstanding capital stock of its subsidiaries and (iii) a
security interest in substantially all of the Company's other personal proper-
ty, including any unused proceeds from the issuance and sale of the Notes. Cer-
tain subsidiaries of the Company have issued Guarantees under the New Credit
Facility which are secured by both the subsidiaries' pledge of their equity in-
terests in other subsidiaries and by each such subsidiary's pledge of (i) all
intercompany debt owed to it and (ii) substantially all of the personal prop-
erty of the subsidiary. At such time, if any, as outstanding loans under the
New Credit Facility exceed $50 million, the Lenders may require that all other
real property and permanent improvements of the Company and its subsidiaries be
mortgaged as security for the New Credit Facility.
PREPAYMENT
The Company must prepay amounts outstanding under the New Credit Facility in
amounts equal to (i) the net proceeds of certain asset sales and insurance from
certain casualty events (to the extent the same exceed $500,000 in a fiscal
year), (ii) approximately 50% of Excess Cash Flow for each fiscal year begin-
ning after the conversion described above and (iii) the net proceeds of certain
future debt issuances. The Company may at any time voluntarily prepay amounts
outstanding under the New Credit Facility.
42
<PAGE>
COVENANTS
The New Credit Facility contains covenants requiring the Company to maintain
the following financial ratios on a consolidated basis: (i) maximum debt to
EBITDA, (ii) minimum EBITDA to interest expense, (iii) minimum EBITDA and (iv)
minimum net worth.
The New Credit Facility also contains covenants that impose certain limitations
on the right of the Company and its subsidiaries in respect of, among other
things, (i) the payment of dividends and other distributions, (ii) capital ex-
penditures and operating lease obligations, (iii) the creation or incurrence of
liens, (iv) transactions with affiliates, (v) the incurrence, prepayment or re-
purchase of indebtedness, including the Notes, (vi) investments, (vii) the
terms of subordinated indebtedness (including the indebtedness evidenced by the
Notes) and (viii) mergers, asset sales and divestitures. The New Credit Facil-
ity also includes a covenant requiring that the Lawton Mill be at least 90%
complete by the Conversion Date and that the start up of the Lawton Mill occur
no later than six months after the Conversion Date.
FEES AND EXPENSES
The Company has paid customary fees in connection with structuring the New
Credit Facility and will also pay to the Lenders a commitment fee on the unused
portion of the New Credit Facility, payable quarterly in arrears, which fee is
subject to change as the ratio of the Consolidated Debt of the Company and its
subsidiaries to Consolidated EBITDA decreases or increases. The Company also
has paid certain fees to Morgan Guaranty Trust Company of New York and
NationsBank, N.A. as co-agents and has reimbursed them for certain expenses.
43
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Old Notes have been and the New Notes will be issued pursuant to an Inden-
ture dated as of July 15, 1998 (the "Indenture") between the Company and UMB
Bank, N.A., as Trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. A copy of the
Indenture and the Registration Rights Agreement described below are filed as
exhibits to the Registration Statement of which this Prospectus forms a part
and are incorporated herein by reference. The statements under this caption re-
lating to the Notes, the Indenture and the Registration Rights Agreement are
summaries and do not purport to be complete, and where reference is made to
particular provisions of the Indenture and the Registration Rights Agreement,
such provisions, including the definitions of certain terms, are qualified in
their entirety by such reference. The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
The Old Notes and the New Notes are treated as a single series of debt securi-
ties under the Indenture. Holders of Old Notes who do not exchange their Old
Notes for New Notes pursuant to the Exchange Offer will vote together with the
Holders of the New Notes as a single series of Notes for all relevant purposes
under the Indenture. In that regard, the Indenture requires that certain ac-
tions by the Holders thereunder (including acceleration following an Event of
Default) must be taken, and certain rights must be exercised, by specified min-
imum percentages of the aggregate principal amount of the outstanding securi-
ties issued under the Indenture. In determining whether Holders of the requi-
site percentage of principal amount have given any notice, consent or waiver or
taken any other action permitted under the Indenture, any Old Notes that remain
outstanding after the Exchange Offer will be aggregated with the New Notes, and
the Holders of such Notes will vote together for all such purposes. According-
ly, at any time after the Exchange Offer is consummated, all references herein
to specified percentages of aggregate principal amount of the outstanding Notes
means such percentages of aggregate principal amount of the Old Notes and the
New Notes then outstanding.
PRINCIPAL, MATURITY AND INTEREST
The Notes are general unsecured obligations of the Company limited in aggregate
principal amount to $100 million and will mature on July 15, 2008. Interest on
the Notes accrues at a rate of 9 1/2% per annum and will be payable semi-annu-
ally in arrears on January 15 and July 15 of each year, commencing on January
15, 1999, to Holders of record on the immediately preceding January 1 and July
1, respectively. The New Notes will bear interest from the most recent date to
which interest has been paid on the Old Notes or, if no interest has been paid
on the Old Notes, from July 15, 1998. See "The Exchange Offer--Payment of In-
terest."
Interest on the Notes will be computed on the basis of a 360-day year comprised
of twelve 30-day months. Principal of, premium, if any, and interest on the
Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to Holders of Notes at
their respective addresses set forth in the register of Holders of Notes; pro-
vided that all payments with respect to Global Notes, the Holders of which have
given wire transfer instructions on or prior to the relevant record date to the
paying agent, must be made by wire transfer of immediately available funds to
the accounts specified by such Holders. Until otherwise designated by the Com-
pany, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Old Notes have been, and the New Notes
will be, issued in denominations of $1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is sub-
ordinated in right of payment, as set forth in the Indenture, to the prior pay-
ment in full of all Senior Debt, whether outstanding on the date of sale of the
Old Notes or thereafter incurred. Upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy, re-
organization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any mar-
shaling of the Company's assets and liabilities, (a) the holders of Senior Debt
are entitled to receive payment in full of all such Senior Debt (including all
Obligations with respect thereto) before Holders of Notes are entitled to re-
ceive any payment with respect to the Notes and (b) until all amounts with re-
spect to Senior Debt are paid in full, any distribution to which Holders of
Notes would be entitled, but for the subordination provisions of the Indenture,
shall be made to the holders of Senior Debt (except payments made from the
trust described
44
<PAGE>
under "--Legal Defeasance and Covenant Defeasance" and except that Holders of
Notes may receive securities so long as (i) the Notes are not treated in any
case or proceeding or other event described above as part of the same class of
claims as the Senior Debt or any class of claims on a parity with or senior to
the Senior Debt for any payment or distribution, (ii) such securities are sub-
ordinated at least to the same extent as the Notes to Senior Debt and any secu-
rities issued in exchange for such Senior Debt and (iii) such securities are
authorized by an order or decree of a court of competent jurisdiction in a re-
organization proceeding under any applicable bankruptcy, insolvency or similar
law that gives effect to the subordination of the Notes to Senior Debt in a
manner and with an effect which would be required if this parenthetical clause
were not included in this paragraph; provided that the Senior Debt is assumed
by the new corporation, if any, resulting from any such reorganization or read-
justment and issuing such securities).
The Company may not make any payment upon or in respect of the Notes (except in
such subordinated securities as described above or from the trust described un-
der "--Legal Defeasance and Covenant Defeasance") if (i) a Payment Default on
Designated Senior Debt occurs and is continuing or (ii) any other default oc-
curs and is continuing with respect to Designated Senior Debt that permits
holders of the Designated Senior Debt as to which such default relates to ac-
celerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the representative of the hold-
ers of such Designated Senior Debt. Payments on the Notes may be resumed (a) in
the case of a Payment Default, upon the date on which such Payment Default is
cured or waived and (b) in case of any default other than a Payment Default,
the earlier of the date on which such default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received, un-
less the maturity of such Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced unless and until 360 days have
elapsed since the date of receipt by the Trustee of the immediately prior Pay-
ment Blockage Notice. No default other than a Payment Default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee will be, or be made, the basis for a subsequent Payment Blockage No-
tice.
As a result of the subordination provisions described above, in the event of a
liquidation, insolvency or similar proceeding, Holders of Notes may recover
less ratably than creditors of the Company who are holders of Senior Debt. See
"Risk Factors--Subordination of the Notes; Risks Associated with Corporate
Structure." The Company may borrow up to $85 million under the New Credit Fa-
cility (and expects to borrow a substantial portion thereof to finance the con-
struction of the Lawton Mill), which would constitute Senior Debt, and may,
subject to the limitations of the Indenture, incur additional Senior Debt, all
of which Senior Debt would rank senior in right of payment to the Notes.
The Indenture limits, subject to certain financial tests, the amount of addi-
tional Indebtedness, including Senior Debt, that the Company and its Restricted
Subsidiaries can incur. See "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Disqualified Stock." The operations of the Company are con-
ducted through its Subsidiaries. Therefore, the Company depends upon the cash
flow of its Subsidiaries to meet its obligations, including obligations under
the Notes. The Notes effectively are subordinated to all outstanding Indebted-
ness and other liabilities and commitments (including Trade Payables) of the
Company's Subsidiaries. Any right of the Company to receive assets of any of
its Subsidiaries upon the latter's liquidation or reorganization (and the con-
sequent right of the Holders of Notes to participate in those assets) effec-
tively is subordinated to the claims of that Subsidiary's creditors, except to
the extent that the Company is recognized as a creditor of such Subsidiary, in
which case the claims of the Company would still be subordinate to any security
interest in the assets of such Subsidiary and any Indebtedness of such Subsidi-
ary senior to that held by the Company. As of August 31, 1998, the Company's
Subsidiaries had Trade Payables and other liabilities aggregating approximately
$32.9 million and no other Indebtedness. However, the Company's material sub-
sidiaries have each Guaranteed all indebtedness incurred under the New Credit
Facility.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to July 15, 2003.
Thereafter, the Notes are subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 15 of the years
indicated below:
<TABLE>
<CAPTION>
----------
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003 104.750%
2004 103.167%
2005 101.583%
2006 and thereafter 100.000%
</TABLE>
45
<PAGE>
In addition, prior to July 15, 2001, the Company may redeem up to 35% of the
principal amount of the Notes with the net cash proceeds received by the Com-
pany from one or more Public Equity Offerings, at a redemption price of 109.5%
of the principal amount thereof, plus accrued and unpaid interest to the date
fixed for redemption (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on an Interest Payment Date that
is on or prior to the redemption date); provided, however, that at least 65% of
the aggregate principal amount of the Notes originally issued pursuant to the
Offering remains outstanding immediately after any such redemption (excluding
any Notes owned by the Company or any of its Affiliates). Notice of redemption
pursuant to this paragraph must be mailed to holders of Notes not later than 60
days following the consummation of such Public Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such method as the Trustee will deem fair and appropriate; provided that no
Notes of $1,000 or less will be redeemed in part. Notices of redemption will be
mailed by first class mail at least 30 but not more than 60 days before the re-
demption date to each Holder of Notes to be redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that re-
lates to such Note will state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to ac-
crue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders upon a
Change of Control" and "--Certain Covenants--Asset Sales," the Company is not
required to make any mandatory redemption or sinking fund payments with respect
to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer de-
scribed below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid in-
terest thereon to the date of purchase (the "Change of Control Payment") on a
date that is not more than 90 days after the occurrence of such Change of Con-
trol (the "Change of Control Payment Date"). Prior to the mailing of notice to
Holders provided for in the succeeding paragraph, but in any event within 30
days following any Change of Control, the Company covenants to (i) repay in
full all Senior Debt that would prohibit the repurchase of the Notes as pro-
vided for in the succeeding paragraph or (ii) obtain any requisite consents un-
der instruments governing any such Senior Debt to permit the repurchase of the
Notes as provided for in the succeeding paragraph. The Company shall first com-
ply with the covenant in the preceding sentence before it shall be required to
repurchase Notes pursuant to the "Repurchase at the Option of Holders upon a
Change of Control" covenant.
Within 30 days following any Change of Control, the Company will mail, or at
the Company's request the Trustee will mail, a notice to each Holder offering
to repurchase the Notes held by such Holder pursuant to the procedures speci-
fied in such notice. The Company will comply with the requirements of Rule 14e-
1 under the Exchange Act and any other United States federal, state or territo-
rial securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent lawful,
(i) accept for payment all Notes or portions thereof properly tendered and not
withdrawn pursuant to the Change of Control Offer, (ii) deposit with the paying
agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate stat-
ing the aggregate principal amount of Notes or portions thereof being purchased
by the Company. The paying agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
A failure by the Company to comply with the provisions of the three preceding
paragraphs will constitute an Event of Default. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that
46
<PAGE>
permit Holders of Notes to require that the Company repurchase or redeem the
Notes in the event of a takeover, recapitalization or similar transaction. See
"--Events of Default and Remedies."
With respect to the sale of assets referred to in the definition of "Change of
Control," the phrase "all or substantially all" of the assets of the Company
will likely be interpreted under applicable law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of un-
certainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred. In addition, no assurances can
be given that the Company will be able to acquire Notes tendered upon the oc-
currence of a Change of Control. There can be no assurances that the Company
will have sufficient funds available or will be able to obtain third party fi-
nancing at the time of any Change of Control to make any debt payment (includ-
ing repurchases of Notes) required by the "Repurchase at the Option of Holders
upon a Change of Control" covenant of the Indenture (as well as any similar
covenant that may be contained in other securities of the Company that might
be outstanding at the time). Unless the consents referred to above are ob-
tained, the "Repurchase at the Option of Holders upon a Change of Control"
covenant of the Indenture requires the Company to repay all Senior Debt then
outstanding that by its terms would prohibit such Note repurchase, either
prior to or concurrently with such Note repurchase. The New Credit Facility
provides that a Change of Control will constitute a default thereunder, which
would permit the lenders to cause the indebtedness under the New Credit Facil-
ity to become immediately due and payable or to institute a payment blockage.
