<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PLUM CREEK TIMBER COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2411 91-1912863
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
999 THIRD AVENUE, SUITE 2300 JAMES A. KRAFT, ESQ.
SEATTLE, WASHINGTON 98104-4096 VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
(206) 467-3600 999 THIRD AVENUE, SUITE 2300
(Address, including zip code, and telephone SEATTLE, WASHINGTON 98104-4096
number, (206) 467-3600
including area code, of registrant's principal (Name, address, including zip code, and
executive offices) telephone number,
including area code, of agent for service)
</TABLE>
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COPY TO:
JONATHAN H. GRUNZWEIG, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071-3144
(213) 687-5000
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Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
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Common Stock, par value
$.01 per share......... 46,323,300 $25.594 $1,370,891,740 $405,784(1)
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</TABLE>
(1) Registration fee paid in connection with filing of Schedule 14A Proxy
Statement/Prospectus on July 20, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
January 28, 1999
LOGO
Dear Unitholder,
On June 5, 1998, the board of directors (the "PCMC Board") responsible for
governing the affairs of Plum Creek and its general partner, Plum Creek
Management Company, L.P. ("PCMC"), voted unanimously to seek your approval to
convert Plum Creek's structure from a publicly traded Master Limited Partnership
(MLP) into a publicly traded Real Estate Investment Trust (REIT). The enclosed
Notice of Special Meeting and Proxy Statement/Prospectus describe the conversion
in detail. Your consideration of, and vote on, the conversion are very important
to Plum Creek and its Unitholders.
The PCMC Board and management have examined this conversion with great
care, and determined that converting to a REIT structure is in the best
long-term interests of Plum Creek and its Unitholders. One of Plum Creek's key
strategic objectives is to continue to grow through value-creating acquisitions.
The PCMC Board and management believe that the conversion will help it achieve
that and the Partnership's other strategic objectives because:
- Conversion to a REIT structure will enhance Plum Creek's ability to
compete for strategic acquisition opportunities by expanding its access
to both equity and debt capital.
- As a REIT, Plum Creek will have a lower overall cost of capital which
should enhance its future cash flows and provide for increased value
growth opportunities.
- The REIT structure will permit a broader base of investors, including
institutional investors such as mutual funds, to invest in Plum Creek,
which should enhance investor value compared to remaining a MLP.
Weighing all of the pros and cons of the conversion, the PCMC Board and
management believe that the REIT conversion will enhance Plum Creek's ability to
continue its track record of returning value to its investors.
The conversion has been structured to be tax-free to Unitholders, who will
receive one share in the new REIT for each Unit of Plum Creek currently held.
The shares of Plum Creek will continue to be traded on the New York Stock
Exchange under the trading symbol "PCL."
The following questions and answers are intended to help clarify the key
issues involved in the conversion.
WILL INVESTORS CONTINUE TO RECEIVE FAVORABLE TAX TREATMENT IN THE REIT
STRUCTURE?
YES. Under the REIT structure, Plum Creek will continue to have
substantially all of the advantages of single-layer taxation, and investors will
continue to benefit from the flow-through tax treatment of capital gains. As in
the current MLP structure, we expect that a significant portion of the REIT's
quarterly dividend will continue for the next several years to represent a
non-taxable return of capital. As a result, investors in the REIT will continue
to benefit from a low effective tax rate. In addition, tax reporting for
investors will be simplified in the REIT structure -- investors will receive a
Form 1099 for tax filing purposes, rather than the more complicated partnership
Schedule K-1 required in the MLP structure.
WILL PLUM CREEK'S DIVIDEND POLICY CHANGE AS A RESULT OF THE REIT CONVERSION?
NO. Plum Creek intends to continue to determine the amount of quarterly
dividends in the REIT structure on the same basis as distributions historically
paid by the MLP (currently $0.57 per Unit). Plum Creek remains committed to one
of its key objectives of continuing cash flow growth to provide for increasing
levels of dividends to its investors.
<PAGE> 3
WHAT IS PCMC SURRENDERING IN EXCHANGE FOR ITS REIT INTEREST?
As you are aware, as a limited partnership, Plum Creek currently has a
general partner. The REIT, which is a corporation, does not. As part of this
conversion, PCMC's 2% general partner interest in Plum Creek and its related
incentive distribution rights (which presently entitle PCMC to receive 25.5% of
quarterly partnership distributions) will be converted into a 27% equity
interest and certain special voting and board nomination rights in the REIT.
This amount was negotiated by a special committee of members of the PCMC Board
who are not employees of, and do not own an interest in, PCMC (the "PCMC Special
Committee"). The PCMC Board has a fiduciary duty to its stockholders and, when
acting on behalf of PCMC as general partner of Plum Creek, to the Unitholders.
Although the PCMC Special Committee is comprised of directors from the PCMC
Board who owe fiduciary duties both to the Unitholders and to such stockholders,
the PCMC Special Committee was charged by the PCMC Board with the responsibility
to negotiate solely on behalf of the Unitholders in order to mitigate the
conflict of interest between the PCMC Board as a whole and the Unitholders.
Plum Creek's partnership agreement requires that all available cash be
distributed to Unitholders after setting aside reserves determined by PCMC. In
addition, the partnership agreement contains an incentive rights structure under
which PCMC currently receives 25.5% of Plum Creek's total annual cash
distributions. As a result of Plum Creek's successful performance to date
(distributions to Unitholders have been increased ten times in the past nine
years and currently stand at 185% over the original distribution amount), PCMC's
share of total distributions has steadily increased under the incentive rights
structure. This incentive rights structure will be eliminated in the REIT, which
will result in the elimination of the following rights held by PCMC:
(1) ALL INCENTIVE DISTRIBUTION RIGHTS -- This means that PCMC, through
its 27% equity interest, will receive a flat 27% of all REIT dividends,
whether the dividend amount per share goes up or down in the future,
whereas under the existing MLP structure PCMC would receive increasing
percentages of partnership distributions if the quarterly distribution
level per unit were to rise and decreasing percentages of partnership
distributions if the quarterly distribution level per Unit were to fall.
PCMC has received 25.5%, 25.0% 23.8% and 23.3% of distributions paid by
Plum Creek with respect to the first three quarters of 1998, and the fiscal
years 1997, 1996 and 1995, respectively. At current distribution levels,
PCMC would receive 37% of any incremental increase in distributions.
(2) ADDITIONAL DISTRIBUTIONS ON EQUITY ISSUANCES -- As a result of our
issuance of an additional 5.7 million partnership Units in 1996 (used to
finance a portion of our Southern timberland acquisition), PCMC is
currently receiving $4.5 million annually related solely to the new Units
issued. Under the existing MLP structure, PCMC benefits from any future
equity issuances without having to contribute additional capital. The REIT
conversion eliminates PCMC's incentive distribution on equity issuances,
allowing Plum Creek to issue new equity at a much lower cost in the future.
(3) CERTAIN PREFERENTIAL LIQUIDATION RIGHTS -- PCMC is currently
entitled to a disproportionate amount of liquidation proceeds were Plum
Creek to liquidate. Although a liquidation of Plum Creek has never been
contemplated and is not planned, a liquidation of Plum Creek at a Unit
price of $28 would, for example, result in PCMC receiving approximately 29%
of the net proceeds. In the REIT structure, PCMC will be entitled to
liquidation proceeds equal to its 27% equity interest were Plum Creek to
liquidate.
IS THE CONVERSION IN THE BEST INTERESTS OF PLUM CREEK AND ITS UNITHOLDERS?
The PCMC Board and the PCMC Special Committee unanimously agreed to
recommend your approval of the conversion. The elimination of the general
partner interest results in the economic alignment of all shareholder interests.
Management believes that the elimination of the general partner interest,
together with the previously mentioned benefits of the REIT structure, will (i)
lower Plum Creek's overall cost of capital, thus enhancing Plum Creek's ability
to pursue value-creating acquisitions that will benefit all shareholders and
(ii) permit a broader base of investors, including institutional investors such
as mutual funds, to invest in Plum Creek, which should enhance investor value
compared to remaining an MLP.
2
<PAGE> 4
WILL PLUM CREEK'S BUSINESS STRATEGY CHANGE?
NO. Plum Creek is eligible to operate as a REIT because its timberlands
qualify as real estate assets. The REIT structure will not change Plum Creek's
business strategies and does not mean that it is getting into the traditional
real estate business. Plum Creek remains one of the nation's largest timberland
owners, and management's focus on expanding its resource base remains the
foundation of Plum Creek's business strategy. Management will remain focused on
environmentally responsible resource management, providing high-quality products
to Plum Creek's customers in value-added market segments, and returning value to
its owners. Plum Creek has chosen the REIT structure as a result of the
significant benefits management believes it will provide in making Plum Creek
even more competitive in acquisition opportunities and financial markets, as
well as in enhancing Plum Creek's ability to return value to its investors.
WHAT ARE THE PRINCIPAL RISKS TO UNITHOLDERS IN APPROVING THE CONVERSION?
In determining whether or not to vote in favor of the conversion,
Unitholders should consider the following risks as well as the other matters set
forth in the Proxy Statement/Prospectus under the caption "Risk Factors":
- the conflict of interest in determining the amount and form of
consideration to be received by the owners of PCMC (the "PCMC Partners")
in the conversion;
- the REIT's ability to effect strategic acquisitions on attractive terms
or at all;
- the taxation of the REIT if it were unable to meet REIT qualification
requirements.
- the conversion of PCMC's ownership in Plum Creek and its subsidiaries,
including its 2% general partner interest in Plum Creek and the related
incentive distribution rights, into a 27% aggregate equity interest in
the REIT which, unlike PCMC's current incentive distribution rights, will
entitle the PCMC Partners to a fixed percentage of distributions even if
distributions were decreased;
- the fact that, had the conversion been in effect, the amount of
distributions which would have been payable to PCMC during the last three
fiscal years and the nine months ended September 30, 1998 would have been
greater during such periods than the amount actually received by PCMC
under the MLP structure;
- provisions of the REIT's certificate of incorporation that may have the
effect of discouraging a change in control; and
- the possession by certain of the PCMC Partners of initial, effective
control of the REIT insofar as they will have (subject to certain stock
ownership requirements) the right (i) to vote the special voting stock
they hold, in a separate class vote, on certain matters required to be
submitted for stockholder approval and (ii) to designate a majority of
the REIT's nominees to the board of directors of the REIT, whereas
currently the Unitholders have the ability to remove PCMC upon a vote of
66 2/3% of the outstanding Units (subject to appraisal of and payment for
the general partner interest, including related incentive distribution
rights).
After considering the potential disadvantages and risks of the conversion,
the PCMC Board and the PCMC Special Committee each concluded that the potential
benefits anticipated to be realized from the conversion substantially outweigh
the potential risks and disadvantages.
Management recommends that you vote "FOR" the conversion proposal. Although
employed by PCMC, management has no ownership interest in PCMC or its ultimate
owners. Management believes that the approval of this proposal is in the best
interests of Plum Creek and its Unitholders. We feel that this transaction is
positive for Plum Creek and its investors. In essence, the conversion to a REIT
allows Plum Creek to retain the many tax benefits it currently enjoys as an MLP,
to expand its access to equity and debt capital, to lower its cost of capital
and to enhance its ability to grow through value-creating acquisitions. In
addition, this conversion aligns the form of economic interests of PCMC and
Unitholders in Plum Creek.
3
<PAGE> 5
However, the conversion is not without risks, and all factors -- positive and
negative -- should be weighed carefully by Unitholders.
We encourage you to read the accompanying Notice of Special Meeting and
Proxy Statement/ Prospectus for additional information concerning this proposal
to convert Plum Creek to a REIT structure. The approval of two-thirds of all
outstanding Units is required to implement the proposal. We encourage
Unitholders to complete, sign and return the enclosed proxy promptly. PLEASE
NOTE THAT IF YOU DO NOT VOTE, IT WILL BE TREATED THE SAME AS VOTING AGAINST THE
CONVERSION. Even if you plan to attend the Special Meeting and vote on this
proposal in person, we urge you to send your proxy in advance.
If you have any questions concerning the conversion proposal, please call
our proxy solicitation agent, Georgeson & Company, Inc., toll-free at (800)
223-2064 or collect at (212) 440-9800. Thank you for your consideration of this
proposal and your ongoing support of Plum Creek.
Sincerely,
LOGO
Rick R. Holley
President and Chief Executive Officer
4
<PAGE> 6
PLUM CREEK TIMBER COMPANY, L.P.
999 THIRD AVENUE, SUITE 2300
SEATTLE, WA 98104
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON MARCH 22, 1999
NOTICE IS HEREBY GIVEN that a special meeting of holders (the
"Unitholders") of depositary units (the "Units") representing limited partner
interests of Plum Creek Timber Company, L.P. (the "Partnership") will be held at
the Crowne Plaza Hotel, 1113 Sixth Avenue, Seattle, Washington on March 22,
1999, at 9:00 a.m., local time (including any adjournments or postponements
thereof, the "Unitholders' Meeting"), for the purpose of considering and
approving the conversion of the ownership interests in the Partnership into
ownership interests in a newly-formed Delaware corporation, Plum Creek Timber
Company, Inc. (the "Corporation"), which will be treated for tax purposes as a
real estate investment trust or "REIT" (together with related transactions, the
"Conversion Transaction") pursuant to the terms of an Agreement and Plan of
Conversion (the "Conversion Agreement"), dated as of June 5, 1998, and amended
on July 17, 1998, among the Partnership, the Corporation and Plum Creek
Management Company, L.P., the sole general partner of the Partnership ("PCMC").
The Conversion Transaction will result in Unitholders receiving one share
of the Corporation's common stock for each Unit held, and the owners of PCMC
receiving a 27% aggregate equity interest and certain special voting and board
nomination rights in the Corporation. Specifically, at the Unitholders' meeting,
Unitholders will be asked to approve the Conversion Transaction by voting in
favor of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
July 17, 1998, among the Partnership, the Corporation and Plum Creek Acquisition
Partners, L.P., a wholly-owned, indirect partnership subsidiary of the
Corporation, as described in the attached Proxy Statement/Prospectus.
In addition, the enclosed proxy card grants discretionary authority to the
persons named therein to vote on any other matters that may properly come before
the Unitholders' Meeting. The Partnership is not aware of any other proposals
planned to be made at the Unitholders' Meeting and has no current intention of
making any additional proposals.
The Conversion Transaction and related matters are more fully described in
the attached Proxy Statement/Prospectus, which (together with the exhibits
thereto and the documents incorporated by reference therein) forms a part of
this Notice and is incorporated herein by reference. The Conversion Agreement
and the Merger Agreement are set forth in Annexes I and II, respectively, of the
Proxy Statement/Prospectus.
The presence, in person or by proxy, of 66 2/3% of the outstanding Units
will constitute a quorum for the Unitholders' Meeting. The affirmative vote of
at least 66 2/3% of the outstanding Units entitled to vote is required for
approval of the Conversion Transaction. The Partnership has fixed the close of
business on January 22, 1999 as the record date for the determination of
Unitholders entitled to notice of, and to attend and vote at, the Unitholders'
Meeting. Only Unitholders of record at the close of business on such date are
entitled to notice of, and to vote at, the Unitholders' Meeting.
<PAGE> 7
Your vote is important regardless of the number of Units you own. Each
Unitholder, even if planning to attend the Unitholders' Meeting in person, is
requested to sign, date and return the enclosed proxy, without delay, in the
enclosed postage-paid envelope. You may revoke your proxy at any time prior to
its exercise. Any Unitholder present at the Unitholders' Meeting may revoke such
Unitholder's proxy and vote personally on each matter brought before the
Unitholders' Meeting.
By Order of Plum Creek Management Company,
L.P.,
/s/ James A. Kraft
---------------------
Seattle, Washington James A. Kraft
January 28, 1999 Vice President, General Counsel and
Secretary
<PAGE> 8
PLUM CREEK TIMBER COMPANY, L.P.
PROXY STATEMENT
FOR THE SPECIAL MEETING OF ITS UNITHOLDERS TO BE HELD ON MARCH 22, 1999
(PLUM CREEK LOGO)
------------------------
PLUM CREEK TIMBER COMPANY, INC.
PROSPECTUS
RELATING TO 46,323,300 SHARES OF ITS COMMON STOCK
------------------------
This Proxy Statement/Prospectus constitutes the Prospectus of Plum Creek
Timber Company, Inc., a Delaware corporation (the "Corporation"), with respect
to the issuance of 46,323,300 shares of the Corporation's common stock, par
value $.01 per share (the "Common Stock"), to be issued in connection with the
proposed conversion (together with related transactions, the "Conversion
Transaction") of ownership interests in Plum Creek Timber Company, L.P., a
Delaware limited partnership (the "Partnership"), into ownership interests in
the Corporation through the merger (the "Merger") of the Partnership with and
into Plum Creek Acquisition Partners, L.P., a Delaware limited partnership and a
wholly-owned, indirect subsidiary of the Corporation (the "Operating
Partnership"). The terms of the Conversion Transaction are set forth in the
Agreement and Plan of Conversion (the "Conversion Agreement"), dated as of June
5, 1998, and amended on July 17, 1998, among the Partnership, the Corporation
and Plum Creek Management Company, L.P., a Delaware limited partnership that is
the sole general partner of the Partnership ("PCMC"). Following the Merger, the
Corporation will elect to be treated for Federal income tax purposes as a real
estate investment trust or "REIT."
This Proxy Statement/Prospectus also constitutes the Proxy Statement of the
Partnership and is being furnished to holders (the "Unitholders") of depositary
units (the "Units") representing limited partner interests of the Partnership in
connection with the solicitation of proxies by the Partnership. Such proxies are
to be voted on the Conversion Transaction at a special meeting of the
Unitholders to be held on March 22, 1999 (together with any adjournments or
postponements thereof, the "Unitholders' Meeting").
The Conversion Transaction has been structured in a manner intended to be
tax-free to Unitholders.
The Partnership has decided to pursue the Conversion Transaction based upon
its belief that a REIT structure will enhance the Partnership's ability to
create value for its owners and to compete for strategic acquisition
opportunities by: (i) permitting a broader array of investors to invest in the
Corporation than can presently invest in the Partnership; (ii) potentially
allowing the Corporation to raise equity and debt financing on more favorable
terms than are currently available to the Partnership, thereby lowering its cost
of capital; (iii) creating greater flexibility to structure tax efficient
acquisitions than are available to the Partnership; and (iv) eliminating the
rights of PCMC to receive incentive distributions from the Partnership and to
exercise exclusive control over the business and affairs of the Partnership. The
REIT structure maintains substantially all of the advantages of single-layer
taxation enjoyed under the current master limited partnership ("MLP") structure
with respect to the treatment of taxable income.
As a result of the Merger and the other steps comprising the Conversion
Transaction, at the effective time of the Merger (the "Effective Time"), (i) the
Partnership will cease to exist, (ii) each of the 46,323,300 outstanding Units
will be converted into one share of Common Stock and (iii) the direct and
indirect interests of PCMC in the Partnership and its subsidiaries, including
its 2% general partner interest in the Partnership and the related incentive
distribution rights, will be converted into a 27% aggregate equity interest in
the Corporation comprised of (a) 16,498,709 shares of Common Stock and (b)
634,566 shares of the Corporation's special voting stock, par value $.01 per
share (the "Special Voting Stock"). Each share of Special Voting Stock will have
one vote per share, will be entitled to the same dividends as are paid on the
Common Stock and will have class voting rights on certain transactions submitted
for stockholder approval. In addition, following the Conversion Transaction
certain of the ultimate owners of PCMC will have the right to designate a
majority of the Corporation's nominees to the Board of Directors of the
Corporation (the "REIT Board").
The decision to convert PCMC's 2% general partner interest in the Partnership
and its related incentive distribution rights into a 27% interest in the
Corporation was made, in part, by taking into account the present value of an
assumed stream of incentive distributions that would otherwise be payable to
PCMC over time under the current MLP structure.
All of the Partnership's and its subsidiaries' historic operations and all
future operations will be conducted through the Operating Partnership and its
subsidiaries, including Plum Creek Marketing, Inc., a current subsidiary of the
Partnership, and three to four newly-formed subsidiary corporations (the
"Corporate Subsidiaries"). By conducting its operations through the Operating
Partnership (in a so-called "umbrella partnership" or "UPREIT"), the Corporation
will be able to offer either Common Stock or limited partnership interests in
the Operating Partnership ("OP Units") to potential sellers of timberlands,
thereby increasing the Corporation's flexibility in structuring acquisitions on
a tax-efficient basis. Because the REIT provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), limit the voting stock that a REIT may own in
other corporations, members of the Corporation's management will purchase,
directly or indirectly, the voting stock of the Corporate Subsidiaries, which
will represent approximately 1% of the total equity of the Corporate
Subsidiaries. In addition, the Corporate Subsidiaries will be subject to entity
level tax.
THE CONVERSION TRANSACTION REQUIRES THE APPROVAL OF AT LEAST 66 2/3% OF THE
OUTSTANDING UNITS. FAILURE TO FORWARD A PROXY OR TO VOTE IN PERSON AT THE
UNITHOLDERS' MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE CONVERSION
TRANSACTION. THE BOARD OF DIRECTORS (THE "PCMC BOARD") OF PC ADVISORY CORP I
("CORP I"), WHICH IS A DELAWARE CORPORATION AND THE ULTIMATE GENERAL PARTNER OF
PCMC, UPON THE RECOMMENDATION OF A SPECIAL COMMITTEE OF THE PCMC BOARD (THE
"PCMC SPECIAL COMMITTEE") CONSISTING OF THE MEMBERS OF THE PCMC BOARD WHO ARE
NOT EMPLOYEES OF AND DO NOT OWN ANY INTEREST IN PCMC OR CORP I (BUT WHO
NONETHELESS OWE FIDUCIARY DUTIES TO THE OWNERS OF PCMC AND CORP I), HAS
DETERMINED (WITH THE ADVICE OF FINANCIAL AND LEGAL ADVISORS) THAT THE CONVERSION
TRANSACTION IS FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE UNITHOLDERS AND
RECOMMENDS THAT UNITHOLDERS VOTE IN FAVOR OF THE CONVERSION TRANSACTION.
MANAGEMENT ALSO RECOMMENDS THAT UNITHOLDERS VOTE IN FAVOR OF THE CONVERSION
TRANSACTION.
The New York Stock Exchange (the "NYSE") and the Pacific Stock Exchange (the
"PSE") have authorized, upon official notice of issuance, the listing of the
Common Stock on the NYSE and the PSE, respectively.
This Proxy Statement/Prospectus is first being mailed to the Unitholders on
or about January 29, 1999.
UNITHOLDERS SHOULD CONSIDER EACH OF THE FACTORS DESCRIBED UNDER "RISK
FACTORS," STARTING ON PAGE 16, WHEN DECIDING HOW TO VOTE ON THE CONVERSION
TRANSACTION. SUCH FACTORS INCLUDE THE FOLLOWING:
- THE CONFLICT OF INTEREST IN DETERMINING THE AMOUNT AND FORM OF
CONSIDERATION TO BE RECEIVED BY THE OWNERS OF PCMC (THE "PCMC PARTNERS") IN
THE CONVERSION TRANSACTION;
- THE CORPORATION'S ABILITY TO EFFECT STRATEGIC ACQUISITIONS ON ATTRACTIVE
TERMS OR AT ALL;
- THE TAXATION OF THE CORPORATION IF IT WERE UNABLE TO MEET REIT
QUALIFICATION REQUIREMENTS;
- THE CONVERSION OF PCMC'S OWNERSHIP IN THE PARTNERSHIP AND ITS SUBSIDIARIES,
INCLUDING ITS 2% GENERAL PARTNER INTEREST IN THE PARTNERSHIP AND THE
RELATED INCENTIVE DISTRIBUTION RIGHTS, INTO A 27% AGGREGATE EQUITY INTEREST
IN THE CORPORATION WHICH, UNLIKE PCMC'S CURRENT INCENTIVE DISTRIBUTION
RIGHTS, WILL ENTITLE THE PCMC PARTNERS TO A FIXED PERCENTAGE OF
DISTRIBUTIONS EVEN IF DISTRIBUTIONS WERE DECREASED;
- THE FACT THAT, HAD THE CONVERSION TRANSACTION BEEN IN EFFECT, THE AMOUNT OF
DISTRIBUTIONS WHICH WOULD HAVE BEEN PAYABLE TO PCMC DURING THE LAST THREE
FISCAL YEARS AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 WOULD HAVE BEEN
GREATER DURING SUCH PERIODS THAN THE AMOUNT ACTUALLY RECEIVED BY PCMC UNDER
THE MLP STRUCTURE;
- PROVISIONS OF THE CORPORATION'S CERTIFICATE OF INCORPORATION (THE
"CHARTER") THAT MAY HAVE THE EFFECT OF DISCOURAGING A CHANGE IN CONTROL;
AND
- THE POSSESSION BY CERTAIN OF THE PCMC PARTNERS OF INITIAL, EFFECTIVE
CONTROL OF THE CORPORATION INSOFAR AS THEY WILL HAVE (SUBJECT TO CERTAIN
STOCK OWNERSHIP REQUIREMENTS) THE RIGHT (I) TO VOTE THE SPECIAL VOTING
STOCK THEY HOLD, IN A SEPARATE CLASS VOTE, ON CERTAIN MATTERS REQUIRED TO
BE SUBMITTED FOR STOCKHOLDER APPROVAL AND (II) TO DESIGNATE A MAJORITY OF
THE CORPORATION'S NOMINEES TO THE REIT BOARD, WHEREAS CURRENTLY THE
UNITHOLDERS HAVE THE ABILITY TO REMOVE PCMC UPON A VOTE OF 66 2/3% OF THE
OUTSTANDING UNITS (SUBJECT TO APPRAISAL OF AND PAYMENT FOR THE GENERAL
PARTNER INTEREST, INCLUDING RELATED INCENTIVE DISTRIBUTION RIGHTS).
------------------------
THE SECURITIES TO BE ISSUED IN THE CONVERSION TRANSACTION HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JANUARY 28, 1999.
<PAGE> 9
AVAILABLE INFORMATION
The Partnership is subject to the 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 Securities
and Exchange Commission (the "Commission"). The reports and other information so
filed by the Partnership can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports and other information may also be obtained from the web site
that the Commission maintains at HTTP://WWW.SEC.GOV. In addition, reports and
other information concerning the Partnership may be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Reports and other information concerning the Partnership may also be
obtained electronically through a variety of databases, including, among others,
the Commission's Electronic Data Gathering and Retrieval ("EDGAR") program,
Knight-Ridder Information Inc., Federal Filing/Dow Jones and Lexis/Nexis.
The Corporation has filed with the Commission a Registration Statement on
Form S-4 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock to be issued pursuant to the
Conversion Transaction. This Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE INTO
THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES
OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE CORPORATION OR THE PARTNERSHIP. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE COMMON STOCK OFFERED HEREBY
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE PARTNERSHIP OR THE CORPORATION SINCE THE DATE
HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE
OCCURS WHILE THIS PROXY STATEMENT/PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS
PROXY STATEMENT/ PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE PARTNERSHIP UNDERTAKES
TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE), WITHOUT
CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO SECRETARY,
PLUM CREEK TIMBER COMPANY, L.P., 999 THIRD AVENUE, SUITE 2300, SEATTLE,
WASHINGTON 98104 (TELEPHONE (206) 467-3600). IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, SUCH REQUESTS SHOULD BE RECEIVED BY MARCH 15, 1999.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Partnership with the
Commission pursuant to the Exchange Act, are incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (filed March 9, 1998), as amended by the Form 10-K/A (filed March 25,
1998);
(2) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1998 (filed May 12, 1998), June 30, 1998 (filed August 13, 1998)
and September 30, 1998 (filed November 13, 1998); and
(3) Current Reports on Form 8-K, dated April 17, 1998 (filed April 20,
1998), June 5, 1998 (filed June 8, 1998), July 20, 1998 (filed July 20,
1998), October 6, 1998 (filed October 13, 1998), November 12, 1998 (filed
November 20, 1998), December 18, 1998 (filed December 18, 1998) and Form
8-K/A, dated November 12, 1998 (filed January 25, 1999).
All documents filed by the Partnership pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Unitholders' Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. 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 Proxy Statement/ Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be 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 Proxy Statement/Prospectus.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus, including documents incorporated herein by
reference, contain forward-looking statements. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed under the caption
"Risk Factors." In addition, factors that could cause actual results of the
Corporation to differ materially from those contemplated by or projected,
forecasted, estimated or budgeted in forward-looking statements relating to the
results of operations and business of the Corporation following the Conversion
Transaction include the following possibilities: (i) the expected cost savings
to be realized (e.g., lower cost of capital) are not realized or unanticipated
offsetting costs are incurred; (ii) costs or difficulties related to the
Conversion Transaction or the Corporation's continued ability to qualify as a
REIT are greater than expected; and (iii) unanticipated reduction in the demand
for timber products. Accordingly, there can be no assurance that the actual
results will conform to the forward-looking statements contained in this Proxy
Statement/Prospectus.
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TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION................... i
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................. ii
FORWARD-LOOKING STATEMENTS.............. ii
SUMMARY................................. 1
The Partnership....................... 1
The Corporation....................... 2
Risk Factors.......................... 2
Recent Developments................... 3
Unitholder Litigation.............. 3
Results of the Quarter and Year
Ended December 31, 1998.......... 3
Sappi Acquisition.................. 4
The Conversion Transaction............ 4
Control Rights..................... 4
Mechanics of the Conversion
Transaction...................... 5
Allocation of the Corporation's Equity
Securities Among the Unitholders
and PCMC........................... 6
Recommendation of the PCMC Board;
Reasons for the Conversion
Transaction........................ 7
Conflicts of Interest................. 8
Unitholders Should be Advised that
PCMC Believes it is not Subject to
a Duty of Fairness in Submitting
the Conversion Transaction for
Unitholder Approval................ 8
Opinions of Financial Advisors........ 9
Consequences if the Conversion
Transaction is Not Approved........ 10
Comparison of Units and Common
Stock.............................. 10
The Unitholders' Meeting.............. 10
Date, Time and Place of Special
Meeting.......................... 10
Record Date; Quorum; Unitholders
Entitled to Vote................. 10
Voting and Revocation of Proxies... 10
Vote Required...................... 10
Solicitation of Proxies............ 11
Independent Accountants............ 11
No Dissenters' Rights................. 11
Accounting Treatment.................. 11
Other Matters......................... 11
Market and Trading Information........ 12
Distribution Policy................... 12
The Partnership.................... 12
The Corporation.................... 13
Summary of the Tax Considerations of
the Conversion Transaction......... 13
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Comparison of Payments to PCMC and
Management......................... 14
Distributions and Compensation Payable
to PCMC and Management Under MLP
Structure.......................... 14
Distributions and Compensation Payable
to PCMC and Management
Assuming Conversion Transaction.... 14
Summary Historical and Pro Forma
Financial Data..................... 15
RISK FACTORS............................ 17
Transaction Risks..................... 17
Conflicts of Interest.............. 17
PCMC Believes it is not Subject to
a Duty of Fairness in Submitting
the Conversion Transaction for
Unitholder Approval.............. 17
Benefits to the PCMC Partners...... 18
Unitholder Litigation.............. 21
Absence of Dissenters' Rights...... 21
Certain Charter Provisions May
Limit a Change in Control........ 21
Acquisition Strategy............... 22
Substitution of Trading of Common
Stock for Units.................. 23
Shares Eligible for Future Sale;
Future Dilution.................. 23
Risks of Investment in the
Corporation May be Different than
Typical REIT Investments......... 23
REIT Qualification................. 23
Lender Consents.................... 24
Potential Disadvantages to
Conducting Business as a REIT.... 24
Other Tax Risks....................... 25
State Conformity with Federal Tax
Law.............................. 25
Capital Gains for Non-U.S.
Holders.......................... 25
Potential Payments of Tax on
Capital Gain Income.............. 25
Uncertain Impact of Budget
Proposal......................... 25
Risks Inherent in the Partnership's
and the Corporation's Ongoing
Business........................... 26
Cyclicality of Forest Products
Industry Will Affect the
Partnership's and the
Corporation's Results of
Operations....................... 26
Financing and Leverage............. 26
Cash Distributions Are Not
Guaranteed and May Fluctuate..... 26
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The Partnership and the Corporation
are Subject to Significant
Competition...................... 27
The Partnership's and the
Corporation's Ability to Harvest
Timber May be Subject to
Limitations...................... 27
Log Exports........................ 28
The Timberlands will Remain Subject
to Federal and State
Environmental Regulation......... 28
BACKGROUND OF THE CONVERSION
TRANSACTION........................... 28
RECOMMENDATION OF THE PCMC BOARD;
REASONS FOR THE CONVERSION
TRANSACTION........................... 33
ALLOCATION OF THE CORPORATION'S EQUITY
SECURITIES AMONG THE UNITHOLDERS AND
PCMC.................................. 37
Analysis of Alternatives........... 38
COMPARISON OF CONSIDERATION RECEIVED IN
THE CONVERSION TRANSACTION............ 40
COMPARISON OF PAYMENTS TO PCMC AND
MANAGEMENT............................ 41
Distributions and Compensation Payable
to PCMC and Management Under MLP
Structure.......................... 41
Distributions and Compensation Payable
to PCMC and Management Assuming
Conversion Transaction............. 41
OPINIONS OF FINANCIAL ADVISORS.......... 42
Opinion of the PCMC Special
Committee's Financial Advisor...... 42
Introduction....................... 44
Discounted Cash Flow Analysis...... 44
Liquidation Analysis............... 44
Miscellaneous...................... 44
Opinion of the Partnership's Financial
Advisor............................ 45
Discounted Cash Flow Analyses...... 47
Liquidation Analysis............... 47
SUMMARY OF THE CONVERSION AGREEMENT AND
THE MERGER AGREEMENTS................. 49
The Recapitalization.................. 49
The Corporate Subsidiary Formation.... 49
The Mergers........................... 49
Effective Time........................ 50
Conditions to the Closing............. 50
Certain Special Voting and Board
Nomination Rights.................. 50
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Termination........................... 51
Fees and Expenses..................... 51
INTERESTS OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON...................... 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................. 54
Beneficial Ownership.................. 54
Security Ownership of Management...... 54
DIRECTORS AND EXECUTIVE OFFICERS........ 55
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES.......................... 57
The Conversion Transaction............ 58
Taxation of the Corporation as a
REIT............................... 58
General............................ 58
Requirements for Qualification..... 60
Organizational Requirements........ 60
Income Tests....................... 60
Asset Tests........................ 62
Annual Distribution Requirements... 63
Failure of the Corporation to
Qualify as a REIT................ 63
Taxation of Taxable U.S. Holders of
the Corporation.................... 64
Distributions by the Corporation... 64
Passive Activity Losses and the
Investment Interest Limitation... 65
Sale of Common Stock............... 65
Taxation of Tax-Exempt Stockholders of
the Corporation.................... 65
Taxation of Non-United States
Stockholders of the Corporation.... 65
Distributions by the Corporation... 65
Sale of Common Stock............... 67
Backup Withholding Tax and
Information Reporting............ 67
Tax Aspects of the Corporation's
Ownership of Interests In the
Operating Partnership.............. 67
Other Taxes........................... 68
DESCRIPTION OF CAPITAL STOCK............ 68
General............................... 68
Common Stock and Special Voting
Stock.............................. 68
Voting Rights...................... 68
Dividends.......................... 68
Conversion of the Special Voting
Stock to Common Stock............ 69
Liquidation Rights................. 69
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Preferred Stock....................... 69
Ownership Limit....................... 69
Transfer Agent and Registrar.......... 71
COMPARISON OF RIGHTS OF UNITHOLDERS AND
STOCKHOLDERS.......................... 72
General............................... 72
Taxation.............................. 72
Management............................ 73
Voting Rights......................... 74
Special Meetings...................... 75
Limited Liability..................... 75
Dissolution of the Partnership and the
Corporation and Termination of REIT
Status............................. 76
Liquidation Rights.................... 76
Indemnification....................... 76
Limitations on Liability of General
Partner and Directors.............. 77
Derivative Actions.................... 77
Inspection of Books and Records....... 77
Distributions and Dividends........... 78
Fiduciary Duties...................... 78
PLUM CREEK TIMBER COMPANY, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS............................ 79
DISTRIBUTION POLICY..................... 90
The Partnership....................... 90
Available Cash..................... 90
Priority of Distributions.......... 91
first............................ 91
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second........................... 91
third............................ 91
thereafter....................... 91
Adjustment of Target Amounts....... 92
Distributions of Cash from Capital
Transactions..................... 92
Distributions of Cash Upon
Liquidation...................... 90
first............................ 93
second........................... 93
third............................ 93
fourth........................... 93
fifth............................ 93
thereafter....................... 93
The Corporation....................... 93
RESALE OF SECURITIES.................... 95
Securities Act Restrictions........... 95
Resales by the PCMC Partners and
Related Entities................... 95
LEGAL MATTERS........................... 95
EXPERTS................................. 95
PLUM CREEK MANAGEMENT COMPANY, L.P.
INDEX TO FINANCIAL STATEMENTS......... F-1
ANNEXES
Conversion Agreement.................. I
Merger Agreement...................... II
Opinion of Salomon Smith Barney....... III
Opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated........ IV
Delaware Chancery Court Opinion....... V
Proxy Card............................ VI
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement/Prospectus, the Annexes hereto and the documents incorporated by
reference herein. Unitholders are urged to read these materials in their
entirety.
References herein to the "Partnership" shall, unless the context otherwise
requires, refer to Plum Creek Timber Company, L.P. and its direct and indirect
subsidiaries. References herein to the "Corporation" shall, unless the context
otherwise requires, refer to Plum Creek Timber Company, Inc. and its direct and
indirect subsidiaries.
THE PARTNERSHIP
The Partnership owns, manages and operates approximately 3.3 million acres
of timberland in the Northwest, Southeast and Northeast United States (the
"Timberlands"). The Timberlands are geographically segregated into four regions:
the Cascades Region in western Washington, the Rocky Mountain Region in western
Montana and northern Idaho, the Southern Region in Louisiana and Arkansas, and,
as a result of the recent Sappi Acquisition (discussed below under "-- Recent
Developments"), the Northeast Region in central Maine. The Partnership estimates
that, as of December 31, 1997, the Timberlands contained timber inventory of 8.4
billion board feet ("BBF") of standing timber in the Cascades and Rocky Mountain
Regions (the "Northwest Timberlands"), approximately 5.2 million cunits in the
Southern Region (the "Southern Timberlands") and approximately 13.4 million
cunits in the Northeast Region (the "Northeast Timberlands").
Substantially all of the current operations of the Partnership are carried
out through the Partnership and its ninety-eight percent (98%) and ninety-six
percent (96%) owned subsidiaries, Plum Creek Manufacturing, L.P., a Delaware
limited partnership (the "Manufacturing Partnership"), and Plum Creek Marketing,
Inc., a Delaware corporation ("Marketing"), respectively. The remaining two
percent (2%) and four percent (4%) interests in the Manufacturing Partnership
and Marketing, respectively, are owned by PCMC.
The Manufacturing Partnership manufactures and markets specialty lumber,
plywood and medium density fiberboard ("MDF") to maximize the value of the
Partnership's timber resource base. The Manufacturing Partnership owns and
operates eleven manufacturing facilities, including four lumber mills, two
plywood plants, an MDF facility, two lumber remanufacturing facilities in the
Pacific Northwest, and two lumber mills in the Southeast United States.
The business and affairs of the Partnership are managed by its general
partner, PCMC. The indirect corporate general partner of PCMC is Corp I. The
officers of PCMC and the directors of Corp I are the persons who currently
manage the Partnership. The officers of PCMC ("Management") have no direct or
indirect ownership interest in PCMC or Corp I and will not receive any of the
27% aggregate equity interest to be received by the PCMC Partners in the
Conversion Transaction.
Quarterly distributions by the Partnership of its Available Cash (as
defined under "Distribution Policy -- The Partnership") are made 98% to the
Unitholders and 2% to PCMC. However, when per Unit quarterly distributions
exceed certain specified quarterly target levels ("Target Amounts"), PCMC
receives, in addition to such 2%, a percentage of such excess increasing to up
to 35% of any quarterly distribution above the highest Target Amount ($0.28 1/3
per Unit). The Partnership distributed $0.55 per Unit to Unitholders with
respect to each quarter in 1997 and $0.57 per Unit with respect to each of the
first three quarters of 1998. Because the distributions with respect to each
such quarter were in excess of the Target Amounts, PCMC has received
substantially in excess of 2% of the total distributions. With respect to the
first three quarters of 1998 and the fiscal years 1997, 1996 and 1995, the
Unitholders received 74.5%, 75.0%, 76.2% and 76.7%, and PCMC received 25.5%,
25.0%, 23.8% and 23.3%, respectively, of the aggregate amount distributed. The
Partnership has made quarterly distributions in excess of a Target Amount since
September 30, 1989, and has made quarterly distributions in excess of the
highest Target Amount in respect of every quarter since the second quarter of
1992. At present, PCMC is entitled to receive, in addition to distributions with
respect to its 2% ownership interest, incentive distributions at the highest
marginal rate of 35% of incremental increases in
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<PAGE> 15
quarterly distributions. Conversely, if quarterly distributions were to be
reduced below current levels but above the highest Target Amount of $0.28 1/3
per Unit, PCMC's general partner interest would bear 37% of the aggregate amount
of the reduction. Furthermore, for decreases in quarterly distributions to
levels between $0.28 1/3 per Unit and $0.21 2/3 per Unit, PCMC's general partner
interest would bear between 32% and 12% of the reduction, while decreases in
quarterly distributions to levels below $0.21 2/3 per Unit would be allocated 2%
to PCMC's general partner interest and 98% to the Unitholders. See
"-- Distribution Policy -- The Partnership."
The Partnership was formed under the Delaware Revised Uniform Limited
Partnership Act in 1989. Its principal executive offices are located at 999
Third Avenue, Suite 2300, Seattle, Washington 98104-4096, its telephone number
is (206) 467-3600 and its website is http://www.plumcreek.com.
THE CORPORATION
Following the Conversion Transaction, the business of the Corporation will
be the ownership and management of the Timberlands and the sale of timber
pursuant to cutting contracts (the "Stumpage Contracts"). In order to comply
with the asset and income requirements for qualification as a REIT under the
Code, the Corporation will conduct the manufacturing and marketing operations
presently conducted by the Partnership through the Corporate Subsidiaries. See
"Interests of Certain Persons in Matters to be Acted Upon." The Operating
Partnership and the Corporate Subsidiaries will enter into Stumpage Contracts
under which the Corporate Subsidiaries will have the obligation to cut and pay
for certain harvestable timber located on the Timberlands. The prices paid by
the Corporate Subsidiaries to the Operating Partnership for such timber will be
based on market rates. Income earned by the Corporate Subsidiaries will be
subject to Federal and state income tax. See "Plum Creek Timber Company, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements."
The Corporation was formed under the Delaware General Corporation Law in
1998. Its principal executive offices are located at 999 Third Avenue, Suite
2300, Seattle, Washington 98104-4096, its telephone number is (206) 467-3600 and
its website is http://www.plumcreek.com.
RISK FACTORS
The Conversion Transaction and an investment in shares of the Corporation's
Common Stock involve certain risks. Such risks include, among others:
- the conflict of interest between PCMC, the PCMC Board and the PCMC
Special Committee, on the one hand, and the Unitholders, on the other, in
determining the amount and form of consideration to be received by the
PCMC Partners in the Conversion Transaction;
- risks relating to the Corporation's acquisition strategy, including:
difficulties inherent in the integration of operations and systems; the
diversion of management's attention from other business concerns; the
potential loss of key employees of acquired businesses; the expenditure
of significant funds; the possibility that additional financing to effect
acquisitions may not be available on acceptable terms or at all; the
possibility that general economic or industry conditions will not be
conducive to the Corporation's acquisition strategy or that the
Corporation will not be able to identify and acquire any such assets or
businesses on economically acceptable terms;
- tax risks, including the Corporation's ability to qualify as a REIT and
the taxation of the Corporation if it were unable to meet REIT
qualification requirements;
- the conversion of PCMC's ownership in the Partnership and its
subsidiaries, including its 2% general partner interest in the
Partnership and the related incentive distribution rights, into a 27%
aggregate equity interest in the Corporation which, unlike PCMC's current
incentive distribution rights, will entitle the PCMC Partners to a fixed
percentage of distributions even if distributions were decreased;
- the fact that, had the Conversion Transaction been in effect, the amount
of distributions which would have been payable to PCMC during the last
three fiscal years and the nine months ended
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<PAGE> 16
September 30, 1998 would have been greater during such periods than the amount
actually received by PCMC under the MLP structure;
- adverse changes in economic conditions since the terms of the Conversion
Transaction were determined, which have impacted the Partnership's
financial performance and could in the future impact the Corporation's
financial performance;
- the fact that PCMC has the right to delay or not to proceed with the
Conversion Transaction in its sole discretion even following Unitholder
approval, including pending final conclusion of the Action described
below;
- certain provisions of the Charter that may have the effect of
discouraging a change in control, including ownership limits on the
number of shares of Common Stock and a staggered board of directors;
- the possession by certain of the PCMC Partners of initial, effective
control of the Corporation insofar as they will have (subject to certain
stock ownership requirements) the right (i) to vote the Special Voting
Stock they hold, in a separate class vote, on certain matters required to
be submitted for stockholder approval and (ii) to designate a majority of
the Corporation's nominees to the REIT Board, whereas currently the
Unitholders have the ability to remove PCMC upon a vote of 66 2/3% of the
outstanding Units (subject to appraisal of and payment for the general
partners interest, including related incentive distribution rights);
- the absence of dissenters' rights of appraisal in connection with the
Merger;
- the possibility that the per share prices at which the Common Stock
trades will be less than the per Unit prices at which the Units have
traded; and
- risks relating to the investment in one of the first publicly traded
timber REITs.
In addition, Unitholders should also carefully consider the continuing
applicability of certain risk factors relating to operation of the timber
business. See "Risk Factors -- Risks Inherent in the Partnership's and the
Corporation's Ongoing Business."
RECENT DEVELOPMENTS
Unitholder Litigation.
On September 11, 1998, a Unitholder, individually and as a purported
representative of all Unitholders as of June 8, 1998 (the "Plaintiff"), filed a
purported class action lawsuit (the "Action") in the Court of Chancery in the
State of Delaware against the Partnership, PCMC and Corp I (the "Plum Creek
Defendants"), alleging that the PCMC Partners' receipt of a 27% equity interest
in the Corporation violates PCMC's and Corp I's fiduciary duties to the
Unitholders. On November 17, 1998, the Plaintiff filed an amended complaint
which also challenged the PCMC Partners' receipt of certain special voting and
board nomination rights. On December 17, 1998, the Delaware Court of Chancery
granted the Plum Creek Defendants' motion to dismiss. On January 11, 1999, the
Plaintiff filed a notice of appeal in the Supreme Court of the State of Delaware
with respect to the Action. The Plum Creek Defendants intend to continue to
vigorously defend themselves in connection with this appeal.
PCMC's decision to proceed with the Conversion Transaction is in the sole
discretion of PCMC, subject to receipt of the requisite Unitholders' approval
and satisfaction of the other conditions precedent in the Conversion Agreement.
PCMC currently expects to delay the consummation of the Conversion Transaction
until the Action, including the appeal and any additional claims that may be
brought, is fully resolved to PCMC's satisfaction. Accordingly, there can be no
assurance as to whether the Conversion Transaction will be consummated or, if
consummated, the timing of such consummation.
Results of the Quarter and Year Ended December 31, 1998.
On January 26, 1999, the Partnership publicly announced earnings for the
fourth quarter of 1998 and the year ended December 31, 1998. Fourth quarter
earnings totaled $22.0 million, or $0.29 per Unit on revenues of $188.8 million,
compared to $24.3 million, or $0.35 per Unit on revenues of $183.7 million for
the fourth quarter of 1997. Earnings for the year were $75.4 million, or $0.90
per Unit on revenues of $699.4 million, compared to prior year earnings of
$111.7 million, or $1.72 per Unit on revenues of $725.6 million. The
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<PAGE> 17
quarterly cash distribution to Unitholders will be $0.57 per Unit for the fourth
quarter of 1998. The quarterly distribution will be paid on February 25, 1999 to
Unitholders of record as of February 12, 1999.
Sappi Acquisition.
On November 12, 1998, the Partnership acquired 905,000 acres of forest
lands in central Maine from S.D. Warren, a subsidiary of Sappi Fine Paper North
America (the "Seller"), for an aggregate purchase price of $180 million (the
"Sappi Acquisition"). The Sappi Acquisition brings the Partnership's total
ownership of forest lands to over 3.3 million acres. As part of the acquisition,
the Partnership entered into a long-term fiber supply agreement to supply fiber
to the Seller's paper facility in Skowhegan, Maine, at prevailing market prices.
The acquisition was financed with approximately $3 million in cash and the
balance with unsecured promissory notes that were issued to the Seller. The
notes have an average maturity of 10 years. The face amount of the unsecured
promissory notes totals $171.4 million, with stated interest rates ranging from
7.62% to 7.83%. The fair market value of the notes is $177.0 million, reflecting
note premiums due to the notes' above market interest rates.
THE CONVERSION TRANSACTION
Although the Partnership's existing MLP structure has been successful and
continues to offer a tax-efficient structure for Unitholders, the PCMC Board and
Management believe for several reasons that a REIT structure will enhance the
Partnership's ability to create value for its owners and to compete for
strategic acquisition opportunities. First, the PCMC Board and Management
believe that the Conversion Transaction will result in a structure that will
permit a broader array of investors to invest in the Corporation than can
presently invest in the Partnership and that the Corporation may be able to
raise equity and debt financing on more favorable terms than are currently
available to the Partnership. Second, through access to a broader equity market
and broader debt markets, as well as the elimination of certain of PCMC's rights
as general partner, including its right to receive incentive distributions from
the Partnership, the PCMC Board and Management believe that the REIT structure
will have a lower overall cost of capital than the MLP structure, and will have
greater flexibility to structure tax advantageous acquisitions than is available
to the Partnership. Finally, the PCMC Board and Management believe that a REIT
structure maintains substantially all of the advantages of single-layer taxation
enjoyed under the current MLP structure with respect to the treatment of taxable
income. For a discussion of the reasons for the Conversion Transaction, see
"-- Recommendation of the PCMC Board; Reasons for the Conversion Transaction."
The Conversion Transaction will result in the Unitholders receiving one
share of Common Stock in exchange for each Unit held immediately prior to the
completion of the Conversion Transaction. The PCMC Partners will receive
16,498,709 shares of Common Stock and 634,566 shares of Special Voting Stock
(the terms of which are summarized below under "-- Control Rights"), equaling
27%, in the aggregate, of the Corporation's outstanding equity interests upon
conversion of its 2% general partner interest in the Partnership, including its
right to (i) receive quarterly incentive distributions, (ii) receive increased
distributions upon any equity issuance by the Partnership, (iii) receive
disproportionate distributions upon liquidation of the Partnership and (iv)
exercise exclusive control over the business and affairs of the Partnership.
PCMC will also relinquish its 4% and 2% ownership interests in Marketing and the
Manufacturing Partnership, respectively. The 27% interest in the Corporation to
be received by the PCMC Partners was determined, in part, by taking into account
the present value of an assumed stream of incentive distributions that would
otherwise be payable to PCMC over time under the current MLP structure.
Control Rights.
The PCMC Partners will receive, in addition to a 27% equity interest in the
Corporation, certain special voting and board nomination rights pursuant to the
Conversion Transaction. So long as Mr. John H. Scully, Mr. William J. Patterson
and Mr. William E. Oberndorf (collectively, the "Principals"), each of whom is
currently a director of Corp I (and who collectively own 100% of the capital
stock of Corp I), retain beneficial ownership (as defined in the Charter) of at
least five million shares of Common Stock and/or Special Voting Stock, in the
aggregate (subject to customary adjustment to avoid dilution): (i) the
Principals will have the right to designate, for nomination purposes only, a
sufficient number of the Corporation's nominees for the REIT Board that, taken
together with any previously elected designees, would constitute a majority of
the
4
<PAGE> 18
REIT Board and (ii) the PCMC Partners will have the right to vote the Special
Voting Stock they hold, in a separate class vote, on certain matters required to
be submitted for stockholder approval, including amendments to the Charter,
issuances of more than 20% of the outstanding Common Stock for non-cash
consideration, dissolution of the Corporation, mergers involving the Corporation
and the sale of all or substantially all of the assets of the Corporation, as
well as amendments to the Corporation's Bylaws that are proposed by the
stockholders of the Corporation.
The shares of Special Voting Stock received by the PCMC Partners will be
converted into an equal number of shares of Common Stock at the option of the
holder, or automatically upon transfer of such shares to persons unaffiliated
with the Principals. The Special Voting Stock will be entitled to the same
dividends as are paid on the Common Stock. If the beneficial ownership of the
Principals drops below five million shares of Common Stock and/or Special Voting
Stock, in the aggregate (subject to customary adjustment to avoid dilution), all
outstanding shares of Special Voting Stock will automatically convert into
Common Stock, thereby eliminating the PCMC Partners' separate class voting
rights.
If the beneficial ownership of the Principals drops below five million
shares of Common Stock and/or Special Voting Stock, in the aggregate, but is
greater than three million shares of Common Stock (subject to customary
adjustment to avoid dilution), the Principals will have the right to designate,
for nomination purposes only, the number of the Corporation's nominees for the
REIT Board that, taken together with any previously elected designees, would
constitute two members of the REIT Board. If such beneficial ownership drops
below three million shares of Common Stock (subject to customary adjustment to
avoid dilution), the Principals will lose their contractual right to designate
any of the Corporation's slate of nominees.
Mechanics of the Conversion Transaction.
The Conversion Transaction will be accomplished by concurrently (i)
effecting the Merger pursuant to which the Partnership will merge with and into
the Operating Partnership and (ii) merging PCMC with and into the Corporation.
Upon consummation of steps (i) and (ii), each Unit will be converted into one
share of Common Stock, and the PCMC Partners will receive 16,498,709 shares of
Common Stock and 634,566 shares of Special Voting Stock. These steps and the
other terms and provisions comprising the Conversion Transaction are more fully
summarized under "Summary of the Conversion Agreement and the Merger
Agreements."
5
<PAGE> 19
The following charts illustrate, in summary fashion, the present structure
of the Partnership and the structure of the Corporation following the
consummation of the Conversion Transaction:
[PARTNERSHIP & CORPORATION STRUCTURE CHARTS]
- ---------------
(1) GP interest consists of a 2% ownership interest and certain incentive
distribution rights.
(2) For ease of presentation, this chart excludes certain directly or indirectly
wholly-owned intermediary entities between the Corporation and its
partnership subsidiaries. This chart also assumes that Management will
purchase the voting stock of the Corporate Subsidiaries directly, and not
through an intermediary corporation as described under "Summary of the
Conversion Agreement and the Merger Agreements -- The Corporate Subsidiary
Formation."
(3) The PCMC Partners' interest will consist of 26% of the outstanding Common
Stock and Special Voting Stock convertible into 1% of the outstanding Common
Stock and possession of special voting and board nomination rights.
ALLOCATION OF THE CORPORATION'S EQUITY SECURITIES AMONG THE UNITHOLDERS AND PCMC
The PCMC Board determined, based on the fact that the Corporation will
initially own essentially the same assets as those held by the Partnership, that
it was appropriate for each of the Unitholders to receive one share of Common
Stock for each Unit held by them immediately prior to the Conversion
Transaction. This results in the current Unitholders receiving 46,323,300 shares
of Common Stock in the Conversion Transaction.
In order to determine the appropriate consideration to be paid to PCMC in
the Conversion Transaction, the Board appointed the Conflicts Committee of Corp
I (which consists of those members of the PCMC Board who are not employees of
PCMC or Corp I and do not own any interest in PCMC or Corp I) to act as the PCMC
Special Committee to negotiate the amount of such consideration on behalf of the
Unitholders. PCMC determined that the appointment of the PCMC Special Committee
was appropriate due to the conflict of interest between PCMC and the Unitholders
in determining the amount of such consideration. The PCMC Board has a fiduciary
duty to its stockholders and, when acting on behalf of PCMC as general partner
of Plum Creek, to the Unitholders. Although the PCMC Special Committee is
comprised of directors from the PCMC Board who owe fiduciary duties both to the
Unitholders and to such stockholders, the PCMC Special Committee was charged by
the PCMC Board with the responsibility to negotiate solely on behalf of the
Unitholders in order to mitigate the conflict of interest between the PCMC Board
as a whole and the Unitholders. See "Risk Factors -- Conflicts of Interest" and
"Background of the Conversion Transaction."
6
<PAGE> 20
In negotiating the amount to be received by PCMC in the Conversion
Transaction, PCMC and the PCMC Special Committee took into account the existing
economic and other interests of the Unitholders and PCMC (including each element
of PCMC's Incentive Rights). See "Allocation of the Corporation's Equity
Securities Among the Unitholders and PCMC."
RECOMMENDATION OF THE PCMC BOARD; REASONS FOR THE CONVERSION TRANSACTION
The PCMC Board appointed the PCMC Special Committee to negotiate the terms
of the Conversion Transaction with the PCMC Partners on behalf of the
Unitholders and to recommend to the PCMC Board whether the Conversion
Transaction is fair to and in the best interests of the Unitholders. The members
of the PCMC Special Committee consisted of the three members of the PCMC Board
who are not otherwise affiliated with the PCMC Partners, Corp I, the Partnership
or other members of the PCMC Board and who have no ownership interest in Corp I
or PCMC. One of the PCMC Special Committee members, David D. Leland, served as
the President and Chief Executive Officer of PCMC and its predecessor from June
1989 to December 1993.
The PCMC Board and the PCMC Special Committee each unanimously determined,
after consulting with their respective legal and financial advisors, that the
Conversion Transaction is fair to, and in the best interests of, the
Unitholders. The PCMC Board and the PCMC Special Committee each made this
determination based upon numerous factors, including the following:
M the strategic, financial and operational benefits of the Conversion
Transaction, including the ability to use securities of the Corporation
as "acquisition currency" to effect strategic mergers with other
timberland owners and the ability to use OP Units to acquire timberlands
in tax efficient transactions;
M the elimination of certain of PCMC's current rights as general partner,
including:
- PCMC's right to receive an increasing percentage of quarterly
distributions made by the Partnership when per Unit quarterly
distributions exceed the Target Amounts and correspondingly
disproportionate decreases should the quarterly distribution level per
Unit fall below such Target Amounts (which, together with its 2%
ownership interest, entitled PCMC to 25.5%, 25.0%, 23.8% and 23.3%,
respectively, of the aggregate amount distributed by the Partnership
during the first three quarters of 1998 and the fiscal years 1997, 1996
and 1995);
- PCMC's right to retain its 2% general partner interest in the
Partnership and to receive increased incentive distributions upon any
equity issuance by the Partnership without any further capital
contribution;
- PCMC's right to receive incentive distributions upon liquidation of the
Partnership equal to 37% of distributable assets after the Partnership
has distributed to the Unitholders and the general partner an amount
equal to their existing capital account balances (the aforementioned
rights referred to herein, collectively, as the "Incentive Rights");
- PCMC's right to exercise exclusive control over the business and
affairs of the Partnership;
M the intention of the Corporation to continue to make quarterly dividends
in amounts consistent with the Partnership's historical policy of making
cash distributions to Unitholders at sustainable and increasing levels;
M the favorable tax regime applicable to REITs, which maintains the
advantages of single-layer taxation enjoyed under the current MLP
structure with respect to the treatment of taxable income and will result
in simplified tax reporting for the Corporation's stockholders, who will
receive a Form 1099 for tax reporting purposes, rather than the more
complicated partnership Schedule K-1 required for MLPs;
M the belief that the Conversion Transaction will result in a structure
that will permit a broader array of investors (including institutional
and tax-exempt investors) to invest in the Corporation than can presently
invest in the Partnership, and that the Corporation may be able to raise
equity and debt financing on more favorable terms than are currently
available to the Partnership; and
7
<PAGE> 21
M the potential benefits to be received by the PCMC Partners as part of the
Conversion Transaction, described under "Recommendation of the Board;
Reasons for the Conversion Transaction -- Potential Alternative of
Continuation of the Partnership."
For a more complete discussion of these factors, see "Recommendation of the
PCMC Board; Reasons for the Conversion Transaction."
CONFLICTS OF INTEREST
In considering the amount and type of consideration to be received by the
PCMC Partners as a result of the Conversion Transaction and the PCMC Board's
recommendation that the Unitholders approve the Conversion Transaction,
Unitholders should be aware that PCMC, the PCMC Board and the PCMC Special
Committee were subject to conflicts of interest. See "Risk
Factors -- Transaction Risks -- Conflicts of Interest." Although the Agreement
of Limited Partnership of the Partnership (the "Partnership Agreement") provides
that PCMC can, in its sole discretion, cause the Partnership to enter into a
merger agreement (subject to Unitholder approval), to mitigate the effects of
these conflicts of interest, the PCMC Board appointed the PCMC Special Committee
to negotiate the terms of the Conversion Transaction with the PCMC Partners on
behalf of the Unitholders. To assist in fulfilling this responsibility, the PCMC
Special Committee was advised by independent legal and financial advisors
selected by the PCMC Special Committee.
UNITHOLDERS SHOULD BE ADVISED THAT PCMC BELIEVES IT IS NOT SUBJECT TO A DUTY OF
FAIRNESS IN SUBMITTING THE CONVERSION TRANSACTION FOR UNITHOLDER APPROVAL
The PCMC Board believes that the Conversion Transaction is fair to
Unitholders. The PCMC Board utilized the PCMC Special Committee and independent
legal and financial advisors to negotiate on behalf of the Unitholders primarily
(i) to mitigate the conflict of interest between PCMC and the Unitholders in
determining the appropriate amount of consideration each would receive in the
Conversion Transaction (see "Risk Factors -- Transaction Risks -- Conflicts of
Interest") and (ii) to assist the PCMC Board in determining whether to recommend
approval of the Conversion Transaction to Unitholders. However, in using the
PCMC Special Committee and its advisors to negotiate the terms of the Conversion
Transaction, PCMC did not intend to undertake, and the disclosures in this Proxy
Statement/Prospectus should not be read to create, a voluntary duty to ensure on
behalf of the Unitholders that the terms of the Conversion Transaction are fair
to Unitholders. The Delaware Chancery Court, in dismissing the Action, held that
a partnership agreement can limit the nature, scope and applicability of
fiduciary duties that would otherwise apply. The Delaware Chancery Court held
that the Partnership Agreement does have such an effect. In particular, the
Partnership Agreement gives PCMC the unilateral right to submit the Conversion
Transaction to Unitholders in its sole discretion. However, the Partnership
Agreement does afford Unitholders with the protection that a two-thirds
Unitholder vote is required for approval of the Conversion Transaction.
Federal securities rules require full and accurate disclosure of the
Conversion Transaction, including disclosure regarding the basis for a belief as
to the fairness of the Conversion Transaction. The Partnership, PCMC and their
respective officers and directors do not disclaim any duties imposed upon them
under the Federal securities laws.
One Delaware court has ruled that misleading disclosure concerning the role
of an independent counsel and assurance of fairness can result in the voluntary
assumption of a duty to ensure the fairness of the transaction under state law.
For this reason, PCMC is affirmatively disclosing that it is assuming no such
duty. PCMC's belief that it has not undertaken a voluntary duty to ensure on
behalf of the Unitholders that the terms of the Conversion Transaction are fair
to Unitholders is based upon its understanding of Delaware law and is supported
by the decision of the Delaware Chancery Court in dismissing the Action. In its
opinion, the Delaware Chancery Court held:
"Plaintiff asks me to conclude, as a matter of law, that merely because the
General Partner appointed a special committee to oversee the transaction,
the General Partner thereby imported common law
8
<PAGE> 22
fiduciary duties into its relationship with the unitholders. I cannot agree
with this view. Even if the General Partner's aim was to conduct a process
in a manner designed to help obtain the support of the unitholders, without
misleading affirmative disclosures professing the fairness and independence
of the special committee, it would unreasonably distort the Agreement to
hold this General Partner to common law fiduciary standards. Plaintiff's
asserted theory of voluntary assumption of common law fiduciary duties is
actually a potential disclosure claim. As such, it is not ripe and must be
dismissed." (A full copy of the Delaware Chancery Court opinion is attached
as Annex V to this Proxy Statement/Prospectus.)
The Plaintiff has filed a notice of appeal of the dismissal of the Action
in the Supreme Court of the State of Delaware and it is possible that the
Supreme Court could reverse the Chancery Court's finding that no voluntary duty
of fairness was created merely by the use of a special committee. In addition,
no court has addressed whether the disclosure in this Proxy Statement/Prospectus
could be viewed as creating a duty to ensure on behalf of the Unitholders that
the terms of the Conversion Transaction are fair to Unitholders. Finally, no
court has addressed whether PCMC's statement that it has not undertaken such a
duty is sufficient disclosure to avoid creating such a duty.
Unitholders should carefully consider the terms of the Conversion
Transaction in assessing the fairness of, and determining whether to vote to
approve, the Conversion Transaction.
OPINIONS OF FINANCIAL ADVISORS
Smith Barney Inc. (now associated with Salomon Brothers Inc and,
collectively with Salomon Brothers Inc, doing business as, and hereinafter
referred to as "Salomon Smith Barney") has provided certain financial advisory
services to the PCMC Special Committee in connection with the Conversion
Transaction and has delivered to the PCMC Special Committee a written opinion
dated June 5, 1998 to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the consideration to be
received by PCMC in the Conversion Transaction (i.e., PCMC's 27% fully-diluted,
equity interest in the Corporation (the "Consideration")) was fair, from a
financial point of view, to the Unitholders. The full text of the written
opinion of Salomon Smith Barney dated June 5, 1998, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex III to this Proxy Statement/Prospectus and should be read
carefully in its entirety. THE OPINION OF SALOMON SMITH BARNEY IS DIRECTED TO
THE PCMC SPECIAL COMMITTEE AND RELATES ONLY TO THE FAIRNESS TO THE UNITHOLDERS
OF THE CONSIDERATION TO BE RECEIVED BY PCMC IN THE CONVERSION TRANSACTION FROM A
FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE CONVERSION
TRANSACTION OR ANY RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY UNITHOLDER AS TO HOW SUCH UNITHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
See "Opinions of Financial Advisors -- Opinion of the PCMC Special Committee's
Financial Advisor."
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has
acted as financial advisor to the Partnership in connection with the Conversion
Transaction and delivered to the PCMC Board a written opinion dated June 5, 1998
to the effect that, as of the date of such opinion and based upon and subject to
the assumptions made, matters considered and limits of review, all as set forth
in such opinion, the Consideration to be received by PCMC in the Conversion
Transaction was fair, from a financial point of view, to the Unitholders. The
full text of the written opinion of Merrill Lynch, dated June 5, 1998, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex IV to this Proxy Statement/Prospectus
and should be read carefully in its entirety. THE OPINION OF MERRILL LYNCH IS
ADDRESSED TO THE PCMC BOARD AND ADDRESSES ONLY THE FAIRNESS TO THE UNITHOLDERS
OF THE CONSIDERATION TO BE RECEIVED BY PCMC IN THE CONVERSION TRANSACTION FROM A
FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE CONVERSION
TRANSACTION OR ANY RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY UNITHOLDER AS TO HOW SUCH UNITHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
See "Opinions of Financial Advisors -- Opinion of the Partnership's Financial
Advisor."
9
<PAGE> 23
CONSEQUENCES IF THE CONVERSION TRANSACTION IS NOT APPROVED
If the Conversion Transaction is not approved by the Unitholders or if it
otherwise is not consummated for any other reason, including because of the
Action, the Partnership anticipates continuing to operate its ongoing business
in its current form. No other transaction is currently being considered by the
Partnership as an alternative to the Conversion Transaction, although the
Partnership would likely continue to explore alternatives from time to time.
COMPARISON OF UNITS AND COMMON STOCK
There are differences between the rights of Unitholders and the rights of
holders of Common Stock. For a discussion of these differences, see "Comparison
of Rights of Unitholders and Stockholders."
THE UNITHOLDERS' MEETING
Date, Time and Place of Special Meeting.
The Unitholders' Meeting will be held on March 22, 1999, at 9:00 a.m.
(local time), at the Crowne Plaza Hotel, 1113 Sixth Avenue, Seattle, Washington.
Record Date; Quorum; Unitholders Entitled to Vote.
PCMC has fixed the close of business on January 22, 1999 as the record date
(the "Record Date") for the determination of Unitholders entitled to notice of,
and to vote at, the Unitholders' Meeting. Only Unitholders of record at the
close of business on the Record Date are entitled to notice of and to vote at
the Unitholders' Meeting. On the Record Date, the Partnership had issued and
outstanding 46,323,300 Units. The presence, in person or by proxy, of 66 2/3% of
the outstanding Units (of which approximately 4.45% are held by PCMC, Management
or their affiliates) shall constitute a quorum for the Unitholders' Meeting.
Voting and Revocation of Proxies.
To vote by proxy, a Unitholder must complete, sign, date and deliver the
proxy card to Georgeson & Company Inc. before the Unitholders' Meeting. Unless
indicated to the contrary on the proxy card, the directions given on the proxy
card will be for all of the Units that such Unitholder may vote. If a Unitholder
signs and returns a proxy card without giving any directions, the proxy holder
will vote such Unitholder's Units for the approval of the Conversion
Transaction.
A Unitholder who has executed and returned a proxy card may revoke it at
any time before it is voted by executing and returning a proxy card bearing a
later date, by giving written notice of revocation to the Partnership or by
attending the Unitholders' Meeting and voting in person.
Vote Required.
The affirmative vote of at least 66 2/3% of the outstanding Units (of which
approximately 4.45% are held by PCMC, Management or their respective affiliates)
is required for approval of the Conversion Transaction. FAILURE TO FORWARD A
PROXY OR TO VOTE IN PERSON AT THE UNITHOLDERS' MEETING, ABSTENTIONS AND BROKER
NON-VOTES WILL ALL HAVE THE SAME EFFECT AS A VOTE AGAINST THE CONVERSION
TRANSACTION. THEREFORE, THE PCMC BOARD AND MANAGEMENT URGE YOU TO SIGN, DATE AND
RETURN THE ENCLOSED PROXY, WITHOUT DELAY, IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
In the event that sufficient votes in favor of the Conversion Transaction
are not received by the time scheduled for the Unitholders' Meeting, the persons
named as proxies may propose one or more adjournments of the Unitholders'
Meeting to permit further solicitation of proxies with respect to the Conversion
Transaction. Any such adjournment will require the affirmative vote of a
majority of the voting power present or represented by proxy at the Unitholders'
Meeting. However, with respect to proxies, only those proxies voted for approval
of the Conversion Transaction may be voted for an adjournment.
10
<PAGE> 24
Solicitation of Proxies.
This solicitation is being made by the Partnership. The Partnership will
pay the cost of soliciting proxies. The Partnership will reimburse brokerage
houses and other nominees for their reasonable expenses of forwarding proxy
materials to beneficial holders of Units. The Partnership has retained Georgeson
& Company Inc. to aid in the solicitation of proxies for a fee of $12,000, plus
an additional fee for each incoming or outgoing contact with Unitholders and
reimbursement of its out of pocket expenses. In addition, representatives of the
Partnership may meet with brokers, research analysts and other members of the
investment community to discuss the Conversion Transaction. Representatives of
the Partnership may also contact Unitholders in person or by telephone, or
arrange meetings with Unitholders to discuss the Conversion Transaction.
Independent Accountants.
Representatives of PricewaterhouseCoopers LLP, the Partnership's
independent accountants, are expected to be present at the Unitholders' Meeting
and will respond to appropriate questions.
NO DISSENTERS' RIGHTS
Under applicable state law, Unitholders have no appraisal or dissenters'
rights with respect to the Conversion Transaction.
ACCOUNTING TREATMENT
For financial accounting purposes, the Conversion Transaction will be
treated as a reorganization of affiliated entities, with assets and liabilities
recorded at their historical costs, except for the exchange of PCMC's 2% and 4%
minority interest in the Manufacturing Partnership and Marketing, respectively.
The exchange of PCMC's minority interests for Common Stock will be accounted for
as a purchase in accordance with Accounting Principles Bulletin ("APB") No. 16,
"Business Combinations." The costs to the Partnership of the Conversion
Transaction are being expensed as incurred.
OTHER MATTERS
The enclosed form of proxy grants discretionary authority to the persons
named to vote on any other matters that may properly come before the
Unitholders' Meeting. The Partnership is not aware of any other proposals
planned to be made at the Unitholders' Meeting and has no current intention of
making any additional proposals.
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<PAGE> 25
MARKET AND TRADING INFORMATION
The Units are currently traded on the NYSE under the symbol "PCL." The
Partnership's and the Corporation's fiscal year ends on December 31. The NYSE
has authorized, upon official notice of issuance, the listing of the Common
Stock on the NYSE. The Common Stock has also been approved for listing on the
PSE. The trading symbol of the Corporation's Common Stock will continue to be
"PCL." The following table sets forth the quarterly high and low sale prices for
the Units as reported by the NYSE, as well as the quarterly distributions paid
per Unit for the years 1997, 1998, and the first quarter of 1999 through January
27, 1999. In addition, on January 26, 1999, the Partnership publicly announced
that a fourth quarter cash distribution of $0.57 per Unit will be paid on
February 25, 1999 to Unitholders of record as of February 12, 1999. Following
the Effective Time the Units will cease to be listed.
<TABLE>
<CAPTION>
DISTRIBUTIONS
PAID PER
HIGH LOW UNIT
---- --- -------------
<S> <C> <C> <C>
CALENDAR YEAR 1997
First quarter............................................. $29 1/4 $25 7/8 $ 0.55
Second quarter............................................ $32 1/2 $26 3/4 $ 0.55
Third quarter............................................. $36 $31 11/16 $ 0.55
Fourth quarter............................................ $34 3/8 $28 $ 0.55
CALENDAR YEAR 1998
First quarter............................................. $34 7/8 $30 $ 0.57
Second quarter............................................ $34 1/4 $28 3/16 $ 0.57
Third quarter............................................. $31 $24 1/2 $ 0.57
Fourth quarter............................................ $28 3/4 $25
CALENDAR YEAR 1999
First quarter (through January 27, 1999).................. $27 9/16 $26 1/2
</TABLE>
On June 5, 1998, the last trading day prior to the date that the
Partnership publicly announced the terms of the Conversion Transaction, the
closing sale price for the Units was $30 3/8 per Unit. On January 27, 1999, the
closing sale price for the Units was $26 7/8 per Unit.
DISTRIBUTION POLICY
The Partnership.
This summary of the distribution provisions under the Partnership Agreement
is qualified in its entirety by reference to the more complete discussion of
such distributions contained in "Distribution Policy -- The Partnership."
The Partnership makes distributions to Unitholders and PCMC with respect to
each calendar quarter in an amount equal to 100% of its Available Cash (as
defined below) from operations for such quarter. Available Cash generally means,
with respect to any quarter, the net income of the Partnership for such quarter
plus certain non-cash items plus reductions to reserves less certain capital
expenditures, principal payments on indebtedness and additions to reserves.
PCMC's decisions regarding amounts to be placed in or released from reserves
have a direct and significant impact on the amount of Available Cash because
increases and decreases in reserves are taken into account in computing
Available Cash. PCMC has broad discretion in establishing reserves. The timing
and amount of additions and reductions to reserves may affect the amount of
incentive distributions payable to PCMC.
Quarterly distributions by the Partnership of its Available Cash are made
98% to the Unitholders and 2% to PCMC. However, when per Unit quarterly
distributions exceed the Target Amounts, PCMC receives, in addition to such 2%,
a percentage of such excess increasing to up to 35% of any quarterly
distribution above the highest Target Amount ($0.28 1/3 per Unit). The
Partnership distributed $0.55 per Unit to Unitholders with respect to each
quarter in 1997 and $0.57 per Unit with respect to each of the first three
quarters of 1998. Because the distributions with respect to each such quarter
were in excess of the Target Amounts, PCMC has
12
<PAGE> 26
received substantially in excess of 2% of the total distributions. With respect
to the first three quarters of 1998 and the fiscal years 1997, 1996 and 1995,
the Unitholders received 74.5%, 75.0%, 76.2% and 76.7%, and PCMC received 25.5%,
25.0%, 23.8% and 23.3%, respectively, of the aggregate amount distributed. The
Partnership has made quarterly distributions in excess of a Target Amount since
September 30, 1989, and has made quarterly distributions in excess of the
highest Target Amount in respect of every quarter since the second quarter of
1992. At present, PCMC is entitled to receive, in addition to distributions with
respect to its 2% ownership interest, incentive distributions at the highest
marginal rate of 35% of incremental increases in quarterly distributions.
Conversely, if quarterly distributions were to be reduced below current levels
but above the highest Target Amount of $0.28 1/3 per Unit, PCMC's general
partner interest would bear 37% of the aggregate amount of the reduction.
Furthermore, for decreases in quarterly distributions to levels between
$0.28 1/3 per Unit and $0.21 2/3 per Unit, PCMC's general partner interest would
bear between 32% and 12% of the reduction, while decreases in quarterly
distributions to levels below $0.21 2/3 per Unit would be allocated 2% to PCMC's
general partner interest and 98% to the Unitholders. The Partnership has been
able to increase and maintain its current level of distributions notwithstanding
a reduction in its level of profitability during the past four quarters.
Although Management believes that the current distribution level is sustainable
notwithstanding the anticipated continued adverse impact of current economic
conditions on the Partnership's business, there can be no assurance that current
distribution levels will be maintained.