See "--Subordination." Any future credit agreements or other agreements relat-
ing to Senior Debt to which the Company becomes a party may contain similar
provisions.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of the Company's or any Re-
stricted Subsidiary's Equity Interests (other than (x) dividends or distribu-
tions payable in Qualified Equity Interests of the Company and (y) in the case
of any Restricted Subsidiary, dividends or distributions payable to the Com-
pany or any Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or
any of its Restricted Subsidiaries (other than any such Equity Interests that
are owned by the Company or a Restricted Subsidiary); (iii) make any voluntary
or optional principal payment on, or voluntary or optional purchase, redemp-
tion, defeasance, or other acquisition or retirement for value of, any Subor-
dinated Debt; or (iv) make any Investment that is a Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time
of and after giving effect to such Restricted Payment (the amount of any such
Restricted Payment, if other than cash, being the fair market value (as con-
clusively evidenced by a resolution of the Board of Directors of the Company
set forth in an Officers' Certificate delivered to the Trustee within 60 days
prior to the date of such Restricted Payment) of the asset(s) proposed to be
transferred by the Company or such Restricted Subsidiary, as the case may be,
pursuant to such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four full fiscal quarter period
for which internal financial statements are available immediately preceding
the date of such Restricted Payment, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ra-
tio test set forth in the first paragraph of the covenant in the Indenture
described below under the caption "--Incurrence of Indebtedness and Issu-
ance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other Re-
stricted Payments made by the Company and its Restricted Subsidiaries after
June 30, 1998 (excluding Restricted Payments permitted by clauses (B), (C)
and (D) of the next succeeding paragraph), is less than the sum of (i) 50%
of the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commenc-
ing after June 30, 1998 to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company from the issue or sale
(other than to a Subsidiary of the Company) since June 30, 1998 of Quali-
fied Equity Interests of the Company or of debt securities of the Company
or any of its Restricted Subsidiaries that have been converted into or ex-
changed for Qualified Equity Interests of the Company.
If no Default or Event of Default has occurred and is continuing, or would oc-
cur as a consequence thereof, the foregoing provisions will not prohibit the
following Restricted Payments: (A) the payment of any dividend within 60 days
after the
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<PAGE>
date of declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture; (B) the payment of cash
dividends on any series of Disqualified Stock issued after the date of the In-
denture in an aggregate amount not to exceed the cash received by the Company
since the date of the Indenture upon issuance of such Disqualified Stock; (C)
the redemption, repurchase, retirement or other acquisition of any Equity In-
terests of the Company or any Restricted Subsidiary in exchange for, or out of
the net cash proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Qualified Equity Interests of the Company; pro-
vided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (D) the defeasance, redemption
or repurchase of Subordinated Debt (including any Subordinated Debt that con-
stitutes Acquired Debt) with the net cash proceeds from an incurrence of Per-
mitted Refinancing Indebtedness or in exchange for or out of the net cash pro-
ceeds from the substantially concurrent sale (other than to a Subsidiary of the
Company) of Qualified Equity Interests of the Company; provided that the amount
of any such net cash proceeds that are utilized for any such redemption, repur-
chase, retirement or other acquisition shall be excluded from clause (c) (ii)
of the preceding paragraph; (E) the repurchase, redemption or other acquisition
or retirement for value of any Equity Interests of the Company or any Re-
stricted Subsidiary held by any present or former member of the Company's (or
any of its Subsidiary's) management (which for purposes of this clause (E) in-
cludes directors) or the heirs, estate or legatees of, or any entity controlled
by, any such member pursuant to any management equity subscription agreement,
stock option agreement or other employee benefit plan; provided that the aggre-
gate price paid for all such repurchased, redeemed, acquired or retired Equity
Interests pursuant to this clause (E) shall not exceed $1 million in any calen-
dar year (with unused amounts in a calendar year being carried forward to a
subsequent calendar year, subject to a maximum of $2 million in any calendar
year); (F) the repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Subordinated Debt in the
event of a Change of Control pursuant to a provision similar to the provision
described under "--Repurchase at the Option of Holders upon a Change of Con-
trol"; provided that prior to such repurchase the Company has made a Change of
Control Offer as provided under "Repurchase at the Option of Holders upon a
Change of Control" and has repurchased all Notes validly tendered for payment
in connection with such Change of Control Offer and (G) any other Restricted
Payment which, together with all other Restricted Payments made pursuant to
this clause (G) on or after the Issue Date, does not exceed $7 million.
Not later than the date of making any Restricted Payment, the Company shall de-
liver to the Trustee an Officers' Certificate stating that such Restricted Pay-
ment is permitted and setting forth the basis upon which the calculations re-
quired by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable, contin-
gently or otherwise, with respect to (collectively, "incur") after the date of
the Indenture any Indebtedness (including Acquired Debt) and that the Company
will not issue any Disqualified Stock and the Company will not permit any of
its Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) and
the Company may issue shares of Disqualified Stock if (i) no Default or Event
of Default will have occurred and be continuing or would occur as a consequence
thereof and (ii) the Fixed Charge Coverage Ratio for the Company's most re-
cently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional Indebted-
ness is incurred or such Disqualified Stock is issued would have been at least
2.5 to 1, determined on a pro forma basis as if the additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case may be,
at the beginning of such four-quarter period. Indebtedness consisting of reim-
bursement obligations in respect of a letter of credit will be deemed to be in-
curred when the letter of credit is first issued. The Company will not permit
any of its Unrestricted Subsidiaries to incur any Indebtedness other than Non-
Recourse Debt.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of Senior Debt under the New Credit Fa-
cility, and Guarantees thereof by its Restricted Subsidiaries, in an aggre-
gate principal amount at any time outstanding not to exceed an amount equal
to $85 million less the aggregate amount of all mandatory payments applied
to repay loans (other than revolving credit loans) outstanding thereunder
or to permanently reduce the revolving credit commitments thereunder;
(ii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iii) Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund, In-
debtedness that was permitted by the Indenture to be incurred (including,
without limitation, Existing Indebtedness);
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(v) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Re-
stricted Subsidiaries; provided that upon either (a) the transfer or other
disposition by the Company or a Restricted Subsidiary of any Indebtedness
so permitted under this clause (v) to a Person other than the Company or a
Restricted Subsidiary or (b) the issuance, sale, transfer or other disposi-
tion of Equity Interests (including by consolidation or merger) in a Re-
stricted Subsidiary to a Person other than the Company or a Restricted Sub-
sidiary which results in such Restricted Subsidiary ceasing to be a Re-
stricted Subsidiary, the provisions of this clause (v) shall no longer be
applicable to such Indebtedness and such Indebtedness shall be deemed to
have been incurred at the time of any such issuance, sale, transfer or
other disposition, as the case may be;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations or Guarantees thereof, provided that such Hedging Obli-
gations are incurred for the purpose of (A) fixing or hedging interest rate
or currency risk with respect to any fixed or floating rate Indebtedness
that is permitted by the Indenture to be outstanding or any receivable or
liability, the payment of which receivable or liability is determined by
reference to a foreign currency; provided that the notional principal
amount of any such Hedging Obligation does not exceed the principal amount
of the Indebtedness to which such Hedging Obligation relates or (B) fixing
or hedging risk with respect to fluctuations in the cost of raw materials;
provided that such obligation is entered into by the Company or a Re-
stricted Subsidiary for valid business purposes other than speculative pur-
poses (as determined by the Company's or such Restricted Subsidiary's chief
financial officer in the exercise of his or her good faith business judg-
ment);
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by performance bonds, bankers' acceptances,
standby letters of credit, mechanic's lien bonds or appeal bonds, in each
case to the extent incurred in the ordinary course of business of the Com-
pany or such Restricted Subsidiary;
(viii) the issuance by any of the Company's Restricted Subsidiaries of
shares of preferred stock to the Company or a Restricted Subsidiary; pro-
vided that upon the transfer or other disposition by the Company or a Re-
stricted Subsidiary of any such shares to a Person other than the Company
or a Restricted Subsidiary, the provisions of this clause (viii) shall no
longer be applicable to such preferred stock and such preferred stock shall
be deemed to have been issued to such Person at the time of any such trans-
fer or other disposition and shall be required to satisfy the provisions of
clause (ix) hereof;
(ix) the incurrence by any Restricted Subsidiary of Indebtedness, or the
issuance by any Restricted Subsidiary of preferred stock, the aggregate
principal amount of which, in the case of Indebtedness, or the total liqui-
dation preference of which, in the case of preferred stock, together with
(x) all other Indebtedness of the Company's Restricted Subsidiaries (other
than Guarantees of the New Credit Facility) at the time outstanding and (y)
the total liquidation preference of all other preferred stock of the
Company's Restricted Subsidiaries at the time issued and outstanding and,
in each case, held by any Person other than the Company or any Restricted
Subsidiary, does not exceed the greater of (1) 5% of the Company's Stock-
holders' Equity as of the date of incurrence or (2) $2 million; provided
that, in the case of clause (1) only, the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which in-
ternal financial statements are available immediately preceding the date on
which such Indebtedness (including Acquired Subsidiary Debt) is incurred
would have been at least 2.5 to 1, determined on a pro forma basis, pro-
vided further, that solely for the purpose of determining whether the ag-
gregate principal amount of Indebtedness of the Company's Restricted Sub-
sidiaries at any time outstanding exceeds 5% of the Company's Stockholders'
Equity, Acquired Subsidiary Debt shall be excluded;
(x) the incurrence by the Company or any Restricted Subsidiary of Indebted-
ness arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such agreements,
in each case incurred in connection with the disposition of any business,
assets or Restricted Subsidiary (other than Guarantees of Indebtedness in-
curred by any Person acquiring all or any portion of such business, assets
or Restricted Subsidiary for the purpose of financing such acquisition), in
a principal amount not to exceed the gross proceeds actually received by
the Company or any Restricted Subsidiary in connection with such disposi-
tion; and
(xi) the incurrence by the Company of Indebtedness (in addition to Indebt-
edness permitted by any other clause of this paragraph) in an aggregate
principal amount at any time outstanding not to exceed $10 million.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (as conclu-
sively determined by a resolution of the Board of Directors
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<PAGE>
of the Company set forth in an Officer's Certificate delivered to the Trustee)
of the assets or Equity Interests issued or sold or otherwise disposed of and
(ii) at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of (x) cash or Temporary Cash Investments
or (y) property or assets that are used or useful in any Permitted Business;
provided that for purposes of this provision, the amount of (A) any liabilities
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto), of the Company or any Restricted Subsidiary
(other than, in the case of an Asset Sale by the Company, liabilities that are
by their terms subordinated to the Notes) that are assumed by the transferee of
any such assets and (B) any securities or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are immedi-
ately converted by the Company or such Restricted Subsidiary into cash (or as
to which the Company or such Restricted Subsidiary has received at or prior to
the consummation of the Asset Sale a commitment (which may be subject to cus-
tomary conditions) from a nationally recognized investment, merchant or commer-
cial bank to convert into cash within 90 days of the consummation of such Asset
Sale and which are thereafter actually converted into cash within such 90-day
period) will be deemed to be cash (but shall not be deemed to be Net Proceeds
for purposes of the following provisions until reduced to cash). Notwithstand-
ing the foregoing, it will not be a violation of the foregoing provisions if
the Company or a Restricted Subsidiary receives Investments as all or part of
the consideration for an Asset Sale (which consideration is not otherwise per-
mitted), if such Investments constitute Restricted Investments permitted by the
covenant in the Indenture described under the caption "--Restricted Payments."
Pursuant to the Indenture, within 365 days after the receipt of any Net Pro-
ceeds from an Asset Sale, the Company or the Restricted Subsidiary, as the case
may be, may apply such Net Proceeds (i) to make a capital expenditure or to ac-
quire other tangible assets, in each case, that are used or useful in any Per-
mitted Business or (ii) to the extent not applied pursuant to clause (i), to
permanently reduce Senior Debt (and, in the case of revolving credit loans, to
correspondingly reduce commitments with respect thereto). Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the ag-
gregate amount of Excess Proceeds exceeds $5 million, the Company will be re-
quired to make an offer to all Holders of Notes and holders of any other In-
debtedness of the Company ranking on a parity with the Notes from time to time
outstanding with similar provisions requiring the Company to make an offer to
purchase or to redeem such Indebtedness with the proceeds from any Asset Sales,
pro rata in proportion to the respective principal amounts of Notes and such
other Indebtedness then outstanding (an "Asset Sale Offer") to purchase the
maximum principal amount of the Notes and such other Indebtedness that may be
purchased out of the Excess Proceeds, at an offer price in cash equal to 100%
of the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Notes and such other Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes and such other Indebtedness surren-
dered by holders thereof exceeds the amount of Excess Proceeds, the Notes and
such other Indebtedness will be purchased on a pro rata basis. Upon completion
of an Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The New Credit Facility prohibits the Company from repurchasing Notes pursuant
to an Asset Sale Offer unless certain conditions are met. In order to repur-
chase Notes pursuant to an Asset Sale Offer, the Company will have to repay all
obligations under the New Credit Facility (and any other agreements relating to
Senior Debt that contain similar provisions) or would have to obtain the con-
sent of the holders of such Indebtedness. In the event the Company makes an As-
set Sale Offer, the Company must comply with the requirements of Rule l4e-1 un-
der the Exchange Act and any other United States Federal, state or territorial
securities laws and regulations thereunder to the extent such laws and regula-
tions are applicable in connection with such Asset Sale Offer.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, incur any Indebtedness secured by a Lien ("Se-
cured Indebtedness") which is not Senior Debt unless contemporaneously there-
with effective provision is made to secure the Notes equally and ratably with
(or, if the Secured Indebtedness is Subordinated Debt, on a basis senior to)
such Secured Indebtedness for so long as such Secured Indebtedness is secured
by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or re-
striction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted Subsid-
iaries (1) on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by,
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<PAGE>
its profits, or (b) pay any Indebtedness owed to the Company or any of its Re-
stricted Subsidiaries, (ii) make loans or advances to the Company or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries. The foregoing shall not re-
strict encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, and any extensions,
refinancings, renewals or replacements of any of the foregoing; provided that
the encumbrances and restrictions in any such extensions, refinancings, renew-
als or replacements are no more restrictive than those contained in the initial
agreement or instrument, (b) the Indenture, (c) applicable law, (d) any instru-
ment governing Indebtedness or Capital Stock of a Person acquired by, or the
properties or assets of which Person are acquired by, the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contempla-
tion of such acquisition or in violation of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock"),
which encumbrance or restriction is not applicable to any Person, or the prop-
erties or assets of any Person, other than the Person (including its Subsidiar-
ies), or the property or assets of the Person (including its Subsidiaries), so
acquired, (e) any lease, license, conveyance or contract insofar as the provi-
sions thereof restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to such lease, license, con-
veyance or contract, (f) purchase money obligations for acquired property that
impose restrictions of the nature described in clause (iii) above on the prop-
erty so acquired, (g) Permitted Refinancing Indebtedness, provided that the re-
strictions contained in the agreements governing such Permitted Refinancing In-
debtedness are no more restrictive than those contained in the agreements gov-
erning the Indebtedness being refinanced, (h) an agreement that has been en-
tered into for the sale or disposition of all or substantially all of the Capi-
tal Stock of, or property and assets of, a Restricted Subsidiary so long as
such agreement is not otherwise prohibited by the Indenture; provided that the
restrictions contained in such agreement are applicable only to such Restricted
Subsidiary or its assets and provided further that such sale or disposition is
otherwise permitted by the terms of the Indenture, (i) any agreement to trans-
fer, an option or a right with respect to any property of the Company or any of
its Restricted Subsidiaries that imposes restrictions of the nature described
in clause (iii) above so long as such agreement to transfer, option or right is
not otherwise prohibited by the Indenture, or (j) the New Credit Facility and
related documentation as the same is in effect on the date of the Indenture and
as amended or replaced from time to time, provided that no such amendment or
replacement is more restrictive as to the matters enumerated above than the New
Credit Facility and related documentation as in effect on the date of the In-
denture. Nothing contained in the provisions of the Indenture described in this
paragraph shall prevent the Company or any Restricted Subsidiary from incurring
any Secured Indebtedness or from restricting the sale or other disposition of
property or assets that secure such Secured Indebtedness; provided that the
incurrence of such Secured Indebtedness is otherwise permitted under the provi-
sions of the Indenture described above under "--Liens."
Line of Business
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage to any material extent in any business
other than any one or more of the paperboard, packaging and paper businesses,
the gypsum wallboard and other gypsum businesses, recycling businesses general-
ly, and businesses related to any of the foregoing (each, a "Permitted Busi-
ness").
Limitation on Senior Subordinated Debt
The Indenture provides that the Company will not incur, create, issue, assume,
Guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to any Senior Debt and senior in any respect in
right of payment to the Notes.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company will not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, as-
sign, transfer, lease, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company in one or more related transactions,
to another corporation, Person or entity unless (i) the surviving corporation
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company, as applicable) or to which such sale, as-
signment, transfer, lease, conveyance or other disposition shall have been made
(the "Surviving Entity") is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Colombia; (ii) the
Surviving Entity assumes all the obligations of the Company under the Notes and
the Indenture pursuant to a supplemental Indenture in form reasonably satisfac-
tory to the Trustee; (iii) immediately before and after giving effect to such
transaction, and treating any Indebtedness which becomes an obligation of the
Company as a result of such transaction as having been incurred by the Company
at the time of the transaction, no Default or Event of
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<PAGE>
Default shall have occurred and be continuing; and (iv) the Company or the Sur-
viving Entity (A) will have Consolidated Net Worth immediately after the trans-
action and prior to any purchase accounting adjustments equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the trans-
action and (B) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the ap-
plicable four-quarter period, be permitted to incur at least $1.00 of addi-
tional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth
in the first paragraph of the covenant in the Indenture described above under
the caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock."
The sale, assignment, transfer, lease, conveyance or other disposition by the
Company of all or substantially all of its property or assets to one or more of
its Subsidiaries shall not relieve the Company from its obligations under the
Indenture and the Notes.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make any contract, agreement, understanding, loan, advance or
Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted Subsidiary
than those that could have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $1 million, a resolution of the
Board of Directors of the Company set forth in an Officer's Certificate certi-
fying that such Affiliate Transaction complies with clause (i) above and that
such Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors of the Company and (b) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $5 mil-
lion, an opinion as to the fairness to the Company or such Restricted Subsidi-
ary of such Affiliate Transaction from a financial point of view issued by an
investment banking firm of national standing, or by another nationally recog-
nized independent expert with experience appraising the terms and conditions of
transactions similar to such Affiliate Transaction. Notwithstanding the forego-
ing: (A) transactions or payments pursuant to any employment arrangements, em-
ployee relations or employee or director benefit plans entered into by the Com-
pany or any of its Restricted Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Restricted Subsid-
iary, (B) transactions between or among the Company and/or its Restricted Sub-
sidiaries and (C) transactions between a Person and an Affiliate existing at
the time such Person is merged with or into or becomes a Restricted Subsidiary,
except to the extent such transaction was entered into in connection with, or
in contemplation of, such Person merging with or into or becoming a Restricted
Subsidiary, in each case, shall not be deemed to be Affiliate Transactions.
Notwithstanding the foregoing, any Investment in Affiliates permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments" shall not be prohibited by the foregoing limitations on Affiliate
Transactions.
Limitations on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries
The Indenture provides that the Company will not permit any Restricted Subsidi-
ary, directly or indirectly, to Guarantee or secure the payment of any other
Indebtedness of the Company or any of its Restricted Subsidiaries (except In-
debtedness of a Restricted Subsidiary of such Restricted Subsidiary) unless (i)
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for the Guarantee of the payment of the
Notes by such Restricted Subsidiary, which Guarantee shall be senior to or pari
passu with such Restricted Subsidiary's Guarantee of or pledge to secure such
other Indebtedness and (ii) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Re-
stricted Subsidiary under such Guarantee. Notwithstanding the foregoing, any
such Guarantee by a Restricted Subsidiary of the Notes shall provide by its
terms that it shall be automatically and unconditionally released and dis-
charged upon a sale or other disposition, by way of merger or otherwise, to any
Person not an Affiliate of the Company, of the Company's stock in, or the as-
sets of, such Restricted Subsidiary, which sale or other disposition results in
such Restricted Subsidiary ceasing to be a Restricted Subsidiary and such sale
or other disposition is made in compliance with, and the Net Proceeds therefrom
are applied in accordance with, the applicable provisions of the Indenture. The
foregoing provisions are not applicable to (i) Guarantees by Restricted Subsid-
iaries of Indebtedness under the New Credit Facility, (ii) Guarantees of In-
debtedness of a Person by its subsidiaries in effect prior to the time such
Person is merged with or into or otherwise became a Restricted Subsidiary, pro-
vided that such Guarantees do not extend to any other Indebtedness of such Per-
son or any other Person and (iii) any one or more Guarantees of up to $2 mil-
lion in aggregate principal amount of Indebtedness of the Company or any Re-
stricted Subsidiary at any time outstanding.
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REPORTS
The Indenture provides that, whether or not required by the rules and regula-
tions of the SEC, so long as any Notes are outstanding, the Company will fur-
nish to Holders of Notes (i) all quarterly and annual financial information re-
quired to be contained in a filing with the SEC on Forms 10-Q and 10-K, includ-
ing a "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the SEC on Form 8-K. In addi-
tion, whether or not required by the rules and regulations of the SEC, the Com-
pany will file a copy of all such information and reports with the SEC for pub-
lic availability and make such information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of De-
fault: (i) default for 30 days in the payment when due of interest on the Notes
(whether or not prohibited by the provisions of the Indenture described under
"--Subordination" above); (ii) default in payment when due of the principal of
or premium, if any, on the Notes (whether or not prohibited by the provisions
of the Indenture described under "--Subordination" above); (iii) failure by the
Company to comply with the provisions described under the captions "--Repur-
chase at the Option of Holders upon a Change of Control", "--Certain Cove-
nants--Asset Sales", "--Restricted Payments" or "--Incurrence of Indebtedness
and Issuance of Disqualified Stock"; (iv) failure by the Company for 30 days
after notice to comply with any of its other agreements in the Indenture or the
Notes; (v) any default that occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any Significant Subsidi-
ary of the Company (or the payment of which is Guaranteed by the Company or any
Significant Subsidiary of the Company), whether such Indebtedness or Guarantee
exists on the date of the Indenture or is thereafter created, which default (a)
constitutes a Payment Default or (b) results in the acceleration of such In-
debtedness prior to its express maturity and, in each case, the principal
amount of any Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or that has been
so accelerated, aggregates $3 million or more; (vi) failure by the Company or
any Significant Subsidiary of the Company to pay final judgments aggregating in
excess of $3 million, which judgments are not paid, discharged or stayed for a
period of 60 days; and (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided that for so
long as the New Credit Facility is in effect, such declaration shall not become
effective until the earlier of (i) five Business Days after receipt of the
written notice declaring the Notes to be due and payable immediately by the ad-
ministrative agent under the New Credit Facility or (ii) acceleration of the
Indebtedness under the New Credit Facility. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any Significant Subsidiary of the
Company, all outstanding Notes will become due and payable without further ac-
tion or notice. Holders of Notes may not enforce the Indenture or the Notes ex-
cept as provided in the Indenture. Subject to certain limitations, Holders of a
majority in aggregate principal amount of the then outstanding Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of Notes notice of any continuing Default or Event of Default (ex-
cept a Default or Event of Default relating to the payment of principal or in-
terest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then out-
standing by notice to the Trustee on behalf of the Holders of all of the Notes,
may waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement regard-
ing compliance with the Indenture, and, upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company or
of a Subsidiary thereof, as such, shall have any liability for any obligations
of the Company under the Notes or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the Federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its obli-
gations discharged with respect to the outstanding Notes ("Legal Defeasance")
except for (i) the rights of Holders of outstanding Notes to receive payments
in respect of the principal of, premium, if any, and interest on such Notes
when such payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issues of temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the main-
tenance of an office or agency for payment and money for security payments held
in trust, (iii) the rights, powers, trusts, duties and immunities of the Trust-
ee, and the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("Cove-
nant Defeasance") and thereafter any omission to comply with such obligations
shall not constitute a Default or Event of Default with respect to the Notes.
In the event Covenant Defeasance occurs, certain events (not including non-pay-
ment, bankruptcy, receivership and insolvency events) described under "Events
of Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
Holders of Notes, cash in U.S. dollars, noncallable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the prin-
cipal of, premium, if any, and interest on such outstanding Notes to redemption
(and the Company must irrevocably authorize the Trustee to issue a timely no-
tice of redemption and to take such other steps reasonably requested by the
Trustee to ensure that such redemption will be effectuated) or at stated matu-
rity; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a
change in the applicable Federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of such outstanding Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such Legal Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred,
(iii) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States confirming that the
Holders of such outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such Covenant Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be con-
tinuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or viola-
tion of, or constitute a default under any material agreement or instrument
(other than the Indenture) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound (other than a
breach, violation or default resulting from the borrowing of funds to be ap-
plied to such deposit); (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights general-
ly; (vii) the Company must deliver to the Trustee an Officer's Certificate
stating that the deposit was not made by the Company with the intent of prefer-
ring the Holders of such Notes over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others; and (viii) the Company must deliver to the Trustee an Officer's Cer-
tificate and an opinion of counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant Defeasance, as
the case may be, have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The registered Holder of a Note will be treated as the owner of it for all pur-
poses.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or the
Notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange of-
fer for such Notes), and any existing default or compliance with any provision
of the Indenture or the Notes may be waived with the consent of the Holders of
a majority in aggregate principal amount of the then outstanding Notes (includ-
ing consents obtained in connection with a tender offer or exchange offer for
such Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non- consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supple-
ment or waiver, (ii) reduce the principal of or change the fixed maturity of
any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described under the captions
"--Repurchase at the Option of Holders upon a Change of Control" and "--Certain
Covenants--Asset Sales"), (iii) reduce the rate of or change the time for pay-
ment of interest on any Note, (iv) waive a Default or Event of Default in the
payment of principal of, premium, if any, or interest on, the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount thereof and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other than
that stated in the Notes, (vi) make any change in the provisions of the Inden-
ture relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of, premium, if any, or interest on the Notes,
(vii) waive a redemption payment with respect to any Note (other than a payment
required by one or the covenants described under the caption "--Repurchase at
the Option of Holders upon a Change of Control" and "--Certain Covenants--Asset
Sales"), (viii) modify the ranking or priority of the Notes or modify the defi-
nition of Senior Debt or Designated Senior Debt or amend or modify the subordi-
nation provisions of the Indenture in any manner adverse to the Holders or (ix)
make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes, the
Company and the Trustee may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for any sup-
plemental indenture required pursuant to the provisions of the covenant de-
scribed above under the caption "--Certain Covenants--Limitations on Issuances
of Guarantees of Indebtedness by Restricted Subsidiaries", to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
transaction described above under "Merger, Consolidation or Sale of Assets", to
make any change that would provide any additional rights or benefits to Holders
of Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, or to comply with requirements of the SEC in order to ef-
fect or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee, should
the Trustee become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in
other transactions; however, if the Trustee acquires any conflicting interest
(as defined in the Indenture or the Trust Indenture Act) it must eliminate such
conflict within 90 days or resign.