In connection with a dissolution and liquidation of the Partnership, the
proceeds of such liquidation would be applied, first, in accordance with the
provisions of the Partnership Agreement and applicable law, to the payment of
creditors of the Partnership in order of priority provided by law, second, to
the creation of a reserve for contingent liabilities in any amount determined by
the liquidator and, thereafter, any remaining proceeds (or assets in kind) would
be distributed to Unitholders and PCMC. Generally, upon a liquidation of the
Partnership, PCMC would receive 37% of distributable assets after the
Partnership has distributed to the Unitholders and PCMC an amount equal to their
existing capital account balances.
The Corporation.
It is anticipated that the REIT Board will make quarterly dividends
consistent with the Partnership's historical policy of making cash distributions
to Unitholders at sustainable and increasing levels. Nevertheless, the REIT
Board, in its sole discretion, will determine the actual dividend rate based on
the Corporation's results of operations, cash flow and capital requirements,
economic conditions, tax considerations (including those related to maintaining
REIT status) and other factors. In addition, unlike most existing REITs, the
Corporation anticipates that its operations will generate capital gains and net
ordinary losses, which is expected to result in an overall net capital gain.
This is because the sale of timber pursuant to stumpage contracts results in the
recognition of capital gain under the Code. The Code does not require that REITs
distribute capital gain income, unlike ordinary income such as rents.
Accordingly, the Corporation does not anticipate that the requirement that a
REIT distribute 95% of its net taxable income (excluding net capital gains) will
require the Corporation to distribute any material amounts of cash to remain
qualified as a REIT.
As a result of the Conversion Transaction, PCMC's ownership in the
Partnership and its subsidiaries, including its 2% general partner interest in
the Partnership and the related Incentive Rights, will be converted into a 27%
aggregate equity interest in the Corporation which, unlike the current Incentive
Rights, will entitle the PCMC Partners to a fixed percentage of distributions
regardless of the amount of distributions paid. See "Summary of the Conversion
Agreement and the Merger Agreements."
SUMMARY OF THE TAX CONSIDERATIONS OF THE CONVERSION TRANSACTION
The Conversion Transaction has been structured in a manner intended to be
tax-free to Unitholders and, based on the information available to the
Partnership, the Partnership believes that Unitholders will not recognize
taxable gain or loss as a result of the Conversion Transaction. See "Material
Federal Income Tax Consequences."
13
<PAGE> 27
COMPARISON OF PAYMENTS TO PCMC AND MANAGEMENT
The following tables set forth the actual amounts paid to PCMC and
Management as distributions and as reimbursements for the last three fiscal
years and the most recently ended interim period and the amounts that would have
been paid if the Conversion Transaction had been in effect during such periods.
The amounts set forth in these tables reflect distributions in the period in
which they were actually paid. The distribution amounts set forth elsewhere in
this Proxy Statement/Prospectus reflect distributions in the period with respect
to which they were declared.
DISTRIBUTIONS AND COMPENSATION PAYABLE TO PCMC AND MANAGEMENT UNDER MLP
STRUCTURE
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER REIMBURSEMENTS
TO PCMC FOR THE TOTAL DISTRIBUTIONS
ACTUAL CASH COMPENSATION TO ACTUAL COSTS OF AND COMPENSATION
DISTRIBUTIONS TO MANAGEMENT OF ADMINISTERING PAYABLE TO PCMC
YEAR PCMC PCMC(1) THE BUSINESS(2) AND MANAGEMENT
---- ---------------- --------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Nine Months ended September 30,
1998............................... $26,616 $3,312 $4,611 $34,539
1997................................. $32,948 $3,542 $4,660 $41,150
1996................................. $25,985 $2,780 $4,410 $33,175
1995................................. $22,685 $2,482 $4,373 $29,540
</TABLE>
DISTRIBUTIONS AND COMPENSATION PAYABLE TO PCMC AND MANAGEMENT ASSUMING
CONVERSION TRANSACTION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT OF DIVIDENDS
THAT WOULD OTHER
HAVE BEEN PAID TO COMPENSATION REIMBURSEMENTS DIVIDENDS THAT
PCMC IF THE THAT WOULD HAVE TO PCMC FOR WOULD HAVE BEEN TOTAL DISTRIBUTIONS
CONVERSION BEEN PAID TO THE ACTUAL COST PAID TO AND COMPENSATION
TRANSACTION HAD MANAGEMENT OF OF ADMINISTERING MANAGEMENT FROM PAYABLE TO PCMC
YEAR BEEN IN EFFECT(3) PCMC(1) THE BUSINESS(2) OPERATING SUBSIDIARIES AND MANAGEMENT
---- ------------------- --------------- ---------------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C>
Nine Months ended
September 30, 1998... $27,437 $3,312 $4,611 $ -- $35,360
1997................... $34,814 $3,542 $4,660 $113 $43,129
1996................... $29,484 $2,780 $4,410 $ -- $36,674
1995................... $26,957 $2,482 $4,373 $ 21 $33,833
</TABLE>
- ---------------
(1) Although under no obligation to do so, PCMC elected to fund all management
incentive plan bonuses for the nine months ended September 30, 1998 and the
fiscal years 1997, 1996 and 1995, which totalled $1,655, $1,291, $1,174, and
$1,025 respectively. Following the Conversion Transaction, the Corporation
will pay any management incentive bonuses.
(2) This column includes (i) reimbursements to PCMC for compensation paid by
PCMC to non-officer employees of the Partnership and (ii) director fees paid
to the directors of Corp I, which fees totalled $204, $221, $268 and $272
for the nine months ended September 30, 1998 and the fiscal years ended
1997, 1996 and 1995, respectively.
(3) In calculating these amounts, historical total distributions were reduced
$3,284, $4,065 and $916 for the nine months ended September 30, 1998 and the
fiscal years 1997 and 1996, respectively, to eliminate payments made to PCMC
that were related solely to the Partnership's public offering of 5.7 million
Units in 1996. This was necessary because, under the MLP structure, PCMC
receives increased incentive distributions upon any equity issuance by the
Partnership. Distributions were then allocated 73% to the Unitholders and
27% to PCMC to reflect the Conversion Transaction.
14
<PAGE> 28
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth, for the periods and at the dates indicated,
summary combined historical financial data for the Partnership, and summary
unaudited pro forma condensed consolidated financial data for the Corporation
after giving effect to the Conversion Transaction. The summary combined
historical financial data for each of the five years in the period ending
December 31, 1997 are derived from and should be read in conjunction with the
audited financial statements included elsewhere in this Proxy
Statement/Prospectus or incorporated herein by reference. The related combined
historical financial data for the nine month period ended September 30, 1998 is
derived from the historical unaudited combined financial statements of the
Partnership incorporated herein by reference which, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair statement of the results for the unaudited interim period.
Interim results may not be indicative of results that may be expected for any
other interim period or for the year as a whole. The summary unaudited pro forma
condensed consolidated financial information is derived from and should be read
in conjunction with the pro forma financial information contained elsewhere in
this Proxy Statement/Prospectus. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements." The pro forma results of operations are not necessarily
indicative of results of operations that will occur in the future following
consummation of the Conversion Transaction.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------------------- -----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
PRO FORMA PRO FORMA
1993(1) 1994 1995 1996(2) 1997 1997 1998 1998
-------- -------- -------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues..................... $501,006 $578,657 $585,074 $ 633,741 $ 725,571 $234,184(3) $ 510,600 $ 164,135(3)
Distributions................ 61,164 81,790 99,840 110,116 133,007 -- 104,903 --
Net Income................... 91,444 112,212 110,731 223,599 111,696 108,031 53,453 59,017
Net Income per
Unit/Share(5).............. 1.92 2.36 2.17 4.71 1.72 1.70 0.61 0.93
BALANCE SHEET DATA
(AT PERIOD END):
Cash and Cash Equivalents.... $ 34,025 $ 60,942 $ 87,604 $ 123,892 $ 135,381 -- $ 127,629 $ 126,512
Total Assets................. 818,754 826,220 826,086 1,336,434 1,300,897 -- 1,283,856 1,082,011(4)
Long Term Debt............... 544,400 531,400 517,300 763,400 745,000 -- 765,600 627,850(4)
Total Liabilities............ 623,987 603,243 592,218 844,786 830,560 -- 864,967 659,815
Partners'
Capital/Stockholders'
Equity(6).................. 192,555 222,977 233,868 491,648 470,337 -- 418,889 422,196
Book Value per
Unit/Share(7).............. 4.74 5.49 5.76 10.63 10.15 -- 9.04 6.65
OTHER DATA:
Ratio of Earnings to Fixed
Charges.................... 3.49 3.39 3.38 5.49 2.85 2.78 2.18 2.29
Cash Provided by (Used for)
Operations................. $115,341 $155,115 $165,214 $ 171,948 $ 189,976 $164,273 $ 126,667 $ 104,826
Net Increase (Decrease) in
Cash and Cash
Equivalents................ (35,557) 26,917 26,662 36,288 11,489 9,834 (7,752) (4,824)
Cash Distributions Declared
per Unit................... 1.38 1.67 1.96 2.02 2.20 -- 1.71 --
</TABLE>
- ---------------
(1) On August 30, 1993, the Partnership redeemed 100% of the Deferred
Participation Interests ("DPIs") for $63.0 million. Results subsequent to
1993 include the impact of the Partnerships' acquisition of 865,000 acres of
timberland in Montana, which was effected in November 1993.
(2) Included in 1996 results of operations was a gain of $105.7 million related
to the sale of 107,000 acres of timberland in northeast Washington and
northern Idaho (the "Newport Asset Sale"). Results include the impact of the
acquisition of 538,000 acres of timberland and related assets in Louisiana
and Arkansas from October 19, 1996 (the "Riverwood Acquisition") and the
Newport Asset Sale from October 12, 1996.
(3) Reflects the reduction of revenues related to the manufacturing operations
that will be transferred to the Corporate Subsidiaries. Pro forma revenues
including the Corporate Subsidiaries' operations as if consolidated with the
Corporation for financial reporting purposes would be $725,571 and $510,600
as of December 31, 1997 and September 30, 1998, respectively.
(4) Reflects the transfer of certain assets and liabilities related to the
manufacturing and harvesting operations that will be transferred to the
Corporate Subsidiaries. Pro forma total assets and long-term debt including
the Corporate Subsidiaries as if consolidated with the Corporation for
financial reporting purposes would be $1,293,780 and $772,750, respectively.
15
<PAGE> 29
(5) The weighted average number of Units outstanding for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the nine month period ended
September 30, 1998 were 43,084,327, 40,608,300, 40,608,300, 41,619,803,
46,323,300 and 46,323,300, respectively. The pro forma weighted average
number of shares outstanding for both the year ended December 31, 1997 and
the nine month period ended September 30, 1998 was 63,456,575.
(6) The Partnership issued 5.7 million Units during 1996 for net proceeds of
$144.3 million.
(7) The number of Units outstanding as of the end of the periods December 31,
1993, 1994, 1995, 1996, 1997 and September 30, 1998 were 40,608,300,
40,608,300, 40,608,300, 46,323,300, 46,323,300 and 46,323,300, respectively.
The pro forma number of shares outstanding as of the end of the period
September 30, 1998 was 63,456,575.
16
<PAGE> 30
RISK FACTORS
Unitholders should carefully consider the following risk factors, as well
as the other information set forth or incorporated by reference in this Proxy
Statement/Prospectus, before voting on the Conversion Transaction.
TRANSACTION RISKS
Conflicts of Interest.
The PCMC Board and PCMC have a duty to manage Corp I and the Partnership in
the best interests of their stockholders and partners, on the one hand, and the
Unitholders on the other hand. The duties of the directors of Corp I and PCMC to
the Partnership and the Unitholders, therefore, conflict with their duties to
their stockholders and partners. This conflict of interest arises in the context
of the Conversion Transaction because the PCMC Partners will receive equity
interests in the Corporation and control rights as set forth in the Conversion
Agreement.
The PCMC Board appointed the PCMC Special Committee to negotiate on behalf
of the Unitholders the consideration to be received by the PCMC Partners in the
Conversion Transaction. Although the PCMC Special Committee is comprised of
directors from the PCMC Board who owe fiduciary duties both to the Unitholders
and to such stockholders, the PCMC Special Committee was charged by the PCMC
Board with the responsibility to negotiate solely on behalf of the Unitholders
in order to mitigate the conflict of interest between the PCMC Board as a whole
and the Unitholders. The Partnership Agreement provides that PCMC can, in its
sole discretion, cause the Partnership to enter into any merger agreement
(subject to Unitholder approval). PCMC was free to accept or reject the terms on
which the PCMC Special Committee was willing to proceed. The consideration to be
received by the PCMC Partners for PCMC's general partner interest in the
Partnership, as well as PCMC's 2% and 4% interests in the Manufacturing
Partnership and Marketing, respectively, and the terms of the Conversion
Agreement negotiated by PCMC and the PCMC Special Committee, therefore, may not
necessarily be those that would have been obtained had the Unitholders directly
negotiated the terms of the Conversion Transaction on their own behalf.
In addition to the appointment of the PCMC Special Committee, the PCMC
Board retained Merrill Lynch and the PCMC Special Committee retained Salomon
Smith Barney to evaluate, from a financial point of view, the Consideration to
be received in the Conversion Transaction by PCMC and to provide an opinion to
the PCMC Board and the PCMC Special Committee, respectively, as to the fairness
of the Consideration, from a financial point of view, to the Unitholders.
PCMC Believes it is not Subject to a Duty of Fairness in Submitting the
Conversion Transaction for Unitholder Approval.
The PCMC Board believes that the Conversion Transaction is fair to
Unitholders. The PCMC Board utilized the PCMC Special Committee and independent
legal and financial advisors to negotiate on behalf of the Unitholders primarily
(i) to mitigate the conflict of interest between PCMC and the Unitholders in
determining the appropriate amount of consideration each would receive in the
Conversion Transaction (see "Risk Factors -- Transaction Risks -- Conflicts of
Interest") and (ii) to assist the PCMC Board in determining whether to recommend
approval of the Conversion Transaction to Unitholders. However, in using the
PCMC Special Committee and its advisors to negotiate the terms of the Conversion
Transaction, PCMC did not intend to undertake, and the disclosures in this Proxy
Statement/Prospectus should not be read to create, a voluntary duty to ensure on
behalf of the Unitholders that the terms of the Conversion Transaction are fair
to Unitholders. The Delaware Chancery Court, in dismissing the Action, held that
a partnership agreement can limit the nature, scope and applicability of
fiduciary duties that would otherwise apply. The Delaware Chancery Court held
that the Partnership Agreement does have such an effect. In particular, the
Partnership Agreement gives PCMC the unilateral right to submit the Conversion
Transaction to Unitholders in its sole discretion. However, the Partnership
Agreement does afford Unitholders with the protection that a two-thirds
Unitholder vote is required for approval of the Conversion Transaction.
Federal securities rules require full and accurate disclosure of the
Conversion Transaction, including disclosure regarding the basis for a belief as
to the fairness of the Conversion Transaction. The Partnership,
17
<PAGE> 31
PCMC and their respective officers and directors do not disclaim any duties
imposed upon them under the Federal securities laws.
One Delaware court has ruled that misleading disclosure concerning the role
of an independent counsel and assurance of fairness can result in the voluntary
assumption of a duty to ensure the fairness of the transaction under state law.
For this reason, PCMC is affirmatively disclosing that it is assuming no such
duty. PCMC's belief that it has not undertaken a voluntary duty to ensure on
behalf of the Unitholders that the terms of the Conversion Transaction are fair
to Unitholders is based upon its understanding of Delaware law and is supported
by the decision of the Delaware Chancery Court in dismissing the Action. In its
opinion, the Delaware Chancery Court held:
"Plaintiff asks me to conclude, as a matter of law, that merely because the
General Partner appointed a special committee to oversee the transaction,
the General Partner thereby imported common law fiduciary duties into its
relationship with the unitholders. I cannot agree with this view. Even if
the General Partner's aim was to conduct a process in a manner designed to
help obtain the support of the unitholders, without misleading affirmative
disclosures professing the fairness and independence of the special
committee, it would unreasonably distort the Agreement to hold this General
Partner to common law fiduciary standards. Plaintiff's asserted theory of
voluntary assumption of common law fiduciary duties is actually a potential
disclosure claim. As such, it is not ripe and must be dismissed." (A full
copy of the Delaware Chancery Court opinion is attached as Annex V to this
Proxy Statement/Prospectus.)
The Plaintiff has filed a notice of appeal of the dismissal of the Action
in the Supreme Court of the State of Delaware and it is possible that the
Supreme Court could reverse the Chancery Court's finding that no voluntary duty
of fairness was created merely by the use of a special committee. In addition,
no court has addressed whether the disclosure in this Proxy Statement/Prospectus
could be viewed as creating a duty to ensure on behalf of the Unitholders that
the terms of the Conversion Transaction are fair to Unitholders. Finally, no
court has addressed whether PCMC's statement that it has not undertaken such a
duty is sufficient disclosure to avoid creating such a duty.
Unitholders should carefully consider the terms of the Conversion
Transaction in assessing the fairness of, and determining whether to vote to
approve, the Conversion Transaction.
Benefits to the PCMC Partners.
Distribution Rights.
Quarterly distributions by the Partnership of its Available Cash are made
98% to the Unitholders and 2% to PCMC. However, when per Unit quarterly
distributions exceed the Target Amounts, PCMC receives, in addition to such 2%,
a percentage of such excess increasing to up to 35% of any quarterly
distribution above the highest Target Amount ($0.28 1/3 per Unit). The
Partnership distributed $0.55 per Unit to Unitholders with respect to each
quarter in 1997 and $0.57 per Unit with respect to each of the first three
quarters of 1998. Because the distributions with respect to each such quarter
were in excess of the Target Amounts, PCMC has received substantially in excess
of 2% of the total distributions. With respect to the first three quarters of
1998 and the fiscal years 1997, 1996 and 1995, the Unitholders received 74.5%,
75.0%, 76.2% and 76.7%, and PCMC received 25.5%, 25.0%, 23.8% and 23.3%,
respectively, of the aggregate amount distributed. The Partnership has made
quarterly distributions in excess of a Target Amount since September 30, 1989,
and has made quarterly distributions in excess of the highest Target Amount in
respect of every quarter since the second quarter of 1992. At present, PCMC is
entitled to receive, in addition to distributions with respect to its 2%
ownership interest, incentive distributions at the highest marginal rate of 35%
of incremental increases in quarterly distributions. Conversely, if quarterly
distributions were to be reduced below current levels but above the highest
Target Amount of $0.28 1/3 per Unit, PCMC's general partner interest would bear
37% of the aggregate amount of the reduction. Furthermore, for decreases in
quarterly distributions to levels between $0.28 1/3 per Unit and $0.21 2/3 per
Unit, PCMC's general partner interest would bear between 32% and 12% of
18
<PAGE> 32
the reduction, while decreases in quarterly distribution to levels below
$0.21 2/3 per Unit would be allocated 2% to PCMC's general partner interest and
98% to the Unitholders.
The Conversion Transaction will result in PCMC converting its 2% general
partner interest, including its Incentive Rights (which presently entitle PCMC
to 25.5% of Partnership distributions) and its right to exercise exclusive
control over the business and affairs of the Partnership in exchange for a 27%
equity interest and special voting and board nomination rights in the
Corporation which are not available to Unitholders. In particular, as a result
of the Conversion Transaction, the PCMC Partners will receive Common Stock and
Special Voting Stock representing, in the aggregate, an approximation of the net
present value of (i) PCMC's general partner interest in the Partnership, given
an assumed stream of incentive distributions otherwise payable with respect to
the Incentive Rights (the amount of which is contingent upon the reserves set
aside by PCMC, in its sole discretion), (ii) the control and other rights
otherwise inuring to PCMC over a period of years pursuant to the Partnership
Agreement and (iii) PCMC's 2% and 4% interests in the Manufacturing Partnership
and Marketing, respectively.
Under the MLP structure, the Incentive Rights would cause the percentage of
distributions payable to PCMC to decrease if the per Unit dollar amount of
quarterly distributions decreases. The conversion of PCMC's ownership in the
Partnership and its subsidiaries, including its 2% general partner interest in
the Partnership and the related Incentive Rights, into a 27% aggregate equity
interest in the Corporation will, unlike PCMC's current incentive distribution
rights, entitle the PCMC Partners to a fixed percentage of distributions even if
distributions were decreased. In addition, the amount of distributions which
would have been payable to PCMC during the last three fiscal years and the nine
months ended September 30, 1998 would have been greater during such periods than
the amount actually received by PCMC under the MLP structure, since the 27%
consideration reflects the current distribution sharing ratio and the
relinquishment of future Incentive Rights, which were not reflected in actual
cash distributions in those prior periods. See "Allocation of the Corporation's
Equity Securities Among the Unitholders and PCMC." Finally, Unitholders should
be aware that the Partnership's earnings and earnings per Unit for the quarter
and year ended December 31, 1998 were each lower than the corresponding periods
in 1997. See "Summary -- Recent Developments -- Results of the Quarter and Year
Ended December 31, 1998." Despite this decline in earnings and the anticipated
continued adverse impact of current economic conditions on the Partnership's
business, Management anticipates that the current quarterly cash distribution
level is sustainable; however, future distribution levels by the Partnership
and, following the Conversion Transaction, future dividends by the Corporation
will depend on results of operations, cash flow and capital requirements,
economic conditions and other factors. See "-- Risks Inherent in the
Partnership's and the Corporation's Ongoing Business -- Cash Distributions Are
Not Guaranteed and May Fluctuate."
Special Voting and Board Nomination Rights.
Under the MLP structure, PCMC exercises exclusive control over the
activities of the Partnership. Unitholders have no right to elect PCMC on an
annual or other continuing basis, although PCMC may be removed upon a vote of at
least 66 2/3% of the outstanding Units (subject to appraisal of and payment for
the general partner interest, including related incentive distribution rights).
Following the Conversion Transaction, the PCMC Partners could be deemed to have
initial, effective control over the Corporation due to the special voting and
board nomination rights they will receive as part of the Conversion Transaction.
So long as the Principals retain beneficial ownership of at least five million
shares of Common Stock and/or Special Voting Stock, in the aggregate (subject to
customary adjustment to avoid dilution): (i) the Principals will have the right
to designate, for nomination purposes only, a sufficient number of the
Corporation's nominees for the REIT Board that, taken together with any
previously elected designees, would constitute a majority of the REIT Board and
(ii) the PCMC Partners will have the right to vote the Special Voting Stock they
hold, in a separate class vote, on certain matters required to be submitted for
stockholder approval, including amendments to the Charter, issuances of more
than 20% of the outstanding Common Stock for non-cash consideration, dissolution
of the Corporation, mergers involving the Corporation and the sale of all or
substantially all of the assets of the Corporation, as well as amendments to the
Corporation's Bylaws that are proposed by the stockholders of the Corporation.
19
<PAGE> 33
The shares of Special Voting Stock received by the PCMC Partners will be
converted into an equal number of shares of Common Stock at the option of the
holder or automatically upon transfer of such shares to persons unaffiliated
with the Principals. The Special Voting Stock will be entitled to the same
dividends as are paid on the Common Stock. If the beneficial ownership of the
Principals drops below five million shares of Common Stock and/or shares of
Special Voting Stock, in the aggregate (subject to customary adjustment to avoid
dilution), all outstanding shares of Special Voting Stock will automatically
convert into Common Stock, thereby eliminating the PCMC Partners' separate class
voting rights.
If the beneficial ownership of the Principals drops below five million
shares of Common Stock and/or Special Voting Stock, in the aggregate, but is
greater than three million shares of Common Stock (subject to customary
adjustment to avoid dilution), the Principals will have the right to designate,
for nomination purposes only, the number of the Corporation's nominees for the
REIT Board that, taken together with any previously elected designees, would
constitute two members of the REIT Board. If such beneficial ownership drops
below three million shares of Common Stock (subject to customary adjustment to
avoid dilution), the Principals will lose their contractual right to designate
any of the Corporation's slate of nominees. See "Summary of the Conversion
Agreement and the Merger Agreements -- Certain Special Voting and Board
Nomination Rights."
Other Benefits.
The PCMC Partners will receive a further benefit from the Conversion
Transaction that is not shared by Unitholders in that, because PCMC will cease
to be the general partner of the Partnership, it will no longer be liable for
obligations and liabilities of the Partnership which the Partnership is not
otherwise able to satisfy. If the Conversion Transaction is consummated, the
PCMC Partners will be stockholders of the Corporation and, as such, will not
have liability for the debts and obligations of the Corporation. As part of the
Conversion Transaction, the Management Incentive Plan of PCMC, the costs of
which had been borne by PCMC, will be transferred to, and assumed by, the
Corporation.
The PCMC Partners may also be deemed to receive a benefit from the
Conversion Transaction in that, following the Conversion Transaction, the PCMC
Partners will own shares of Common Stock in the Corporation which, subject to
certain Securities Act restrictions (see "Resale of Securities"), may be sold in
various quantities and without approval of the Corporation's stockholders. Under
the MLP structure, PCMC may only transfer all, and not less than all, of its
general partner interest to a single transferee, and only if (i) among other
things, the holders of at least 66 2/3% of the outstanding Units (excluding
Units owned by PCMC and its affiliates) approve of such transfer and of the
admission of such transferee as general partner or (ii) such transfer is
effectuated through a merger or transfer of all or substantially all of its
assets provided that the PCMC Partners are currently permitted to transfer
interests in PCMC without Unitholder approval.
Also as part of the Conversion Transaction, and in connection with the
creation of the Corporate Subsidiaries, it is presently intended that Rick R.
Holley, Charles P. Grenier, William R. Brown, Michael J. Covey, Lindsay G.
Crawford, Barbara L. Crowe, Diane M. Irvine and James A. Kraft, members of
Management, will purchase all of the voting common stock of the Corporate
Subsidiaries, representing 1% of the outstanding common stock of the Corporate
Subsidiaries, for an aggregate purchase price of approximately $1.4 million. The
Partnership has also formulated an alternative structure with respect to such
ownership of the Corporate Subsidiaries (which is described under "Summary of
the Conversion Agreement and the Merger Agreements -- The Corporate Subsidiary
Formation"); however, the consideration paid by members of Management under this
alternative would not change because the common stock purchased by members of
Management under either scenario is expected to have the same aggregate value.
The value ascribed to the voting common stock of the Corporate Subsidiaries to
be purchased by members of Management was based on an internally prepared
valuation of the Corporate Subsidiaries' assets. In reaching its determination,
Management considered a number of valuation methodologies including discounted
cash flow analysis, insurance replacement cost and book value. The discounted
cash flow analysis was selected as the best estimate of value and approximated
the mean of the two alternative valuations. This value represents the present
value of internally prepared estimates of (i) future cash flows from the
Corporate Subsidiaries over a nine-year projection period and (ii) a terminal
value at the end of the projection period, utilizing an 11% discount rate.
Annual net cash flows during the projection period ranged from $35 to $62
million depending on
20
<PAGE> 34
assumed business conditions and required capital spending for each year. The
Corporate Subsidiaries' projected cash flows did not assume the consummation of
any acquisitions of additional conversion facilities. The discounted cash flow
analysis described under "Background of the Conversion Transaction" likewise did
not include any assumptions that additional conversion facilities would be
acquired. Accordingly, the Corporate Subsidiaries' assets were valued at $377
million with an equity value (net of the market value of assumed liabilities) of
approximately $140 million. In comparison, the book value of the Corporate
Subsidiaries' assets is $276 million and the insured replacement value is $487
million. These asset values reflect the estimated value of the Corporate
Subsidiaries' property, plant and equipment, plus the book value of its other
assets as of September 30, 1998.
The actual purchase price of common stock of the Corporate Subsidiaries may
vary depending upon the level of debt that is transferred to the Corporate
Subsidiaries in connection with the transfer of the manufacturing assets. See
Note 2(b) of the Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements. With this voting common stock, these members of Management will have
the exclusive right to vote on the election of directors of such subsidiaries or
any other transaction for which stockholders of the Corporate Subsidiaries may
otherwise be given the right to vote pursuant to applicable law. The purchase
price paid by these members of Management for this voting common stock will be
financed by loans from the Operating Partnership (the "Corporate Loans"). The
Corporate Loans will be in the form of promissory notes with a maximum term of
ten (10) years, but will be payable upon demand by the Corporation at any time.
The Corporate Loans will have an interest rate of approximately 7.5%, payable
annually, and will require that dividends with respect to the stock of the
Corporate Subsidiaries be used to pay principal and interest on the Corporate
Loans.
Unitholder Litigation.
On September 11, 1998, the Plaintiff (described under "Summary -- Recent
Developments") filed the Action against the Plum Creek Defendants, alleging,
among other things, that the PCMC Partners' receipt of a 27% equity interest in
the Corporation violates PCMC's and Corp I's fiduciary duties to the
Unitholders. On November 17, 1998, the Plaintiff filed an amended complaint
which also challenged the PCMC Partners' receipt of certain special voting and
board nomination rights. On December 17 1998, the Delaware Court of Chancery
granted the Plum Creek Defendants' motion to dismiss. On January 11, 1999, the
Plaintiff filed a notice of appeal in the Supreme Court of the State of Delaware
with respect to the Action. The Plum Creek Defendants intend to continue to
vigorously defend themselves in connection with this appeal.
PCMC's decision to proceed with the Conversion Transaction is in the sole
discretion of PCMC, subject to receipt of the requisite Unitholders' approval
and satisfaction of the other conditions precedent in the Conversion Agreement.
PCMC currently expects to delay the consummation of the Conversion Transaction
until the Action, including the appeal and any additional claims that may be
brought, is fully resolved to PCMC's satisfaction. Accordingly, there can be no
assurance as to whether the Conversion Transaction will be consummated or, if
consummated, the timing of such consummation.
Absence of Dissenters' Rights.
Under applicable law and the Partnership Agreement, Unitholders will have
no appraisal or dissenters' rights in connection with the Merger, nor will such
rights be voluntarily accorded to the Unitholders by the Corporation.
Consequently, all Unitholders will be bound by the vote of Unitholders owning at
least 66 2/3% of the outstanding Units. Unitholders who do not wish to own
Common Stock must either sell their Units prior to the consummation of the
Merger or sell their Common Stock subsequent thereto.
Certain Charter Provisions May Limit a Change in Control.
Organizational Document Provisions. Certain provisions of the Charter, more
fully described below, may have the effect of discouraging a third party from
making an acquisition proposal for the Corporation and may thereby inhibit a
change in control of the Corporation. In order for the Corporation to maintain
its qualification as a REIT, not more than 50% in value of its outstanding
shares of capital stock may be owned,
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directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities). For the purpose of preserving the Corporation's REIT
qualification, the Charter prohibits ownership either directly or under the
applicable attribution rules of the Code of more than 5% of the lesser of the
total number of shares of Common Stock outstanding or the value of the
outstanding shares of Common Stock by any stockholder (other than by the
Principals), subject to certain exceptions (the "Ownership Limit"). The
Ownership Limit may have the effect of discouraging an acquisition of control of
the Corporation without the approval of the REIT Board. Finally, pursuant to the
terms of the Conversion Agreement, under certain circumstances, the PCMC
Partners will have the right to vote the Special Voting Stock it holds, as a
separate class, on certain transactions involving the Corporation, including
amendments to the Charter, issuances of more than 20% of the outstanding Common
Stock for non-cash consideration, dissolution of the Corporation, mergers
involving the Corporation and the sale of all or substantially all of the assets
of the Corporation, as well as amendments to the Corporation's Bylaws proposed
by the stockholders of the Corporation.
Staggered Board. The REIT Board will be divided into three classes. The
terms of the first, second and third classes will expire in 2000, 2001 and 2002,
respectively. Directors of each class will be elected for a three-year term upon
the expiration of the initial term of each class. The staggered terms for
directors may affect the stockholders' ability to effect a change in control of
the Corporation even if a change in control were in the stockholders' best
interests.
Preferred Stock. The Charter authorizes the REIT Board to issue up to 75
million shares of preferred stock, par value $.01 per share (the "Preferred
Stock"), and to establish the preferences and rights, including the right to
elect additional directors under terms specified in the preferred stock
preferences, of any such shares issued. The issuance of Preferred Stock could
have the effect of delaying or preventing a change in control of the Corporation
even if a change in control were in the stockholders' best interests.
Restrictions on Transfer. The Ownership Limit provided in the Charter may
restrict the transfer of Common Stock. For example, if any purported transfer of
Common Stock would (i) result in any person owning, directly or indirectly,
Common Stock in excess of the Ownership Limit, (ii) result in the Common Stock
being owned by fewer than 100 persons, or (iii) result in the Corporation being
"closely held" (as defined in the Code), the Common Stock purportedly
transferred will be designated as "Excess Stock" and transferred automatically
to a trust effective on the day before the purported transfer of such Common
Stock. These transfer restrictions, however, allow the Principals to
beneficially own up to 27%, in the aggregate, of the outstanding Common Stock,
which exception will be permanently reduced in accordance with any reduction in
its proportional beneficial ownership from sales of shares of Common Stock and
Special Voting Stock by the Principals and their affiliates or new issuances of
Common Stock by the Corporation. See "Description of Capital Stock -- Ownership
Limit."
Acquisition Strategy.
The Corporation intends to continue to pursue its disciplined acquisition
strategy, which has resulted in the addition of approximately 2.3 million acres
of Timberland over the past five years, as one means of increasing the value of
the Corporation's assets and per share cash dividends. The Corporation cannot
predict whether it will be successful in consummating any additional
acquisitions or what the consequences of any such acquisitions would be.
Moreover, there can be no assurance that general economic or industry conditions
will be conducive to the Corporation's acquisition strategy or that the
Corporation will be able to identify and acquire any such assets or businesses
on economically acceptable terms. Neither the Partnership nor the Corporation
has any commitments to acquire or dispose of any material assets.
The Corporation's acquisition strategy involves numerous risks, including
difficulties inherent in the integration of operations and systems, the
diversion of management's attention from other business concerns and the
potential loss of key employees of acquired businesses. Acquisitions by the
Corporation also may involve the expenditure of significant funds. Depending
upon the nature, size and timing of future acquisitions, the Corporation may be
required to secure additional financing. There is no assurance that such
additional financing will be available to the Corporation on acceptable terms.
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Substitution of Trading of Common Stock for Units.
The NYSE has authorized, upon official notice of issuance, the listing of
the Common Stock on the NYSE. The Common Stock has also been approved for
listing on the PSE. There can be no assurance given, however, that the market
price of the Common Stock will initially or thereafter equal the market price of
the Units. As a result, the value of the stockholders' investment in the
Corporation following the Conversion Transaction could be lower than the value
of their investment in the Partnership prior to the Conversion Transaction.
Shares Eligible for Future Sale; Future Dilution.
The Charter has authorized 300 million shares of Common Stock for issuance.
62,822,009 shares will be outstanding upon consummation of the Conversion
Transaction and 634,566 shares will be issuable upon conversion of shares of
Special Voting Stock outstanding immediately following consummation of the
Conversion Transaction. The Charter has also authorized the issuance of up to 75
million shares of Preferred Stock with such rights and preferences as the REIT
Board may determine from time to time. In addition, because the Corporation may
issue additional shares of Common Stock or securities convertible into or
exchangeable for Common Stock (e.g., Special Voting Stock and OP Units) after
the Conversion Transaction from time to time in order to facilitate the
Corporation's ongoing growth strategy, the holders of Common Stock may
experience dilution in their percentage interest in the Corporation, generally
without any requirement of stockholder approval.
Risks of Investment in the Corporation May be Different than Typical REIT
Investments.
Risks to Investors in the Corporation may differ from those applicable to
REITs focused on other types of real property. The Corporation will be one of
the first publicly traded REITs to be primarily dedicated to the ownership of
timberlands. See "-- Risks Inherent in the Partnership's and the Corporation's
Business."
In addition, the tax considerations applicable to an investment in the
Corporation are different than those applicable to most existing REITs. The
Corporation anticipates that its operations will generate capital gains and net
ordinary losses, resulting in an overall net capital gain. Although the
Corporation does not anticipate that the requirement that a REIT distribute 95%
of its net taxable income (excluding net capital gains) will require the
Corporation to distribute any material amounts of cash to remain qualified as a
REIT, the Corporation does not intend to change the historical distribution
policy of the Partnership. Since the Corporation will be one of the first
publicly traded REITs primarily dedicated to the ownership of timberlands, it is
possible that the Internal Revenue Service (the "Service") may challenge the
Corporation's qualification as a REIT or attempt to recharacterize the nature of
the Corporation's income for Federal income tax purposes.
REIT Qualification.
Under Federal income tax law, if certain detailed conditions imposed by the
Code and the income tax regulations that have been promulgated under the Code
(the "Treasury Regulations") are satisfied, an entity that invests principally
in real estate and that would otherwise be subject to tax as a corporation may
elect to be treated as a REIT for Federal income tax purposes. These conditions
relate, in part, to the nature of the entity's assets and income. If the
Corporation qualifies to be subject to taxation as a REIT, it will generally not
be subject to Federal corporate income tax on its taxable income that is
distributed to stockholders annually. This treatment substantially eliminates
the "double taxation" (i.e., taxation at both the corporate and stockholder
levels) that generally results from investment in a corporation.
The Corporation intends to elect to be treated for tax purposes as, and to
operate so as to qualify as, a REIT under sections 856 through 860 of the Code,
commencing with its taxable year ending on December 31, 1999. No assurance can
be given that the Corporation will qualify or remain qualified as a REIT.
Qualification as a REIT involves the application of highly technical and complex
provisions of the Code for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Corporation's control may affect its
ability to qualify as a REIT. In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly
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change the tax laws with respect to qualification as a REIT or the Federal
income tax consequences of such qualification. See "-- Other Tax Risks" and
"Material Federal Income Tax Consequences."
Timber REITs and their activities present issues under Federal income tax
law, including characterization for purposes of the REIT gross income tests of
the income derived from the sale of standing timber pursuant to a contract that
qualifies for special treatment under section 631(b) of the Code. If the income
the Corporation derives from the Stumpage Contracts were to be treated as other
than qualifying income for purposes of the REIT gross income tests, the
Corporation would not qualify as a REIT. See "Material Federal Income Tax
Consequences."
The Corporation has received a written legal opinion from Skadden, Arps,
Slate, Meagher & Flom LLP substantially to the effect that, commencing with the
Corporation's taxable year ending on December 31, 1999, the Corporation will be
organized in conformity with the requirements for qualification as a REIT, and
the Corporation's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT provided that (i) the
elections and other procedural steps described under "Certain Federal Income Tax
Consequences" are completed in a timely fashion and (ii) the Corporation, the
Operating Partnership and their respective subsidiaries operate in accordance
with various assumptions and factual representations made by the Corporation and
the Operating Partnership concerning their organization, business, properties
and operations (and the organization, business, properties and operation of the
Partnership prior to the Conversion Transaction). The opinion of Skadden, Arps,
Slate, Meagher & Flom LLP is based upon facts, representations and assumptions
as of its date, and Skadden, Arps, Slate, Meagher & Flom LLP has no obligation
to advise the Corporation or holders of Common Stock of any subsequent change in
the matters stated, represented or assumed or any subsequent change in
applicable law. No assurance can be given that the Corporation will meet the
requirements for qualification as a REIT in the future, and such opinion is not
binding on the Service. To maintain REIT status, the Corporation must meet a
number of organizational and operational requirements on an ongoing basis. As a
REIT, the Corporation will generally not be subject to Federal income tax on net
income that it distributes to its stockholders. It is a condition to Closing
that the foregoing opinion be reissued in substantially the same form on the
Closing Date.
If the Corporation were to fail to qualify as a REIT in any taxable year,
the Corporation would not be allowed a deduction for distributions to
stockholders in computing taxable income and its taxable income would be subject
to Federal income tax at regular corporate rates. Unless entitled to relief
under certain statutory provisions, the Corporation would also be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification was lost. As a result, the funds available for distribution
to the Corporation's stockholders would be materially reduced for each of the
years involved. Although the Corporation currently intends to operate in a
manner designed to enable it to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Corporation
to fail to qualify as a REIT or may cause the REIT Board to revoke the
Corporation's REIT election. See "Material Federal Income Tax Consequences."
Lender Consents.
At December 31, 1998, the Partnership had an aggregate of $961 million of
outstanding indebtedness that contained covenants requiring lender consents to
complete the Conversion Transaction. With the exception of the Partnership's
$225 million revolving credit facility, all of the Partnership's lenders have
provided written consents to the Conversion Transaction, subject to customary
contingencies at the closing of the Conversion Transaction. The Partnership
expects to receive the consent of its revolving credit facility lenders, but no
assurance can be given as to such consents. In the absence of such consents, the
Partnership believes it would be able to obtain a new credit facility on
substantially comparable terms from other lenders. Refinancing the credit
facility would not require a prepayment penalty.
Potential Disadvantages to Conducting Business as a REIT.
While conducting business as a REIT will provide the Corporation with
certain advantages, it will also result in certain tax disadvantages to the
Corporation. Unlike the Partnership, a REIT is not able to pass-through losses
to its stockholders. In addition, the Corporation will be subject to various
restrictions (e.g., with
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respect to its assets and income), which are not applicable to the Partnership.
As a result, certain business activities that the Corporation cannot perform
directly, but which the Partnership presently conducts, will be performed by the
Corporate Subsidiaries. Income generated from these activities will be subject
to entity level Federal income tax, whereas now it is not. Further, any net
income realized by the Corporation from the sale or other disposition of
property described in section 1221(1) of the Code (i.e., property sold in the
"ordinary course of business") will not be treated as "qualifying income" for
purposes of the REIT income qualification tests and will be subject to a 100%
penalty tax. If the Partnership were to recognize income from such dispositions,
it would only change the character of the income from capital gains to ordinary
income.
OTHER TAX RISKS
State Conformity with Federal Tax Law.
While it is anticipated that the Corporation will qualify as a REIT for
Federal income tax purposes, the qualification of the Corporation as a REIT
under the laws of the individual states will depend, among other things, on such
states' level of conformity with Federal tax law. The Corporation believes that,
at the present time, any nonconformity between state and Federal income tax law
will, with respect to the requirements for qualification as a REIT, generally
not have a material adverse effect on the Corporation and its stockholders.
There can be no assurance, however, that, in the future, changes in either state
or Federal law would not have a material adverse effect on the Corporation or
its stockholders. With respect to nonconformity between state and Federal income
tax law in a state in which the Corporation is not currently engaged in
business, the Corporation does not believe that such nonconformity will have a
material adverse effect on the Corporation, but could adversely affect the state
income tax treatment of distributions made to stockholders who are residents of
such state. Unitholders should consult their tax advisors regarding their
states' tax law.
Capital Gains for Non-U.S. Holders.
Non-United States Unitholders should be aware that the Corporation
anticipates that a portion of the amounts distributed by the Corporation to its
stockholders will constitute capital gains distributions. Under the provisions
of the Foreign Investment in Real Property Tax Act ("FIRPTA"), such capital gain
distributions are generally subject to withholding at a rate of 35%. See
"Material Federal Income Tax Consequences -- Taxation of Non-United States
Stockholders of the Corporation."
Potential Payments of Tax on Capital Gain Income.
Although the Corporation does not intend to change the historical
distribution policy of the Partnership, it is anticipated that the Corporation's
operations, unlike most existing REITs, will generate capital gains and ordinary
losses, resulting in an overall net capital gain. If, after giving effect to the
Corporation's dividends for a tax year, the Corporation has not distributed 100%
of its taxable income (including capital gains), then the Corporation will be
required to pay tax on the undistributed portion of such taxable income at
regular Federal corporate tax rates (currently 35%). In such cases, it is
anticipated that the Corporation would generally make an election pursuant to
which (i) any tax paid by the Corporation on its retained capital gains would be
treated as having been paid on behalf of the Corporation's stockholders and (ii)
such retained capital gains would be treated as having been distributed to the
Corporation's stockholders. Although required to take their share of such gains
into income, stockholders (including tax-exempt U.S. Holders) will receive a tax
credit for such taxes and may file a claim for refund if their proportionate
share of the taxes paid by the Corporation exceeds their actual tax liability
(if any). See "Material Federal Income Tax Consequences -- Taxation of Taxable
U.S. Holders of the Corporation -- Distributions by the Corporation."
Uncertain Impact of Budget Proposal.
The Budget Proposal submitted by the President to Congress on February 2,
1998 contained a number of provisions which, if enacted into law, would have
affected REITs in general and the Corporation in particular. One of these
changes would have required a REIT to own no more than 10% of the vote or value
of all classes of stock of any corporation, including the stock of non-qualified
REIT subsidiaries, such as the Corporate Subsidiaries. Existing non-qualified
REIT subsidiaries would have been grandfathered and, therefore, would have
remained subject to the existing 5% asset test and 10% voting securities test
(see "Certain Federal
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Income Tax Consequences") except that such grandfathered status would have
terminated if the non-qualified REIT subsidiary had engaged in a new trade or
business or acquired substantial new assets on or after the effective date of
the proposal. Although these proposals were not enacted into law in 1998, it is
possible that they will be reproposed in later years. The Corporation cannot
predict whether one or more provisions affecting REITs or the Corporation will
pass, what form any final legislative language will take if so passed, or the
effective date of any such legislation. Such future legislation, if enacted into
law, could adversely affect the Corporation's ability to benefit from operations
that it could not directly conduct as a REIT.
RISKS INHERENT IN THE PARTNERSHIP'S AND THE CORPORATION'S ONGOING BUSINESS
Cyclicality of Forest Products Industry Will Affect the Partnership's and the
Corporation's Results of Operations.
The Partnership's results of operations are, and the Corporation's results
of operations will continue to be, affected by the cyclical nature of the forest
products industry. Prices and demand for logs and manufactured wood products
have been, and in the future can be expected to be, subject to cyclical
fluctuations. The demand for logs and wood products is primarily affected by the
level of new residential construction activity and, to a lesser extent, repair
and remodeling activity and other industrial uses, which are subject to
fluctuations due to changes in economic conditions, interest rates, population
growth, weather conditions and other factors. Decreases in the level of
residential construction activity generally reduce demand for logs and wood
products, resulting in lower revenues, profits and cash flows. In addition, the
Partnership's results of operations are subject to global economic changes as
global supplies of wood fiber shift in response to changing economic conditions.
For example, economic weakness throughout Asia in 1998 has caused export quality
North American logs normally sold into the Japanese market to remain in, or be
directed into, domestic markets, causing oversupply in the Partnership's
domestic markets. Additionally, Asian economic weakness has recently caused
European and Canadian producers to direct larger volumes of competing wood
products into U.S. markets, thereby negatively impacting prices in such markets.
The continued effects of economic conditions in Asia and changes in the pricing
of and demand for many of the Partnership's products have continued to adversely
impact the Partnership's financial performance since the time the terms of the
Conversion Transaction were determined. The Partnership's operating results
during this time have accordingly fallen short of previous expectations, and
Management believes that such conditions will likely continue to have an impact
on the Partnership's business for the near-term.
Financing and Leverage.
Cash required to meet the Partnership's quarterly cash distributions,
capital expenditures and principal and interest payments in 1999 and beyond will
be significant. The Partnership has an unsecured Line of Credit with a group of
banks which, subject to customary covenants, may permit the Partnership to
borrow up to $225 million for general corporate purposes, including up to $20
million of standby letters of credit issued on behalf of the Partnership or the
Manufacturing Partnership. Following the recently closed Sappi Acquisition, the
Partnership has substantial indebtedness. As a result of the Sappi Acquisition
and current and expected operating performance, the Partnership may be unable to
incur significant additional indebtedness in 1999, pursuant to the terms of its
existing debt agreements. The Partnership believes, however, that borrowings
under its Line of Credit, cash on hand and cash flows from continuing operations
will be sufficient to fund planned capital expenditures, distributions, and
interest and principal payments in 1999.
Cash Distributions Are Not Guaranteed and May Fluctuate.
Although under the MLP structure, the Partnership distributes all of its
Available Cash (as defined in "Distribution Policy -- The Partnership"), there
can be no assurance regarding the amounts of Available Cash to be generated by
the Partnership. The actual amount of Available Cash depends upon numerous
factors, including the Partnership's profitability, required principal and
interest payments on the Partnership's debt, the cost of acquisitions (including
related debt service payments), restrictions contained in the Partnership's debt
instruments, issuances of debt and equity securities by the Partnership,
fluctuations in working capital, capital expenditures, adjustments in reserves,
availability of merchantable timber, prevailing economic conditions and
financial, business and other factors, many of which are beyond the control of
the
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Partnership and PCMC. The Partnership Agreement gives PCMC broad discretion in
establishing reserves that affect the amount of Available Cash. The Partnership
has been able to increase and maintain its current level of distributions
notwithstanding a reduction in its level of profitability during the past five
quarters. Although Management believes that the current distribution level is
sustainable notwithstanding the anticipated continued adverse impact of current
economic conditions on the Partnership's business, there can be no assurance
that current distribution levels will be maintained.
The Corporation will not be required to adhere to any particular formula in
determining what dividends it will declare and pay. While it is anticipated that
the Corporation will make quarterly dividends to its stockholders consistent
with the Partnership's historical policy of making cash distributions to
Unitholders at sustainable and increasing levels, the REIT Board, in its sole
discretion, will determine the actual dividend rate based on the Corporation's
results of operations, cash flow and capital requirements, economic conditions,
tax considerations (including those related to maintaining REIT status) and
other factors. See "Distribution Policy."
The Partnership and the Corporation are Subject to Significant Competition.
The forest products industry is highly competitive in terms of price and
quality. Many of the Partnership's competitors have, and the Corporation's
competitors will continue to have, substantially greater financial and operating
resources than the Partnership and the Corporation. Wood products are subject to
increasing competition from a variety of substitute products, including non-wood
and engineered wood products. Plywood markets are subject to competition from
oriented strand board ("OSB"), and lumber and log markets are subject to
competition from other worldwide suppliers.
The Partnership's and the Corporation's Ability to Harvest Timber May be
Subject to Limitations.
Revenues, net income and cash flow from the Corporation's operations are
dependent to a significant extent on its continued ability to harvest timber at
adequate levels. The ability of the Corporation to accelerate the harvest of
significant amounts of timber in order to fund dividends to stockholders may be
limited by the terms of the long-term debt agreements and lines of credit that
the Corporation will assume from the Partnership. There can be no assurance that
the Corporation will achieve harvest levels in the future necessary to maintain
or increase revenues, net income and cash flows.
Weather conditions, timber growth cycles, access limitations and regulatory
requirements associated with the protection of wildlife and water resources may
restrict harvesting of the Timberlands, as may other factors, including damage
by fire, insect infestation, disease, prolonged drought and natural disasters.
As is typical in the forest products industry, the Partnership does not, and the
Corporation does not intend to, maintain insurance coverage with respect to
damage to the Timberlands. Even if such insurance were available, the cost would
be prohibitive. The Partnership does, and the Corporation will continue to,
however, maintain insurance for loss of logs due to fire and other occurrences
following harvesting.
Harvest levels in the Rocky Mountain Region are expected to remain
relatively stable over the next two years. By the year 2000, the Partnership
anticipates that it will have nearly completed the conversion of slower growing
forests to younger, more productive stands in the Rocky Mountain Region, at
which time it anticipates a moderate reduction in the region's harvest levels.
The Partnership expects that harvest levels in the Cascades Region will decline
gradually for the foreseeable future as the conversion process in the region
approaches completion. Harvest levels in the Southern Region for the years 2000
to 2003 are expected to be moderately lower compared to 1998 harvest levels as
the Partnership completes the conversion of mature second growth pine
timberlands into intensively managed pine plantations. In subsequent years,
harvest levels in the Southern Region are expected to gradually increase as the
Partnership benefits from faster growing, intensively managed plantations.
A substantial portion of the Northwest Timberlands are intermingled among
sections of federal land managed by the United States Department of
Agriculture -- Forest Service ("USFS"). The Partnership currently does not, and
the Corporation will not in the immediate future, have legal access to
approximately 10% of the merchantable timber, by volume, included in such
Northwest Timberlands. In many cases, access is only, or most economically,
achieved through a road or roads built across adjacent federal land. In order to
access such intermingled timberlands, the Partnership has in the past obtained,
and the Corporation will need
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to continue to obtain, either temporary or permanent access rights across these
USFS lands. This process has often been, and will likely continue to be,
affected by, among other things, the requirements of the Endangered Species Act
(the "ESA"), the National Environmental Policy Act and the Clean Water Act.
Log Exports.
The Partnership's business includes, and the Corporation's business will
continue to include, the sale of logs for export, which business is
substantially dependent on market and economic conditions in the major Asian
economies, particularly Japan, and may be affected by, among other things,
fluctuations in exchange rates, the availability of substitute products and
changes in building practices. In 1997 and the first nine months of 1998, all of
the Partnership's export log sales originated from the Cascades Region and were
made to customers in Japan. Export log revenues accounted for approximately 6%
and 3% of the Partnership's total revenues in 1997 and the first nine months of
1998, respectively, and represented approximately 11% and 6%, respectively, of
the Partnership's operating income in such periods. Historically, export grade
logs have been sold at a premium over the prices that would have been received
if the logs had been sold in the domestic market. However, no assurance can be
made that such premiums will continue.
The Timberlands will Remain Subject to Federal and State Environmental
Regulation.
The Partnership's operations do, and the Corporation's operations will
continue to, generate air emissions, discharge industrial wastewater and storm
water and generate and dispose of both hazardous and nonhazardous wastes. The
Partnership is, and the Corporation will be, subject to regulation under, among
other laws, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") and the ESA, as
well as similar state laws and regulations. Violations of various statutory and
regulatory programs that apply to the Corporation's operations could result in
civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Laws and
regulations protecting the environment have generally become more stringent in
recent years and could become more stringent in the future. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. There
can be no assurance that such laws or future legislation or administrative or
judicial action with respect to protection of the environment will not adversely
affect the Corporation.
The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to the Timberlands have been
and in the future may be protected under these laws, including the northern
spotted owl, marbled murrelet, gray wolf, grizzly bear, mountain caribou, bald
eagle, red cockaded woodpecker, bull trout, and various salmon species. The
Northwest Timberlands are often intermingled with federal land in or near areas
that include the habitats of a number of threatened or endangered species such
as the northern spotted owl, bull trout and the grizzly bear. Protection of
threatened and endangered species may include restrictions on timber harvesting,
road building and other silvicultural activities on private, federal and state
land containing the affected species.
BACKGROUND OF THE CONVERSION TRANSACTION
From time to time, Management, the Principals and the PCMC Board have
considered the advisability of alternatives to the Partnership's existing MLP
structure. Currently, the general partner interest in the Partnership entitles
PCMC to a 2% interest in distributions of Available Cash and to its Incentive
Rights. These Incentive Rights include the right to receive incentive
distributions (up to a maximum marginal rate of 35%) to the extent that per Unit
quarterly distributions on the Units exceed applicable Target Amounts. In
addition, the aggregate amount of PCMC's incentive distribution increases upon
the issuance of additional Units, as occurred with the Partnership's last
issuance of Units in October 1996. In the case of a liquidation of the
Partnership, PCMC would receive 37% of distributable assets after the
Partnership had distributed to the Unitholders and PCMC an amount equal to their
existing capital account balances. Additionally, PCMC holds 2% and 4% interests
in the Manufacturing Partnership and Marketing, respectively. The predecessor
general partner acquired its 2% general partner interest in the Partnership and
its interests in the Manufacturing Partnership and Marketing in June 1989 for
$1.5 million. In December 1992, PCMC acquired the
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predecessor general partner for $27 million. For a more detailed discussion of
PCMC's Incentive Rights, see "Distribution Policy -- The Partnership."
Since the Partnership's inception in 1989, the per Unit cash distribution
has been increased on ten occasions and now stands at 185% of the original
distribution amount per Unit. As a result, the level of distributions exceeds
the highest Target Amount and has done so for each quarter since the second
quarter of 1992. As per Unit cash distributions have increased, the percentage
of aggregate distributions received by PCMC has also increased. With respect to
the first three quarters of 1998 and the fiscal years 1997, 1996 and 1995, PCMC
received 25.5%, 25.0%, 23.8% and 23.3%, respectively, of the aggregate amount
distributed.
The Partnership believes that the MLP structure has served its partners
well. In 1993 and 1996, the Partnership successfully financed (through the
issuance of new private debt and Units and the use of cash on hand) and
completed two significant timberland acquisitions. These purchases added
approximately 1.4 million acres of timberlands to the Partnership's holdings.
The Sappi Acquisition completed in November of 1998 added an additional 905,000
acres. In part due to these acquisitions, the Partnership has been able to
continue to increase cash flow and distributions to Unitholders.
Although the MLP structure has been successful and continues to offer a
tax-efficient structure for Unitholders, the Partnership believes that it would
have more success completing strategic acquisitions and creating and returning
value to its owners if it had a lower cost of capital in both the equity and
debt markets and a legal structure that might be more attractive to potential
sellers of timberlands. As a result, and given the expected declines in harvest
levels from the Timberlands (see "Risk Factors -- Risks Inherent in the
Partnership's and the Corporation's Ongoing Business -- The Partnership's and
the Corporation's Ability to Harvest Timber May be Subject to Limitations"), the
consideration of alternatives to the MLP structure has recently become a growing
priority for Management and the PCMC Board.
Because any transaction involving potential changes to the Partnership's
structure would likely involve the conflicting duties of Management and the PCMC
Board to Unitholders, on the one hand, and to the stockholders of Corp I, on the
other hand, it was desirable to mitigate the potential conflict of interest that
might exist between PCMC and the Unitholders. Accordingly, the previously
created Conflicts Committee of the PCMC Board, which is made up of Ian B.
Davidson (Chairman), George M. Dennison, and David D. Leland, directors who are
not employees of and do not own any interest in PCMC or Corp I, was charged with
leading the Partnership in the process of considering alternatives to the MLP
structure. See "Risk Factors -- Conflicts of Interest."
Commencing in 1996, Management held discussions with the Principals to
explore the possibility of developing a transaction that would reduce,
restructure or eliminate all or a portion of PCMC's Incentive Rights (an
"Incentive Rights Transaction"). Management initiated these discussions in an
effort to better align the interests of the Unitholders and PCMC. This was due,
in large measure, to the fact that, under the MLP structure, PCMC receives
increasing percentages of distributions as the distribution level per Unit
increases and when new Units are issued. As a result of the Partnership's past
increases in cash flow that allowed the Partnership to raise distribution
levels, PCMC was receiving 37% of all increases in the distribution. For
example, between the second quarter of 1994 and the third quarter of 1996, the
quarterly distribution to Unitholders was increased from $0.38 per Unit to $0.51
per Unit, a net increase of 34%. During that same period, the quarterly
distribution to PCMC increased by 91% as a result of PCMC's Incentive Rights.
Management also believed it should seek to lower the cost of issuing new equity
capital for acquisitions or other corporate purposes. Under the MLP structure,
PCMC receives additional cash distributions following equity issuances, without
making any additional capital contribution. For example, solely as a result of
the Partnership issuing 5.7 million new Units in late 1996, PCMC is currently
receiving an additional $4.5 million per year, without any cost to PCMC.
Beginning in November 1996, discussions were held between the Principals,
Management and the Conflicts Committee of the PCMC Board on several occasions
concerning the possibility of such a transaction. On November 26, 1996, the
Conflicts Committee authorized PCMC to retain Merrill Lynch and Andrews & Kurth
LLP (collectively, the "Initial Advisors") to provide independent financial and
legal advice related to an Incentive Rights Transaction.
Over the course of the next two months, the Conflicts Committee and the
Principals discussed alternative ways to accomplish an Incentive Rights
Transaction. To the extent requested by the Conflicts Committee,
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senior management of the Partnership participated in these discussions. On
January 30, 1997, during a meeting of the Conflicts Committee, Rick R. Holley,
President and Chief Executive Officer of PCMC, reviewed with the Conflicts
Committee the alternatives that had been discussed with the Principals. After a
discussion of the advantages and disadvantages of these alternatives, the
Conflicts Committee authorized Mr. Holley to prepare and present to the
Principals a proposal whereby PCMC would withdraw as general partner of the
Partnership and receive a limited partner interest in the Partnership in
exchange for relinquishing certain of the Incentive Rights. Such discussions and
subsequent responses did not result in any determination to pursue a specific
Incentive Rights Transaction. Discussions with respect to an Incentive Rights
Transaction were ultimately abandoned in July 1997 as a result of the inability
of the Conflicts Committee and PCMC to reach agreement on the terms of such a
transaction, and the services of the Initial Advisors were terminated.
In September 1997, Management began to focus on the possibility of
converting the Partnership to a REIT (the "Potential Transaction") based on
preliminary research conducted by and on behalf of the Partnership that
commenced in July 1997 coincident with the increasing institutional interest in
timber investments, including timber REITs. Management developed a belief that a
REIT structure could enhance the Partnership's ability to create value for its
owners and compete for strategic acquisition opportunities. This belief was
based on three principal considerations. First, common stock of a REIT would be
an investment security that could attract a broader base of investors, including
institutional investors such as mutual funds and pension plans. Second, through
access to public debt markets and a broader equity market as well as elimination
of the Incentive Rights, the REIT structure could lower the Partnership's
overall cost of capital. This reduction in cost of capital could be accomplished
while preserving the ability to use OP Units as a way to make strategic
acquisitions that are tax-efficient for both the acquiror and the seller.
Finally, Management concluded that a REIT structure would maintain the
advantages of single-layer taxation enjoyed under the current MLP structure with
respect to the treatment of taxable income.
The Potential Transaction was not viewed as an alternative to the Incentive
Rights Transaction, but as a separate and distinct transaction focused primarily
on the goal of restructuring the Partnership from an MLP to a REIT. Although the
Potential Transaction had some elements in common with the Incentive Rights
Transaction, which would have eliminated some but not all of the Incentive
Rights, the Potential Transaction involved an entirely new structure viewed as
having significant benefits related to the future value and growth potential for
the Partnership. Conversion to a REIT offered significant new benefits for
growing the Partnership. For example, the broader range of investors able to
invest in REIT Common Stock in contrast to MLP Units, including institutional
and tax exempt investors, may allow the Corporation to raise larger amounts of
equity capital in any given transaction, reducing reliance on debt capital and
also potentially facilitating larger acquisitions. The ability to use REIT
Common Stock to effect strategic mergers may also allow the Corporation to
achieve more rapid growth than might otherwise be possible. The PCMC Board was
advised that converting to a REIT which included an Incentive Rights structure
would likely impair the marketability of the REIT and depress the anticipated
trading value of the Common Stock. Thus, many of the foregoing benefits
anticipated to arise from becoming a REIT would be eliminated or substantially
reduced in such a structure. Consequently, the PCMC Board did not give further
consideration to preserving the Incentive Rights structure in the REIT.
Management determined in November 1997 that a conversion of the Partnership
into a REIT structure merited further examination. In January 1998, the
Partnership retained Skadden, Arps, Slate, Meagher & Flom LLP as its legal
advisor to help structure the corporate and tax aspects of the Potential
Transaction. At a January 20, 1998 PCMC Board meeting, Mr. Holley and Diane M.
Irvine, Vice President and Chief Financial Officer of PCMC, updated the PCMC
Board on this process and informally outlined a potential REIT structure that
would be designed to enhance the long-term value of the Partnership and provide
a more flexible and efficient capital structure. The PCMC Board endorsed a
continued review of this alternative by Management. At such time, the Principals
retained Goldman, Sachs & Co. ("Goldman Sachs") at the Principals' expense to
act as their financial advisor with respect to a Potential Transaction.
On March 4, 1998, in furtherance of the possibility of converting the
Partnership to a REIT and following an update by Management, the PCMC Board
appointed the members of the Conflicts Committee as a PCMC
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Special Committee and delegated to the PCMC Special Committee the authority and
responsibility to, among other things, (i) decide whether to pursue the
Potential Transaction, (ii) negotiate the terms of the Potential Transaction
with PCMC on behalf of the Partnership and the Unitholders, (iii) consider the
terms of any amendment to the Amended and Restated Agreement of Limited
Partnership for the Partnership, to the extent that any such amendment was
required or deemed advisable to effect the Potential Transaction, (iv) retain
such independent legal, financial and other advisors as it deemed necessary or
advisable (at the Partnership's expense) to advise it in connection with its
consideration of the Potential Transaction, and (v) take such other action as
the PCMC Special Committee deemed necessary or appropriate with respect to the
Potential Transaction. The role of the PCMC Special Committee was advisory in
nature, and it was not authorized or empowered to take any action on behalf of,
or that would be binding upon, PCMC, Corp I or the Partnership. The PCMC Board
further authorized Management to take appropriate steps to permit the
Partnership to continue to review the Potential Transaction. On March 5, 1998,
the Partnership engaged Merrill Lynch to act as its independent financial
advisor with respect to the Proposed Transaction.
At a March 17, 1998 PCMC Special Committee meeting, after having reviewed a
number of potential financial and legal advisors, the PCMC Special Committee
selected Morgan, Lewis & Bockius LLP as its independent legal counsel to advise
the PCMC Special Committee regarding its fiduciary duties and the legal aspects
of the Potential Transaction and any other matters related to fulfilling the
purpose of the PCMC Special Committee and selected Salomon Smith Barney to: (i)
assist the PCMC Special Committee in its review of the business and operations
of the Partnership, (ii) assist the PCMC Special Committee in its review of the
financial terms of the Proposed Transaction and (iii) render an opinion to the
PCMC Special Committee as to the fairness, from a financial point of view, to
the Unitholders of the consideration to be received by PCMC in the Potential
Transaction.
At that same meeting, Goldman Sachs presented to the PCMC Special Committee
the Principals' draft proposal relating to the Potential Transaction. The terms
of this proposal provided that PCMC would receive a combination of REIT shares
and OP Units exchangeable for REIT shares in the aggregate within a range of
values, the probability weighted median of which was approximately 30% of the
total outstanding equity of the Corporation. Alternatively, the draft proposed
that consideration could be received in the form of a combination of such equity
and options to earn additional equity if certain performance targets were
achieved. In addition, according to the terms of this proposal, PCMC would
receive transferable special voting stock of the Corporation that would give
PCMC a voting interest in the Corporation equal to 10 times its percentage
ownership in the Corporation. Finally, this proposal would have given PCMC
majority ownership of the voting common stock of the Corporate Subsidiaries. The
PCMC Special Committee instructed its advisors to, and requested that Management
and Merrill Lynch, study the proposal by the Principals and report to the PCMC
Special Committee with recommendations.
At an April 1, 1998 PCMC Special Committee meeting, at the request of the
PCMC Special Committee, Ms. Irvine reviewed the Principals' draft proposal,
including materials provided to Ms. Irvine by Merrill Lynch and forwarded to the
PCMC Special Committee at its request. After consultation with its legal and
financial advisors, the PCMC Special Committee determined that the draft
proposal contained certain deficiencies, principally relating to the ownership
percentage and control attributes, and would not be in the best interests of the
Partnership and the Unitholders. The PCMC Special Committee instructed its
advisors to indicate to the Principals and their advisors such deficiencies in
the draft proposal.
During April and May 1998, the Principals indicated a willingness to
consider compromises to the terms reflected in its earlier draft proposal, and
the PCMC Special Committee and the PCMC Board met several times to discuss
various aspects of the Potential Transaction. On May 15, 1998, Goldman Sachs
furnished to the PCMC Special Committee a term sheet summarizing the terms on
which the Principals would be willing to proceed with the Potential Transaction,
which became the basis for a series of informal discussions among the
Principals, the PCMC Special Committee, Management and their respective
advisors. The term sheet proposed that PCMC would receive 27% of the equity of
the Corporation (compared to the 30% proposed at the March 17, 1998 meeting)
principally in the form of units of limited partnership of the Operating
Partnership ("OP Units") which would be exchangeable for an equal number of
shares of the Corporation or, at the option of PCMC, in the form of Common
Stock. The OP Units or Common Stock received by PCMC
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would have been nontransferable for one year. PCMC would also receive special
voting stock which would have given PCMC a vote at the Corporation equal to the
number of OP Units it held and which would have given PCMC the right to a
separate class vote on certain matters. Finally, the term sheet provided that
(i) PCMC would nominate a majority of the members of the REIT Board so long as
PCMC continued to own 5 million OP Units or shares of Common Stock, (ii) PCMC
would be entitled to nominate two directors so long as PCMC owned at least $100
million of OP Units or Common Stock, and (iii) PCMC would control a majority of
the voting stock of the Corporate Subsidiaries.
Over the next two weeks, an agreement in principle was reached regarding
the following principal terms of the Proposed Transaction: PCMC and related
entities would receive a 27% equity position in the Corporation, comprised
mostly of Common Stock and OP Units in such proportion as PCMC would elect; PCMC
would hold special voting shares in the Corporation, providing for a vote in
proportion to its ownership of OP Units and transferable only on a one-for-one
basis with such OP Units; PCMC would have the right to vote as a separate class
with respect to certain transactions; PCMC would have the right to nominate a
majority of the members of the REIT Board so long as PCMC continued to own 5
million OP Units or shares of Common Stock; and PCMC would be entitled to
nominate two directors so long as PCMC owned at least 3 million OP Units or
shares of Common Stock.
These basic terms, which were negotiated by the Principals and the PCMC
Special Committee with the advice and assistance of Management and their
respective advisors, provided the basis for the preparation and negotiation of
definitive documentation in the form of the original Conversion Agreement and
the exhibits thereto. On June 5, 1998, after Management had presented the
original Conversion Agreement and the exhibits thereto to the PCMC Special
Committee, Salomon Smith Barney reviewed with the PCMC Special Committee the
financial analyses performed by Salomon Smith Barney in connection with its
evaluation of the proposed Consideration to be received by PCMC and rendered to
the PCMC Special Committee its opinion to the effect that, as of such date and
based upon and subject to certain matters stated in such opinion, the
Consideration to be received by PCMC in the Conversion Transaction was fair to
the Unitholders from a financial point of view. See "Opinions of Financial
Advisors -- Opinion of the PCMC Special Committee's Financial Advisor."
Following the meeting of the PCMC Special Committee, the Board met and
after Management had presented the original Conversion Agreement and the
exhibits thereto to the PCMC Board, Merrill Lynch made a presentation to the
PCMC Board and rendered its opinion to the PCMC Board to the effect that, as of
such date, the consideration to be received by PCMC in the Conversion
Transaction was fair to the Unitholders from a financial point of view. See
"Opinions of Financial Advisors -- Opinion of the Partnership's Financial
Advisor." Based in part on the recommendation by the PCMC Special Committee of
the Conversion Transaction and the form, terms and provisions of the Conversion
Agreement and exhibits thereto, the PCMC Board unanimously approved the
Conversion Agreement and exhibits, and determined that the Conversion
Transaction is fair and in the best interests of the Partnership and the
Unitholders. See "Recommendation of the PCMC Board; Reasons for the Conversion
Transaction."
While Merrill Lynch and Salomon Smith Barney reviewed and analyzed the
matters described in "Opinions of Financial Advisors," they did not assign a
specific value to non-economic benefits PCMC would receive in the Conversion
Transaction, including the special voting and board nomination rights, nor did
they assign a specific value to non-economic detriments to PCMC resulting from
the Conversion Transaction, including PCMC's relinquishment of its right to
exercise exclusive control over the business and affairs of the Partnership. See
"Opinions of Financial Advisors."
On June 30, 1998, the Principals informed Management that they were
electing not to receive any OP Units in the Conversion Transaction. After
consulting with their respective legal advisors, Management and the PCMC
Partners determined that, as a result, the basic terms of the Conversion
Transaction would best be implemented using a simpler structure than
contemplated on June 5, 1998, necessitating certain technical amendments to the
Conversion Agreement and the exhibits thereto (all of which are reflected in the
applicable annexes hereto). After Management informed Salomon Smith Barney and
Merrill Lynch of the nature of such amendments, Salomon Smith Barney and Merrill
Lynch each delivered a written confirmation
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to the effect that, based upon and subject to the qualifications and limitations
set forth in their respective letters, they do not believe that such amendments
would have resulted in any substantive change to the opinions expressed in their
respective opinions rendered on June 5, 1998 (copies of the written
confirmations, dated July 17, 1998, of Salomon Smith Barney and Merrill Lynch to
such effect are included in Annexes III and IV, respectively). The PCMC Board
approved these technical amendments at a meeting held on July 14, 1998.
RECOMMENDATION OF THE PCMC BOARD;
REASONS FOR THE CONVERSION TRANSACTION
THE PCMC BOARD AND THE PCMC SPECIAL COMMITTEE, EACH BY UNANIMOUS VOTE, HAVE
DETERMINED THAT THE CONVERSION TRANSACTION IS FAIR TO, AND IN THE BEST INTERESTS
OF, THE UNITHOLDERS, AND EACH RECOMMENDS THAT THE UNITHOLDERS VOTE FOR ADOPTION
OF THE CONVERSION AGREEMENT AND APPROVAL OF THE CONVERSION TRANSACTION.
The PCMC Board and the PCMC Special Committee each unanimously determined,
after consulting with their respective legal and financial advisors, that the
Conversion Transaction is fair to, and in the best interests of, the
Unitholders. In reaching these determinations, the PCMC Board and the PCMC
Special Committee each considered a number of factors. The PCMC Board's and the
PCMC Special Committee's recommendations were each made after considering all of
the factors as a whole with respect to each such recommendation, and were not
based on any single factor to the exclusion of others. In making their
recommendations, the members of the PCMC Board and the PCMC Special Committee
exercised their business judgment assisted by their independent financial and
legal advisors. The material factors considered by the PCMC Board and the PCMC
Special Committee included the following:
(i) the judgment, advice and analysis of Management with respect to
the strategic, financial and operational benefits of the Conversion
Transaction, including the ability to use securities of the Corporation as
"acquisition currency" to effect strategic mergers with other timberland
owners and the ability to use OP Units to acquire timberlands in tax
efficient transactions;
(ii) the elimination of PCMC's Incentive Rights, including: (A) PCMC's
right to receive an increasing percentage of quarterly distributions made
by the Partnership when per Unit quarterly distributions exceed the Target
Amounts and correspondingly disproportionate decreases should the quarterly
distribution level per Unit fall below such Target Amounts (which, together
with its 2% ownership interest, entitled PCMC to 25.5%, 25.0%, 23.8% and
23.3%, respectively, of the aggregate amount distributed by the Partnership
during the first three quarters of 1998 and the fiscal years 1997, 1996 and
1995); (B) PCMC's right to retain its 2% general partner interest in the
Partnership without any further capital contribution by it and its right to
receive increased incentive distributions upon any equity issuance by the
Partnership; (C) PCMC's right to receive incentive distributions upon
liquidation of the Partnership equal to 37% of distributable assets after
the Partnership has distributed to the Unitholders and the general partner
an amount equal to their existing capital account balances; and (D) PCMC's
right to exercise exclusive control over the business and affairs of the
Partnership;
(iii) the intention of the Corporation to continue to make quarterly
dividends in amounts consistent with the Partnership's historical policy of
making cash distributions to Unitholders at sustainable and increasing
levels;
(iv) the favorable tax regime applicable to REITs, which maintains
substantially all of the advantages of single-layer taxation enjoyed under
the current MLP structure with respect to the treatment of taxable income
and will result in simplified tax reporting requirements for the
Corporation's stockholders, who will receive a Form 1099 for tax reporting
purposes, rather than the more complicated partnership Schedule K-1
required for MLPs;
(v) the belief that the Conversion Transaction will result in a
structure that will permit a broader array of investors (including
institutions and tax-exempt investors) to invest in the Corporation than
can
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presently invest in the Partnership, and that the Corporation may be able
to raise equity and debt financing on more favorable terms than are
currently available to the Partnership;
(vi) the terms and conditions of the Conversion Agreement and the
exhibits thereto, including the amount of the consideration to be received
by the PCMC Partners and the Unitholders in the Conversion Transaction and
the continued effective ownership by current Unitholders of an aggregate of
73% of the outstanding equity of the Corporation;
(vii) the financial presentations made on June 5, 1998 by each of
Salomon Smith Barney and Merrill Lynch to the PCMC Special Committee and
the PCMC Board, respectively, including their respective written opinions,
to the effect that, as of such date and based upon and subject to certain
matters stated therein, the Consideration to be received by PCMC in the
Conversion Transaction was fair to the Unitholders from a financial point
of view;
(viii) information concerning the financial condition, results of
operations, prospects, business and Unit price performance of the
Partnership and considerations related to the long-term outlook for the
Partnership;
(ix) industry, economic and market conditions at the time the
Conversion Transaction was negotiated and approved; and
(x) the potential benefits to be received by the PCMC Partners as part
of the Conversion Transaction, including protection from potential
disproportionate decreases in its percentage of total cash distributed and
special voting and board nomination rights, as further described under
"-- Potential Alternative of Continuation of the Partnership."
While the PCMC Board and the PCMC Special Committee did not assign relative
weights to the factors discussed above, factors (i), (ii), (iii), (vii), (viii)
and (x) were the most significant factors considered by each of the PCMC Board
and the PCMC Special Committee.
With respect to their review of the opinions of the financial advisors
described in factor (vii), the PCMC Board and the PCMC Special Committee noted
that, in connection with their respective discounted cash flow analyses, the
financial advisors each assumed (based on operating projections provided by, and
discussions with, Management) that the Partnership would consummate three $500
million timberland acquisitions during the next ten years. However, the
financial advisors also performed certain sensitivities to this assumption to
reflect the potential effect of the consummation of the equivalent of zero and
three acquisitions (in the case of Salomon Smith Barney) and zero to six
acquisitions (in the case of Merrill Lynch) by the Partnership over the next ten
years on distributions receivable by PCMC.