The Holders of a majority in aggregate principal amount of the then outstanding
Notes have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to cer-
tain exceptions. The Indenture provides that in case an Event of Default shall
occur (which shall not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee is not under any obliga-
tion to exercise any of its rights or powers under the Indenture at the request
of any Holder of Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or ex-
pense.
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BOOK-ENTRY, DELIVERY AND FORM; THE GLOBAL NOTES
The Old Notes are represented by global Notes ("Global Old Notes") that were
deposited with the Trustee as custodian for The Depository Trust Company
("DTC") and registered in the name of Cede & Co., as nominee of DTC, and are
held for credit to the respective accounts of the purchasers of the Old Notes
(or in the case of the Global Old Note representing Old Notes sold in reliance
upon Regulation S, initially for credit to the accounts of Morgan Guaranty
Trust Company of New York, Brussels office, as operator of the Euroclear System
("Euroclear") or Cedel Bank, S.A., ("Cedel"). Beneficial interests in the
Global Old Notes are shown on, and transfers thereof are effected only through,
records maintained by the DTC. Except as provided below, the New Notes also
will be issued in the form of one or more global Notes (the "Global New Notes"
and together with the Global Old Notes, the "Global Notes"). The Global New
Notes will be deposited on the date of issuance thereof with the Trustee as
custodian for DTC and registered in the name of Cede & Co., as nominee of DTC.
Pursuant to the procedures established by DTC (a) upon the issuance of the
Global Notes, DTC or its custodian will credit, on its internal system, the
principal amount of Notes of the individual beneficial interests represented by
the Global Notes to the respective accounts of persons who have accounts with
DTC and (b) ownership of beneficial interests in the Global Notes will be shown
on, and the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of Participants (as
defined herein)) and the records of Participants (with respect to interests of
persons other than Participants). Ownership of beneficial interests in the
Global Notes will be limited to persons who have accounts with DTC ("Partici-
pants") or persons who hold interests through Participants. Interests in the
Global Notes may be held directly through DTC, by Participants, or indirectly
through organizations which are Participants.
Investors who initially acquired their interests in the Global Old Notes pursu-
ant to Regulation S may hold their interests in the Global New Notes directly
through Cedel or Euroclear, if they are participants in such systems, or indi-
rectly through organizations which are participants in such systems or may hold
such interests through organizations other than Cedel or Euroclear that are
Participants in the DTC system. Cedel and Euroclear will hold such interests in
the Global New Notes on behalf of their participants through customers' securi-
ties accounts in their respective names on the books of their respective depos-
itaries, which in turn will hold such interests in the Global New Notes in cus-
tomers' securities accounts in the depositaries' names on the books of DTC.
So long as DTC, or its nominee, is the registered owner or Holder of the Global
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or Holder of Notes represented by such Global Notes for all purposes un-
der the Indenture. No beneficial owner of an interest in any Global Notes will
be able to transfer that interest except in accordance with applicable proce-
dures of DTC, and, if applicable, Euroclear and Cedel, in addition to those
provided for under the Indenture. Payments of the principal of, premium, if
any, and interest on the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company or the
Trustee or any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or re-
viewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Notes, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Company also expects that pay-
ments by Participants to owners of beneficial interests in the Global Notes
held through such Participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such Participants.
Transfers between Participants will be effected in the ordinary way in accor-
dance with DTC rules and will be settled in immediately available funds. If a
Holder requires physical delivery of a Certificated Note for any reason, in-
cluding to sell Notes to persons in states which require physical delivery of
the Notes, or to pledge such securities, such Holder must transfer its interest
in a Global Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
Transfers by an owner of a beneficial interest in the Global Note that was ini-
tially acquired pursuant to Rule 144A to a transferee who takes delivery of
such interest through the Global Note that was initially issued pursuant to
Regulation S will be made only upon receipt by the Trustee of a certification
to the effect that such transfer is being made in accordance with Regulation S.
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Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to bene-
ficial interests in such other Global Note for as long as it remains such an
interest.
DTC has advised the Company that it will take any action permitted to be taken
by a Holder of Notes (including the presentation of Notes for exchange) only at
the direction of one or more Participants to whose account the DTC interests in
the Global Notes are credited and only in respect of such portion of the aggre-
gate principal amount of Notes as to which such Participant or Participants has
or have given such direction. However, if there is an Event of Default under
the Indenture, DTC may request an exchange of the Global Notes in whole for
Certificated Notes, which it will distribute to the Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal Re-
serve System, a "clearing corporation" within the meaning of the Uniform Com-
mercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for Partic-
ipants and facilitate the clearance and settlement of securities transactions
between Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of certifi-
cates. Participants include securities brokers and dealers, banks, trust compa-
nies and clearing corporation and certain other organizations. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship, with a
Participant either directly or indirectly ("Indirect Participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing proce-
dures in order to facilitate transfers of interests in the Global Notes among
Participants of DTC, Euroclear and Cedel, they are under no obligation to per-
form such procedures, and such procedures may be discontinued at any time. Nei-
ther the Company nor the Trustee will have any responsibility for the perfor-
mance by DTC, Euroclear or Cedel or the Participants or Indirect Participants
of their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for the
Global Notes and a successor depositary is not appointed by the Company within
90 days, Certificated Notes will be issued in exchange for the Global Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness
of any other Person existing at the time such other Person is merged with or
into or became a Restricted Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in contempla-
tion of, such other Person merging with or into or becoming a Restricted Sub-
sidiary of such specified Person, and (ii) Indebtedness secured by a Lien en-
cumbering any asset acquired by such specified Person.
"Acquired Subsidiary Debt" means, with respect to any specified Person, (i) In-
debtedness of any other Person existing at the time such other Person is merged
with or into or became a Restricted Subsidiary of such specified Person, except
to the extent such Indebtedness was incurred in connection with, or in contem-
plation of, such other Person merging with or into or becoming a Restricted
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person, except to the extent
such Lien was created or incurred in connection with, or in contemplation of,
such acquisition.
"Affiliate" of any specified Person means any other Person directly or indi-
rectly controlling or controlled by or under direct or indirect common control
with such specified Person. For purposes of this definition, "control" (includ-
ing, with correlative meanings, the terms "controlling," "controlled by" and
"under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the di-
rection of the management or policies of such Person, whether through the own-
ership of voting securities, by agreement or otherwise; provided that benefi-
cial ownership of 10% or more of the voting securities of a Person shall be
deemed to be control.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition of any
assets (including, without limitation, by way of a sale and leaseback) other
than the disposition of inventory in the ordinary course of business (it being
understood that dispositions of inventory pursuant to long-term supply agree-
ments constitute the ordinary course of business); provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
property or assets of the Company will be governed by the provision of the In-
denture described above under the caption "--Repurchase at the Option of Hold-
ers upon a Change of Control" and/or the provisions described above under the
caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant, and (ii) the issuance or sale by
the Company or any of its Restricted Subsidiaries of Equity Interests of any
of the Company's Restricted Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $1 million or (b) for net proceeds
in excess of $1 million. Notwithstanding the foregoing, (a) a transfer of as-
sets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary
to the Company or another Restricted Subsidiary or (b) an issuance of Equity
Interests by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, in each case, will not be deemed to be an Asset Sale.
"Board of Directors" means, with respect to any Person, the Board of Directors
of such Person, or any authorized committee of the Board of Directors of such
Person.
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized by law to close.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock, (ii)
in the case of an association or business entity, any and all shares, inter-
ests, participations, rights or other equivalents (however designated) of cor-
porate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the properties or assets
of the Company and its Restricted Subsidiaries taken as a whole to any Person
or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Ex-
change Act) other than Phil Simpson, his spouse, his descendants and their
spouses, trusts and estates of which any of them are primary beneficiaries and
any entities of which any of them are holders of a majority of the equity se-
curities, (ii) the acquisition by any Person or group (as defined above) of a
direct or indirect interest in more than 50% of the voting power of the voting
stock of the Company, by way of merger or consolidation or otherwise, other
than Phil Simpson, his spouse, his descendants and their spouses, trusts and
estates of which any of them are primary beneficiaries and any entities of
which any of them are holders of a majority of the equity securities, or (iii)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an asset sale (to the extent such losses were deducted in computing such Con-
solidated Net Income), plus (ii) any non-cash charges (to the extent such
charges were deducted in computing such Consolidated Net Income), except for
any non-cash charges that represent accruals of, or reserves for, cash dis-
bursements to be made in any future accounting period, plus (iii) provision
for taxes based on income or profits of such Person and its Restricted Subsid-
iaries for such period, to the extent such provision for taxes was included in
computing such Consolidated Net Income, plus (iv) the Fixed Charges of such
Person and its Restricted Subsidiaries for such period, to the extent that
such Fixed Charges were deducted in computing such Consolidated Net Income,
plus (v) depreciation, amortization and depletion (including amortization of
goodwill and all other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation, amortiza-
tion and depletion were deducted in computing such Consolidated Net Income, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the amounts referred to in clauses (i) through
(v) above as they relate to a Restricted Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA only
to the extent (and in same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be paid as a dividend or similar distribution to the Company
by such Restricted Subsidiary or by a Restricted Subsidiary which is the par-
ent of such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms
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of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted Sub-
sidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period, the
aggregate of the Net Income of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP; pro-
vided that (i) the Net Income of any Person that is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of
any Restricted Subsidiary shall be excluded to the extent that the payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted to be made to the Company
by such Restricted Subsidiary or by a Restricted Subsidiary which is the parent
of such Restricted Subsidiary without any prior approval (that has not been ob-
tained) or, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or governmen-
tal regulation applicable to that Restricted Subsidiary or its stockholders,
(iii) solely for the purpose of calculating the amount of Restricted Payments
that may be made pursuant to clause (c) of the first paragraph of the covenant
described above under the caption "--Certain Covenants--Restricted Payments",
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date, the
sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the re-
spective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock), less
all write-ups (other than write-ups resulting from foreign currency transla-
tions and write-ups of tangible assets of a going concern business made in ac-
cordance with GAAP as a result of the acquisition of such business) subsequent
to the date of the Indenture in the book value of any asset owned by such Per-
son or a consolidated Restricted Subsidiary of such Person, and excluding the
cumulative effect of a change in accounting principles, all as determined in
accordance with GAAP.
"Continuing Director" means, as of any date of determination, any member of the
Board of Directors of the Company who (i) was a member of such Board of Direc-
tors on the date of the Indenture, (ii) was nominated for election or elected
to such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election or (iii) was nominated for election or elected to such Board of Direc-
tors by the Company.
"Default" means any event that is or with the passage of time or the giving of
notice or both would be an Event of Default.
"Designated Senior Debt" means (i) so long as the New Credit Facility is out-
standing, all Indebtedness under the New Credit Facility and (ii) thereafter,
any other Senior Debt permitted under the Indenture the principal amount of
which is $5 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is exchange-
able), or upon the happening of any event, matures or is mandatorily redeem-
able, pursuant to a sinking fund obligation or otherwise, or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the stated
date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is con-
vertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the New Credit Facility) in exist-
ence on the date of the Indenture, until such amounts are repaid, including all
reimbursement obligations with respect to letters of credit outstanding as of
the date of the Indenture (other than letters of credit issued pursuant to the
New Credit Facility).
"Fixed Charge Coverage Ratio" means, with respect to any Person for any period,
the ratio of (i) the Consolidated EBITDA of such Person for such period to (ii)
the Fixed Charges of such Person for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the four-quarter reference
period for which the Fixed Charge Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio
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shall be calculated by giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of pre-
ferred stock (and the application of the proceeds of any such incurrence of In-
debtedness or issuance of preferred stock), as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing transac-
tions, during the four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have occurred
on the first day of the four-quarter reference period, and (ii) the Consoli-
dated EBITDA and Fixed Charges attributable to discontinued operations, as de-
termined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued (in-
cluding, without limitation, amortization of original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease Obliga-
tions, commissions, discounts, and other fees and charges incurred in respect
of letters of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Hedging Obligations) and (ii) the consolidated interest ex-
pense of such Person and its Restricted Subsidiaries that was capitalized dur-
ing such period, and (iii) any interest expense on Indebtedness of another Per-
son that is Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted Subsidiar-
ies (whether or not such Guarantee or Lien is called upon) and (iv) the product
of (a) all cash dividend payments (and non-cash dividend payments in the case
of a payor that is a Restricted Subsidiary) on any Disqualified Stock of the
Company and on any series of preferred stock of any Restricted Subsidiary of
the Company, times (b) a fraction, the numerator of which is one and the denom-
inator of which is one minus the then current combined Federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fluor Daniel Agreement" means that certain Agreement for Engineering, Procure-
ment and Construction among the Company, Republic Paperboard Company and Fluor
Daniel, Inc. as further amended, modified, extended, renewed or replaced in
whole or in part, from time to time.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the Finan-
cial Accounting Standards Board or in such other statements by such other enti-
ties as have been approved by a significant segment of the accounting profes-
sion, as in effect on the Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable instru-
ments for collection in the ordinary course of business), direct or indirect,
in any manner (including, without limitation, letters of credit and reimburse-
ment agreements in respect thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap agree-
ments and interest rate collar agreements, (ii) foreign exchange contracts or
currency swap agreements, (iii) other agreements or arrangements designed to
protect such Person against fluctuations in interest rates or currency values
and (iv) other agreements or arrangements designed to protect such Person
against fluctuations in raw material prices.
"Indebtedness" means, with respect to any Person, any indebtedness of such Per-
son, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or reim-
bursement agreement in respect thereof) or banker's acceptances or representing
Capital Lease Obligations or the balance deferred and unpaid of the purchase
price of any property or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or Trade Payable, if and to the ex-
tent any of the foregoing indebtedness (other than letters of credit and Hedg-
ing Obligations) would appear as a liability upon a balance sheet of such Per-
son prepared in accordance with GAAP, as well as all indebtedness of others se-
cured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the Guar-
antee by such Person of any indebtedness of any other Person; it being under-
stood that the obligations under the Fluor Daniel Agreement of the Company or
any Restricted Subsidiary incurred in connection with the Lawton Mill shall not
constitute Indebtedness.
"Investments" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the forms of direct or indirect
loans (including Guarantees of Indebtedness or other obligations), advances or
capital contributions, purchases or other acquisitions for consideration of In-
debtedness, Equity Interests or other securities and all
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other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. For purposes of the definition of "Unre-
stricted Subsidiary" and the "Restricted Payments" covenant described above,
(i) "Investment" shall include the fair market value of the assets (net of lia-
bilities) of any Restricted Subsidiary at the time that such Restricted Subsid-
iary is designated an Unrestricted Subsidiary and shall exclude the fair market
value of the assets (net of liabilities) of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary
and (ii) any property transferred to or from any Person shall be valued at its
fair market value at the time of such transfer, in each case as determined in
good faith by the Board of Directors of the Company.
"Issue Date" means the original issue date of the Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset given to
secure Indebtedness, whether or not filed, recorded or otherwise perfected un-
der applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction with respect to any such lien, pledge, charge or security
interest).
"Moody's" means Moody's Investors Services, Inc. and its successors.
"Net Income" means, with respect to any Person for such period, the net income
(loss) of any such Person for such period, determined in accordance with GAAP,
excluding, however, (i) any gain (but not loss), together with any related pro-
vision for taxes on such gain (but not loss), realized in connection with (a)
any asset sale (including, without limitation, dispositions pursuant to sale
and leaseback transactions) other than dispositions of inventory in the ordi-
nary course of business (it being understood that dispositions of inventory
pursuant to long-term supply agreements constitute the ordinary course of busi-
ness) or (b) the disposition of any securities by such Person or any of its Re-
stricted Subsidiaries or the extinguishment of any Indebtedness of such Person
or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecur-
ring gain or loss, together with any related provision for taxes on such ex-
traordinary or nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or any
of its Restricted Subsidiaries in respect of any Asset Sale, net of the direct
costs relating to such Asset Sale (including, without limitation, legal, ac-
counting and investment banking fees and sales commissions) and any other ex-
penses incurred or to be incurred by the Company or a Restricted Subsidiary as
a direct result of the sale of such assets (including, without limitation, sev-
erance, relocation, lease termination and other similar expenses), taxes actu-
ally paid or payable as a result thereof, payments made to retire Indebtedness
where payment of such Indebtedness is required in connection with such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement, dated as of July 15,
1998, by and among the Company and Morgan Guaranty Trust Company of New York,
as Syndication Agent, and NationsBank, N.A., as Administrative Agent, and the
other lenders that are parties thereto, including any related notes, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as further amended, modified, extended, renewed, refunded, replaced
or refinanced in whole or in part, from time to time (including amendments,
modifications, extensions, renewals, refundings, replacements or refinancings
which increase the principal amount of Indebtedness permitted thereunder; pro-
vided that any such increase will not increase the amount of Indebtedness which
may be incurred at the time of such increase pursuant to clause (i) of the sec-
ond paragraph of the covenant described above under "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock").
"Non-Recourse Debt" means Indebtedness of a Subsidiary (i) as to which neither
the Company nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would con-
stitute Indebtedness of the Company or any of its Restricted Subsidiaries), or
(b) is directly or indirectly liable (as a guarantor or otherwise) and (ii) no
default with respect to which would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the pay-
ment thereof to be accelerated or payable prior to its stated maturity.
"Obligations" means all principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Payment Default" means any failure to pay any scheduled installment of princi-
pal of, premium, if any, or interest on any Indebtedness within the grace pe-
riod provided for such payment in the documentation governing, such Indebted-
ness.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used solely to extend, refinance, renew, replace, defease or re-
fund, other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than Indebtedness constituting revolving credit loans under the New
Credit Facility permitted to be incurred under clause (i) of the second para-
graph of the covenant described above under "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock," provided that (i) the princi-
pal amount of such Permitted Refinancing Indebtedness does not exceed the prin-
cipal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of any premiums paid and reasonable fees
and expenses incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final stated maturity date not earlier than the final stated
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the In-
debtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the Com-
pany or by the Restricted Subsidiary which is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, a corporation, a partnership, a limited liability
company, an association, a trust or any other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Public Equity Offering" means an underwritten primary public offering of com-
mon stock of the Company pursuant to an effective Registration Statement under
the Securities Act.
"Qualified Equity Interests" means all Equity Interests of the Company other
than Disqualified Stock of the Company.
"Restricted Investment" means any Investment by the Company or any Restricted
Subsidiary in any Person other than (i) an Investment in the Company or a Re-
stricted Subsidiary or in any Person that, as a result of such Investment, be-
comes a Restricted Subsidiary or will be merged or consolidated with or into or
will transfer or convey all or substantially all of its assets to, the Company
or a Restricted Subsidiary and (ii) Temporary Cash Investments.
"Restricted Subsidiary" means any Subsidiary of any Person other than an Unre-
stricted Subsidiary of such Person and any Subsidiary of an Unrestricted Sub-
sidiary of such Person.
"S&P" means Standard & Poor's Ratings Service and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) all Indebtedness of the Company under the New Credit
Facility, including principal of, premium, if any, and interest on such Indebt-
edness and all other amounts due on or in connection with such Indebtedness in-
cluding all charges, fees and expenses, (ii) all other Indebtedness of the Com-
pany, including principal of, premium, if any, and interest on such Indebted-
ness, unless the instrument under which such Indebtedness is created, incurred,
assumed or Guaranteed expressly provides that such Indebtedness is not senior
or superior in right of payment to the Notes, and all renewals, extensions mod-
ifications, amendments or refinancings thereof and (iii) all interest on any
Indebtedness referred to in clause (i) and (ii) accruing during the pendency of
any bankruptcy or insolvency proceeding whether or not allowed or allowable
thereunder. Notwithstanding the foregoing, Senior Debt shall not include (a)
Subordinated Debt of the Company; provided, however, that no Indebtedness shall
be deemed to be Subordinated Debt of the Company solely by reason of such other
Indebtedness being secured and such Indebtedness not being secured, (b) the
Notes, (c) any Indebtedness of the Company to any of its Restricted Subsidiar-
ies, (d) any Indebtedness which, when incurred and without respect to any elec-
tion under Section 1111 (b) of the Bankruptcy Code, is without recourse to the
Company, (e) any Indebtedness of the Company, to the extent not permitted by
the covenant described above under "--Certain Covenants--Incurrence of Indebt-
edness and Issuance of Disqualified Stock", (f) any Indebtedness to any em-
ployee of the Company or any of its Restricted Subsidiaries, (g) any liability
for taxes owed or owing by the Company and (h) Trade Payables.
"Significant Subsidiary" means, at any date of determination, any Subsidiary
that, together with its Subsidiaries, (i) accounted for more than 10% of the
consolidated revenues of the Company and its consolidated Subsidiaries or (ii)
was the owner of more than 10% of the consolidated assets of the Company and
its consolidated Subsidiaries, all as set forth on the most recently available
audited financial statements of the Company.
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"Stockholders' Equity" means, with respect to any Person as of any date, the
stockholders' equity of such Person determined in accordance with GAAP as of
the date of the most recent available internal financial statements of such
Person, and calculated on a pro forma basis to give effect to any acquisition
or disposition by such Person consummated or to be consummated since the date
of such financial statements and on or prior to the date of such calculation.
"Subordinated Debt" means any Indebtedness of the Company (whether outstanding
on the Issue Date or thereafter incurred) which is by its terms expressly sub-
ordinate or junior in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation, associa-
tion or other business entity of which more than 50% of the total voting power
of shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination thereof)
and (ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or of one or more Subsidiaries of
such Person (or any combination thereof). Unrestricted Subsidiaries shall not
be included in the definition of Subsidiary for any purposes of the Indenture
(except, as the context may otherwise require, for purposes of the definition
of "Unrestricted Subsidiary"). Unless otherwise specified or the context other-
wise requires, "Subsidiary" means a Subsidiary of the Company.
"Temporary Cash Investment" means any of the following: (i) securities issued
or directly and fully guaranteed or insured by the United States of America or
any agent or instrumentality thereof; provided that the full faith and credit
of the United States of America is pledged in support thereof, (ii) time de-
posit accounts, bankers' acceptances, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued by
any office located in the United States of America of a bank or trust company
which is organized or licensed under the laws of the United States of America
or any state thereof and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $500 million and has outstanding
debt which is rated "P-1" (or higher) by Moody's or "A-1" (or higher) by S&P or
any money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with an office located in the United States of America of a bank or trust
company meeting the qualifications described in clause (ii) above, (iv) commer-
cial paper, maturing not more than 90 days after the date of acquisition, is-
sued by a corporation (other than an Affiliate of the Company) organized under
the laws of the United States of America or any state thereof with a rating, at
the date of acquisition, of "P-1" (or higher) by Moody's or "A-1" (or higher)
by S&P, (v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state, com-
monwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "P-1" (or higher)
by Moody's or "A-1" (or higher) by S&P and (vi) money market funds which invest
substantially all of their assets in securities described in the preceding
clauses (i) through (v).
"Trade Payables" means, with respect to any Person, any accounts payable or any
other indebtedness or monetary obligation to trade creditors created, assumed
or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary
course of business in connection with the acquisition of goods or services.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the Board
of Directors of the Company as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only if such Subsidiary (i) has no Indebtedness other than Non-
Recourse Debt, (ii) is not party to any agreement, contract, arrangement or un-
derstanding with the Company or any Restricted Subsidiary of the Company unless
the terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the Compa-
ny, (iii) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe
for additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results and (iv) has not guaranteed or otherwise directly or indi-
rectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not cease to
qualify as an Unrestricted Subsidiary if the Company Guarantees Indebtedness of
such Unrestricted Subsidiary and such Guarantee is a Restricted Investment
which is permitted by the provisions of the Indenture described above under the
caption "--Certain Covenants--Restricted Payments."
Any such designation by the Board of Directors of the Company shall be evi-
denced to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate cer-
tifying that such
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designation complied with the foregoing conditions and was permitted under the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." If at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebt-
edness of such Subsidiary shall be deemed to be incurred by a Restricted Sub-
sidiary of the Company as of such date (and, if such Indebtedness is not per-
mitted to be incurred as of such date under the Indenture, the Company shall be
in Default under the Indenture). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of Indebted-
ness by a Restricted Subsidiary of the Company of any outstanding Indebtedness
of such Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness is permitted under the Indenture, and (ii) no Default or
Event of Default would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by (b) the number of years (cal-
culated to the nearest one-twelfth) that will elapse between such date and the
making of such payment, by (ii) the then outstanding principal amount of such
Indebtedness.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of material United States federal income tax conse-
quences associated with the exchange of Old Notes for New Notes and the owner-
ship and disposition of the New Notes by Holders who acquire the New Notes pur-
suant to the Exchange Offer. This summary is based upon provisions of the In-
ternal Revenue Code of 1986, as amended (the "Code"), regulations, rulings and
decisions currently in effect, all of which are subject to change (possibly
with retroactive effect). The discussion does not purport to deal with all as-
pects of the United States federal taxation that may be relevant to particular
Holders in light of their particular circumstances (for example, to persons
holding Notes as part of a conversion transaction or as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes), nor does
it discuss the United States federal income tax considerations applicable to
certain types of Holders subject to special treatment under the federal income
tax laws (for example, insurance companies, tax-exempt organizations, financial
institutions and persons who are not United States Holders or United States
Alien Holders (each as defined below)). In addition, the discussion does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to a particular Holder. The discussion assumes that Holders hold the
Notes as "capital assets" within the meaning of Section 1221 of the Code. The
Company intends to treat the Notes as indebtedness and not as equity for United
States federal income tax purposes, and the United States federal income tax
considerations described below are based on that characterization.