The discounted cash flow valuation method used by each of the financial
advisors as one means of assessing the Consideration to be received by PCMC in
the Conversion Transaction indicated that the present value of the Consideration
to be received by PCMC would be equal to or less than the distributions that
would otherwise be anticipated to be paid to PCMC under the MLP structure if the
Partnership were to complete at least one $500 million timberland acquisition
during the next ten years or the equivalent thereof, such acquisition to be
financed with at least 30% equity and to generate an internal rate of return of
at least 11%. The PCMC Board and the PCMC Special Committee each considered the
various likely levels of acquisition activity the Partnership might expect, the
possible means of financing such activity and the expected rates of return
therefrom. Historic acquisition activity, which has aggregated approximately
$800 million since 1993 (not including the $180 million Sappi Acquisition in
November of 1998), was also noted, as was the Partnership's continued strategic
focus on additional acquisitions. Such consideration occurred generally in
connection with their respective reviews of the Conversion Transaction, and
specifically in connection with their respective reviews of the opinions of the
financial advisors, which included the assumption that three $500 million
timberland acquisitions would be made. However, in light of the numerous factors
listed above, neither the PCMC Board nor the PCMC Special Committee predicated
their determination to approve and recommend the Conversion Transaction to
Unitholders on the Partnership's ability to effect any specific level of
acquisitions.
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The PCMC Board and the PCMC Special Committee also considered a number of
potential risks and disadvantages relating to the Conversion Transaction,
including the following material risks and disadvantages (the order does not
necessarily reflect relative significance): (i) risks associated with operating
as a REIT, including risks that the tax laws relating to REITs are complex and
subject to change (which, in some cases may be retroactive); (ii) the expenses
associated with effecting the Conversion Transaction, including legal,
accounting and financial advisors' fees; (iii) the possibility that the
Corporation will not be able to effect strategic acquisitions on attractive
terms or at all; (iv) the effect on the Partnership and the Corporation of the
cyclical nature of the forest products industry; (v) the Corporation's inability
as a REIT to pass through operating or capital losses to its stockholders in the
manner that the Partnership is presently able to pass through such losses to the
Unitholders; (vi) the need for the Corporation to operate most of its
manufacturing activities through taxable corporate subsidiaries; and (vii) the
Corporation incurring certain compensation expenses previously borne by PCMC.
The PCMC Board and the PCMC Special Committee believed that these potential
risks and disadvantages were substantially outweighed by the potential benefits
anticipated to be realized from the Conversion Transaction.
The PCMC Board's and the PCMC Special Committee's determinations to
recommend that the Partnership convert to corporate form was based on their
respective beliefs that the Conversion Transaction will result in the benefits
to the Unitholders and to the Corporation described above. The PCMC Board and
the PCMC Special Committee considered the potential disadvantages and risks of
the Conversion Transaction (see "Risk Factors") and believe that the potential
benefits anticipated to be realized from the Conversion Transaction
substantially outweigh the potential risks and disadvantages. The PCMC Board and
the PCMC Special Committee also considered the potential benefits and risks
associated with continuation of the Partnership in its present MLP form, and
believe that the potential benefits to be realized from the Conversion
Transaction outweigh the benefits associated with maintaining the MLP structure.
The PCMC Board and the PCMC Special Committee did not consider liquidation as an
alternative in considering the Conversion Transaction.
The PCMC Board appointed the PCMC Special Committee to negotiate on behalf
of the Unitholders the consideration to be received by the PCMC Partners in the
Conversion Transaction. The PCMC Board has a fiduciary duty to its stockholders
and, when acting on behalf of PCMC as general partner of Plum Creek, to the
Unitholders. Although the PCMC Special Committee is comprised of directors from
the PCMC Board who owe fiduciary duties both to the Unitholders and to such
stockholders, the PCMC Special Committee was charged by the PCMC Board with the
responsibility to negotiate solely on behalf of the Unitholders in order to
mitigate the conflict of interest between the PCMC Board as a whole and the
Unitholders. The Partnership Agreement provides that PCMC can, in its sole
discretion, cause the Partnership to enter into any merger agreement (subject to
Unitholder approval), and PCMC was free to accept or reject the terms on which
the PCMC Special Committee was willing to proceed. In addition to the
appointment of the PCMC Special Committee, the PCMC Board retained Merrill Lynch
and the PCMC Special Committee retained Salomon Smith Barney to evaluate, from a
financial point of view, the consideration to be received in the Conversion
Transaction by PCMC and to provide an opinion to the PCMC Board and the PCMC
Special Committee, respectively, as to the fairness of the Consideration, from a
financial point of view, to the Unitholders.
The PCMC Board believes that the Conversion Transaction is fair to
Unitholders. The PCMC Board utilized the PCMC Special Committee and independent
legal and financial advisors to negotiate on behalf of the Unitholders primarily
(i) to mitigate the conflict of interest between PCMC and the Unitholders in
determining the appropriate amount of consideration each would receive in the
Conversion Transaction (see "Risk Factors -- Transaction Risks -- Conflicts of
Interest") and (ii) to assist the PCMC Board in determining whether to recommend
approval of the Conversion Transaction to Unitholders. However, in using the
PCMC Special Committee and its advisors to negotiate the terms of the Conversion
Transaction, PCMC did not intend to undertake, and the disclosures in this Proxy
Statement/Prospectus should not be read to create, a voluntary duty to ensure on
behalf of the Unitholders that the terms of the Conversion Transaction are fair
to Unitholders. The Delaware Chancery Court, in dismissing the Action, held that
a partnership agreement can limit the nature, scope and applicability of
fiduciary duties that would otherwise apply. The
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Delaware Chancery Court held that the Partnership Agreement does have such an
effect. In particular, the Partnership Agreement gives PCMC the unilateral right
to submit the Conversion Transaction to Unitholders in its sole discretion.
However, the Partnership Agreement does afford Unitholders with the protection
that a two-thirds Unitholder vote is required for approval of the Conversion
Transaction.
Federal securities rules require full and accurate disclosure of the
Conversion Transaction, including disclosure regarding the basis for a belief as
to the fairness of the Conversion Transaction. The Partnership, PCMC and their
respective officers and directors do not disclaim any duties imposed upon them
under the Federal securities laws.
One Delaware court has ruled that misleading disclosure concerning the role
of an independent counsel and assurance of fairness can result in the voluntary
assumption of a duty to ensure the fairness of the transaction under state law.
For this reason, PCMC is affirmatively disclosing that it is assuming no such
duty. PCMC's belief that it has not undertaken a voluntary duty to ensure on
behalf of the Unitholders that the terms of the Conversion Transaction are fair
to Unitholders is based upon its understanding of Delaware law and is supported
by the decision of the Delaware Chancery Court in dismissing the Action. In its
opinion, the Delaware Chancery Court held:
"Plaintiff asks me to conclude, as a matter of law, that merely because the
General Partner appointed a special committee to oversee the transaction,
the General Partner thereby imported common law fiduciary duties into its
relationship with the unitholders. I cannot agree with this view. Even if
the General Partner's aim was to conduct a process in a manner designed to
help obtain the support of the unitholders, without misleading affirmative
disclosures professing the fairness and independence of the special
committee, it would unreasonably distort the Agreement to hold this General
Partner to common law fiduciary standards. Plaintiff's asserted theory of
voluntary assumption of common law fiduciary duties is actually a potential
disclosure claim. As such, it is not ripe and must be dismissed." (A full
copy of the Delaware Chancery Court opinion is attached as Annex V to this
Proxy Statement/Prospectus.)
The Plaintiff has filed a notice of appeal of the dismissal of the Action
in the Supreme Court of the State of Delaware and it is possible that the
Supreme Court could reverse the Chancery Court's finding that no voluntary duty
of fairness was created merely by the use of a special committee. In addition,
no court has addressed whether the disclosure in this Proxy Statement/Prospectus
could be viewed as creating a duty to ensure on behalf of the Unitholders that
the terms of the Conversion Transaction are fair to Unitholders. Finally, no
court has addressed whether PCMC's statement that it has not undertaken such a
duty is sufficient disclosure to avoid creating such a duty.
Unitholders should carefully consider the terms of the Conversion
Transaction in assessing the fairness of, and determining whether to vote to
approve, the Conversion Transaction. See "Risk Factors -- Transaction
Risks -- PCMC Believes it is not Subject to a Duty of Fairness in Submitting the
Conversion Transaction for Unitholder Approval."
The following is a discussion of the potential alternatives of continuation
of the Partnership and liquidation of the Partnership. While the PCMC Board and
the PCMC Special Committee considered continuation of the Partnership as an
alternative to the Conversion Transaction, they did not consider liquidation of
the Partnership as a viable alternative to the Conversion Transaction.
Potential Alternative of Continuation of the Partnership. In considering
the Conversion Transaction, the PCMC Special Committee and PCMC Board weighed
the Conversion Transaction against the risks and benefits of continuation of the
Partnership in its present structure. The PCMC Board believes that the
Partnership's MLP structure has been successful to date and would continue to
offer a tax-efficient structure for Unitholders. Continuation of the MLP
structure would also avoid certain of the risks addressed under "Risk Factors"
related to conversion of the Partnership from an MLP structure to a REIT
structure, such as certain tax risks and organizational complexities related to
REIT qualification. The PCMC Board believes that the primary risks of continuing
to operate in the current MLP structure are that the Partnership's growth
36
<PAGE> 50
strategy may be constrained by the MLP's comparatively high cost of capital and
the MLP's inability to use Common Stock as acquisition currency.
The PCMC Board and the PCMC Special Committee were aware of and considered
certain risks and disadvantages of the Conversion Transaction which are not
presented by the MLP structure, such as:
- the fact that, following the Conversion Transaction, the PCMC Partners
would be less severely impacted by any cyclical downturn in the
Corporation's business because the PCMC Partners will receive a fixed 27%
of all distributions regardless of the per Unit amount of quarterly
distributions paid, in contrast to the Incentive Rights, under which the
percentage of quarterly distributions payable to PCMC decreases if the
per Unit dollar amount of quarterly distributions were to decrease. See
"Risk Factors -- Benefits to the PCMC Partners"; and
- the fact that, the Principals would, at least initially, have effective
control of the Corporation following the Conversion Transaction because,
following the Conversion Transaction the Principals will have the right
to vote the Special Voting Stock they hold, in a separate class vote, on
certain matters required to be submitted for stockholder approval and to
designate a majority of the Corporation's nominees to the REIT Board
(subject to certain stock ownership requirements). In contrast, under the
MLP structure, the general partner has day-to-day control over the
affairs of the Partnership but may be removed as general partner by the
holders of 66 2/3% of the outstanding Units, subject to appraisal of and
payment for the general partner interest, including related incentive
distribution rights.
In considering whether to vote in favor of the Conversion Transaction,
Unitholders should also consider, among other things, the fact that the amount
of distributions which would have been payable to PCMC during the last three
fiscal years and the nine months ended September 30, 1998 would have been
greater had the Conversion Transaction been in effect during such periods, since
the 27% consideration reflects the current distribution sharing ratio and the
relinquishment of future Incentive Rights, which were not reflected in actual
cash distributions in those prior periods. See "Comparison of Payments to PCMC
Partners."
The PCMC Board believes that the Partnership's MLP structure has, to date,
been successful and would continue to offer a tax-efficient structure for
Unitholders. The PCMC Board believes that the primary risks of continuing to
operate in the current MLP structure are that the Partnership's growth strategy
may be constrained by the MLP's comparatively high cost of capital and the MLP's
inability to use Common Stock as acquisition currency.
Potential Alternative of Liquidation of the Partnership. Neither the PCMC
Special Committee nor the PCMC Board considered liquidation of the Partnership
as a viable alternative to the Conversion Transaction. The PCMC Board believes
there is much greater value to be realized by operating the Partnership's
timberlands and other assets than through liquidation. In assessing the
Conversion Transaction, however, the PCMC Board considered the financial
analyses of Management and the financial advisors concerning potential
liquidation of the Partnership, as described under "Allocation of the
Corporation's Equity Securities among the Unitholders and PCMC" and "Opinions of
Financial Advisors."
ALLOCATION OF THE CORPORATION'S EQUITY SECURITIES
AMONG THE UNITHOLDERS AND PCMC
As indicated above, the Consideration (i.e., the 27% equity interest in the
Corporation) to be received by PCMC in the Conversion Transaction was the
product of negotiations between PCMC and the PCMC Special Committee. These
negotiations between PCMC and the PCMC Special Committee took into account the
existing economic interests of the Unitholders and PCMC. PCMC's interests
include its right to receive an increasing percentage of distributions made by
the Partnership when per Unit quarterly distributions exceed the Target Amounts
and correspondingly disproportionate decreases should the distribution level per
Unit fall below such Target Amounts (which, together with its 2% ownership
interest, entitled PCMC to 25.5%, 25.0%, 23.8% and 23.3%, respectively, of the
aggregate amount distributed by the Partnership during the first three quarters
of 1998 and the fiscal years 1997, 1996 and 1995), PCMC's right to receive
increased incentive distributions upon any equity issuances by the Partnership
(without any further capital contribution by it) and
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<PAGE> 51
PCMC's right to receive incentive distributions upon liquidation of the
Partnership equal to 37% of distributable assets after the Partnership has
distributed to the Unitholders and PCMC as the general partner an amount equal
to their existing capital account balances, which Management projects would
result in PCMC receiving 29% of such distributable assets. The PCMC Special
Committee also obtained an opinion from its financial advisor as to the
fairness, from a financial point of view, to the Unitholders of the
Consideration to be received by PCMC in the Conversion Transaction. In addition,
the PCMC Board received a similar opinion from the Partnership's financial
advisors. See "Opinions of Financial Advisors." In determining the terms of the
Conversion Agreement through the use of these procedures, PCMC has not
undertaken a voluntary obligation to guarantee the fairness of the terms of the
Conversion Transaction. Unitholders should carefully consider the terms of the
Conversion Transaction in assessing the fairness of, and determining whether to
vote to approve, the Conversion Transaction.
ANALYSIS OF ALTERNATIVES
Set forth below is an analysis of the alternatives that were considered by
the PCMC Board and the PCMC Special Committee.
Liquidation of the Partnership.
Neither the PCMC Special Committee nor the PCMC Board considered
liquidation of the Partnership as a viable alternative to the Conversion
Transaction, and no comprehensive appraisal of the Partnership's 2.4 million
acres of timberlands and eleven manufacturing facilities has been conducted.
Management estimated the proportionate share of liquidation distributions that
would be required to be made in respect of the interests of PCMC and the
Unitholders in the Partnership in order to provide a comparison with the 27% and
73% interests that PCMC and the Unitholders would realize, respectively, as a
result of the Conversion Transaction. The analysis required reliance on numerous
assumptions and the exercise of Management's judgement concerning economic
conditions and conditions in the forest products industry. Additionally, the
accuracy of the assumptions underlying the analysis could be materially affected
by the occurrence of events or circumstances such as are discussed under "Risk
Factors." As a result, there can be no assurance as to the accuracy or
reliability of the results of the analysis. Unitholders are cautioned not to
assign undue significance to such information and to consider it only in the
context of all the other information provided or incorporated by reference in
the Proxy Statement/Prospectus.
In estimating the proceeds available for distribution to PCMC and the
Unitholders upon a liquidation of the Partnership, Management made certain
assumptions regarding the fair market value of the Partnership's assets and the
net proceeds that might be available for distribution if the Partnership had
been liquidated as of December 31, 1997. There can be no assurance, however,
that the assumed values reflect the amounts that would be realized upon a sale
of the Partnership's assets. Management estimated the total asset value of the
Partnership and subtracted from this amount the estimated cost to repay the
Partnership's debt at fair market value in order to determine the amount of
proceeds available for distribution. For purposes of this analysis, Management
estimated the value of the Partnership's assets (including cash of $135 million)
as of December 31, 1997 to be approximately $2,650 million, of which the
Timberlands were estimated to have a value of approximately $2,150. Furthermore,
based on an estimated cost to repay the Partnership's indebtedness outstanding
as of December 31, 1997 of approximately $850 million, Management estimated
proceeds upon liquidation to be approximately $1.8 billion. This liquidation
analysis indicated that PCMC and the Unitholders would receive 29% and 71%,
respectively, of available proceeds upon liquidation of the Partnership. The
allocation of liquidation proceeds was calculated in accordance with the
Partnership Agreement and reflects the capital accounts of the Unitholders and
PCMC as of December 31, 1997. The estimated liquidation value per Unit was
$27.50 in this analysis. Management believes, however, based on recent sales of
timberlands, that the fair market value of the Partnership's assets is
potentially greater than the values assumed in the liquidation analysis.
Investors are cautioned that while Management believes such transactions provide
a useful basis for gauging market values, the comparability of particular
transactions is a difficult matter to analyze and may be affected by factors
such as stocking, site quality, age classes, species concentration and other
characteristics. To the extent the fair market value of the Partnership's assets
upon
38
<PAGE> 52
liquidation were to be higher than the amounts used in the liquidation analysis,
the Unitholders would be entitled to receive a lower percentage of the
liquidation proceeds than is indicated by this analysis, and PCMC would be
entitled to receive a higher percentage of the liquidation proceeds than is
indicated by this analysis. The Special Committee did not consider a liquidation
alternative, as it believed greater value would be realized by Unitholders in
continuing the business in either the REIT or the MLP structure.
Set forth below is a tabular summary of Management's liquidation analysis,
which Management believes, subject to the caveats and assumptions set forth
above, supports the conclusion that allocation of a 27% equity interest in the
Corporation to PCMC in respect of its 2% general partner interest in the
Partnership and PCMC's Incentive Rights (compared to the 29% allocation
indicated by this liquidation analysis) is appropriate.
<TABLE>
<CAPTION>
TOTAL VALUE % OF TOTAL VALUE PER
EQUITY INTERESTS ($000) VALUE INTEREST
---------------- ----------- ---------- ---------
<S> <C> <C> <C>
Unitholders.................................... $1,274,000 71.0% $27.50
PCMC........................................... $ 520,000 29.0%
---------- -----
Total Equity Interests......................... $1,794,000 100.0%
</TABLE>
Set forth below is an additional table presenting the aggregate value of
the ownership interests in the Corporation after the Conversion Transaction,
assuming the same enterprise value derived from the foregoing analysis of
liquidation of the Partnership. This table suggests that the value that would be
generated for Unitholders from a liquidation of the Partnership is less in the
aggregate, and on a per interest basis, than the implied value Unitholders would
receive in the Conversion Transaction. If there were to be a liquidation of the
Corporation immediately following the Conversion Transaction, the net proceeds
would be allocated 73% to existing Unitholders and 27% to PCMC.
<TABLE>
<CAPTION>
TOTAL VALUE % OF TOTAL VALUE PER
EQUITY INTERESTS ($000) VALUE INTEREST
---------------- ----------- ---------- ---------
<S> <C> <C> <C>
Unitholders.................................... $1,309,620 73.0% $28.27
PCMC........................................... $ 484,380 27.0% $28.27
---------- -----
Total Equity Interests......................... $1,794,000 100.0%
</TABLE>
Continuation as a Master Limited Partnership.
A comparison of the value that would be received by the existing
Unitholders upon consummation of the Conversion Transaction as opposed to
continuation under the MLP structure depends upon the relative market prices of
the Units and the shares of Common Stock. While Management believes that the
REIT structure will permit a broader array of investors (including institutions
and tax-exempt investors) to invest in the Corporation than can invest in the
Partnership and will result in a lower overall cost of capital, no assurance can
be given that the REIT Common Stock will trade at prices equal to or above those
at which the Units would trade. If the REIT Common Stock trades at a market
price similar to the market price of the Units, the market value of a
Unitholder's investment in Plum Creek under the REIT structure would be
substantially similar to the market value of the investment if Plum Creek
continued in its existing MLP structure. It is impossible to determine the
market's reaction to the Conversion Transaction and no assurances can be given
that the value of an individual Unitholder's investment will not be materially
adversely affected by the Conversion Transaction. If the shares of Common Stock
after the Conversion Transaction have a market value less than the Units before
the Conversion Transaction, then the market value of the Unitholder's investment
would be proportionately reduced.
To provide an additional basis for evaluation of the allocation of the
Consideration to PCMC in respect of its 2% general partner interest in the
Partnership and PCMC's Incentive Rights, Management developed a discounted cash
flow ("DCF") analysis. This was utilized to help determine a hypothetical
present value for a stream of projected cash distributions assumed to be
forthcoming under a continuation of the MLP structure. Analysis of this scenario
required reliance on numerous assumptions and the exercise of Management's
judgment concerning future economic conditions, future conditions in the forest
products industry, growth of the business through acquisitions, means of
financing such acquisitions, profitable integration of acquired businesses and
numerous other factors which cannot be predicted with certainty. The DCF
analysis was based on operating projections developed by Management and included
the effect of potential acquisitions. The acquisitions were assumed to generate
internal rates of return consistent with the financial returns that the
39
<PAGE> 53
Partnership has achieved with historical acquisitions. Management assumed the
completion of two $500 million acquisitions, with one acquisition occurring in
each of the first and third years of the projections. The acquisitions were
assumed to be financed with 30% equity and 70% debt, with such indebtedness
assumed to be at an interest rate of 8.0%.
Taking into account these and other assumptions concerning the future
prospects for the business, Management estimated yearly cash distributions (in
millions) for the Partnership over the ten-year period beginning in 1999 of
$156.8, $158.0, $174.1, $176.4, $178.7, $181.1, $183.6, $186.1, $188.7 and
$191.4. Based on the sum of the present value of such projected cash
distributions through 2008 and terminal values derived from the projected cash
distributions in 2008, Management estimated the relative present value of the
projected cash distributions to be received by PCMC and by the Unitholders. This
analysis indicated that PCMC's ownership percentage in the Partnership under
such a continuation of the MLP structure would equal approximately 29.9% of the
aggregate value of the Partnership. In addition to the limitations of this DCF
analysis as described above, the accuracy of the analysis and the underlying
assumptions could be materially affected by the occurrence of events or
circumstances such as are discussed under "Risk Factors." There can be no
assurances as to the accuracy or reliability of the resulting estimate of value.
COMPARISON OF CONSIDERATION RECEIVED
IN THE CONVERSION TRANSACTION
The first column of the following table sets forth the number of shares of
Common Stock and/or Special Voting Stock to be received by the PCMC Partners in
exchange for its interests in the Partnership, including its 2% general partner
interest and its related incentive distribution rights, and by the Unitholders
in exchange for each 2% interest held in the Partnership. The second column sets
forth the aggregate number of shares of Common Stock and/or Special Voting Stock
to be received by the PCMC Partners and the Unitholders in the Conversion
Transaction. This table can be viewed as an illustration of the value attributed
in the Conversion Transaction to the Incentive Rights associated with the 2%
general partner interest in the Partnership.
<TABLE>
<CAPTION>
FOR THE GENERAL PARTNER INTEREST FOR THE GENERAL PARTNER INTEREST
AND EACH 2% UNITHOLDER'S INTEREST AND ALL OF THE UNITS
--------------------------------- --------------------------------
<S> <C> <C>
PCMC Partners(1)........ 17,133,275 17,133,275
Unitholders............. 945,373 46,323,300
</TABLE>
- ---------------
(1) In addition to a right to receive 2% of amounts distributed by the
Partnership, the 2% general partner interest held by the PCMC Partners also
includes the related Incentive Rights, the right to exclusive control over
the business and affairs of the Partnership and PCMC's 2% and 4% interests
in the Manufacturing Partnership and Marketing, respectively.
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<PAGE> 54
COMPARISON OF PAYMENTS TO PCMC AND MANAGEMENT
The following tables set forth the actual amounts paid to PCMC and
Management as distributions and as reimbursements for the last three fiscal
years and the most recently ended interim period and the amounts that would have
been paid if the Conversion Transaction had been in effect during such periods.
The amounts set forth in these tables reflect distributions in the period in
which they were actually paid. The distribution amounts set forth elsewhere in
this Proxy Statement/Prospectus reflect distributions in the period with respect
to which they were declared.
DISTRIBUTIONS AND COMPENSATION PAYABLE TO PCMC AND MANAGEMENT UNDER MLP
STRUCTURE
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER REIMBURSEMENTS
TO PCMC FOR THE TOTAL DISTRIBUTIONS
ACTUAL CASH COMPENSATION TO ACTUAL COSTS OF AND COMPENSATION
DISTRIBUTIONS TO MANAGEMENT OF ADMINISTERING PAYABLE TO PCMC
YEAR PCMC PCMC(1) THE BUSINESS(2) AND MANAGEMENT
---- ---------------- --------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Nine Months ended September 30,
1998............................... $26,616 $3,312 $4,611 $34,539
1997................................. $32,948 $3,542 $4,660 $41,150
1996................................. $25,985 $2,780 $4,410 $33,175
1995................................. $22,685 $2,482 $4,373 $29,540
</TABLE>
DISTRIBUTIONS AND COMPENSATION PAYABLE TO PCMC AND MANAGEMENT ASSUMING
CONVERSION TRANSACTION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT OF DIVIDENDS
THAT WOULD OTHER
HAVE BEEN PAID TO COMPENSATION REIMBURSEMENTS DIVIDENDS THAT
PCMC IF THE THAT WOULD HAVE TO PCMC FOR WOULD HAVE BEEN TOTAL DISTRIBUTIONS
CONVERSION BEEN PAID TO THE ACTUAL COST PAID TO AND COMPENSATION
TRANSACTION HAD MANAGEMENT OF OF ADMINISTERING MANAGEMENT FROM PAYABLE TO PCMC
YEAR BEEN IN EFFECT(3) PCMC(1) THE BUSINESS(2) OPERATING SUBSIDIARIES AND MANAGEMENT
---- ------------------- --------------- ---------------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C>
Nine Months ended
September 30, 1998... $27,437 $3,312 $4,611 $ -- $35,360
1997................... $34,814 $3,542 $4,660 $113 $43,129
1996................... $29,484 $2,780 $4,410 $ -- $36,674
1995................... $26,957 $2,482 $4,373 $ 21 $33,833
</TABLE>
- ---------------
(1) Although under no obligation to do so, PCMC elected to fund all management
incentive plan bonuses for the nine months ended September 30, 1998 and the
fiscal years 1997, 1996 and 1995, which totalled $1,655, $1,291, $1,174, and
$1,025 respectively. Following the Conversion Transaction, the Corporation
will pay any management incentive bonuses.
(2) This column includes (i) reimbursements to PCMC for compensation paid by
PCMC to non-officer employees of the Partnership and (ii) director fees paid
to the directors of Corp I, which fees totalled $204, $221, $268 and $272
for the nine months ended September 30, 1998 and the fiscal years ended
1997, 1996 and 1995, respectively.
(3) In calculating these amounts, historical total distributions were reduced
$3,284, $4,065 and $916 for the nine months ended September 30, 1998 and the
fiscal years 1997 and 1996, respectively, to eliminate payments made to PCMC
that were related solely to the Partnership's public offering of 5.7 million
Units in 1996. This was necessary because, under the MLP structure, PCMC
receives increased incentive distributions upon any equity issuance by the
Partnership. Distributions were then allocated 73% to the Unitholders and
27% to PCMC to reflect the Conversion Transaction.
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<PAGE> 55
OPINIONS OF FINANCIAL ADVISORS
OPINION OF THE PCMC SPECIAL COMMITTEE'S FINANCIAL ADVISOR
Salomon Smith Barney was retained by the PCMC Special Committee to provide
certain advisory services to the PCMC Special Committee in connection with the
proposed Conversion Transaction. In connection with such engagement, the PCMC
Special Committee requested that Salomon Smith Barney evaluate the fairness,
from a financial point of view, to the Unitholders of the Consideration to be
received by PCMC in the Conversion Transaction. On June 5, 1998, at a meeting of
the PCMC Special Committee held to evaluate the proposed Conversion Transaction,
Salomon Smith Barney delivered an oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated June 5, 1998) to the PCMC
Special Committee to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Consideration to be
received by PCMC in the Conversion Transaction was fair, from a financial point
of view, to the Unitholders.
In arriving at its opinion, Salomon Smith Barney reviewed the Conversion
Agreement and certain related documents, and held discussions with certain
senior officers, directors and other representatives and advisors of the
Partnership and certain representatives and advisors of PCMC concerning the
business, operations and prospects of the Partnership. Salomon Smith Barney
examined certain publicly available business and financial information relating
to the Partnership as well as certain financial forecasts and other information
and data for the Partnership which were provided to or otherwise discussed with
Salomon Smith Barney by the management of the Partnership, including information
relating to certain strategic implications anticipated to result from the
Conversion Transaction. Salomon Smith Barney reviewed the financial terms of the
Conversion Transaction as set forth in the Conversion Agreement in relation to,
among other things: current and historical market prices and trading volumes of
the Units; the historical and projected earnings, distributions and other
operating data of the Partnership; and the capitalization and financial
condition of the Partnership. In addition to the foregoing, Salomon Smith Barney
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as Salomon Smith Barney deemed
appropriate in arriving at its opinion. Salomon Smith Barney noted that its
opinion was necessarily based upon information available, and financial, stock
market and other conditions and circumstances existing and disclosed, to Salomon
Smith Barney as of the date of its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by or
discussed with Salomon Smith Barney, Management advised Salomon Smith Barney
that such forecasts and other information and data were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Management as to the future financial performance of the Partnership. Salomon
Smith Barney assumed, with the consent of the PCMC Special Committee, that the
exchange of Units for Common Stock pursuant to the transactions contemplated by
the Conversion Transaction will be a tax-free exchange for Federal income tax
purposes and that certain related transactions contemplated by the Conversion
Transaction will be effected in accordance with the terms contemplated thereby.
Salomon Smith Barney also assumed, with the consent of the PCMC Special
Committee, that upon consummation of the Conversion Transaction and related
transactions, the Corporation will qualify as a REIT in accordance with the
provisions of the Code, that the current activities of the Partnership and its
affiliates which cannot be conducted by a REIT will continue to be conducted in
all material respects by the Corporation through taxable C corporations, and
that no changes to Federal, state or other tax laws or regulations applicable to
REITs (as to which Salomon Smith Barney expressed no opinion) will be enacted
that will materially and adversely affect the REIT status or operations of the
Corporation. Salomon Smith Barney did not express any opinion as to what the
value of the Common Stock or Special Voting Stock actually will be when issued
pursuant to the transactions contemplated by the Conversion Transaction or the
price at which the Common Stock or Special Voting Stock will trade or otherwise
be transferable subsequent to such transactions. Salomon Smith Barney did not
make and was not provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of
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<PAGE> 56
the Partnership nor did Salomon Smith Barney make any physical inspection of the
properties or assets of the Partnership. In connection with Salomon Smith
Barney's engagement, Salomon Smith Barney was not requested to, and did not,
participate in the negotiation and structuring of the Conversion Transaction or
related transactions, nor was Salomon Smith Barney requested to, and Salomon
Smith Barney did not, solicit third party indications of interest in the
acquisition of all or a part of the Partnership. Salomon Smith Barney was not
requested to consider, and its opinion does not address, the relative merits of
the Conversion Transaction as compared to any alternative business strategies
that might exist for the Partnership or the effect of any other transaction in
which the Partnership might engage. Salomon Smith Barney's opinion was
necessarily based upon information available, and financial, stock market and
other conditions and circumstances existing and disclosed, to Salomon Smith
Barney as of the date of the opinion. Although Salomon Smith Barney evaluated
the Consideration from a financial point of view, Salomon Smith Barney was not
asked to and did not recommend the specific consideration payable in the
Conversion Transaction, which was determined through negotiation between the
PCMC Special Committee and the Principals. No other limitations were imposed by
the PCMC Special Committee on Salomon Smith Barney with respect to the
investigations made or procedures followed by Salomon Smith Barney in rendering
its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY DATED JUNE 5,
1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX III AND SHOULD BE READ
CAREFULLY IN ITS ENTIRETY. THE OPINION OF SALOMON SMITH BARNEY IS DIRECTED TO
THE PCMC SPECIAL COMMITTEE AND RELATES ONLY TO THE FAIRNESS OF THE CONSIDERATION
TO BE RECEIVED BY PCMC IN THE CONVERSION TRANSACTION FROM A FINANCIAL POINT OF
VIEW TO THE UNITHOLDERS, DOES NOT ADDRESS ANY OTHER ASPECT OF THE CONVERSION
TRANSACTION OR ANY RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY UNITHOLDER AS TO HOW SUCH UNITHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
THE SUMMARY OF THE OPINION OF SALOMON SMITH BARNEY SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of such analyses does not purport to be a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In its analyses, Salomon Smith Barney made
numerous assumptions with respect to the Partnership, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the Partnership. The estimates contained
in such analyses and the valuation ranges resulting from any particular analysis
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the PCMC Special Committee in its evaluation of the Conversion
Transaction and should not be viewed as determinative of the views of the PCMC
Special Committee, the PCMC Board or Management with respect to the
Consideration to be received by PCMC or the proposed Conversion Transaction.
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<PAGE> 57
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with its opinion dated June 5, 1998:
Introduction.
In order to estimate the proportionate value of PCMC's current ownership
rights in the Partnership, Salomon Smith Barney used a discounted cash flow
analysis and a liquidation analysis to compare the projected cash distributions
to each of PCMC and the Unitholders, as a group. The estimate of PCMC's current
ownership percentage was then compared to the Consideration to be received by
PCMC in the Conversion Transaction. The projected cash flows used in the
discounted cash flow analysis were based upon operating projections provided by
Management as adjusted to give effect to potential acquisitions, with particular
focus on an assumption that the Partnership would effect three acquisitions of
$500 million each, with one acquisition occurring in each of the years 1999,
2002 and 2005, and that such acquisitions would generate certain financial
returns consistent with financial returns targeted by Management for
acquisitions of comparable size (the "Assumed Acquisition Scenario"). Based on
the Assumed Acquisition Scenario, the projected cash distributions for the
Partnership over the 10-year period from 1998 to 2007 were an aggregate annual
amount of approximately $141.8 million, $158.5 million, $159.6 million, $160.7
million, $178.3 million, $180.5 million, $182.7 million, $200.8 million, $204.2
million and $207.4 million, respectively. The projected cash distributions to
each of PCMC and the Unitholders were based upon provisions contained in the
Partnership Agreement concerning the allocation of distributions and projections
and other information provided by Management.
Discounted Cash Flow Analysis.
Salomon Smith Barney calculated the respective ownership interests of PCMC
and the Unitholders in the Partnership based upon the sum of the present value
of (i) projected cash distributions to PCMC and the Unitholders over the 10-year
period from 1998 to 2007 and (ii) terminal values based on projected cash
distributions in the year 2007, utilizing for purposes of such analysis the
Assumed Acquisition Scenario, discount rates ranging from 10% to 12% and a
perpetuity growth rate of 1.5%. Salomon Smith Barney compared the relative
present value of the projected cash distributions to be received by PCMC to the
present value of the projected cash distributions to be received by the
Unitholders to estimate the current percentage ownership held by PCMC in the
Partnership. This analysis indicated a range of current ownership percentages
for PCMC of approximately 30.3% to 30.6%. Salomon Smith Barney also analyzed the
impact of deducting projected management incentive plan payments, payable by
PCMC with respect to incentive plans maintained by PCMC with respect to its
officers, from PCMC's projected cash distributions. Taking this into account,
the range of current ownership percentages for PCMC was approximately 29.3% to
29.7%. Salomon Smith Barney also applied certain sensitivities to the Assumed
Acquisition Scenario, reflecting both lower and higher acquisition levels than
the Assumed Acquisition Scenario. These sensitivities indicated a range of
current ownership percentages for PCMC of approximately 25.5% (assuming no
acquisitions) to 32.2% (assuming a total of $2.0 billion of acquisitions) before
deducting projected management incentive plan payments, and approximately 24.5%
(assuming no acquisitions) to 31.2% (assuming a total of $2.0 billion of
acquisitions) after deducting projected management incentive plan payments.
Liquidation Analysis.
Salomon Smith Barney considered the relative amounts that PCMC and the
Unitholders would each receive if the Partnership were liquidated in 1998. The
range of assumed liquidation values was based upon estimates of Management as to
the potential net proceeds that would be available for distribution from an
orderly liquidation of the Partnership. The allocation of such liquidation
proceeds was calculated in accordance with the provisions of the Partnership
Agreement after repayment of outstanding indebtedness, including estimated costs
associated with such repayment. This analysis indicated that PCMC would receive
approximately 28.4% to 29.8% of available proceeds upon a liquidation of the
Partnership.
Miscellaneous.
Pursuant to the terms of Salomon Smith Barney's engagement, the Partnership
has agreed to pay Salomon Smith Barney an aggregate fee of $925,000 for its
services in connection with the delivery of its opinion. The Partnership has
also agreed to reimburse Salomon Smith Barney for reasonable travel and other
out-of-pocket
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expenses incurred by Salomon Smith Barney in performing its services, including
the reasonable fees and expenses of its legal counsel and to indemnify Salomon
Smith Barney and related persons against certain liabilities, including
liabilities under the Federal securities laws, arising out of Salomon Smith
Barney's engagement.
Salomon Smith Barney has advised the PCMC Special Committee that, in the
ordinary course of its business, Salomon Smith Barney and its affiliates may
actively trade or hold the securities of the Partnership and the Corporation for
their own account or for the account of customers and, accordingly, may at any
time hold a long or short position in such securities. In addition, Salomon
Smith Barney and its affiliates (including Travelers Group Inc. and its
affiliates) may maintain relationships with the Partnership, the Corporation and
their respective affiliates. Smith Barney Inc. acted as co-manager of the
Partnership's 1996 public offering of Units, for which services Smith Barney
Inc. earned approximately $1.16 million in underwriting fees and other
commissions.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by the PCMC Special Committee based on its experience and
expertise. Salomon Smith Barney regularly engages in the valuation of businesses
and their securities in connection with conversions and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
OPINION OF THE PARTNERSHIP'S FINANCIAL ADVISOR
On March 4, 1998, the Partnership retained Merrill Lynch to act as its
financial advisor in connection with a possible conversion of the Partnership
from a MLP into a REIT. On June 5, 1998, Merrill Lynch delivered an oral
opinion, which opinion was subsequently confirmed by delivery of a written
opinion dated June 5, 1998 (collectively, the "Merrill Lynch Opinion"), to the
PCMC Board, to the effect that, as of such date and based upon the assumptions
made, matters considered and limits of review, as set forth in such opinion, the
proposed Consideration to be received in the Conversion Transaction by PCMC was
fair, from a financial point of view, to the Unitholders.
A COPY OF THE MERRILL LYNCH OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED HERETO AS ANNEX IV AND IS
INCORPORATED BY REFERENCE HEREIN. THE DESCRIPTION OF THE WRITTEN OPINION SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
WRITTEN OPINION. UNITHOLDERS AND OTHER PARTIES ARE URGED TO READ SUCH OPINION IN
ITS ENTIRETY. THE MERRILL LYNCH OPINION IS ADDRESSED TO THE BOARD AND ADDRESSES
ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE UNITHOLDERS OF THE
CONSIDERATION TO BE RECEIVED BY PCMC IN THE CONVERSION TRANSACTION AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY UNITHOLDER AS TO HOW SUCH UNITHOLDER SHOULD
VOTE OR OTHERWISE ACT IN RESPECT OF THE PROPOSED CONVERSION TRANSACTION. THE
CONSIDERATION TO BE RECEIVED IN THE CONVERSION TRANSACTION BY PCMC WAS
DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN PCMC AND THE PCMC SPECIAL
COMMITTEE AND WAS APPROVED BY THE PCMC BOARD.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch, among other things: (1) reviewed the Conversion Agreement, the
Corporation's Charter and Bylaws, and the form of the Merger Agreement which is
annexed to the Conversion Agreement, which were provided by the Partnership; (2)
reviewed the Partnership's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997 and the
Partnership's Form 10-Q and the related unaudited financial information for the
quarterly period ending March 31, 1998; (3) reviewed certain information
furnished by the Partnership, including financial forecasts, relating to the
business, earnings, cash flow, assets, liabilities and prospects of the
Partnership; (4) reviewed the Partnership Agreement; (5) conducted discussions
with members of Management concerning its business and prospects before and
after giving effect to the Conversion Transaction; (6) reviewed the market
prices and valuation multiples of the Partnership's Units
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<PAGE> 59
and compared them with those of certain publicly traded entities which Merrill
Lynch deemed to be relevant; (7) reviewed the results of operations of the
Partnership and compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant; (8) reviewed, to the extent publicly
available, the financial terms of certain other transactions which Merrill Lynch
deemed to be relevant; (9) analyzed the estimated liquidation value of the
Partnership and the allocation of the liquidation proceeds between PCMC and the
Unitholders, based upon information furnished by the Partnership; (10) analyzed
the allocation of past distributions between PCMC and the Unitholders, based
upon information furnished by the Partnership; (11) conducted discounted cash
flow analyses of the cash distributions to the Unitholders and to PCMC, based on
projections furnished by the Partnership; (12) participated in certain
discussions and negotiations among representatives of PCMC and its financial and
legal advisors; and (13) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
Merrill Lynch deemed necessary, including Merrill Lynch's assessment of general
economic market and monetary conditions, pricing trends and other issues related
to the forest products industry.
In connection with Merrill Lynch's engagement by the Partnership and the
preparation of the Merrill Lynch Opinion, Merrill Lynch was not asked to
consider or provide an opinion, and did not express any opinion with respect to:
(1) the fairness of the Conversion Transaction, other than that the
Consideration to be received in the Conversion Transaction by PCMC and related
entities was fair, from a financial point of view, to the Unitholders; (2) the
fairness of the Consideration to the Unitholders from any point of view other
than from a financial point of view; (3) the fairness of any other alternative
transaction or structure available to the Partnership, PCMC or the Unitholders
with respect to the acquisition or withdrawal of PCMC or any other transaction
involving the Partnership, PCMC or the Unitholders; (4) the value of the Common
Stock, the OP Units or any Special Voting Stock subsequent to the Conversion
Transaction; or (5) the effect of Federal, state or other tax laws, rules or
regulations on the Partnership, PCMC or any other party, whether arising from
the Conversion Transaction or any related transactions, or otherwise.
In preparing the Merrill Lynch Opinion, Merrill Lynch was advised by the
PCMC Board to assume and rely on the accuracy and completeness of all
information supplied or otherwise made available to Merrill Lynch or discussed
with or reviewed by or for Merrill Lynch by the Partnership, or otherwise
publicly available, and did not undertake any obligation to independently verify
such information or undertake an independent evaluation or appraisal of any of
the assets or liabilities of the Partnership or PCMC and was not furnished with
any such evaluation or appraisal. In addition, Merrill Lynch did not assume any
obligation to conduct, nor did it conduct, any physical inspection of the
properties or facilities of the Partnership. With respect to the financial
forecast information furnished to or discussed with Merrill Lynch by the
Partnership, Merrill Lynch assumed that such information was reasonably prepared
and reflected the best currently available estimates and judgment of the
Partnership's management, and Merrill Lynch did not assume any responsibility
for assessing the achievability of such projections.
In preparing the Merrill Lynch Opinion, Merrill Lynch also assumed that the
conditions to the Conversion Transaction as set forth in the Conversion
Agreement will be satisfied, and that the Conversion Transaction will be
consummated in the manner contemplated in the Conversion Agreement (including
execution of the Merger Agreement in the form that is attached to the Conversion
Agreement). Merrill Lynch also assumed that no changes to the Federal, state or
other tax laws, rules and regulations that apply to real estate investment
trusts will be enacted that will adversely affect the Corporation. Merrill Lynch
also assumed, at the Partnership's direction, (1) that the Corporation will
qualify as a REIT for purposes of the Code, (2) that the Corporation will
continue to conduct in all material respects activities historically performed
by the Partnership or its affiliates that cannot be conducted by a REIT through
taxable C corporations, and (3) that the Common Stock to be received in the
Conversion Transaction by the Unitholders will not be subject to United States
Federal income tax.
The matters considered by Merrill Lynch in arriving at the Merrill Lynch
Opinion were necessarily based upon market, economic and other conditions as
they existed and could be evaluated on, and on the information made available to
Merrill Lynch as of the date of such opinion. Many of such factors are beyond
the control of the Partnership and PCMC, and involve the application of complex
methodologies and educated judgment. Any estimates contained in Merrill Lynch's
analyses are not necessarily indicative of actual past or future
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<PAGE> 60
results or values, which may be significantly more or less favorable than as set
forth therein. The Merrill Lynch Opinion does not present a discussion of the
relative merits of the Conversion Transaction as compared with any other
business plan or opportunity that might be presented to the Partnership, or the
effect of any other arrangement in which the Partnership might engage.
At the meeting of the PCMC Board held on June 5, 1998, Merrill Lynch
presented certain financial analyses accompanied by written materials in
connection with the delivery of its fairness opinion. The following is a summary
of the material financial and comparative analyses performed by Merrill Lynch in
arriving at the Merrill Lynch Opinion.
Discounted Cash Flow Analyses.
In order to estimate PCMC's effective current percentage ownership of the
Partnership, Merrill Lynch performed discounted cash flow analyses of projected
distributions from the Partnership to compare under various scenarios the
percentage interest of distributions from the Partnership which PCMC would be
expected to receive absent the Conversion Transaction to the percentage interest
of distributions PCMC would be expected to receive subsequent to the Conversion
Transaction. These analyses were based upon provisions contained in the
Partnership Agreement concerning the allocation of Partnership distributions and
upon information and projections provided by the Partnership. As part of such
analyses, Merrill Lynch calculated the sum of the present values of (1)
projected cash distributions from the Partnership to PCMC and the Unitholders
over a ten-year projection period, and (2) the terminal values applicable to
each of PCMC and the Unitholders at the end of the projection period, assuming
various growth rates in perpetuity, and assuming in each case that the
Conversion Transaction would not occur. Merrill Lynch assumed, based upon
information provided by the Partnership, that the Partnership would enter into a
certain number of timberland acquisitions during the ten-year projection period
(using a range from zero to six), and that each such acquisition would be $500
million in size and would generate certain financial returns which are
consistent with financial returns the Partnership has historically received from
acquisitions of comparable size. As an example, assuming a scenario in which the
Partnership enters into three acquisitions over the ten-year projection period
(which are assumed to occur in years two, four and six), the projected total
annual cash distributions by the Partnership were as follows:
<TABLE>
<CAPTION>
YEAR
- ---------------------------------------------------------------------------------------
($ IN MILLIONS)
1 2 3 4 5 6 7 8 9 10
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$141.8 $156.8 $157.9 $173.9 $176.2 $193.5 $197.0 $200.6 $204.3 $208.0
</TABLE>
Merrill Lynch also assumed, among other things, a range of discount rates from
9.0% to 13.0% and a range of perpetuity growth rates in distributions from 0.5%
to 4.5%. The discount rates and perpetuity growth rates used reflect Merrill
Lynch's qualitative judgments concerning the specific risks associated with
investments similar to that of the Partnership and the historical and projected
operating performance of the Partnership. These analyses indicated a range of
percentage interests of Partnership distributions expected to be received by
PCMC of approximately 25.5% to 34.9%. Merrill Lynch also conducted sensitivity
analyses whereby one of the three primary assumptions outlined above (i.e., the
discount rate, the perpetuity growth rate and the number of acquisitions) was
fixed at its midpoint range and the remaining two varied within their respective
ranges.
Liquidation Analysis.
In addition to the discounted cash flow analyses performed by Merrill Lynch
as discussed above, Merrill Lynch performed liquidation analyses, calculating
the proportion of the liquidation proceeds from the Partnership which PCMC would
be expected to receive if the Partnership were liquidated as of the date of such
analyses, based upon information provided by the Partnership, and comparing it
to the proportion of the liquidation proceeds PCMC would be expected to receive
subsequent to the Conversion Transaction. These analyses were based upon
provisions contained in the Partnership Agreement concerning the allocation of
liquidation proceeds of the Partnership and upon information provided by the
Partnership. In performing these analyses, Merrill Lynch calculated the
estimated total asset value of the Partnership and subtracted from this
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amount estimated transaction costs and repayment of the Partnership's debt in
order to determine the amount of liquidation proceeds available for
distribution. Based on information provided by the Partnership regarding the
estimated then current market value of its assets, current partner capital
accounts and sharing of proceeds in liquidation, Merrill Lynch estimated that
PCMC would receive 28.6% of the liquidation proceeds of the Partnership if the
Partnership were liquidated as of the date of such analyses. Merrill Lynch then
calculated a range of liquidation proceeds PCMC would receive if the market
value of the Partnership's timberland assets was 20% higher or lower than the
then current market value estimated by the Partnership. These analyses resulted
in PCMC receiving hypothetical liquidation proceeds in a range from 27.6% to
30.3%.
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch in arriving at its opinion or of its
presentation to the PCMC Board. The preparation of financial analyses and
fairness opinions is a complex process and is not necessarily susceptible to
partial analyses or summary description. Merrill Lynch believes that its
analyses (and the summary set forth above) must be considered as a whole, and
that selecting portions of such analyses and of the factors considered by it,
without considering all such analyses and factors, could create an incomplete
and misleading view of the processes underlying the analyses conducted by
Merrill Lynch and set forth in its opinion. Merrill Lynch did not make any
attempt to assign specific weights to particular analyses in preparing its
opinion. In performing its analyses, Merrill Lynch made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the Partnership's and Merrill
Lynch's control. Any estimates contained in Merrill Lynch's analyses are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Because such estimates
are inherently subject to uncertainty, none of Merrill Lynch, the Partnership,
PCMC, or any other person assumes responsibility in the event that actual
results of operations are different from the results assumed in such estimates.
Merrill Lynch did not express any opinion as to (1) the prices at which the
Units will trade or otherwise be transferable following the announcement of the
Conversion Transaction, or (2) the prices at which the Common Stock, the OP
Units or the Special Voting Stock will trade or otherwise be transferable
following the consummation of the Conversion Transaction, which, Merrill Lynch
noted, might vary depending upon, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and other
factors that generally influence the prices of securities. The opinion of
Merrill Lynch did not address the merits of the underlying decision by the
Partnership or the Unitholders to engage in or approve the Conversion
Transaction and does not constitute a recommendation to any Unitholder as to how
such Unitholder should vote on the proposed Conversion Transaction.
The PCMC Board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm and
because it is familiar with the Partnership and its business. Merrill Lynch has
from time to time rendered investment banking, financial advisory and other
services to the Partnership, including with respect to the Riverwood Acquisition
for which it earned $500,000 in consulting fees and the Partnership's 1996
public offering of Units for which it earned $1,743,000 in underwriting fees.
Merrill Lynch is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities and private placements.
Pursuant to a letter agreement dated March 4, 1998, the Partnership paid
Merrill Lynch a fee of $100,000 on the date of such letter agreement, and the
Partnership has since paid Merrill Lynch an additional fee of $250,000, which
was contingent upon the PCMC Board approving the proposed Conversion
Transaction. The Partnership additionally agreed to pay Merrill Lynch a fee
equal to $2,150,000 upon consummation of the Conversion Transaction. The fees
paid or payable to Merrill Lynch are not contingent upon the contents of the
opinion delivered. In addition, the Partnership agreed to reimburse Merrill
Lynch for its reasonable out-of-pocket expenses, subject to certain limitations,
and to indemnify Merrill Lynch and certain related persons against certain
liabilities arising out of or in conjunction with its rendering of services
under its engagement, including certain liabilities under the federal securities
laws.
In the ordinary course of its business, Merrill Lynch may actively trade in
the Units, and may in the future actively trade in the Common Stock, in each
case for its own account and the accounts of its customers and, accordingly, may
at any time hold a long or short position in such securities.
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<PAGE> 62
SUMMARY OF THE CONVERSION AGREEMENT
AND THE MERGER AGREEMENTS
The following is a brief summary of all of the material provisions of the
Conversion Agreement; the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of July 17, 1998, among the Partnership, the Corporation and the
Operating Partnership; and the Agreement and Plan of Merger (the "PCMC Merger
Agreement," and together with the Merger Agreement, the "Merger Agreements"),
dated as of July 17, 1998, between PCMC and the Corporation. Copies of the
Conversion Agreement and the Merger Agreement are attached hereto as Annexes I
and II, respectively, and a copy of the PCMC Merger Agreement is included as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
forms a part. This summary does not purport to be complete and is qualified in
its entirety by reference to the Conversion Agreement and the Merger Agreements.
All Unitholders are urged to read the Conversion Agreement and the Merger
Agreements in their entirety.
THE RECAPITALIZATION
Pursuant to the Conversion Agreement, Marketing will be recapitalized. Each
outstanding share of common stock will be reclassified into 9.9 shares of
nonvoting common stock (the "Nonvoting Common Stock"), representing 99% of the
outstanding common stock, and 10 shares of newly-created voting common stock
("Voting Common Stock"), representing 1% of the outstanding common stock, will
be issued to members of Management for fair value (as determined by the
parties), with no single member holding in excess of 2 shares of such Voting
Common Stock. Immediately following this recapitalization, PCMC and the
Partnership will hold 39.6 and 950.4 shares of Nonvoting Common Stock,
respectively. While the Nonvoting Common Stock and Voting Common Stock will
participate pro rata in all cash dividends paid by Marketing to its common
stockholders, only the Voting Common Stock will have the right to vote on the
election of directors of Marketing or any other transaction for which
stockholders of Marketing may otherwise be given the right to vote pursuant to
applicable law. See "Risk Factors -- Transaction Risks -- Conflicts of
Interest."
THE CORPORATE SUBSIDIARY FORMATION
Immediately before the Effective Time, PCMC shall cause the Manufacturing
Partnership to contribute all of its assets relating to its manufacturing
operations to three newly-formed Delaware corporations in exchange for 990
shares of nonvoting common stock of each of such corporations (representing 99%
of the outstanding common stock), and members of Management shall acquire a
total of 10 shares of the voting common stock (representing 1% of the
outstanding common stock) of each of these corporations for fair value (as
determined by the parties), with no single member holding in excess of 2 shares
of such voting common stock of any such corporation. It is possible that these
Corporate Subsidiaries will be organized in a manner that permits the various
Corporate Subsidiaries to elect to file consolidated returns for Federal income
tax purposes. This would entail establishing a "parent company" that would be
owned 96% by Manufacturing Partnership and 4% by certain members of Management.
The "parent company" would, in turn, own all the common stock of the Corporate
Subsidiaries and the Manufacturing Partnership would own preferred stock of such
subsidiaries. Although members of Management may, therefore, own more than 1% of
the common stock in the "parent company," the economic interest of the members
of Management in the overall Corporate Subsidiary structure is not anticipated
to materially exceed 1% because of the ownership by the Manufacturing
Partnership of the preferred stock. This alternative structure would not
materially change the "Unaudited Pro Forma Condensed Consolidated Financial
Statements." See "Risk Factors -- Transaction Risks -- Conflicts of Interest."
THE MERGERS
The Conversion Transaction will be accomplished by concurrently (i)
effecting the Merger pursuant to which the Partnership will merge with and into
the Operating Partnership and (ii) merging PCMC with and into the Corporation.
Upon consummation of steps (i) and (ii), each Unit will be converted into one
share of Common Stock, and the PCMC Partners will receive 16,498,709 shares of
Common Stock and 634,566 shares of Special Voting Stock in cancellation of their
existing, indirect ownership interest in the Partnership, the
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<PAGE> 63
Manufacturing Partnership and Marketing. Following the Merger, the Corporation
will contribute 100% of the Nonvoting Common Stock of Marketing to the
Manufacturing Partnership.
EFFECTIVE TIME
Subject to the satisfaction of the conditions to the Conversion Transaction
contained in Article IV of the Conversion Agreement, the parties shall hold a
closing (the "Closing") on (1) the later of (a) the business day following the
meeting of the Unitholders to consider and vote upon the Conversion Transaction
or (b) the business day on which the last of the conditions to closing are
fulfilled or waived or (2) at such other date as the parties thereto may agree.
At the Closing the parties shall take appropriate steps to effect the Conversion
Transaction, including the Mergers. All transactions shall be deemed to have
occurred simultaneously and, if any single transaction is not effected, then no
transaction shall be effective.
The Mergers shall become effective upon the filing of the certificates of
merger and such other documents and instruments, as required by Delaware law,
with the Office of the Secretary of State of the State of Delaware.
CONDITIONS TO THE CLOSING
Each party's obligation to effect the Conversion Transaction is subject to
satisfaction of, among others, the following conditions: (1) approval and
adoption of the Conversion Agreement by Unitholders holding at least 66 2/3 of
the outstanding Units; (2) all required approvals under any material contracts
of the Partnership or under applicable law have been obtained; (3) this Proxy
Statement/Prospectus has become effective and is not subject to any stop order
or a proceeding seeking a stop order; (4) the issuance of securities in the
Conversion Transaction complies with all requirements of state securities or
"blue sky" laws; (5) the PCMC Special Committee shall not have withdrawn its
determination that the Conversion Transaction is fair to the Unitholders; (6)
the fairness opinions of Merrill Lynch and Salomon Smith Barney, delivered to
the Partnership and the PCMC Special Committee respectively, shall not have been
rescinded prior to the date of the Closing; and (7) Skadden, Arps, Slate,
Meagher & Flom LLP shall have delivered a written opinion to the effect that the
Unitholders will not recognize taxable income as a result of the Conversion
Transaction except to the extent that a Unitholder's allocable share of
partnership indebtedness exceeds his basis. See "Material Federal Income Tax
Consequences." Although the conditions to the consummation of the Conversion
Transaction may, subject to certain legal requirements, be waived, the parties
to the Conversion Agreement are not aware, as of the date hereof, of any
conditions that will not be satisfied as of the Closing. Because of the
existence of these conditions and the termination rights described below, there
can be no assurance that the Conversion Transaction will occur even if approved
by the requisite vote of Unitholders.
CERTAIN SPECIAL VOTING AND BOARD NOMINATION RIGHTS
By virtue of the provisions of the Conversion Agreement and the PCMC
Partners' ownership of Special Voting Stock, the PCMC Partners will have certain
voting and approval rights following the consummation of the Conversion
Transaction, some of which are not shared by stockholders of the Corporation.
The Special Voting Stock will allow the PCMC Partners initially to have
(together with the voting power associated with any Common Stock it receives in
the Merger as consideration for Units it acquires in the Conversion Transaction)
27% of the vote on all matters submitted to a vote of stockholders of the
Corporation. In addition, so long as the Principals retain beneficial ownership
of at least five million shares of Common Stock and/or Special Voting Stock, in
the aggregate (subject to customary adjustment to avoid dilution): (i) the
Principals will have the right to designate, for nomination purposes only, a
sufficient number of the Corporation's nominees for the REIT Board that, taken
together with any previously elected designees, would constitute a majority of
the REIT Board and (ii) the PCMC Partners will have the right to vote the
Special Voting Stock they hold, in a separate class vote, on certain matters
required to be submitted for stockholder approval, including amendments to the
Charter, issuances of more than 20% of the outstanding Common Stock for non-cash
consideration, dissolution of the Corporation, mergers involving the Corporation
and the sale of all or substantially all of the assets of the Corporation, as
well as amendments to the Corporation's Bylaws that are proposed by the
stockholders of the Corporation.
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The shares of Special Voting Stock received by the PCMC Partners will be
converted into an equal number of shares of Common Stock at the option of the
holder or automatically upon transfer of such shares to persons unaffiliated
with the Principals. The Special Voting Stock will be entitled to the same
dividends as are paid on the Common Stock. If the beneficial ownership of the
Principals drops below five million shares of Common Stock and/or Special Voting
Stock, in the aggregate (subject to customary adjustment to avoid dilution), all
outstanding shares of Special Voting Stock will automatically convert into
Common Stock, thereby eliminating the PCMC Partners' separate class voting
rights.
If the beneficial ownership of the Principals drops below five million
shares of Common Stock and/or Special Voting Stock, but is greater than three
million shares of Common Stock, in the aggregate (subject to customary
adjustment to avoid dilution), the Principals will have the right to designate,
for nomination purposes only, the number of the Corporation's nominees for the
REIT Board that, taken together with any previously elected designees, would
constitute two members of the REIT Board. If such beneficial ownership drops
below three million shares of Common Stock (subject to customary adjustment to
avoid dilution), the Principals will lose their contractual right to designate
any of the Corporation's slate of nominees. Initially, the Principals shall
designate one Class I director, two Class II directors and two Class III
directors. See "Directors and Executive Officers."
TERMINATION
The Conversion Agreement may be terminated and the Conversion Transaction
abandoned prior to its Effective Time, whether before or after approval by the
Unitholders, by action of the PCMC Board.
The Merger Agreements may be terminated at any time prior to its Effective
Time, notwithstanding approval by Unitholders, by PCMC.
PCMC's decision to proceed with the Conversion Transaction is in the sole
discretion of PCMC, subject to receipt of the requisite Unitholders' approval
and satisfaction of the other conditions precedent in the Conversion Agreement.
PCMC currently expects to delay the consummation of the Conversion Transaction
until the Action, including the appeal and any additional claims that may be
brought, is fully resolved to PCMC's satisfaction. Accordingly, there can be no
assurance as to whether the Conversion Transaction will be consummated or, if
consummated, the timing of such consummation.
FEES AND EXPENSES
The costs and expenses incurred in connection with the Conversion
Transaction will be paid by the party incurring such cost or expense unless such
costs are incurred for the benefit of the Partnership, in which case the
Partnership will pay such costs.
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<PAGE> 65
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Quarterly distributions by the Partnership of its Available Cash are made
98% to the Unitholders and 2% to PCMC. However, when per Unit quarterly
distributions exceed the Target Amounts, PCMC receives, in addition to such 2%,
a percentage of such excess increasing to up to 35% of any quarterly
distribution above the highest Target Amount ($0.28 1/3 per Unit). The
Partnership distributed $0.55 per Unit to Unitholders with respect to each
quarter in 1997 and $0.57 per Unit with respect to each of the first three
quarters of 1998. Because the distributions with respect to each such quarter
were in excess of the Target Amounts, PCMC has received substantially in excess
of 2% of the total distributions. With respect to the first three quarters of
1998 and the fiscal years 1997, 1996 and 1995, the Unitholders received 74.5%,
75.0%, 76.2% and 76.7%, and PCMC received 25.5%, 25.0%, 23.8% and 23.3%,
respectively, of the aggregate amount distributed. The Partnership has made
quarterly distributions in excess of a Target Amount since September 30, 1989,
and has made quarterly distributions in excess of the highest Target Amount in
respect of every quarter since the second quarter of 1992. At present, PCMC is
entitled to receive, in addition to distributions with respect to its 2%
ownership interest, incentive distributions at the highest marginal rate of 35%
of incremental increases in quarterly distributions. Conversely, if quarterly
distributions were to be reduced below current levels but above the highest
Target Amount of $0.28 1/3 per Unit, PCMC's general partner interest would bear
37% of the aggregate amount of the reduction. Furthermore, for decreases in
quarterly distributions to levels between $0.28 1/3 per Unit and $0.21 2/3 per
Unit, PCMC's general partner interest would bear between 32% and 12% of the
reduction, while decreases in quarterly distributions to levels below $0.21 2/3
per Unit would be allocated 2% to PCMC's general partner interest and 98% to the
Unitholders.
Under the terms of the Conversion Transaction, PCMC will convert its
general partner interest in the Partnership, including its right to (i) receive
quarterly incentive distributions, (ii) receive increased distributions upon an
equity issuance by the Partnership, (iii) receive disproportionate distributions
upon liquidation of the Partnership and (iv) exercise exclusive control over the
business and affairs of the Partnership and its 4% and 2% ownership interests in
Marketing and Manufacturing Partnership, respectively, and the PCMC Partners
will receive, instead, a 27% aggregate equity interest in the Corporation
comprised of 16,498,709 shares of Common Stock and 634,566 shares of Special
Voting Stock, which are convertible at the option of the holder into an equal
number of shares of Common Stock. Unitholders should further be aware that the
PCMC Partners and the Principals will be entitled to certain special voting and
board nomination rights. See "Summary of the Conversion Agreement and the Merger
Agreements -- Certain Special Voting and Board Nomination Rights" and
"Comparison of Rights of Unitholders and Stockholders -- Voting Rights."
As part of the Conversion Transaction, and in connection with the creation
of the Corporate Subsidiaries, it is presently intended that Rick R. Holley,
Charles P. Grenier, William R. Brown, Michael J. Covey, Lindsay G. Crawford,
Barbara L. Crowe, Diane M. Irvine and James A. Kraft, members of Management,
will purchase all of the voting common stock of the Corporate Subsidiaries,
representing 1% of the outstanding common stock of the Corporate Subsidiaries,
for an aggregate purchase price of approximately $1.4 million. It is possible
that these Corporate Subsidiaries will be organized in a manner that permits the
various Corporate Subsidiaries to elect to file consolidated returns for Federal
income tax purposes. This would entail establishing a "parent company" that
would be owned 96% by Manufacturing Partnership and 4% by certain members of
Management. The "parent company" would, in turn, own all the common stock of the
Corporate Subsidiaries and the Manufacturing Partnership would own preferred
stock of such subsidiaries. Although members of Management may, therefore, own
more than 1% of the common stock in the "parent company," the economic interest
of the members Management in the overall Corporate Subsidiary structure is not
anticipated to materially exceed 1% because of the ownership by the
Manufacturing Partnership of the preferred stock. This alternative structure
would not materially change the "Unaudited Pro Forma Condensed Consolidated
Financial Statements." In addition, the consideration paid by members of
Management under this alternative would not change because the common stock
purchased by members of Management under either scenario is expected to have the
same aggregate value.
The purchase price was determined by Management based on an internally
prepared discounted cash flow analysis. The actual purchase price may vary
depending upon the level of debt that is transferred to the Corporate
Subsidiaries in connection with the transfer of the manufacturing assets. See
Note 2(b) of the
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<PAGE> 66
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. With
this voting common stock, these members of Management will have the exclusive
right to vote on the election of directors of such subsidiaries or any other
transaction for which stockholders of the Corporate Subsidiaries may otherwise
be given the right to vote pursuant to applicable law. The purchase price paid
by these members of Management for this voting common stock will be financed by
the Corporate Loans. The Corporate Loans will be in the form of promissory notes
with a maximum term of ten (10) years, but will be payable upon demand by the
Corporation at any time. The Corporate Loans will have an interest rate of
approximately 7.5%, payable annually, and will require that dividends with
respect to the stock of the Corporate Subsidiaries be used to pay principal and
interest on the Corporate Loans. Management has no direct or indirect ownership
interest in PCMC or Corp I and will not receive any of the 27% aggregate equity
interest to be received by the PCMC Partners in the Conversion Transaction.
Following the Effective Time, in order to qualify under the income
requirements applicable to REITs, the Operating Partnership intends to enter
into one or more Stumpage Contracts with the Corporate Subsidiaries. Pursuant to
the expected terms of the Stumpage Contracts, the Operating Partnership will
sell timber owned by the Corporation to the Corporate Subsidiaries. Although the
Corporation believes that the Stumpage Contracts provide for the sale of such
timber at its fair market value, a potential conflict of interest exists with
the Corporate Subsidiaries by virtue of the fact that management of the
Corporation will hold, directly or indirectly, 1% of the equity of such entities
and all of the voting securities of such entities. See "Plum Creek Timber
Company, Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements."
The Corporation will assume from PCMC certain existing long-term incentive
plans following the Conversion Transaction which contain "change of control"
provisions which, upon a change in control, cause acceleration of the vesting
provisions under such plans. However, the Conversion Transaction will not
trigger these change of control provisions because, with respect to two of the
plans, the closing of the Conversion Transaction will occur either
contemporaneously with, or after, the date the plans vest by their terms, and,
with respect to another plan, the compensation committee of PCMC, which has sole
discretion over the acceleration of the vesting provisions in the event of a
change in control, has determined not to accelerate the vesting provisions of
the plan as a result of the Conversion Transaction.
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<PAGE> 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP
To the best knowledge of the Partnership, there were no beneficial owners
of more than five percent of the Partnership's Units outstanding on January 22,
1998.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the total number of Units held by the directors
of Corp I, the executive officers of PCMC, and all directors of Corp I and
executive officers of PCMC as a group, in each case, as of December 31, 1998,
and the anticipated percentages of the Corporation's Common Stock to be
represented by the Common Stock received in the Conversion Transaction.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF PERCENTAGE OF
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP OUTSTANDING OUTSTANDING
OR IDENTITY OF GROUP OF DEPOSITARY UNITS UNITS COMMON STOCK
-------------------- ----------------------- ------------- -------------
<S> <C> <C> <C>
Directors
Ian B. Davidson................................ 25,312 0.05% 0.04%
George M. Dennison............................. 2,463(a) 0.00% 0.00%
Charles P. Grenier............................. 280,620(c) 0.61% 0.45%
Rick R. Holley................................. 374,904(c) 0.81% 0.60%
David D. Leland................................ 102,625 0.22% 0.16%
William E. Oberndorf........................... 895,953(b) 1.93% 27.3%(d)
William J. Patterson........................... 895,886(b) 1.93% 27.3%(d)
John H. Scully................................. 900,695(b) 1.94% 27.3%(d)
Executive Officers
William R. Brown............................... 59,427(c) 0.13% 0.09%
Diane M. Irvine................................ 87,170(c) 0.19% 0.14%
James A. Kraft................................. 154,936(c) 0.33% 0.25%
14 Executive Officers & Directors as a Group..... 2,061,760 4.45% 3.28%
</TABLE>
- ---------------
(a) Includes 1,387 Units deferred under the Deferred Compensation Plan for
Directors. Mr. Dennison disclaims beneficial ownership of the Units
deferred.
(b) Includes 893,854 Units owned by an Employee Benefits Trust of PCMC as to
which Messrs. Oberndorf, Patterson and Scully have shared voting and
dispositive power. Messrs. Oberndorf, Patterson and Scully share control of,
and have an indirect pecuniary interest in, PCMC's general partner interest
in the Partnership. Messrs. Oberndorf, Patterson and Scully disclaim that
PCMC's general partner interest in the Partnership constitutes a security.
(c) Includes vested shadow units credited to participants' accounts under the
terms of the Long-Term Incentive Plan (the "LTIP") and vested and non-vested
shadow units under the terms of the Management Incentive Plan (the "MIP").
Upon vesting, the participants are entitled to receive one Unit for each
shadow unit that vests. Vested shadow units under the terms of the LTIP
credited to the participants' accounts for Messrs. Holley, Grenier, Kraft
and Brown and Ms. Irvine totaled 314,424, 224,589, 134,753, 46,358 and
72,434, respectively. Vested shadow units under the terms of the MIP
credited to the participants' accounts for Messrs. Holley, Grenier, Kraft
and Brown and Ms. Irvine totaled 9,230, 7,384, 4,388, 3,077 and 3,716,
respectively. Non-vested shadow units under the terms of the MIP credited to
the participants' accounts for Messrs. Holley, Grenier, Kraft and Brown and
Ms. Irvine totaled 15,263, 12,102, 7,908, 5,664 and 6,889, respectively.
These shadow units in the plan participants' accounts are converted at the
Effective Time into rights to receive an equal number of shares of Common
Stock on each plan realization date. The plan realization date for the
vested shadow units listed herein was December 31, 1998. Messrs. Holley,
Grenier, Kraft and Brown and Ms. Irvine disclaim beneficial ownership of the
non-vested shadow units under both the LTIP and the MIP.
(d) Includes 16,498,709 shares of Common Stock and 634,566 shares of Special
Voting Stock which will be owned by the PCMC Partners following the
Conversion Transaction and over which Messrs. Oberndorf, Patterson and
Scully have shared voting and dispositive power. Each share of Special
Voting Stock is convertible into one share of Common Stock at the option of
the holder. Messrs. Oberndorf, Patterson and Scully share control of, and
have an indirect pecuniary interest in, the PCMC Partners.
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<PAGE> 68
DIRECTORS AND EXECUTIVE OFFICERS
The following eight persons are currently directors of Corp I. The eight
were elected by unanimous written consent of the stockholders of Corp I to hold
office until the Annual Meeting of Stockholders in 2000 and until their
successors are duly elected and qualified. There are no family relationships
among them.
IAN B. DAVIDSON (Age 67) -- Mr. Davidson was elected a Director of Corp I
in December 1992 and is a member of both the Audit and Compliance Committee and
the Compensation Committee and is Chairman of the Conflicts Committee and the
Audit and Compliance Committee of the PCMC Board. Since 1970, Mr. Davidson has
been Chairman and Chief Executive Officer of D.A. Davidson & Co. and DADCO, a
regional brokerage firm. Mr. Davidson also serves as a Director of Energy West
and the DADCO Companies.
GEORGE M. DENNISON (Age 63) -- Dr. Dennison was elected a Director of Corp
I effective February 1994 and is a member of the Audit and Compliance Committee,
the Compensation Committee and the Conflicts Committee of the PCMC Board. Since
1990, Dr. Dennison has been President and Professor of History at the University
of Montana.
CHARLES P. GRENIER (Age 49) -- Mr. Grenier was elected a Director of Corp I
effective April 1995. Mr. Grenier has been Executive Vice President of PCMC
since January 1994. Mr. Grenier was Vice President, Rocky Mountain Region of
PCMC from December 1992 to December 1993, and was Vice President, Rocky Mountain
Region of PCMC's predecessor from June 1989 to December 1992. Mr. Grenier also
serves as a Director of Winter Sports, Inc.
RICK R. HOLLEY (Age 46) -- Mr. Holley was elected a Director of Corp I
effective January 1994. Mr. Holley has been President and Chief Executive
Officer of PCMC since January 1994. Mr. Holley was Vice President and Chief
Financial Officer of PCMC from December 1992 to December 1993, and was Vice
President and Chief Financial Officer of PCMC's predecessor from April 1989 to
December 1992.
DAVID D. LELAND (Age 63) -- Mr. Leland became a Director and Chairman of
the PCMC Board of Directors of Corp I in December 1992 and is a member of the
Compensation Committee and the Conflicts Committee of the PCMC Board. Mr. Leland
was President and Chief Executive Officer of PCMC from December 1992 to December
1993. Mr. Leland was a Director and President and Chief Executive Officer of
PCMC's predecessor from April 1989 to December 1992.
WILLIAM E. OBERNDORF (Age 45) -- Mr. Oberndorf was elected a Director of
Corp I in November 1992 and is Chairman of the Compensation Committee of the
PCMC Board. Mr. Oberndorf is Vice President and Treasurer of Corp I. Since 1991,
Mr. Oberndorf's principal occupation has been as a Managing Director of SPO
Partners & Co., a private investment firm that is an affiliate of the
Partnership. Mr. Oberndorf serves as a Director for Bell & Howell Company, Inc.
WILLIAM J. PATTERSON (Age 37) -- Mr. Patterson became a director of Corp I
in November 1992 and is a member of the Compensation Committee of the PCMC
Board. Mr. Patterson is a Vice President of Corp I. Since 1991, Mr. Patterson's
principal occupation has been as a Managing Director of SPO Partners & Co., a
private investment firm that is an affiliate of the Partnership.
JOHN H. SCULLY (Age 54) -- Mr. Scully was elected a Director of Corp I in
November 1992 and is a member of the Compensation Committee of the PCMC Board.
Mr. Scully is President of Corp I. Since 1991, Mr. Scully's principal occupation
has been as a Managing Director of SPO Partners & Co., a private investment firm
that is an affiliate of the Partnership. Mr. Scully serves as a Director for
Bell & Howell Company, Inc.
PCMC presently intends that, upon consummation of the Conversion
Transaction, the board of directors of the Corporation will consist of 9 members
divided equally into three classes serving staggered terms, with one class of
directors elected annually. The terms of the directors constituting Class I will
expire in 2000. The term of the directors in Class II extends through 2001, and
the term of the directors in Class III extends
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<PAGE> 69
through 2002. The table below indicates the names of the directors in each class
and the expiration of the terms of the directors in each class.
<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
- --------------------------- --------------------------- ---------------------------
(TERMS EXPIRING IN 2000) (TERMS EXPIRING IN 2001) (TERMS EXPIRING IN 2002)
<S> <C> <C>
George M. Dennison David D. Leland Rick R. Holley
Charles P. Grenier John G. McDonald Ian B. Davidson
John H. Scully William E. Oberndorf William J. Patterson
</TABLE>
No arrangement or understanding exists between any director or officer and
any other person or persons pursuant to which any such person was or is to be
selected as a director or officer. None of the directors or officers has any
family relationship between them.
The business experience, principal occupation and employment during the
past five years of the director of the Corporation not already set forth above
is set forth below.
JOHN G. MCDONALD (Age 61) -- Mr. McDonald is expected to become a director
of the Corporation shortly prior to the closing of the Conversion Transaction,
if approved. Mr. McDonald is the IBJ Professor of Finance in the Graduate School
of Business at Stanford University, where he has been a faculty member since
1968. He serves as a director of Varian Associates, Inc.; Scholastic Corp.;
TriNet Corp. Realty Trust, Inc.; Garden State Vintners, Inc.; and 8 funds
managed by Capital Research and Management Company and affiliates. From 1987 to
1990, Mr. McDonald served as a Governor of the National Association of
Securities Dealers, the last year as Vice Chairman.
The names, ages, offices and periods of service as executive officers of
PCMC are listed below. The executive officers of PCMC are also the executive
officers of the Corporation. The executive officers of PCMC and the Corporation
hold office until their successors are duly appointed. There are no family
relationships among them.
<TABLE>
<CAPTION>
OFFICER
NAME AGE OFFICE SINCE
---- --- ------ -------
<S> <C> <C> <C>
Rick R. Holley............................ 46 President and Chief Executive Officer 1989
Charles P. Grenier........................ 49 Executive Vice President 1989
William R. Brown(a)....................... 47 Vice President, Strategic Business 1995
Development
Michael J. Covey(b)....................... 41 Vice President, Resources 1998
Lindsay G. Crawford(c).................... 49 Vice President, Southern Region 1996
Barbara L. Crowe(d)....................... 47 Vice President, Human Resources 1997
Diane M. Irvine(e)........................ 40 Vice President and Chief Financial 1994
Officer
James A. Kraft(f)......................... 43 Vice President, General Counsel and 1989
Secretary
</TABLE>
- ---------------
(a) Served since January 1998 as Vice President, Strategic Business Development
of PCMC. Mr. Brown was Vice President, Resource Management of PCMC from
February 1995 to January 1998, was Director, Planning for PCMC from
December 1992 to February 1995 and was Director, Planning for PCMC's
predecessor from August 1990 to December 1992.