PROSPECTIVE HOLDERS CONSIDERING AN EXCHANGE OF NEW NOTES FOR OLD NOTES SHOULD
CONSULT THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED STATES
FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CON-
SEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURIS-
DICTION.
As used herein, the term "United States Holder" means an owner of a New Note
that is, for United States federal income tax purposes, (i) a citizen or resi-
dent of the United States, (ii) a corporation, partnership or other entity cre-
ated or organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the au-
thority to control all substantial decisions of the trust. The term also in-
cludes certain former citizens and certain former long-term residents of the
United States.
As used herein, the term "United States Alien Holder" means an owner of a New
Note that is, for United States federal income tax purposes, (i) a nonresident
alien individual, (ii) a foreign corporation, (iii) a nonresident alien fidu-
ciary of a foreign estate or trust or (iv) a foreign partnership.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will not
be treated as an exchange or other taxable event for United States federal in-
come tax purposes because under Treasury regulations, the New Notes will not be
considered to differ materially in kind or extent from the Old Notes. Rather,
the New Notes received by a Holder will be treated as a continuation of the Old
Notes in the hands of such Holder. As a result, there will be no United States
federal income tax consequences to Holders who exchange Old Notes for New Notes
pursuant to the Exchange Offer and any such Holder will have the same tax basis
and holding period in the New Notes as it had in the Old Notes immediately be-
fore the exchange.
UNITED STATES HOLDERS
Interest on a New Note. Interest on a New Note will generally be taxable to a
United States Holder as ordinary interest income at the time it accrues or is
received in accordance with the United States Holder's method of accounting for
United States federal income tax purposes.
Sale or Retirement of a New Note. Upon the sale or retirement of a New Note, a
United States Holder will recognize taxable gain or loss equal to the differ-
ence between the amount realized on the sale or retirement and such Holder's
adjusted tax basis in the New Note.
Backup Withholding and Information Reporting. Certain noncorporate United
States Holders may be subject to backup withholding at a rate of approximately
31% on payments of principal, premium and interest (including original issue
discount, if any) on, and the proceeds of disposition of, a New Note. Backup
withholding will apply only if the United
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<PAGE>
States Holder (i) fails to furnish its Taxpayer Identification Number ("TIN")
which, for an individual, would be his Social Security number, (ii) furnishes
an incorrect TIN, (iii) is notified by the Internal Revenue Service that it has
failed to properly report payments of interest or dividends or (iv) under cer-
tain circumstances, fails to certify, under penalties of perjury, that it has
not been notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments. United States
Holders should consult their tax advisors regarding their qualification for ex-
emption from backup withholding and the procedure for obtaining such an exemp-
tion if applicable.
The amount of any backup withholding from a payment to a United States Holder
will be allowed as a credit against such Holder's United States federal income
tax liability and may entitle such Holder to a refund, provided that the re-
quired information is furnished to the Internal Revenue Service.
UNITED STATES ALIEN HOLDERS
Under present United States federal law, and subject to the discussion below
concerning backup withholding, payments of principal, interest and premium on
the New Notes by the Company or any paying agent to any United States Alien
Holder, and gain realized on the sale, exchange or other disposition of such
New Note, will not be subject to United States federal income or withholding
tax, provided that: (i) such Holder does not own, actually or constructively,
directly or indirectly, 10 percent or more of the total combined voting power
of all classes of stock of the Company entitled to vote, is not a controlled
foreign corporation related, directly or indirectly, to the Company through
stock ownership, and is not a bank receiving interest described in Section
881(c)(3)(A) of the Code; (ii) the statement requirement set forth in Section
871(h) or Section 881(c) of the Code has been fulfilled with respect to the
beneficial owner, as discussed below; (iii) such Holder is not an individual
who is present in the United States for 183 days or more in the taxable year of
disposition, or such individual does not have a "tax home" (as defined in Sec-
tion 911(d)(3) of the Code) or an office or other fixed place of business in
the United States; and (iv) such payments and gain are not effectively con-
nected with the conduct by such Holder of a trade or business in the United
States.
As noted above, the Company intends to treat the New Notes as indebtedness for
United States federal income tax purposes. No assurance can be given, however,
that the Company's treatment will not be challenged by the Internal Revenue
Service. If the New Notes were ultimately treated as equity rather than debt
for United States federal income tax purposes, the portfolio interest exception
would not apply and withholding tax at a flat rate of approximately 30% (or a
lower rate under an applicable income tax treaty) would be imposed on the in-
terest payments on New Notes to the extent of the Company's current or accumu-
lated earnings and profits or on the entire amounts of the interest payments if
the withholding agent does not know or cannot reasonably estimate the amount of
such earnings and profits. Further, any such withholding could commence when
the Internal Revenue Service first asserted that the New Notes constituted eq-
uity; in such event, if the Internal Revenue Service did not ultimately pre-
vail, the United States Alien Holders would be able to recover the tax withheld
by filing a claim for refund with the Internal Revenue Service.
Certain Certification Requirements. Sections 871(h) and 881(c) of the Code re-
quire that, in order to obtain the portfolio interest exemption from the with-
holding tax described in the paragraphs above, either the beneficial owner of
the New Note, or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and that is holding the New Note
on behalf of such beneficial owner, file a statement with the withholding agent
to the effect that the beneficial owner of the New Note is not a United States
Holder. Under current United States Treasury Regulations, such requirement will
be fulfilled if the beneficial owner of a New Note certifies on Internal Reve-
nue Service Form W-8, under penalties of perjury, that it is not a United
States Holder and provides its name and address, and any Financial Institution
holding the Note on behalf of the beneficial owner files a statement with the
withholding agent to the effect that it has received such a statement from the
Holder (and furnishes the withholding agent with a copy thereof). Under re-
cently finalized United States Treasury Regulations, which are generally appli-
cable to payments made after December 31, 1999, certain United States Alien
Holders would also need to provide their United States taxpayer identification
numbers on such forms in order to fulfill such requirement.
If a United States Alien Holder of a New Note is engaged in a trade or business
in the United States, and if interest on the Note is effectively connected with
the conduct of such trade or business, the United States Alien Holder, although
exempt from the withholding tax discussed in the preceding paragraphs, will
generally be subject to regular United States income tax on interest and on any
gain realized on the sale, exchange or other disposition of a New Note in the
same manner as if it were a United States Holder. In lieu of the certificate
described in the preceding paragraph, such a Holder will be required to provide
to the withholding agent a properly executed Internal Revenue Service Form 4224
(or the successor W-8 Form), in order to claim an exemption from withholding
tax. Under recently finalized United States Treasury Regulations, a United
States Alien Holder will also need to provide a United States taxpayer identi-
fication number on such form in
66
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order to fulfill such requirement. In addition, if such United States Alien
Holder is a foreign corporation, it may be subject to a branch profits tax
equal to approximately 30% (or such lower rate provided by an applicable trea-
ty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments. For purposes of the branch profits tax, inter-
est on and any gain recognized on the sale, exchange or other disposition of a
New Note will be included in the effectively connected earnings and profits of
such United States Alien Holder if such interest or gain, as the case may be,
is effectively connected with the conduct by the United States Alien Holder of
a trade or business in the United States.
Estate Taxes. Under Section 2105(b) of the Code, a New Note held by an individ-
ual who is not a citizen or resident of the United States at the time of his
death will not be subject to United States federal estate tax as a result of
such individual's death, provided that the individual does not own, actually or
constructively, 10 percent or more of the total combined voting power of all
classes of stock of the Company entitled to vote and, at the time of such indi-
vidual's death, payments with respect to such New Note would not have been ef-
fectively connected to the conduct by such individual of a trade or business in
the United States.
As noted above, the Company intends to treat the New Notes as indebtedness for
United States federal income tax purposes. No assurance can be given, however,
that the Company's treatment will not be challenged by the Internal Revenue
Service. If the New Notes were ultimately treated as equity rather than debt
for United States federal income tax purposes, a United States Alien Holder who
is treated as the owner of, or has made certain lifetime transfers of, an in-
terest in the New Notes will be required to include the value thereof in his or
her gross estate for United States federal estate tax purposes, and may be sub-
ject to United States federal estate tax unless an applicable estate tax treaty
provides otherwise.
Backup Withholding and Information Reporting Under current Treasury Regula-
tions, backup withholding (approximately 31%) will not apply to payments by the
Company made on a New Note if the certifications required by Sections 871(h)
and 881(c) of the Code are received, provided in each case that the Company or
such paying agent, as the case may be, does not have actual knowledge that the
payee is a United States person.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a New Note made to or through a foreign office of a broker gen-
erally will not be subject to backup withholding. However, if such broker is a
United States person, a controlled foreign corporation for United States tax
purposes, or a foreign person 50 percent or more of whose gross income is ef-
fectively connected with a United States trade or business for a specified
three-year period, information reporting will be required unless the broker has
in its records documentary evidence that the beneficial owner is not a United
States person and certain other conditions are met or the beneficial owner oth-
erwise establishes an exemption. Under recently finalized Treasury Regulations,
backup withholding may apply to any payment made after December 31, 1999 that
such broker is required to report if such broker has actual knowledge that the
payee is a United States person. Payments to or through the United States of-
fice of a broker will be subject to backup withholding and information report-
ing unless the Holder certifies, under penalties of perjury, that it is not a
United States person or otherwise establishes an exemption.
United States Alien Holders of New Notes should consult their tax advisors re-
garding the application of information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and
the procedure for obtaining such an exemption, if available. Any amounts with-
held from a payment to a United States Alien Holder under the backup withhold-
ing rules will be allowed as a credit against such Holder's United States fed-
eral income tax liability and may entitle such Holder to a refund, provided
that the required information is furnished to the Internal Revenue Service.
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ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement, or other employees bene-
fit plan subject to Title I of ERISA (each such plan, a "Plan") should consider
the fiduciary standards under ERISA in the context of the Plan's particular
circumstances and consult with its counsel before authorizing an investment of
such Plan's assets in the Notes. ERISA, and the corresponding provisions of the
Code, prohibits transactions involving the assets of a Plan or of an individual
retirement account or plan subject to Section 4975 of the Code (hereinafter a
Plan, such account and such plan are collectively referred to as an "ERISA
Plan") and persons who have certain specified relationships to the ERISA Plan
("parties in interest," within the meaning of ERISA, "disqualified persons,"
within the meaning of the Code). A prohibited transaction could arise if, for
example, any of the Initial Purchasers or the Company were a party in interest
or a disqualified person with respect to an ERISA Plan. Thus, a fiduciary of an
ERISA Plan considering an investment in the Notes also should consider whether
the acquisition of the Notes might constitute or give rise to a non-exempt pro-
hibited transaction. There are certain class exemptions issued by the Depart-
ment of Labor which could exempt the purchase of the Notes from the prohibited
transaction provision of ERISA and the Code, including: Prohibited Transaction
Exemption 75-1, for certain principal transactions with broker-dealers, Prohib-
ited Transaction Exemption 84-14, for certain transactions determined by quali-
fied professional asset managers, Prohibited Transaction Exemption 90-1, for
certain transactions involving insurance company pooled separate accounts, Pro-
hibited Transaction Exemption 91-38 for certain transactions involving bank
collective investment funds, Prohibited Transaction Exemption 95-60 for certain
transactions involving insurance company general accounts, and Prohibited
Transaction Exemption 96-23, for certain transactions determined by in-house
asset managers.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA. The investment in the Notes by such employee benefit
plans may, however, be subject to other applicable federal, state and local
laws, which should be carefully considered by such employee benefit plans be-
fore investing in Notes.
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EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the initial issuance and sale of the Old Notes, the Company
entered into the Registration Rights Agreement pursuant to which the Company
agreed, for the benefit of the holders of the Old Notes, at the Company's
cost, to use its best efforts (i) to cause to be filed with the SEC the Regis-
tration Statement with respect to the Exchange Offer within 60 days after the
date of original issuance of the Old Notes, (ii) to have the Registration
Statement declared effective under the Securities Act within 120 days of the
date of original issuance of the Old Notes, (iii) to keep the Registration
Statement effective until the closing of the Exchange Offer, and (iv) to con-
summate the Exchange Offer within 150 days of the original issuance date of
the Old Notes. Promptly after the Registration Statement has been declared ef-
fective, the Company will offer the New Notes in exchange for surrender of the
Old Notes. The Company will keep the Exchange Offer open for not less than 20
business days after the date notice of the Exchange Offer has been mailed to
the holders of the Old Notes.
In the event that the Exchange Offer is not consummated within 150 days after
the original issuance of the Old Notes, or upon the request of the Initial
Purchasers in certain circumstances, the Company will, in lieu of effecting
(or, in the case of such a request by the Initial Purchasers, in addition to
effecting) the registration of the New Notes pursuant to the Registration
Statement (i) as promptly as practicable, file with the SEC a Shelf Registra-
tion Statement covering resales of the Old Notes, (ii) use its best efforts to
cause such Shelf Registration Statement to be declared effective under the Se-
curities Act by the 150th day after the date of original issuance of the Old
Notes (or promptly in the event of a request by the Initial Purchasers) and
(iii) use its best efforts to keep effective such Shelf Registration Statement
until 180 days after its effective date (or until two years after such effec-
tive date in certain circumstances) or until all of the Old Notes covered by
such Shelf Registration Statement have been sold. In the event of the filing
of a Shelf Registration Statement, the Company will provide to each Holder of
the Old Notes copies of the prospectus which is a part of the Shelf Registra-
tion Statement and notify each such Holder when the Shelf Registration State-
ment has become effective. A Holder of Notes that sells such Old Notes pursu-
ant to the Shelf Registration Statement generally will be required to be named
as a selling security holder in the related prospectus and to deliver a pro-
spectus to purchasers, will be subject to certain of the civil liability pro-
visions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are appli-
cable to such a Holder (including certain indemnification obligations). In ad-
dition, each Holder of the Old Notes will be required to deliver information
to be used in connection with the Shelf Registration Statement in order to
have its Old Notes included in the Shelf Registration Statement and to benefit
from the provisions regarding the increase in the interest rate borne by the
Old Notes described in the second succeeding paragraph.
The Registration Rights Agreement provides that, upon receipt of notice from
the Company of the occurrence of any event that makes any statement in the
prospectus that is part of the Shelf Registration Statement untrue in any ma-
terial respect or that requires the making of any changes in such prospectus
in order to make the statements therein not misleading or of certain other
events specified in the Registration Rights Agreement, such Holder will sus-
pend the sale of Old Notes pursuant to such prospectus until the Company has
furnished copies of an amended or supplemented prospectus to such Holder cor-
recting such misstatement or omission. If the Company shall give such notice
to suspend the sale of the Old Notes, it shall extend the relevant period re-
ferred to above during which it is required to keep effective the Shelf Regis-
tration Statement by the number of days during the period from and including
the date of the giving of such notice to and including the date when Holders
shall have received copies of the supplemented or amended prospectus necessary
to permit resales of the Old Notes or to and including the date on which the
Company has given notice that the sale of Old Notes may be resumed, as the
case may be.
Broker-dealers that receive New Notes in exchange for Old Notes that were ac-
quired by such broker-dealers as a result of market-making or other trading
activities and that are required to deliver this Prospectus in connection with
sales of the New Notes will also have and be subject to the rights and obliga-
tions under the Registration Rights Agreement of Holders participating in a
Shelf Registration Statement with such reasonable modifications as may be re-
quested by the representatives thereof.
In the event that the Exchange Offer is not consummated or a Shelf Registra-
tion Statement is not declared effective on or prior to the 150th day follow-
ing the date of original issuance of the Old Notes (such event, a "Registra-
tion Default"), then the Company will pay additional interest (in addition to
the interest otherwise due on the Old Notes) to each Holder of Old Notes dur-
ing the first 90-day period immediately following the occurrence of each such
Registration Default in an amount equal to 0.25% per annum for any and all
Registration Defaults. The amount of interest will increase by an additional
0.25% per annum for each subsequent 90-day period until such Registration De-
fault is cured, up to a maximum amount of
69
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additional interest of 1.00% per annum. Such additional interest will cease ac-
cruing on such Old Notes when the Registration Default has been cured.
The Registration Rights Agreement is governed by, and shall be construed in ac-
cordance with, the laws of the State of New York. The summary herein of certain
provisions of the Registration Rights Agreement is not complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Registration Rights Agreement, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. In addition, the
information set forth above concerning certain interpretations of and positions
taken by the staff of the SEC is not intended to constitute legal advice and
prospective investors should consult their own legal advisors with respect to
such matters.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market making activities or other trading ac-
tivities, must acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. This Prospectus, as it may be amended or supple-
mented from time to time, may be used by a broker-dealer in connection with re-
sales of New Notes received in exchange for Old Notes if such Old Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the Expiration
Date, it will make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In addition, un-
til February , 1998 (90 days from the date of this Prospectus), all dealers
effecting transactions in the New Notes may be required to deliver a prospec-
tus.
The Company will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through broker-dealers who may receive compensation in the
form of commissions or concessions from any such broker-dealer or the purchas-
ers of any such New Notes. Any broker-dealer that resells New Notes that were
received by it for its own account pursuant to the Exchange Offer and any bro-
ker-dealer that participates in a distribution of such New Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of New Notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the Secu-
rities Act. By acknowledging that it will deliver and by delivering a prospec-
tus, a broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents. To the
extent provided the Registration Rights Agreement, the Company has agreed to
pay all expenses incident to the Exchange Offer (including the expenses of
counsel for the Holders of the Notes) other than commissions or concessions of
any broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
Certain legal matters relating to the Notes and the Exchange Offer will be
passed upon for the Company by Locke Purnell Rain Harrell (A Professional Cor-
poration), Dallas, Texas. Talbot Rain, a director of the Company, is of Counsel
to the firm of Locke Purnell Rain Harrell (A Professional Corporation).
EXPERTS
The consolidated financial statements and schedule of the Company as of June
30, 1997 and 1998 and for each of the three years in the period ended June 30,
1998 included in the Company's 1998 Form 10-K incorporated by reference in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SO-
LICITATION IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH AN EXCHANGE OFFER OR A SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information.................................................... ii
Incorporation of Certain Documents by Reference.......................... iii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 8
The Exchange Offer....................................................... 15
Use of Proceeds.......................................................... 21
Capitalization........................................................... 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 29
Management............................................................... 40
Description of the New Credit Facility................................... 42
Description of Notes..................................................... 44
Material Federal Income Tax Considerations............................... 65
ERISA Considerations..................................................... 68
Exchange Offer; Registration Rights...................................... 69
Plan of Distribution..................................................... 71
Legal Matters............................................................ 72
Experts.................................................................. 72
</TABLE>
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$100,000,000
EXCHANGE OFFER
REPUBLIC GROUP INCORPORATED
9 1/2% SENIOR SUBORDINATED
NOTES DUE 2008
----------------
PROSPECTUS
----------------
NOVEMBER , 1998
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware empowers a
corporation to indemnify its directors, officers, employees and agents and to
purchase insurance, with respect to liability arising out of their capacity or
status as directors, officers, employees and agents. Section 145 further pro-
vides that the indemnification provided therein shall not be deemed exclusive
of any other rights to which the directors, officers, employees and agents of a
corporation may be entitled under any by-law, agreement, vote of stockholders
or disinterested directors or otherwise.
Article Tenth of the Company's Amended and Restated Certificate of Incorpora-
tion provides that the Company shall indemnify any and all of its directors or
officers or former directors or officers or any person who may have served at
its request as a director or officer of another corporation in which it owns
shares of capital stock or of which it is a credit against expenses actually
and necessarily incurred by them in connection with the defense of any action,
suit or proceeding in which they, or any of them, are made parties, or a party,
by reason of being or having been directors of officers or a director or offi-
cer of the Company, except in relation to matters as to which any such director
or officer or former director or officer shall be adjudged in such action, suit
or proceeding to be liable for negligence or misconduct in the performance of
duty.
Article VI of the Company's Amended and Restated Bylaws (the "Bylaws") provides
for indemnification of the Company's directors, officers, employees and agents
in certain circumstances and sets forth certain procedures for such indemnifi-
cation. Article VI of the Company's Bylaws, which are filed as Exhibit 3(b) to
this Registration Statement, is incorporated herein by reference.
The Company has a directors and officers insurance policy insuring directors
and officers and former directors and officers of the Company and its subsidi-
aries against damages, judgments, settlements and costs that any such persons
may become legally obligated to pay on account of claims made against them, for
any error, misstatement or misleading statement, act or omission, or neglect or
breach of duty committed, attempted or allegedly committed or attempted by such
persons in the discharge of their duties to the Company in their capacities as
directors or officers, or any matter claimed against them solely by reason of
their serving in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits: The following documents are filed or incorporated by reference
as exhibits to this Registration Statement as required by Item 601 of Regula-
tion S-K:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
** 1 --Purchase Agreement dated July 10, 1998, among the Company, J.P.
Morgan Securities, Inc., Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, and A.G. Edwards & Sons, Inc.
** 3(a) --Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
1996, SEC File Number 1-7210).
** 3(b) --Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996, SEC file Number 1-7210).
** 4(a) --Revolving and Term Credit Agreement (with related Promissory
Notes, Security Agreement, Mortgage, Deed of Trust and Guaranties
attached as Exhibits thereto) dated as of June 30, 1995, among
Republic Gypsum Company, Republic Paperboard Company, Republic
Paperboard Company of West Virginia and Boatmen's First National
Bank of Kansas City (incorporated by reference to Exhibit 4(i) of
the Company's Current Report on Form 8-K filed July 17, 1995, SEC
File Number 1-7210).
** 4(b) --Amendments One, Two and Three to Revolving and Term Credit
Agreement, in reference to the Company's name change from
Republic Gypsum Company to Republic Group Incorporated and to
extend the revolving credit facility one year (incorporated by
reference to Exhibit 4(b) to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, SEC File Number 1-7210).
** 4(c) --Fourth Amendment to Loan Documents, dated as of April 28, 1998,
in reference to increasing the Revolving Credit Promissory Note
principal amount to $50,000,000 and to extend the revolving
credit facility one year.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
** 4(d) --Credit Agreement (with related forms of Note, Pledge Agreement,
Security Agreement, Mortgage, and Subsidiary Guarantee attached
as Exhibits thereto) dated as of July 15, 1998, among the
Company, Morgan Guaranty Trust Company of New York, as
Syndication Agent, NationsBank, N.A., as Administrative Agent,
and the Banks and LC Issuing Banks, as defined therein
(incorporated by reference to Exhibit 99(a) to the Company's
Current Report on Form 8-K filed September 11, 1998, SEC file
Number 1-7210).
** 4(e) --Indenture dated as of July 15, 1998 between the Company and UMB
Bank, N.A., as Trustee, relating to the Company's 9 1/2% Senior
Subordinated Notes due 2008 (incorporated by reference to Exhibit
99(b) to the Company's Current Report on Form 8-K dated September
11, 1998, SEC File Number 1-7210).
** 4(f) --Registration Rights Agreement dated July 15, 1998, among the
Company, J.P. Morgan Securities, Inc., Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, and A.G. Edwards & Sons,
Inc.
* 5 --Opinion of Locke Purnell Rain Harrell (A Professional
Corporation) regarding validity and enforceability of the New
Notes.
**10(a) --The 1989 Long-Term Incentive Plan (As Restated and Amended
Effective August 16, 1996) (incorporated by reference to Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1996, SEC File Number 1-7210).
**10(b) --Non-Employee Director Stock Option Plan (As Amended Effective
August 16, 1996) (incorporated by reference to Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996, SEC File Number 1-7210).
**10(c) --Non-Employee Directors' Retirement Compensation Arrangement
(incorporated by reference to the description set forth under the
caption "Executive Compensation--Director Retirement Compensation
Arrangement" in the Company's Proxy Statement for the Annual
Meeting of Stockholders held October 26, 1989, SEC File Number 1-
7210).
**10(d) --Tenancy in Common Agreement dated December 29, 1983, between
Packaging Corporation of America and Republic Paperboard Company
(incorporated by reference to Exhibit 10(d) to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994, SEC
File Number 1-7210).
**10(e) --Shared Facilities and Shared Service Agreement dated December
28, 1983, between Packaging Corporation of America and Republic
Paperboard Company (incorporated by reference to Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1994, SEC File Number 1-7210).
**10(f) --Key Employee Continuation Plan (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
year ended June 30, 1992, SEC File Number 1-7210).
**10(g) --Paperboard Supply Agreement, dated May 14, 1998, between the
Company, Republic Paperboard Company and James Hardie Gypsum,
Inc. (incorporated by reference to Exhibit 99(c) to the Company's
Current Report on Form 8-K, dated September 11, 1998, SEC File
Number 1-7210). Portions of this Exhibit were omitted pursuant to
a request for confidential treatment filed with the Office of the
Secretary of the SEC.
**10(h) --Amended and Restated Agreement for Engineering, Procurement and
Construction dated as of June 26, 1988 between Republic
Paperboard Company and Fluor Daniel, Inc. relating to the Lawton
Mill (incorporated by reference to Exhibit 99(d) to the Company's
Current Report on Form 8-K, dated September 11, 1998, SEC File
Number 1-7210). Portions of this Exhibit were omitted pursuant to
a request for confidential treatment filed with the Office of the
Secretary of the SEC.
**10(i) --Amended and Restated Parent Company Guarantee effective as of
June 26, 1998 from the Company to Fluor Daniel, Inc. relating to
the Lawton Mill (incorporated by reference to Exhibit 99(e) to
the Company's Current Report on Form 8-K, dated September 11,
1998, SEC File Number 1-7210).
**12 --Statement re Computation of Ratios.
**12(b) --Statement re Computation of Ratios (Period ended June 30, 1998).
**21 --Significant Subsidiaries of the Registrant.
**23(a) --Consent of Arthur Andersen, LLP.
*23(b) --Consent of Locke Purnell Rain Harrell (A Professional
Corporation)(included in Exhibit 5).
**23(c) --Consent of Arthur Andersen, LLP.
*23(d) --Consent of Arthur Andersen, LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**24 --Power of Attorney (included on signature page of this
Registration Statement).