(b) Served since January 1998 as Vice President, Resources of PCMC. Mr. Covey
was the General Manager, Rocky Mountain Timberlands for PCMC from August
1996 to January 1998, was Director of Operations, Rocky Mountain Region for
PCMC from June 1995 to August 1996, and was Plant Manager, Ksanka Sawmill
for PCMC from December 1992 to June 1995 and was Plant Manager, Ksanka
Sawmill for PCMC's predecessor from August 1992 to December 1992.
(c) Served since October 1996 as Vice President, Southern Region of PCMC. Mr.
Crawford was the General Manager, Lumber for PCMC from December 1994 to
October 1996, was Director of
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<PAGE> 70
Operations, Flathead Mills for PCMC from December 1992 to November 1994 and
was Director of Operations, Flathead Mills for PCMC's predecessor from June
1989 to December 1992.
(d) Served since April 1997 as Vice President, Human Resources of PCMC. From
October 1995 through March 1997, Ms. Crowe was Vice President, Human
Resources for Weight Watchers Gourmet Food Co., a subsidiary of the H.J.
Heinz Company. From November 1991 through September 1995, Ms. Crowe worked
in Human Resources at Ore-Ida Foods, Inc., a subsidiary of the H.J. Heinz
Company, first as Manager, then as General Manager.
(e) Served since February 1994 as Vice President and Chief Financial Officer of
PCMC. Ms. Irvine was a Partner with Coopers & Lybrand L.L.P. from October
1993 to February 1994 and was a Manager with Coopers & Lybrand L.L.P. from
July 1987 to September 1993. Ms. Irvine is a member of the board of
directors of the DADCO Companies.
(f) Served since April 1996 as Vice President, General Counsel and Secretary of
PCMC. Mr. Kraft was Vice President, Law of PCMC from January 1994 to April
1996, was Vice President, Law and Corporate Affairs of PCMC from December
1992 to December 1993 and was Vice President, Law and Corporate Affairs of
PCMC's predecessor from April 1989 to December 1992.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the Federal income tax considerations
anticipated to be material to prospective stockholders of the Corporation. The
discussion does not address the tax consequences that may be relevant to
individual stockholders in light of their particular circumstances or any
special treatment to which they may be subject under certain Federal income tax
laws, such as dealers in securities, traders in securities that elect to mark to
market, banks, insurance companies, tax-exempt organizations (except to the
extent discussed under the heading "-- Taxation of Tax-Exempt Stockholders of
the Corporation") or non-United States persons (except to the extent discussed
under the heading "-- Taxation of Non-United States Stockholders of the
Corporation"), nor does it address the tax consequences of PCMC and its equity
holders. This discussion does not address any consequences arising under the
laws of any state, local or foreign jurisdiction.
The information in this discussion is based on current provisions of the
Code, existing, temporary and currently proposed Treasury Regulations
thereunder, the legislative history of the Code, existing administrative
interpretations and practices of the Service, and judicial decisions, all of
which are subject to change either prospectively or retroactively. No assurance
can be given that future legislation, Treasury Regulations, administrative
interpretations or judicial decisions will not significantly change the current
law or adversely affect existing interpretations of current law. Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel to the Partnership, has delivered an
opinion with respect to certain tax matters (the "Tax Opinion"), which is
attached as Exhibit 8.1 to the Registration Statement of which this Proxy
Statement/Prospectus forms a part, which contains an opinion substantially to
the effect that, subject to the foregoing qualifications, the discussion set
forth herein constitutes, in all material respects, a fair and accurate summary
of the United States Federal income tax consequences of the purchase, ownership,
and disposition of Common Stock. It is a condition to Closing that the Tax
Opinion be reissued in substantially the same form on the Closing Date.
The Partnership has received a private letter ruling from the Service
confirming the tax consequences of the Conversion Transaction. In addition, the
Partnership has received a substantially unqualified opinion from Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel to the Partnership, addressing the
matters described below, in particular, that the Unitholders will not recognize
taxable income as a result of the Conversion Transaction, except to the extent
that a Unitholder's allocable share of Partnership indebtedness exceeds his tax
basis in his Units, and that the Corporation will be organized in conformity
with the requirements for qualification as a REIT. The opinion regarding the
Conversion Transaction is based on the private letter ruling issued by the
Service to the Partnership and customary representations and assumptions for
transactions of this nature. Receipt of the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP is not, however, equivalent to the receipt of a ruling from
the Service to the effect that the Corporation has been organized in conformity
with the requirements for qualification as a REIT. Absent receipt from the
Service of
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<PAGE> 71
a favorable private letter ruling, there can be no assurance that the Service
will not challenge the Corporation's status as a REIT. See "Risk
Factors -- Transaction Risks -- REIT Qualification."
Each Unitholder is advised to consult with its tax advisor regarding the
specific tax consequences of the ownership and disposition of shares of Common
Stock in light of its specific tax and investment situation and the specific
Federal, state, local and foreign laws applicable to the Common Stock.
THE CONVERSION TRANSACTION
The proposed Conversion Transaction has been structured in a manner
intended to result in no recognition of taxable income to Unitholders. The
Partnership has received a private letter ruling from the Service confirming the
following tax consequences of the Conversion Transaction. For Federal income tax
purposes, the Merger will be treated as (i) a transfer by the Partnership of its
assets to the Corporation in exchange for Common Stock and the assumption by the
Corporation of the Partnership's liabilities, followed by (ii) a distribution of
the Common Stock by the Partnership to the Unitholders in complete liquidation
of the Partnership. Unitholders will not recognize gain or loss upon the
distribution by the Partnership of Common Stock in liquidation of the
Partnership. Nevertheless, the Corporation's assumption of the Partnership's
liabilities in the Merger will reduce each Unitholder's share of Partnership's
liabilities, which reduction will be treated for Federal income tax purposes as
a deemed cash distribution to Unitholders. Accordingly, the adjusted tax basis
of each Unitholder's interest in the Partnership, which includes a Unitholder's
share of Partnership liabilities, will be reduced to reflect each Unitholder's
share of such deemed distribution. A Unitholder would recognize gain to the
extent the deemed distribution exceeds the adjusted tax basis of the
Unitholder's interest in the Partnership before the distribution, but the
information available to the Partnership indicates that each Unitholder has a
tax basis in its Units in excess of any anticipated deemed distribution. In
addition, as part of its Tax Opinion, Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Partnership, has delivered an opinion, substantially to
the effect that the Merger will be treated as a transfer of assets by the
Partnership to the Corporation in exchange for Common Stock in a transaction
that is governed by section 351 of the Code, and accordingly, no gain or loss
will be recognized by the Corporation, the Partnership or the Unitholders as a
result of the Conversion Transaction. For purposes of rendering the opinion
expressed in the immediately preceding sentence, Skadden, Arps, Slate, Meagher &
Flom LLP has assumed, with the express permission of PCMC, that each Unitholder
has a tax basis in its Units in excess of any anticipated deemed cash
distribution that would result from a reduction in a Unitholder's share of the
Partnership's liabilities as a result of the Merger.
The aggregate adjusted tax basis of the Common Stock received by a
Unitholder in complete liquidation of the Partnership will be the same as the
aggregate tax basis of the Units held by such Unitholder (after adjustment for
the deemed distribution in respect of liabilities assumed by the Corporation, as
discussed above). The holding period of the Common Stock received by a
Unitholder will include the Partnership's holding period in the Common Stock.
The Partnership's holding period in the Common Stock, in turn, will include the
holding period of the assets that were deemed transferred by the Partnership to
the Corporation as a result of the Merger, provided that such assets were
capital assets or property described in section 1231 of the Code (i.e. assets
used in a trade or business) on the date of the Merger. The Partnership believes
that substantially all of the assets of the Partnership are assets described in
section 1231.
As a result of the Conversion Transaction, the Corporation and its
stockholders will be required to comply with certain reporting requirements set
forth in the Treasury Regulations, which will require the reporting of certain
facts regarding the Conversion Transaction. The Corporation will provide
stockholders with the documentation that they will be required to furnish with
their tax returns for the year of the Conversion Transaction.
TAXATION OF THE CORPORATION AS A REIT
General.
Under Federal income tax law, if certain detailed conditions imposed by the
Code and the related Treasury Regulations are satisfied, an entity that invests
principally in real estate and that would otherwise be
58
<PAGE> 72
subject to tax as a corporation may elect to be treated as a REIT for U.S.
federal income tax purposes. These conditions relate, in part, to the nature of
the entity's assets and income. If the Corporation qualifies for taxation as a
REIT, it will generally not be subject to Federal corporate income tax on its
taxable income that is distributed currently to stockholders. This treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and stockholder levels) that generally results from investment in a
corporation.
The Corporation intends to elect to be treated for tax purposes as, and to
operate so as to qualify as, a REIT under sections 856 through 860 of the Code,
commencing with its taxable year ending on December 31, 1999. No assurance can
be given, however, that the Corporation will operate in a manner so as to
qualify, or remain qualified, as a REIT. Skadden, Arps, Slate, Meagher & Flom
LLP, acting as special counsel to the Partnership in connection with the
Conversion Transaction, has delivered an opinion as part of its Tax Opinion
substantially to the effect that commencing with the Corporation's tax year
ending on December 31, 1999, the Corporation will be organized in conformity
with the requirements for qualification as a REIT, and the Corporation's
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT provided that (i) the elections and other
procedural steps described in this discussion of "Certain Federal Income Tax
Consequences" are completed in a timely fashion and (ii) the Corporation,
Operating Partnership and each of their respective subsidiaries operate in
accordance with various assumptions and factual representations made by the
Partnership, the Corporation and the Operating Partnership concerning their
organization, business, properties and operations (and the organization,
business, properties and operation of the Partnership prior to the Merger). In
providing its opinion, Skadden, Arps, Slate, Meagher & Flom LLP has relied upon
certain representations received from the Partnership, the Corporation and the
Operating Partnership. The opinion is based upon facts, representations and
assumptions as of its date, and Skadden, Arps, Slate, Meagher & Flom LLP will
have no obligation to advise the Corporation or holders of Common Stock of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in applicable law. Qualification and taxation as a REIT will
depend upon the Corporation's ability to meet on an ongoing basis (through
actual annual operating results, its asset base, distribution levels and
diversity of share ownership) the various qualification tests imposed under the
Code discussed below, the results of which will not be reviewed by Skadden,
Arps, Slate, Meagher & Flom LLP on a continuing basis. No assurance can be given
that the actual results of the Corporation's operations for any particular
taxable year will satisfy such requirements, and an opinion of counsel is not
binding upon the Service. Further, the anticipated income tax treatment
described in this Proxy Statement/Prospectus may be changed, perhaps
retroactively, by legislative, administrative or judicial action at any time.
See "-- Failure of the Corporation to Qualify as a REIT." In connection with the
Conversion Transaction, the Partnership requested rulings from the Service that
certain REIT requirements would be satisfied by the Corporation. Those ruling
requests were withdrawn at the request of the Service to facilitate timely
issuance of the private letter ruling with respect to the Federal income tax
consequences of the Conversion Transaction. With the concurrence of the Service,
the REIT ruling requests have been resubmitted for continued consideration by
the Service. In the event that the Service does not issue such other private
letter ruling on a timely basis or declines to issue such a ruling, the
Partnership will rely on the opinion of Skadden, Arps, Slate, Meagher & Flom
LLP, regarding REIT qualification, as discussed above.
The sections of the Code and the corresponding Treasury Regulations
relating to the taxation of REITs and their stockholders are highly technical
and complex. The following discussion sets forth the material aspects of the
rules that govern the Federal income tax treatment of a REIT and its
stockholders. This summary is based on current U.S. law, including the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject to
change, which changes may apply retroactively.
If the Corporation qualifies for taxation as a REIT, it will generally not
be subject to Federal corporate income taxes on that portion of its ordinary
income or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. The Corporation will, however, be subject
to Federal income tax under certain circumstances among which are the following:
First, the
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Corporation will be subject to tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
See, however, "Distribution Policy" with respect to the Corporation's ability to
elect to treat as having been distributed to its stockholders certain of its
capital gains upon which the Corporation has paid taxes, in which event so much
of the taxes as have been paid by the Corporation with respect to such income
would also be treated as having been distributed to stockholders. Second, under
certain circumstances, the Corporation may be subject to the "alternative
minimum tax" on certain of its items of tax preference. Third, if the
Corporation has (i) net income from the sale or other disposition of
"foreclosure property" which is described in section 1221(1) of the Code
(generally, property held primarily for sale to customers in the ordinary course
of the Corporation's trade or business) or (ii) other nonqualifying income from
foreclosure property, the Corporation will be subject to tax at the highest
corporate rate on such income. Fourth, if the Corporation has net income from
"prohibited transactions" (which are, in general, certain sales or other
dispositions of property described in section 1221(1) of the Code), such income
will be subject to a 100% tax. Fifth, if the Corporation should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed below), but
has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, the Corporation will be subject to a 100% tax on an
amount equal to (i) the gross income attributable to the greater of the amount
by which the Corporation fails the 75% or 95% test multiplied by (ii) a fraction
intended to reflect the Corporation's profitability. Sixth, if the Corporation
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year (other than capital gain income the Corporation elects to
retain and pay tax on) and (iii) any undistributed taxable income from prior
periods (other than capital gains from such years which the Corporation elected
to retain and pay tax on), the Corporation would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed.
Requirements for Qualification.
To qualify as a REIT, the Corporation must elect to be so treated and must
meet the requirements discussed below relating to the Corporation's
organization, sources of income, nature of assets and distributions of income.
Organizational Requirements.
The capital stock of the Corporation must be held by at least 100 persons
and no more than 50% of the value of such capital stock may be owned, directly
or indirectly, by five or fewer individuals (as specially defined for these
purposes) at all times during the last half of the taxable year. For these
purposes, certain entities such as private foundations are treated as an
individual. These stock ownership requirements must be satisfied in the
Corporation's second taxable year and in each subsequent taxable year. The
Charter provides for certain restrictions regarding the transfer of the
Corporation's capital stock in order to aid in meeting the stock ownership
requirements, but these restrictions cannot insure that the Corporation will in
all cases comply with these ownership requirements.
To monitor the Corporation's compliance with the stock ownership
requirements, the Corporation is required to maintain records regarding the
actual ownership of its stock. To do so, the Corporation must demand written
statements each year from the record holders of certain percentages of its stock
in which the record holders are to disclose the actual owners of the stock
(i.e., the persons required to include in gross income the REIT dividends). A
list of those persons failing or refusing to comply with this demand must be
maintained as part of the Corporation's records. A stockholder who fails or
refuses to comply with the demand must submit a statement with its Federal
income tax return disclosing the actual ownership of the stock and certain other
information.
Income Tests.
In order to maintain qualification as a REIT, the Corporation must annually
satisfy two gross income requirements. First, at least 75% of the Corporation's
gross income (excluding gross income from "prohibited transactions") for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and "gain from the sale or other
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disposition of real property" other than property described in section 1221(1)
of the Code) or from certain types of temporary investments. Second, at least
95% of the Corporation's gross income (excluding gross income from "prohibited
transactions") for each taxable year must be derived from such real property
investments, dividends, interest and gain from the sale or disposition of stock
or securities (or from any combination of the foregoing).
In addition, any net income realized by the Corporation from the sale or
other disposition of property described in section 1221(1) of the Code
(including the Corporation's share of any such gain realized by the Operating
Partnership) will be treated as income from a "prohibited transaction" and will
not count towards satisfying the 95% and 75% income tests. Property is described
in section 1221(1) of the Code if it is held as inventory or primarily for sale
to customers in the ordinary course of a trade or business. Such income will
also be subject to a 100% penalty tax. Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction.
Rents received by the Corporation will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. It is anticipated that the only rental
income the Corporation will receive will be from certain farmlands and grazing
lands and from certain hunting leases. It is anticipated that any income the
Corporation receives from such hunting leases and properties will constitute
"rents from real property" under the applicable rules. While it is not expected
that the Corporation will receive a substantial amount of rental income, the
Corporation will take steps to ensure that any such rental income will qualify
as "rents from real property" for purposes of the 75% and 95% gross income
tests.
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Partnership, has delivered an opinion as part of its Tax Opinion, substantially
to the effect that income realized by the Operating Partnership from the
disposal of timber held (or deemed held pursuant to the Code) for more than one
year pursuant to the Stumpage Contracts: (i) will be characterized as gain from
the sale or other disposition of real property, and (ii) will not constitute
income from the sale or other disposition of real property described in section
1221(1) of the Code. Investors should be aware that there are no controlling
Treasury Regulations, published rulings or judicial decisions involving
agreements with terms substantially the same as the Stumpage Contracts which
discuss whether income from such an agreement will be characterized as gain from
the sale or other disposition of property that is not described in section
1221(1) of the Code. In addition, opinions of counsel are not binding upon the
Service or any court, and there can be no complete assurance that the Service
will not successfully assert a contrary position. Nevertheless, the Service has
issued one private letter ruling on a similar fact situation and a number of
private letter rulings addressing the identical issue under an analogous
provision of the Code. The Service concluded in such rulings that gains derived
from the disposal of standing timber in a transaction that qualifies for
treatment under section 631(b) of the Code are not gains from the disposition of
property described in section 1221(1) of the Code. Although private rulings are
not binding precedent, they offer insight into the Service's current position on
a particular issue. As described above, the Partnership has requested rulings
that certain REIT requirements would be satisfied by the Corporation. Among
these rulings would be a determination to the effect that income from the
Stumpage Contracts would be treated as gain from the sale of real property that
is not described in section 1221(1). If the income realized by the Operating
Partnership from the disposal of timber pursuant to the Stumpage Contracts is
considered to be income from the sale or other disposition of property described
in section 1221(1) of the Code, then the Corporation would be subject to the
100% penalty tax on such income and, as noted above, in such a situation the
Corporation may not be able to satisfy the 75% or 95% of income tests necessary
for it to qualify as a REIT.
If the Corporation fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if the Corporation's failure
to meet such tests was due to reasonable cause and not due to willful neglect,
the Corporation attaches a schedule of the sources of its income to its Federal
income tax return, and any incorrect information on the schedule was not due to
fraud with intent to evade tax. It is not possible, however, to state whether in
all circumstances the Corporation
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would be entitled to the benefit of these relief provisions. As discussed above
in "-- General," even if these relief provisions apply, a tax would be imposed
with respect to the excess gross income.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income tests and the asset tests.
Asset Tests.
The Corporation, at the close of each quarter of its taxable year, must
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Corporation's total assets must be represented by real estate
assets including (i) its allocable share of real estate assets held by
partnerships in which the Corporation owns an interest (including its allocable
share of the assets held directly or indirectly through the Operating
Partnership) and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Corporation, cash, cash items and government
securities. Second, not more than 25% of the Corporation's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Corporation may not exceed 5% of the value of the
Corporation's total assets, and the Corporation may not own more than 10% of any
one issuer's outstanding voting securities.
The Corporation anticipates that, as of the closing of the Conversion
Transaction, substantially more than 75% of the fair market value of the assets
indirectly owned by the Corporation through the Operating Partnership will
consist of timberlands owned in fee. The Corporation also expects that, at all
times, substantially more than 75% of the assets indirectly owned by the
Corporation through the Operating Partnership will consist of fee ownership of
timberland. Accordingly, the Corporation believes that it will be able to meet
the 75% test described above at the time of the Conversion Transaction and on a
going forward basis.
In order to comply with the asset and income requirements for qualification
as a REIT under the Code, the Partnership will contribute the assets that relate
to its manufacturing operations and harvesting of timberlands to certain
Corporate Subsidiaries. The Operating Partnership will own all of the nonvoting
common stock (representing 99% of the outstanding equity) and none of the voting
stock (representing 1% of the outstanding equity) of four Corporate
Subsidiaries. By virtue of its ownership of a general partner interest in the
Operating Partnership, the Corporation is considered to own its pro rata share
of stock of such Corporate Subsidiaries. Neither the Corporation nor the
Operating Partnership will own any outstanding voting securities of the
Corporate Subsidiaries.
The 5% test described above must generally be met for any quarter in which
the Corporation acquires securities of the issuer. Thus, this requirement must
be satisfied not only on the date the Corporation acquires securities of each of
the Corporate Subsidiaries but also each time the Corporation increases its
ownership of securities of any Corporate Subsidiary, (including as a result of
its interest in the Operating Partnership, the exercise by the partners of their
exchange rights or otherwise). Although the Corporation will take steps to
ensure that it satisfies the 5% value test for any quarter with respect to which
testing will occur, there can be no assurance that such steps will always be
successful or will not require a reduction in the Corporation's overall interest
in one or more of the Corporate Subsidiaries. The opinion of Skadden, Arps,
Slate, Meagher & Flom LLP will be based on the assumption of continued
compliance with these tests.
If the Corporation should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Corporation's assets
and the asset requirements either did not exist immediately after the
acquisition of any particular asset or was not wholly or partly caused by such
an acquisition (i.e., the discrepancy arose from changes in the market values of
its assets). If the condition described in clause (ii) of the preceding sentence
were not satisfied, the Corporation
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could still avoid disqualification by eliminating any discrepancy within 30 days
after the close of the quarter in which it arose.
Annual Distribution Requirements.
In order to qualify as a REIT, the Corporation will be required to make
distributions (other than capital gain dividends) to its stockholders in an
amount at least equal to (i) the sum of (a) 95% of the Corporation's "REIT
taxable income" (computed without regard to the dividends paid deduction and the
Corporation's net capital gain) and (b) 95% of the net income (after tax), if
any, from foreclosure property, minus (ii) the sum of certain items of noncash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Corporation
timely files its tax return for such year and if paid on or before the first
regular dividend payment date after such declaration. To the extent that the
Corporation does not distribute (or is not treated as having distributed) all of
its net capital gain or distributes (or is treated as having distributed) at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. If the Corporation should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year (other than capital gain
income which the Corporation elects to retain and pay tax on as provided for
below) and (iii) any undistributed taxable income from prior periods (other than
capital gains from such years which the Corporation elected to retain and pay
tax on), the Corporation would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed.
Pursuant to recently enacted legislation, the Corporation may elect to
retain rather than distribute its net long-term capital gains. The effect of
such an election is that (i) the Corporation would be required to pay the tax on
such gains at regular corporate tax rates, (ii) its stockholders, while required
to include their proportionate share of the undistributed long-term capital gain
in income, would receive a credit or refund for their share of the tax paid by
the Corporation; and (iii) the basis of a stockholder's stock would be increased
by the amount of the undistributed long-term capital gains (minus the amount of
capital gains tax paid by the Corporation) included in income by such
stockholder.
It is possible that the Corporation, from time to time, may not have
sufficient cash or other liquid assets to meet the annual distribution
requirements described above due to timing or other differences between (i) the
actual receipt of income and actual payment of deductible expenses and (ii) the
inclusion of such income and deduction of such expenses in arriving at taxable
income of the Corporation. If the Corporation does face this situation, it may
elect to pay the tax and retain the capital gain. Nevertheless, in order to pay
such tax or otherwise meet the distribution requirements, the Corporation may
find it necessary to arrange for short or possibly long-term borrowings, issue
equity or sell assets.
Under certain circumstances, the Corporation may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in the
Corporation's deduction for dividends paid for the earlier year. Thus, the
Corporation may be able to avoid being taxed on amounts distributed as
deficiency dividends; however, the Corporation will be required to pay interest
based upon the amount of any deduction taken for deficiency dividends.
Failure of the Corporation to Qualify as a REIT.
If the Corporation fails to qualify for taxation as a REIT in any taxable
year and if the relief provisions do not apply, the Corporation will be subject
to tax (including any applicable alternative minimum tax) on its taxable income
at regular corporate rates. Distributions to stockholders in any year in which
the Corporation fails to qualify as a REIT will not be deductible by the
Corporation nor will they be required to be made. As a result, the cash
available for distribution by the Corporation to its stockholders would be
significantly reduced. In addition, if the Corporation fails to qualify as a
REIT, all distributions to stockholders will be subject to tax as ordinary
income, to the extent of the Corporation's current and accumulated earnings and
profits, and, subject to certain limitations of the Code, corporate distributees
may be eligible for the dividends received deduction. Unless entitled to relief
under specific statutory provisions, the Corporation will also be disqualified
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from being eligible to be subject to tax as a REIT for the four taxable years
following the year during which such qualification was lost. It is not possible
to state whether in all circumstances the Corporation would be entitled to such
statutory relief.
TAXATION OF TAXABLE U.S. HOLDERS OF THE CORPORATION
As used herein, the term "U.S. Holder" means a holder of Common Stock who
(for United States federal income tax purposes) is (i) an individual who is a
citizen or resident of the United States; (ii) an entity which is a corporation
or partnership for United States federal income tax purposes and which is
created or organized in the United States or under the laws of the United States
or any political subdivision thereof (although certain partnerships so created
or organized may be treated, under regulations not yet published, as not a
United States person); (iii) any estate whose income is includible in gross
income for United States federal income tax purposes regardless of its source;
or (iv) a "Domestic Trust." A Domestic Trust is generally any trust with respect
to which a court within the United States is able to exercise primary
supervision over the administration of such trust, and as to which one or more
United States fiduciaries have the authority to control all substantial
decisions of such trust.
Distributions by the Corporation.
Distributions made to U.S. Holders, other than tax-exempt entities, that
are not designated as capital gain dividends, will generally be subject to tax
as ordinary income to the extent of the Corporation's current and accumulated
earnings and profits as determined for Federal income tax purposes. If the
amounts distributed exceed a stockholder's allocable share of such earnings and
profits, the excess will be treated as a return of capital to the extent of the
stockholder's adjusted basis in the Common Stock, which will not be subject to
tax and thereafter as a gain from the sale or exchange of a capital asset. At
the present time, the Corporation anticipates that a portion of the
distributions made by the Corporation will constitute a return of capital to the
holder and the remainder will generally constitute capital gain dividends.
Distributions made by the Corporation to U.S. Holders that are properly
designated by the Corporation as capital gain dividends will be subject to tax
as capital gains (to the extent that they do not exceed the Corporation's actual
net capital gain for the taxable year) without regard to the period for which a
U.S. Holder has held his Common Stock. The capital gains rate for individuals
with respect to gains recognized from sales of assets held for more than one
year is 20%. If the Corporation elects to retain capital gains rather than
distribute them, a U.S. Holder will be deemed to receive a capital gain dividend
equal to its share of such retained capital gains. In such a case, a stockholder
will receive a tax credit or refund for its share of the tax paid by the
Corporation on such undistributed capital gains and the basis of the
stockholders' Common Stock would be increased by the amount of the undistributed
capital gains (minus the amount of capital gains tax paid by the Corporation
deemed distributed to such stockholders).
Dividends declared by the Corporation in October, November, or December of
any year and payable to a stockholder of record on a specified date in any such
month shall be treated as both paid by the Corporation and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by the Corporation on or before January 31 of the following calendar year.
Stockholders may not include in their income tax returns any net operating
losses or capital losses of the Corporation. The Corporation will notify each
stockholder after the close of the Corporation's taxable year as to the portions
of the distributions attributable to that year which constitute ordinary income,
capital gain or a return of capital.
The Corporation will be treated as having sufficient earnings and profits
to treat as a dividend any distribution by the Corporation up to the amount
required to be distributed in order to avoid imposition of the 4% excise tax
discussed under "-- Taxation of the Corporation as a REIT -- General" and
"-- Taxation of the Corporation as a REIT -- Annual Distribution Requirements."
As a result, stockholders may be required to treat as taxable dividends certain
distributions that would otherwise result in tax free returns of capital. In
addition, any "deficiency dividend" will be treated as a "dividend" (an ordinary
dividend or a capital gain dividend, as the case may be), regardless of the
Corporation's earnings and profits.
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Passive Activity Losses and the Investment Interest Limitation.
Distributions made by the Corporation and gain arising from the sale or
exchange by a U.S. Holder of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Holders will generally not be able to
apply any "passive losses" against such income or gain. Dividends from the
Corporation (to the extent they do not constitute a capital gain dividend or a
return of capital) will generally be treated as investment income for purposes
of the investment interest limitation. Net capital gain from the sale or other
disposition of shares of Common Stock and capital gain dividends will generally
not be considered investment income for purposes of the investment interest
limitation.
Sale of Common Stock.
Upon any sale or other disposition of Common Stock, a U.S. Holder will
generally recognize gain or loss for Federal income tax purposes in an amount
equal to the difference between (i) the amount of cash and the fair market value
of any property received on such sale or other disposition and (ii) the holder's
adjusted basis in such Common Stock for tax purposes. Such gain or loss will be
capital gain or loss if the Common Stock has been held by the U.S. Holder as a
capital asset and will be eligible for preferential capital gains rates if such
Common Stock has been held for more than one year, as discussed above under
"Distributions by the Corporation." In general, any loss recognized by a U.S.
Holder upon the sale or other disposition of Common Stock that has been held for
six months or less (after applying certain holding period rules) will be treated
as a long-term capital loss to the extent of distributions received by such U.S.
Holder from the Corporation which were treated as long-term capital gains.
TAXATION OF TAX-EXEMPT STOCKHOLDERS OF THE CORPORATION
Based upon a published ruling by the Service, distributions by the
Corporation to a stockholder that is a tax-exempt entity will not constitute
"unrelated business taxable income" ("UBTI"), provided that the tax-exempt
entity has not financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code and the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity.
Notwithstanding the preceding paragraph, however, a portion of the
dividends paid by the Corporation may be treated as UBTI to certain U.S. private
pension trusts if the Corporation is treated as a "pension-held REIT." The
Corporation does not anticipate that it will be a "pension-held REIT." If the
Corporation were to become a pension-held REIT, these rules would generally only
apply to certain U.S. pension trusts that hold more than 10% of the
Corporation's stock.
TAXATION OF NON-UNITED STATES STOCKHOLDERS OF THE CORPORATION
The rules governing United States federal income taxation of the ownership
and disposition of Common Stock by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S. Holders") are
complex, and no attempt is made herein to provide more than a brief summary of
such rules. Accordingly, the discussion does not address all aspects of United
States federal income tax and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Holder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Corporation qualifies for
taxation as a REIT. Prospective Non-U.S. Holders should consult their tax
advisors to determine the impact of Federal, state, local and foreign tax laws
with regard to an investment in Common Stock (including reporting requirements)
in light of their individual investment circumstances. As discussed below,
because of the nature of the Corporation's income, investment in the Corporation
may be less favorable than investments in REITs whose principal activity is not
timber-related.
Distributions by the Corporation.
Under FIRPTA, distributions to a Non-U.S. Holder that are attributable to
gain from sales or exchanges by the Corporation of United States real property
interests will cause the Non-U.S. Holder to be treated as
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recognizing such gain as income effectively connected with a United States trade
or business. Non-U.S. Holders would thus generally be subject to tax at the same
rates applicable to domestic stockholders (subject to a special alternative
minimum tax in the case of nonresident alien individuals). Such gain may also be
subject to a 30% branch profits tax in the hands of a Non-U.S. Holder that is a
corporation. The Corporation is generally required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Holder's United
States federal income tax liability. It should be noted that the 35% withholding
tax rate on capital gain dividends is higher than the maximum rate (which may be
20%, 25% or 28% depending upon the facts and circumstances) on long-term capital
gains of U.S. Holders that are individuals. It should also be emphasized that
the Corporation believes that the income it will receive under the Stumpage
Contracts will be characterized for Federal income tax purposes as gain from the
sale or other disposition of real property. Accordingly, the portion of the
Corporation's distribution that is not a return of capital will be subject to
such treatment. Although the Corporation currently expects that a substantial
portion of each distribution will be a return of capital that would not be
subject to such treatment, no assurances can be given that the relative amounts
of capital gain and return of capital would not change over time.
The portion of dividends received by Non-U.S. Holders payable out the
Corporation's earnings and profits which are not attributable to capital gains
of the Corporation, if any, and which are not effectively connected with a U.S.
trade or business of the Non-U.S. Holder will be subject to U.S. withholding tax
at the rate of 30% (unless reduced by treaty). In general, Non-U.S. Holders will
not be considered engaged in a U.S. trade or business solely as a result of
their ownership of Common Stock. In cases where the dividend income from a
Non-U.S. Holder's investment in Common Stock is (or is treated as) effectively
connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the
Non-U.S. Holder will generally be subject to U.S. tax at graduated rates, in the
same manner as U.S. stockholders are subject to tax with respect to such
dividends (and may also be subject to the 30% branch profits tax in the case of
a Non-U.S. Holder that is a foreign corporation).
In general, for purposes of determining whether tax is to be withheld at a
30% rate or at a reduced rate as specified in an applicable tax treaty, the
Corporation will presume that dividends paid on or before December 31, 1999 to a
holder with an address in a foreign country will be paid to a resident of such
foreign country absent knowledge that such treatment is not warranted. Under
recently finalized United States Treasury Regulations applicable to dividends
paid after December 31, 1999 (the "Final Regulations"), to obtain a reduced rate
of withholding under a treaty, a Non-U.S. Holder will be required to either (i)
provide an Internal Revenue Service Form W-8 certifying such Non-U.S. Holder's
entitlement to benefits under a treaty together with, in certain circumstances,
additional information, or (ii) satisfy certain other applicable treaty
certification requirements. The Final Regulations also provide special rules to
determine whether, for purposes of determining the applicability of a tax treaty
and for purposes of the 30% withholding tax described above, dividends paid to a
Non-U.S. Holder that is an entity should be treated as paid to the entity or to
those persons or entities holding an interest in such entity. Non-U.S. Holders
who hold Common Stock through U.S. pass-through entities should consult their
tax advisors.
Distributions in excess of current or accumulated earnings and profits of
the Corporation to Non-U.S. Holders will not be subject to tax to the extent
that they do not exceed the adjusted basis of the stockholder's Common Stock,
but rather will reduce the adjusted basis of such Common Stock. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Holder's Common
Stock, they will give rise to gain from the sale or exchange of its Common
Stock, the tax treatment of which is described below. Because at the time of a
distribution the Corporation will generally not know whether such distribution
is in excess of earnings and profits, the Corporation intends to withhold at
rate of 30% on the entire amount of any distribution (or a lower applicable
treaty rate). Nevertheless, a Non-U.S. Holder may seek a refund of such amounts
from the Service if it subsequently determined that such distribution was, in
fact, in excess of current or accumulated earnings and profits of the
Corporation, and the amount withheld exceeded the Non-U.S. Holder's United
States tax liability, if any, with respect to the distribution.
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Sale of Common Stock.
Gain recognized by a Non-U.S. Holder upon the sale or exchange of Common
Stock will generally not be subject to United States taxation unless such shares
constitute a "United States real property interest" within the meaning of
FIRPTA. The Common Stock will not constitute a "United States real property
interest" so long as the Corporation is a "domestically controlled REIT." A
"domestically controlled REIT" is a REIT in which, at all times during a
specified testing period, less than 50% in value of its stock is held directly
or indirectly by Non-U.S. Holders. The Corporation believes that at the closing
of the Merger it will be a "domestically controlled REIT," and therefore that
the sale of Common Stock will not be subject to taxation under FIRPTA. Because
the Common Stock is expected to become publicly traded, however, no assurance
can be given that the Corporation will continue to be a "domestically controlled
REIT." If the Corporation ceases to be a "domestically-controlled REIT," gain
arising from the disposition of the Corporation's shares will not be subject to
tax, provided that its shares are publicly traded on an established securities
market (as determined under applicable Treasury Regulations) and the stockholder
holds 5% or less of the Corporation's outstanding stock during the five-year
period ending on the date of disposition.
Notwithstanding the foregoing, a Non-U.S. Holder will be subject to tax on
gain from the sale or exchange of Common Stock not otherwise subject to FIRPTA
if the Non-U.S. Holder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States. In such case, the nonresident alien individual will be
subject to a 30% United States withholding tax on the amount of such
individual's gain.
Backup Withholding Tax and Information Reporting.
The Corporation must report annually to the Service and to each Non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
such stockholder, regardless of whether any tax was actually withheld. That
information may also be made available to the tax authorities of the country in
which a Non-U.S. Holder resides.
Backup withholding tax (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish certain information under the
United States information reporting requirements) will generally not apply to
dividends (including any capital gain dividends) paid on Common Stock to a
Non-U.S. Holder at an address outside the United States.
The payment of the proceeds from the disposition of Common Stock to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of Common Stock to
or though a non-U.S. office of a non-U.S. broker will generally not be subject
to backup withholding and information reporting.
The backup withholding tax is not an additional tax and may be credited
against a Non-U.S. Holder's United States federal income tax liability or
refunded to the extent excess amounts are withheld, provided that the required
information is supplied to the Service.
The Service has issued final Treasury Regulations regarding the backup
withholding rules as applied to Non-U.S. Holders. Those final Treasury
Regulations alter the current system of backup withholding compliance and will
be effective for payments made after December 31, 1999. Unitholders should
consult their tax advisors regarding the application of the final Treasury
Regulations and their potential effect on the ownership of Common Stock.
TAX ASPECTS OF THE CORPORATION'S OWNERSHIP OF INTERESTS IN THE OPERATING
PARTNERSHIP
Substantially all of the Corporation's investments will be held indirectly
through the Operating Partnership. In general, partnerships are "pass-through"
entities that are not subject to Federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
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the Partnership, has delivered an opinion as part of its Tax Opinion,
substantially to the effect that the Operating Partnership will not be
classified as an association taxable as a corporation, but will instead be
classified as either (A) a disregarded entity if 100% of its membership
interests are held by the Corporation directly or indirectly through one or more
wholly-owned subsidiaries, or (B) a partnership if, in addition to the
Corporation, at least one other person that is unrelated to the Corporation or
that is not, directly or indirectly, a 100% owned disregarded entity, owns an
interest in the Operating Partnership. Accordingly, the Corporation will include
in its income its proportionate share of the foregoing items of the Operating
Partnership for purposes of the various REIT income tests and in the computation
of its REIT taxable income. Moreover, for purposes of the REIT asset tests, the
Corporation will include its proportionate share of assets held through the
Operating Partnership.
OTHER TAXES
The Corporation, the Operating Partnership, any of its subsidiaries, or the
Corporation's stockholders may be subject to foreign, state and local tax in
various countries, states and localities, including those countries, states and
localities in which it or they transact business, own property, or reside. The
state, local or foreign tax treatment of the Corporation and the stockholders in
such jurisdictions may differ from the Federal income tax treatment described
above. Consequently, prospective stockholders should consult their tax advisors
regarding the effect of foreign, state and local tax laws upon an investment in
the Common Stock in light of their individual investment circumstances.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Corporation
is qualified in its entirety by reference to the Charter and Bylaws of the
Corporation, a copy of each of which is filed as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus forms a part.
GENERAL
The authorized capital stock of the Corporation consists of 300 million
shares of Common Stock, par value $.01 per share, 634,566 shares of Special
Voting Stock, par value $.01 per share, 150,000,001 shares of Excess Stock, par
value $.01 per share, and 75 million shares of Preferred Stock, par value $.01
per share. Upon the consummation of the Conversion Transaction, 62,822,009
shares of Common Stock will be issued and outstanding, 634,566 shares of Special
Voting Stock will be issued and outstanding and no shares of Preferred Stock
will be issued and outstanding.
COMMON STOCK AND SPECIAL VOTING STOCK
Voting Rights.
A discussion of stockholders' voting rights is contained in "Comparison of
Rights of Unitholders and Stockholders -- Voting Rights."
The REIT Board will be divided into three classes. See "Directors and
Executive Officers."
Dividends.
Subject to the rights of the holders of Preferred Stock, and subject to any
other provisions of the Charter, holders of Common Stock shall be entitled to
receive such dividends and other distributions in cash, stock, or property of
the Corporation as may be declared thereon by the REIT Board. The holders of
Special Voting Stock are entitled to receive the same dividends as holders of
Common Stock, except that dividends paid in Common Stock will be paid in Special
Voting Stock to such holders. A more complete discussion of the Distribution
Policy of the Corporation is contained in "Distribution Policy -- The
Corporation."
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Conversion of the Special Voting Stock to Common Stock.
The shares of Special Voting Stock will be convertible, at the holder's
option, into an equal number of shares of Common Stock. If the beneficial
ownership of the Principals drops below five million shares of Common Stock
and/or Special Voting Stock, in the aggregate (subject to customary adjustment
to avoid dilution), all outstanding shares of Special Voting Stock will
automatically convert into Common Stock. Finally, if shares of Special Voting
Stock are transferred to persons unaffiliated with the Principals, such shares
will automatically convert into an equal number of shares of Common Stock.
Liquidation Rights.
In the event of any dissolution, liquidation or winding up of the affairs
of the Corporation, whether voluntary or involuntary, after payment in full of
the amounts required to be paid to the holders of Preferred Stock, the remaining
assets and funds of the Corporation will be distributed pro rata to the holders
of Common Stock and Special Voting Stock.
PREFERRED STOCK
The Charter authorizes the REIT Board, without further action by the
stockholders, to issue shares of Preferred Stock in one or more series and, by
filing a certificate pursuant to the Delaware General Corporation Law (the
"DGCL"), to establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers (including voting powers),
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof (any or all of which may be greater than
the rights of the Common Stock or the Special Voting Stock).
OWNERSHIP LIMIT
In order for the Corporation to maintain its qualification as a REIT, among
other things, not more than 50% in value of its outstanding shares of capital
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities). In order to protect the
Corporation against the risk of losing its status as a REIT, the Charter,
subject to certain exceptions, prohibits any person (other than the Principals
and their affiliates) from beneficially owning (as defined in the Charter) more
than the Ownership Limit of shares of Common Stock, Special Voting Stock or
Preferred Stock (collectively, the "Equity Stock"). These ownership
restrictions, however, allow the Principals and certain of their affiliates to
beneficially own up to 27% of the outstanding Equity Stock, which exception will
be permanently reduced in accordance with any reduction in its proportional
beneficial ownership from sales of shares of Equity Stock by the Principals and
their affiliates or new issuances of Equity Stock by the Corporation, and which
exception will be increased to adjust for certain repurchases of Equity Stock by
the Corporation.
Any transfer of shares of Equity Stock that would (i) cause any person to
beneficially own shares of Equity Stock in excess of the Ownership Limit not
otherwise permitted as provided above, (ii) result in the shares of Equity Stock
being owned by fewer than 100 persons, within the meaning of section 856(a)(5)
of the Code, (iii) result in the Corporation being "closely held" within the
meaning of section 856(h) of the Code, (iv) result in the Corporation failing to
qualify as a "domestically controlled REIT" within the meaning of section
897(h)(4)(B) of the Code, or (v) otherwise cause the Corporation to fail to
qualify as a REIT, shall be null and void, and the intended transferee will
acquire no rights to the shares of Equity Stock.
The restriction on transferability and ownership described in (i) above
will not apply if the REIT Board, upon receipt of a ruling from the Internal
Revenue Service or an opinion of counsel or other evidence or undertakings
acceptable to it, waives the application of the Ownership Limit to a person
subject to such limit, provided that (A) the REIT Board obtains such
representations and undertakings from such person as are reasonably necessary to
ascertain that such person's beneficial ownership or constructive ownership of
shares of Equity Stock will not at such time or in the future result in any of
the situations described in (ii) through (v) above, and (B) such person agrees
in writing that any violation or attempted violation of any other limitations,
restrictions and conditions that the REIT Board may impose at the time of such
waiver with respect to such person will result in the conversion of such shares
in excess of the original limit applicable to such person into shares of Excess
Stock.
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If any purported transfer of Equity Stock or other event resulting in an
increase in any holder's percentage interest in Equity Stock would cause a
purported transferee or holder to be in violation of the Ownership Limit or
would cause the Corporation to be disqualified as a REIT, then the purported
transferee or holder (the "Prohibited Owner") shall not acquire or shall cease
to own, as the case may be, such number of shares in excess of the Ownership
Limit or in excess of the highest number of shares which would allow the
Corporation to remain qualified as a REIT (the "Excess Shares"). Any Excess
Shares will be converted automatically into an equal number of shares of Excess
Stock and transferred automatically, by operation of law, to a trust, the
beneficiary of which will be a qualified charitable organization selected by the
Corporation. Such automatic transfer shall be deemed to be effective as of the
close of business on the trading day prior to the date of such violative
transfer or event. Upon the occurrence of such a conversion of shares of Equity
Stock into an equal number of shares of Excess Stock, such shares of Equity
Stock shall be automatically retired and canceled, without any action required
by the REIT Board, and shall thereupon be restored to the status of authorized
but unissued shares of the particular class or series of Equity Stock from which
such Excess Stock was converted and may be reissued by the Corporation as that
particular class or series of Equity Stock.
As soon as practical after the transfer of shares to the trust, the trustee
of the trust (who shall be designated by the Corporation and be unaffiliated
with the Corporation and any Prohibited Owner) will be required to designate one
or more persons who could own such Excess Shares without violating the Ownership
Limit or causing the Corporation to be disqualified as a REIT ("Permitted
Transferees") and to sell such Excess Shares to such Permitted Transferees. Upon
the trustee's designation and sale of the Excess Stock to the Permitted
Transferee, such shares of Excess Stock will automatically convert into an equal
number of shares of Equity Stock of the same class and series from which such
Excess Stock was converted. Upon the occurrence of such a conversion of shares
of Excess Stock into an equal number of shares of Equity Stock, such shares of
Excess Stock shall be automatically retired and canceled, without any action by
the REIT Board, and shall thereupon be restored to the status of authorized but
unissued shares of Excess Stock and may be reissued by the Corporation as Excess
Stock. However, if the transfer of Excess Stock to a purported Permitted
Transferee would or does violate any of the transfer restrictions set forth
above, such transfer shall be void as to that number of shares of Excess Stock
that cause the violation of any such restriction when such shares are converted
into shares of Equity Stock and the purported Permitted Transferee shall be
deemed to be a Prohibited Owner and shall acquire no rights in such shares of
Excess Stock or Equity Stock. Such shares of Equity Stock shall be automatically
converted into Excess Stock and transferred to the trust from which they were
originally transferred.
Any Prohibited Owner shall be entitled, following acquisition of the shares
of Excess Stock and the subsequent designation and sale of Excess Stock to a
Permitted Transferee, to receive from the trustee sales proceeds received by the
trust for such Excess Shares. The proceeds of such a sale are calculated
according to a formula in the charter.
In addition, Excess Shares held in the trust shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share equal
to the lesser of (i) in the case of Excess Shares resulting from a transfer for
value, the price per share in the transaction that resulted in such transfer to
the trust or, in the case of Excess Shares resulting from any event other than a
transfer for value, the market price on the date of such event or (ii) the
market price on the date the Corporation, or its designee, accepts such offer.
The Corporation shall have the right to accept such offer for a period of 90
days.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
The Company is required to keep such records as will disclose the actual
ownership of its outstanding shares of Equity Stock. Accordingly, to enable the
Company to comply with such record keeping requirements, any person who
beneficially owns more than 3% of the outstanding shares of any class or series
of Equity Stock (or such lower percentages as are then required pursuant to the
regulations under the Code) is required to provide to the Corporation by January
31st of each year, a written statement or affidavit stating the name and address
of such beneficial owner, the number of shares of Equity Stock beneficially
owned by such beneficial owner and a description of how such shares are held. In
addition, each record and beneficial owner of Equity Stock shall, upon demand,
be required to disclose to the Corporation in writing such information as
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the Corporation may request in order to determine the Corporation's status as a
REIT and to ensure compliance with the Ownership Limit. In addition, the
Principals and their affiliates shall promptly notify the Corporation upon any
transfer of Equity Stock.
The ownership limitations described above could have the effect of
delaying, deferring or preventing a change of control of the Corporation in
which holders of Common Stock might receive a premium for their shares over the
then prevailing market price.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is BankBoston, N.A.
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COMPARISON OF RIGHTS OF UNITHOLDERS AND STOCKHOLDERS
GENERAL
The Partnership is organized as a Delaware limited partnership and the
Corporation is organized as a corporation under the laws of the State of
Delaware. As a Delaware limited partnership, the Partnership is subject to the
Delaware Revised Uniform Limited Partnership Act (the "DRULPA"). As a Delaware
corporation, the Corporation is subject to the DGCL.
The discussion of the comparative rights of Unitholders of the Partnership
and stockholders of the Corporation set forth below does not purport to be
complete and is subject to and qualified in its entirety by reference to the
DRULPA and the DGCL and also to the Partnership Agreement of the Partnership and
the Charter and Bylaws of the Corporation.
TAXATION
If the Corporation qualifies for taxation as a REIT, it will generally not
be subject to Federal corporate income tax on that portion of its ordinary
income or capital gain that is currently distributed to stockholders. As a
result, the REIT structure maintains the advantages of single-layer taxation
enjoyed under the current MLP structure with respect to the treatment of taxable
income, including the pass-through of capital gains. Unlike an MLP, the
Corporation will not be able to pass-through losses to stockholders.
As a REIT, the Corporation will be subject to various restrictions (e.g.,
with respect to its assets and income), which are not applicable to MLPs. For
example, certain business activities that a REIT could not perform directly will
be performed by the Corporate Subsidiaries. Income generated from these
activities will be subject to Federal and state corporate income tax. The same
activities could be conducted directly by the MLP, and income derived from the
activities would not be subject to an additional level of tax. Similarly, if the
Corporation were to realize income from the sale or other disposition of
property described in section 1221(1) of the Code, such income would be treated
as income from a "prohibited transaction," would not qualify for the 75% or 95%
gross income tests and will be subject to a 100% penalty tax. The Corporation
will generally be prohibited from making sales of real property in the ordinary
course of business. Consequently, the Corporation will be limited in its ability
to make sales of its properties in the ordinary course of business and must
carefully monitor any sales that it does make. MLPs are not subject to the same
restriction. In the event that the Partnership were to derive income from the
sale of property described in section 1221(1), the character of such income
would be characterized as ordinary income rather than capital gain, but the
income would not jeopardize the Partnership's qualification as an MLP.
A broader array of investors, including institutional investors such as
pension funds and mutual funds, may find investment in a REIT to be better than
investment in a Partnership. For example, because the Partnership generates UBTI
(See "Certain Federal Income Tax Consequences"), pension funds and tax-exempt
institutions are effectively prohibited, for tax reasons, from buying Units in
the Partnership even though the timber asset class itself may be attractive to
such investors. A mutual fund, moreover, can generally not receive timber
related income but must receive dividend or interest income. The Corporation
will not be a pass-through entity and an investment in Common Stock of the
Corporation will generate dividend income, which is not UBTI.
The Partnership has made an election pursuant to section 754 of the Code,
which generally provides for an adjustment to the basis of partnership assets
upon the transfer of Units or upon the distribution of property held by the
Partnership (i.e., a Unitholder's basis in its Units is generally reflected in
the Partnership's basis in Partnership assets). The Corporation will not be
eligible to make such an election and, consequently, a stockholder's basis in
its newly-purchased Common Stock will not be reflected in the Corporation's
basis in its assets.
In addition, because stockholders will receive a Form 1099 for tax
reporting purposes rather than the more complicated partnership Schedule K-1
required for MLPs, the REIT structure will result in simplified tax reporting
for the Corporation's stockholders.
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In general, the adjusted tax basis of a Unitholder's interest in the
Partnership includes a proportionate share of the Partnership's nonrecourse
liabilities, and is adjusted upwards and downwards as the Partnership's
nonrecourse liabilities increase or decrease. Partnership distributions to
Unitholders (including deemed distributions resulting from any decrease in the
Partnership's nonrecourse debt) generally trigger taxable gain to Unitholders
only to the extent such distributions exceed a Unitholder's adjusted tax basis
in the Partnership. In contrast, REIT stockholders do not include an allocable
portion of the REIT's nonrecourse debt in the adjusted tax basis of their REIT
shares. Thus, a Unitholder may have the ability to receive larger current
distributions from the Partnership without the recognition of tax than a
comparable REIT stockholder, provided that such distributions occur in tax
periods without corresponding taxable income. Any benefit to Unitholders which
results from an increase in the Partnership's nonrecourse debt generally confers
only a timing advantage because Unitholders must include their allocable share
of the Partnership's nonrecourse debt in the amount realized upon a sale of
their Units. In addition, PCMC has represented that historically the
Partnership's distributions to Unitholders have not generally exceeded the
amount of each Unitholder's adjusted tax basis in their Units without
considering the portion of such basis which is attributable to the Partnership's
nonrecourse debt.
MANAGEMENT
The Partnership Agreement provides that the general partner has the right
to exercise exclusive control over the business and affairs of the Partnership,
and the general partner's activities are limited to such management of the
Partnership. As the general partner of the Partnership, the general partner owes
a fiduciary duty to the Unitholders. However, the Partnership Agreement contains
certain provisions limiting the fiduciary duty of the general partner to the
Unitholders.
For instance, the Partnership Agreement provides that whenever a conflict
of interest exists or arises between the general partner or its affiliates, on
the one hand, and the Partnership or any Unitholders, on the other hand, the
general partner shall, in resolving such conflict, consider the relative
interests of any party to such conflict, any customary or accepted industry
practices, any applicable generally accepted accounting practices or principles
and such additional factors as the general partner determines to be relevant,
reasonable or appropriate under the circumstances. The same considerations apply
whenever the Partnership Agreement provides that the general partner will act in
a manner that is fair and reasonable to the Partnership or the Unitholders.
Thus, unlike the strict duty of a fiduciary who must act solely in the best
interests of his beneficiary, the Partnership Agreement permits the general
partner to consider the interests of all parties to a conflict of interest
although it is not clear under Delaware law that such provisions would be
enforceable. The Partnership Agreement also provides that in certain
circumstances the general partner will act in its sole discretion, in good
faith, or pursuant to other appropriate standards.
The general partner may be removed upon the written consent or affirmative
vote of Unitholders holding at least 66 2/3% of the outstanding Units (excluding
Units held by the general partner and its affiliates) so long as the removal of
the general partner will not result in the loss of limited liability for the
Partnership or any Unitholder, and the Partnership will not be taxed as a
corporation pursuant to such action.
Pursuant to the DGCL, the business and affairs of a corporation are managed
by or under the direction of its board of directors. The Corporation's Bylaws
provide that the number of directors of the Corporation cannot be less than
three (3) nor more than fifteen (15). Under the Charter, a director may be
removed, for cause only, at a meeting of stockholders called for that purpose,
by the stockholders of not less than two-thirds of the outstanding shares of
Common Stock entitled to vote in the election of directors. "Cause," for
purposes of the Charter, means conviction of a felony, declaration of unsound
mind by order of a court, gross dereliction of duty, commission of any act
involving moral turpitude, or commission of any act that constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial benefit to such director and a material injury
to the Corporation. Any vacancy (including a vacancy created by an increase in
the number of directors) will be filled, at any regular meeting or any special
meeting of the directors called for that purpose, by a majority of the REIT
Board. In addition, the Principals will have the right to designate, for
nomination purposes only, a portion of the Corporation's slate of nominees for
the REIT Board, such portion constituting either a majority of the REIT Board or
two nominees to the REIT Board,
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such number being dependent on certain ownership limitations. See "Summary of
the Conversion Agreement and the Merger Agreements -- Certain Control Rights."
VOTING RIGHTS
Under the Partnership Agreement, Unitholders on the record date set in
accordance with the Partnership Agreement are entitled to notice of, and to vote
at, meetings of Unitholders of the Partnership and to act with respect to
matters as to which approvals may be solicited. The following matters require
the approval of 66 2/3% of the outstanding Units: (i) most amendments to the
Partnership Agreement; (ii) conversion of the Partnership into a trust or other
type of legal entity (excluding for purposes of approval any Units owned by the
general partner and its affiliates); (iii) actions that would result in the
Partnership being treated for tax purposes as a corporation (excluding for
purposes of approval any Units owned by the general partner and its affiliates);
(iv) a transfer of the general partner's interest in the Partnership (excluding
for purposes of approval any Units owned by the general partner and its
affiliates); (v) removal of the general partner (excluding for purposes of
approval any Units owned by the general partner and its affiliates); (vi)
dissolution of the Partnership (excluding for purposes of approval any Units
owned by the general partner and its affiliates); (vii) continuation of the
business after dissolution; (viii) approval of a merger involving the
Partnership that requires approval of 66 2/3% of the outstanding Units unless
the merger agreement contains any provision which, if contained in an amendment
to the Partnership Agreement, would require a greater percentage approval in
which case the greater percentage approval is required for approval; and (ix)
the cessation of the name "Plum Creek." In addition, no amendment to the
Partnership Agreement may, without the prior approval of 95% of the outstanding
Units, enlarge the obligations of any Unitholder, modify the compensation
payable to the general partner, alter the termination date of the Partnership,
restrict the rights of the general partner, or give any person the right to
dissolve the Partnership.
The general partner of the Partnership is not annually elected by the
Unitholders. Unitholders may not vote on matters that would cause the
Unitholders to be deemed to be taking part in the management and control of the
Partnership so as to jeopardize their limited liability. Each record Unitholder
may vote according to its percentage interest in the Partnership. Additional
Units having special voting rights may be issued by the general partner without
the approval of the Unitholders.
The Charter and the DGCL provide that the stockholders of the Corporation
shall be entitled to vote, subject to any voting rights which may be granted to
holders of Preferred Stock, on all matters submitted to a vote of the holders of
the Common Stock. In determining the number of shares entitled to vote, each
share of Common Stock and special Voting Stock is entitled to one vote. In
addition, so long as the Principals retain beneficial ownership of at least five
million shares of Common Stock and/or Special Voting Stock, in the aggregate
(subject to customary adjustment to avoid dilution): (i) the Principals will
have the right to designate, for nomination purposes only, a sufficient number
of the Corporation's nominees for the REIT Board that, taken together with any
previously elected designees, would constitute a majority of the REIT Board and
(ii) the PCMC Partners will have the right to vote the Special Voting Stock they
hold, in a separate class vote, on certain matters required to be submitted for
stockholder approval, including amendments to the Charter, issuances of more
than 20% of the outstanding Common Stock for non-cash consideration, dissolution
of the Corporation, mergers involving the Corporation and the sale of all or
substantially all of the assets of the Corporation, as well as amendments to the
Corporation's Bylaws that are proposed by the stockholders of the Corporation.
The shares of Special Voting Stock received by the PCMC Partners will be
converted into an equal number of shares of Common Stock at the option of the
holder or automatically upon transfer of such shares to persons unaffiliated
with the Principals. The Special Voting Stock will be entitled to the same
dividends as are paid on the Common Stock. If the beneficial ownership of the
Principals drops below five million shares of Common Stock and/or Special Voting
Stock, in the aggregate (subject to customary adjustment to avoid dilution), all
outstanding shares of Special Voting Stock will automatically convert into
Common Stock, thereby eliminating the PCMC Partners' separate class voting
rights.
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If the beneficial ownership of the Principals drops below five million
shares of Common Stock and/or Special Voting Stock, in the aggregate, but is
greater than three million shares of Common Stock (subject to customary
adjustment to avoid dilution), the Principals will have the right to designate,
for nomination purposes only, the number of the Corporation's nominees for the
REIT Board that, taken together with any previously elected designees, would
constitute two members of the REIT Board. If such beneficial ownership drops
below three million shares of Common Stock (subject to customary adjustment to
avoid dilution), the Principals will lose their contractual right to designate
any of the Corporation's slate of nominees. Initially, the Principals shall
designate one Class I director, two Class II directors and two Class III
directors. See "Directors and Executive Officers."
Generally, matters submitted to the stockholders require the affirmative
vote of stockholders holding a majority of the number of votes cast either
present in person or by proxy at a duly convened meeting of stockholders, except
that the removal of directors, certain mergers and the amendment of certain
sections of the Charter requires the affirmative vote of stockholders holding
66 2/3% of the number of votes entitled to be cast on such proposals. The REIT
Board is divided into three classes, with the directors in each class serving
for three years and until their successors are duly qualified. Therefore, in
general, the replacement of a majority of the REIT Board will take two years or
the vote of 66 2/3% of the shares of Common Stock outstanding.
The Bylaws of the Corporation require notice at least 60 days and not more
than 90 days before the anniversary of the prior to the mailing of the proxy
statement with respect to the last annual meeting of stockholders in order for a
stockholder (a) to nominate a director or (b) to propose new business other than
pursuant to notice of the meeting. The Bylaws also contain certain notice
requirements in connection with the nomination of directors at a special meeting
of stockholders called for the purpose of electing one or more directors.
Accordingly, failure to act in compliance with the notice provisions will make
stockholders unable to nominate directors or propose new business.
SPECIAL MEETINGS
Any action that is required or permitted to be taken by the Unitholders may
be taken either at a meeting of the Unitholders or without a meeting if consents
in writing setting forth the action so taken are signed by Unitholders of such
number of Units as would be necessary to authorize such action at a meeting of
the Unitholders. Meetings of Unitholders may be called by the general partner or
by Unitholders owning at least 20% of the outstanding Units of the class for
which a meeting is proposed.
Subject to the rights, if any, of the stockholders of any series of
Preferred Stock to elect additional directors under specified circumstances,
special meetings of the stockholders may be called by either the Chairman of the
REIT Board or by the President, any Vice President, the Secretary or any
Assistant Secretary of the Corporation, by the REIT Board or a committee of the
Board whose powers and authority include the power to call such meetings or by
the Secretary of the Corporation upon the written request of the stockholders
owning a majority of the outstanding voting stock and entitled to vote. Such
request shall state the purpose or purposes of such meeting and the matters
proposed to be acted upon at such meeting. Stockholders may not take any action
other than at a duly convened meeting of stockholders.
LIMITED LIABILITY
Pursuant to the DRULPA, limited partners are not liable for the obligations
of the Partnership unless, in addition to the exercise of their rights and
powers as limited partners, they participate in the control of the partnership.
However, if a limited partner does participate in the control of the
Partnership, he is liable only to persons who transact business with the
Partnership reasonably believing, based upon the limited partner's conduct, that
the limited partner is a general partner.
Pursuant to the DGCL and the Charter, the personal liability of the
stockholders of the Corporation is limited to the fullest extent permitted from
time to time by the DGCL.
75
<PAGE> 89
While Delaware law affords limited partners in the Partnership and
stockholders in the Corporation protection against personal liability for
obligations of the Partnership and the Corporation, certain jurisdictions may
not recognize limitations on personal liability to the extent such claims are
not satisfied by the Partnership or the Corporation. The Board believes that any
risk of personal liability would generally be limited to situations in which the
Partnership's or the Corporation's public liability insurance coverage would be
insufficient to satisfy claims.
DISSOLUTION OF THE PARTNERSHIP AND THE CORPORATION AND TERMINATION OF REIT
STATUS
The Partnership Agreement provides that the Partnership will dissolve, and
its affairs will be wound up, upon (i) the expiration of its term at the close
of Partnership business on December 31, 2047 (ii) the election of the general
partner to dissolve the Partnership if approved by the Unitholders of at least
66 2/3% of the outstanding Units (excluding Units held by the general partner
and its affiliates), (iii) the sale of all or substantially all of the assets
and properties of the Partnership, (iv) the entry of a decree of judicial
dissolution of the Partnership pursuant to the provisions of the DRULPA, or (v)
the withdrawal or removal of the general partner (including, but not limited to,
withdrawal by reason of the bankruptcy or dissolution of the general partner) in
accordance with the terms of the Partnership Agreement, provided that the
Partnership shall not be dissolved upon an event described in clause (v) if the
general partner gives a notice of withdrawal or is removed pursuant to the terms
of the Partnership Agreement and the holders of at least a majority of the Units
(excluding Units owned by the general partner and its affiliates) elect a
successor general partner, which successor is admitted immediately prior to the
effective time of the withdrawal (as will be the case if the Conversion
Transaction is approved).
The DGCL and the Charter permit the voluntary dissolution of the
Corporation by the affirmative vote of the holders of not less than a majority
of the outstanding Common Stock at a meeting of stockholders called for that
purpose, and the affirmative vote by a majority of the outstanding shares of
Common Stock and Special Voting Stock. A merger, consolidation or sale of
substantially all of the assets of the Corporation must be approved by the
affirmative vote of the holders of not less than a majority of the outstanding
Common Stock at a meeting of stockholders called for that purpose, and the
affirmative vote by a majority of the outstanding shares of Common Stock and
Special Voting Stock.
The Charter permits the REIT Board by a 66 2/3% vote of the members of the
REIT Board to terminate the status of the Corporation as a REIT under the Code
at any time. Consequently, although both limited partners and stockholders have
voting rights with regard to the dissolution of the Partnership and of the
Corporation, respectively, such voting rights differ in certain respects.
LIQUIDATION RIGHTS
In connection with the liquidation of the Partnership, the proceeds of such
liquidation would be applied, first, in accordance with the provisions of the
Partnership Agreement and applicable law to the payment of creditors of the
Partnership in order of priority provided by law, second, to the creation of a
reserve for contingent liabilities in any amount determined by the liquidator
and, thereafter, any remaining proceeds (or assets in kind) would be distributed
to Unitholders and the general partner. Generally, upon a liquidation of the
Partnership, the general partner would receive 37% of distributable assets after
the Partnership has distributed to the Unitholders and the general partner an
amount equal to their existing capital account balances.
In the event of liquidation of the Corporation, the holders of Common Stock
and Special Voting Stock would be entitled to share ratably in any assets
remaining after satisfaction of obligations to creditors and any liquidation
preferences on any series of Preferred Stock that may then be outstanding.
INDEMNIFICATION
The Partnership Agreement provides that the Partnership will, to the
fullest extent permitted by law, indemnify and hold harmless the general
partner, any departing general partner, any person who is or was an affiliate of
the general partner or any departing general partner, any person who is or was
an officer, director,
76
<PAGE> 90
employee, agent or trustee of the general partner or any departing general
partner or any affiliate of the general partner or any departing general partner
or any person who is or was serving at the request of the general partner or any
departing general partner or any affiliate of the general partner or any
departing general partner as an officer, director, employee, agent or trustee of
another person (collectively, "Indemnitees") from and against any and all
losses, claims, damages, liabilities (joint or several), expenses (including
legal fees and expenses), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as the general partner, a departing general partner or any affiliate
of either, an employee, partner, agent or trustee of the general partner, any
departing general partner or any affiliate of either or a person serving at the
request of the Partnership in another entity in a similar capacity. In each case
the Indemnitee must have acted in good faith and in a manner which such
Indemnitee believed to be in, or not opposed to, the best interests of the
Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful.
The Bylaws provide that the Corporation shall provide indemnification to
the fullest extent permitted under the laws of the State of Delaware for
directors, officers, agents and employees. Such indemnification shall include
the advance of expenses to the fullest extent permitted by law.
LIMITATIONS ON LIABILITY OF GENERAL PARTNER AND DIRECTORS
The Partnership Agreement provides that any Indemnitee shall not be liable
to the Partnership or the limited partners for monetary damages for losses
sustained or liabilities incurred as a result of any acts or omission made in
good faith.
The Charter contains a provision eliminating the personal liability of a
director to the Corporation or its stockholders for monetary damages to the
fullest extent permitted by Delaware statutory or decisional law, as amended or
interpreted.
DERIVATIVE ACTIONS
The DRULPA allows a limited partner to institute legal action on behalf of
the Partnership (a derivative action) to recover damages from a third party or
from a general partner where the general partner has refused to bring the action
or where an effort to cause the general partner to bring the action is not
likely to succeed. In addition, a limited partner may institute legal action on
behalf of himself and other similarly situated limited partners (a class action)
to recover damages from a general partner for violations of his fiduciary duties
to the limited partners.
Under the DGCL, a stockholder may bring an action on behalf of the REIT
Corporation to recover a judgment in its favor (a derivative action) where the
directors have failed to institute the action. The provisions of the DGCL
relating to derivative actions are substantially similar to the provisions of
the DRULPA relating to such actions.
INSPECTION OF BOOKS AND RECORDS
The Partnership Agreement provides that a Unitholder has the right, for a
purpose reasonably related to such Unitholder's interest as a limited partner of
the Partnership, upon reasonable demand and at his own expense, to have
furnished to him (i) a current list of the name and last known address of each
partner, (ii) a copy of the Partnership's federal, state and local tax returns
for each year, (iii) information as to the amount of cash, and a description and
statement of the agreed value of any other property or other asset, contributed
or to be contributed by each partner and the date on which each became a
partner, (iv) copies of the Partnership Agreement, the certificate of limited
partnership of the Partnership, amendments thereto and powers of attorney
pursuant to which the same have been executed, (v) information regarding the
status of the Partnership's business and financial condition, and (vi) such
other information regarding the affairs of the Partnership as is just and
reasonable. The general partner may, and intends to, keep confidential from
third parties generally, including the Unitholders, trade secrets or other
information the disclosure of which the
77
<PAGE> 91
general partner believes in good faith is not in the best interests of the
Partnership or which the Partnership is required by law or by agreements with
third parties to keep confidential.
Similarly, upon written request and at a stockholder's own expense, any
person who is a stockholder of record of the Corporation will be granted the
right to examine and copy the Bylaws, minutes of the proceedings of the
stockholders, the annual statement of affairs and any voting trust agreements on
file at the Corporation's principal office and have prepared for him or her a
statement showing all stock and securities issued during the last twelve months
or a lesser period of time. Stockholders who hold and have held 5% of the stock
for at least six months have the right, upon written request and at the
stockholder's own expense, to examine and copy the Corporation's books of
account and its stock ledger and to request a statement of affairs as well as a
list of stockholders should a stock ledger not be kept at the Corporation's
principal office.
DISTRIBUTIONS AND DIVIDENDS
See "Distribution Policy."
FIDUCIARY DUTIES
As a general partner of a limited partnership, PCMC owes the limited
partners, under Delaware law, the fiduciary duties of care and loyalty in
handling the affairs of the Partnership, including, in certain instances, a duty
to disclose material information concerning the Partnership's affairs. PCMC
believes it has satisfied its fiduciary duties in connection with the Conversion
Transaction. Following consummation of the Conversion Transaction, the
Corporation will be managed by its board of directors. At least one Delaware
court has stated that the fiduciary duties of a general partner to limited
partners are comparable to those of a director to stockholders. Other courts,
however, have indicated that the fiduciary duties of a general partner are
greater than those of a director to stockholders, and other Delaware courts,
including the Chancery Court in the Action, have held that the fiduciary duties
of a general partner can be determined or modified by the partnership agreement.
The Delaware Chancery Court, in dismissing the Action, held that a partnership
agreement can limit the nature, scope and applicability of fiduciary duties that
would otherwise apply. The Delaware Chancery Court held that the Partnership
Agreement does have such an effect. In particular, the Partnership Agreement
gives PCMC the unilateral right to submit the Conversion Transaction to
Unitholders in its sole discretion. See "Risk Factors -- Transaction
Risks -- PCMC Believes it is not Subject to a Duty of Fairness in Submitting the
Conversion Transaction for Unitholder Approval."
Although it is unclear whether or to what extent there are any differences
in such fiduciary duties, it is possible that the fiduciary duties of directors
of the Corporation to its stockholders could be less than those of PCMC to the
limited partners, which may result in decreased potential liability of the
directors of the Corporation. The Charter expressly limits the potential
liabilities of the directors for certain breaches of their fiduciary duties.
The Partnership Agreement provides that neither PCMC nor any of its
affiliates will be liable to the Partnership or the limited partners for any act
of omission if (i) taken in good faith and in a manner reasonably believed to be
in, or not opposed to, the interests of the Partnership, and (ii) the conduct
did not constitute gross negligence or willful or wanton misconduct. Thus, PCMC
and its affiliates may have a more limited liability to the limited partners
than would otherwise be the case absent such provisions. Similarly, the
Corporation's Charter provides that a director of the Corporation shall not be
liable for any act or omission in the director's capacity as a director except
to the extent the director is found liable for (i) a breach of the duty of
loyalty, (ii) an act or omission not in good faith, (iii) a transaction in which
the director received an improper benefit, or (iv) an act or omission for which
the liability of a director is expressly provided for by statute. Under the
Partnership Agreement, the Partnership is required to indemnify PCMC and the
officers, directors, employees and agents of PCMC against liabilities and
expenses incurred by PCMC or such persons if (i) PCMC or such persons acted in
good faith, and in a manner reasonably believed to be in, or not opposed to, the
interests of the Partnership and, with respect to any criminal proceeding, had
no reason to believe the conduct was unlawful and (ii) PCMC's or such persons'
conduct did not constitute actual fraud, gross negligence or willful misconduct.
The Corporation's Bylaws provide indemnification to all its directors, officers,
employees and agents.
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<PAGE> 92
PLUM CREEK TIMBER COMPANY, INC. UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements of Plum Creek Timber Company, Inc. reflect the conversion of Plum
Creek Timber Company, L.P., a publicly traded master limited partnership, into a
publicly traded real estate investment trust pursuant to the Conversion
Transaction.
The unaudited pro forma condensed consolidated balance sheet assumes the
Conversion Transaction occurred on September 30, 1998. The unaudited pro forma
condensed consolidated statements of income and cash flow for the nine months
ended September 30, 1998 and the year ended December 31, 1997 assume the
Conversion Transaction occurred at January 1, 1997.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of the operating results, cash flow or financial position
that would have been achieved had the Conversion Transaction occurred on the
indicated dates and should not be construed as representative of future
operating results or financial position.
The unaudited pro forma condensed consolidated financial statements and
accompanying notes should be read in conjunction with the historical financial
statements and related notes incorporated herein by reference.