**25 --Statement of Eligibility of Trustee.
**27 --Financial Data Schedule.
**27(b) --Financial Data Schedule (Period ended June 30, 1998).
**99(a) --Form of Letter of Transmittal.
**99(b) --Form of Notice of Guaranteed Delivery.
**99(c) --Form of Letter of Transmittal (revised).
**99(d) --Form of Notice of Guaranteed Delivery (revised).
</TABLE>
* Filed herewith.
**Previously filed.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts and Reserves (incorporated by
reference to the same Schedule included in Registrant's Annual Report on Form
10-K for the year ended June 30, 1998, SEC File Number 1-7210)
(c) Reports, Opinions and Appraisals:
None.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Se-
curities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggre-
gate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC pur-
suant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securi-
ties Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termina-
tion of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of deter-
mining any liability under the Securities Act of 1933, each filing of the Reg-
istrant's annual report pursuant to Section 13(a) or Section 15(d) of the Ex-
change Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-3
<PAGE>
(d) The Registrant undertakes that every prospectus: (i) that is filed pursu-
ant to paragraph (c) immediately preceding or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connec-
tion with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the Reg-
istrant pursuant to the provisions described in Item 20 hereof, or otherwise,
the Registrant has been advised that in the opinion of the SEC such indemnifi-
cation is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such di-
rector, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of appro-
priate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the com-
pany being acquired involved therein, that was not the subject of and included
in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, RE-
PUBLIC GROUP INCORPORATED HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATE-
MENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED,
ON OCTOBER 23, 1998.
Republic Group Incorporated
/s/ Phil Simpson
By: ____________________________________
PHIL SIMPSON CHAIRMAN OF THE
BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACI-
TIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Phil Simpson Chairman of the
- ----------------------------------- Board, President October 23,
PHIL SIMPSON and Chief 1998
Executive Officer
and Director
(principal
executive
officer)
* Executive Vice
- ----------------------------------- President and October 23,
DOYLE R. RAMSEY Chief Financial 1998
Officer
(principal
financial
officer)
* Vice President and
- ----------------------------------- Principal October 23,
MICHAEL W. DIRKS Accounting 1998
Officer
(principal
accounting
officer)
* Director
- ----------------------------------- October 23,
TALBOT RAIN 1998
* Director
- ----------------------------------- October 23,
GERALD L. RAY 1998
* Director
- ----------------------------------- October 23,
ROBERT F. SEXTON 1998
* Director
- ----------------------------------- October 23,
BERT A. NELSON 1998
II-5
<PAGE>
SIGNATURE TITLE DATE
* Director
- ----------------------------------- October 23,
L.L. WALLACE 1998
* Director
- ----------------------------------- October 23,
DAVID B. YARBROUGH 1998
* Director
- ----------------------------------- October 23,
C. WILLIAM CLAYPOOL 1998
/s/ Phil Simpson
*By: ______________________________
PHIL SIMPSON
ATTORNEY-IN-FACT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**1 Purchase Agreement dated July 10, 1998, among the Company, J.P.
Morgan Securities, Inc., Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, and A.G. Edwards & Sons, Inc.
**3(a) Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the period year ended September
30, 1996. SEC File Number 1-7210).
**3(b) Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996, SEC file Number 1-7210).
**4(a) Revolving and Term Credit Agreement (with related Promissory
Notes, Security Agreement, Mortgage, Deed of Trust and Guaranties
attached as Exhibits hereto) dated as of June 30, 1995, among
Republic Gypsum Company, Republic Paperboard Company, and Republic
Paperboard Company of West Virginia and Boatmen's First National
Bank of Kansas City (incorporated by reference to Exhibit 4(i) of
the Company's Current Report on Form 8-K filed July 17, 1995, SEC
File Number 1-7210).
**4(b) Amendments One, Two and Three to Revolving and Term Credit
Agreement, in reference to the Company's name change from Republic
Gypsum Company to Republic Group Incorporated and to extend the
Revolving Credit Agreement one year (incorporated by reference to
Exhibit 4(b) to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, SEC File Number 1-7210).
**4(c) Fourth Amendment to Loan Documents, dated as of April 28, 1998, in
reference to increasing the Revolving Credit Promissory Note
principal amount to $50,000,000 and to extend the revolving credit
facility one year.
**4(d) Credit Agreement (with related forms of Note, Pledge Agreement,
Security Agreement, Mortgage, and Subsidiary Guarantee attached as
Exhibits thereto) dated as of July 15, 1998, among the Company,
Morgan Guaranty Trust Company of New York, as Syndication Agent,
NationsBank, N.A., as Administrative Agent, and the Banks and LC
Issuing Banks, as defined therein (incorporated by reference to
Exhibit 99(a) to the Company's Current Report on Form 8-K filed
September 11, 1998, SEC file Number 1-7210).
**4(e) Indenture dated as of July 15, 1998 between the Company and UMB
Bank, N.A., as Trustee, relating to the Company's 9 1/2% Senior
Subordinated Notes due 2008 (incorporated by reference to Exhibit
99(b) to the Company's Current Report on Form 8-K dated September
11, 1998, SEC File Number 1-7210).
**4(f) Registration Rights Agreement dated July 15, 1998, among the
Company, J.P. Morgan Securities, Inc., Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, and A.G. Edwards & Sons,
Inc.
*5 Opinion of Locke Purnell Rain Harrell (A Professional Corporation)
regarding validity and enforceability of the New Notes.
**10(a) 1989 Long-Term Incentive Plan (As Restated and Amended Effective
August 16, 1996) (incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996, SEC File Number 1-7210).
**10(b) Non-Employee Director Stock Option Plan (As Amended Effective
August 16, 1996) (incorporated by reference to Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996, SEC File Number 1-7210).
**10(c) Non-Employee Directors' Retirement Compensation Arrangement
(incorporated by reference to the description set forth under the
caption "Executive Compensation--Director Retirement Compensation
Arrangement" in the Company's Proxy Statement for the Annual
Meeting of Stockholders held October 26, 1989, SEC File Number 1-
7210).
**10(d) Tenancy in Common Agreement dated December 29, 1983, between
Packaging Corporation of America and Republic Paperboard Company
(incorporated by reference to Exhibit 10(d) to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994, SEC
File Number 1-7210).
**10(e) Shared Facilities and Shared Service Agreement dated December 28,
1983, between Packaging Corporation of America and Republic
Paperboard Company (incorporated by reference to Exhibit 10(e) to
the Company's Annual Report on Form 10-K for the year ended June
30, 1994, SEC File Number 1-7210).
**10(f) Key Employee Continuation Plan (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
year ended June 30, 1992, SEC File Number 1-7210).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**10(g) Paperboard Supply Agreement, dated May 14, 1998, between the
Company, Republic Paperboard Company and James Hardie Gypsum, Inc.
(incorporated by reference to Exhibit 99(c) to the Company's
Current Report on Form 8-K, dated September 11, 1998, SEC File
Number 1-7210). Portions of this Exhibit were omitted pursuant to
a request for confidential treatment filed with the Office of the
Secretary of the SEC.
**10(h) Amended and Restated Agreement for Engineering, Procurement and
Construction dated as of June 26, 1988 between Republic Paperboard
Company and Fluor Daniel, Inc. relating to the Lawton Mill
(incorporated by reference to Exhibit 99(d) to the Company's
Current Report on Form 8-K, dated September 11, 1998, SEC File
Number 1-7210). Portions of this Exhibit were omitted pursuant to
a request for confidential treatment filed with the Office of the
Secretary of the SEC.
**10(i) Amended and Restated Parent Company Guarantee effective as of June
26, 1998 from the Company to Fluor Daniel, Inc. relating to the
Lawton Mill (incorporated by reference to Exhibit 99(e) to the
Company's Current Report on Form 8-K, dated September 11, 1998,
SEC File Number 1-7210).
**12 Statement re Computation of Ratios.
**12(b) Statement re Computation of Ratios (Period ended June 30, 1998).
**21 Significant Subsidiaries of the Registrant.
**23(a) Consent of Arthur Andersen, LLP.
*23(b) Consent of Locke Purnell Rain Harrell (A Professional Corporation)
(included in Exhibit 5).
**23(c) Consent of Arthur Andersen, LLP.
*23(d) Consent of Arthur Andersen, LLP.
**24 Power of Attorney (included on signature page of this Registration
Statement).
**25 Statement of Eligibility of Trustee.
**27 Financial Data Schedule.
**27(b) Financial Data Schedule (Period ended June 30, 1998).
**99(a) Form of Letter of Transmittal.
**99(b) Form of Notice of Guaranteed Delivery.
**99(c) Form of Letter of Transmittal (revised).
**99(d) Form of Notice of Guaranteed Delivery (revised).
</TABLE>
*Filed herewith.
**Previously filed.
II-8
<PAGE>
Exhibit 5
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
October 23, 1998
Republic Group Incorporated
811 East 30th Avenue
Hutchinson, Kansas 67502
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
This firm has acted as legal counsel to Republic Group Incorporated, a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-4 (the "Registration Statement") pertaining to the Company's
offering of up to $100,000,000 principal amount of 9 1/2% Senior Subordinated
Notes due 2008 of the Company (the "New Notes").
In connection with this opinion, we have, with your permission, made the
following assumptions: (i) all documents submitted to or reviewed by us,
including all amendments and supplements thereto, are accurate and complete and,
if not originals, are true, correct and complete copies of the originals; (ii)
the signatures on each of such documents by the parties thereto are genuine;
(iii) each individual who signed such documents had the legal capacity to do so;
and (iv) all persons who signed such documents on behalf of a business entity
were duly authorized to do so. We have assumed that there are no amendments,
modifications or supplements to such documents other than those amendments,
modifications and supplements that are known to us.
We have additionally assumed, without independent investigation or inquiry
with respect to any such matter, that (i) the Trustee, as hereinafter defined,
has all requisite power and authority to execute, deliver and perform its
obligations under the Indenture, as hereinafter defined; (ii) the execution and
delivery of the Indenture and the performance of such obligations have been duly
authorized by all necessary action on the Trustee's part and the Indenture has
been duly delivered by it; and (iii) the Indenture is enforceable against the
Trustee in accordance with the terms thereof.
<PAGE>
Republic Group Incorporated
October 23, 1998
Page 2
Based upon the foregoing, and subject to the limitations and qualifications
set forth herein, we are of the opinion that:
1. The Company was incorporated, exists and is in good standing under the
laws of the State of Delaware.
2. The issuance of the New Notes has been duly authorized and, upon the
due execution, authentication and delivery of the New Notes in accordance with
the terms of the Indenture (the "Indenture") governing the New Notes between the
Company and UMB Bank, N.A., as Trustee (the "Trustee"), against the exchange of
a like principal amount of 9 1/2% Senior Subordinated Notes due 2008 of the
Company (the "Old Notes") in accordance with the terms and conditions set forth
in the prospectus constituting a part of the Registration Statement (the
"Prospectus"), the New Notes will be validly issued.
3. Upon the due execution, authentication and delivery of the New Notes in
accordance with the terms of the Indenture, against the exchange of a like
principal amount of Old Notes in accordance with the terms and conditions set
forth in the Prospectus, the New Notes will constitute enforceable obligations
of the Company, except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance and other debtor relief laws of
general applicability and (ii) that the remedies of specific performance and
injunctive and other forms of equitable relief are subject to equitable defenses
and to the discretion of the court before which any proceeding may be brought.
This opinion is subject to the further qualification that indemnification
or contribution provisions in the Indenture and the related documents may be
unenforceable to the extent that such indemnification or contribution may be
held to be in violation of or against public policy, including, without
limitation, limitations under certain circumstances on enforceability of
provisions (i) indemnifying a party against loss attributable to or liability
for its own negligent acts or (ii) providing for contribution with respect to
such loss or liability.
This opinion is further limited and qualified in all respects as follows:
For purposes of rendering the opinion set forth in numbered paragraph 1
above, we have relied solely upon a certificate of the Secretary of State of the
State of Delaware dated October 22, 1998.
We are members of the State Bar of Texas and we do not express any opinion
herein with respect to the law of any jurisdiction other than the State of
Texas, applicable federal law and the General Corporation Law of the State of
Delaware. You should be aware that we are not admitted to the practice of law
in the State of New York. For the purposes of our opinions set forth in
numbered paragraphs 2 and 3 above, we have, with your consent, assumed that the
relevant laws of the State of New York are substantially equivalent in form and
in application to the laws of the State of Texas.
<PAGE>
Republic Group Incorporated
October 23, 1998
Page 3
This opinion is limited to the specific opinions expressly stated herein,
and no other opinion is implied or may be inferred beyond the specific opinions
expressly stated herein.
This opinion is intended solely for your benefit. It is not to be quoted
in whole or in part, disclosed, made available to or relied upon by any other
person, firm or entity without our express prior written consent.
This opinion is based upon our knowledge of the law and facts relevant to
the transactions herein referenced as of the date hereof. We assume no duty to
update or supplement this opinion to reflect any facts or circumstances that may
hereafter come to our attention or to reflect any changes in any law that may
hereafter occur or become effective.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the heading "Legal
Matters" in the Prospectus.
Respectfully submitted,
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
By: /s/ Bryan E. Bishop
-------------------------------
Bryan E. Bishop
<PAGE>
EXHIBIT 23(d)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Amendment No. 2 to Form S-4 of our
reports dated July 31, 1998, included in the Republic Group Incorporated's Form
10-K for the year ended June 30, 1998, and to all references to our Firm
included in this Registration Statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
October 22, 1998