79
<PAGE> 93
PLUM CREEK TIMBER COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------
CORPORATE
PARTNERSHIP SUBSIDIARIES PRO FORMA
HISTORICAL(A) FORMATION(B) OTHER CORPORATION
------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................ $ 127,629 $ $ (1,400)(c) $ 126,229
Inventories.............................. 53,625 (53,625) 0
Other Current Assets..................... 43,702 (41,415) 2,287
---------- --------- --------- ----------
224,956 (95,040) (1,400) 128,516
Timber and Timberlands -- Net.............. 865,801 865,801
Property, Plant and Equipment -- Net....... 180,421 (180,421) 0
Investment in Equity Affiliates............ 0 70,592 2,707(d) 81,916
7,217(e)
1,400(c)
Other Assets............................... 12,678 (6,900) 5,778
---------- --------- --------- ----------
Total Assets..................... $1,283,856 $(211,769) $ 9,924 $1,082,011
========== ========= ========= ==========
LIABILITIES
Current Liabilities........................ $ 89,538 $ (57,937) $ $ 31,601
Long-Term Debt............................. 565,600 (144,900) 420,700
Lines of Credit............................ 200,000 7,150(f) 207,150
Other Liabilities.......................... 9,829 (8,932) (533)(d) 364
---------- --------- --------- ----------
Total Liabilities................ 864,967 (211,769) 6,617 659,815
---------- --------- --------- ----------
Commitments and Contingencies
CAPITAL
Partners' Capital/Stockholders' Equity..... 418,889 3,240(d) 422,196
7,217(e)
(7,150)(f)
---------- --------- --------- ----------
Total Liabilities and Partners'
Capital/ Stockholders'
Equity......................... $1,283,856 $(211,769) $ 9,924 $1,082,011
========== ========= ========= ==========
Book Value per Common Share................ $ 6.65
==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
80
<PAGE> 94
PLUM CREEK TIMBER COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------
CORPORATE
PARTNERSHIP SUBSIDIARIES PRO FORMA
HISTORICAL(A) FORMATION(G) OTHER CORPORATION
------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Revenues................................... $ 725,571 $(491,387) $ $ 234,184
----------- --------- -------- -----------
Costs and Expenses:
Cost of Goods Sold....................... 503,259 (437,205) 66,054
Selling, General and Administrative... 49,031 (31,683) 1,057(h) 18,405
----------- --------- -------- -----------
Total Costs and Expenses......... 552,290 (468,888) 1,057 84,459
Operating Income........................... 173,281 (22,499) (1,057) 149,725
Interest Expense........................... (60,364) 17,244 (425)(i) (43,545)
Other Expense -- Net....................... (1,141) 481 393(j) (267)
----------- --------- -------- -----------
Income before Income Taxes and Interest in
Equity Affiliates........................ 111,776 (4,774) (1,089) 105,913
Provision for Income Taxes................. 80 (80) 0
----------- --------- -------- -----------
Income (Loss) before Interest in Equity
Affiliates' Net Income (Loss)............ 111,696 (4,694) (1,089) 105,913
Equity in Net Income (Loss) of
Affiliates............................... 0 2,118(k) 2,118
----------- --------- -------- -----------
Net Income................................. $ 111,696 $ (4,694) $ 1,029 $ 108,031
General Partner Interest................... 31,918 (31,918)(l) 0
----------- --------- -------- -----------
Net Income Allocable to Unitholders/
Stockholders............................. $ 79,778 $ (4,694) $ 32,947 108,031
=========== ========= ========
Estimated Conversion Costs................. (7,150)
-----------
Net Income After Conversion Costs.......... $ 100,881
===========
Net Income per Unit........................ $ 1.72
===========
Net Income per Common Share................ $ 1.70
===========
Net Income per Common Share After
Conversion Costs......................... $ 1.59
===========
Weighted average number of Units
outstanding -- Basic and Diluted......... 46,323,300
Weighted average number of Common Shares
outstanding -- Basic and Diluted......... 63,456,575
Ratio of Earnings to Fixed Charges......... 2.78
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
81
<PAGE> 95
PLUM CREEK TIMBER COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------
CORPORATE
PARTNERSHIP SUBSIDIARIES PRO FORMA
HISTORICAL(A) FORMATION(G) OTHER CORPORATION
------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Revenues................................... $ 510,600 $(346,465) $ $ 164,135
----------- --------- -------- -----------
Costs and Expenses:
Cost of Goods Sold....................... 371,619 (317,119) 54,500
Selling, General and Administrative...... 37,954 (23,315) 14,639
----------- --------- -------- -----------
Total Costs and Expenses......... 409,573 (340,434) 0 69,139
Operating Income........................... 101,027 (6,031) 0 94,996
Interest Expense........................... (44,435) 12,933 (186)(i) (31,688)
Other Expense -- Net....................... (2,618) (219) 75(j) 166
2,970(m)
(42)(n)
----------- --------- -------- -----------
Income before Income Taxes and Interest in
Equity Affiliates........................ 53,974 6,683 2,817 63,474
Provision for Income Taxes................. 521 (521) 0
----------- --------- -------- -----------
Income (Loss) before Interest in Equity
Affiliates' Net Income (Loss)............ 53,453 7,204 2,817 63,474
Equity in Net Income (Loss) of
Affiliates............................... 0 (4,457)(k) (4,457)
----------- --------- -------- -----------
Net Income................................. $ 53,453 $ 7,204 $ (1,640) $ 59,017
General Partner Interest................... 25,097 (25,097)(l) 0
----------- --------- -------- -----------
Net Income Allocable to
Unitholders/Stockholders................. $ 28,356 $ 7,204 $ 23,457 59,017
=========== ========= ======== ===========
Estimated Conversion Costs................. (7,150)
-----------
Net Income After Conversion Costs.......... $ 51,867
===========
Net Income per Unit........................ $ 0.61
===========
Net Income per Common Share................ $ 0.93
===========
Net Income per Common Share After
Conversion Costs......................... $ 0.82
===========
Weighted average number of Units
outstanding -- Basic and Diluted......... 46,323,300
Weighted average number of Common Shares
outstanding -- Basic and Diluted......... 63,456,575
Ratio of Earnings to Fixed Charges......... 2.29
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
82
<PAGE> 96
PLUM CREEK TIMBER COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------
CORPORATE
PARTNERSHIP SUBSIDIARIES PRO FORMA
HISTORICAL(A) FORMATION(O) OTHER CORPORATION
------------- ------------ ------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income................................ $ 111,696 $ (4,694) $ 1,029(p) $ 108,031
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation, Depletion and
Amortization......................... 70,243 (23,238) 47,005
Loss on Asset Disposition -- Net........ 1,223 (1,223) 0
Working Capital Changes:
Accounts Receivable.................. (5,001) 5,001 0
Inventories.......................... (5,072) 5,072 0
Timber Contract Deposits and Other
Current Assets..................... 11,793 (1,428) 10,365
Accounts Payable..................... (453) 433 (20)
Other Accrued Liabilities............ 3,948 (3,009) 939
Other................................... 1,599 (1,135) (393)(p) (2,047)
(2,118)(p)
--------- -------- ------- ---------
Net Cash Provided by Operating
Activities.............................. $ 189,976 $(24,221) $(1,482) $ 164,273
--------- -------- ------- ---------
Cash Flows From Investing Activities:
Additions to Properties................. $ (28,997) $ 16,249 $ $ (12,748)
Investments in Equity Affiliates........ 0 (1,400)(q) (1,400)
Advances from (to) Equity Affiliates.... 0 (208) 1,400(q) 594
(598)(r)
Proceeds from Asset Dispositions........ 917 (920) (3)
--------- -------- ------- ---------
Net Cash Used in Investing Activities..... $ (28,080) $ 15,121 $ (598) $ (13,557)
--------- -------- ------- ---------
Cash Flows From Financing Activities:
Cash Distributions...................... $(133,007) $ $ $(133,007)
Retirement of Long-Term Debt............ (17,400) 9,100 (8,300)
Borrowings on Lines of Credit........... 814,950 425(i) 815,375
Repayments on Lines of Credit........... (814,950) (814,950)
--------- -------- ------- ---------
Net Cash Used in Financing Activities..... $(150,407) $ 9,100 $ 425 $(140,882)
--------- -------- ------- ---------
Increase (Decrease) in Cash and Cash
Equivalents............................. 11,489 0 (1,655) 9,834
Cash and Cash Equivalents:
Beginning of Period..................... 123,892 123,892
--------- -------- ------- ---------
End of Period........................... $ 135,381 $ 0 $(1,655) $ 133,726
========= ======== ======= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
83
<PAGE> 97
PLUM CREEK TIMBER COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------
CORPORATE
PARTNERSHIP SUBSIDIARIES PRO FORMA
HISTORICAL(S) FORMATION(S) OTHER CORPORATION
------------- ------------ ------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income................................ $ 53,453 $ 7,204 $(1,640)(p) $ 59,017
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating
Activities:
Depreciation, Depletions and
Amortization............................ 50,304 (18,539) 31,765
Loss on Asset Dispositions -- Net....... 444 (444) 0
Working Capital Charges:
Accounts Receivable.................. (4,863) 4,863 0
Inventories.......................... 9,312 (9,312) 0
Timber Contract Deposits and Other
Current Assets..................... (890) 403 (487)
Accounts Payable..................... 6,750 (6,306) 444
Other Accrued Liabilities............ 8,796 (1,056) 7,740
Other................................... 3,361 (1,396) (75)(p) 6,347
4,457(p)
--------- -------- ------- ---------
Net Cash Provided By Operating
Activities.............................. $ 126,667 $(24,583) $ 2,742 $ 104,826
--------- -------- ------- ---------
Cash Flows From Investing Activities:
Additions to Properties................. $ (50,916) $ 40,661 $ $ (10,255)
Investments in Equity Affiliates........ 0
Advances to Equity Affiliates........... (25,378) (25,378)
Proceeds from Asset Dispositions........ 800 (800) 0
--------- -------- ------- ---------
Net Cash Used In Investing Activities..... $ (50,116) $ 14,483 $ 0 $ (35,633)
--------- -------- ------- ---------
Cash Flows From Financing Activities:
Cash Distributions...................... $(104,903) $ $ $(104,903)
Retirement of Long-Term Debt............ (18,400) 10,100 (8,300)
Borrowings on Lines of Credit........... 550,000 186(i) 550,186
Repayments on Lines of Credit........... (511,000) (511,000)
--------- -------- ------- ---------
Net Cash Used In Financing Activities..... $ (84,303) $ 10,100 $ 186 $ (74,017)
--------- -------- ------- ---------
Increase (Decrease) In Cash and Cash
Equivalents............................. (7,752) 0 2,928 (4,824)
Cash and Cash Equivalents:
Beginning of Period..................... 135,381 (1,655) 133,726
--------- -------- ------- ---------
End of Period........................... $ 127,629 $ 0 $ 1,273 $ 128,902
========= ======== ======= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
84
<PAGE> 98
PLUM CREEK TIMBER COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements include the unaudited pro forma
condensed consolidated accounts of the Corporation, the Operating Partnership
and the Manufacturing Partnership. On June 8, 1998, the Partnership announced
the terms of a plan to convert from its current MLP structure to a REIT, which
must be approved by at least 66 2/3% of the outstanding Units of the
Partnership.
The unaudited pro forma condensed consolidated financial statements have
been prepared based upon the Corporation consolidating with the Operating
Partnership and the Manufacturing Partnership. The basis for the consolidation
is that the Corporation, or a wholly-owned subsidiary thereof, will be the
general partner of the Operating Partnership and the Manufacturing Partnership
and will have control over the Operating Partnership and the Manufacturing
Partnership. The Corporate Subsidiaries (which include Marketing and three
newly-formed Delaware corporations) will not be consolidated with the
Corporation because the Manufacturing Partnership does not have any voting
rights with respect to the Corporate Subsidiaries. The Corporate Subsidiaries
will be accounted for using the equity method of accounting in accordance with
Accounting Principles Bulletin ("APB") No. 18, "The Equity Method of Accounting
for Investments in Common Stock." The basis for using the equity method is that
the Corporation receives substantially all of the economic benefit from the
Corporate Subsidiaries and the Corporation and the Corporate Subsidiaries have
common officers. Additionally, the footnotes to the pro forma financial
statements will include summarized financial information of the Corporate
Subsidiaries on a combined basis. Conversion costs are estimated to be $7,150 of
which approximately $2,970 has been recorded by the Partnership as of September
30, 1998. Total conversion costs of $7,150 have been reflected on the face of
the unaudited pro forma condensed consolidated statement of income for both the
year and nine months ended December 31, 1997 and September 30, 1998,
respectively.
The Conversion Transaction is being effected through the simultaneous
merger of the Partnership into the Operating Partnership (the "Partnership
Merger") and the merger of PCMC into the Corporation (the "PCMC Merger"). In the
Partnership Merger (which is conditioned upon the simultaneous consummation of
the PCMC Merger), the Partnership will be merged into the Operating Partnership
(a wholly-owned subsidiary of the Corporation), and the general partner interest
in the Partnership will be cancelled. In addition, the Units of limited
partnership held by the Unitholders will be converted into the right to receive
approximately 73% of the Common Stock.
In the PCMC Merger, PCMC will be merged into the Corporation and the
outstanding equity interests of PCMC will be converted into the right to receive
approximately 26% of the Common Stock and 634,566 shares of Special Voting
Stock.
As a result of the Conversion Transaction, the Units will be converted on a
one-for-one basis into 46,323,300 shares of Common Stock. Additionally, the
equity interests in PCMC will be converted into 16,498,709 shares of Common
Stock and 634,566 shares of Special Voting Stock.
The Special Voting Stock is convertible into Common Stock at the option of
the holder on a one-for-one basis and receives the same dividends as Common
Stock. The Special Voting Stock is included in the denominator in computing
basic and diluted earnings per share.
The conversion of Units for Common Stock in connection with the Partnership
Merger is being accounted for as a reorganization with amounts being recorded at
historical cost. PCMC's sole activity relates to its management and investment
in the Partnership and its subsidiaries. As a result, PCMC's assets are limited
to, and comprised of, its investment in the Partnership, Manufacturing
Partnership, and Marketing, along with related cash and certain long-term
incentive award plan assets (which are held in a grantor trust formed by PCMC).
The conversion of PCMC's general partnership interest in the Partnership for
Common
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<PAGE> 99
PLUM CREEK TIMBER COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
Stock and Special Voting Stock in connection with the PCMC Merger is being
accounted for as a reorganization with amounts being recorded at historical
cost. The conversion of PCMC's interest in the Manufacturing Partnership and
Marketing for Common Stock and Special Voting Stock in connection with the PCMC
Merger is being accounted for as a purchase of a minority interest in accordance
with APB No. 16. "Business Combinations" with amounts being recorded at fair
market value. As a result of the combination of reorganization accounting and
purchase accounting along with other related adjustments, pro forma
Stockholder's Equity as of September 30, 1998 is computed as follows:
<TABLE>
<S> <C>
Limited Partners' Capital (historical at September 30,
1998)..................................................... $419,894
General Partner's Capital (historical at September 30,
1998)..................................................... (1,005)
--------
Partner's Capital (historical at September 30, 1998)........ $418,889
Purchase of minority interest
(2% interest in Manufacturing and 4% interest in
Marketing)................................................ 3,240
Conversion costs (all of which will be expensed)............ (7,150)
Initial accrual of the Corporate Subsidiaries deferred tax
asset..................................................... 7,217
--------
Pro Forma Stockholders' Equity............................ $422,196
========
</TABLE>
The accompanying unaudited pro forma condensed consolidated financial
statements and related notes have not been audited. In Management's opinion, all
adjustments considered necessary for the fair presentation of the results of
operations and financial position for the unaudited pro forma condensed
consolidated financial statements have been reflected. Results for the periods
for which unaudited pro forma condensed consolidated statements are provided are
not necessarily indicative of those to be expected in future periods, should the
conversion be approved. All significant affiliated transactions have been
eliminated.
NOTE 2. PRO FORMA ADJUSTMENTS
(a) See Notes to Plum Creek Timber Company, L.P. Combined Financial
Statements (incorporated herein by reference) for the basis of presentation of
the Company Historical Financial Statements.
(b) Reflects the transfer of certain of the Partnership's assets and
related liabilities of the manufacturing operations and the harvesting
activities to one of four Corporate Subsidiaries. The net book value associated
with the transfer has been recorded under Investment in Equity Affiliates.
As of the balance sheet date the Corporation has the following outstanding
debt obligations, which includes the current portion of $18,400:
<TABLE>
<S> <C>
Senior Notes due 2007....................................... $122,000
First Mortgage Notes due 2007............................... 112,000
Senior Notes due 2009....................................... 150,000
Senior Notes due 2016....................................... 200,000
Line of Credit.............................................. 200,000
--------
$784,000
========
</TABLE>
In connection with the formation of the Corporate Subsidiaries, the
Corporation currently contemplates that the Corporate Subsidiaries will assume
$155,000 in total of the above indebtedness of the Corporation. The $155,000
indebtedness consists of the First Mortgage Notes (which are currently
collateralized by the manufacturing facilities), and $43,000 face value of the
Senior Notes due 2007.
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<PAGE> 100
PLUM CREEK TIMBER COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
The actual level of debt that is assumed by the Corporate Subsidiaries in
connection with the transfer of the manufacturing assets may vary. It is
anticipated that the level of debt assumed by the Corporation will range between
$140,000 and $220,000 and will vary depending upon capital expenditure
requirements, cash generated from operations and lender consents. However, in
any case, the prepayment penalty, if any, is not anticipated to exceed $33,000,
based on current treasury rates.
(c) Represents related party notes receivables issued to various members of
Management as part of the conversion. The proceeds from the notes were used by
Management to purchase their 1% ownership interest in the four Corporate
Subsidiaries. Management's purchase of their 1% interest in the Corporate
Subsidiaries will be accounted for as a capital contribution on the books of the
Corporate Subsidiaries. Accordingly, the related party notes receivables have
been reclassified to Investment in Equity Affiliates. The notes are due in 10
years, payable on demand, and bear a fixed market rate of interest, which is
payable annually. Management does not anticipate repayment in the near term. In
the event that members of Management purchase their interests pursuant to the
alternative structure described under "Summary of the Conversion Agreement and
the Merger Agreements -- The Corporate Subsidiary Formation," no material change
would occur in these pro forma financial statements.
(d) The exchange of PCMC's 2% general partner interest in Manufacturing
Partnership and 4% interest in Marketing for shares of Common Stock is subject
to purchase accounting in accordance with APB No. 16, "Business Combinations."
The basis step-up associated with this purchase is computed based on the
difference between the book value and fair market value of PCMC's minority
interest in Manufacturing Partnership and Marketing. As a result of these
purchases, the historical minority interest related to Manufacturing Partnership
and Marketing in the amount of $533 is eliminated.
The basis step-up of approximately $2,707 will be allocated to Property,
Plant and Equipment of the Corporate Subsidiaries, and as a result, has been
accordingly reflected in the Corporation's Investment in Equity Affiliates. The
basis step-up will be depreciated over approximately ten years. Current period
depreciation expense of $268 and $201 has been reflected in computing the
combined pro forma equity earnings reported by the Corporation related to its
investment in the Corporate Subsidiaries for the year and nine month periods
ended December 31, 1997 and September 30, 1998, respectively.
(e) Represents the recording of a deferred tax asset of the Corporate
Subsidiaries as a result of transferring the manufacturing operations and the
harvesting activities from a nontaxable partnership to taxable corporations. The
deferred tax asset of $7,217 represents the tax effect of temporary differences
(primarily self insurance and employee benefit accruals) at the conversion date.
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," a one-time adjustment is being recorded for the
net temporary differences as of the conversion date. This deferred tax benefit
has not been included in the pro forma statements of income due to its
nonrecurring nature, and as a result, has been credited directly to
stockholders' equity. No adjustment has been made for the Corporation's
temporary differences (including its share of the Operating Partnership's
differences) because, as a REIT, the Corporation anticipates that it will not
have to pay any significant corporate-level tax.
Current period income tax expense (benefit) of $1,280 and ($2,974) has been
reflected in computing the combined pro forma equity earnings reported by the
Corporation related to its investment in the Corporate Subsidiaries for the year
and nine month periods ended December 31, 1997 and September 30, 1998,
respectively. The income tax provision was calculated using a combined federal
and state statutory tax rate of 40%.
(f) Reflects estimated conversion costs of $7,150 of which approximately
$2,970 have been recorded by the Partnership as of September 30, 1998.
Conversion Transaction costs include estimated allowances for
87
<PAGE> 101
PLUM CREEK TIMBER COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
legal, investment advisory, fairness opinion, tax and financial advisory,
solicitation, printing, consent fees for lender waivers, and other related
costs. Conversion Transaction costs are being expensed in the Partnership's
financial statements in the period incurred.
(g) Reflects the reduction in revenues and expenses associated with the
manufacturing operations and costs of harvesting timber. Following the
Conversion Transaction, these activities will be conducted by the Corporate
Subsidiaries and will be reported by the Corporation as Equity in Net Income
(Loss) of Affiliates.
(h) Represents an expense of $1,655 related to the Management Incentive
Plan that was previously a cost incurred by PCMC. On a pro forma basis, $1,057
of this expense has been allocated to the Corporation and the remainder has been
reflected in computing the combined pro forma equity earnings reported by the
Corporation related to its investment in the Corporate Subsidiaries. The
allocation was based on an approximation of time anticipated to be devoted by
management to the various Corporate Subsidiaries.
(i) Reflects the increase in interest expense as a result of increased
borrowings in the amount of approximately $7,150 under the Corporation's line of
credit for conversion costs. The assumed incremental interest rate under the
Line of Credit is 6%.
(j) To eliminate the minority interest associated with PCMC's ownership
interest in Manufacturing Partnership and Marketing.
(k) Represents 99% of the equity income of the four Corporate Subsidiaries.
As a result of the Conversion Transaction, the assets and related liabilities of
the manufacturing operations and the harvesting activities will be transferred
to one of four Corporate Subsidiaries. On a combined basis the unaudited pro
forma financial position of the Corporate Subsidiaries as of September 30, 1998
is summarized as follows:
<TABLE>
<S> <C>
Current Assets.............................................. $ 97,040
Noncurrent Assets........................................... 190,028
Current Liabilities......................................... 59,937
Noncurrent Liabilities...................................... 153,832
</TABLE>
On a combined basis the unaudited pro forma results of operations of the
Corporate Subsidiaries as of periods indicated are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Revenues................................... $483,389 $359,536
Gross Profit............................... 21,630 5,802
Net Income (Loss).......................... 2,139 (4,506)
</TABLE>
(l) Reflects the elimination of PCMC's allocation as a result of converting
its general partner interest to a combination of Common Stock and Special Voting
Stock.
(m) Elimination of conversion costs which were expensed during the first
nine months of 1998.
(n) Reflects the decrease in interest income as a result of decreased cash
in the amount of $1,057 for payment related to the Management Incentive Plan.
See note (h).
(o) Reflects the effect on the unaudited pro forma condensed consolidated
statement of cash flows as a result of the transfer of the manufacturing
operations and harvesting activities to the Corporate Subsidiaries.
88
<PAGE> 102
PLUM CREEK TIMBER COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
(p) Reflects the effect of certain non-cash pro forma adjustments discussed
above on the unaudited pro forma condensed consolidated statement of cash flows.
(q) Represents Managements' 1% contribution to the Corporate Subsidiaries
and the related effect on the equity affiliates' advance.
(r) Represents the portion of the Management Incentive Plan paid by the
Corporate Subsidiaries.
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<PAGE> 103
DISTRIBUTION POLICY
THE PARTNERSHIP
The Partnership makes distributions to Unitholders and PCMC with respect to
each calendar quarter in an amount equal to 100% of its Available Cash (as
defined below) from operations for such quarter. The following is a summary of
the provisions of the Partnership Agreement relating to distributions by the
Partnership:
Available Cash.
Available Cash for any quarter consists of:
1. the sum of
(a) the Partnership's net income or loss for such quarter (excluding
gain on the sale of capital assets),
(b) depreciation, depletion, amortization and certain other noncash
charges (net of noncash credits) utilized in determining net income of the
Partnership for such quarter,
(c) the amount of any reduction in reserves of the Partnership of the
types referred to in 2(e) below during such quarter,
(d) proceeds to the Partnership from the sale of timberland acreage
that are designated by PCMC at the time of sale as acreage for which the
sales proceeds are to be included in the determination of Available Cash
(not to exceed 150,000 acres in the aggregate during the existence of the
Partnership, of which approximately 111,500 acres have been sold as of May
31, 1998) with respect to the quarter in which such sale occurs, and
(e) Cash from Capital Transactions (as defined in the Partnership
Agreement) received by the Partnership during such quarter in specific
contemplation that such Cash from Capital Transactions will be used to
refund or refinance any principal debt payments of the type specified in
2(a) below that were made during the two previous quarters,
2. less the sum of
(a) all principal debt payments made by the Partnership in such
quarter (excluding any principal debt payments made with the proceeds from
Cash from Capital Transactions received by the Partnership during such
quarter or the immediately preceding four quarters),
(b) capital expenditures made by the Partnership during such quarter
(excluding any capital expenditures made with Cash from Capital
Transactions received by the Partnership during such quarter or the
immediately preceding four quarters or capital expenditures anticipated to
be financed with Cash from Capital Transactions to be received by the
Partnership prior to the end of the next succeeding quarter),
(c) the amount of any capital expenditures, or investments as
specified in clause 2(d) below, made by the Partnership in the immediately
preceding quarter that were anticipated would be financed from Cash from
Capital Transactions but that have not been financed from such source prior
to the end of the quarter succeeding the quarter in which any such capital
expenditure or investment was made,
(d) investments in any entity (including subsidiaries and affiliates)
to the extent that such investments are not otherwise included under
clauses 2(a), (b) or (c) above (excluding any such investments made with
Cash from Capital Transactions received by the Partnership during such
quarter or the immediately preceding four quarters or investments
anticipated to be made with Cash from Capital Transactions to be received
by the Partnership prior to the end of the next succeeding quarter), and
(e) the amount of reserves established by the Partnership during such
quarter that are necessary or appropriate (A) to provide funds for the
future payment of items of the type specified in clauses 2(a) and
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<PAGE> 104
2(b) above, (B) to provide for additional working capital, (C) to provide
funds for cash distributions with respect to any one or more of the next
four quarters or (D) to provide funds for the future payment of interest in
an amount equal to the interest to be accrued in the next quarter.
Each of the items set forth under clauses 1(a) through 1(e) and clauses
2(a) through 2(e) inclusive for the Partnership will include a corresponding
percentage of each such item of any entity whose income is accounted for on a
consolidated or combined basis with the income of the Partnership, in each case
in direct proportion to the Partnership's percentage interest in such entity,
provided, that the items included under clauses 1(a) through 1(e) for such
entity shall only be included to the extent that PCMC determines such amount to
be legally available for dividends or distributions to the Partnership by such
entity. As the Partnership owns a 98% profit and loss partnership interest in
the Manufacturing Partnership and 96% of the capital stock of Marketing, each of
the items set forth above will include 98% and 96% of the corresponding amount
of such item attributable to the Manufacturing Partnership and Marketing,
respectively.
The Partnership has the authority to issue an unlimited number of
additional Units or other equity securities of the Partnership ranking pari
passu or junior to the Units for such consideration and on such terms and
conditions as are established by PCMC, in its discretion without the approval of
the Unitholders. Holders of any additional Units will be entitled to share
equally with the then-existing holders of Units in distributions of Available
Cash by the Partnership. As a result, the issuance of additional Units or other
equity securities of the Partnership may dilute the value of the Units.
Moreover, PCMC is not required to make any additional capital contributions to
the Partnership in order to maintain its general partner interest, including its
right to receive incentive distributions.
Priority of Distributions.
Distributions by the Partnership of Available Cash with respect to any
quarter are made 98% to all Unitholders, pro rata, and 2% to PCMC until there
has been distributed in respect of each outstanding Unit an amount equal to
$0.21 2/3 per Unit (the "First Target Amount"). PCMC is entitled to receive
distributions with respect to a particular quarter to the extent distributions
of Available Cash to Unitholders for such quarter exceed the First Target Amount
as follows:
first, 88% of any such Available Cash then remaining to Unitholders,
pro rata, and 12% to PCMC until Unitholders have received a total of
$0.23 1/3 for such quarter in respect of each outstanding Unit (the "Second
Target Amount");
second, 78% of any such Available Cash then remaining to Unitholders,
pro rata, and 22% to PCMC until Unitholders have received a total of $0.25
for such quarter in respect of each outstanding Unit (the "Third Target
Amount");
third, 68% of any such Available Cash then remaining to Unitholders,
pro rata, and 32% to PCMC until Unitholders have received a total of
$0.28 1/3 for such quarter in respect of each outstanding Unit (the "Fourth
Target Amount"); and
thereafter, 63% of any such Available Cash then remaining to
Unitholders, pro rata, and 37% to PCMC.
The quarterly distributions to PCMC set forth above that are in excess of
its 2% general partner interest represent incentive distributions. The
Partnership distributed $0.55 per Unit to Unitholders with respect to each
quarter in 1997 and $0.57 per Unit with respect to each of the first three
quarters of 1998. Because the distributions with respect to each such quarter
were in excess of the Target Amounts, PCMC received substantially in excess of
2% of the total distributions. With respect to the first three quarters of 1998
and the fiscal years 1997, 1996 and 1995, the Unitholders received 74.5%, 75.0%,
76.2% and 76.7%, and PCMC received 25.5%, 25.0%, 23.8% and 23.3%, respectively,
of the aggregate amount distributed. The Partnership has made quarterly
distributions in excess of a Target Amount since September 30, 1989, and has
made quarterly distributions in excess of the highest Target Amount in respect
of every quarter since the second quarter of 1992. At present, PCMC is entitled
to receive, in addition to distributions with respect to its 2% ownership
interest, incentive distributions at the highest marginal rate of 35% of
incremental increases in
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<PAGE> 105
quarterly distributions. Conversely, if quarterly distributions were to be
reduced below current levels but above the highest Target Amount of $0.28 1/3
per Unit, PCMC's general partner interest would bear 37% of the aggregate amount
of the reduction. Furthermore, for decreases in quarterly distributions to
levels between $0.28 1/3 per Unit and $0.21 2/3 per Unit, PCMC's general partner
interest would bear between 32% and 12% of the reduction, while decreases in
quarterly distributions to levels below $0.21 2/3 per Unit would be allocated 2%
to PCMC's general partner interest and 98% to the Unitholders. The First through
Fourth Target Amounts are subject to adjustment as described below in
"-- Adjustment of Target Amounts." The Partnership has been able to increase and
maintain its current level of distributions notwithstanding a reduction in its
level of profitability during the past four quarters. Although Management
believes that the current distribution level is sustainable notwithstanding the
anticipated continued adverse impact of current economic conditions on the
Partnership's business, there can be no assurance that current distribution
levels will be maintained.
Adjustment of Target Amounts.
Each of the Target Amounts will be proportionately adjusted upward or
downward, as appropriate, in the event of any distribution, combination or
subdivision of Units (whether effected by a distribution payable in Units or
otherwise. In addition, if a distribution is made of Cash from Capital
Transactions, the Target Amounts will also be adjusted proportionately downward
to equal the product resulting from multiplying the Target Amounts by a
fraction, the numerator of which is the Unrecovered Capital (as defined below)
immediately after giving effect to such distribution and the denominator of
which is the Unrecovered Capital immediately prior to such distribution. The
"Unrecovered Capital" with respect to the Units means, at any time (i) $6.67
(the initial public offering price per Unit of the originally issued Units after
adjusting for a three-for-one split in December 1993), less (ii) the aggregate
distributions of Cash from Capital Transactions on such Units. Since the
inception of the Partnership there have been no distributions of Cash from
Capital Transactions, and no distributions of Cash from Capital Transactions are
currently contemplated.
The Target Amounts will also be adjusted if legislation is enacted that
causes the Partnership to become treated for tax purposes as a corporation or as
an association treated for tax purposes as a corporation. In such event, each
Target Amount for each quarter thereafter would be reduced to an amount equal to
the product of (i) the Target Amount, and (ii) one minus the sum of (x) the
highest marginal federal corporate income tax rate (expressed as a percentage)
applicable to the Partnership during the year in which such quarter occurs plus
(y) the effective overall state and local income tax rate (expressed as a
percentage) applicable to the Partnership for the calendar year next preceding
the calendar year in which such quarter occurs (after taking into account the
benefit of any deduction allowable for Federal income tax purposes with respect
to the payment of state and local income taxes). For example, assuming the
Partnership was not previously subject to federal, state and local income tax,
if the Partnership were to become taxable as an entity for federal income tax
purposes and the Partnership became subject to a maximum marginal federal, and
effective state and local, income tax rate of 38%, then the Target Amounts would
each be reduced to 62% of the amount thereof immediately prior to such
adjustment.
Distributions of Cash from Capital Transactions.
Cash from Capital Transactions generally is generated only by borrowings
(other than for working capital purposes), sales of debt and equity securities
and sales or other dispositions of assets for cash (other than inventory,
accounts receivable and other assets disposed of in the ordinary course of
business). Cash from Capital Transactions may be distributed or retained by the
Partnership for reinvestment or other Partnership purposes in the sole
discretion of PCMC, except that the Partnership is required to distribute Cash
from Capital Transactions in an amount per Unit equal to 125% of the Federal
income tax liability imposed upon an individual Unitholder with respect to a
Unit as a consequence of the transaction (assuming the maximum marginal Federal
income tax rate for an individual taxpayer is in effect for all Unitholders at
the time of the transaction) unless (i) the aggregate amount in the year in
which the transaction occurs is $0.10 or less per Unit or (ii) the distribution
is prohibited by any of the Partnership's debt instruments or other requirements
binding upon the Partnership or any of its subsidiaries, in which case no
distribution is required. Any Cash from Capital Transactions distributed by the
Partnership will be distributed 98% to all Unitholders, pro rata,
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<PAGE> 106
and 2% to PCMC until there has been distributed with respect to each outstanding
Unit since the Partnership commenced operations through such date, distributions
of Cash from Capital Transactions that in the aggregate for all Unitholders is
equal to $287,050,000 (the product of the initial public offering price per Unit
($6.67, after adjusting for a three-for-one split in December 1993) and the
number of originally issued Units). Thereafter, all Cash from Capital
Transactions, to the extent distributed by PCMC, will be distributed as
described above under "-- Priority of Distributions." Since the inception of the
Partnership there have been no distributions of Cash from Capital Transactions,
and no distributions of Cash from Capital Transactions are currently
contemplated.
Distributions of Cash Upon Liquidation.
In connection with a dissolution and liquidation of the Partnership, the
proceeds of such liquidation would be applied, first, in accordance with the
provisions of the Partnership Agreement and applicable law to the payment of
creditors of the Partnership in order of priority provided by law, to the
creation of a reserve for contingent liabilities in any amount determined by the
liquidator and, thereafter, any remaining proceeds (or assets in kind) would be
distributed to Unitholders and PCMC as set forth below.
In the event of a liquidation, the holders of Units would be entitled to
share with PCMC in the remainder of the Partnership's assets in proportion to
their respective capital account balances in the Partnership, after giving
effect to the following allocations of any gain or loss realized from sales or
other dispositions of assets following commencement of the dissolution and
liquidation of the Partnership ("Termination Capital Transactions"), including
any unrealized gain or loss attributable to assets distributed in kind. Any such
gain ("Net Termination Gain") would be allocated as follows:
first, to each partner having a deficit balance in such partner's
capital account in the proportion of such deficit to the deficit balances
in the capital accounts of all partners, until each such partner has been
allocated Net Termination Gain equal to such deficit in its capital
account;
second, 98% to all Unitholders, pro rata, and 2% to PCMC until the
capital account of each outstanding Unit is equal to the sum of (i) the
Unrecovered Capital in respect of such Unit, and (ii) the First Target
Amount;
third, 88% to Unitholders, pro rata, and 12% to PCMC until the capital
account of each outstanding Unit is equal to the sum of (i) the Unrecovered
Capital in respect of such Unit, and (ii) the Second Target Amount;
fourth, 78% to Unitholders, pro rata, and 22% to PCMC until the
capital account of each outstanding Unit is equal to the sum of (i) the
Unrecovered Capital in respect of such Unit, and (ii) the Third Target
Amount;
fifth, 68% to Unitholders, pro rata, and 32% to PCMC until the capital
account of each outstanding Unit is equal to the sum of (i) the Unrecovered
Capital in respect of such Unit, and (ii) the Fourth Target Amount; and
thereafter, 63% to all Unitholders, pro rata, and 37% to PCMC.
Any loss or unrealized loss ("Net Termination Loss") would be allocated
first, to PCMC and the Unitholders, in proportion to the positive balances in
such partner's capital accounts until all such balances are reduced to zero and,
second, to PCMC.
THE CORPORATION
It is anticipated that the REIT Board will make quarterly dividends
consistent with the Partnership's historical policy of making cash distributions
to Unitholders at sustainable and increasing levels. Nevertheless, the REIT
Board, in its sole discretion, will determine the actual dividend rate based on
the Corporation's results of operations, cash flow and capital requirements,
economic conditions, tax considerations (including those related to maintaining
REIT status) and other factors. In addition, unlike most existing REITs, the
Corporation anticipates that its operations will generate capital gains and net
ordinary losses, which is
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<PAGE> 107
expected to result in an overall net capital gain. This is because the sale of
timber pursuant to stumpage contracts results in the recognition of capital gain
under the Code. The Code does not require that REITs distribute capital gain
income, unlike ordinary income such as rents. Accordingly, the Corporation does
not anticipate that the requirement that a REIT distribute 95% of its net
taxable income (excluding net capital gains) will require the Corporation to
distribute any material amounts of cash to remain qualified as a REIT.
As a result of the Conversion Transaction, PCMC's ownership in the
Partnership and its subsidiaries, including its 2% general partner interest in
the Partnership and the related Incentive Rights, will be converted into a 27%
aggregate equity interest in the Corporation which, unlike the current Incentive
Rights, will entitle the PCMC Partners to a fixed percentage of distributions
regardless of the amount of distributions paid or the performance of the
business. See "Summary of the Conversion Agreement and the Merger Agreements."
94
<PAGE> 108
RESALE OF SECURITIES
SECURITIES ACT RESTRICTIONS
Shares of Common Stock received by persons who may be deemed to be
"affiliates" of the Partnership may be sold by those persons only in accordance
with the provisions of Rule 145 under the Securities Act, pursuant to an
effective registration under the Securities Act or in transactions that are
exempt from registration under the Securities Act. Rule 145 provides, in
general, that the securities may be sold by the affiliate during the one year
following the date the securities were acquired from the Corporation if (i)
there is available adequate current public information with respect to the
Corporation, (ii) the number of shares of Common Stock sold within any three
month period does not exceed the greater of 1% of the total number of
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock during the four calendar weeks immediately preceding the date of
receipt of the order to execute the transaction by a broker or the date of
execution of the transaction directly with a market maker and (iii) the
securities are sold in transactions directly with a "market maker" or in
"brokers' transactions" within the meaning of Rule 144 under the Securities Act.
Rule 145 further provides that during the second year following the date the
securities were acquired from the Corporation the affiliate may sell such
securities if the affiliate is not an affiliate of the Corporation and there is
available adequate public information with respect to the Corporation, and after
the second year the affiliate may sell the securities without restriction if the
affiliate is not, and has not been for at least three months, an affiliate of
the Corporation.
RESALES BY THE PCMC PARTNERS AND RELATED ENTITIES
Pursuant to the terms of the Conversion Agreement, the Corporation will
enter into a registration rights agreement with the PCMC Partners and related
entities on usual and customary terms reasonably satisfactory to such parties.
The provisions of this registration rights agreement will allow such parties to
demand a registration of their Common Stock once during each six-month period
commencing twelve months after the Effective Time (with each demand covering not
less than 1 million shares of Common Stock), customary piggyback registration
rights and customary indemnification for violations of the Securities Act and
the Exchange Act. All such registration rights may also be exercised by the
Principals and certain of their transferees. The Corporation has agreed to pay
for the customary costs of registration, excluding broker's fees, discounts,
transfer taxes or other selling expenses and the expenses of legal counsel to
the selling stockholders.
LEGAL MATTERS
Certain legal matters including the validity of the issuance of the Common
Stock being offered hereby and the United States federal income tax consequences
in connection with the Conversion Transaction will be passed upon for the
Partnership and the Corporation by Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California.
EXPERTS
The combined balance sheet as of December 31, 1997 and 1996, the combined
statements of income and cash flows for each of the three years in the period
ended December 31, 1997 of Plum Creek Timber Company, L.P. and the balance sheet
of Plum Creek Timber Company, Inc. as of November 30, 1998 and June 5, 1998
incorporated by reference in this Proxy Statement/Prospectus, have been
incorporated by reference in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing. The balance sheet as of December 31, 1997 of Plum Creek
Management Company, L.P. included in this Proxy Statement/Prospectus has been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
95
<PAGE> 109
PLUM CREEK MANAGEMENT COMPANY, L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants......................... F-2
Balance Sheet as of December 31, 1997 and September 30,
1998 (unaudited)....................................... F-3
Notes to Balance Sheet.................................... F-4
</TABLE>
F-1
<PAGE> 110
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the General and Limited Partners of
Plum Creek Management Company, L.P.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Plum Creek Management Company, L.P.
("the Company") at December 31, 1997, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on the
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
September 29, 1998
F-2
<PAGE> 111
PLUM CREEK MANAGEMENT COMPANY, L.P.
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 1,951 $ 102
Unamortized Deferred Compensation......................... 3,485 1,360
Due from Plum Creek Timber Company, L.P................... 703
Receivable from Plum Creek Timber Company, L.P............ 5,193
PCMC Benefits Trusts...................................... 4,264 16,166
------- -------
9,700 23,524
Equity Investments:
Plum Creek Timber Company, L.P. .......................... 26,861 25,341
Plum Creek Marketing, Inc................................. 951 138
Plum Creek Manufacturing Company, L.P..................... 478 388
PCMC Benefits Trusts........................................ 26,871 14,495
------- -------
Total Assets...................................... $64,861 $63,886
======= =======
LIABILITIES
Current Liabilities:
Accounts Payable.......................................... $ 30 $
Deferred Compensation Payable............................. 4,264 22,719
Due to Plum Creek Timber Company, L.P..................... 139
Advance from Plum Creek Timber Company, L.P............... 3,744
------- -------
8,177 22,719
Deferred Compensation Payable............................... 28,268 14,495
------- -------
Total Liabilities................................. 36,445 37,214
------- -------
Commitments and Contingencies
PARTNERS' CAPITAL
General Partner............................................. 284 267
Limited Partner............................................. 28,132 26,405
------- -------
Total Partners' Capital........................... 28,416 26,672
------- -------
Total Liabilities and Partners' Capital........... $64,861 $63,886
======= =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE> 112
PLUM CREEK MANAGEMENT COMPANY, L.P.
NOTES TO BALANCE SHEET
(ALL AMOUNTS AS OF SEPTEMBER 30, 1998 ARE UNAUDITED)
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION. Plum Creek Management Company, L.P. ("PCMC") was
formed in 1992 for the purpose of acquiring a 2% general partnership interest in
Plum Creek Timber Company, L.P. (the "Partnership"), a 2% general partnership
interest in Plum Creek Manufacturing, L.P. ("Manufacturing") and 4% of Plum
Creek Marketing, Inc. ("Marketing"). PCMC manages the affairs of the
Partnership, Manufacturing and Marketing, collectively referred to as "Plum
Creek". Plum Creek's management members are employees of PCMC. PCMC is
reimbursed for all salary, bonuses and benefits, except for the Management
Incentive Plan (the "MIP"). The Partnership is a publicly traded limited
partnership and holds the remaining 98% limited partner interest in
Manufacturing and the remaining 96% of Marketing. Plum Creek owns, manages and
operates approximately 2.4 million acres of timberland and eleven wood products
conversion facilities in the Northwestern and Southeastern United States.
The September 30, 1998 balance sheet and related notes are unaudited and do
not include all the information required by generally accepted accounting
principles to be included in a full set of financial statements. In the opinion
of management, all material adjustments necessary to present fairly the
financial position at September 30, 1998 have been included. All such
adjustments are of a normal and recurring nature.
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS. PCMC considers all highly liquid investments
(other than those included in the PCMC benefit trusts) purchased with an
original maturity of three months or less to be cash equivalents. Substantially
all cash and cash equivalents are deposited with two financial institutions.
EQUITY INVESTMENTS. Equity investments are accounted for using the equity
method of accounting whereby the original purchase price is adjusted by PCMC's
share of the investees' earnings or losses and reduced by any distributions
received. PCMC accounts for its investment in the Partnership and Manufacturing
under the equity method of accounting as a result of holding the general
partnership interest in each entity. PCMC accounts for its investment in
Marketing under the equity method of accounting due to its significant influence
over Marketing as a result of holding the general partnership interest in the
Partnership, which in turn owns 96% of Marketing. Substantially all of PCMC's
income is derived from its general partnership interest in the Partnership.
PCMC BENEFIT TRUSTS. PCMC has two grantor trusts which were established for
the purpose of funding deferred compensation and long-term incentive plans.
Investments in the trusts consist of cash, mutual funds and units of the
Partnership ("Units"). The mutual fund investments and Units are initially
recorded at cost and adjusted to fair value at the balance sheet date based on
quoted market prices. Correspondingly, deferred compensation payable is adjusted
for the change in the fair value of these investments.
The terms of the trust agreements state that the assets of the trusts are
available to satisfy the claims of general creditors of PCMC and the
Partnership.
UNIT BASED COMPENSATION PLANS. PCMC accounts for Unit-based compensation
plans under the provisions of Accounting Principles Board Opinion No. 25. See
Note 3 to Notes to Balance Sheet for discussion of these plans.
DEFERRED COMPENSATION PAYABLE. When a performance target is met, a
liability is recorded equal to the number of Units awarded times the Unit value
on such date. Subsequently, the liability is adjusted for realized and
unrealized gains and losses associated with the Units awarded.
F-4
<PAGE> 113
PLUM CREEK MANAGEMENT COMPANY, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
UNAMORTIZED DEFERRED COMPENSATION. When a performance target is met,
unamortized deferred compensation is recognized equal to the number of Units
awarded times the Unit value on such date. The deferred compensation is
amortized to expense over the service period with immediate expense recognition
for the portion that relates to prior service.
RECEIVABLE/ADVANCE FROM PLUM CREEK TIMBER COMPANY, L.P. The costs
associated with administering and funding PCMC's benefit plans (except the MIP)
are borne by Plum Creek. PCMC records an advance from the Partnership as funds
are transferred to PCMC in satisfaction of the Partnership's obligation
associated with these plans. The advance is reduced as reimbursement income
associated with these plans is recognized. Reimbursement income is recognized at
the same time and in the same amount as the amortization of the deferred
expense. A receivable is recognized to the extent the cumulative compensation
expense recognized to date exceeds the Partnership's funding. The
receivable/advance is also adjusted for the difference between the cost to PCMC
for the purchase of Units and the related expense associated with meeting a
performance target.
INCOME TAXES. PCMC is not subject to federal and state income tax and its
net income (loss) is included in the tax returns of its partners.
DISTRIBUTIONS. Cash not needed to fund the operations of PCMC is
distributed to the limited partner and the general partner based on the
partnership sharing arrangement of 99% and 1%, respectively.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes
a new model for accounting for derivatives and hedging activities. The
implementation of FAS 133 is required for financial statements issued for
periods beginning after June 15, 1999; earlier adoption is permitted. Adoption
of this standard is not expected to have a material impact on the Company's
financial position.
2. EQUITY INVESTMENTS
PCMC, as the general partner of the Partnership, is entitled to 2% of the
Partnership distributions. In the event the Partnership's distributions exceed
$0.216667 per Unit per quarter, PCMC receives an incentive distribution as
provided by the Partnership's partnership agreement. During the year ended
December 31, 1997 and the nine month period ended September 30, 1998, PCMC
received Partnership cash distributions totaling $33.0 million and $26.6
million, of which $30.3 million and $24.5 million were incentive distributions,
respectively.
Summarized condensed combined balance sheets of the Partnership,
Manufacturing and Marketing, which are accounted for under the equity method of
accounting, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current Assets.................................. $ 232,254 $ 224,956
Noncurrent Assets............................... 1,068,643 1,058,900
---------- ----------
Total Assets $1,300,897 $1,283,856
========== ==========
Current Liabilities............................. $ 73,992 $ 89,538
Noncurrent Liabilities.......................... 756,568 775,429
Partners' Capital............................... 470,337 418,889
---------- ----------
Total Liabilities and Partners'
Capital $1,300,897 $1,283,856
========== ==========
</TABLE>
F-5
<PAGE> 114
PLUM CREEK MANAGEMENT COMPANY, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
3. DEFERRED COMPENSATION PAYABLE AND BENEFIT TRUSTS
LONG-TERM INCENTIVE PLAN. Effective October 1, 1993, PCMC established a
Long-Term Incentive Plan ("LTIP") which authorizes granting of up to 2,000,000
Unit Appreciation Rights ("UARs") to certain executives of PCMC. When any of
five Unit Value Targets ("UVTs") established by the LTIP are met through a
combination of Unit market appreciation plus Partnership cash distributions, a
percentage of the UARs is triggered and Units are credited to the executives'
accounts. Units in the executive's accounts will earn additional Units equal to
the amount of any subsequent Partnership cash distributions. The performance
period under the LTIP during which UVTs may be met ends December 31, 1998.
Earned Units generally vest at the end of the performance period.
PCMC has granted 1,436,534 UARs, net of forfeitures, which results in a
total of 722,373 Units being earned under the LTIP if no Units are forfeited
prior to the end of the performance period. As of December 31, 1997, four UVTs
had been achieved and 493,938 Units had been allocated to the executives'
accounts. In addition, 70,688 Units have been credited to their accounts as a
result of distributions. In April 1998, the fifth and final UVT was achieved. As
a result, an additional 228,435 Units were allocated to the executives'
accounts. As of September 30, 1998, 112,879 Units had been credited to their
accounts as a result of distributions. Total compensation expense, which will be
recognized over the life of the plan, with respect to the achievement of the
four UVTs as of December 31, 1997 and the five UVTs as of September 30, 1998 is
approximately $14.2 million and $21.8 million, respectively. Unamortized
deferred compensation was $2.8 million and $1.1 million as of December 31, 1997
and September 30, 1998, respectively.
KEY EMPLOYEE LONG-TERM INCENTIVE PLAN. Effective January 1, 1994, PCMC
established a Key Employee Long-Term Incentive Plan ("KLTIP") for certain of its
key employees, which authorizes granting of up to 500,000 UARs. The KLTIP
provisions are similar to the LTIP described above. PCMC has granted 358,933
UARs, net of forfeitures, which results in a total of 180,493 Units being earned
under the KLTIP if no Units are forfeited prior to the end of the performance
period. Units in the participants' accounts will earn additional Units equal to
the amount of any subsequent Partnership cash distributions. Earned Units
generally vest at the end of the performance period. As of December 31, 1997,
four UVTs had been achieved and 112,847 Units had been allocated to the key
employees' accounts. In addition, 11,028 Units had been credited to their
accounts as a result of distributions. In April 1998, the fifth and final UVT
was achieved. As a result, an additional 67,646 Units were allocated to the key
employees' accounts. As of September 30, 1998, 20,998 Units have been credited
to their accounts as a result of distributions. Total compensation expense,
which will be recognized over the life of the plan, with respect to the
achievement of the four UVTs as of December 31, 1997 and the five UVTs as of
September 30, 1998 is approximately $3.3 million and $5.4 million, respectively.
Unamortized deferred compensation was $.7 million and $.3 million as of December
31, 1997 and September 30, 1998, respectively.
MANAGEMENT INCENTIVE PLAN. Effective January 1, 1994, PCMC established the
MIP for certain executives of PCMC. An annual bonus of up to 100% of the
respective executive's base salary may be awarded if certain performance
objectives established by PCMC are met by the Partnership and the executive.
One-half of the bonus will be paid annually in cash and the remaining half will
be converted into Units at fair market value and will be distributed at the end
of three years. Units in the executives' accounts will earn additional Units
equal to the amount of any subsequent Partnership cash distributions. Units
generally vest when they are awarded. As of December 31, 1997 and September 30,
1998, 86,208 Units and 115,440 Units were awarded under this Plan, respectively
(which includes 13,049 Units and 16,806 Units as a result of distributions on
Units awarded). As of December 31, 1997 and September 30, 1998, 0 Units and
36,699 Units, respectively, have been distributed to plan participants. Costs
incurred in administering and funding the plan are borne by PCMC.
OTHER INCENTIVE PLANS. Certain employees of PCMC participated in other
incentive plans which were established prior to January 1, 1994 and are fully
funded and vested. Cash and Units, the receipt of which has
F-6
<PAGE> 115
PLUM CREEK MANAGEMENT COMPANY, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
been deferred by the participants, are held by PCMC. Deferred balances accrue
earnings to the benefit of the participants.
OTHER BENEFIT PLANS. PCMC employees are included in multi-employer plans
(pension and thrift and profit sharing plans) established by the Partnership. As
a result of PCMC's reimbursement arrangement with the Partnership, these costs
are borne by the Partnership.
Deferred compensation payable related to the various plans is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
LTIP.............................................. $ 17,080 $ 23,387
KTIP.............................................. 3,747 5,642
MIP............................................... 4,349 2,205
Other Incentive Plans............................. 7,356 5,980
-------- --------
32,532 37,214
Less current portion.............................. (4,264) (22,719)
-------- --------
Long-term......................................... $ 28,268 $ 14,495
======== ========
</TABLE>
PCMC BENEFITS TRUSTS. The cost and fair value of the investments held in
two grantor trusts are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
- ------------------------------------------------
Cash............................................ $ 1,368 $ -- $ -- $ 1,368
Mutual Funds.................................... 4,712 580 -- 5,292
Partnership Units (809,097)..................... 21,277 4,050 (852) 24,475
------- ------ ------- -------
PCMC Benefit Trusts............................. $27,357 $4,630 $ (852) $31,135
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------
Cash............................................ $ 602 $ -- $ -- $ 602
Mutual Funds.................................... 5,260 -- (229) 5,031
Partnership Units (893,854)..................... 23,554 2,873 (1,399) 25,028
------- ------ ------- -------
PCMC Benefit Trusts............................. $29,416 $2,873 $(1,628) $30,661
======= ====== ======= =======
</TABLE>
As a result of achieving the fifth and final UVT in April 1998, PCMC has
adopted new incentive plans with similar terms in which awards may be earned
through the year ending December 31, 2003. During the second quarter of 1998,
grants of 1,158,500 UARs were made to officers and key employees, which over the
life of the plan could result in 1,158,500 Units being earned if all five
targets are met. No targets have been met as of September 30, 1998 under these
plans.
4. REORGANIZATION
On June 8, 1998 the Partnership announced that the Board of Directors of PC
Advisory Corp. I ("Advisory Corp"), the ultimate general partner of the
Partnership, had authorized the Partnership to seek approval from its
Partnership unitholders ("Unitholders") to convert (the "Conversion
Transaction") its
F-7
<PAGE> 116
PLUM CREEK MANAGEMENT COMPANY, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
structure from a publicly traded Master Limited Partnership into a publicly
traded Real Estate Investment Trust ("REIT"). The Conversion Transaction is
conditioned upon the approval of the holders of two-thirds of the Partnership's
outstanding Units. In connection with the Conversion Transaction, the
Unitholders will exchange, on a one-for-one basis, their Units for shares of
common stock in the REIT. PCMC will exchange its general partner interest in the
Partnership and Manufacturing and its interest in Marketing for a 27% equity
interest in the REIT and will also receive certain control rights. Additionally,
as a result of the merger, PCMC's benefit plan liabilities and related assets
will be transferred to the REIT. The solicitation of Unitholder approval of the
Conversion Transaction and the exchange of shares in the REIT for the
Partnership's outstanding Units will be made by means of a proxy
statement/prospectus provided to the Unitholders.
On September 11, 1998, a Unitholder, individually and as a purported
representative of all Unitholders as of June 8, 1998 (the "Plaintiff"), filed a
purported class action lawsuit (the "Action") in the Court of Chancery in the
State of Delaware against PCMC, the Partnership, and Advisory Corp (the "Plum
Creek Defendants"), alleging that PCMC's receipt of a 27% equity interest in the
REIT violates PCMC's and Advisory Corp's fiduciary duties to the Unitholders.
On November 17, 1998, the Plaintiff filed an amended complaint which also
challenged the PCMC Partners' receipt of certain special voting and board
nomination rights. On December 17, 1998, the Delaware Court of Chancery granted
the Plum Creek Defendants' motion to dismiss. On January 11, 1999, the Plaintiff
filed a notice of appeal in the Supreme Court of the State of Delaware with
respect to the Action. The Plum Creek Defendants intend to continue to
vigorously defend themselves in connection with this appeal.
PCMC's decision to proceed with the Conversion Transaction is in the sole
discretion of PCMC, subject to receipt of the requisite Unitholders' approval
and satisfaction of the other conditions precedent in the Conversion Agreement.
PCMC currently expects to delay the consummation of the Conversion Transaction
until the Action, including the appeal and any additional claims that may be
brought, is fully resolved to PCMC's satisfaction.
5. RELATED-PARTY TRANSACTIONS
As general partner, PCMC has overall responsibility for the management of
the Partnership, Manufacturing and Marketing. PCMC has a 2% general partner
interest in the income and cash distributions of the Partnership and
Manufacturing, plus incentive distributions. Additionally, PCMC owns 4% of
Marketing. PCMC is reimbursed for the actual cost of administering its
businesses, excluding the cost of the MIP.
Certain conflicts of interest could arise as a result of the relationships
described above. The Board of Directors of Advisory Corp and PCMC have a duty to
manage the Partnership in the best interests of the Unitholders and,
consequently, must exercise good faith and integrity in handling the assets and
affairs of the Partnership. Receivables and payables between PCMC and the
Partnership are settled in the ordinary course of business.
6. COMMITMENTS AND CONTINGENCIES
PCMC is general partner of the Partnership and Manufacturing and is
involved in various legal proceedings, including environmental matters,
incidental to those businesses. While any legal proceeding has elements of
uncertainty, PCMC believes that none of the pending legal proceedings will have
a materially adverse effect on the financial position or liquidity of PCMC.
F-8
<PAGE> 117
PLUM CREEK MANAGEMENT COMPANY, L.P.
NOTES TO BALANCE SHEET (CONTINUED)
PCMC holds certain demand notes (the "Demand Notes") from its partners in
an amount equal to $5 million in the aggregate in order to comply with certain
treasury regulations relating to general partner minimum net worth requirements.
No amounts are reflected in the financial statements for these Demand Notes.
7. SUBSEQUENT EVENTS
On July 14, 1998, the Partnership announced a second quarter distribution
of $0.57 per Unit which was paid August 27, 1998. PCMC's general partner share
of the distribution was approximately $9.1 million. On August 27, 1998, PCMC
distributed $9.2 million to its partners.
8. EVENTS SUBSEQUENT TO SEPTEMBER 30, 1998 (UNAUDITED)
On October 13, 1998, the Partnership announced a third quarter distribution
of $0.57 per Unit which was paid November 24, 1998. PCMC's general partner share
of the distribution was approximately $9.1 million. On November 24, 1998, PCMC
distributed $7.1 million to its partners.
On November 12, 1998, the Partnership acquired 905,000 acres of forest
lands in central Maine from S.D. Warren Company, a Pennsylvania corporation, for
a purchase price of $180 million. As part of the acquisition, the Partnership
will enter into a long-term fiber supply agreement to supply fiber to S.D.
Warren Company's paper facility in Skowhegan, Maine, at prevailing market
prices.
The acquisition was financed with approximately $3 million in cash and the
balance with unsecured promissory notes that were issued to the seller. The
notes have an average maturity of 10 years with an expected average interest
rate of approximately 7.7%.
F-9
<PAGE> 118
ANNEX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF CONVERSION
AMENDED AND RESTATED AGREEMENT AND PLAN OF CONVERSION, dated as of July 17,
1998, by and among Plum Creek Timber Company, Inc., a Delaware corporation (the
"Corporation"); Plum Creek Timber Company, L.P., a Delaware limited partnership
(the "Partnership"); and Plum Creek Management Company, L.P., a Delaware limited
partnership ("PCMC"). This Amended and Restated Agreement and Plan of Conversion
amends and restates the Agreement and Plan of Conversion, dated as of June 5,
1998, as amended on July 17, 1998.
WHEREAS, the parties hereto desire to convert the ownership interests in
the Partnership to ownership interests in a corporation which would elect to be
subject to taxation as a real estate investment trust for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"), pursuant to the
provisions of this Agreement and the other agreements referred to herein;
WHEREAS, the conversion described above, including the Merger (as
hereinafter defined) and each of the other transactions set forth in Article I
shall be referred to herein as the "Conversion";
WHEREAS, to that end, the Corporation has been formed and the Corporation
has (i) formed Plum Creek Timber Company I, L.L.C., a single member Delaware
limited liability company and a wholly-owned subsidiary of the Corporation ("LLC
I"), and (ii) together with LLC I, formed Plum Creek Acquisition Partners, L.P.,
a Delaware limited partnership ("Merger LP"), whose 99% limited partner is the
Corporation and whose 1% general partner is LLC I; and
WHEREAS, PCMC and the Partnership hold a 2% general partner interest and
98% limited partner interest, respectively, in Plum Creek Manufacturing, L.P. a
Delaware limited partnership (the "Manufacturing Partnership").
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set forth
the terms and conditions of the Conversion and the mode of carrying the same
into effect, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
THE CONVERSION
SECTION 1.1 The Recapitalization. The Partnership and PCMC shall
recapitalize Plum Creek Marketing, Inc., a Delaware corporation ("Marketing"),
as follows (collectively, the "Recapitalization"):
(a) Prior to the Effective Time (as defined below), the Partnership
and PCMC, as the 96% and 4% stockholders, respectively, of Marketing, shall
cause Marketing to amend its Certificate of Incorporation (the "Marketing
Charter Amendment") to create two classes of common stock: voting common
stock (the "Voting Common Stock") and nonvoting common stock (the
"Nonvoting Common Stock"). The Nonvoting Common Stock and the Voting Common
Stock will participate pro rata in all cash dividends paid by Marketing to
its common stockholders, but the Nonvoting Common Stock will have no right
to vote on the election of directors of Marketing or on any other
transaction for which stockholders of Marketing may otherwise be given the
right to vote pursuant to applicable law. The Marketing Charter Amendment
will also provide that each outstanding share of Marketing's common stock,
par value $.01 per share, will be reclassified into 9.9 shares of Nonvoting
Common Stock.
(b) Concurrently with the effectiveness of the Marketing Charter
Amendment under the Delaware General Corporation Law, Marketing shall issue
10 shares of the Voting Common Stock, representing 1% in number of shares
of its outstanding common stock, to members of management of the
Partnership for their fair market value, as determined by the Partnership
and agreed to by the other parties, with no
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single member holding in excess of 20% of such Voting Common Stock. The
terms of any acquisition of securities by management pursuant to this
section (including the terms of any financing obtained from the
Partnership, the Corporation or any of their respective subsidiaries with
respect thereto) shall be subject to the reasonable approval of the
parties.
SECTION 1.2 The Corporate Subsidiary Formation. Immediately before the
Effective Time, PCMC shall cause the Manufacturing Partnership to contribute the
Manufacturing Assets (as defined below) to three newly-formed, Delaware
corporations (the "Corporate Subsidiaries") in exchange for 990 shares of
nonvoting common stock of each of the Corporate Subsidiaries (representing 99%
in number of shares of the outstanding common stock), and members of the
management of the Partnership shall acquire a total of 10 shares of the voting
common stock (representing 1% in number of shares of the outstanding common
stock) of each of the Corporate Subsidiaries for their fair market value, as
determined by the Partnership and agreed to by the other parties, with no single
member holding in excess of 20% of such voting common stock. The terms of any
acquisition of securities by management pursuant to this section (including the
terms of any financing obtained from the Partnership, the Corporation or their
respective subsidiaries with respect thereto) shall be subject to the reasonable
approval of the parties. "Manufacturing Assets" means substantially all of the
assets and liabilities of the Manufacturing Partnership relating to its
manufacturing operations, to be specified on a schedule to be provided by the
Partnership within 90 days after the date hereof, but in no event later than 20
days before mailing of the Proxy Statement/Prospectus (as hereinafter defined).
SECTION 1.3 The Mergers. Subject to the terms and conditions of this
Agreement and the Merger Agreement referred to below:
(a) The Partnership Merger. At the Effective Time (as defined below),
the Partnership shall be merged (the "Partnership Merger") with and into
Merger LP pursuant to an Agreement and Plan of Merger substantially in the
form attached hereto as Annex 1 (the "Partnership Merger Agreement"), and
the separate existence of the Partnership shall cease. Merger LP shall be
the surviving entity in the Partnership Merger and shall continue to be
governed by the laws of the State of Delaware, and all rights, privileges,
immunities and franchises of the Partnership and Merger LP shall vest in
Merger LP and continue unaffected by the Partnership Merger. The manner of
converting the securities of the Partnership and Merger LP shall be
substantially as set forth in Section 5 of the Partnership Merger
Agreement.
(b) The PCMC Merger. Concurrently with the Partnership Merger, PCMC
shall be merged (the "PCMC Merger" and, together with the Partnership
Merger, the "Mergers") with and into the Corporation pursuant to an
Agreement and Plan of Merger substantially in the form attached hereto as
Annex 4 (the "PCMC Merger Agreement" and, together with the Partnership
Merger Agreement, the "Merger Agreements"), and the separate existence of
PCMC shall cease. The Corporation shall be the surviving entity in the PCMC
Merger and shall continue to be governed by the laws of the State of
Delaware, and all rights, privileges, immunities and franchises of PCMC and
the Corporation shall vest in the Corporation and continue unaffected by
the PCMC Merger. The manner of converting the securities of PCMC and the
Corporation shall be substantially as set forth in Section 5 of the PCMC
Merger Agreement. The parties acknowledge that, immediately following
consummation of the Mergers, PC Advisory Partners I, L.P., a Delaware
limited partnership ("PCAP") and PC Intermediate Holdings, L.P., a Delaware
limited partnership ("PCIH" and, together with PCAP, the "PCMC Partners"),
will hold 27% of the aggregate outstanding equity of the Corporation.
SECTION 1.4 Approvals and Timing
(a) Limited Partner Approval. The Partnership and PCMC shall submit the
proposed Conversion to the Unitholders for approval and adoption at a meeting to
be held following completion and requisite dissemination of the Proxy
Statement/Prospectus (as hereafter defined). In connection with such meeting,
the Partnership shall take such reasonable steps as shall be necessary or
appropriate for the prompt preparation and filing by the Partnership of a proxy
statement (the "Proxy Statement") under the Securities Exchange Act of 1934 (the
"Exchange Act") and by the Corporation of a registration statement and
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prospectus (the "Prospectus") under the Securities Act of 1933 (the "Securities
Act"), with the SEC and shall cause such Proxy Statement/Prospectus to be mailed
to the Unitholders as soon as practicable.
(b) Approval by Other Parties. PC Advisory Corp I, a Delaware corporation
("Corp I"), as the sole general partner of PCAP, as the sole general partner of
PCMC, and as the sole general partner of the Partnership on the one hand, and
the Corporation, on its own behalf and as the sole member of LLC I, and as the
general partner of Merger LP, shall approve, adopt, execute and deliver each of
the Merger Agreements prior to the Filing Date.
(c) Closing and Effective Time. Subject to the satisfaction of the
conditions contained in Article IV hereof, the parties shall hold a closing (the
"Closing") on (i) the later of (A) the business day following the meeting of the
Unitholders to consider and vote upon the Conversion or (B) the business day on
which the last of the conditions set forth in Article IV is fulfilled or waived
or (ii) at such other date as the parties hereto may agree (the "Closing Date"),
at 10:00 a.m. (local time) at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 300 South Grand Avenue, Suite 3400, Los Angeles, California, or at
such other place or time as the parties hereto may agree. The Mergers shall
become effective upon the filing of the certificates of merger related thereto
(the "Effective Time"). At the Closing, the parties shall take appropriate steps
to cause the transactions constituting the Conversion set forth in this Article
I (including the Mergers) to be effected. All such transactions shall be deemed
to have occurred sequentially on the Closing Date (except for the Mergers which
shall be deemed to have occurred simultaneously), and, if any single transaction
is not effected, then none of such transactions shall be effective.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 Representations and Warranties by the Partnership and the
Corporation. The Partnership and the Corporation represent and warrant to PCMC
that:
(a) Organization and Good Standing. The Partnership is a limited
partnership duly formed, validly existing and in good standing under the
laws of the State of Delaware. The Corporation is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware. On the Closing Date, the Certificate of Incorporation
and Bylaws of the Corporation then in effect will be in substantially the
form attached hereto as Annexes 2 and 3, respectively. On the Closing Date,
Merger LP will be a limited partnership duly formed, validly existing and
in good standing under the laws of the State of Delaware.
(b) Capitalization. The sole general partner of the Partnership is
PCMC and, as of June 2, 1998, there are issued and outstanding 46,323,300
Units. The authorized capital stock of the Corporation consists of 1,000
shares of common stock, par value $.01 per share (the "Common Stock"), of
which 100 shares are outstanding and owned by the Partnership. Immediately
following the Effective Time, PCMC will hold 27% of the aggregate
outstanding equity of the Corporation. On the Closing Date, the sole
general partner of Merger LP will be LLC I, and the sole member of LLC I
will be the Corporation.
There is no outstanding option, warrant or other agreement or
commitment (other than the Merger Agreement) to which either the
Partnership or the Corporation is a party or by which either of them is
bound providing for the issuance of any additional securities of the
Partnership, Merger LP or the Corporation.
(c) Authorization. The execution, delivery and performance of this
Agreement have been duly and validly authorized by all necessary action on
the part of the Partnership and the Corporation, other than the approval of
the Conversion by the Unitholders. This Agreement has been duly executed
and delivered by the Partnership and the Corporation and is enforceable
against each of them in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws now
or hereafter in effect relating to or affecting creditors' rights
generally, (ii) public policy, applicable law relating to fiduciary duties
and the
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judicial imposition of an implied covenant of good faith and fair dealing
and except as rights to indemnity or contribution may be limited by
applicable law or (iii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity).
(d) Consents and Approvals; No Violation. Except as set forth in
Schedule 2.1(d), neither the execution and delivery of this Agreement by
the Partnership or the Corporation nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the Partnership Agreement; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority or body, except (A) pursuant to the
Securities Act and the Exchange Act or the rules and requirements of any
national securities exchange or the National Association of Securities
Dealers, Inc., (B) the filing of a certificate of merger pursuant to the
Delaware Revised Uniform Limited Partnership Act (the "Delaware RULPA"),
(C) filings under state securities laws or in connection with maintaining
the good standing and qualification of Merger LP and the Corporation
following the Effective Time, (D) Hart-Scott-Rodino Premerger Notification
Act filings, if any, or (E) where the failure to obtain such consent,
approval, authorization or permit, or to make such filing or notification,
would not in the aggregate have a material adverse effect on the
Partnership or the Corporation; (iii) result in a default (or give rise to
any right of termination, unilateral modification or amendment,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, license, agreement or other instrument or
obligation to which the Partnership or any of its subsidiaries is a party
or by which the Partnership, the Corporation or any of their respective
subsidiaries or assets may be bound (collectively, the "Material
Agreements"), except for such defaults (or rights of termination,
unilateral modification or amendment, cancellation or acceleration) which
in the aggregate would not have a material adverse effect on the
Partnership, the Corporation or any of their respective subsidiaries; or
(iv) violate any order, writ, injunction, decree, judgment, ordinance,
statute, rule or regulation applicable to the Partnership or the
Corporation or any of their respective properties or businesses, except for
violations (other than of orders, writs, injunctions or decrees) which
would not in the aggregate have a material adverse effect on the
Partnership or the Corporation.
SECTION 2.2 Representations and Warranties by PCMC. PCMC represents and
warrants to the other parties that:
(a) Organization and Good Standing. It is a limited partnership duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
(b) Authorization. The execution, delivery and performance of this
Agreement have been duly and validly authorized by all necessary action on
the part of PCMC.
(c) Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by it nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the Agreement of Limited Partnership or the Certificate of
Limited Partnership of PCMC; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority or body, except (A) pursuant to the
Securities Act and the Exchange Act or the rules and requirements of any
national securities exchange or the National Association of Securities
Dealers, Inc., (B) the filing of certificates of merger pursuant to the
Delaware RULPA, (C) filings under the state securities laws or in
connection with maintaining the good standing and qualification of Merger
LP and the Corporation following the Effective Time, (D) Hart-Scott-Rodino
Premerger Notification Act filings, if any, or (E) where the failure to
obtain such consent, approval, authorization or permit, or to make such
filing or notification, would not in the aggregate have a material adverse
effect on PCMC; (iii) result in a default (or give rise to any right of
termination, unilateral modification or amendment, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which PCMC or its
subsidiaries is a party or by which they or its assets may be bound, except
for such defaults (or rights of termination, unilateral modification or
amendment, cancellation or acceleration) which in the aggregate would not
have a material adverse effect on PCMC, or any of its subsidiaries; or (iv)
violate any order, writ, injunction, decree, judgment, ordinance, statute,
rule or regulation applicable to PCMC or any of its
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properties or businesses, except for violations (other than of orders,
writs, injunctions or decrees) which would not in the aggregate have a
material adverse effect on PCMC.
(d) Ownership Interests; Title. PCMC is the owner of record and
beneficially of (i) the general partner interests in the Partnership and
the Manufacturing Partnership, and (ii) the 4 shares of common stock of
Marketing. PCMC has not received any notice of any adverse claim to the
ownership of such general partner interest and/or common stock and does not
have any reason to know of such adverse claim that may be justified. On the
date of the Closing, PCMC shall have good and transferable title to such
interests and common stock, free and clear of all liens.
(e) Ownership in PCMC. As promptly as possible following execution of
this Agreement, PCMC shall deliver a schedule of Messrs. Scully, Patterson
and Oberndorf's direct and indirect ownership interests in PCMC to the
Special Committee (as hereinafter defined), which ownership interests shall
not change prior to the Closing Date. The schedule shall also set forth
those direct and indirect ownership interests in PCMC not owned by Messrs.
Scully, Patterson and Oberndorf, which schedule shall be updated to reflect
transfers between the date of this Agreement and the Closing Date.
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 3.1 Affiliates. Prior to the Closing Date, the Partnership shall
deliver to the Corporation a letter identifying all persons who are, at the time
the Conversion is submitted for approval to the limited partners of the
Partnership, "affiliates" of the Partnership for purposes of Rule 145 under the
Securities Act. The Partnership shall use its reasonable efforts to cause each
such person to deliver to the Corporation on or prior to the Closing Date
executed affiliates' letters in customary form.
SECTION 3.2 Fees and Expenses. Whether or not the Conversion is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereunder, to the extent such costs and
expenses are not incurred on behalf of and for the benefit of the Partnership,
shall be paid by the party incurring such cost or expense.
SECTION 3.3 Stock Exchange Listing. The Corporation shall use its best
efforts to cause the Common Stock to be issued in the Conversion to be approved
for listing on the New York Stock Exchange and the Pacific Stock Exchange,
subject to official notice of issuance, prior to the Closing Date. The
Partnership shall cause the Units to be delisted at or immediately after the
Effective Time.
SECTION 3.4 Indemnification.
(a) The Partnership shall, and from and after the Effective Time, the
Corporation shall, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date of this Agreement or who becomes prior
to the Effective Time, an officer, director, partner, shareholder, agent or
fiduciary of the Partnership, PCMC, Merger LP or the Corporation (the
"Companies") or an affiliate of such person (collectively, the "Indemnified
Parties") against all losses, claims, damages, costs, expenses, liabilities or
judgments, or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of, or in
connection with, any claim, action, suit, proceeding or investigation
("Proceeding") based in whole or in part out of the fact that such person is or
was an officer, director, partner, shareholder, agent or fiduciary of one or
more of the Companies or an affiliate of such person, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities") in each case to the full extent a partnership or a corporation is
permitted under Delaware law to indemnify such persons or entities; and the
Partnership (and after the Effective Time, the Corporation) will pay or
reimburse expenses in advance of the final disposition of any such Proceeding to
each Indemnified Party to the full extent permitted by law upon receipt of an
undertaking to repay such expenses if and when requested to do so under
applicable law. Without limiting the foregoing, in the event any such Proceeding
is brought against any Indemnified Party (whether arising before or after the
Effective Time), (i) the Indemnified Parties may retain counsel
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satisfactory to them, (ii) the Partnership (and after the Effective Time, the
Corporation) shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received, and (iii) the
Partnership (and after the Effective Time, the Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither the Partnership nor the Corporation shall be liable for
any settlement of any claim effected without its written consent, which consent,
however, shall not be unreasonably withheld. Any Indemnified Party wishing to
claim indemnification under this Section 3.4, upon learning of any Proceeding,
shall notify the Partnership (and after the Effective Time, the Corporation)
(but the failure so to notify the Partnership or the Corporation, as the case
may be, shall not relieve the Partnership or the Corporation from any liability
which it may have under this Section 3.4 except to the extent such failure
prejudices the indemnifying party) and shall deliver to the Partnership (and
after the Effective Time, the Corporation) the undertaking referred to above.
The Indemnified Parties as a group may retain only one law firm to represent
them with respect to each such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(b) The provisions of this Section 3.4 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and the Indemnified
Party's heirs, representatives, successors and assigns.
Section 3.5 Control Rights.
(a) For purposes of this Section 3.5, the following terms shall have the
meanings set forth below:
"Beneficial Ownership" shall mean ownership of a security by a person
who would be treated as an owner of such security, either directly or
indirectly, under section 542(a)(2) of the Code, taking into account for
this purpose, the constructive ownership rules of section 544 of the Code,
as modified by section 856(h) of the Code.
"Extraordinary Transaction" shall mean any transaction (i) which
requires the vote of all stockholders of the Corporation (other than the
election of directors) under the Delaware General Corporation Law, (ii)
which requires stockholder approval pursuant to Rule 312.03(c) or (d) of
the New York Stock Exchange Listed Company Manual (or the equivalent rule,
if any, of any stock exchange or automated quotation system on which the
Corporation may be listed), or (iii) pursuant to which an amendment to the
bylaws of the Corporation would be effected by vote of its stockholders.
"First Threshold Amount" shall mean 5 million shares of Common Stock
and/or shares of Special Voting Stock, in the aggregate, subject to
adjustment for any stock split, stock dividend, reverse stock split,
combination, recapitalization, reclassification or like transaction as
contemplated in Section 6.8.
"Independent Directors" shall mean those members of the Board of
Directors of the Corporation that are neither (i) members of the
Corporation's management, nor (ii) designated pursuant to the terms of this
Section 3.5.
"Permitted Transferee" shall mean, with respect to any Person or
Persons, (i) any natural person who is related by blood or marriage to any
such Person, (ii) any trust or partnership of which there are no principal
beneficiaries or partners, as the case may be, other than any such Person
or Permitted Transferees of such Person, (iii) any charitable foundation
over which any such Person has discretionary authority, and (iv) any heirs
or executors of any such Person.
"Principals" means Messrs. Scully, Patterson and Oberndorf,
collectively.
"Second Threshold Amount" shall mean 3 million shares of Common Stock,
in the aggregate, subject to adjustment for any stock split, stock
dividend, reverse stock split, combination, recapitalization,
reclassification or like transaction as contemplated in Section 6.8.
"Threshold Amount" shall mean either the First Threshold Amount or the
Second Threshold Amount, as applicable.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Beneficial Ownership of a security, whether voluntary
or involuntary and whether by operation of law or otherwise,
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including without limitation, a put, call, swap or other transaction that
would cause the holder not to retain substantially all the opportunity for
gain and substantially all the risk of loss with respect to such security.
(b) The Corporation hereby agrees to take all action necessary such that,
prior to each meeting of the Corporation's stockholders at which directors of
the Corporation are to be elected, the Board of Directors of the Corporation
(the "Board") shall (i) include the number of designees (if any) determined in
accordance with the next two sentences that have been designated by the
Principals and shall not have been rejected by the Corporation for cause (based
on a reasonable application of the definition thereof contained in the
Certificate of Incorporation of the Corporation) in each slate of proposed
directors put forth by the Corporation to its stockholders, and (ii) use its
best efforts to cause such designees to be recommended by the Board for election
in any proxy solicitation materials disseminated by the Corporation in
connection with such meeting. Subject to paragraph (d) below, for so long as the
Principals Beneficially Own at least the First Threshold Amount of Common Stock
and/or shares of Special Voting Stock in the aggregate at the time such slate of
Board nominees is determined, the Principals shall be entitled to designate
nominees constituting a majority of the Board, provided, however, that pursuant
to this sentence, the Principals shall not be entitled to have more than the
minimum number of designees required such that (assuming the election of such
designees to the Board) all of the Principals' nominees will constitute the
smallest number of directors necessary to represent a majority of the Board at
any time. Subject to paragraph (d) below, for so long as the Principals
Beneficially Own less than the First Threshold Amount but at least the Second
Threshold Amount of Common Stock in the aggregate at the time such slate of
Board nominees is determined, the Principals shall be entitled to designate two
nominees to the Board, provided, however, that pursuant to this sentence, the
Principals shall not be entitled to have more than the minimum number of
designees required such that (assuming the election of such designees to the
Board) all of the Principals' nominees will constitute two members of the Board
at any time. Unless the Corporation shall have received written notice to the
contrary from the Principals at least 10 business days prior to the date that
stockholder proposals would be required to be submitted pursuant to the Exchange
Act, the Corporation shall nominate the designee(s) for that annual meeting of
its stockholders, whose terms would otherwise expire at such meeting.
Subject to the limitation provided in paragraph (d) below, in calculating
the Beneficial Ownership for purposes of the previous paragraph and paragraph
(d) below, shares of Special Voting Stock and shares of Common Stock received by
the PCMC Partners pursuant to the terms of this Agreement and the Merger
Agreements and owned by the PCMC Partners on the Closing Date shall be deemed to
be 100% Beneficially Owned by the Principals for purposes of this Section 3.5,
so long as (i) the PCMC Partners shall maintain their Beneficial Ownership of
such securities and the Principals and their Permitted Transferees maintain
their collective voting and dispositive power with respect to such securities or
(ii) if such securities are distributed by the PCMC Partners, the Principals and
their Permitted Transferees Beneficially Own the applicable Threshold Amount and
maintain substantially all of their collective opportunity for gain and risk of
loss with respect to such securities; provided however, that for purposes of
subsection (i) above, in the event that the Principals voting interests or the
opportunity for gain and risk of loss in the PCMC Partners, other than Transfers
of voting interests and the opportunity for gain and risk of loss to any Person
that holds an ownership interest in the PCMC Partners as of the Effective Date,
such 100% deemed Beneficial Ownership by the Principals shall be reduced by such
Transferred amount, and provided further, that if the PCMC Partners Transfer any
such securities to a Person in which they own a majority of the voting power and
economic value, the PCMC Partners will be deemed to Beneficially Own that same
percentage of the total shares of Special Voting Stock and/or shares of Common
Stock held by such Person.
(c) Initially, the Principals shall designate one Class I director, two
Class II directors and two Class III directors (each as defined in the Bylaws of
the Corporation), and, so long as they are capable, Messrs. Scully, Patterson
and Oberndorf shall be designated as a Class I, Class II and Class III director,
respectively. Upon the death, resignation or removal of a nominee designated by
the Principals in accordance with the preceding paragraph, the Corporation shall
use its best efforts to have the vacancy filled by a person designated by the
Principals consistent with the standard set forth in paragraph (b) above.
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(d) If the Beneficial Ownership calculated as aforesaid shall at any time
drop below a Threshold Amount, the Principals shall permanently lose any rights
that are conditioned on ownership in excess of such Threshold Amount, regardless
of whether any person shall acquire additional shares of Special Voting Stock
and/or Common Stock which would otherwise cause the Beneficial Ownership to
exceed such Threshold Amount.
(e) Within 20 days of any request by the Corporation, the Principals shall
provide reasonable documentation to the Corporation (which shall be kept
confidential and used solely for the purpose of verifying the Beneficial
Ownership of the Principals and their Permitted Transferees) so that the
Corporation may determine its obligations under this Section 3.5.
(f) The rights set forth in this Section 3.5 are nontransferable, and shall
not inure to the benefit of any successor or assign of the Principals.
(g) Upon the death of any of the Principals, the rights set forth in this
Section 3.5 shall not transfer to the heirs or executors of such decedent, but
shall instead be exercisable by the surviving member(s) of the Principals,
collectively, provided, that, the calculation of the Threshold Amounts shall
continue to be based on the Beneficial Ownership of shares of Special Voting
Stock and/or shares of Common Stock by such decedent's heirs and executors. Upon
the death of the last of the Principals, the rights set forth in this Section
3.5 shall terminate.
(h) In the event that any Permitted Transferee ceases to be a Permitted
Transferee, any shares of Special Voting Stock and/or shares of Common Stock
held by such Person shall be deemed to have been Transferred to a Person that is
not a Permitted Transferee for purposes of calculating the Threshold Amounts.
ARTICLE IV
CONDITIONS TO THE CONVERSION
SECTION 4.1 Conditions to Each Party's Obligation to Effect the
Conversion. The respective obligations of the parties to effect the Conversion
shall be subject to the satisfaction, on or before the Closing Date, of each of
the following conditions:
(a) Limited Partner Approval. The Conversion shall have been approved
and adopted by Unitholders holding at least 66 2/3% of the outstanding
Units.
(b) Approvals. All authorizations, consents and permits required to
perform this Agreement and the Merger Agreements and the transactions
contemplated hereby and thereby under the Material Agreements or under
applicable law shall have been obtained and the required statutory waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
applicable, shall have expired or been terminated.
(c) Registration Statement. The Registration Statement filed pursuant
to Section 1.4(a) shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceeding seeking a stop
order.
(d) Blue Sky Compliance. The Corporation shall have complied with all
requirements of state securities or "blue sky" laws with respect to the
issuance of the securities in the Conversion.
(e) Special Committee Determination. The Special Committee of the
board of directors of Corp I (the "Special Committee") shall not have
withdrawn its determination that the Conversion is fair to the Unitholders.
(f) Fairness Opinion. Neither the fairness opinion delivered to the
Partnership by Merrill Lynch & Co. and to be included as an exhibit to the
Proxy Statement/Prospectus nor the fairness opinion delivered to the
Special Committee by Salomon Smith Barney, Inc. and to be included as an
exhibit to the Proxy Statement/Prospectus shall have been rescinded prior
to the Closing Date.
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(g) Tax Opinion. Skadden, Arps, Slate, Meagher & Flom LLP shall have
delivered a substantially unqualified opinion to the parties, generally to
the effect that (i) the Corporation has been organized in conformity with
the requirements for qualification as a REIT under the Code, (ii) the
Corporation's planned method of operation, as well as the planned methods
of operation of Merger LP and the Corporate Subsidiaries will enable the
Corporation to meet the requirements for qualification and taxation as a
REIT, (iii) the distribution of REIT shares to the partners of the
Partnership and PCMC as a result of the Partnership Merger and the PCMC
Merger, respectively, will generally not be subject to United States
federal income tax, except with respect to particular partners in light of
their individual circumstances and (iv) the recapitalization of Marketing
will not result in gain or loss to Marketing, the Partnership or the
holders of shares of Marketing stock, provided, however, that the opinions
set forth in clauses (iii) and (iv) shall not be required to the extent
that the Partnership receives a private letter ruling from the Internal
Revenue Service that, to the reasonable satisfaction of PCMC, addresses the
subjects of clauses (iii) and (iv). Such opinion shall be based upon
customary letters of representation from the officers of the Corporation,
other transferors and major equity holders and may make customary
assumptions, including that the Corporation has no present plan or
intention to issue equity for cash or other property following the Merger.
(h) Registration Rights Agreements. The Corporation and the PCMC
Partners shall have entered into a Registration Rights Agreement on usual
and customary terms reasonably satisfactory to the parties hereto, the
provisions of which shall include one Common Stock demand registration per
six-month period commencing twelve months after the Effective Time (with
each demand covering not less than 1 million shares of Common Stock),
customary piggyback registration rights and customary indemnification for
violations of the Securities Act and the Exchange Act. All such
registration rights may also be exercised by the Principals and their
Permitted Transferees. In addition, the Corporation shall be responsible
for customary costs of registration, other than broker's fees, discounts,
transfer taxes or other selling expenses and the expenses of legal counsel
to the selling stockholders.
(i) Issuance of Subsidiary Securities. The Manufacturing Partnership
and members of the management of the Partnership shall have consummated the
acquisition of securities of the Corporate Subsidiaries and Marketing.
(j) Certificate of Incorporation and By-Laws. The Corporation's
Certificate of Incorporation and By-Laws shall be in effect in
substantially the form attached hereto as Annexes 2 and 3, respectively.
(k) Representations and Warranties. The representations and warranties
made by the parties to this Agreement shall be true and correct on the
Closing Date in all material respects.
(l) Other Documentation. The parties hereto shall have entered into
such other agreements as are contemplated by the Conversion on terms
reasonably satisfactory to the parties hereto.
ARTICLE V
TERMINATION AND ABANDONMENT
SECTION 5.1 Termination and Abandonment. This Agreement may be terminated
and the Conversion may be abandoned at any time prior to the Effective Time,
whether before or after approval by the Unitholders, by action of the Board of
Directors of Corp I.
SECTION 5.2 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto (or, in the
case of a dissolution of PCMC, signed by each of the Principals in lieu of
PCMC); provided, however, that after approval of the Conversion by the
Unitholders, no amendment may be made which decreases the amount or changes the
type of consideration to which the Unitholders are entitled under this
Agreement, increases the amount payable, in any material respect, or changes the
type of consideration to which the PCMC Partners are entitled under this
Agreement, or otherwise adversely affects the rights of the Unitholders without
the further approval of the Unitholders; provided, further, that following the
Effective Time and for so long as the Principals Beneficially Own at least
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the Second Threshold Amount (as such terms are defined in Section 3.5), this
Agreement may only be amended with the further consent of a majority of the
members of a committee of the members of the Board of Directors of the
Corporation that have not been designated by the Principals.
SECTION 5.3 Waiver. Any time prior to the Effective Time, whether before
or after the meeting referred to in Section 1.4(a), any party hereto may waive
compliance with any of the agreements of any other party or with any conditions
to the obligations of such party; provided, however, that after approval of the
Conversion by the Unitholders, no waiver may be given which materially adversely
affects the rights of the Unitholders without the further approval of the
Unitholders. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid if set forth in an instrument in writing signed on
behalf of such party by a duly authorized officer.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if sent by telecopy or facsimile
transmission (with hard copy to follow), registered or certified mail, postage
prepaid, or Federal Express or similar overnight delivery services addressed, in
the case of all parties at
If to the Partnership at:
c/o Plum Creek Management Company, L.P.
999 Third Avenue
Suite 2300
Seattle, Washington 98104-4096
(206) 467-3799 (fax)
Attn: President and Chief Executive Officer
with required copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
(213) 687-5600 (fax)
Attn: Jonathan H. Grunzweig, Esq.
If to PCMC at:
c/o SPO Partners & Co.
591 Redwood Highway
Suite 3215
Mill Valley, California 94941
(415) 383-5126 (fax)
Attn: President and Chief Executive Officer
with required copies to:
Sullivan & Cromwell
1888 Century Park East
21st Floor
Los Angeles, California 90067
(310) 712-8800 (Fax)
Attn: Alison Ressler, Esq.
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or such other address as shall be furnished in writing by any party to the
others prior to the giving of the applicable notice or communication.
SECTION 6.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.3 Headings. The headings herein are for convenience of reference
only, do not constitute a part of this Agreement, and shall not be deemed to
limit or affect any of the provisions hereof.
SECTION 6.4 Entire Agreement. This Agreement and the exhibits attached
hereto constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties, with respect to the
subject matter hereof.
SECTION 6.5 Cooperation. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use its reasonable efforts to take,
or cause to be taken, such action, to execute and deliver, or cause to be
executed and delivered, such governmental notifications and additional documents
and instruments and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable law to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 6.6 No Rights, Etc. Except as otherwise expressly provided herein,
nothing in this Agreement express or implied is intended to confer upon any
other person any rights or remedies under or by reason of this Agreement.
SECTION 6.7 Governing Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware applicable to contracts made and to be performed in that
State.
SECTION 6.8 Equitable Adjustment. References herein to numbers of
securities to be issued hereunder or the ownership of numbers of securities
shall be deemed to include such equitable adjustments, if any, as may be
required in the event of any subdivision, split, combination or reclassification
of such securities or securities into which such securities are convertible
occurring prior to the Closing Date so that the party hereto entitled to receive
such securities shall receive the number of such securities that such party
would have owned or been entitled to receive after the happening of any of the
events described above had it owned such securities immediately prior to such
time.
(The remainder of this page intentionally left blank)
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<PAGE> 129
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement and Plan of Conversion to be duly executed as of the date
first above written.
PLUM CREEK TIMBER COMPANY, L.P.
By: Plum Creek Management Company,
L.P.
its General Partner
By /s/ RICK R. HOLLEY
------------------------------------
Name: Rick R. Holley
Title: President and Chief Executive
Officer
PLUM CREEK TIMBER COMPANY, INC.
By /s/ RICK R. HOLLEY
------------------------------------
Name: Rick R. Holley
Title: President and Chief Executive
Officer
PLUM CREEK MANAGEMENT
COMPANY, L.P.
By: PC Advisory Partners, L.P.
its General Partner
By: PC Advisory Corp. I
its General Partner
By /s/ WILLIAM J. PATTERSON
------------------------------------
Name: William J. Patterson
Title: Vice President
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<PAGE> 130
ANNEX II
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PLUM CREEK TIMBER COMPANY, L.P.
(a Delaware limited partnership),
PLUM CREEK TIMBER COMPANY, INC.
(a Delaware corporation)
AND
PLUM CREEK ACQUISITION PARTNERS, L.P.
(a Delaware limited partnership)
AGREEMENT AND PLAN OF MERGER, dated as of July 17, 1998, by and among Plum
Creek Timber Company, L.P., a Delaware limited partnership (the "Partnership"),
Plum Creek Timber Company, Inc., a Delaware corporation (the "Corporation"), and
Plum Creek Acquisition Partners, L.P., a Delaware limited partnership ("Merger
LP"), with reference to the following RECITALS:
A. The Partnership is a Delaware limited partnership whose general
partner is Plum Creek Management Company, L.P., a Delaware limited
partnership ("PCMC"), which holds a 2% general partnership interest in the
Partnership (the "GP Interest").
B. The Corporation owns a 99% limited partner interest in Merger LP
and Plum Creek Timber Company I, L.L.C. (a wholly-owned subsidiary of the
Corporation), owns a 1% general partner interest in Merger LP.
C. The partners of the Partnership and Merger LP have approved and
adopted resolutions approving and adopting this Agreement of Merger in
accordance with the Delaware Revised Uniform Limited Partnership Act (the
"Delaware RULPA").
D. Concurrently herewith, PCMC and the Corporation have entered into
an agreement and plan of merger whereby PCMC will merge with and into the
Corporation (the "PCMC Merger").
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained and intending to be legally bound, agree as follows:
1. Parties to Merger. The Partnership and Merger LP (such parties to the
merger being hereinafter sometimes collectively referred to as the "Constituent
Entities") shall effect a merger (the "Merger") in accordance with and subject
to the terms and conditions of this Agreement of Merger (the "Agreement").
2. Merger. At the Effective Time (as defined in Section 3 hereof), the
Partnership (which entity shall be, and is hereinafter sometimes referred to as,
the "Disappearing Entity") shall be merged with and into Merger LP (which latter
entity shall be, and is hereinafter sometimes referred to as, the "Surviving
Entity").
3. Filing and Effective Time. A certificate of merger and such other
documents and instruments as are required by, and complying in all respects
with, the Delaware RULPA shall be filed in the Office of the Secretary of State
of Delaware. The Merger shall become effective, following the filing of all such
documents and instruments and as otherwise specified in such certificate of
merger (the "Effective Time").
4. Effect of Merger. At the Effective Time, the separate existence of the
Disappearing Entity shall cease, the Surviving Entity shall continue to be a
limited partnership organized under and governed by the laws of the State of
Delaware and the Merger shall have the effects provided therefor by the Delaware
RULPA.
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<PAGE> 131
5. Partnership Interests. At the Effective Time:
(a) Each Unit of the Partnership issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holders thereof, be converted into one share of
common stock, par value $.01 per share, of the Corporation (the "Common
Stock").
(b) The GP Interest, by virtue of the Merger and without any action on
the part of PCMC and conditioned upon the simultaneous consummation of the
PCMC Merger, shall be cancelled.
6. Exchange of Certificates. Promptly after the Effective Time, the
Corporation will mail to all former limited partners of the Partnership of
record at the Effective Time a letter of transmittal containing instructions
with respect to the surrender of depositary receipts for Units in exchange for
certificates representing shares of Common Stock. Upon surrender to the
Corporation of one or more depositary receipts, together with a properly
completed letter of transmittal, there will be issued and mailed to former
limited partners of record at the Effective Time a certificate or certificates
for shares of Common Stock to which such holder is entitled. From and after the
Effective Time, each depositary receipt will evidence only the right to receive
shares of Common Stock. No distributions or dividends with respect to the Common
Stock payable to the holders of record thereof after the Effective Time will be
paid to the holder of any unsurrendered depositary receipts until such
depositary receipts are surrendered for exchange, at which time accumulated
distributions or dividends will be paid, without interest, subject to any
applicable escheat laws.
7. Further Assurances. The Disappearing Entity shall at any time, or from
time to time, as and when requested by the Surviving Entity, or by its
successors and assigns, execute and deliver, or cause to be executed and
delivered in its name by its last acting officers, or by the corresponding
officers of the Surviving Entity, all such conveyances, assignments, transfers,
deeds, or other instruments, and shall take, or cause to be taken, such further
or other action as the Surviving Entity, or its successors and assigns, may deem
required or convenient in order to evidence the transfer, vesting or devolution
of any property, right, privilege, immunity, power or purpose, or to vest or
perfect in or confirm to the Surviving Entity, or its successors and assigns,
title to and possession of all the properties, rights, privileges, immunities,
powers and purposes of the Disappearing Entity and otherwise to carry out the
intent and purposes hereof.
8. Termination. Notwithstanding approval by the partners of the Constituent
Entities of this Agreement, this Agreement may be terminated at any time prior
to the Effective Time by action of PCMC.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware, without giving effect to
principles of conflicts of law.
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<PAGE> 132
IN WITNESS WHEREOF, the parties hereto, pursuant to the approval and
authority duly given by resolutions approved and adopted by their respective
partners, where applicable, have duly executed this Agreement of Merger as of
the day and year first written above.
PLUM CREEK TIMBER COMPANY, L.P.
By: Plum Creek Management Company,
L.P.
its General Partner
By: /s/ RICK R. HOLLEY
------------------------------------
Name: Rick R. Holley
Title: President and Chief Executive
Officer
PLUM CREEK TIMBER COMPANY, INC.
By: /s/ RICK R. HOLLEY
------------------------------------
Name: Rick R. Holley
Title: President and Chief Executive
Officer
PLUM CREEK ACQUISITION PARTNERS, L.P.
By: Plum Creek Timber Company I,
L.L.C.
its General Partner
By: Plum Creek Timber Company, Inc.
its Managing Member
By: /s/ RICK R. HOLLEY
------------------------------------
Name: Rick R. Holley
Title: President and Chief Executive
Officer
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<PAGE> 133
ANNEX III
[SALOMON SMITH BARNEY LETTERHEAD]
June 5, 1998
The Special Committee of the
Board of Directors of PC Advisory Corp. I
999 Third Avenue
Seattle, Washington 98104
Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of depositary units representing limited partnership
interests of Plum Creek Timber Company, L.P. ("Plum Creek Partnership" and, such
units, the "Partnership Units") of the consideration to be received by Plum
Creek Management Company, L.P. ("PCMC"), the sole general partner (the "General
Partner") of Plum Creek Partnership, in connection with the proposed conversion
of Plum Creek Partnership into a newly formed corporation ("Plum Creek Timber
Company, Inc."), which will elect to be subject to taxation as a real estate
investment trust for purposes of the Internal Revenue Code of 1986, as amended
(the "Code" and, such conversion, the "Conversion"). As more fully described in
the Agreement and Plan of Conversion dated as of June 5, 1998 (the "Agreement")
by and among Plum Creek Timber Company, Inc. ("Plum Creek Company"), Plum Creek
Partnership and PCMC, after giving effect to a series of transactions related to
the Conversion as described therein (the "Related Transactions"), (i) Plum Creek
Partnership will be merged with and into Plum Creek Acquisition Partners, L.P.,
a newly formed limited partnership ("Merger LP"), pursuant to which holders of
Partnership Units will receive shares of common stock of Plum Creek Company (the
"Plum Creek Common Stock") representing in the aggregate a 73% fully diluted
equity interest in Plum Creek Company, and (ii) the General Partner will receive
securities of Plum Creek Company and certain affiliated entities (such
securities, together with Plum Creek Common Stock, the "Plum Creek Securities")
representing in the aggregate a 27% fully diluted equity interest in Plum Creek
Company (the "General Partner Consideration").
In arriving at our opinion, we reviewed the Agreement and certain related
documents, and held discussions with certain senior officers, directors and
other representatives and advisors of Plum Creek Partnership and certain
representatives and advisors of PCMC concerning the business, operations and
prospects of Plum Creek Partnership. We examined certain publicly available
business and financial information relating to Plum Creek Partnership as well as
certain financial forecasts and other information and data for Plum Creek
Partnership which were provided to or otherwise discussed with us by the
management of Plum Creek Partnership, including information relating to certain
strategic implications anticipated to result from the Conversion. We reviewed
the financial terms of the Conversion as set forth in the Agreement in relation
to, among other things: current and historical market prices and trading volumes
of the Partnership Units; the historical and projected earnings, distributions
and other operating data of Plum Creek Partnership; and the capitalization and
financial condition of Plum Creek Partnership. In addition to the foregoing, we
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we deemed appropriate in arriving at
our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of Plum Creek Partnership that such forecasts and
other information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Plum Creek
Partnership as to the future financial performance of Plum Creek Partnership. We
have assumed, with your consent, that the exchange of partnership interests in
Plum Creek Partnership for Plum Creek Securities pursuant to the transactions
contemplated by the Conversion will be a tax-free exchange for federal income
tax purposes and that the Related Transactions will be effected in accordance
with the terms contemplated thereby. We also
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<PAGE> 134
The Special Committee of the
Board of Directors of PC Advisory Corp. I
June 5, 1998
Page 2
have assumed, with your consent, that upon consummation of the Conversion and
the Related Transactions, Plum Creek Company will qualify as a real estate
investment trust in accordance with the provisions of the Code, that the current
activities of Plum Creek Partnership and its affiliates which cannot be
conducted by a real estate investment trust will continue to be conducted in all
material respects by Plum Creek Company through taxable C corporations, and that
no changes to federal, state or other tax laws or regulations applicable to real
estate investment trusts (as to which we express no opinion) will be enacted
that will materially and adversely affect the real estate investment trust
status or operations of Plum Creek Company. We are not expressing any opinion as
to what the value of the Plum Creek Securities actually will be when issued
pursuant to the transactions contemplated by the Conversion or the price at
which the Plum Creek Securities will trade or otherwise be transferable
subsequent to such transactions. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Plum Creek Partnership nor have we made any physical inspection of
the properties or assets of Plum Creek Partnership. In connection with our
engagement, we were not requested to, and did not, participate in the
negotiation or structuring of the Conversion or the Related Transactions, nor
were we requested to, and we did not, solicit third party indications of
interest in the acquisition of all or a part of Plum Creek Partnership. We were
not requested to consider, and our opinion does not address, the relative merits
of the Conversion as compared to any alternative business strategies that might
exist for Plum Creek Partnership or the effect of any other transaction in which
Plum Creek Partnership might engage. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
Smith Barney Inc. and Salomon Brothers Inc (collectively doing business as
Salomon Smith Barney) have acted as financial advisors to the Special Committee
with respect to this opinion and will receive a fee for such services, a
significant portion of which is payable upon the delivery of this opinion. In
the ordinary course of our business, we and our affiliates may actively trade or
hold the securities of Plum Creek Partnership and Plum Creek Company for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities. In addition, we and our
affiliates (including Travelers Group Inc. and its affiliates) may maintain
relationships with Plum Creek Partnership, Plum Creek Company and their
respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Special Committee in its evaluation of the proposed
Conversion, and our opinion is not intended to be and does not constitute a
recommendation to any holder of Partnership Units as to how such holder should
vote on any matters relating to the proposed Conversion. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Salomon Smith Barney be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the General Partner Consideration is fair,
from a financial point of view, to the holders of Partnership Units.
Very truly yours,
/s/ Salomon Smith Barney
- --------------------------------------
SALOMON SMITH BARNEY
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<PAGE> 135
[LETTERHEAD OF SALOMON SMITH BARNEY]
July 17, 1998
The Special Committee of the
Board of Directors of PC Advisory Corp. I
999 Third Avenue
Seattle, Washington 98104
Members of the Special Committee:
Reference is made to our written opinion addressed to you dated June 5, 1998
(the "Opinion"). Except as otherwise defined or noted herein, capitalized terms
used herein without definition are as defined in the Agreement and Plan of
Conversion dated as of June 5, 1998 (the "Conversion Agreement") by and among
Plum Creek Timber Company, Inc. ("Plum Creek Company"), Plum Creek Timber
Company, L.P. ("Plum Creek Partnership") and Plum Creek Management Company, L.P.
("PCMC"). We have been advised by Plum Creek Partnership that since the date of
the Opinion certain modifications have been made to the Conversion Agreement and
to the exhibits thereto pursuant to that certain Amended and Restated Agreement
and Plan of Conversion, dated as of July 17, 1998 (the "Amendment").
Plum Creek Partnership has further advised us that, pursuant to the Amendment, a
combination of Common Stock, Special Voting Stock and OP Units will no longer be
issued to the General Partner in the Conversion and, in lieu thereof, the
General Partner Consideration (as defined in the Opinion) will consist of Common
Stock and Special Voting Stock which (i) will be equal in value to the aggregate
General Partner Consideration which would have been issued under the original
Conversion Agreement (i.e., the aggregate General Partner Consideration will
continue to constitute 27% of the fully diluted equity interest in Plum Creek
Company) and (ii) will have substantially the same control rights and economic
attributes as would have been part of the securities which would have been
issued under the original Conversion Agreement.
Based upon this advice and without undertaking any responsibility to update the
Opinion or to review or take into account any changes since the date of the
Opinion in events, circumstances or projections or other matters we may have
considered in connection with issuing the Opinion, we do not believe that the
terms of the Amendment would have resulted in any substantive change to the
opinion expressed in the Opinion if such terms had been incorporated into the
Conversion Agreement we reviewed in connection with issuing the Opinion.
This letter is intended as a clarification of the Opinion in light of the
specific matters relating to the Amendment of which Plum Creek Partnership has
advised us and does not constitute a "bring-down" of the Opinion. This letter is
subject to the same qualifications, limitations and assumptions as are set forth
in the Opinion.
Very truly yours,
/s/ Salomon Smith Barney
- --------------------------------------
SALOMON SMITH BARNEY
III-3
<PAGE> 136
ANNEX IV
[MERRILL LYNCH LETTERHEAD]
June 5, 1998
The Board of Directors
PC Advisory Corp. I
Plum Creek Timber Company, L.P.
999 Third Avenue, Suite 2300
Seattle, Washington 98104-4096
Members of the Board of Directors:
In connection with the proposed conversion (the "Conversion") of the
ownership interests in Plum Creek Timber Company, L.P. (the "Partnership") to
ownership interests in the Corporation and the Operating Partnership (as such
terms and all other capitalized terms used herein and not otherwise defined are
defined in the Conversion Agreement referenced below), you have requested our
opinion as to the fairness to the Unitholders, from a financial point of view,
of the consideration be received in the Conversion by Plum Creek Management
Company, L.P. (the "General Partner"), the general partner of the Partnership
(the "Consideration"). The Conversion is more fully described in that certain
Agreement and Plan of Conversion (the "Conversion Agreement"), dated as of the
date hereof, by and among the Corporation, the Partnership and the General
Partner. Pursuant to the Conversion Agreement, the Consideration to be received
by the General Partner in the Conversion consists of Common Stock of the
Corporation and/or OP Units and Special Voting Stock, which, when aggregated,
will represent 27% of the outstanding Common Stock of the Corporation (on a
fully diluted basis, assuming conversion of the OP Units and the Special Voting
Stock into Common Stock).
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Conversion Agreement, the Corporation's Certificate of
Incorporation and Bylaws, and the form of the Merger Agreement which
is annexed to the Conversion Agreement, which have been provided by
the Partnership;
(2) Reviewed the Partnership's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31,
1997 and the Partnership's Form 10-Q and the related unaudited
financial information for the quarterly period ending March 31, 1998;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of the Partnership, as such information has been furnished
by the Partnership;
(4) Reviewed the Partnership Agreement;
(5) Conducted discussions with members of senior management of the
Partnership concerning its business and prospects before and after
giving effect to the Conversion;
(6) Reviewed the market prices and valuation multiples of the
Partnership's Units and compared them with those of certain publicly
traded entities which we deemed to be relevant;
(7) Reviewed the results of operations of the Partnership and compared
them with those of certain publicly traded companies that we deemed to
be relevant;
(8) Reviewed, to the extent publicly available, the financial terms of
certain other transactions which we deemed to be relevant;
(9) Analyzed the estimated liquidation value of the Partnership and the
allocation of the liquidation proceeds between the General Partner and
the Unitholders, as such information has been furnished by the
Partnership;
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<PAGE> 137
(10) Analyzed the allocation of past distributions between the General
Partner and the Unitholders, as such information has been furnished by
the Partnership;
(11) Conducted discounted cash flow analyses of the cash distributions to
the Unitholders and to the General Partner based on projections
furnished by the Partnership;
(12) Participated in certain discussions and negotiations among
representatives of the General Partner and its financial and legal
advisors; and
(13) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic market
and monetary conditions, pricing trends and other issues related to
the forest products industry.
In connection with our engagement and the preparation of our opinion, we
were not asked to consider or provide an opinion, and we are not expressing any
opinion, with respect to (i) the fairness of the Conversion, other than that the
Consideration to be received in the Conversion by the General Partner is fair
from a financial point of view to the Unitholders, (ii) the fairness of the
Consideration to the Unitholders from any point of view other than from a
financial point of view, (iii) the fairness of any other alternative transaction
or structure available to the Partnership, the General Partner or the
Unitholders with respect to the acquisition or withdrawal of the General Partner
or any other transaction involving the Partnership, the General Partner or the
Unitholders, (iv) the value of the Common Stock, the OP Units or the Special
Voting Stock subsequent to the Conversion, or (v) the effect of federal, state
or other tax laws, rules or regulations on the Partnership, the General Partner
or any other party, whether arising from the Conversion or any related
transactions, or otherwise.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Partnership or the General Partner or been furnished with any
such evaluation or appraisal. In addition, we have not assumed any obligation to
conduct, nor have we conducted, any physical inspection of the properties or
facilities of the Partnership. With respect to the financial forecast
information furnished to or discussed with us by the Partnership, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Partnership's management, and we have
not assumed any responsibility for assessing the achievability of such
projections.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have also assumed that the conditions to the
Conversion as set forth in the Conversion Agreement will be satisfied, and that
the Conversion will be consummated in the manner contemplated in the Conversion
Agreement (including execution of the Merger Agreement in the form that we have
reviewed). We have also assumed that the Corporation will qualify as a real
estate investment trust for purposes of the Code, and that no changes to the
federal, state or other tax laws, rules and regulations that apply to real
estate investment trusts will be enacted that will adversely affect the
Corporation. We have also assumed that the Corporation will continue to conduct
in all material respects activities historically performed by the Partnership or
its affiliates that cannot be conducted by a real estate investment trust
through taxable C Corporations, and that the Common Stock to be received in the
Conversion by the Unitholders and the Consideration to be received in the
Conversion by the General Partner will not be subject to United States federal
income tax.
We are acting as financial advisor to the Partnership in connection with
the Conversion and will receive a fee from the Partnership for our services,
most of which is contingent upon the consummation of the Conversion. In
addition, the Partnership has agreed to indemnify us for certain liabilities
arising out of our engagement. We have, in the past, provided financial advisory
and financing services to the Partnership and/or its affiliates and may continue
to do so and have received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of our business, we may actively
trade the Partnership's Units, and
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<PAGE> 138
we may in the future actively trade the Common Stock, in each case for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of PC
Advisory Corp. I. Our opinion does not address the merits of the underlying
decision by the Partnership or the Unitholders to engage in or approve the
Conversion and does not constitute a recommendation to any Unitholder of the
Partnership as to how such Unitholder should vote on the proposed Conversion.
We are not expressing any opinion herein as to (i) the prices at which the
Partnership's Units will trade or otherwise be transferable following the
announcement of the Conversion, or (ii) the prices at which the Common Stock,
the Special Voting Stock or the OP Units will trade or otherwise be transferable
following the consummation of the Conversion.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received in the Conversion by the
General Partner is fair from a financial point of view to the Unitholders.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner &
Smith Incorporated
----------------------------------------
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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<PAGE> 139
[LETTERHEAD OF MERRILL LYNCH]
Investment Banking Group
101 California Street,
Suite 1200
San Francisco, California
94111
(415) 676-3200
July 17, 1998
The Board of Directors
PC Advisory Corp. I
Plum Creek Timber Company, L.P.
999 Third Avenue, Suite 2300
Seattle, Washington 98104-4096
Members of the Board of Directors:
Reference is made to our written opinion addressed to you dated June 5,
1998 (the "Opinion"). Capitalized terms used herein and not defined have the
meanings assigned to them in or pursuant to the Opinion.
We have been advised by the Partnership that, since the time we issued the
Opinion, certain modifications have been made to the Conversion Agreement and to
the exhibits thereto pursuant to that certain Amended and Restated Agreement and
Plan of Conversion, dated as of July 17, 1998 (the "Amendment"). You have
advised us that pursuant to the Amendment a combination of Common Stock, Special
Voting Stock and OP Units will no longer be issued to the General Partner in the
Conversion, and that in lieu thereof the Consideration to be received by the
General Partner in the Conversion will consist of Common Stock and Special
Voting Stock which (i) will be equal in value to the aggregate Consideration
which would have been received by the General Partner under the original
Conversion Agreement (with the aggregate Consideration to be received by the
General Partner in the Conversion remaining 27% of the outstanding Common Stock
of the Corporation on a fully diluted basis, assuming conversion of the Special
Voting Stock into Common Stock), and (ii) will have substantially the same
control rights and economic attributes as would have been part of the securities
which would have been issued under the original Conversion Agreement.
Based upon this advice and without undertaking any responsibility to update
the Opinion or to review or take into account any changes since the date of the
Opinion in events, circumstances, projections or other matters we may have
considered in connection with issuing the Opinion, we do not believe that the
terms of the Amendment would have resulted in any substantive change to the
opinion expressed in the Opinion if such terms had been incorporated into the
Conversion Agreement we reviewed in connection with issuing the Opinion.
This letter is intended as a clarification of the Opinion in light of the
specific matters relating to the Amendment of which you have advised us and does
not constitute a "bring-down" of the Opinion. This letter is subject to all of
the same qualifications, limitations and assumptions as are set forth in the
Opinion.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner &
Smith Incorporated
----------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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<PAGE> 140
ANNEX V
C.A. NO. 16639
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JERROLD M. SONET,
Plaintiff,
v.
TIMBER COMPANY, L.P.,
PLUM CREEK MANAGEMENT COMPANY, L.P.,
AND P.C. ADVISORY CORPORATION I,
Defendants.
MEMORANDUM OPINION
Date Submitted: November 17, 1998
Date Decided: December 16, 1998
Joseph A. Rosenthal, Esquire, and Kevin Gross, Esquire, of ROSENTHAL,
MONHAIT, GROSS & GODDESS, P.A., Wilmington, Delaware; OF COUNSEL: Sidney B.
Silverman, Esquire, of SILVERMAN, HARNES, HARNES, PRUSSIN & KELLER, New York,
New York, Attorneys for Plaintiff.
Edward P. Welch, Esquire, Andrew J. Turezyn, Esquire, and Stephen D.
Dargitz, Esquire, of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington,
Delaware, Attorneys for Defendant Timber Co., L.P.
Jesse A. Finkelstein, Esquire, and Srinivas M. Raju, Esquire, of RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Robert A. Sacks,
Esquire, of SULLIVAN & CROMWELL, Los Angeles, California, Attorneys for
Defendants Plum Creek Management Company, L.P., and P.C. Advisory Corporation I.
CHANDLER, Chancellor
This dispute arises out of a transaction in which a limited partnership
organized under Delaware law seeks to convert itself into a real estate
investment trust ("REIT"). The issue presented is this: Where a limited
partnership agreement unambiguously provides that the general partner has sole
discretion over setting and approving the terms of a transaction, and where
unitholders of the limited partnership have the power to veto the transaction as
a function of a supermajority vote requirement, are there any other fiduciary
duty principles that must apply to the proposed transaction as a matter of law?
Stated differently, what controls the governance process in the context of
limited partnerships -- the partnership agreement or common law fiduciary duty
doctrines? For the reason stated below, I dismiss Plaintiff's amended complaint,
concluding as a matter of law that the unambiguous terms of the partnership
agreement have the effect of limiting the Court's review of the transaction
presently in dispute.(1)
I. BACKGROUND
Jerrold M. Sonet ("Plaintiff") is a holder of depository units ("Units")
representing limited partnership interests in Plum Creek Timber Company, L.P., a
Delaware limited partnership (the "Partnership"). The Partnership is registered
with the Securities and Exchange Commission and the Units are publicly traded on
the New York Stock Exchange. The Partnership and its corporate subsidiaries own,
manage and operate
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(1)As a preliminary manner, I pause to thank the attorneys who argued this
case before me for their clear presentation of the issues. Mr. Silverman of
Silverman, Harnes, Harnes, Prussin & Keller, Mr. Finkelstein, of Richards,
Layton & Finger, and Mr. Welch, of Skadden, Arps, Slate, Mengher & Flom LLP also
provided the court with concise and instructive post-argument memoranda that I
relied on heavily in my analysis of the limited partnership agreement.
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<PAGE> 141
approximately 2.4 million acres of timberland and twelve wood products
conversion facilities in the Northwest and Southeast United States.
Defendant Plum Creek Management Company, L.P., a Delaware limited
partnership, is the general partner of the Partnership ("Management" or the
"General Partner"). Defendant PC Advisory Corp. I, a Delaware corporation ("PC
Advisory") (with the Partnership and Management, hereinafter referred to as
"Defendants"), is the ultimate general partner of Management and, thus, might be
considered the indirect general partner of the Partnership.
Management has a 2% general partner interest in the income and cash
distributions of the Partnership, subject to certain adjustments. Specifically,
pursuant to the limited partnership agreement (the "Partnership Agreement" or
the "Agreement"), Management is required to make quarterly cash distributions of
all "Available Cash," 98% of which goes to unitholders and 2% of which goes to
Management. When the distribution of cash exceeds certain quarterly target
levels, Management is entitled to receive an additional "incentive distribution"
equal to a percentage of such excess, on a sliding scale which increases up to a
maximum of 35% of distributions above the highest target level.
In June of 1998 the Partnership announced a plan to convert itself into a
REIT by way of a merger with an entity specifically created for the purpose of
conversion. Under the terms of that conversion Units would be converted into
shares in the new REIT on a one-to-one basis. In addition, under the terms of
the proposed conversion, in lieu of its 2% interest and its incentive
distribution rights, Management would receive REIT shares equal to 27% of the
total shares outstanding. The essence of Plaintiff's case is that the proposed
allocation to Management of the new REIT is unfair and is the result of, among
other things: (1) a self-dealing transaction between the General Partner and the
Partnership; (2) improper manipulations of past distributions; (3) an attempt by
PC Advisory to limit its exposure to upcoming losses; (4) unlawful entrenchment
of PC Advisory and its principals, who will effectively control the new entity;
and (5) manipulative timing of the transaction, which will shield unitholders
from knowing of imminent losses caused by fundamental economic downturns. In
addition to the foregoing, Plaintiff claims that the Defendants understood that
they had a duty to treat the unitholders fairly, and by taking voluntary
precautions to meet that duty, Defendants were bound by operation of law to
assume the fulfillment of traditional fiduciary duties.
II. ARGUMENTS
In essence, Plaintiff's claims can be characterized broadly as duty of
loyalty claims.(2) Plaintiff takes the position that, under the Agreement,
nothing modifies the default fiduciary duties that underlie the Delaware Revised
Uniform Limited Partnership Act.(3) Thus, Plaintiff claims, it is entirely
proper for this Court to review Management's and PC Advisory's self-interested
actions vis-a-vis the unitholders and the potential harms that the unitholders
might suffer under the proposed conversion, in light of established fiduciary
principles.
Defendants claim that, under Delaware limited partnership law, this Court
should not reach that far. Stated simply, Defendants argue that Delaware limited
partnership law recognizes that by virtue of a clearly written partnership
agreement limited partnerships are explicitly authorized by statute to modify
the default
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(2)In his brief, Plaintiff argues that the Court should view this transaction
as a "controlled" transaction or, in other words, a situation where a control
group dictates the terms of the transaction to the detriment of other equity
holders. Thus, Plaintiff's claim amounts to an allegation of self-dealing.
Plaintiff goes on to argue that because the General Partner is allowed to
dictate the terms of the transactions (a fact conceded by the Defendants) this
Court should assert its equity powers to protect the unitholders just as it
would protect minority shareholders in an improper self-dealing transaction. It
is true that in certain situations, for instance a parent-subsidiary merger
where minority shareholders are frozen out, Delaware courts have held that the
parent company owes fiduciary duties to minority shareholders. See Sinclair Oil
Corp. v. Levien, Del. Supr., 280 A.2d 717, 720 (1971). As I explain later,
however, I refuse in these circumstances to import protections developed in the
corporate context into our limited partnership jurisprudence.
(3)6 Del.C. sec. 17-101, et seq.
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<PAGE> 142
rules which might otherwise govern the relationship between general partners and
limited partners, and between limited partners themselves. Thus, in this case
Defendants argue that I should look to the Partnership Agreement to resolve this
dispute. Since the Partnership Agreement defines the role of the general partner
and the limited partners in the governance of the partnership, according to the
Defendants, no need exists to go outside of that document to assess the
propriety of the Defendants' actions in this case.
III. ANALYSIS
Delaware's limited partnership jurisprudence begins with the basic premise
that, unless limited by the partnership agreement, the general partner has the
fiduciary duty to manage the partnership in its interest and in the interests of
the limited partners.(4) That qualified statement necessarily marries common law
fiduciary duties to contract theory when it comes to considering actions
undertaken in the limited partnership context. Thus, I think it a correct
statement of law that principles of contract preempt fiduciary principles where
the parties to a limited partnership have made their intentions to do so plain.
For instance, in Kahn v. Icahn,(5) this Court held that where a limited
partnership agreement explicitly provided that the general partner and its
affiliates were authorized to compete with the partnership, the limited partners
could not then properly maintain a usurpation of partnership opportunity claim
when the general partner and its affiliate began to actually compete with the
partnership as anticipated by the agreement. That holding was premised on the
legal determination that "as a matter of statutory law, the traditional
fiduciary duties among and between partners are defaults that may be modified by
partnership agreements. This flexibility is precisely the reason why many choose
the limited partnership form in Delaware."(6) Delaware cases routinely uphold
this view of limited partnership law.(7) Those commentators who have addressed
the subject at the deepest levels agree that the partnership form is
particularly useful due to its contract theory-based structure.(8)
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(4)See Boxer v. Husky Oil Co., Del. Ch., 429 A.2d 995, 997 (1981).
(5)Del. Ch., C.A. No. 15916, at 5-7, Chandler, C. (Nov. 12, 1998).
(6)Id. at 6. Section 17-1101(d) of the Delaware Revised Limited Partnership
Act sets out the relevant policy consideration:
To the extent that, at law or in equity, a partner or other person has
duties (including fiduciary duties) and liabilities relating thereto to
a limited partnership or to another partner . . . (2) the partner's or
other person's duties and liabilities may be expanded or restricted by
the provisions in a partnership agreement.
(7)See, e.g., In re Cencom Cable Income Partners, L.P. Litig., Del. Ch.,
C.A. No. 14634, at 10, Steele, V.C. (Feb. 15, 1996) (limited partnership
agreements may authorize actions and modify fiduciary duties creating "safe
harbors"). See also Wilmington Leasing, Inc. v. Parrish Leasing Company, L.P.,
Del. Ch., C.A. No. 15202, at 30, Jacobs, V.C. (Dec. 23, 1996) ("Where, as here,
a [p]artnership [a]greement specifically addresses the rights and duties of the
partners, any fiduciary duty that might be owed by the . . . [p]artners is
satisfied by compliance with the applicable provisions of the partnership
agreement."); In re Marriott Hotel Properties II L.P. Unitholders Litig., Del.
Ch., C.A. No. 1496, at 11, 14-15, Allen, C. (June 12, 1996); US West, Inc. v
Time Warner, Inc., Del. Ch., C.A. No. 1455, Allen C. (June 6, 1996); Litman v.
Prudential- Bache Properties, Inc., Del. Ch., C.A. No. 12137, at 10, Chandler,
V.C. (Jan. 4, 1993) (where partnership agreement expressly acknowledged
potential conflicts of interest the court barred derivative claims), remanded on
other grounds. Del. Supr., C.A. No. 61, Moore, J. (Nov. 18, 1993), aff'd, Del.
Supr., 642 A.2d 837 (1994).
(8) See generally Frank H. Easterbrook & Daniel R. Fischel, The Economic
Structure of Corporate Law 1-39 (1991); Henry N. Butler & Larry E. Ribstein,
Opting Out of Fiduciary Duties; A Response to the Anti- Contractarians, 65 Wash.
L. Rev. 1 (1990); Frank H. Easterbrook & Daniel R. Fischel, Contract and
Fiduciary Duty, 36 J.L. & Econ. 425 (1993); Richard A. Epstein. Contract and
Trust in Corporate Law: The
V-3
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Case of Corporate Opportunity, 21 Del. J. Corp. L. 1 (1996). For a contrary
view, see Deborah A. DeMott, Beyond Metaphor: An Analysis of Fiduciary
Obligation, 1988 Duke L.J. 879; Melvin Aron Eisenberg, The Limits of Cognition
and the Limits of Contract, 47 Stan. L. Rev. 211 (1995); Lawrence E. Mitchell,
The Death of Fiduciary Duty in Close Corporations, 138 U. Pa. L. Rev. 1675
(1990).
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<PAGE> 143
A. LIMITED PARTNERSHIPS GENERALLY
Limited partnerships have become the limited liability entity of choice for
certain closely-held business ventures and are especially prevalent in
enterprises where a general partner (or a corporate subsidiary) is actively
engaged in investing the limited partners' passive investments. While originally
used as a way of achieving preferential tax treatment, because of recent
modifications to federal tax law, it is unclear that the limited partnership
form provides significant tax benefits compared to other limited liability and
so-called pass-through entities.(9) Clearly some other relevant characteristic
of the limited partnership must contribute to its increasing popularity. One
might reasonably conclude that the statutory authority granted to limited
partnerships to contract around -- or to enhance -- fiduciary duties goes a long
way in explaining this popularity.
Although particularly well suited for closely-held businesses, limited
partnerships have grown in popularity over the last forty years as
publicly-traded entities (known as master limited partnerships) and are often
designed to roll-up, or consolidate, a number of smaller limited
partnerships.(10) If embodied in a security (e.g., the Units in this case) which
represents a transferable interest in the entity, limited partnership interests
can become more liquid as a result of exchange listing, security registration,
and more widely-known public information about a limited partnership. Such
investment vehicles can greatly facilitate the accretion of capital for further
expansion of a partnership's objectives.
One might reasonably doubt whether the limited partnership structure is the
most efficient means of attracting capital for business ventures (especially in
the context of widely-held equity participation). One reason for this doubt is
that there is uncertainty about the legal protections afforded to limited
partners in any particular limited partnership. Considering sec. 17-1101(d) of
the Delaware Revised Uniform Limited Partnership Act's apparently broad license
to enhance, reform, or even eliminate fiduciary duty protections, it is unclear
how the market goes about pricing the value of protections afforded to limited
partners in any particular flavor of limited partnership.(11)
The desirability, from an efficient-pricing perspective, of the potentially
infinite variations on modified fiduciary duties in the context of widely-held
limited partnerships is not a matter for adjudication in cases involving the
limited partnership form. It is evident, however, that the Delaware Legislature
has seen fit to enact the Delaware Revised Uniform Limited Partnership Act and
promoters and organizers have increasingly adopted that organizational form for
their ventures. Once authorized by law, the decision to adopt and operate under
a particular limited liability structure is the sort of fundamental business
decision that courts routinely protect. As a general matter, courts should be,
and are, reluctant to import jurisprudence from one area of the
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(9) See generally George K. Yin, The Taxation of Private Business
Enterprises: Some Policy Questions Stimulated by the "Check-the-Box"
Regulations, 51 SMU L. Rev. 125 (1997) (Professor Yin of the University of
Virginia and Professor David Shakow of the University of Pennsylvania are
credited for their expert stewardship as co-reporters to the American Law
Institute's Federal Income Tax Project on the Taxation of Pass-Through
Entities). Although not relevant to my decision in this matter, it is
interesting to note that 3984, 4038 and 5800 Delaware limited partnerships were
formed in each of the last three years, respectively. And, according to Laura Y.
Marvel, Corporations Administrator for the Division of Corporations, the
Division estimates that almost 6000 domestic limited partnerships were formed
for fiscal year 1998. Obviously, the market for this alternative entity remains
vibrant.
(10)See Donna D. Adler, Master Limited Partnerships, 40 U. Fla. L. Rev.
755, 756-57 (1988).
(11)Such market pricing difficulties are less relevant in the context of
Delaware corporations that, as an empirical matter, often have very similar
corporate charters and where the legal protections routinely afforded to
corporations' shareholders flow from an established and predictable
jurisprudence.
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<PAGE> 144
law -- which is loaded with notions of efficiency and fairness that are well
developed for that particular context -- into a separate area of the
law -- where many procedural and substantive aspects present in other legal
regimes are only optional defaults. Mindful of that caution, I decline to rely
unnecessarily on this Court's traditional analyses involving fiduciary duties in
the corporate context. When a particular limited partnership has plainly opted
out of the statutory default scheme, judicial review, in my opinion, must look
to the limited partnership's distinct doctrinal foundation in contract theory.
There is no reason, at last in the case before me, to depart from that source to
further some highly generalized interest of equity.
In short, I think that under Delaware limited partnership law a claim of
breach of fiduciary duty must first be analyzed in terms of the operative
governing instrument -- the partnership agreement -- and only where that
document is silent or ambiguous, or where principles of equity are implicated,
will a Court begin to look for guidance from the statutory default rules,
traditional notions of fiduciary duties, or other extrinsic evidence. In this
case, my task is easy as I find that the partnership agreement in issue is clear
on the threshold question of how the transaction in dispute should be governed.
B. THE PARTNERSHIP AGREEMENT
The Agreement provides the General Partner with the discretion and power to
manage virtually all of the affairs of the Partnership. To counterbalance the
significant powers of the General Partner, the Agreement establishes an
integrated framework of checks on that power. With respect to many of the
day-to-day affairs of the Partnership, which are not subject to unitholder
ratification, the General Partner's discretion is counterbalanced by the
requirement that all of the General Partner's actions be fair and reasonable to
the Partnership.(12) With respect to certain extraordinary acts or transactions,
such as mergers, the General Partner is given much broader latitude, namely
"sole discretion." In the case of a merger in particular, however, the General
Partner's sole discretion is checked by the Agreement's requirement that a
supermajority of unitholders (66 2/3%) must approve the transaction.
Plaintiff argues that under sec. 6.1 of the Agreement(13) any merger
proposed by the General Partner (e.g., the merger used to effectuate the
conversion to a REIT) must be fair and reasonable to the Partnership. I
understand Plaintiff to contend that since there is no language in sec. 6.1 that
limits or expands the General Partner's discretion in the event of a merger, the
fiduciary default rule that the terms of any transaction must be fair,
reasonable, and aimed at furthering the interests of the partnership (and the
limited partners) must apply. The problem with Plaintiff's argument is that it
ignores the remainder of the Agreement. It also fails to recognize the rather
practical problem of the impossibility of writing contract provisions that
incorporate every bell and whistle all at once. As the following analysis shows,
this Agreement is sufficient in communicating the
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(12)In some sense the provisions that provide for this aspect of the
relationship are an explicit acceptance of the default duty of loyalty and fair
dealing rules.
(13)Section 6.1 provides in relevant part:
In addition to the powers now or hereafter granted a general partner of
a limited partnership under applicable law or which are granted to the
General Partners under any other provision of this Agreement, the
General Partner . . . shall have full power and authority to do all
things deemed necessary and desirable by it to conduct the business of
the Partnership . . . including, without limitation, . . . (iii) the
acquisition, disposition, mortgage, pledge, encumbrance, hypothecation
or exchange of any assets of the Partnership or the merger or other
combination of the Partnership with or into another entity (all of the
foregoing subject to any prior approval which may be required by
[66 2/3% of the outstanding Units, as provided by other sections in the
agreement]).
Obviously, sec. 6.1 is simply a broad enabling provision that confers upon the
General Partner the power and authority to manage the affairs of the
Partnership.
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<PAGE> 145
intended governance structure. To understand that structure one needs to read
the Agreement as a whole, and not just concentrate on one provision that
mentions one of the "magic words."(14)
The Agreement contemplates two fundamentally different types of managerial
actions that may be taken: those that do not require unitholder approval and
those that do. The requirement that the General Partner's action be "fair and
reasonable" has no application where unitholder approval is required, such as
with the proposed merger. Under the terms of sec. 6.9(a) of the Agreement, where
unitholder is not required, e.g., day-to-day management decisions of the
Partnership, a requirement that the transaction be "fair and reasonable" is used
as a surrogate check, in lieu of unitholder approval, on the General Partner's
power.(15) In these situations,
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(14)Because I find that the Partnership Agreement is clear and unambiguous on
its face, I do not reach Plaintiff's argument that other extrinsic evidence
(e.g., the Partnership's 1989 Offering Prospectus or the Unanimous Consent
Resolution of March 4, 1998) might justify the imposition of common law
fiduciary duties. See SBC Interactive, Inc. v. Corporate Media Partners, Del.
Supr., 714 A.2d 758, 761 (Aug. 10, 1998) ("We also agree with the Court of
Chancery's ruling that the [partnership] Agreement is unambiguous, and its
refusal to consider evidence extrinsic to the partnership agreement is
correct.").
(15)Section 6.9 of the Agreement illuminates this dynamic, specifically
providing:
6.9 (with emphasis added): Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement, whenever a
potential conflict of interest exists or arises between the General
Partner or any of its Affiliates, on the one hand, and the Partnership
or any Partner, on the other hand, any resolution or course of action in
respect of such conflict of interests shall be permitted and deemed
approved by all Partners, and shall not constitute a breach of this
Agreement, of any agreement contemplated herein, or any duty stated or
implied by law or equity, if the resolution or course of action is, or,
by operation of this Agreement, is deemed to be fair and reasonable to
the Partnership. Any such resolution or course of action in respect of
any conflict of interest shall not constitute a breach of this
Agreement, or of any other agreement contemplated herein, or of any duly
stated or implied by law or equity, if such resolution or course of
action is fair and reasonable to the Partnership. The General Partner
shall be authorized in connection with its resolution of any conflict of
interest to consider (i) the relative interest of any party to such
conflict, agreement, transaction, or situation and the benefits and
burdens relating to such interests; (ii) any customary or accepted
industry practices; (iii) any applicable generally accepted accounting
practices or principles; and (iv) such additional factors as the General
Partner determines in its sole discretion to be relevant, reasonable or
appropriate under the circumstances. Nothing contained in this
Agreement, however, is intended to nor shall it be construed to require
the General Partner to consider the interests of any Person other than
the Partnership. In the absence of bad faith by the General Partner, the
resolution, action or terms so made, taken or provided by the General
Partner with respect to such matter shall not constitute a breach of
this Agreement or any other agreement contemplated herein or a breach of
any standard of care or duly imposed herein or therein under the
Delaware Act or any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted
or required to make a decision (i) in its "discretion" or under a grant
of similar authority or latitude, the General Partner or such Affiliate
shall be entitled to consider only such interests and factors as its
desires and shall have no duty or obligation to give any consideration
to any interest of, or factors affecting, the Partnership or any Limited
Partner, or (ii) in "good faith" or under another express standard, the
General Partner or such Affiliate shall act under such express standard
and shall not be subject to any other or different standards imposed by
this Agreement or any other agreement contemplated hereby.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of
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such transaction, arrangement or resolution shall be considered in the
context of all similar or related transactions.
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<PAGE> 146
when a transaction is objectively "fair and reasonable," it is "deemed
approved" by the unitholders. In any event, pursuant to sec. 6(b) of the
agreement, in situations where the General Partner is authorized to act
according to its own discretion, there is no requirement that the General
Partner consider the interests of the limited partners in resolution of a
conflict of interest.
Section 6.9(a), when it refers to a "fair and reasonable resolution,"
refers to situations where the General Partner makes unilateral decisions and
where the unitholders will not explicitly approve the terms of the decision.
Section 6.9 does not apply to the present case because it applies when the
General Partner engages in unilateral action. In the case of the merger (and
concomitant conversion) contemplated in this case, the General Partner's actions
are not unilateral because of the required unitholder vote. It makes no sense,
therefore, for the decision to merge to be "deemed" approved because, pursuant
to Article XVI of the agreement, it must actually be approved by 66 2/3% of the
outstanding units.(16) Thus, sec. 6.9(a) is inapplicable to the present case. In
addition, sec. 6.9(a) applies only "[u]nless otherwise expressly provided in
[the] [A]greement." As further analysis shows, sec.sec. 16.2 and 16.3 are
clearly the operative sections that govern the disputed merger.
The procedures pursuant to which a merger may be effectuated are set forth
under Article XVI of the Agreement, which is titled "Merger." Sections 16.2 and
16.3 provide the blueprint for proceeding with a merger transaction.(17) First,
the General Partner is permitted to enter into a merger in its sole discretion
(i.e., on the terms that the General Partner sees fit without required reference
to the limited partners' interests). Second, the merger agreement is presented
for a vote. Third, the merger agreement is approved upon receiving the
endorsement of at least 66 2/3% of the outstanding Units. This careful framework
established by the
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(16)Unitholders have the unfettered discretion to veto such a transaction by
declining to grant it supermajority approval, even if the proposed merger were
more than fair and reasonable by any objective measure. In other words, the
unitholders have the right to reject a proposed merger for any reason
whatsoever, whether rational or irrational, or conversely, to approve it on a
basis other than an objective fairness test. In addition, at oral argument
counsel for the Defendants represented to the Court that the General Partner and
PC Advisory control no more than 4% of the limited partnership Units. Thus,
there is no threat that the General Partner could "control" the outcome of a
vote.
(17)Sections 16.2 and 16.3 provide, in relevant part (with emphasis added):
16.2 Procedure for Merger or Consolidation. Merger or consolidation of
the Partnership pursuant to this Article requires prior approval of the
General Partner. If the General Partner shall determine, in the exercise
of its sole discretion, to consent to the merger or consolidation, the
General Partner shall approve the Merger Agreement, which shall set
forth:
(a) The names and jurisdictions of formation or organization of each of
the business entities proposing to merge or consolidate;
(b) The name and jurisdictions of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(hereafter designated the "Surviving Business Entity");
(c) The terms and conditions of the proposed merger or
consolidation. . . .
16.3 Approval by Limited Partners of Mergers or Consolidation. (a) The
General Partner of the Partnership, upon its approval of the Merger
Agreement, shall direct that the Merger Agreement be submitted to a vote
of the Limited Partners whether by a meeting or by written
consent. . . .
(b) The Merger Agreement shall be approved upon receiving the
affirmative vote or consent of the holders of at least 66 2/3% of the
outstanding Units of each class unless the Merger Agreement contains any
provision, which if contained in an amendment to the Agreement, the
provisions of this Agreement or the Delaware Act would require the vote
or consent of a greater percentage of the Percentage Interests of the
Limited Partners or of any class of Limited Partners, in which case such
greater percentage vote or consent shall be required for the approval of
the Merger Agreement.
V-9
<PAGE> 147
Agreement confirms that to the extent that unitholders are unhappy with the
proposed terms of the merger (and in this case the resultant conversion) their
remedy is the ballot box, not the courthouse.
C. ASSUMPTION OF FIDUCIARY DUTIES
Plaintiff puts forth the alternative argument that, even if the General
Partner did not originally owe common law fiduciary duties as a matter of law or
by virtue of the Agreement, when the General Partner appointed a special
committee to oversee the transaction, it undertook to conduct the process in
fair, diligent and independent manner. Plaintiff contends that the Defendants
structured the transaction to create an atmosphere of fair dealing that,
allegedly, would help them obtain the support of the unitholders. Thus,
Plaintiff concludes that Defendants voluntarily assumed fiduciary duties that
they may not have otherwise owed.
In support of this reasoning, Plaintiff relies heavily on Cencom Cable
Income Partners, L.P., Litigation.(18) In Cencom, Vice Chancellor Steele refused
to dismiss claims that the general partner had breached a "voluntarily assumed"
fiduciary duty that was not originally imposed by the partnership agreement. The
Vice Chancellor found that the general partner voluntarily undertook the
responsibility of retaining a law firm to act as "independent" counsel for the
limited partners to assure the integrity of the transaction and to attest to the
fact that terms of the partnership agreement were followed. Vice Chancellor
Steele determined that there were issues of fact to be resolved as to whether
the "independent" counsel actually performed "as advertised." Central to the
holding in Cencom is the fact that the general partner circulated a disclosure
statement that described what the independent counsel was supposed to do.
Because of this affirmative disclosure, Vice Chancellor Steele held that "the
General Partner voluntarily assumed a duty to ensure that [the independent
counsel] would fulfill [its] obligations and that the Limited Partners could
rely on the General Partner's representations that the [independent counsel]
would do so.(19)
Cencom can be distinguished easily from the present case. Here, the proxy
statement has not yet been distributed. In fact, the Defendants in this case
have not yet sought unitholder action. There is no element of reliance on
misleading voluntary disclosure intended to induce the unitholders' acquiescence
to the proposed conversion. Nor has Plaintiff complained about the adequacy of
disclosures about the transaction.
Plaintiff asks me to conclude, as a matter of law, that merely because the
General Partner appointed a special committee to oversee the transaction, the
General Partner thereby imported common law fiduciary duties into its
relationship with the unitholders. I cannot agree with this view. Even if the
General Partner's aim was to conduct a process in a manner designed to help
obtain the support of the unitholders, without misleading affirmative
disclosures professing the fairness and independence of the special committee,
it would unreasonably distort the Agreement to hold this General Partner to
common law fiduciary standards. Plaintiff's asserted theory of voluntary
assumption of common law fiduciary duties is actually a potential disclosure
claim. As such, it is not ripe and must be dismissed.
- ---------------
18 Del.Ch.,C.A. No. 14634, Steele, V.C., (Oct. 15, 1997).
19 Id. at 16. The Opinion goes on to say: "This conclusion turns not on
what the General Partner may or may not have understood its fiduciary
obligations to entail (a meaningless, subjective inquiry), but on the fact that
it actively undertook this role ostensibly (1) to actually confer a benefit on
the Limited Partners or (2) to convince them the self-interested transaction
would conform to the terms of the Partnership agreement in order to induce their
approval." Id.
V-10
<PAGE> 148
IV. CONCLUSION
The Partnership Agreement is clear and unambiguous. It provides that the
General Partner can propose a merger on any terms, and that if the unitholders
are displeased with those terms they are free to reject it. Since Plaintiff
alleges only the mere potential for misleading disclosure, or only a possibility
of disclosure that omits material information (e.g., a change in the
Partnership's underlying economic condition), I cannot entertain the claim that
the proposed conversion is unfair or that its timing is manipulative. As
Plaintiff has failed to state a claim upon which relief can be granted, the
amended complaint is dismissed.
IT IS SO ORDERED.
V-11
<PAGE> 149
ANNEX VI
PROXY PLUM CREEK TIMBER COMPANY, L.P.
PROXY FOR DEPOSITARY UNITS
PROXY SOLICITED BY THE PARTNERSHIP FOR THE SPECIAL MEETING OF
UNITHOLDERS (MARCH 22, 1999).
The undersigned hereby appoints Rick R. Holley and Diane M. Irvine, and
each of them the undersigned's true and lawful attorneys and proxies (with
full power of substitution in each) to vote all depositary units ("Units")
representing limited partner interests in Plum Creek Timber Company, L.P.
(the "Partnership"), standing in the undersigned's name at the Special
Meeting of Unitholders (the "Unitholders' Meeting") of the Partnership to
be held at the Crowne Plaza Hotel, 1113 Sixth Avenue, Seattle, Washington,
on March 22, 1999, at 9:00 a.m., local time, upon those matters as
described in the Proxy Statement/Prospectus for the meeting and such other
matters as may properly come before such meeting or any postponements or
adjournments thereof. The Board of Directors responsible for governing the
affairs of the Partnership's general partner, Plum Creek Management
Company, L.P. ("PCMC"), has reserved the right, pursuant to Delaware law,
to abandon the proposal even if the Partnership's Unitholders authorize the
proposal.
If any other business is transacted at the Unitholders' Meeting, the
Proxy shall be voted in accordance with the best judgment of the
above-named attorneys and proxies.
IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
PLEASE NOTE THAT ABSTAINING FROM THE VOTE ON THE PROPOSAL WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
(Continued and to be signed and dated on reverse side)
VI-1
<PAGE> 150
<TABLE>
<S> <C> <C> <C>
PLEASE MARK
VOTE AS
[X] THIS
EXAMPLE.
</TABLE>
A VOTE "FOR" THE PROPOSAL DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS FOR THE
UNITHOLDERS' MEETING IS RECOMMENDED:
<TABLE>
<S> <C> <C> <C>
1. Approve the Conversion Transaction by approving the
Agreement and Plan of Merger, dated as of July 17, 1998,
among the Partnership, Plum Creek Acquisition Partners,
L.P. and Plum Creek Timber Company, Inc. (the
"Corporation") in connection with which (i) the owners of
PCMC will receive 16,498,709 shares of common stock of FOR AGAINST ABSTAIN
the Corporation and 634,566 shares of special voting [ ] [ ] [ ]
stock of the Corporation in exchange for their 2% general
partner interest and related incentive distribution
rights, and (ii) the Unitholders will receive 46,323,300
shares of common stock of the Corporation in exchange for
their 46,323,300 Units of the Partnership.
</TABLE>
Dated: , 1999
----------------
----------------------------
(Signature of Unitholder)
----------------------------
(Signature of Unitholder)
Please sign your name
exactly as it appears
hereon. If acting as
attorney, executor, trustee,
or in other representative
capacity, please sign name
and title. If Units are held
jointly, each joint owner
should sign.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED
ENVELOPE.
VI-2
<PAGE> 151
PLUM CREEK TIMBER COMPANY, L.P.
PLUM CREEK TIMBER COMPANY, INC.
IMPORTANT
No person has been authorized to give any information or to make any
representations, other than those contained in this Proxy Statement/Prospectus.
If given or made, such information or representation may not be relied upon as
having been authorized by the Partnership or the Corporation. Neither the
delivery of this Proxy Statement/Prospectus nor any distribution of securities
pursuant hereto shall under any circumstances create any implications that the
information contained herein is correct as of any time subsequent to the date
hereof or that there has been no change in the information set forth herein or
in the affairs of the Partnership or the Corporation since the date hereof.
FOR INFORMATION REGARDING THE PROCEDURES TO BE FOLLOWED IN CONNECTION WITH
VOTING ON THE CONVERSION TRANSACTION, SEE "SUMMARY -- THE UNITHOLDERS' MEETING."
The Proxy Solicitor:
LOGO
Wall Street Plaza
88 Pine Street 30th Floor
New York, New York 10005
(212) 440-9800 (call collect)
or
CALL TOLL FREE (800) 223-2064
ADDITIONAL COPIES
Requests for additional copies of this Proxy Statement/Prospectus or
proxies should be directed to the Proxy Solicitor. You may also contact your
broker, dealer, or trust company for assistance concerning the Conversion
Transaction.
<PAGE> 152
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Corporation's Charter limits the liability of the Corporation's
directors to the Corporation and its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of the law, (iii) under Section 174 of the Delaware
General Corporate Law ("DGCL"), or (iv) for any transaction from which the
director derived an improper impersonal benefit. If the DGCL is amended to
further eliminate or limit the liability of directors, then the liability of a
director of the Corporation, in addition to the aforementioned limitations on
personal liability, will be limited to the fullest extent permitted by the
amended DGCL.
The Bylaws require the Corporation to indemnify its directors, officers and
certain other parties in (i) suits or proceedings other than those by or in the
right of the Corporation if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was illegal and (ii) suits or
proceedings by or in the right of the Corporation if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation except that with respect to this clause
(ii), no such indemnification will be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation, unless the Court of Chancery or the court in which such action or
suit was brought determines such person is fairly and reasonably entitled to
indemnity.
The Bylaws permit the Corporation to purchase and maintain insurance on
behalf of directors, officers and certain other parties against any liability
asserted against such person and incurred by such person in such capacity,
whether or not the Corporation would have the power or the obligation to
indemnify such person.
It is the position of the Commission that indemnification of directors and
officers for liabilities arising under the Securities Act is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
ITEM 21. EXHIBITS.
<TABLE>
<S> <C>
2.1 Amended and Restated Agreement and Plan of Conversion, dated
as of July 17, 1998, by and among Plum Creek Timber Company,
Inc., Plum Creek Timber Company, L.P. and Plum Creek
Management Company, L.P. (filed as Annex I to this Proxy
Statement/Prospectus).
2.2 Agreement and Plan of Merger, dated as of July 17, 1998, by
and among Plum Creek Timber Company, L.P., Plum Creek
Acquisition Partners, L.P. and Plum Creek Timber Company,
Inc. (filed as Annex II to this Proxy Statement/Prospectus).
2.3 Agreement and Plan of Merger, dated as of July 17, 1998, by
and between Plum Creek Timber Company, Inc. and Plum Creek
Management Company, L.P.
3.1 Amended and Restated Certificate of Incorporation of Plum
Creek Timber Company, Inc.
3.2 By-Laws of Plum Creek Timber Company, Inc.
3.3 Form of Amended and Restated Certificate of Incorporation of
Plum Creek Timber Company, Inc.
3.4 Form of Amended and Restated By-Laws of Plum Creek Timber
Company, Inc.
</TABLE>
II-1
<PAGE> 153
<TABLE>
<S> <C>
4.1 Senior Note Agreement, dated May 31, 1989, 11 1/8% Senior
Notes due June 8, 2007, Plum Creek Timber Company, L.P.
(Form 10-Q, No. 1-10239, for the quarter ended June 30,
1989). Amendment No. 1, consent and waiver dated January 1,
1991 to Senior Note Agreement, dated May 31, 1989, 11 1/8%
Senior Notes due June 8, 2007, Plum Creek Timber Company,
L.P. (Form 8 Amendment No. 1, for the year ended December
31, 1990). Amendment No. 2, consent and waiver dated
September 1, 1993 to the Senior Note Agreement (Form 10-K/A,
Amendment No. 1, for the year ended December 31, 1993).
Amendment No. 3, Senior Note Agreement Amendment dated May
20, 1994 (Form 10-K/A, Amendment No. 1, for the year ended
December 31, 1994). Senior Note Agreement dated May 31, 1996
(Form 10-Q, No. 1-10239, for the quarter ended June 30,
1996). Senior Note Agreement Amendment dated April 15, 1997
(Form 10-Q, No. 1-10239, for the quarter ended September 30,
1997).
4.2 Mortgage Note Agreement, dated May 31, 1989, 11 1/8% First
Mortgage Notes due June 8, 2007, Plum Creek Manufacturing,
Inc. (Form 10-Q, No. 1-10239, for the quarter ended June 30,
1989). Amendment No. 1, consent and waiver dated January 1,
1991 to Mortgage Note Agreement, dated May 31, 1989, 11 1/8%
First Mortgage Notes due June 8, 2007, Plum Creek
manufacturing, Inc., now Plum Creek Manufacturing, L.P.
(Form 8 Amendment No. 1, for the year ended December 31,
1990). Amendment No. 2, consent and waiver dated September
1, 1993 to the Mortgage Note Agreement (Form 10-K/A,
Amendment No. 1, for the year ended December 31, 1993).
Amendment No. 3, Mortgage Note Agreement Amendment dated May
20, 1994 (Form 10-K/A, Amendment No. 1, for the year ended
December 31, 1994). Amendment to Mortgage Note Agreement
dated June 15, 1995 (Form 10-Q, No. 1-10239, for the quarter
ended September 30, 1995). Mortgage Note Agreement dated May
31, 1996 (Form 10-Q, No. 1-10239, for the quarter ended June
30, 1996). Mortgage Note Agreement Amendment dated April 15,
1997 (Form 10-Q, No. 1-10239, for the quarter ended
September 30, 1997).
4.3 Senior Note Agreement, dated August 1, 1994, 8.73% Senior
Notes due August 1, 2009, Plum Creek Timber Company, L.P.
(Form 10-K/A, Amendment No. 1, for the year ended December
31, 1994). Senior Note Agreement Amendment dated as of
October 15, 1995 (Form 10-K, No. 1-10239, for the year ended
December 31, 1995). Senior Note Agreement Amendment dated
May 31, 1996 (Form 10-Q, No. 1-10239, for the quarter ended
June 30, 1996). Senior Note Agreement Amendment dated April
15, 1997 (Form 10-Q, No. 1-10239, for the quarter ended
September 30, 1997).
4.4 Senior Note Agreement, dated as of November 13, 1996, $75
million Series A due November 13, 2006, $25 million Series B
due November 13, 2008, $75 million Series C due November 13,
2011, $25 million Series D due November 13, 2016 (Form 10-K,
No. 1-10239, for the year ended December 31, 1996).
4.5 Senior Note Agreement, dated as of November 12, 1998, Series
E due February 12, 2007, Series F due February 12, 2009,
Series G due February 12, 2011 (Form 8-K and Form 8-K/A, No.
1-10239, dated November 12, 1998).
4.6 Form of Common Stock Certificate.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain matters regarding the shares of Common Stock offered
hereby.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain tax matters.
10.1 Form of Registration Rights Agreement among PC Advisory
Partners, L.P., PCMC Intermediate Holdings, L.P. and Plum
Creek Timber Company, Inc.
10.2 Agreement of Limited Partnership of Plum Creek Acquisition
Partners, L.P., dated as of July 16, 1998.
10.3 Form of Secured Promissory Note relating to management
loans.
10.4 Form of Security and Pledge Agreement relating to management
loans.
12.1 Computation of Ratios of Earnings to Fixed Charges.
23.1 Consent of PricewaterhouseCoopers LLP.
</TABLE>
II-2
<PAGE> 154
<TABLE>
<S> <C>
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in their opinions filed as Exhibits 5.1 and 8.1).
24.1 Power of Attorney (included on the signature page hereto).
99.1 Consent of Person About to Become a Director.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) 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.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-3
<PAGE> 155
(f) The undersigned registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. 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 end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant 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.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at 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 termination of
the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statement required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the From
F-3.
II-4
<PAGE> 156
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington, on the 28th day of January, 1999.
PLUM CREEK TIMBER COMPANY, INC.
By: /s/ RICK R. HOLLEY
------------------------------------
Rick R. Holley,
President and Chief Executive
Officer of PCMC and the
Corporation
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Rick R.
Holley and Diane M. Irvine, and each of them, his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICK R. HOLLEY President and Chief January 28, 1999
- ----------------------------------------------------- Executive Officer of PCMC
Rick R. Holley and the Corporation;
Director of Corp I and the
Corporation
/s/ DAVID D. LELAND Chairman of the Board and January 28, 1999
- ----------------------------------------------------- Director of Corp I
David D. Leland
/s/ CHARLES P. GRENIER Executive Vice President January 28, 1999
- ----------------------------------------------------- of PCMC and the
Charles P. Grenier Corporation and Director
of Corp I
/s/ DIANE M. IRVINE Vice President and Chief January 28, 1999
- ----------------------------------------------------- Financial Officer
Diane M. Irvine (Principal Accounting and
Financial Officer) of PCMC
and the Corporation
/s/ IAN B. DAVIDSON Director of Corp I January 28, 1999
- -----------------------------------------------------
Ian B. Davidson
</TABLE>
II-5
<PAGE> 157
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE M. DENNISON Director of Corp I January 28, 1999
- -----------------------------------------------------
George M. Dennison
/s/ WILLIAM E. OBERNDORF Director of Corp I January 28, 1999
- -----------------------------------------------------
William E. Oberndorf
/s/ WILLIAM J. PATTERSON Director of Corp I January 28, 1999
- -----------------------------------------------------
William J. Patterson
/s/ JOHN H. SCULLY Director of Corp I January 28, 1999
- -----------------------------------------------------
John H. Scully
</TABLE>
II-6
<PAGE> 1
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PLUM CREEK TIMBER COMPANY, INC.
(a Delaware corporation)
AND
PLUM CREEK MANAGEMENT COMPANY, L.P.
(a Delaware limited partnership)
AGREEMENT AND PLAN OF MERGER, dated as of July 17, 1998, by
and between Plum Creek Timber Company, Inc., a Delaware corporation (the
"Corporation"), and Plum Creek Management Company, L.P., a Delaware limited
partnership ("PCMC"), with reference to the following RECITALS:
A. The partners of PCMC and the Board of Directors and the stockholder
of the Corporation have each approved and adopted resolutions approving and
adopting this Agreement of Merger in accordance with the Delaware Revised
Uniform Limited Partnership Act (the "Delaware RULPA") and the Delaware General
Corporation Law (the "Delaware GCL").
B. Concurrently herewith, Plum Creek Timber Company, L.P., a Delaware
limited partnership (the "Partnership") and Plum Creek Acquisition Partners,
L.P., a Delaware limited partnership ("Merger LP") have entered into an
agreement and plan of merger whereby the Partnership will merge with and into
Merger LP.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained and intending to be legally bound, agree as follows:
1. Parties to Merger. PCMC and the Corporation (such parties
to the merger being hereinafter sometimes collectively referred to as the
"Constituent Entities") shall effect a merger (the "Merger") in accordance with
and subject to the terms and conditions of this Agreement of Merger (the
"Agreement").
<PAGE> 2
2. Merger. At the Effective Time (as defined in Section 3
hereof), PCMC (which entity shall be, and is hereinafter sometimes referred to
as, the "Disappear ing Entity") shall be merged with and into the Corporation
(which latter entity shall be, and is hereinafter sometimes referred to as, the
"Surviving Entity").
3. Filing and Effective Time. A certificate of merger and such
other documents and instruments as are required by, and complying in all
respects with, the Delaware RULPA and the Delaware GCL shall be filed in the
Office of the Secretary of State of Delaware. The Merger shall become effective,
following the filing of all such documents and instruments and as otherwise
specified in such certificate of merger (the "Effective Time").
4. Effect of Merger. At the Effective Time, the separate
existence of the Disappearing Entity shall cease, the Surviving Entity shall
continue to be a corporation organized under and governed by the laws of the
State of Delaware and the Merger shall have the effects provided therefor by the
Delaware RULPA and the Delaware GCL.
5. Ownership Interests. At the Effective Time, the limited and
general partnership interests of PCMC issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holders thereof, be converted into 16,498,709 shares of common
stock, par value $.01 per share, of the Corporation (the "Common Stock") and
634,566 shares of special voting stock, par value $.01 per share, of the
Corporation (the "Special Voting Stock").
6. Issuance of Certificates. Promptly after the Effective
Time, the Corporation will mail to all former partners of PCMC of record at the
Effective Time a letter of transmittal containing instructions with respect to
obtaining certificates representing shares of Common Stock and Special Voting
Stock. Upon submitting a properly completed letter of transmittal, there will be
issued and mailed to former partners of record at the Effective Time a
certificate or certificates for shares of Common Stock and Special Voting Stock
to which such holder is entitled. From and after the Effective Time, the issued
and outstanding limited partner interest and general partner interest of PCMC
will evidence only the right to receive shares of Common Stock and Special
Voting Stock. No distributions or dividends with respect to the Common Stock or
the Special Voting Stock payable to the holders of record thereof after the
Effective Time will be paid to such partners until a properly completed letter
of transmittal is submitted to the Corporation, at which time accumulated
distributions or dividends will be paid, without interest, subject to any
applicable escheat laws.
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7. Further Assurances. The Disappearing Entity shall at any
time, or from time to time, as and when requested by the Surviving Entity, or by
its successors and assigns, execute and deliver, or cause to be executed and
delivered in its name by its last acting officers, or by the corresponding
officers of the Surviving Entity, all such conveyances, assignments, transfers,
deeds, or other instruments, and shall take, or cause to be taken, such further
or other action as the Surviving Entity, or its successors and assigns, may deem
required or convenient in order to evidence the transfer, vesting or devolution
of any property, right, privilege, immunity, power or purpose, or to vest or
perfect in or confirm to the Surviving Entity, or its successors and assigns,
title to and possession of all the properties, rights, privileges, immunities,
powers and purposes of the Disappearing Entity and otherwise to carry out the
intent and purposes hereof.
8. Termination. Notwithstanding approval by the partners of
PCMC and the stockholder of the Corporation of this Agreement, this Agreement
may be terminated at any time prior to the Effective Time upon agreement by the
parties.
9. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
giving effect to principles of conflicts of law.
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IN WITNESS WHEREOF, the parties hereto, pursuant to the
approval and authority duly given by resolutions approved and adopted by their
respective partners, where applicable, have duly executed this Agreement of
Merger as of the day and year first written above.
PLUM CREEK TIMBER COMPANY, INC.
By: /s/ Rick R. Holley
--------------------------------------------
Name: Rick R. Holley
Title: President and Chief Executive Officer
PLUM CREEK MANAGEMENT COMPANY, L.P.
By: Plum Creek Advisory Partners I, L.P.
its General Partner
By: Plum Creek Advisory Corp. I
its General Partner
By: /s/ William J. Patterson
--------------------------------------------
Name: William J. Patterson
Title: Vice President
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PLUM CREEK TIMBER COMPANY, INC.
FIRST: The name of the Corporation is Plum
Creek Timber Company, Inc. (hereinafter the
"Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 1000 shares of Common Stock, each
having a par value of one penny ($.01).
FIFTH: The name and mailing address of the
Sole Incorporator is as follows:
Deborah M. Reusch
P.O. Box 636
Wilmington, DE 19899
SIXTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
<PAGE> 2
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the By-Laws
of the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174
of the GCL or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or modification of this
Article SIXTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any By-Laws adopted by the stockholders; provided, however, that no
By-Laws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such By-Laws
had not been adopted.
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SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the GCL) outside
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the GCL, do make
this Certificate, hereby declaring and certifying that this is my act and deed
and the facts herein stated are true, and accordingly have hereunto set my hand
this 5th day of June, 1998.
/s/ DEBORAH M. REUSCH
--------------------------------
Deborah M. Reusch
Sole Incorporator
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
PLUM CREEK TIMBER COMPANY, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders for the election of directors shall be held on such date and at
such time as shall be designated from time to time by the Board of Directors.
Any other proper business may be transacted at the Annual Meeting of
Stockholders.
Section 3. Special Meetings. Unless otherwise required by law
or by the certificate of incorporation of the Corporation, as amended and
restated from
<PAGE> 2
time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, or (ii) the President, (iii) any Vice President, if
there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be
one, and shall be called by any such officer at the request in writing of (i)
the Board of Directors, (ii) a committee of the Board of Directors that has been
duly designated by the Board of Directors and whose powers and authority include
the power to call such meetings or (iii) stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting. At a
Special Meeting of Stockholders, only such business shall be conducted as shall
be specified in the notice of meeting (or any supplement thereto).
Section 4. Notice. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
Section 5. Adjournments. Any meeting of the stockholders may
be adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 6. Quorum. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn
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the meeting from time to time, in the manner provided in Section 5, until a
quorum shall be present or represented.
Section 7. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-laws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the total number of votes of the
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 5 of Article V hereof, each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes may
be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in such officer's discretion, may require that any
votes cast at such meeting shall be cast by written ballot.
Section 8. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty days of
the earliest dated consent delivered in the manner required by this Section 8 to
the Corporation, written consents signed by a sufficient number of holders to
take action are delivered to the Corporation by delivery to its registered
office in the state of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have
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not consented in writing and who, if the action had been taken at a meeting,
would have been entitled to notice of the meeting if the record date for such
meeting had been the date that written consents signed by a sufficient number of
holders to take the action were delivered to the Corporation as provided above
in this section.
Section 9. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 9 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 11. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
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<PAGE> 5
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of
Directors shall consist of not less than one nor more than fifteen members, the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. Except as provided in
Section 2 of this Article III, directors shall be elected by a plurality of the
votes cast at the Annual Meetings of Stockholders and each director so elected
shall hold office until the next Annual Meeting of Stockholders and until such
director's successor is duly elected and qualified, or until such director's
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Directors need not be stockholders.
Section 2. Vacancies. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.
Section 3. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the President, or by any director. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than forty-
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<PAGE> 6
eight (48) hours before the date of the meeting, by telephone or telegram on
twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 5. Quorum. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 6. Actions by Written Consent. Unless otherwise
provided in the Certificate of Incorporation, or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any absent or disqualified member. Any committee,
to the extent permitted by law
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and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director, payable in cash or securities. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
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ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, also may choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law or the Certificate of Incorporation. The officers of the Corporation need
not be stockholders of the Corporation nor, except in the case of the Chairman
of the Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its first
meeting held after each Annual Meeting of Stockholders (or action by written
consent of stockholders in lieu of the Annual Meeting of Stockholders), shall
elect the officers of the Corporation who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors; and all officers of the
Corporation shall hold office until their successors are chosen and qualified,
or until their earlier death, resignation or removal. Any officer elected by the
Board of Directors may be removed at any time by the affirmative vote of the
Board of Directors. Any vacancy occurring in any office of the Corporation shall
be filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President or any other officer authorized to do so by the Board of Directors and
any such officer may, in the name of and on behalf of the Corporation, take all
such action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any corporation in which the Corporation
may own securities and at any such meeting shall possess and may exercise any
and all rights and power incident to the ownership of such securities and which,
as the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
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Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these By-Laws or by the Board of
Directors.
Section 5. President. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages, contracts
and other instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as may
from time to time be assigned to such officer by these By-Laws or by the Board
of Directors.
Section 6. Vice Presidents. At the request of the President or
in the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Chairman of the Board of
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Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board of Directors or the President, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest to the affixing by such officer's signature.
The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the
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duties of the office of the Treasurer and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in the Treasurer's possession or under the Treasurer's control
belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Assistant Treasurer and for the restoration to the Corporation, in case of
the Assistant Treasurer's death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in the
Assistant Treasurer's possession or under the Assistant Treasurer's control
belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
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ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or the owner's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfer of stock shall be valid as
against the Corporation for any purpose until it shall have been entered in the
stock records of the Corporation by an entry showing from and to whom
transferred.
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Section 5. Record Date.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; providing, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolutions
taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the
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Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an
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action by or in the right of the Corporation) by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation
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only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers, by
any person or persons having the authority to act on the matter on behalf of the
Corporation. To the extent, however, that a present or former director or
officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith, without the necessity of authorization in the
specific case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be.
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Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the Court of Chancery in the State of Delaware
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
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Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such meeting of stockholders or Board of Directors as the case may
be. All such amendments must be approved by either the holders of a majority of
the outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
* * *
Adopted as of: June 5, 1998
Last Amended as of: ________________
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EXHIBIT 3.3
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PLUM CREEK TIMBER COMPANY, INC.
PLUM CREEK TIMBER COMPANY, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
A. The name of the Corporation is Plum Creek Timber Company, Inc.
B. The name under which the Corporation was originally
incorporated was Plum Creek Timber Company, Inc. and the
original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on
June 5, 1998.
C. This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242
and 245 of the General Corporation Law of the State of
Delaware.
D. The text of the Amended and Restated Certificate of
Incorporation of the Corporation as amended hereby is restated
to read in its entirety, as follows:
I. FIRST: The name of the corporation is: Plum Creek Timber Company,
Inc. (hereinafter, the "Corporation"). Capitalized terms used, but not
otherwise defined herein, shall have the meanings ascribed to them in
Article ELEVENTH.
II. SECOND: The address of the registered office of the Corporation in the
State of Delaware is The Corporation Trust Company, 1209 Orange Street,
in the City
<PAGE> 2
of Wilmington, County of New Castle. The name of its registered agent
at such address is The Corporation Trust Company.
III. THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware (the "GCL").
IV. FOURTH: A. The total number of shares of all classes of capital stock
that the Corporation shall have authority to issue is 525,634,567
shares of which (i) 300,000,000 shares shall be shares of Common Stock,
par value $.01 per share (the "Common Stock"), and 634,566 shares shall
be shares of Special Voting Common Stock, par value $.01 per share (the
"Special Voting Stock") (the Common Stock and the Special Voting Stock
being collectively referred to herein as the "Common Equity"), (ii)
150,000,001 shares shall be shares of Excess Stock, par value $.01 per
share (the "Excess Stock"), and (iii) 75,000,000 shares shall be shares
of Preferred Stock, par value $.01 per share (the "Preferred Stock").
B. The number of authorized shares of any class or classes of
capital stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the total voting power of
the shares of capital stock entitled to vote thereon, voting
together as a single class, and without the vote of the
holders of such class or each such class.
C. The following is a statement of the powers, preferences, and
relative participating, optional or other special rights and
qualifications, limitations and restrictions of the Common
Stock and Special Voting Stock of the Corporation:
1. Except as otherwise set forth below in this Article FOURTH,
the powers, preferences and relative participating, optional or other special
rights and qualifications, limitations or restrictions of the Common Stock and
Special Voting Stock shall be identical in all respects.
2. Subject to the rights of the holders of Preferred Stock,
and subject to any other provisions of this Certificate of Incorporation,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors of the
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Corporation from time to time out of assets or funds of the Corporation legally
available therefor. If any dividend or other distribution in cash or other
property is paid with respect to the Common Stock a like dividend or other
distribution shall be paid with respect to each share of Special Voting Stock.
Upon any reclassification, subdivision or combination of Common Stock or upon
payment of any in-kind dividend of additional shares of Common Stock with
respect to the Common Stock, the Special Voting Stock shall be similarly
reclassified, subdivided or combined or the Special Voting Stock will receive
the same in-kind dividend, provided, however, that such in-kind divided shall
consist of additional shares of Special Voting Stock.
3. (a) At every meeting of the stockholders of the
Corporation, every holder of Common Equity (voting together as a single class,
except as set forth below) shall be entitled to one vote in person or by proxy
for each share of Common Stock or Special Voting Stock standing in such holder's
name on the transfer books of the Corporation, provided, however, that should
any Change in Law (as defined in Article ELEVENTH) require a reduction in the
number of votes represented by the Special Voting Stock, the number of votes to
which a holder of Special Voting Stock shall, without any further action on the
part of the Corporation or the stockholders, be reduced to the extent reasonably
necessary or appropriate to maintain the Corporation's status as a REIT (as
defined in Article ELEVENTH), such reduction to be deemed to have been made as
of the effective date of such Change in Law. Except as may be otherwise required
by this Article FOURTH or applicable law, the holders of Common Stock and
Special Voting Stock shall vote together as a single class, subject to any
voting rights which may be granted to holders of Preferred Stock or Special
Voting Stock, on all matters submitted to a vote of the holders of Common
Equity.
(b) Subject to any rights of the holders of
Preferred Stock and or Special Voting Stock set forth in clause (c) hereof, the
provisions of this Certificate of Incorporation shall not be modified, revised,
altered or amended, repealed or rescinded in whole or in part, without the
approval of a majority (or such greater percentage as is required by Article
TENTH of this Certificate of Incorporation) of the votes entitled to be cast by
the holders of the Common Stock and the Special Voting Stock, voting together as
a single class or, in the case of amendments or changes to this Certificate of
Incorporation to be effected by a merger, without the approval of the agreement
of merger by a majority of the votes entitled to be cast by the holders of the
Common Stock and the Special Voting Stock, voting together as a single class;
provided, however, that with respect to any proposed amendment of this
Certificate of Incorpora tion (including, without limitation, an amendment to be
effected by a merger) which would increase or decrease the par value of the
shares of Common Stock or Special
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Voting Stock or alter or change the powers, preferences or special rights of the
shares of Common Stock or Special Voting Stock so as to affect them adversely,
the approval of a majority of the votes entitled to be cast by the holders of
the shares affected by the proposed amendment, voting separately as a class,
shall be obtained in addition to the approval of a majority of the votes
entitled to be cast by the holders of the Common Stock and the Special Voting
Stock voting together as a single class as hereinbefore provided. Any increase
in the authorized number of shares of any class or classes of stock of the
Corporation or creation, authorization or issuance of any additional class or
series of stock or any securities convertible into, or warrants, options or
similar rights to purchase, acquire or receive, shares of any such class or
classes of stock shall be deemed not to affect adversely the powers, preferences
or special rights of the shares of Common Stock or Special Voting Stock.
(c) So long as the Principals (as defined in
Article ELEVENTH) Beneficially Own (as defined in Article ELEVENTH) at least
five million shares of Common Stock and/or Special Voting Stock, the Corporation
shall not enter into any Extraordinary Transaction (as defined in Article
ELEVENTH), without (in addition to any vote of the holders of Common Equity
required under this Certificate of Incorporation, the GCL or any other
applicable law) the approval of the holders of a majority of the outstanding
shares of Special Voting Stock, voting together as a separate class, provided,
however, that the Board of Directors of the Corporation, in connection with the
issuance of units of limited partnership of Plum Creek Acquisition Partners,
L.P., may issue shares of Preferred Stock with the right to vote together with
the Special Voting Stock, as a single class, with respect to any or all
Extraordinary Transactions.
4. In the event of any dissolution, liquidation or winding up
of the affairs of the Corporation, whether voluntary or involuntary, after
payment in full of the amounts required to be paid to the holders of Preferred
Stock, the remaining assets and funds of the Corporation shall be distributed
pro rata to the holders of Common Equity based on the aggregate number of shares
of Common Equity outstanding. For the purposes of this section C.4, the
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation with
one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
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5. In the event that any shares of Common Equity are converted
into or exchanged for cash, securities or other property in connection with any
consolidation of the Corporation with one or more other Persons (as hereinafter
defined) or a merger of the Corporation with another Person, unless immediately
following such event, and resulting solely from the ownership of the securities
issued in connection therewith, a majority of the total voting power of the
surviving Person in such consolidation or merger is held by Persons that were
stockholders of the Corporation immediately prior to such event, or unless the
holders of Common Equity unanimously vote otherwise, each holder of a share of
Common Stock shall be entitled to receive with respect to such share at least
the same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such consolidation or merger by each holder of
a share of Special Voting Stock, and each holder of a share of Special Voting
Stock shall be entitled to receive with respect to such share the same kind and
amount of shares of stock and other securities and property (including cash)
receivable upon such consolidation or merger by a holder of a share of Common
Stock.
6. (a) Any record holder of a share of Special Voting Stock
may at any time convert such share into one share of Common Stock by
surrendering the certificate for such share, accompanied by any required tax
transfer stamps and by a written notice by such record holder to the Corporation
stating that such record holder desires to convert such share of Special Voting
Stock into a share of Common Stock and requesting that the Corporation issue
such Common Stock to the Person named therein. To the extent permitted by law,
such voluntary conversion shall be deemed to have been effected at the close of
business on the date of such surrender.
(b) (i) Except as provided in paragraph (ii)
below, shares of Special Voting Stock shall automatically convert into shares of
Common Stock immediately prior to the Transfer (as hereinafter defined) of such
shares of Special Voting Stock.
(ii) Shares of Special Voting Stock shall
not automatically convert to Common Stock if transferred to a Permitted
Transferee.
(iii) Immediately upon any such automatic
conversion of the Special Voting Stock, the rights of the holder of
such share(s) of Special Voting Stock shall cease and such holder shall
be treated for all purposes as having become the record owner of the
Common Stock issuable upon such conversion; provided, however, that
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such holder shall be entitled to receive when paid any dividends
declared on the Special Voting Stock as of a record date preceding the
time of such conversion and unpaid as of the time of such conversion.
(c) A holder of Special Voting Stock may (i)
Transfer such Special Voting Stock without automatic conversion into Common
Stock only in connection with a Transfer that meets the qualifications of
section C.6(b)(ii) above and section C.6(d) below, and under no other
circumstances, or (ii) convert such share into shares of Common Stock as
provided in section C.6(a) above. No one other than that Person in whose name
the Special Voting Stock is originally registered on the stock ledger of the
Corporation, or transferees or successive transferees who receive the Special
Voting Stock in connection with a Transfer that meets the qualifications set
forth in section C.6(b)(ii) above and section C.6(d) below, shall by virtue of
the acquisition of the certificate for the Special Voting Stock have the status
of an owner or holder of such Special Voting Stock or be recognized as such by
the Corporation or be otherwise entitled to enjoy for its, his or her own
benefit the special rights and powers of a holder of the Special Voting Stock.
A holder of Special Voting Stock may at any and all times
Transfer to any Person the Common Stock issuable upon conversion of such Special
Voting Stock, except where such Transfer is restricted by applicable law.
(d) The shares of Special Voting Stock shall be
transferred on the books of the Corporation and a new certificate issued
therefor, upon presentation at the office of the Secretary of the Corporation
(or at such additional place or places as may from time to time be designated by
the Secretary of the Corporation) of the certificate for such share, in proper
form for transfer and accompanied by all requisite stock transfer tax stamps.
(e) The certificates for the shares of Special
Voting Stock shall bear a legend on the face thereof reading as follows:
"The Special Voting Stock of Plum Creek Timber Company, Inc. (the
"Corporation") represented by this certificate may not be Transferred (as
defined in the Certificate of Incorporation of this Corporation) to any person
or entity unless such Transfer meets the qualifications set forth in section
C.6(b)(ii) and (d) of Article FOURTH of the Certificate of Incorporation of this
Corporation and no person who receives this share in connection with a Transfer
that does not meet the qualifications prescribed by sections C.6(b)(ii) and (d)
of said Article FOURTH is entitled to own or
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<PAGE> 7
to be registered as the record holder of these shares of Special Voting Stock
and such Special Voting Stock will be automatically converted into Common Stock
upon any such purported transfer. The record holder of this certificate may at
any time convert these shares of Special Voting Stock into Common Stock, subject
to compliance with Section C.6(a) of Article FOURTH of the Certificate of
Incorporation of this Corporation. Each holder of this certificate, by accepting
the same, accepts and agrees to all of the foregoing. The Corporation will
furnish without charge, to each stockholder who so requests, a copy of the
Certificate of Incorporation of the Corporation, containing, among other things,
a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof that the Corporation is authorized to issue and the qualifications,
limitations or restrictions of such preferences and/or rights. Any such request
shall be addressed to the Secretary of the Corporation."
(f) For so long as shares of Special Voting
Stock are outstanding, the Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, the number of shares
of Common Stock into which the Special Voting Stock shall then be convertible.
(g) In the event that the Principals cease to
Beneficially Own at least 5 million shares of Common Stock and/or Special Voting
Stock, all of the outstanding shares of Special Voting Stock, without any
further action on the part of the Corporation or the stockholders, shall convert
into an equal number of shares of Common Stock, and each outstanding certificate
representing Special Voting Stock shall thereafter represent the right to
receive an equal number of shares of Common Stock.
7. All rights to vote and all voting power (including, without
limitation thereto, the right to elect directors) shall be vested exclusively in
the holders of Common Equity, voting together as a single class, except as
otherwise expressly provided in this Certificate of Incorporation, in a
Preferred Stock Designation (as defined in section D of this Article FOURTH) or
as otherwise expressly required by applicable law.
D. The Board of Directors is hereby authorized to provide by
resolution or resolutions from time to time for the issuance
of shares of Preferred Stock in one or more series and, by
filing a certificate pursuant to the GCL (hereinafter, along
with any similar designation relating to any other series of
Preferred Stock which may hereafter be authorized, referred to
as a "Preferred Stock Designation," each of which shall be
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<PAGE> 8
part of this Certificate of Incorporation), to establish from
time to time the number of shares to be included in each such
series, and to fix the designation, powers (including voting
powers), preferences and rights of the shares of each such
series and the qualifications, limitations and restrictions
thereof.
E. Restrictions on Ownership and Transfer of Equity Stock.
1. (a) Limitation on Beneficial Ownership.
(i) Except as provided in section E.3 of
this Article FOURTH, no person shall Beneficially Own (as hereinafter
defined) shares of Equity Stock (as hereinafter defined) in excess of
the Ownership Limit (as hereinafter defined).
(ii) Except as provided in section E.3 of
this Article FOURTH, any purported Transfer that, if effective, would
result in any Person Beneficially Owning shares of Equity Stock in
excess of the Ownership Limit shall be void ab initio as to the
Transfer of that number of shares of Equity Stock which would cause the
transferee to Beneficially Own Equity Stock in excess of the Ownership
Limit, and the intended transferee shall acquire no rights in such
shares of Equity Stock.
(b) Transfers Resulting in "Closely Held"
Status. Any purported Transfer of shares of Equity Stock that, if effective,
would result in the Corporation being "closely held" within the meaning of
section 856(h) of the Code (as hereinafter defined) shall be void ab initio as
to the Transfer of that number of shares of Equity Stock that would cause the
Corporation to be "closely held" within the meaning of Section 856(h) of the
Code, and the intended transferee shall acquire no rights in such shares of
Equity Stock.
(c) Transfers Resulting in Ownership by fewer
than 100 Persons. Any purported Transfer of shares of Equity Stock that, if
effective, would result in shares of Equity Stock being beneficially owned by
fewer than 100 persons within the meaning of Section 856(a)(5) of the Code shall
be void ab initio and the intended transferee shall acquire no rights in such
shares of Equity Stock.
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<PAGE> 9
(d) Transfers Resulting in Corporation Failing
to Qualify as a "Domestically Controlled REIT". Any purported Transfer of shares
of Equity Stock that, if effective, would result in the failure of the
Corporation to qualify as a "domestically controlled REIT" within the meaning of
Section 897(h)(4)(B) of the Code shall be void ab initio and the intended
transferee shall acquire no rights in the shares of Equity Stock which are the
subject of such purported Transfer.
(e) Transfers Resulting in Corporation Failing
to Qualify as a REIT. Any purported Transfer of shares of Equity Stock that, if
effective, would cause the Corporation to fail to qualify as a REIT (as
hereinafter defined) shall be void ab initio and the intended transferee shall
acquire no rights in the shares of Equity Stock which are the subject of such
purported Transfer.
2. Beneficial Owners Required to Provide Information.
(a) Annual Disclosure. Every Beneficial Owner
of more than 3%, or such lower percentages as are then required pursuant to
regulations under the Code, of the outstanding shares of any class or series of
Equity Stock of the Corporation shall, within 30 days after January 1 of each
year, provide to the Corporation a written statement or affidavit stating the
name and address of such Beneficial Owner, the number of shares of Equity Stock
Beneficially Owned by such Beneficial Owner and a description of how such shares
are held. Each such Beneficial Owner shall provide to the Corporation such
additional information as the Corporation may request in order to determine the
effect, if any, of such Beneficial Ownership on the Corporation's status as a
REIT and to ensure compliance with the Ownership Limit.
(b) Disclosure at the Request of the
Corporation. Each Person who is a Beneficial Owner of shares of Equity Stock and
each Person (including the stockholder of record) who is holding shares of
Equity Stock for a Beneficial Owner shall provide to the Corporation a written
statement or affidavit stating such information as the Corporation may request
in order to determine the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit. In addition, the Excluded Holder shall
promptly notify the Corporation upon any transfer of Equity Stock.
3. Waiver of the Ownership Limit. The Board of Directors, upon
receipt of a ruling from the Internal Revenue Service or an opinion of counsel
or other evidence or undertakings acceptable to it, may, in its sole discretion,
waive the application of the Ownership Limit to a Person subject to such limit,
provided that (A) the Board of Directors obtains such representations and
undertakings from such Person
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<PAGE> 10
as are reasonably necessary to ascertain that such Person's Beneficial Ownership
or Constructive Ownership of shares of Equity Stock will now and in the future
(i) not result in the Corporation being "closely held" within the meaning of
Section 856(h) of the Code, (ii) not result in the shares of Equity Stock of the
Corporation being Beneficially Owned by fewer than 100 persons within the
meaning of Section 856(a)(5) of the Code, (iii) not result in the Corporation
failing to qualify as a "domestically controlled REIT" within the meaning of
Section 897(h)(4)(B) of the Code and (iv) will not otherwise result in the
Corporation failing to qualify as a REIT, and (B) such Person agrees in writing
that any violation or attempted violation of any other limitations, restrictions
and conditions that the Board of Directors may in its sole discretion impose at
the time of such waiver with respect to such Person will result, as of the time
of such violation even if discovered after such violation, in the conversion of
such shares in excess of the original limit applicable to such Person into
shares of Excess Stock pursuant to section F.1 of this Article FOURTH.
4. Settlement. Notwithstanding any provision contained herein
to the contrary, nothing in this Certificate of Incorporation shall preclude the
settlement of any transaction entered into through the facilities of the New
York Stock Exchange or any other national securities exchange or the NASDAQ
Stock Market, Inc. or any other automated quotation system. In no event shall
the existence or application of the preceding sentence have the effect of
deterring or preventing the conversion of Equity Stock into Excess Stock as
contemplated herein.
F. Excess Stock
1. (a) Transfers in Excess of Ownership Limit. If,
notwithstand ing the other provisions contained in this Article FOURTH, there is
a purported Transfer or Non-Transfer Event (as hereinafter defined) such that
any Person would Beneficially Own shares of Equity Stock in excess of the
Ownership Limit, then, (i) except as otherwise provided in section E.3 of this
Article FOURTH, the Purported Record Transferee (as hereinafter defined) (and
the Purported Beneficial Transferee (as hereinafter defined), if different)
shall acquire no right or interest (or, in the case of a Non-Transfer Event, the
Person holding record title to the shares of Equity Stock Beneficially Owned by
such Beneficial Owner shall cease to own any right or interest) in such number
of shares of Equity Stock which would cause such Beneficial Owner to
Beneficially Own shares of Equity Stock in excess of the Ownership Limit, (ii)
such number of shares (rounded up to the nearest whole share) of Equity Stock in
excess of the Ownership Limit shall be automatically converted into an equal
number of shares of Excess Stock and transferred to a Trust (as hereinafter
defined) in accordance with
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section F.4 of this Article FOURTH and (iii) such Purported Record Transferee
(and such Purported Beneficial Transferee, if different) or, in the case of a
Non-Transfer Event, the Person who, immediately prior to such automatic
conversion, was the holder of record title to the shares of Equity Stock
automatically converted, shall submit the certificates representing such number
of shares of Equity Stock to the Corporation, accompanied by all requisite and
duly executed assignments of Transfer thereof, for registration in the name of
the Trustee (as hereinafter defined) of the Trust. Such conversion into Excess
Stock and Transfer to a Trust shall be effective as of the close of trading on
the Trading Day (as hereinafter defined) prior to the date of the purported
Transfer or Non-Transfer Event, as the case may be, even though the certificates
representing the shares of Equity Stock so converted may be submitted to the
Corporation at a later date.
(b) Other Prohibited Transfers. If,
notwithstanding the other provisions contained in this Article FOURTH, there is
a purported Transfer or Non- Transfer Event that, if effective, would (i) result
in the Corporation being "closely held" within the meaning of Section 856(h) of
the Code, (ii) result in the shares of Equity Stock being beneficially owned by
fewer than 100 persons within the meaning of Section 856(a)(5) of the Code,
(iii) result in the Corporation failing to qualify as a "domestically controlled
REIT" within the meaning of Section 897(h)(4)(B) of the Code, or (iv) otherwise
cause the Corporation to fail to qualify as a REIT, then (x) the Purported
Record Transferee (and the Purported Beneficial Transferee, if different) shall
acquire no right or interest, and, in the case of a Non-Transfer Event, the
Person holding record title to the shares of Equity Stock Beneficially Owned by
the Person whose Beneficial Ownership of Equity Stock would result in any of the
events referred to in clauses (i) - (v) above shall cease to own any right or
interest, in such number of shares of Equity Stock the ownership of which would
(A) result in the Corporation being "closely held" within the meaning of Section
856(h) of the Code, (B) result in the shares of Equity Stock being beneficially
owned by fewer than 100 persons within the meaning of Section 856(a)(5) of the
Code, (C) result in the Corporation failing to qualify as a "domestically
controlled REIT" within the meaning of Section 897(h)(4)(B) of the Code, or (D)
otherwise cause the Corporation to fail to qualify as a REIT, (y) such number of
shares of Equity Stock (rounded up to the nearest whole share) shall be
automatically converted into an equal number of shares of Excess Stock and
transferred to a Trust in accordance with section F.4 of this Article FOURTH and
(z) the Purported Record Transferee (and the Purported Beneficial Transferee, if
different) or, in the case of a Non-Transfer Event, the Person who, immediately
prior to such automatic conversion, was the holder of record title to the shares
of Equity Stock automatically converted, shall submit such number of shares of
Equity Stock to the Corporation,
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accompanied by all requisite and duly executed assignments of Transfer thereof,
for registration in the name of the Trustee of the Trust. Such conversion into
Excess Stock and Transfer to a Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the purported Transfer or
Non-Transfer Event, as the case may be, even though the certificates
representing the shares of Equity Stock so converted may be submitted to the
Corporation at a later date.
(c) Conversion to Excess Stock. Upon the
occurrence of such a conversion of shares of Equity Stock into an equal number
of shares of Excess Stock, such shares of Equity Stock shall be automatically
retired and canceled, without any action required by the Board of Directors of
the Corporation, and shall thereupon be restored to the status of authorized but
unissued shares of the particular class or series of Equity Stock from which
such Excess Stock was converted and may be reissued by the Corporation as that
particular class or series of Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees,
shall at any time determine in good faith that a Transfer has taken place in
violation of section E.1 of this Article FOURTH or that a Person intends to
acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of section E.1 of this
Article FOURTH, the Corporation shall take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer or acquisition, including,
but not limited to, refusing to give effect to such Transfer on the stock
transfer books of the Corporation or instituting proceedings to enjoin such
Transfer or acquisition, but the failure to take any such action shall not
affect the automatic conversion of shares of Equity Stock into Excess Stock and
their Transfer to a Trust in accordance with section F.4.
3. Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire shares of Equity Stock in violation of section E.1 of this
Article FOURTH, or any Person who owns shares of Equity Stock that were
converted into shares of Excess Stock and transferred to a Trust pursuant to
section F.4 of this Article FOURTH, shall immediately give written notice to the
Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect, if
any, of such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's status as a REIT.
4. Transfer in Trust. Upon any purported Transfer or
Non-Transfer Event that results in Excess Stock pursuant to section F.1 of this
Article FOURTH, (i) the Corporation shall create, or cause to be created, a
Trust, and shall designate a Trustee
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and name a Beneficiary (as hereinafter defined) thereof and (ii) such Excess
Stock shall be automatically transferred to such Trust to be held for the
exclusive benefit of the Beneficiary. Any conversion of shares of Equity Stock
into shares of Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the purported Transfer
or Non-Transfer Event that results in the conversion. Shares of Excess Stock so
held in trust shall be issued and outstanding shares of stock of the
Corporation.
5. Dividend Rights. Each share of Excess Stock shall be
entitled to the same dividends and distributions (as to both timing and amount)
as may be declared by the Board of Directors of the Corporation with respect to
each share of Equity Stock which was converted into such Excess Stock. The
Trustee, as record holder of the shares of Excess Stock, shall be entitled to
receive all dividends and distributions and shall hold all such dividends or
distributions in trust for the benefit of the Beneficiary. The Prohibited Owner
(as hereinafter defined) with respect to such shares of Excess Stock shall repay
to the Trust the amount of any dividends or distributions received by it (i)
that are attributable to any shares of Equity Stock that have been converted
into shares of Excess Stock and (ii) the record date of which was on or after
the date that such shares were converted into shares of Excess Stock. The
Corporation shall take all measures that it determines are reasonably necessary
to recover the amount of any such dividend or distribution paid to a Prohibited
Owner, including, if necessary, withholding any portion of future dividends or
distributions payable on shares of Equity Stock Beneficially Owned by the Person
who, but for the provisions of this Article FOURTH, would Constructively Own or
Beneficially Own the shares of Equity Stock that were converted into shares of
Excess Stock; and, as soon as reasonably practicable following the Corporation's
receipt or withholding thereof, shall pay over to the Trust for the benefit of
the Beneficiary the dividends so received or withheld, as the case may be.
6. Liquidation of the Corporation. In the event of any
voluntary or involuntary liquidation of, or winding up of, or any distribution
of the assets of, the Corporation, each holder of shares of Excess Stock shall
be entitled to receive, ratably with each other holder of shares of the same
class and series of Equity Stock which was converted into such Excess Stock,
that portion of the assets of the Corporation that is available for distribution
to the holders of the same class and series of Equity Stock which was converted
into such Excess Stock. The Trust shall distribute to the Prohibited Owner the
amounts received upon such liquidation, dissolution, or winding up, or
distribution; provided, however, that the Prohibited Owner shall not be entitled
to receive amounts in excess of, in the case of a purported Transfer in which
the Prohibited Owner gave value for shares of Equity Stock and which Transfer
resulted in
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the conversion of such shares of Equity Stock into shares of Excess Stock, the
product of (x) the price per share, if any, such Prohibited Owner paid for the
shares of Equity Stock and (y) the number of shares of Equity Stock which were
so converted into Excess Stock, and, in the case of a Non-Transfer Event or
purported Transfer in which the Prohibited Owner did not give value for such
shares (e.g., if the shares were received through a gift or devise) and which
Non-Transfer Event or purported Transfer, as the case may be, resulted in the
conversion of the shares into shares of Excess Stock, the product of (x) the
price per share equal to the Market Price (as hereinafter defined) on the date
of such Non-Transfer Event or purported Transfer and (y) the number of shares of
Equity Stock which were so converted into Excess Stock. Any remaining amount in
such Trust shall be distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the
holder to no voting rights other than those voting rights which accompany a
class of capital stock under Delaware law. The Trustee, as record holder of the
Excess Stock, shall be entitled to vote all shares of Excess Stock. Any vote by
a Prohibited Owner as a purported holder of shares of Equity Stock prior to the
discovery by the Corporation that such shares of Equity Stock have been
converted into shares of Excess Stock shall, subject to applicable law, be
rescinded and shall be void ab initio with respect to such shares of Excess
Stock.
8. Restrictions on Transfer. (a) As soon as practicable after
the Trustee acquires Excess Stock and complies with the last sentence of this
Section 8(a), but in an orderly fashion so as not to materially adversely affect
the trading price of the same class and series of Equity Stock from which such
Excess Stock was converted, the Trustee shall designate one or more Persons as
Permitted Transferees (as hereinafter defined) and sell to such Permitted
Transferees any shares of Excess Stock held by the Trustee; provided, however,
that (i) any Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the shares of Excess Stock
and (ii) any Permitted Transferee so designated may acquire the shares of the
same class and series of Equity Stock from which such Excess Stock was converted
without violating any of the restrictions set forth in section E.1 of this
Article FOURTH and without such acquisition resulting in the conversion of such
shares of Equity Stock into shares of Excess Stock and the Transfer of such
shares to a Trust pursuant to sections F.1 and F.4 of this Article FOURTH. The
Trustee shall have the exclusive and absolute right to designate Permitted
Transferees of any and all shares of Excess Stock. Prior to any Transfer by the
Trustee of shares of Excess Stock to a Permitted Transferee, the Trustee shall
give not less than five Trading Days prior written notice to the Corporation of
such intended Transfer and the Corporation must have waived in writing
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its purchase rights under section F.10 of this Article FOURTH if such intended
Transfer would occur during the 90-day period referred to therein.
(b) Upon the designation by the Trustee of a
Permitted Transferee in accordance with the provisions of this section F.8, the
Trustee shall cause to be Transferred to the Permitted Transferee shares of
Excess Stock acquired by the Trustee pursuant to section F.4 of this Article
FOURTH. Upon such Transfer of shares of Excess Stock to the Permitted
Transferee, such shares of Excess Stock shall be automatically converted into an
equal number of shares of Equity Stock of the same class and series from which
such Excess Stock was converted. Upon the occurrence of such a conversion of
shares of Excess Stock into an equal number of shares of Equity Stock, such
shares of Excess Stock shall be automatically retired and canceled, without any
action required by the Board of Directors of the Corporation, and shall
thereupon be restored to the status of authorized but unissued shares of Excess
Stock and may be reissued by the Corporation as Excess Stock. The Trustee shall
(i) cause to be recorded on the stock transfer books of the Corporation that the
Permitted Transferee is the holder of record of such number of shares of Equity
Stock, and (ii) distribute to the Beneficiary any and all amounts held with
respect to such shares of Excess Stock after making payment to the Prohibited
Owner pursuant to section F.9 of this Article FOURTH.
(c) If the Transfer of shares of Excess Stock to
a purported Permitted Transferee would or does violate any of the transfer
restrictions set forth in Section E.1 of this Article FOURTH, such Transfer
shall be void ab initio as to that number of shares of Excess Stock that cause
the violation of any such restriction when such shares are converted into shares
of Equity Stock (as described in section 8(b) above) and the purported Permitted
Transferee shall be deemed to be a Prohibited Owner and shall acquire no rights
in such shares of Excess Stock or Equity Stock. Such shares of Equity Stock
shall be automatically converted into Excess Stock and transferred to the Trust
from which they were originally Transferred. Such conversion and transfer to the
Trust shall be effective as of the close of trading on the Trading Day prior to
the date of the Transfer to the purported Permitted Transferee and the
provisions of this Article FOURTH shall apply to such shares, including, without
limitation, the provisions of sections F.8 through F.10 with respect to any
future transfer of such shares by the Trust.
9. Any Prohibited Owner shall be entitled (following
acquisition of the shares of Excess Stock and subsequent designation of and sale
of Excess Stock to a Permitted Transferee in accordance with section F.8 of this
Article FOURTH or following the acceptance of the offer to purchase such shares
in accordance with section
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F.10 of this Article FOURTH) to receive from the Trustee following the sale or
other disposition of such shares of Excess Stock the lesser of (a)(i) in the
case of a purported Transfer in which the Prohibited Owner gave value for shares
of Equity Stock and which Transfer resulted in the conversion of such shares
into shares of Excess Stock, the product of (x) the price per share, if any,
such Prohibited Owner paid for the shares of Equity Stock and (y) the number of
shares of Equity Stock which were so converted into Excess Stock and (ii) in the
case of a Non-Transfer Event or purported Transfer in which the Prohibited Owner
did not give value for such shares (e.g., if the shares were received through a
gift or devise) and which Non-Transfer Event or purported Transfer, as the case
may be, resulted in the conversion of such shares into shares of Excess Stock,
the product of (x) the price per share equal to the Market Price on the date of
such Non- Transfer Event or purported Transfer and (y) the number of shares of
Equity Stock which were so converted into Excess Stock or (b) the proceeds
received by the Trustee from the sale or other disposition of such shares of
Excess Stock in accordance with section F.8 or section F.10 of this Article
FOURTH. Any amounts received by the Trustee in respect of such shares of Excess
Stock which are in excess of such amounts to be paid to the Prohibited Owner
pursuant to this section F.9 shall be distributed to the Beneficiary in
accordance with the provisions of section F.8 of this Article FOURTH. The
Trustee and the Trust shall not be liable for, and each Beneficiary and
Prohibited Owner shall be deemed to have irrevocably waived, any claim by a
Beneficiary or Prohibited Owner arising out of the disposition of shares of
Excess Stock, except for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with this section F
of this Article FOURTH by, such Trustee.
10. Purchase Right in Stock Transferred to Trustee. Shares of
Excess Stock shall be deemed to have been offered for sale to the Corporation,
or its designee, at a price per share equal to the lesser of (a) the price per
share in the transaction that created such shares of Excess Stock (or, in the
case of a Non-Transfer Event or Transfer in which the Prohibited Owner did not
give value for the shares (e.g., if the shares were received through a gift or
devise), the Market Price on the date of such Non Transfer Event or Transfer in
which the Prohibited Owner did not give value for the shares) or (b) the Market
Price on the date the Corporation, or its designee, accepts such offer. The
Corporation shall have the right to accept such offer for a period of 90 days
following the later of (x) the date of the Non-Transfer Event or purported
Transfer which results in such shares of Excess Stock or (y) the date the Board
of Directors of the Corporation first determined that a Transfer or Non-Transfer
Event resulting in shares of Excess Stock has occurred, if the Corporation does
not receive a notice of such Transfer or Non- Transfer Event pursuant to section
F.3 of this Article FOURTH.
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G. Remedies Not Limited. Except as set forth in section E.4 of
this Article FOURTH, nothing contained in this Article FOURTH
shall limit the authority of the Corporation to take such
other action as it deems necessary or advisable to protect the
Corporation and the interests of its stockholders by
preservation of the Corporation's status as a REIT and to
ensure compliance with the Ownership Limit.
H. Ambiguity. In the case of an ambiguity in the application of
any of the provisions of this Article FOURTH, including any
definition contained in Article ELEVENTH hereof, the Board of
Directors shall have the power to determine the application of
the provisions of this Article FOURTH with respect to any
situation based on the facts known to it and any such
determination made in good faith shall be binding on all
stockholders of the Corporation.
I. Legend. Each certificate for shares of Equity Stock shall
bear the following legend:
"The shares of Plum Creek Timber Company, Inc. (the
"Corporation") represented by this certificate are subject to
restrictions set forth in the Corporation's Certificate of
Incorporation which prohibit in general (a) any Person from
Beneficially Owning shares of Equity Stock in excess of the
Ownership Limit and (b) any Person from acquiring or maintain
ing any ownership interest in the capital stock of the
Corporation that is inconsistent with (i) the requirements of
the Code pertaining to real estate investment trusts or (ii)
the Certificate of Incorporation of the Corporation, and the
holder of this certificate by his acceptance hereof consents
to be bound by such restrictions. Any purported transfer of
Equity Stock in violation of such restrictions shall be void
ab initio and the Equity Stock in violation of such
restrictions, whether as a result of a Transfer or the Non-
Transfer Event, shall be automatically converted into shares
of Excess Stock and transferred to a Trust for disposition as
provided in the Certificate of Incorporation. Capitalized
terms used in this paragraph and not defined herein are
defined in the Corporation's Certificate of Incorporation. The
Corporation will furnish without charge, to each stockholder
who so requests, a copy of the Certificate of Incorporation of
the Corporation, containing, among other things, a statement
of the powers, designations, preferences and relative,
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<PAGE> 18
participating, optional or other special rights of each class
of stock or series thereof that the Corporation is authorized
to issue and the qualifications, limitations or restrictions
of such preferences and/or rights. Any such request shall be
addressed to the Secretary of the Corporation.
J. Each provision of this Article FOURTH shall be severable and
any such provision determined to be invalid by a court having
jurisdiction shall in no way affect the validity of any other
provision.
V. FIFTH: A. At all times subsequent to the date of filing of this
Certificate of Incorporation with the Secretary of State for the State
of Delaware, the directors shall be classified, with respect to the
term for which they severally hold office, into three classes,
designated "Class I," "Class II" and "Class III," respectively. The
initial Class I Directors shall serve for a term expiring at the first
annual meeting of stockholders; the initial Class II Directors shall
serve for a term expiring at the second annual meeting of stockholders;
and the initial Class III Directors shall serve for a term expiring at
the third annual meeting of stockholders. At each annual meeting of
stockholders, the successor or successors of the class of directors
whose term expires at that meeting shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at
such meeting and entitled to vote on the election of directors, and
shall hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their
election. The directors elected to each class shall hold office until
their successors are duly elected and qualified or until their earlier
resignation or removal. The Board of Directors shall have the
authority, upon the approval and at the direction of a majority of its
members, to designate a Nominating Committee and one or more
committees, each committee to consist of one or more of the directors
of the Corporation as selected by a majority of the members of the
Board of Directors. To the extent permitted by law and provided in the
resolution authorizing such committee, any such committee shall have
and may exercise all the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article FOURTH of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or together
with holders of other such series, to elect directors at an annual or special
meeting of stockholders, the election,
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<PAGE> 19
term of office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate of Incorporation, including
any Preferred Stock
Designation applicable thereto.
During any period when the holders of any series of Preferred Stock
have the right to elect additional directors as provided for or fixed
pursuant to the provisions of Article FOURTH of this Certificate of
Incorporation, then upon commencement and for the duration of the
period during which such right continues: (a) the then otherwise total
authorized number of directors of the Corporation shall automatically
be increased by such specified number of directors, and the holders of
such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b)
each such additional director shall serve until such director's
successor shall have been duly elected and qualified, or until such
director's right to hold such office terminates pursuant to said
provisions, whichever occurs earlier, subject to such director's
earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board of Directors in the resolution or
resolutions establishing such series, whenever the holders of any
series of Preferred Stock having such right to elect additional
directors are divested of such right pursuant to the provisions of such
stock, the terms of office of all such additional directors elected by
the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such
additional directors, shall forthwith terminate and the total
authorized number of directors of the Corporation shall be reduced
accordingly.
B. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to remove any director
whom such holders have the right to elect, any director
(including persons elected by directors to fill vacancies in
the Board of Directors) may be removed from office (a) only
with cause and (b) only by the affirmative vote of the holders
of at least 662/3% of the total voting power of the shares of
capital stock of the Corporation then entitled to vote at a
meeting of the stockholders called for that purpose. At least
30 days prior to any meeting of stockholders at which it is
proposed that any director be removed from office, written
notice of such proposed removal shall be sent to the director
whose removal will be considered at the meeting. For purposes
of this Certificate of Incorporation, "cause," with respect to
the removal of any director, shall mean only (i) conviction of
a felony, (ii) declaration of unsound mind by order of a
court, (iii) gross derelic-
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<PAGE> 20
tion of duty, (iv) commission of any act involving moral
turpitude or (v) commission of an act that constitutes
intentional misconduct or a knowing violation of law if such
action in either event results both in an improper substantial
personal benefit to such director and a material injury to the
Corporation.
C. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in
the Board of Directors relating thereto, any and all vacancies
in the Board of Directors, however occurring, including,
without limitation, through death, resignation, removal, an
increase in the number of directors or otherwise may be filled
only by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the end of the
term of the class to which they are appointed and until their
successors are duly elected and qualified, or until their
earlier death, resignation or removal. Any director appointed
in accordance with the preceding sentence shall hold office
for the remainder of the full term of the class of directors
in which such director was appointed or until such director's
earlier resignation or removal. If such director was
designated by the Principals, pursuant to the Conver sion
Agreement or such increase in the number of directors would
result in the Principals no longer having designated a
majority of the Board of Directors at a time when the
Principals are entitled under the Conversion Agreement to
designate a majority of the Board of Directors, such vacancy
shall be filled by a designee of the Principals. Subject to
the rights, if any, of the holders of any series of Preferred
Stock, when the number of directors is increased or decreased,
the Board of Directors shall determine the class or classes to
which the increased or decreased number of directors shall be
apportioned; provided, however, that no decrease in the number
of directors shall shorten the term of any incumbent director.
In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until such
vacancy is filled.
VI. SIXTH: Any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of the stockholders, may be taken only at
a duly called annual
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<PAGE> 21
or special meeting of stockholders and may not be taken by written
consent of the stockholders in lieu of such meeting.
VII. SEVENTH: The Board of Directors is expressly authorized to make, amend
or repeal the bylaws of the Corporation, without any action on the part
of the stockholders, solely by the affirmative vote of at least 66 2/3%
of the directors of the Corporation then in office. In addition to any
other vote required by law, the bylaws may be amended or repealed by the
stockholders by the affirmative vote of the holders of shares
representing at least 66 2/3% of the combined voting power of the
outstanding shares of capital stock of the corporation entitled to vote.
VIII. EIGHTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the GCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
If the GCL hereafter is amended to further eliminate or limit the
liability of directors, then the liability of a director of the Corporation, in
addition to the limitation on personal provided herein, shall be limited to the
fullest extent permitted by the amended GCL. Any repeal or modification of this
Article EIGHTH by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the liability of a director of
the Corporation existing at the time of such repeal or modification.
IX. NINTH. The Corporation shall seek to satisfy the requirements for
qualification as a REIT under the Code until such time as the Board of
Directors shall determine otherwise, such determination being approved
by the affirmative vote of at least 66 2/3% of the directors of the
Corporation then in office.
X. TENTH. In addition to any other vote required by law, the amendment or
repeal of, or adoption of any provisions inconsistent with, Articles
FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH or this Article TENTH or any term
defined in Article ELEVENTH to the extent such term is used in any such
Article shall require the approval of the holders of at least 66 2/3% of
the total voting power of the shares of capital stock entitled to vote
thereon, voting as a single class.
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<PAGE> 22
XI. ELEVENTH. For purposes of this Certificate of Incorporation, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any Person or Persons, (i) any
natural person who is related by blood or marriage to any such Person, (ii) any
trust of which there are no principal beneficiaries other than any such Person
or Permitted Transferees of such Person, (iii) any charitable foundation over
which any such Person has discretionary authority, (iv) any heirs or executors
of any such Person and (v) if such Person is either of the PCMC Partners, any
entity of which a majority of the total outstanding voting equity or a majority
of the value of the outstanding ownership interests is owned by the PCMC
Partners.
"Beneficial Ownership," shall be calculated as follows:
(i) when used in Section C of Article FOURTH or any defined term
used therein, shares of Common Equity received by the PCMC Partners pursuant
to the terms of the Conversion Agreement shall be deemed to be 100%
Beneficially Owned by the Principals so long as (i) the PCMC Partners shall
maintain their, respective, Beneficial Ownership of such securities and the
Principals and their Permitted Transferees maintain their collective voting and
dispositive power with respect to such securities or (ii) if such securities
are distributed by the PCMC Partners, the Principals and their Permitted
Transferees Beneficially Own and maintain substantially all of their collective
opportunity for gain and risk of loss with respect to such securities; provided
however, that for purposes of subsection (i) above, in the event that the
Principals Transfer voting interests or the opportunity for gain and risk of
loss in the PCMC Partners, other than Transfers of voting interests and the
opportunity for gain and risk of loss to any Person that holds an ownership
interest in the PCMC Partners as of the Closing Date (as defined in the
Conversion Agreement), such 100% deemed Beneficial Ownership by the Principals
shall be reduced by such Transferred amount, and provided further, that if the
PCMC Partners Transfer any such securities to a Person in which it owns a
majority of the voting power and economic value, the PCMC Partners will be
deemed to Beneficially Own that same percentage of the total number of shares
of Common Equity held by such Person;
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<PAGE> 23
(ii) when used in sections E and F of Article FOURTH or in any
defined term used therein, shall mean ownership of Equity Stock by a Person
who would be treated as an owner of Equity Stock either directly or
indirectly under Section 542(a)(2) of the Code, taking into account, for
this purpose, constructive ownership determined under Section 544 of the
Code, as modified by Section 856(h) of the Code (except where expressly
provided otherwise); and
(iii) when used elsewhere in this Certificate of Incorporation,
shall mean beneficial ownership determined under Rule 13d-3 under the Exchange
Act (as hereinafter defined).
The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A)(other than clauses (vii)
and (viii) thereof) and Section 170(c)(2) of the Code that are named by the
Corporation as the beneficiary or beneficiaries of such Trust, in accordance
with the provisions of section F.4 of Article FOURTH.
"Change in Law" shall mean any change in the Code or the regulations
promulgated thereunder that would require a reduction in the number of votes
represented by the Special Voting Stock in order to maintain the Corporation's
status as a REIT.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Constructive Ownership" shall mean ownership of shares of Equity Stock by
a Person who is or would be treated as a direct or indirect owner of such shares
of Equity Stock through the application of Section 318 of the Code. The terms
"Constructive Owner," "Constructively Owns" and "Constructively Owned" shall
have correlative meanings.
"Conversion Agreement" shall mean the Agreement and Plan of Conversion,
dated as of June 5, 1998, by and among Plum Creek Timber Company, L.P., the
Corporation and PCMC, as amended by the Amended and Restated Agreement and Plan
of Conversion, dated as of July 17, 1998.
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<PAGE> 24
"Equity Stock" shall mean the Common Stock, the Special Voting Stock and
the Preferred Stock of the Corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Holder" shall mean Mr. John H. Scully, Mr. William J. Patterson
and Mr. William E. Oberndorf and their respective Affiliates, collectively.
"Extraordinary Transaction" shall mean any transaction (i) which requires
the vote of all stockholders of the Corporation (other than the election of
directors) under the GCL, (ii) which requires stockholder approval pursuant to
Rule 312.03(c) or (d) of the New York Stock Exchange Listed Company manual (or
the equivalent rule, if any, of any stock exchange or automated quotation
system on which the Corporation may be listed), or (iii) pursuant to which an
amendment to the bylaws of the Corporation would be effected by vote of its
stockholders.
"Market Price" of Equity Stock on any date shall mean the average of the
closing price for shares of such Equity Stock for the five consecutive Trading
Days ending on the Trading Day immediately prior to such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transactions reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the shares of Equity Stock are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
Equity Stock are listed or admitted to trading or, if the shares of Equity Stock
are not listed on admitted to trading on any national securities exchange, the
last quoted price, or if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may be in use or, if the shares of Equity Stock
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker selected by the Board
of Directors making a market in the shares of Equity Stock.
"Non-Transfer Event" shall mean an event other than a purported Transfer
that would cause or result in an increase in the percentage of any Person's
Beneficial Ownership of the outstanding shares of Equity Stock.
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<PAGE> 25
"Ownership Limit" shall mean (i) with respect to Persons other than the
Excluded Holder (a) with respect to the Common Equity, 5% of the lesser of (1)
the total number of shares of Common Stock outstanding (assuming all shares of
Special Voting Stock have been converted into Common Stock), or (2) the value
of the outstanding shares of Common Stock (assuming all shares of Special
Voting Stock have been converted into Common Stock), or (b) with respect to
Preferred Stock, 5% of the lesser of (1) the total number of shares of
Preferred Stock outstanding, or (2) the value of the outstanding shares of
Preferred Stock (or such other number or value of Preferred Stock as the Board
of Directors may determine in fixing the terms of the Preferred Stock); and
(ii) with respect to the Excluded Holder, the Ownership Limit shall be the
lesser of 27% of the outstanding Common Stock and the lowest percentage of the
outstanding Common Stock either Beneficially Owned or Constructively Owned by
the Excluded Holder at any time (assuming all shares of Special Voting Stock
are converted into Common Stock in accordance with the terms hereof).
"PCMC Partners" shall mean PC Advisory Partners I, L.P., a Delaware
limited partnership, and PC Intermediate Holdings, L.P., a Delaware limited
partnership.
"Permitted Transferee" shall mean
(i) when used in section C of Article FOURTH or any defined term
used therein, with respect to any Person or Persons, (a) any natural person who
is related by blood or marriage to any such Person, (b) any trust or
partnership of which there are no principal beneficiaries or partners, as the
case may be, other than any such Person or Permitted Transferees of such
Person, (c) any charitable foundation over which any such Person has
discretionary authority, and (d) any heirs or executors of any such Person; and
(ii) when used elsewhere in this Certificate of Incorporation, any
Person designated as a Permitted Transferee in accordance with the provisions
of section F.8 of Article FOURTH.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as the term is used for purposes of Section
13(d)(3) of the Exchange Act; but shall not include an underwriter that
participates in a public offering of Equity Stock for a period of 90 days
following purchase by such underwriter of such Equity Stock.
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<PAGE> 26
"Principals" shall mean Mr. John H. Scully, Mr. William J. Patterson and
Mr. William E. Oberndorf, collectively.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from becoming or remaining the
owner of record title to shares of Equity Stock by the provisions of section F.1
of Article FOURTH.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer of Beneficial Ownership of shares of Equity Stock that
results in the automatic conversion of such shares into Excess Stock, the
purported transferee of Beneficial Ownership of such shares if such purported
Transfer had been valid under Section E.1 of Article FOURTH.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer of Beneficial Ownership of shares of Equity Stock that results in the
automatic conversion of such shares into Excess Stock, the purported record
transferee of such shares if such purported Transfer had been valid under
Section E.1 of Article FOURTH.
"REIT" shall mean a real estate investment trust under Section 856 et
seq. of the Code.
"Subsidiary" shall mean any Person in which the Corporation beneficially
owns, directly or indirectly, more than 50% of the voting power of the
outstanding voting equity securities.
"Trading Day" shall mean a day on which the principal national
securities exchange on which any of the shares of Equity Stock are listed or
admitted to trading is open for the transaction of business, or, if none of the
shares of Equity Stock are listed or admitted to trading on any national
securities exchange, any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of Beneficial Ownership of Equity Stock, whether
voluntary or involuntary and whether by operation of law or otherwise.
"Transfer" (as a verb) shall have the correlative meaning.
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<PAGE> 27
"Trust" shall mean any separate trust created and administered in
accordance with the terms of section F of Article FOURTH, for the exclusive
benefit of any Beneficiary.
"Trustee" shall mean any Person, unaffiliated with both the Corporation
and any Prohibited Owner (and, if different than the Prohibited Owner, the
Person who would have had Beneficial Ownership of the Shares that would have
been owned of record by the Prohibited Owner), designated by the Corporation to
act as trustee of any Trust, or any successor trustee thereof.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed as of the __ day of _________, 1999.
PLUM CREEK TIMBER COMPANY, INC.
By
----------------------------
Name:
President
<PAGE> 1
EXHIBIT 3.4
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
PLUM CREEK TIMBER COMPANY, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
Section 2. Annual Meetings. The Annual Meetings of Stockholders for the
election of directors shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors. Any other proper
business may be transacted at the Annual Meeting of Stockholders.
<PAGE> 2
Section 3. Special Meetings. Unless otherwise required by law or by the
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, or (ii) the President, (iii) any Vice President, if
there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be
one, and shall be called by any such officer at the request in writing of (i)
the Board of Directors, (ii) a committee of the Board of Directors that has been
duly designated by the Board of Directors and whose powers and authority include
the power to call such meetings or (iii) stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting. At a
Special Meeting of Stockholders, only such business shall be conducted as shall
be specified in the notice of meeting (or any supplement thereto).
Section 4. Notice. Whenever stockholders are required or permitted to
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 5. Nature of Business at Meetings of Stockholders. No business
may be transacted at an annual meeting of stockholders, other than business that
is either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section 5 and on the record date
for the determination of stockholders entitled to vote at such annual meeting
and (ii) who complies with the notice procedures set forth in this Section 5.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less
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<PAGE> 3
than sixty (60) days nor more than ninety (90) days prior to the anniversary
date of the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the close
of business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 5; provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 5 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 6. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any special
meeting of stockholders called for the purpose of electing directors, (a) by or
at the direction of the Board of Directors (or any
3
<PAGE> 4
duly authorized committee thereof) or (b) by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 6 and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this Section 6.
Reference is made to the Agreement and Plan of Conversion (the
"Conversion Agreement"), dated as of June 5, 1998, by and among the Corporation,
Plum Creek Timber Company, L.P., and Plum Creek Management Company, L.P.
("PCMC") and to Section 3.5 thereof. Pursuant to the Conversion Agreement and
subject to the terms set forth therein, PCMC has the right to cause the
Corporation to include in the slate of proposed directors put forth by the
Corporation to its stockholders, certain of its designees.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
(a) in the case of an annual meeting, not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth (10th) day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be
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required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder; and (b)
as to the stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 6. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 7. Adjournments. Only the Chairman of the meeting has the power
to adjourn stockholder meetings. Any meeting of the stockholders may be
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Quorum. Unless otherwise required by law or the Certificate
of Incorporation, the holders of the number of shares of Common Equity (as
defined in the Certificate of Incorporation) issued and outstanding which
constitutes at least a majority of the votes entitled to be cast thereat,
present in person or represented by
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proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in the manner
provided in Section 7, until a quorum shall be present or represented.
Section 9. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-laws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the total number of votes of the capital stock
represented and entitled to vote thereat, voting as a single class. Unless
otherwise provided in the Certificate of Incorporation, and subject to Section 5
of Article V hereof, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder. Such votes may be cast in person or by
proxy but no proxy shall be voted on or after three years from its date, unless
such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 10. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
Section 11. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 10 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
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Section 12. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
shall be classified with respect to the term for which the directors severally
hold office, into three classes and shall initially consist of nine members.
Thereafter, the number of members shall be determined from time to time by the
Board of Directors, but shall not be less than three nor more than fifteen
members. The Board of Directors shall determine the class or classes to which
any increased or decreased number of directors shall be apportioned, provided
that no decrease in the number of directors shall shorten the term of any
incumbent director. Except as provided in Section 2 of this Article III,
directors shall be elected by a plurality of the votes cast at the Annual
Meetings of Stockholders and each director so elected shall hold office until
the expiration of the term for which he or she was selected and until such
director's successor is duly elected and qualified, or until such director's
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Directors need not be stockholders.
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Section 2. Vacancies. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal. Any director
appointed in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which such director was
appointed or until such director's earlier resignation or removal. If such
director was a designee of PCMC (or such increase in the number of directors
would result in PCMC no longer having designated a majority of the Board of
Directors when PCMC has the power to designate a majority of the Board of
Directors) the Corporation is required to use its best efforts to have such
vacancy filled by a designee of PCMC.
Section 3. Resignation. Any director of the Corporation may resign at
any time by giving written notice to the Chairman of the Board, or to the
President or to the Secretary of the Corporation. The resignation of any
director shall take effect at the date of receipt of such notice or at any later
date specified therein; and unless otherwise specified therein the acceptance of
such resignation by the Board of Directors shall not be necessary to make if
effective.
Section 4. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 5. Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or by any director. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the date of the meeting, by
telephone or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
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Section 6. Quorum. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 7. Actions by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Meetings by Means of Conference Telephone. Unless otherwise
provided in the Certificate of Incorporation, members of the Board of Directors
of the Corporation, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
Section 9. Committees. A majority of the Board of Directors shall
designate a Nominating Committee and may designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent permitted by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal
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of the Corporation to be affixed to all papers which may require it. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
Section 10. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director, payable in cash or securities. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 11. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board
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of Directors, in its discretion, also may choose a Chairman of the Board of
Directors (who must be a director) and one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers. Any number of offices may
be held by the same person, unless otherwise prohibited by law or the
Certificate of Incorporation. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its first meeting held
after each Annual Meeting of Stockholders (or action by written consent of
stockholders in lieu of the Annual Meeting of Stockholders), shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President or any
other officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. The Chairman of the Board of Directors shall be
the Chief Executive Officer of the Corporation, unless the Board of Directors
designates the President as the Chief Executive Officer, and, except where by
law the signature of the President is required, the Chairman of the Board of
Directors shall possess the same
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power as the President to sign all contracts, certificates and other instruments
of the Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Board of Directors shall appoint one
member of the Board of Directors who shall exercise all the powers and discharge
all the duties of the President. Such member of the Board of Directors shall
also perform such other duties and may exercise such other powers as may from
time to time be assigned by these By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the control of the
Board of Directors and, if there be one, the Chairman of the Board of Directors,
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, if there be one, the President shall preside at all meetings of the
stockholders and the Board of Directors. If there be no Chairman of the Board of
Directors, or if the Board of Directors shall otherwise designate, the President
shall be the Chief Executive Officer of the Corporation. The President shall
also perform such other duties and may exercise such other powers as may from
time to time be assigned to such officer by these By-Laws or by the Board of
Directors.
Section 6. Vice Presidents. The Vice President, or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors),
shall perform such duties and have such powers as the Board of Directors from
time to time may prescribe. If there be no Chairman of the Board of Directors
and no Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be
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prescribed by the Board of Directors, the Chairman of the Board of Directors or
the President, under whose supervision the Secretary shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if there be
no Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest to the affixing by such officer's signature.
The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of the Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under the Treasurer's control belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of the Secretary's disability or refusal to act, shall perform the duties
of the Secretary, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary.
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Section 10. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the Treasurer's disability or refusal to act, shall perform the duties
of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restoration to the Corporation, in case of the Assistant
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Assistant
Treasurer's possession or under the Assistant Treasurer's control belonging to
the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
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Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law, in the Certificate of Incorporation, and in these
By-Laws. Transfers of stock shall be made on the books of the Corporation only
by the person named in the certificate or by such person's attorney lawfully
constituted in writing and upon the surrender of the certificate therefor, which
shall be cancelled before a new certificate shall be issued. No transfer of
stock shall be valid as against the Corporation for any purpose until it shall
have been entered in the stock records of the Corporation by an entry showing
from and to whom transferred.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; providing, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors
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may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise required by law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telecopy, facsimile or other electronic transmission.
Section 2. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting, present in person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall begin
on January 1 and conclude on December 31, unless changed by resolution of the
Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding,
17
<PAGE> 18
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that such person is
or was a director or officer of the Corporation, or is or was a director or
officer of the Corporation serving at the request of the Corporation as a
director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director
18
<PAGE> 19
or officer is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article VIII, as the case may be. Such determination shall be made, with respect
to a person who is a director or officer at the time of such determination, (i)
by a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) by a committee of such
directors designated by a majority vote of such directors, even though less than
a quorum, or (iii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion or (iv) by the
stockholders. Such determination shall be made, with respect to former directors
and officers, by any person or persons having the authority to act on the matter
on behalf of the Corporation. To the extent, however, that a present or former
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of authorization in
the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe such person's conduct
was unlawful, if such person's action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
such person by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in this
Section 4 shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to
19
<PAGE> 20
the Court of Chancery in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article VIII nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a director
or officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the
20
<PAGE> 21
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power or the obligation to indemnify such
person against such liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or
21
<PAGE> 22
part thereof) initiated by such person unless such proceeding (or part thereof)
was authorized or consented to by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of at least 66-2/3% of the
outstanding capital stock entitled to vote thereon (as well as any class vote
required pursuant to the Certificate of Incorporation) or by at least 66-2/3% of
the entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
* * *
Adopted as of: _____________________
Last Amended as of: ________________
22
<PAGE> 1
EXHIBIT 4.6
NUMBER
FBU
[PLUM CREEK TIMBER COMPANY INC. SEAL]
COMMON STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE
-------------------
SHARES
-------------------
THIS CERTIFICATE IS TRANSFERABLE [GRAPHIC] SEE REVERSE FOR IMPORTANT
IN BOSTON, MA AND NEW YORK, NY NOTICE ON TRANSFER
RESTRICTIONS AND OTHER
INFORMATION
CUSIP 729251 10 8
PLUM CREEK TIMBER COMPANY, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE REGISTERED OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
Plum Creek Timber Company, Inc. (the "Corporation") transferable on the books
of the Corporation by the holder hereof in person or by its duly authorized
attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Corporation's Certificate of
Incorporation and Bylaws and any amendments thereto. This Certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused this Certificate to be
executed on its behalf by its duly authorized officers.
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
[SIG] [SIG] [SIG]
AUTHORIZED SIGNATURE SECRETARY PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE> 2
THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE
CLASS, CONSISTING OF COMMON STOCK, SPECIAL VOTING STOCK AND ONE OR MORE CLASSES
OF PREFERRED STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED
STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE
CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN
REQUEST THEREFOR, A COPY OF THE CORPORATION'S CERTIFICATE OF INCORPORATION AND
A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES,
CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO
DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF
REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE CORPORATION HAS THE AUTHORITY
TO ISSUE AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR
SPECIAL CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND
PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii) THE
AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF
SUBSEQUENT SERIES. REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE
SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
The shares represented by this certificate are subject to restrictions
set forth in the Corporation's Certificate of Incorporation which prohibit in
general (a) any Person from Beneficially Owning shares of Equity Stock in excess
of the Ownership Limit and (b) any Person from acquiring or maintaining any
ownership interest in the capital stock of the Corporation that is inconsistent
with (i) the requirements of the Code pertaining to real estate investment
trusts or (ii) the Certificate of Incorporation of the Corporation, and the
holder of this certificate by his acceptance hereof consents to be bound by such
restrictions. Any purported transfer of Equity Stock in violation of such
restrictions shall be void ab initio and the Equity Stock in violation of such
restrictions, whether as a result of a Transfer or the Non-Transfer Event, shall
be automatically converted into shares of Excess Stock and transferred to a
Trust for disposition as provided in the Certificate of Incorporation.
Capitalized terms used in this paragraph and not defined herein are defined in
the Corporation's Certificate of Incorporation. The Corporation will furnish
without charge, to each stockholder who so requests, a copy of the Certificate
of Incorporation of the Corporation, containing, among other things, a statement
of the powers, designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof that the
Corporation is authorized to issue and the qualifications, limitations or
restrictions of such preferences and/or rights. Any such request shall be
addressed to the Secretary of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________Custodian_____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of
survivorship and not as tenants Under Uniform Gifts to Minors
in common Act__________________________
(State)
UNIF TRF MIN ACT -- ________Custodian (until age_______)
(Cust)
_____________under Uniform Transfers
(Minor)
to Minors Act______________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
-----------------------------
X
-----------------------------------------
X
-----------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGN-
MENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE PAGE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By
- -----------------------------------
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM). PURSUANT TO
S.E.C. RULE 17 Ad. 15.
<PAGE> 1
EXHIBIT 5.1
January 28, 1999
Plum Creek Timber Company, Inc.
999 Third Avenue
Suite 2300
Seattle, Washington 98104
Re: Plum Creek Timber Company, Inc. Registration on Form S-4
Gentlemen:
We have acted as special counsel to Plum Creek Timber Company, Inc., a
Delaware corporation (the "Company"), in connection with the issuance by the
Company of 46,323,300 shares (the "Shares") of its Common Stock, par value $.01
per share (the "Common Stock"), in exchange for all of the Partnership's
outstanding depositary units representing limited partnership interests in Plum
Creek Timber Company, L.P., a Delaware limited partnership (the "Partnership")
through a series of related transactions (the "Conversion"). This opinion is
being furnished in accordance with the requirements of Item 601(b)(5) of
Regulation S-K under the Securities Act of 1933, as amended (the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-4 as filed with the Securities and Exchange Commission (the
"Commission") on January 28, 1999 under the Securities Act of 1933, as amended,
(such Registration Statement being hereinafter referred to as the "Registration
Statement"); (ii) the Certificate of Incorporation of the Company, as presently
in effect; (iii) the form of Amended and Restated Certificate of Incorporation
of the Company to be filed prior to the consummation of the Conversion, (iv) the
By-Laws of the Company, as presently in effect; (v) the Agreement and Plan of
Conversion (the "Conversion Agreement"), dated
<PAGE> 2
Plum Creek Timber Company, Inc.
January 28, 1999
Page 2
as of June 5, 1998, and amended on July 17, 1998, by and among the Company, the
Partnership and Plum Creek Management Company, L.P.; (v) the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of July 17, 1998, by and among the
Company, the Partnership and Plum Creek Acquisition Partners, L.P. ("Merger
LP"); (vi) a specimen certificate representing the Common Stock; (vii) the form
of certificate of merger to be filed at the effective time of the Conversion;
and (viii) certain resolutions of the Board of Directors of the Company relating
to the Conversion. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, Merger LP and the Partnership, we have assumed that such parties had or
will have the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others.
Members of our Firm are admitted to the practice of law in the State of
Delaware and we do not express any opinion as to the laws of any other
jurisdiction.
Based upon and subject to the limitations, qualifications, exceptions
and assumptions set forth herein, we are of the opinion that, when the
Conversion is consummated in accordance with the terms of the Conversion
Agreement and the Merger Agreement, the issuance of the Shares will have been
duly authorized, validly issued, fully paid and non-assessable.
<PAGE> 3
Plum Creek Timber Company, Inc.
January 28, 1999
Page 3
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
Skadden, Arps, Slate,
Meagher & Flom LLP
<PAGE> 1
EXHIBIT 8.1
January 28, 1999
Plum Creek Timber Company, Inc.
999 Third Avenue
Suite 2300
Seattle, Washington 91804
Re: Certain Federal Income Tax Considerations
Ladies and Gentlemen:
We have acted as special tax counsel for Plum Creek Timber Company,
L.P., a Delaware limited partnership (the "Partnership") and Plum Creek Timber
Company, Inc., a Delaware corporation (the "Company"), in connection with the
proposed conversion (together with related transactions, the "Conversion Trans
action") of ownership interests in the Partnership into ownership interests in
the Company through the merger (the "Merger") of the Partnership with and into
Plum Creek Acquisition Partners, L.P., a Delaware limited partnership and a
wholly-owned, indirect subsidiary of the Company (the "Operating Partnership").
The terms of the Conversion Transaction are set forth in detail in the Agreement
and Plan of Conversion (the "Conversion Agreement"), dated as of June 5, 1998 as
amended on July 17, 1998, among the Partnership, the Company, and Plum Creek
Management Company, L.P., a Delaware limited partnership that is the sole
general partner of the Partnership ("PCMC"). Following the Merger, the Company
will elect to be treated for Federal income tax purposes as a real estate
investment trust.
Capitalized terms not otherwise defined herein shall have the respective
meanings set forth in the Conversion Agreement.
<PAGE> 2
Plum Creek Timber Company, Inc.
January 28, 1999
Page 2
In connection with the Conversion Transaction and pursuant to the
Proxy/Prospectus of the Company dated the date hereof (the "Prospectus"), the
Company will issue 46,323,300 shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), in exchange for ownership interests in the
Partnership.
In rendering our opinion, we have participated in the preparation of the
Prospectus. In addition, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of (i) the Prospectus; (ii) an
executed copy of the Conversion Agreement; (iii) the private letter ruling,
dated January 12, 1999, issued by the Internal Revenue Service to the
Partnership relating to the tax consequences of the Conversion Transaction (the
"Ruling"); and (iv) such other materials as we have deemed necessary or
appropriate as a basis for our opinion, including certificates (the
"Certificates") executed by appointed officers of the Company and the
Partnership relating to, among other things, the proposed operations of the
Company (the Certificates, together with the Prospectus and the Conversion
Agreement, the "Documents"). Our opinion is conditioned on, among other things,
the initial and continuing accuracy of the facts, information, covenants, and
representations set forth in the Documents and the statement and representations
made by the Partnership and the Company.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies, and
the authenticity of the originals of such latter documents. In making our
examination of documents executed, or to be executed by parties other than the
Partnership or the Company, we have assumed that such parties had, or will have
the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such documents
and that such documents constitute, or will constitute valid and binding
obligations of such parties. As to any facts material to the opinions expressed
herein which were not independently established or verified, we have relied upon
oral or written statements and representations of officers, trustees and other
representatives of the Partnership, Company, and others.
<PAGE> 3
Plum Creek Timber Company, Inc.
January 28, 1999
Page 3
In rendering our opinion, we have considered the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
Regulations promulgated thereunder, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and the Ruling, and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions, and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
change in the authorities upon which our opinion is based could affect the
conclusions. There can be no assurances, moreover, that any of the opinions
expressed herein will be accepted by the Internal Revenue Service or, if
challenged, by a court.
Based solely upon the foregoing, we are of the opinion that under
current United States federal income tax law, although the discussion set forth
in the Prospectus under the heading "MATERIAL FEDERAL INCOME TAX CONSEQUENCES"
does not purport to discuss all possible United States federal income tax
consequences of the purchase, ownership, and disposition of the Common Stock,
such discussion constitutes, in all material respects, a fair and accurate
summary of the United States federal income tax consequences of the purchase,
ownership, and disposition of Common Stock under current law.
In addition, based solely upon the foregoing, we are of the opinion that
under current United States federal income tax law:
(1) commencing with the Company's taxable year ending on December 31,
1999, the Company will be organized in conformity with the requirements for
qualification as a REIT under the Code, and the Company's proposed method of
operation will enable it to meet the requirements for qualification as a REIT;
(2) the Merger will be treated as a transfer of assets by the
Partnership to the Company in exchange for Common Stock in a transaction that is
governed by section 351 of the Code, and accordingly, no gain or loss will be
recognized by the Company, the Partnership or the Unitholders as a result of the
Merger, subject to the discussion in the succeeding paragraph.
<PAGE> 4
Plum Creek Timber Company, Inc.
January 28, 1999
Page 4
The Corporation's assumption of the Partnership's liabilities in the
Merger will reduce each Unitholder's share of the Partnership's liabilities,
which reduction will be treated for United States federal income tax purposes as
a deemed cash distribution to Unitholders. Accordingly, the adjusted tax basis
of each Unitholder's interest in the Partnership, which includes a Unitholder's
share of Partnership Liabilities, will be reduced to reflect each Unitholder's
share of such deemed distribution. A Unitholder would recognize gain to the
extent the deemed distribution exceeds the adjusted tax basis of the
Unitholder's interest in the Partner ship before the deemed distribution. For
purposes of rendering the opinion expressed in the immediately preceding
paragraph with respect to the Federal income tax consequences of the Merger to
Unitholders, we have assumed, with the express permission of PCMC, that each
Unitholder has a tax basis in its Units in excess of any anticipated deemed cash
distribution that would result from a reduction in a Unitholder's share of the
Partnership's liabilities as a result of the Merger.
(3) the Operating Partnership will not be classified as an association
taxable as a corporation, but will instead be classified as either (A) a
disregarded entity if 100% of its membership interests are held by the Company
directly or indirectly through one or more wholly-owned subsidiaries, or (B) a
partnership if, addition to the Company, at least one other person that is
unrelated to the Company owns an interest in the Operating Partnership.
(4) gain derived by the Operating Partnership from the disposal of
timber held for more than one year pursuant to the Stumpage Contracts will be
characterized as gain from the sale or other disposition of real property and
will not constitute income from the sale or other disposition of real property
described in section 1221 of the Code.
Except as set forth above, we express no opinion to any party as to the
tax consequences, whether Federal, state, local or foreign, of the Conversion
Trans action, the issuance of Common Stock, or any transaction related to or
contemplated by such transactions.
<PAGE> 5
Plum Creek Timber Company, Inc.
January 28, 1999
Page 5
The opinion is expressed as of the date hereof unless otherwise
expressly stated and we disclaim any undertaking to advise you of changes of the
facts stated or assumed herein or any subsequent change in applicable law.
Very truly yours,
Skadden, Arps, Slate,
Meagher & Flom LLP
<PAGE> 1
EXHIBIT 10.1
- --------------------------------------------------------------------------------
FORM OF
REGISTRATION RIGHTS AGREEMENT
Dated as of [_______]
between
PLUM CREEK TIMBER COMPANY, INC.
and
THE PARTIES NAMED HEREIN
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Definitions.................................................1
Section 2. Demand Registrations........................................4
Section 3. Piggyback Registrations.....................................7
Section 4. Hold-back Agreements........................................8
Section 5. Registration Procedures.....................................9
Section 6. Registration Expenses. ...................................14
Section 7. Indemnification............................................15
Section 8. Rules 144 and 144A.........................................18
Section 9. Underwritten Registrations.................................19
Section 10. Covenants of Holders.......................................19
Section 11. Miscellaneous..............................................20
</TABLE>
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<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of [_________], 1999 by and among PLUM CREEK TIMBER COMPANY, INC., a
Delaware corporation (the "Company"), and each of the parties from time to time
executing a signature page hereto (each an "Investor" and collectively the
"Investors").
WHEREAS, pursuant to an Amended and Restated Agreement and Plan of
Conversion, dated as of July 17, 1998 (the "Conversion Agreement"), by and among
the Company, Plum Creek Timber Company, L.P., and Plum Creek Management Company,
L.P., the Company has agreed to issue to the Investors, upon the terms and
subject to the conditions set forth in the Conversion Agreement, shares of
common stock, par value $.01 per share, of the Company and shares of special
voting stock, par value $.01 per share, of the Company (the "Special Voting
Stock");
WHEREAS, in the Conversion Agreement, the Company has agreed to provide
the registration rights set forth in this Agreement; and
WHEREAS, the execution and delivery of this Agreement is a condition to
the Closing (as defined in the Conversion Agreement).
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
Section 1. Definitions.
As used in this Agreement, the following terms shall have the meanings
set forth below:
"Charter" means the Certificate of Incorporation of the Company, as
amended from time to time.
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
<PAGE> 4
"Common Stock" means the Company's common stock, par value $.01 per
share, or any other shares of capital stock or other securities of the Company
into which such shares of Common Stock shall be reclassified or changed,
including, by reason of a merger, consolidation, reorganization or
recapitalization. If the Common Stock has been so reclassified or changed, or if
the Company pays a dividend or makes a distribution on the Common Stock in
shares of capital stock, or subdivides (or combines) its outstanding shares of
Common Stock into a greater (or smaller) number of shares of Common Stock, a
share of Common Stock shall be deemed to be such number of shares of stock and
amount of other securities to which a holder of a share of Common Stock
outstanding immediately prior to such change, reclassification, exchange,
dividend, distribution, subdivision or combination would be entitled.
"Delay Period" has the meaning set forth in Section 2(d) of this
Agreement.
"Demand Notice" has the meaning set forth in Section 2(a) of this
Agreement.
"Demand Registration" has the meaning set forth in Section 2(a) of this
Agreement.
"Effectiveness Period" has the meaning set forth in Section 2(d) of this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Holder" means a person who owns Registrable Securities and is either
(i) an Investor or a Permitted Transferee of an Investor that has agreed to be
bound by the terms of this Agreement as if such person were an Investor, (ii)
upon the death of any Holder, the executor of the estate of such Holder or such
Holder's heirs, devisees, legatees or assigns or (iii) upon the disability of
any Holder, any guardian or conservator of such Holder.
"Interruption Period" has the meaning set forth in Section 5(o) of this
Agreement.
"Losses" has the meaning set forth in Section 7(a) of this Agreement.
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<PAGE> 5
"Misstatement/Omission" has the meaning set forth in Section 7(a) of
this Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"Other Security Holders" has the meaning set forth in Section 2(b) of
this Agreement.
"Permitted Transferee" means, with respect to any Person or Persons, (i)
any natural person who is related by blood or marriage to any such Person, (ii)
any trust or partnership of which there are no principal beneficiaries or
partners, as the case may be, other than any such Person or Permitted
Transferees of such Person, (iii) any charitable foundation over which any such
Person has discretionary authority, and (iv) any heirs or executors of any such
Person.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency, limited liability company
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"Piggyback Registration" has the meaning set forth in Section 3(a) of
this Agreement.
"Registrable Securities" means (i) the shares of Common Stock issued to
the Investors pursuant to the Conversion Agreement, (ii) the shares of Common
Stock issuable upon Conversion of the Special Voting Stock and (iii) any Common
Stock issued or issuable with respect to such Common Stock referred to above by
way of stock dividends or stock splits or in connection with a combination of
shares, recapitalization, merger, consolidation, or other reorganization or
otherwise. As to any particular Registrable Securities, such securities will
cease to be Registrable Securities when (i) they have been distributed to the
public pursuant to an offering registered under the Securities Act, (ii) they
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act or (iii) they are eligible for immediate
sale pursuant to Rule 144(k) under the Securities Act.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the related prospectus
and any information deemed to be a part of such prospectus pursuant to Rule 430A
under the Securities Act, all amendments and supplements to such registration
statement or prospectus, including
3
<PAGE> 6
pre- and post-effective amendments (including any registration statement filed
pursuant to Rule 462(b) under the Securities Act), all exhibits thereto and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"Required Investors" means Holders of at least 25% of the aggregate
amount of all Registrable Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
promulgated thereunder.
"Special Voting Stock" has the meaning set forth in the recitals hereto.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Conversion Agreement.
Section 2. Demand Registrations.
(a) The Holders shall have the right, commencing on the first
anniversary of the date hereof by written notice (the "Demand Notice") given to
the Company, to request the Company to register under and in accordance with the
provisions of the Securities Act all or part of the Registrable Securities
designated by such Holders (a "Demand Registration"). Upon receipt of any such
Demand Notice from any Holder, the Company will promptly notify all other
Holders of the receipt of such Demand Notice and allow them the opportunity to
include Registrable Securities held by them in the proposed registration by
submitting their own Demand Notice. Notwithstanding anything herein to the
contrary, the Company shall not be required to honor a request for a Demand
Registration if the Registrable Securities requested by the initiating Holders
to be so registered does not constitute at least one million shares (or any
lesser number constituting all of the then-remaining shares) of Common Stock
(subject to adjustment in the event of any reclassification, recapitalization,
stock split, combination or exchange of the Common Stock, or any dividend on the
Common Stock payable in stock or other securities). The Holders shall not be
entitled to make a Demand Notice prior to six months following the last date the
Company is required to keep a previously demanded Registration Statement
effective pursuant to Section 2(d) hereof.
4
<PAGE> 7
(b) Subject to paragraph (a) above, as soon as practicable, but
in any event within 60 days of the date on which the Company first receives a
Demand Notice pursuant to Section 2(a) hereof, the Company shall file with the
Commission a Registration Statement on the appropriate form for the registration
and sale of the total number of Registrable Securities specified in such Demand
Notice in accordance with the intended method or methods of distribution
specified by the Holders in such Demand Notice. Subject to paragraph (h) below,
the Company may include in such registration other securities for sale for its
own account or for the account of any other holders of Common Stock ("Other
Security Holders"). The Company shall use reasonable best efforts to cause such
Registration Statement to be declared effective by the Commission as soon as
reasonably practicable.
(c) Subject to Section 2(d), upon the occurrence of any event
that would cause the Registration Statement (A) to contain a material
misstatement or omission or (B) to be not effective and usable for resale of
Registrable Securities during the period that such Registration Statement is
required to be effective and usable, the Company shall file an amendment to the
Registration Statement as soon as reasonably practicable, in the case of clause
(A), correcting any such misstatement or omission and, in the case of either
clause (A) or (B), use reasonable best efforts to cause such amendment to be
declared effective and such Registration Statement to become usable as soon as
reasonably practicable thereafter.
(d) The Company agrees to use reasonable best efforts to keep
any Registration Statement filed pursuant to this Section 2 continuously
effective and usable for the sale of Registrable Securities (i) until 180 days
from the date on which the Commission declares such Registration Statement
effective, or (ii) until all the Registrable Securities covered by such
Registration Statement have been sold pursuant to such Registration Statement,
if earlier, in either case as such period may be extended pursuant to this
Section 2. Notwithstanding the foregoing, the Company shall have the right to
delay the filing of any Registration Statement otherwise required to be prepared
and filed by the Company pursuant to this Section 2, or to suspend the use of
any Registration Statement, for a period not in excess of 90 days (a "Delay
Period") if any executive officer of the Company determines that in such
executive officer's reasonable judgment and good faith the registration and
distribution of the Registrable Securities covered or to be covered by such
Registration Statement would materially interfere with any pending financing,
acquisition, reorganization or other material transaction involving the Company
or any of its subsidiaries or would require disclosure of any other material
corporate development that the Company is not otherwise required or prepared to
disclose. The Company will promptly give the Holders written notice of
5
<PAGE> 8
such determination and an approximation of the period of the anticipated delay;
provided, however, that the aggregate number of days included in all Delay
Periods during any consecutive 12 months shall not exceed the aggregate of (x)
180 days minus (y) the number of days occurring during all Interruption Periods
(as defined in Section 5(o) hereof) during such consecutive 12 months. Each
Holder agrees to cease all public disposition efforts under such Registration
Statement with respect to Registrable Securities held by such Holder immediately
upon receipt of notice of the beginning of any Delay Period. The Company shall
provide written notice to the Holders of the end of each Delay Period. The time
period for which the Company is required to maintain the effectiveness of a
Registration Statement referred to above shall be extended by the aggregate
number of days of all Delay Periods and Interruption Periods affecting such
Registration, and such period and any extension thereof is hereinafter referred
to as the "Effectiveness Period."
(e) The Company shall not enter into any agreement granting any
Other Security Holder piggyback rights to include such Other Security Holder's
securities in any registration in which the Holders have the right to include
Registrable Securities on a priority basis more favorable to such Other Security
Holder than is provided to the Holders pursuant to Section 3(b).
(f) Holders of a majority in number of the Registrable
Securities to be included in a Demand Registration pursuant to this Section 2
may, at any time prior to the effective date of the Registration Statement in
respect thereof, revoke such request by providing a written notice to the
Company to such effect; provided, however, that any such revocation shall be
counted as a demand under this section if such revocation occurs after the
Company has filed a registration statement.
(g) Preemption of Demand Registration. Notwithstanding anything
to the contrary contained herein, after receiving a written request for a Demand
Registration, the Company may elect to effect an underwritten primary
registration in lieu of the Demand Registration if the Company's Board of
Directors believes that such primary registration would be in the best interests
of the Company. If the Company so elects to effect a primary registration, the
Company shall give prompt written notice (which shall be given not later than 20
days after the date of the Demand Notice) to all holders of the Registrable
Securities of its intention to effect such a registration and shall afford the
holders of the Registrable Securities the rights contained in Section 3 with
respect to Piggyback Registrations. In the event that the Company so elects to
effect a primary registration after receiving a request for a Demand
Registration, the Company shall use reasonable best efforts to have the
Registration Statement declared
6
<PAGE> 9
effective by the Commission as soon as reasonably practicable. In addition, the
request for a Demand Registration shall be deemed to have been withdrawn and
such primary registration shall not be deemed to be a Demand Registration.
(h) Priority in Cutback. If a Demand Registration is an
underwritten offering and includes securities for sale by the Company, and the
managing underwriter (such underwriters to be chosen by the Holders included in
such registration, subject to the Company's reasonable approval) advises the
Company, in writing, that, in its good faith judgment, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without materially and adversely affecting the
marketability of the offering, then the Company will include in any such
registration the maximum number of shares which the managing underwriter advises
the Company can be sold in such offering allocated as follows: first the
Registrable Securities requested to be included in such registration by the
Holders, pro rata on the basis of the number of Registrable Securities requested
to be included by such Holders, second the securities requested to be included
in such registration by the Company for its own account, and third the
securities requested to be included in such registration by the Company for the
account of Other Security Holders.
Section 3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its equity securities under the Securities Act (other than a
registration on Form S-4 relating solely to a transaction described in Rule 145
of the Securities Act or a registration on Form S-8 or any successor forms
thereto), whether or not for sale for its own account, the Company will give
prompt written notice of such proposed filing to all Holders at least 30 days
before the anticipated filing date. Such notice shall offer such Holders the
opportunity to register such amount of Registrable Securities as they shall
request (a "Piggyback Registration"). Subject to Sections 3(b) and 3(c) hereof,
the Company shall include in each such Piggyback Registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 28 days after such notice has been given by the Holders
to the Company. If the Registration Statement relating to the Piggyback
Registration is to cover an underwritten offering, such Registrable Securities
shall be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. Each Holder shall be
permitted to withdraw all or part of the Registrable Securities from a Piggyback
Registration at any time prior to the effective time of such Piggyback
Registration.
7
<PAGE> 10
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
by or through one or more underwriters of recognized standing and the managing
underwriters advise the Company in writing that in their good faith judgment the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without materially and adversely
affecting the marketability of the offering, then the Company will include in
the Registration Statement relating to such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration by the Holders thereof, reduced,
if necessary, on a pro rata basis, based on the amount of Registrable Securities
requested to be included therein, and (iii) third, if no Registrable Securities
were excluded pursuant to this Section 3(b), securities other than Registrable
Securities requested to be included in such registration by Other Security
Holders; provided, that if such registration contemplates an "over-allotment
option" on the part of underwriters, to the extent such over-allotment option is
exercised and Holders were excluded from registering any Registrable Securities
pursuant to the priority provisions of this Section 3(b), then the
over-allotment option shall be exercised first with respect to the Registrable
Securities and the Principal Securities on a pro rata basis to the extent of any
exclusion.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of Other
Security Holders, by or through one or more underwriters of recognized standing
and the managing underwriter(s) advise the Company in writing that in their good
faith judgment the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
materially and adversely affecting the marketability of the offering, the
Company will include in such registration, the securities owned by such Other
Security Holders and the Registrable Securities requested to be included in such
registration by the Holders thereof, reduced, in each case, on a pro rata basis,
based on the amount of Registrable Securities owned by each such other Security
Holder or Holder.
Section 4. Hold-back Agreements.
(a) The Company agrees (i) if so required by the managing
underwriter of an underwritten offering effected pursuant to a Registration
under Section 2 or 3 hereof, not to effect any public or private sale or
distribution of securities of the same type (including any underlying
securities) as the Registrable Securities
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<PAGE> 11
included in such underwritten registration, or any securities convertible into
or exchangeable or exercisable for such securities, during the seven days prior
to the pricing of such offering and until the earlier of (A) the end of the
180-day period beginning on the date of pricing of such offering (except as part
of such underwritten offering and except pursuant to registrations on Form S-4
or Form S-8 (or any successor form to such Form)), unless the managing
underwriter for such offering otherwise agrees, and (B) the abandonment of such
offering, and (ii) to use reasonable best efforts to cause each holder of
securities of the same type as the securities included in such underwritten
offering, or any securities convertible into or exchangeable or exercisable for
such securities, in each case purchased from the Company at any time after the
date of this Agreement (other than in a registered public offering) to agree not
to effect any public or private sale or distribution or otherwise dispose
(including sales pursuant to Rule 144 under the Securities Act) of any such
securities during such period (except as part of such underwritten registration,
if otherwise permitted), unless the managing underwriter for such offering
otherwise agrees.
(b) If the Company registers securities of the Company in
connection with an underwritten public offering of Common Stock solely by the
Company, the Holders, if so requested by the managing underwriter of such
underwritten offering, agree not to effect any public sale or distribution of
any of the Registrable Securities, including any sale pursuant to Rule 144 under
the Securities Act (other than as a part of such underwritten public offering)
without the consent of the Company or such managing underwriter during the
period commencing on a date specified by the underwriter, such date not to
exceed seven days prior to the effective date of such registration statement,
and ending on the earlier of (A) 180 days after the pricing of such offering,
(B) the abandonment of such offering and (C) the first date on which the Company
or any affiliate or executive officer of the Company is permitted to sell shares
of Common Stock of the Company.
Section 5. Registration Procedures.
Whenever the Company is required to register Registrable Securities
pursuant to Section 2 or 3 hereof, the Company will use reasonable best efforts
to effect the registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities as prescribed by Section 2
or 3 on
9
<PAGE> 12
a form available for the sale of the Registrable Securities by the holders
thereof in accordance with the intended method or methods of distribution
thereof and use reasonable best efforts to cause each such Registration
Statement to become and remain effective within the time periods and otherwise
as provided herein;
(b) prepare and file with the Commission such amendments,
(including post-effective amendments) to the Registration Statement and such
supplements to the Prospectus as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such Registration Statement;
(c) furnish to each selling Holder of Registrable Securities
covered by a Registration Statement and to each underwriter, if any, such number
of copies of such Registration Statement, each amendment and post-effective
amendment thereto, the Prospectus included in such Registration Statement
(including each preliminary prospectus and any supplement to such Prospectus and
any other prospectus filed under Rule 424 of the Securities Act), in each case
including all exhibits, and such other documents as such Holder may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Holder or to be disposed of by such underwriter (the Company
hereby consenting to the use in accordance with all applicable law of each such
Registration Statement (or amendment or post-effective amendment thereto) and
each such Prospectus (or preliminary prospectus or supplement thereto) by each
such Holder and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by such Registration Statement or
Prospectus);
(d) use reasonable best efforts to register or qualify and, if
applicable, to cooperate with the selling Holders, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of, the Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any selling Holder or managing underwriters (if any) shall
reasonably request, to keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration Statement is
required to be kept effective and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Securities covered by the applicable Registration Statement; provided, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not
10
<PAGE> 13
otherwise be required to qualify but for this paragraph or (ii) consent to
general service of process or taxation in any such jurisdiction where it is not
so subject;
(e) use reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which securities of the
same class as the Registrable Securities are then listed and, if not so listed,
to be listed on the NASD automated quotation system and, if listed on the NASD
automated quotation system, use reasonable best efforts to secure designation of
all such Registrable Securities covered by such Registration Statement as a
NASDAQ Security within the meaning of Rule 11Aa3-l under the Exchange Act or,
failing that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the NASD;
(f) provide a transfer agent and registrar for all such
Registrable Securities and a CUSIP number for all such Registrable Securities
not later than the effective date of such Registration Statement;
(g) comply with all applicable rules and regulations of the
Commission, and make available to its security holders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (or in each case within
such extended period of time as may be permitted by the Commission for filing
the applicable report with the Commission) (i) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in an
underwritten offering or (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company after the
effective date of a Registration Statement, which earnings statement shall cover
said 12-month periods;
(h) use reasonable best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities included therein for sale in any jurisdiction, and, in the event of
the issuance of any stop order suspending the effectiveness of a Registration
Statement, or of any order suspending the qualification of any Registrable
Securities included in such Registration Statement for sale in any jurisdiction,
the Company will use reasonable best efforts promptly to obtain the withdrawal
of such order at the earliest possible moment;
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<PAGE> 14
(i) obtain "cold comfort" letters and updates thereof (which
letters and updates (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the Holders) from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each of the underwriters, if any, and each selling
Holder of Registrable Securities, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings and such other matters as the
underwriters, if any, or the Holders of a majority of the Registrable Securities
being sold may reasonably request;
(j) obtain opinions of independent counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters, if any, and the Holders
of a majority of the Registrable Securities being sold), addressed to each
selling Holder and each of the underwriters, if any, covering the matters
customarily covered in opinions of issuer's counsel requested in underwritten
offerings, such as the effectiveness of the Registration Statement and such
other matters as may be requested by such counsel and underwriters, if any;
(k) promptly notify the selling Holders and the managing
underwriters, if any, and confirm such notice in writing,
(1) when a Prospectus or any supplement or post-effective
amendment to such Prospectus has been filed, and, with respect to a
Registration Statement or any post-effective amendment thereto, when the
same has become effective,
(2) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to a
Registration Statement or related Prospectus or for additional
information,
(3) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or of any
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<PAGE> 15
order preventing or suspending the use of any Prospectus or the
initiation of any proceedings by any Person for that purpose,
(4) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable
Securities for offer or sale under the securities or blue sky laws of
any jurisdiction, or the contemplation, initiation or threatening, of
any proceeding for such purpose, and
(5) of the happening of any event or the existence of any facts
that make any statement made in such Registration Statement or
Prospectus untrue in any material respect or that require the making of
any changes in such Registration Statement or Prospectus so that it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made (in the case of any Prospectus), not misleading (which notice shall
be accompanied by an instruction to the selling Holders and the managing
underwriters, if any, to suspend the use of the Prospectus until the
requisite changes have been made);
(l) if requested by the managing underwriters, if any, or a
Holder of Registrable Securities being sold, promptly incorporate in a
prospectus, supplement or post-effective amendment such information as the
managing underwriters, if any, and the Holders of a majority of the Registrable
Securities being sold reasonably request to be included therein relating to the
sale of the Registrable Securities, including, without limitation, information
with respect to the number of shares of Registrable Securities being sold to
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten offering of the Registrable
Securities to be sold in such offering, and make all required filings of such
prospectus, supplement or post-effective amendment promptly following
notification of the matters to be incorporated in such supplement or
post-effective amendment;
(m) furnish to each selling Holder of Registrable Securities and
the managing underwriter, without charge, at least one signed copy of the
Registration Statement;
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<PAGE> 16
(n) as promptly as practicable upon the occurrence of any event
contemplated by clause 5(k)(5) above, prepare a supplement or post-effective
amendment to the Registration Statement or the Prospectus, or any document
incorporated therein by reference, or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold hereunder, the Prospectus will not contain an untrue statement of a
material fact or an omission to state a material fact required to be stated in a
Registration Statement or Prospectus or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(o) if such offering is an underwritten offering, enter into
such agreements (including an underwriting agreement in form, scope and
substance as is customary in underwritten offerings) and take all such other
appropriate and reasonable actions requested by the Holders owning a majority of
the Registrable Securities being sold in connection therewith or by the managing
underwriters (including cooperating in reasonable marketing efforts, including
participation by senior executives of the Company in any "roadshow" or similar
meeting with potential investors) in order to expedite or facilitate the
disposition of such Registrable Securities, and in such connection, provide
indemnification provisions and procedures substantially to the effect set forth
in Section 7 hereof with respect to all parties to be indemnified pursuant to
said Section. The above shall be done at each closing under such underwriting or
similar agreement, or as and to the extent required thereunder.
Each Holder agrees by acquisition of such Registrable Securities that,
upon receipt of written notice from the Company of the happening of any event of
the kind described in Section 5(k), such Holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Registration Statement contemplated by Section 5(n), or until it is
advised in writing by the Company that the use of the applicable Prospectus may
be resumed, and has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
prospectus (such period during which disposition is discontinued being an
"Interruption Period"), and, if so directed by the Company, such Holder will
deliver to the Company all copies of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
Section 6. Registration Expenses.
14
<PAGE> 17
The Company shall bear all expenses incurred in connection with the
registration or attempted registration of the Registrable Securities pursuant to
Sections 2 and 3 of this Agreement as provided herein. Such expenses shall
include, without limitation, all printing, legal and accounting expenses
incurred by the Company and all registration and filing fees imposed by the
Commission, any state securities commission or the New York Stock Exchange or,
if the Common Stock is not then listed on the New York Stock Exchange, the
principal national securities exchange or national market system on which the
Common Stock is then traded or quoted. Notwithstanding the foregoing sentence,
Holders shall be responsible for any pro rata share of brokerage or underwriting
commissions and taxes of any kind (including, without limitation, transfer
taxes) with respect to any disposition, sale or transfer of Registrable
Securities and for any legal, accounting and other expenses incurred by them in
connection with any Registration Statement.
Section 7. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify, to the fullest extent permitted by law, each Holder, each affiliate
of a Holder and each officer, director, employee, counsel, agent or
representative of such Holder and its affiliates and each Person who controls
any such Person (within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act) against, and hold it and them harmless from,
all losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees and disbursements) and expenses,
including expenses of investigation (collectively, "Losses") arising out of,
caused by or based upon any untrue or alleged untrue statement of material fact
contained in any Registration Statement, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading (a "Misstatement/Omission"), or any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law, or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law, except that the Company shall
not be liable insofar as such Misstatement/Omission or violation is made in
reliance upon and in conformity with information furnished in writing to the
Company by such Holder expressly for use therein; provided, further that the
Company shall not be liable for a Holder's failure to deliver or cause to be
delivered (to the extent such delivery is required under the Securities Act) the
Prospectus contained in the Registration Statement, furnished to it by the
Company at or prior to the time such action is required by the Securities Act to
the person claiming a Misstatement/Omission if such Misstatement/Omission was
corrected in such Registration Statement. In connection with an underwritten
offering, the Company will
15
<PAGE> 18
indemnify such underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such underwriters (within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders. This indemnity shall be in addition to any other
indemnification arrangements to which the Company may otherwise be party.
(b) Indemnification by the Holders. In connection with any
Registration Statement in which a Holder is participating, each such Holder
agrees to indemnify, to the fullest extent permitted by law the Company and each
affiliate, employee, counsel, agent, representative, director or officer of the
Company and each Person who controls the Company (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act) against, and
hold it harmless from, any Losses arising out of or based upon (i) any
Misstatement/Omission contained in the Registration Statement, if and to the
extent that such Misstatement/Omission arose out of or was based upon
information furnished in writing by such Holder for use therein, or (ii) the
failure by the Holder to deliver or cause to be delivered (to the extent such
delivery is required under the Securities Act) the Prospectus contained in the
Registration Statement, furnished to it by the Company at or prior to the time
such action is required by the Securities Act to the person claiming a
Misstatement/Omission if such Misstatement/Omission was corrected in such
Registration Statement. Notwithstanding the foregoing, the obligation to
indemnify will be individual (several and not joint) to each Holder and will be
limited to the net amount of proceeds (net of payment of all expenses) received
by such Holder from the sale of Registrable Securities pursuant to such
Registration Statement giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. In case any action,
claim or proceeding shall be brought against any Person entitled to indemnifica-
tion hereunder, such indemnified party shall promptly notify each indemnifying
party in writing, and such indemnifying party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such indemnified
party and payment of all fees and expenses incurred in connection with the
defense thereof. The failure to so notify such indemnifying party shall not
affect any obligation it may have to any indemnified party under this Agreement
or otherwise except to the extent that (as finally determined by a court of
competent jurisdiction (which determination is not subject to review or appeal))
such failure materially prejudiced such indemnifying party. Each indemnified
party shall have the right to employ separate counsel in such action, claim or
proceeding and participate in the defense thereof, but the fees and expenses of
such
16
<PAGE> 19
counsel shall be at the expense of each indemnified party unless: (i) such
indemnifying party has agreed to pay such expenses; (ii) such indemnifying party
has failed promptly to assume the defense and employ counsel reasonably
satisfactory to such indemnified party; or (iii) the named parties to any such
action, claim or proceeding (including any impleaded parties) include both such
indemnified party and such indemnifying party or an affiliate or controlling
person of such indemnifying party, and such indemnified party shall have been
advised in writing by counsel that either (x) there may be one or more legal
defenses available to it which are different from or in addition to those
available to such indemnifying party or such affiliate or controlling person or
(y) a conflict of interest may exist if such counsel represents such indemnified
party and such indemnifying party or its affiliate or controlling person;
provided, however, that such indemnifying party shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel), which counsel shall be designated by such indemnified party.
No indemnified party shall be liable for any settlement effected without
its written consent. Each indemnifying party agrees, jointly and severally, that
it will not, without the indemnified party's prior written consent, consent to
entry of any judgment or settle or compromise any pending or threatened claim,
action or proceeding in respect of which indemnification or contribution may be
sought hereunder unless the foregoing contains an unconditional release, in form
and substance reasonably satisfactory to the indemnified parties, of the
indemnified parties from all liability and obligation arising therefrom. The
indemnifying party's liability to any such indemnified party hereunder shall not
be extinguished solely because any other indemnified party is not entitled to
indemnity hereunder.
(d) Survival. The indemnification provided for under this
Agreement will (i) remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party, (ii) survive the
transfer of securities and (iii) survive the termination of this Agreement.
(e) Right to Contribution. If the indemnification provided for
in this Section 7 is unavailable to, or insufficient to hold harmless, an
indemnified party under Section 7(a) or Section 7(b) above in respect of any
Losses referred to in such Sections, then each applicable indemnifying party
shall have an obligation to contribute
17
<PAGE> 20
to the amount paid or payable by such indemnified party as a result of such
Losses in such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and of the Holder, on the other, in connection with
the Misstatement/Omission which resulted in such Losses, taking into account any
other relevant equitable considerations. The amount paid or payable by a party
as a result of the Losses referred to above shall be deemed to include, subject
to the limitations set forth in Section 7(c) above, any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation,
lawsuit or legal or administrative action or proceeding.
The relative fault of the Company, on the one hand, and of the Holder,
on the other, shall be determined by reference to, among other things, whether
the relevant Misstatement/Omission relates to information supplied by the
Company or by the Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Misstatement/Omission.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7(e) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 7(e), a Holder shall not be required to contribute
any amount in excess of the amount by which (i) the amount (net of payment of
all expenses) at which the securities that were sold by such Holder and
distributed to the public were offered to the public exceeds (ii) the amount of
any damages which such Holder has otherwise been required to pay by reason of
such Misstatement/Omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
Section 8. Rules 144 and 144A.
The Company shall timely file the reports required to be filed by it
under the Securities Act and the Exchange Act (including but not limited to the
reports under sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act)
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
holder of Registrable Securities, make publicly available other information) and
will take such further action as any holder of
18
<PAGE> 21
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 and Rule 144A under the Securities Act, as such Rules
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission.
Section 9. Underwritten Registrations.
In the case of any underwritten offering pursuant to a Demand
Registration under Section 2, the managing or lead underwriter or underwriters
thereof shall be selected by the Holders included in such registration, subject
to the Company's reasonable approval. No Person may participate in any
registration hereunder which is underwritten unless such Person (i) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Person or Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, customary indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided, that no
Holder included in any underwritten registration shall be required to make any
representations or warranties to the Company or the underwriters other than
representations and warranties regarding such Holder and such Holder's intended
method of distribution.
Section 10. Covenants of Holders.
Each of the Holders hereby agrees (a) to cooperate with the Company and
to furnish to the Company all such information in connection with the
preparation of the Registration Statement and any filings with any state
securities commissions as the Company may reasonably request, (b) to the extent
required by the Securities Act, to deliver or cause delivery of the prospectus
contained in the Registration Statement, any amendment or supplement thereto, to
any purchaser of the Registrable Securities covered by the Registration
Statement from the Holder and (c) to notify the Company within three months
after any sale of Registrable Securities by such Holder or, in the case of a
sale of all or substantially all of the Registrable Securities owned by a
Holder, within ten days after such sale.
19
<PAGE> 22
Section 11. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with, adversely effects or violates the rights granted to the Holders in this
Agreement.
(b) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights provided in the Conversion Agreement or granted by
law. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and hereby
agree to waive the defense in any action for specific performance or injunctive
relief that a remedy at law would be adequate. Accordingly, any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and for
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(c) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement, including the provisions of this sentence, may
be amended, modified, supplemented or waived only upon the prior written consent
of the Company and Holders of a majority of the outstanding Registrable
Securities.
(d) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Company. This
Agreement may only be assigned by any Holder to any other Holder, unless
otherwise consented to by the Company (such consent not to be unreasonably
withheld) and any other attempted assignment hereof by any Holder will be void
and of no effect and shall terminate all obligations of the Company hereunder
with respect to such Holder. None of the rights of any Investor or Holder may be
assigned other than to a Holder who agrees in writing to be bound by this
Agreement. The Company shall be given written notice by the transferring
Investor or Holder at the time of the transfer stating the name and address of
the transferee and identifying the Registrable Securities transferred, provided,
that failure to give such notice shall not affect the validity of such transfer
or assignment.
(e) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and
20
<PAGE> 23
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
(f) Counterparts. This Agreement may be executed in any number
of counterparts, any one of which need not contain the signatures of more than
one party, but each of which when so executed shall be deemed to be an original
and all such counterparts taken together shall constitute one and the same
Agreement.
(g) Descriptive Headings: Interpretation. The descriptive
headings of this Agreement are inserted for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. The use of the word
"including" in this Agreement shall be by way of example rather than by
limitation.
(h) Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable air courier guaranteeing
overnight delivery (charges prepaid), mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid or sent by
telecopier. Such notices, demands and other communications shall be sent to each
Investor at the address indicated below such Investor's name on the signature
pages to the Purchase Agreement and to the Company at the address indicated
below:
Plum Creek Timber Company, Inc.
999 Third Avenue, Suite 2300
Seattle, Washington 98104
(206) 467-3799 (fax)
Attention: President and Chief Executive Officer
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
(213) 687-5600 (fax)
Attention: Jonathan H. Grunzweig, Esq.
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<PAGE> 24
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. Any
notice, demand or other communication given hereunder will be deemed to have
been given as of the date so delivered; as of the first business day after being
delivered to an overnight air courier guaranteeing overnight delivery; on the
fifth business day after being mailed; or when transmission completed, if
telecopied; as the case may be.
(i) GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF ANY WASHINGTON STATE COURT SITTING IN THE CITY OF SEATTLE OR ANY
FEDERAL COURT SITTING IN THE CITY OF SEATTLE IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE REGISTRABLE
SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. EACH PARTY
AGREES THAT IT WILL NOT COMMENCE ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY
OTHER JURISDICTION. EACH PARTY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(j) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
22
<PAGE> 25
IN WITNESS WHEREOF the parties hereto have or have caused this
Registration Rights Agreement to be duly executed as of the date first above
written.
THE COMPANY:
PLUM CREEK TIMBER COMPANY, INC.
By:
--------------------------------------
Name:
Title:
THE INVESTORS:
PC ADVISORY PARTNERS I, L.P.
By:
--------------------------------------
Name:
Title:
Address for notices:
c/o SPO Partners Co.
591 Redwood Highway
Suite 3215
Mill Valley, California 94941
(415) 383-5126 (fax)
Attention: President and Chief Executive
Officer
With a copy (which shall not
constitute notice) to:
Sullivan & Cromwell
1888 Century Park East
21st Floor
Los Angeles, California 90067
(310) 712-8800 (fax)
Attention: Alison Ressler, Esq.
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<PAGE> 26
PCMC INTERMEDIATE HOLDINGS, L.P.
By:
--------------------------------------
Name:
Title:
Address for Notices:
c/o SPO Partners Co.
591 Redwood Highway
Suite 3215
Mill Valley, California 94941
(415) 383-5126 (fax)
Attention: President and Chief
Executive Officer
With a copy (which shall not constitute
notice) to:
Sullivan & Cromwell
1888 Century Park East
21st Floor
Los Angeles, California 90067
(310) 712-8800 (fax)
Attention: Alison Ressler, Esq.
24
<PAGE> 27
REGISTRATION RIGHTS AGREEMENT
HOLDER SIGNATURE PAGE
HOLDER
-----------------------------------------
Name:
Address for Notice:
-----------------------------------------
-----------------------------------------
-----------------------------------------
25
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
OF LIMITED PARTNERSHIP OF
PLUM CREEK ACQUISITION PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of July 16, 1998, is
entered into by and among Plum Creek Timber Company, Inc., as the General
Partner, and Plum Creek Timber I, L.L.C. as the sole Limited Partner. In
consideration of the covenants, conditions and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Formation and Continuation. The Partnership is formed as a limited
partnership pursuant to the provisions of the Delaware Act. Except as expressly
provided herein to the contrary, the rights and obligations of the Partners and
the administration, dissolution and termination of the Partnership shall be
governed by the Delaware Act. The Partnership Interest of each Partner shall be
personal property for all purposes.
1.2 Name. The name of the Partnership shall be "Plum Creek Acquisition
Partners, L.P." The Partnership's business may be conducted under any other name
or names deemed advisable by the General Partner, including the name of the
General Partner or any Affiliate thereof. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purposes of complying with the laws
of any jurisdiction that so requires. The General Partner in its sole discretion
may change the name of the Partnership at any time and from time to time and
shall notify the Limited Partners of such change in the next regular
communication to Limited Partners.
1.3 Registered Office; Principal Office. The address of the registered
office of the Partnership in the State of Delaware shall be located at The
Corporation Trust Company, 1209 Orange Street, New Castle County, Wilmington,
Delaware 19801, and the registered agent for service of process on the
Partnership in the State of Delaware at such registered office shall be The
Corporation Trust Company. The principal office of the Partnership shall be 999
Third Avenue, Seattle, Washington 98104 or such other place as the General
Partner may from time to time designate by notice to the Limited
<PAGE> 2
Partner. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
1.4 Power of Attorney. (a) The Limited Partner and each Assignee hereby
constitutes and appoints each of the General Partner and, if a Liquidator shall
have been selected pursuant to Section 14.3 hereof, the Liquidator severally
(and any successor to either thereof by merger, transfer, assignment, election
or otherwise) and authorized officers and attorneys-in-fact of each, with full
power of substitution, as its true and lawful agent and attorney-in-fact, with
full power and authority in its name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (A) all certificates, documents
and other instruments (including, without limitation, this
Agreement and the Certificate of Limited Partnership and all
amendments or restatements thereof) that the General Partner
or the Liquidator deems appropriate or necessary to form,
qualify or continue the existence or qualification of, the
Partnership as a limited partnership (or a partnership in
which the limited partners have limited liability) in the
State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (B) all
instruments that the General Partner or the Liquidator deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement or the Deposit
Agreement in accordance with their respective terms; (C) all
conveyances and other instruments or documents that the
General Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation;
(D) all instruments relating to the admission, withdrawal,
removal or substitution of any Partner pursuant to, or other
events described in, Article XI, XII, III or XIV hereof or the
Capital Contribution of any Partner; (E) all certificates,
documents and other instruments relating to the determination
of the rights, preferences and privileges of any class or
series of Units or other securities issued pursuant to Section
4.4 hereof; and (F) all agreements and other instruments
(including, without limitation, a certificate of merger)
relating to a merger or consolidation of the Partnership
pursuant to Article XVI hereof;
(ii) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments
appropriate or necessary, in the
2
<PAGE> 3
sole discretion of the General Partner or the Liquidator, to
make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by
the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole discretion
of the General Partner or the Liquidator, to effectuate the
terms or intent of this Agreement; provided, that when
required by Section 15.3 hereof or any other provision of this
Agreement which establishes a percentage of the Limited
Partners or of the Limited Partners of any class or series
required to take any action, the General Partner or the
Liquidator may exercise the power of attorney made in this
subsection (ii) only after the necessary vote, consent or
approval of the Limited Partner or of the Limited Partners of
such class or series; and
(iii) on behalf of the Limited Partner and the Assignees, enter into
the Deposit Agreement and to deposit Certificates in the
Deposit Account pursuant to the Deposit Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article XV hereof or as may be
otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and not
be affected by the subsequent death, incompetency, disability, incapacity,
dissolution, bankruptcy or termination of the Limited Partner or Assignee and
the transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. The Limited Partner or
Assignee hereby agrees to be bound by any representation made by the General
Partner or the Liquidator, acting in good faith pursuant to such power of
attorney; and the Limited Partner or Assignee hereby waives any and all defenses
which may be available to contest, negate or disaffirm the action of the General
Partner or the Liquidator, taken in good faith under such power of attorney. The
Limited Partner or Assignee shall execute and deliver to the General Partner or
the Liquidator, within 15 days after receipt of the General Partner's or the
Liquidator's request therefor, such further designation, powers of attorney and
other instruments as the General Partner or the Liquidator deems necessary to
effectuate this Agreement and the purposes of the Partnership.
1.5 Term. The Partnership commenced upon the filing of the Certificate
of Limited Partnership in accordance with the Delaware Act and shall continue in
existence
3
<PAGE> 4
until the close of Partnership business on December 31, 2047, or until the
earlier termination of the Partnership in accordance with the provisions of
Article XIV hereof.
1.6 Possible Restrictions on Transfer. Notwithstanding anything to the
contrary contained herein, in the event of (i) the enactment (or imminent
enactment) of any legislation, (ii) the publication of any temporary or final
regulation by the Treasury Department, (iii) any ruling by the Internal Revenue
Service or (iv) any judicial decision, that, in any such case, in the Opinion of
Counsel, would result in the taxation of the Partnership for federal income tax
purposes as a corporation or as an association taxable as a corporation, then,
either (a) the General Partner may impose such restrictions on the transfer of
Units or Partnership Interests as may be required, in the Opinion of Counsel, to
prevent the taxation of the Partnership tor federal income tax purposes as a
corporation or as an association taxable as a corporation, including making any
amendments to this Agreement as the General Partner in its sole discretion may
determine to be necessary or appropriate in order to impose such restrictions,
provided, that any such amendment to this Agreement which would result in the
delisting or suspension of trading of any class of Units on any National
Securities Exchange on which such class of Units is then traded must be approved
by the holders of at least 66 2/3% of the outstanding Units of such class
(excluding for purposes of such determination any Units of such class owned by
the General Partner and its Affiliates) or (b) upon the recommendation of the
General Partner and the approval by the holders of at least 66 2/3% of the
outstanding Units (excluding for purposes of such determination any Units owned
by the General Partner and its Affiliates), the Partnership may be converted
into and reconstituted as a trust or any other type of legal entity (the "New
Entity") in the manner and on other terms so recommended and approved. In such
event, the business of the Partnership shall be continued by the New Entity and
the Units shall be converted into equity interests of the New Entity in the
manner and on the terms so recommended and approved. Notwithstanding the
foregoing, no such reconstitution shall take place unless the Partnership shall
have received an Opinion of Counsel to the effect that the liability of the
Limited Partners for the debts and obligations of the New Entity shall not,
unless such Limited Partners take part in the control of the business of the New
Entity, exceed that which otherwise had been applicable to such Limited Partners
as limited partners of the Partnership under the Delaware Act.
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ARTICLE II
DEFINITIONS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 12.4 hereof and who is shown as such on
the books and records of the Partnership.
"Adjusted Capital Account" shall mean the Capital Account maintained
for each Partner as of the end of each fiscal year of the Partnership (a)
increased by any amounts which such Partner is obligated to restore under the
standards set by Treasury Regulation Section 1.704-1 (b)(2)(ii)(c) (or is deemed
obligated to restore under Treasury Regulation Sections 1.704-2(g) and
l.704-2(i)(5) and (b) decreased by (i) the amount of all losses and deductions
that, as of the end of such fiscal year, are reasonably expected to be allocated
to such Partner in subsequent years under Sections 704(e)(2) and 706(d) of the
Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of
all distributions that, as of the end of such fiscal year, are reasonably
expected to be made to such Partner in subsequent years in accordance with the
terms of this Agreement or otherwise to the extent they exceed offsetting
increases to such Partner's Capital Account that are reasonably expected to
occur during (or prior to) the year in which such distributions are reasonably
expected to be made (other than increases pursuant to a minimum gain chargeback
pursuant to Sections 5.l(d)(i) or 5.l(d)(ii)). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.6(d)(i) or (d)(ii) hereof. Once an Adjusted
Property is deemed distributed by, and recontributed to, the Partnership for
federal income tax purposes upon a termination thereof pursuant to Section 708
of the Code, such property shall thereafter constitute a Contributed Property
until the Carrying Value of such property is further adjusted pursuant to
Section 4.6(d)(i) or (d)(ii) hereof.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, the Person in question. As used herein, the term "control" means the
possession, directly or indirectly,
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<PAGE> 6
of the power to direct or cause the direction of the management and policies of
a Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreed Allocation" shall mean any allocation, other than a Required
Allocation, of an item of income, gain, deduction or loss pursuant to the
provisions of Section 5.1, including a Curative Allocation (if appropriate to
the context in which the term "Agreed Allocations" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt; provided, however, that the Agreed Value of any property deemed
contributed to the Partnership for federal income tax purposes upon termination
and reconstitution thereof pursuant to Section 708 of the Code shall be
determined in accordance with Section 4.6(c) hereof. Subject to Section 4.6(c)
hereof, the General Partner shall, in its sole discretion, use such method as it
deems reasonable and appropriate to allocate the aggregate Agreed Value of
Contributed Properties contributed to the Partnership in a single or integrated
transaction among each separate property on a basis proportional to their fair
market values.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or more
Units have been transferred in a manner permitted under this Agreement and who
has executed and delivered a Transfer Application as required by this Agreement,
but who has not become a Substituted Limited Partner.
"Available Cash" means, with respect to any calendar quarter, (a) the
sum of:
(i) the Partnership's net income (or net loss) (excluding gain on
the sale of any Capital Asset) for such quarter,
(ii) the amount of depletion, depreciation, amortization and other
noncash charges (less noncash credits) utilized in determining
net income of the Partnership for such quarter,
(iii) the amount of any reduction in reserves of the Partnership of
the types referred to in (b)(v) below,
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(iv) proceeds received by the Partnership from the sale of any of
the Designated Acres, and
(v) any Cash from Capital Transactions received by the Partnership
during such quarter in specific contemplation that such Cash
from Capital Transactions will be used to refund or refinance
any payment of Debt of the type specified in clause (b)(i)
below which was made in any of the two prior quarters, less
(b) the sum of:
(i) all payments of principal on Debt made by the
Partnership in such quarter (excluding any payments
of principal on Debt made with Cash from Capital
Transactions received by the Partnership during such
quarter or the immediately preceding four quarters),
(ii) capital expenditures made by the Partnership during
such quarter (excluding any capital expenditures for
such quarter made with Cash from Capital Transactions
received by the Partnership during such quarter or
the immediately preceding four quarters, and capital
expenditures which the General Partner anticipates
will be financed with Cash from Capital Transactions
to be received by the Partnership prior to the end of
the next succeed quarter),
(iii) the amount of any capital expenditures, or
investments as specified in clause (b)(iv) below,
made by the Partnership in the immediately preceding
quarter which was anticipated would be financed from
Cash from Capital Transactions but which have not
been financed from such source prior to the end of
the quarter succeeding the quarter in which any such
capital expenditure or investment was made,
(iv) investments in any Subsidiary, Affiliate or any such
other entity to the extent that such investments are
not otherwise included under clauses (b)(i), (ii) or
(iii) above (excluding any such investments made with
Cash from Capital Transactions received by the
Partnership during such quarter or the immediately
preceding four quarters, or which the General Partner
anticipates will be made, with Cash from Capital
Transactions to be received by the Partnership prior
to the end of the next succeeding quarter);
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<PAGE> 8
(v) the amount of any reserves of the Partnership
established during such quarter which are necessary
or appropriate (A) to provide fluids for the future
payment of items of the types specified in clauses
(b)(i) and (b)(ii) above, (B) to provide additional
working capital, (C) to provide funds for cash
distributions with respect to any one or more of the
next four quarters or (D) to provide funds for the
future payment of interest in an amount equal to the
interest to be accrued in the next quarter.
Notwithstanding the foregoing, "Available Cash" shall not take into
account any reductions in reserves or disbursements made or reserves established
after commencement of the dissolution and liquidation of the Partnership. In
determining "Available Cash", (i) all items under clauses (a)(i)-(v) above and
all items under clauses (b)(i)-(v) above shall be calculated on a combined basis
with any Subsidiary of the Partnership whose income is accounted for on a
combined basis with the Partnership and, in accordance therewith, "Available
Cash" shall include a percentage of each such item of each such Subsidiary equal
to the Partnership's percentage ownership interest in such Subsidiary, provided,
however, that the items under clauses (a)(i)-(v) above shall only be included in
Available Cash to the extent that the General Partner determines such amount to
be legally available for dividends or distributions to the Partnership by such
Subsidiary, (ii) the amount of net income and the amount of depletion,
depreciation, amortization and other noncash charges utilized in determining net
income shall be determined, with respect to the Partnership, by the General
Partner in accordance with generally accepted accounting principles and, with
respect to any Subsidiary, by its Board of Directors (or by such other body or
Person which has the ultimate management authority of such Subsidiary) in
accordance with generally accepted accounting principles, (iii) the net income
of any Subsidiary shall be determined on an after-tax basis, (iv) the amount of
any reductions in, or additions to, reserves for purposes of clauses (a)(iii)
and (b)(v) above shall be determined, with respect to the Partnership, by the
General Partner in its sole discretion as it deems appropriate and, with respect
to any Subsidiary, by its Board of Directors (or by such other body or Person
which has the ultimate management authority of such Subsidiary) in its sole
discretion as it deems appropriate and (v) any determination of whether any
capital expenditures or investments are financed, or anticipated to be financed,
with Cash from Capital Transactions for purposes of clauses (b)(ii) and (b)(iv)
above shall be made, with respect to the Partnership, by the General Partner in
its sole discretion as it deems appropriate and, with respect to any Subsidiary,
by its Board of Directors (or by such other body or person which has the
ultimate management authority of such Subsidiary) in its sole discretion as it
deems appropriate.
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<PAGE> 9
"Book-Tax Disparity" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 4.6 and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
State of New York shall not be regarded as a Business Day.
"Capital Account" means the capital account maintained for a Partner or
Assignee pursuant to Section 4.6 hereof.
"Capital Asset" means any asset on the Partnership's or Facilities
Subsidiary's balance sheet, as the case may be, other than inventory, accounts
receivable or any other current asset and assets disposed of in connection with
normal retirements or replacements.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property which a Partner contributes to the
Partnership pursuant to Section 4.1, 4.4, 4.6(c), or 13.3(c) hereof.
"Capital Transactions" means (i) borrowings and sales of debt
securities (other than for working capital purposes and other than for items
purchased on open account in the ordinary course of business) by the
Partnership, (ii) sales of equity interests by the Partnership and (iii) sales
or other voluntary or involuntary dispositions of any assets of the Partnership
(other than (x) sales or other dispositions of inventory in the ordinary course
of business, (y) sales or other dispositions of other current assets including
receivables and accounts and (z) sales or other dispositions of assets as a part
of normal retirements or replacements), in each case prior to the commencement
of the dissolution and liquidation of the Partnership provided, that in
determining "Cash from Capital Transactions", items (i)-(iii) above shall
include, with respect to each Subsidiary of the Partnership whose income is
accounted for on a consolidated or combined basis with the Partnership, a
percentage of each such item of such Subsidiary equal to the Partnership's
percentage ownership interest in such Subsidiary.
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<PAGE> 10
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
depletion (computed as a separate item of deduction), amortization and cost
recovery deductions charged to the Partners' Capital Accounts and (b) with
respect to any other Partnership property, the adjusted basis of such property
for federal income tax purposes, all as of the time of determination. The
Carrying Value of any property shall be adjusted from time to time in accordance
with Sections 4.6(d)(i) and 4.6(d)(ii) hereof, and to reflect changes, additions
or other adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Cash from Capital Transactions" means, at any date, such amounts of
cash as are determined by the General Partner to be cash made available to the
Partnership from or by reason of a Capital Transaction.
"Certificate" means a certificate issued by the Partnership evidencing
ownership of one or more Partnership Interests.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2 hereof, as such Certificate may be amended and/or
restated from time to time.
"Citizenship Certification" means a properly completed certificate in
such form as may be specified by the General Partner by which an Assignee or a
Limited Partner certifies that he (and if he is a nominee holding for the
account of another Person, that to the best of his knowledge such other Person)
is an Eligible Citizen.
"Closing Price" for any day means the last sale price on such day,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices on such day, regular way, in either case as
reported-in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Units of a class are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal National Securities
Exchange on which the Units of such class are listed or admitted to trading or,
if the Units of a class are not listed or admitted to trading on any National
Securities Exchange, the last quoted price on such day or, if not so quoted, the
average of the high bid and low asked prices on such day in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or such other system then in use, or, if on any such
day the Units of a class are not quoted by any such
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<PAGE> 11
organization, the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in the Units of such
class selected by the Board of Directors of the General Partner, or, if on any
such day no market maker is making a market in the Units of such class, the fair
value of such Units on such day as determined reasonably and in good faith by
the Board of Directors of the General Partner using any reasonable method of
valuation.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership (or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 4.6(d)(i)
hereof, such property shall no longer constitute a Contributed Property for
purposes of Section 5.1 hereof, but shall be deemed an Adjusted Property for
such purposes.
"Contributing Partner" means each Partner contributing (or deemed to
have contributed on termination and reconstitution of the Partnership pursuant
to Section 708 of the Code or otherwise) a Contributed Property.
"Curative Allocation" shall mean any allocation of an item of income,
gain, deduction, loss or credit pursuant to the provisions of Section
5.l(d)(xi).
"Current Market Price" shall have the meaning assigned to such term in
Section 17.1(a) hereof.
"Debt" means, as to any Person, as of any date of determination, (a)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (b) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (c) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, (d) lease obligations of such Person
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which, in accordance with generally accepted accounting principles, should be
capitalized, and (e) such other obligations of such Person as the General
Partner may determine in its sole discretion are appropriate.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. 17-101, et seq., as it may be amended from time to time, and any
successor to such statute.
"Departing Partner" means a former General Partner, as of the effective
date of any withdrawal or removal of such former General Partner pursuant to
Section 13.1 hereof.
"Deposit Account" means the account established by the Depositary
pursuant to the Deposit Agreement.
"Deposit Agreement" means the Deposit Agreement among the General
Partner, in its capacity both as General Partner and as attorney-in-fact for the
Limited Partners, the Partnership and the Depositary, as it may be amended or
restated from time to time.
"Depositary" means the bank or other institution appointed by the
General Partner in its sole discretion to act as depositary for the Depositary
Units pursuant to the Deposit Agreement, or any successor to it as depositary.
"Depositary Receipt" means a depositary receipt, issued by the
Depositary or agents appointed by the Depositary in accordance with the Deposit
Agreement, evidencing ownership of one or more Depositary Units.
"Depositary Unit" means a depositary unit representing a Unit on
deposit with the Depositary pursuant to the Deposit Agreement.
"Designated Acres" means up to an aggregate of 150,000 acres of
property owned by the Partnership which may be designated by the General Partner
at the time of the sale thereof as constituting Designated Acres (such aggregate
number of acres to be determined over the term of the Partnership).
"Economic Risk of Loss" shall have the meaning set forth in Treasury
Regulation Section 1.752-2(a).
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"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which the Partnership does business or proposes to
do business from time to time, and whose status as a Limited Partner or Assignee
does not or would not subject the Partnership to a substantial risk of
cancellation or forfeiture of any of their property or any interest therein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor to such statute.
"Facilities Subsidiary" means Plum Creek Marketing, Inc., a Delaware
corporation, and Plum Creek Manufacturing, L.P., a Delaware limited partnership.
"First Liquidation Target Amount" means an amount, determined with
respect to any Unit, which equals, as of the date of its determination, the sum
of (a) the Unrecovered Capital, if any, attributable to such Unit, plus (b)
First Target Amount, with respect to the calendar quarter as to which such
determination is made.
"First Target Amount" means $0.65 per Unit, subject to adjustment in
accordance with Sections 5.6 and 9.6 hereof.
"Fourth Liquidation Target Amount" means an amount, determined with
respect to any Unit, which equals, as of the date of its determination, the sum
of (a) the Third Liquidation Target Amount, if any, attributable to such Unit,
plus (b) the excess, if any, of the Fourth Target Amount over the Third Target
Amount, determined with respect to the calendar quarter as to which such
determination is made.
"Fourth Target Amount" means $0.85 per Unit, subject to adjustment in
accordance with Sections 5.6 and 9.6 hereof.
"General Partner" means Plum Creek Timber Company, Inc., a Delaware
corporation, and its successors as general partner of the Partnership.
"General Partner Equity Value" means, as of any date of determination,
the fair market value of the General Partner's Partnership Interest, as
determined by the General Partner using whatever reasonable method of valuation
it may adopt; provided, however, if any such valuation occurs at a time that the
General Partner or an Affiliate of the General Partner holds Units, such
Partnership Interests must be taken into account in determining the General
Partner Equity Value.
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"Incentive Distribution" means any amount of cash distributed to the
General Partner in its capacity as general partner, pursuant to Sections 5.4(e),
5.4(f), 5.4(g) or 5.4(h) which exceeds that amount equal to 2% of the aggregate
amount of cash then being distributed pursuant to such provisions.
"Indemnitee" means the General Partner, any Departing Partner, any
Person who is or was an Affiliate of the General Partner or any Departing
Partner, any Person who is or was an officer, director, employee, agent or
trustee of the General Partner or any Departing Partner or any Affiliate of the
General Partner or Departing Partner, or any Person who is or was serving at the
request of the General Partner or any Departing Partner or any Affiliate of the
General Partner or Departing Partner as a director, officer, employee, agent or
trustee of another Person, including any Subsidiary.
"Issue Price" means the price at which a Unit is purchased from the
Partnership, less any sales commission or underwriting discount charged to the
Partnership.
"Limited Partner" means each Substituted Limited Partner, each
Additional Limited Partner and any Departing Partner upon the change of its
status from General Partner to Limited Partner pursuant to Section 13.3 hereof
and, solely for purposes of Articles IV, V and VI hereof and Sections 14.3 and
14.4 hereof, shall include an Assignee.
"Limited Partner Equity Value" means, as of any date of determination,
the amount equal to the product of (a) the total number of Units outstanding
(immediately prior to an issuance of Units or distribution of cash or
Partnership property), other than Units held by the General Partner or an
Affiliate of the General Partner, multiplied by (b) (i) in the case of a
valuation required by Section 4.6(d)(i) (other than valuations caused by sales
of a de minimis quantity of Units) the Issue Price or (ii) in the case of a
valuation required by Section 4.6(d)(ii) (or a valuation required by Section
4.6(d)(i) caused by sales of a de minimus quantity of Units) the Closing Price.
"Liquidator" means the General Partner or other Person approved
pursuant to Section 14.3 hereof who performs the functions described therein.
"Minimum Gain Attributable to Partner Nonrecourse Debt" means that
amount determined in accordance with the principles of Treasury Regulation
Section I.704- 2(i)(2).
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"Minimum Quarterly Amount" means $0.60 per Unit per calendar quarter,
subject to adjustment in accordance with Sections 5.6 and 9.6 hereof.
"MQA" means Minimum Quarterly Amount
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
"Net Agreed Value" means (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed by
the Partnership upon such contribution or to which such property is subject when
contributed and (b) in the case of any property distributed to a Partner or
Assignee by the Partnership, the Partnership's Carrying Value of such property
at the time such property is distributed, reduced by any indebtedness either
assumed by such Partner or Assignee upon such distribution or to which such
property is subject at the time of distribution as determined under Section 752
of the Code.
"Net Income" shall mean, for any taxable period, the excess, if any, of
the Partnership's items of income and gain (other than those items attributable
to dispositions constituting Termination Capital Transactions) for such taxable
period over the Partnership's items of loss and deduction (other than those
items attributable to dispositions constituting Termination Capital
Transactions) for such taxable period. The items included in the calculation of
Net Income shall be determined in accordance with Section 4.6(b) and shall not
include any items specially allocated under Section 5.1(d); provided that the
determination of the items that have been specially allocated under Section
5.1(d) shall be made as if Section 5.l(d)(xiii) were not in the Partnership
Agreement. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to a Required
Allocation or a Curative Allocation, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" shall mean, for any taxable period, the excess, if any, of
the Partnership's items of loss and deduction (other than those items
attributable to dispositions constituting Termination Capital Transactions) for
such taxable period over the Partnership's items of income and gain (other than
those items attributable to dispositions constituting Termination Capital
Transactions) for such taxable period. The items
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included in the calculation of Net Loss shall be determined in accordance with
Section 4.6(b) and shall not include any items specially allocated under Section
5.1(d); provided that the determination of the items that have been specially
allocated under Section 5.1(d) shall be made as if Section 5.1(d)(xiii) were not
in the Partnership Agreement. Once an item of income, gain, loss or deduction
that has been included in the initial computation of Net Loss is subjected to a
Required Allocation or a Curative Allocation, Net Loss or the resulting Net
Income, whichever the case may be, shall be recomputed without regard to such
item.
"Net Termination Gain" shall mean, for any taxable period, the sum, if
positive, of all items of income, gain or loss recognized by the Partnership
from Termination Capital Transactions occurring in such taxable period. The
items included in the determination of Net Termination Gain shall be determined
in accordance with Section 4.6(b) and shall not include any items of income,
gain or loss specially allocated under Section 5.1(d). Once an item of income,
gain or loss that has been included in the initial computation of Net
Termination Gain is subjected to a Required Allocation or a Curative Allocation,
Net Termination Gain or the resulting Net Termination Loss, whichever the case
may be, shall be recomputed without regard to such item.
"Net Termination Loss" shall mean, for any taxable period, the sum, if
negative, of all items of income, gain or loss recognized by the Partnership
from Termination Capital Transactions occurring in such taxable period. The
items included in the determination of Net Termination Loss shall be determined
in accordance with Section 4.6(b) and shall not include any items of income, gam
or loss specially allocated under Section 5.1(d). Once an item of gain or loss
that has been included in the initial computation of Net Termination Loss is
subjected to a Required Allocation or a Curative Allocation, Net Termination
Loss or the resulting Net Termination Gain, whichever the case may be, shall be
recomputed without regard to such item.
"Non-citizen Assignee" means a Person who the General Partner has
determined in its sole discretion does not constitute an Eligible Citizen and as
to whose Partnership Interest the General Partner has become the Substituted
Limited Partner, pursuant to Section 11.5 hereof.
"Nonrecourse Built-in Gain" shall mean with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Sections 5.2(b)(i)(A),
5.2(b)(ii)(A) or 5.2(b)(iv) if such properties
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were disposed of in a taxable transaction in full satisfaction of such
liabilities and for no other consideration.
"Nonrecourse Deductions" shall mean any and all items of loss,
deduction or expenditures (described in Section 705 (a)(2)(B) of the Code) that,
in accordance with the principles of Treasury Regulation Section 1.704-2(b), are
attributable to a Nonrecourse Liability.
"Nonrecourse Liability" shall have the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"Notice of Election to Purchase" has the meaning assigned to such term
in Section 17.1 (b) hereof.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner) in form and substance
acceptable to the General Partner.
"Outstanding" means all Units or other Partnership Securities that are
issued by the Partnership and reflected as outstanding on the Partnership's
books and records as of the date of determination.
"Partner" means a General Partner or a Limited Partner and solely for
purposes of Articles IV, V and VI hereof and Sections 14.3 and 14.4 hereof shall
include an Assignee.
"Partner Nonrecourse Debt" shall have the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" shall mean any and all items of loss,
deduction or expenditure (described in Section 705(a)(2)(B) of the Code) in
accordance with the principles of Treasury Regulation Section 1.704-2(i), are
attributable to a Partner Nonrecourse Debt.
"Partnership" means the limited partnership heretofore formed and
continued pursuant to this Agreement and any successor thereto.
"Partnership Interest" means the interest of a Partner in the
Partnership which, in the case of a Limited Partner or Assignee shall include
Units.
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"Partnership Minimum Gain" shall mean that amount determined in
accordance with the principles of Treasury Regulation Sections 1.704-2(d).
"Partnership Securities" has the meaning assigned to such term in
Section 4.4(a) hereof.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Per Unit Capital Amount" means, as of any date of determination, the
Capital Account, stated on a per Unit basis, underlying any Unit held by a
Public Unitholder.
"Percentage Interest" means, as of the date of such determination, (a)
as to the General Partner in its capacity as such, 2%, (b) as to any Limited
Partner or Assignee holding Units, the product of (i) 98% multiplied by (ii) the
quotient of the number of Units held by such Limited Partner or Assignee divided
by the total number of all Units then outstanding; provided, however, that
following any issuance of additional Units by the Partnership pursuant to
Section 4.4 hereof, proper adjustment shall be made to the Percentage Interest
represented by each Unit to reflect such issuance.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Public Unitholder" means a Person other than the General Partner or
any Affiliate of the General Partner who holds Units.
"Purchase Date" means the date determined by the General Partner as the
date for purchase of all outstanding Units (other than Units owned by the
General Partner and its Affiliates) pursuant to Section 17.1(b) hereof.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or 743 of
the Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or asset.
"Record Date" means the date established by the General Partner for
determining (a) the identity of Limited Partners (or Assignees, if applicable)
entitled to notice of, or to vote at, any meeting of Limited Partners or
entitled to vote by ballot or give approval of
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<PAGE> 19
Partnership action in writing without a meeting or entitled to exercise rights
in respect of any other lawful action of Limited Partners, or (b) the identity
of Record Holders entitled to receive any report or distribution.
"Record Holder" means the Person in whose name a Unit is registered on
the books of the Transfer Agent, as of the opening of business on a particular
Business Day.
"Redeemable Units" means any Units for which a redemption notice has
been given and has not been withdrawn, under Section 11.6 hereof.
"Required Allocations" shall mean any allocation (or limitation imposed
on any allocation) of an item of income, gain, deduction or loss pursuant to (a)
the proviso-clauses of Section 5.1(b)(ii) or (b) Sections 5.l(d)(i), 5.l(d)(ii),
5.l(d)(iv), 5.l(d)(v), 5.1(d)(vi), 5.l(d)(vii) and 5.1(d)(ix), such allocations
(or limitations thereon) being directly or indirectly required by the Treasury
regulations promulgated under Section 704(b) of the Code.
"Residual Gain" or "Residual Loss" shall mean any item of gain or loss,
as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to the first sentence of Sections 5.2(b)(i)(A) or
5.2(b)(ii)(A) to eliminate Book-Tax Disparities.
"Second Liquidation Target Amount" means an amount, determined with
respect to any Unit, which equals, as of the date of its determination, the sum
of (a) the First Liquidation Target Amount, if any, attributable to such Unit,
plus (b) the excess, if any, of the Second Target Amount over the First Target
Amount, with respect to the calendar quarter as to which such determination is
made.
"Second Target Amount" means $0.70 per Unit, subject to adjustment in
accordance with Sections 5.6 and 9.6 hereof.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor to such statute.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person, and, with respect to the Partnership, shall include
the Facilities Subsidiary.
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<PAGE> 20
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 12.2 hereof in place of
and with all the rights of a Limited Partner and who is shown as a Limited
Partner on the books and records of the Partnership.
"Termination Capital Transaction" shall mean any sale, transfer or
other disposition of any Partnership property occurring upon or incident to the
liquidation and winding-up of the Partnership pursuant to Article XIV.
"Third Liquidation Target Amount" means an amount, determined with
respect to any Unit, which equals, as of the date of its determination, the sum
of (a) the Second Liquidation Target Amount, if any, attributable to such Unit,
plus (b) the excess, if any, of the Third Target Amount over the Second Target
Amount, determined with respect to the calendar quarter as to which such
determination is made.
"Third Target Amount" means $0.75 per Unit, subject to adjustment in
accordance with Sections 5.6 and 9.6 hereof.
"Trading Day" has the meaning assigned to such term in Section 17.1(a)
hereof.
"Transfer Agent" means the Depositary or any bank, trust company or
other Person appointed by the Partnership to-act as transfer agent for the
Units.
"Transfer Application" means an application and agreement for transfer
of Depositary Units in the form set forth on the back of a Depositary Receipt or
in a form substantially to the same effect in a separate instrument.
"Unit" means a Partnership Interest of a Limited Partner or Assignee in
the Partnership representing a fractional part of the Partnership Interests of
all Limited Partners and Assignees; provided, however, that in the event any
class or series of Units issued pursuant to Section 4.4 hereof shall have
designations, preferences or special rights such that a Unit of such class or
series shall represent a greater or lesser part of the Partnership Interests of
all Limited Partners or Assignees than a Unit of any other class or series of
Units, the Partnership Interest represented by such class or series of Units
shall be determined in accordance with such designations, preferences or special
rights. Unless otherwise specifically indicated to the contrary, "Units"
includes Depositary Units.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property
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<PAGE> 21
(as determined under Section 4.6(d) hereof) as of such date, over (b) the
Carrying Value of such property as of such date (prior to any adjustment to be
made pursuant to Section 4.6(d) hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 4.6(d) hereof) as of such date, over (b) the fair market
value of such property (as determined under Section 4.6(d) hereof) as of such
date.
"Unrecovered Capital" means, at any time, with respect to a Unit, the
Issue Price of such Unit, less the sum of all distributions theretofore made in
respect of such Unit constituting, and which for purposes of determining the
priority of such distribution is treated as constituting, Cash from Capital
Transactions.
ARTICLE III
PURPOSE
3.1 Purpose and Business. The purpose and nature of the business to be
conducted by the Partnership shall be (i) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Delaware
Act, including, without limitation, the acquisition, development, ownership,
management, operation, leasing and disposition of timberlands and the production
and sale of forest products, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or the ownership
of interests in any entity engaged in any of the foregoing, including the
ownership of common stock of the Facilities Subsidiary, and (iii) to do anything
necessary or incidental to the foregoing (including, without limitation, the
making of capital contributions or loans to the Facilities Subsidiary).
3.2 Powers. The Partnership shall be empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership.
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ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Initial Contributions. In order to form the Partnership under the
Delaware Act, the General Partner has made an initial Capital Contribution to
the Partnership in the amount of $1 and the General Partner has accepted a
Capital Contribution to the Partnership in the amount of $99 from the Limited
Partner for an interest in the Partnership, and the Limited Partner has been
admitted as a limited partner of the Partnership.
4.2 [Omitted]
4.3 [Omitted]
4.4 Issuances of Additional Units and Other Securities.
(a) The General Partner is hereby authorized to cause the Partnership
to issue such additional Units, or classes or series thereof, or options,
rights, warrants or appreciation rights relating thereto, or any other type of
equity security that the Partnership may lawfully issue, any unsecured or
secured debt obligations of the Partnership or debt obligations of the
Partnership convertible into any class or series of equity securities of the
Partnership (collectively, "Partnership Securities"), for any Partnership
purpose, at any time or from time to time, to the Partners or to other Persons
for such consideration and on such terms and conditions as shall be established
by the General Partner in its sole discretion, all without the approval of any
Limited Partner. The General Partner shall have sole discretion, subject to the
guidelines set forth in this Section 4.4 and the requirements of the Delaware
Act, in determining the consideration and terms and conditions with respect to
any future issuance of Partnership Securities.
(b) Notwithstanding any provision of this Agreement to the contrary,
additional Partnership Securities to be issued by the Partnership pursuant to
this Section 4.4 shall be issuable from time to time in one or more classes, or
one or more series of any of such classes, with such designations, preferences
and relative, participating, optional or other special rights, powers and
duties, including rights, powers and duties senior to existing classes and
series of Partnership Securities, all as shall be fixed by the General Partner
in the exercise of its sole and complete discretion, subject to Delaware law,
including, without limitation, (i) the allocations of items of Partnership
income, gain, loss, deduction and credit to each such class or series of
Partnership Securities; (ii) the right of each such class or series of
Partnership Securities to share in Partnership distributions; (iii) the rights
of each such class or series of Partnership Securities upon dissolution and
liquidation of the Partnership; (iv) whether such class or series of additional
Partner-
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<PAGE> 23
ship Securities is redeemable by the Partnership and, if so, the price at which,
and the terms and conditions upon which, such class or series of additional
Partnership Securities may be redeemed by the Partnership; (v) whether such
class or series of additional Partnership Securities is issued with the
privilege of conversion and, if so, the rate at which, and the terms and
conditions upon which, such class or series of Partnership Securities may be
converted into any other class or series of Partnership Securities; (vi) the
terms and conditions upon which each such class or series of Partnership
Securities will be issued, deposited with the Depositary, evidenced by
Depositary Receipts and assigned or transferred; and (vii) the right, if any, of
each such class or series of Partnership Securities to vote on Partnership
matters, including matters relating to the relative rights, preferences and
privileges of each such class or series.
(c) [Omitted]
(d) The General Partner is hereby authorized and directed to take all
actions which it deems appropriate or necessary in connection with each issuance
of Units or other Partnership Securities pursuant to Section 4.4(a) hereof and
to amend this Agreement in any manner which it deems appropriate or necessary to
provide for each such issuance, to admit Additional Limited Partners in
connection therewith and to specify the relative rights, powers and duties of
the holders of the Partnership Securities being so issued.
(e) The General Partner shall do all things necessary to comply with
the Delaware Act and is authorized and directed to do all things it deems to be
necessary or advisable in connection with any future issuance of Partnership
Securities, including compliance with any statute, rule, regulation or guideline
of any federal, state or other governmental agency or any National Securities
Exchange on which the Depositary Units or other Partnership Securities are
listed for trading.
4.5 No Preemptive Rights. No Person shall have any preemptive,
preferential or other similar right with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Units or other
Partnership Securities, whether unissued, held in the treasury or hereafter
created; (c) issuance of any obligations, evidences of indebtedness or other
securities of the Partnership convertible into or exchangeable for, or carrying
or accompanied by any rights to receive, purchase or subscribe to, any such
Units or Partnership Securities; (d) issuance of any right of subscription to or
right to receive, or any warrant or option for the purchase of, any such Units
or Partnership Securities; or (e) issuance or sale of any other securities that
may be issued or sold by the Partnership.
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<PAGE> 24
4.6 Capital Accounts. The Partnership shall maintain for each Partner
owning Units a separate Capital Account with respect to such Units in accordance
with the rules of Treasury Regulation Section 1.704-l(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Units pursuant to this Agreement and
(ii) all items of Partnership income and gain (including income and gain exempt
from tax) computed in accordance with Section 4.6(b) hereof and allocated with
respect to such Units pursuant to Section 5.1 hereof, and decreased by (x) the
amount of cash or Net Agreed Value of all actual and deemed distributions of
cash or property made with respect to such Units pursuant to this Agreement and
(y) all items of Partnership deduction and loss computed in accordance with
Section 4.6(b) hereof and allocated with respect to such Units pursuant to
Section 5.1 hereof.
The Partnership shall maintain for the General Partner a separate
Capital Account with respect to its Partnership Interest, held in its capacity
as a general partner, in accordance with the rules of Treasury Regulation
Section l.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the
amount of all Capital Contributions made to the Partnership with respect to such
Partnership Interest pursuant to this Agreement and (ii) all items of
Partnership income and gain (including income and gain exempt from tax) computed
in accordance with Section 4.6(b) hereof and allocated with respect to such
Partnership Interest pursuant to Section 5.1 hereof, and decreased by (x) the
amount of cash or Net Agreed Value of all actual and deemed distributions of
cash or property made with respect to such Partnership Interest pursuant to this
Agreement and (y) all items of Partnership deduction and loss computed in
accordance with Section 4.6(b) hereof and allocated with respect to such
Partnership Interest pursuant to Section 5.1.
(a) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
purposes (including any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that
can neither be deducted nor amortized under Section 709 of the
Code, if any, shall, for purposes of Capital Account
maintenance, be treated as an item of deduction at the time
such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 5.1 hereof.
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(ii) Except as otherwise provided in Treasury Regulation Section
1.704-1 (b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by
the Partnership and, as to those items described in Section
705(a)(l)(B) or 705(a)(2)(B) of the Code, without regard to
the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal
income tax purposes.
(iii) Any income, gain or loss attributable to the taxable
disposition of any Partnership property (including any
disposition of a timber interest) shall be determined as if
the adjusted basis of such property (or, in the case of
certain timber dispositions, the "adjusted depletion basis" of
such timber) as of such date of disposition were equal in
amount to the Partnership's Carrying Value with respect to
such property as of such date. The adjusted basis or adjusted
depletion basis, whichever the case may be, determined upon
sales or other dispositions of timber units included in a
timber account shall not, in the aggregate, exceed the
Partnership's total Carrying Value with respect to all of the
timber units included in such timber account.
(iv) In accordance with the requirements of Section 704(b) of the
Code, any deductions for depreciation, cost recovery or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property as of the
date it was acquired by the Partnership was equal to the
Agreed Value of such property. Upon an adjustment pursuant to
Section 4.6(d) hereof to the Carrying Value of any Partnership
property subject to depreciation, cost recovery or
amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property
shall be determined (A) as if the adjusted basis of such
property were equal to the Carrying Value of such property
immediately following such adjustment and (B) using a rate of
depreciation, cost recovery or amortization derived from the
same method and useful life (or, if applicable, the remaining
useful life) as is applied for federal income tax purposes;
provided, however, that, if the asset has a zero adjusted
basis for federal income tax purposes, depreciation, cost
recovery or amortization deductions shall be determined using
any reasonable method that the General Partner may adopt
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(c) (i) A transferee of a Partnership Interest shall succeed to a pro
rata portion of the Capital Account of the transferor relating to the
Partnership Interest so transferred; provided, however, that, if the transfer
causes a termination of the Partnership under Section 708(b)(1)(B) of the Code,
the Partnership's properties shall be deemed to have been distributed in
liquidation of the Partnership to the Partners (including the transferee of a
Partnership Interest) pursuant to Sections 14.3 and 14.4 and recontributed by
such Partners in reconstitution of the Partnership. In such event, the Carrying
Values of the Partnership properties shall be adjusted immediately prior to such
deemed distribution pursuant to Section 4.6(d)(ii) hereof and such adjusted
Carrying Values shall then constitute the Agreed Values of such properties upon
such deemed contribution to the reconstituted Partnership. The Capital Accounts
of such reconstituted Partnership shall be maintained in accordance with the
principles of this Section 4.6.
(ii) [Omitted]
(iii) [Omitted]
(d) (i) Consistent with the provisions of Treasury Regulation Section
1.704- l(b)(2)(iv)(f), on an issuance of additional Units for cash or
Contributed Property or the conversion of the General Partner's Partnership
Interest to Units pursuant to Section 13.3(b), the Capital Accounts of all
Partners and the Carrying Value of each Partnership property immediately prior
to such issuance shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such issuance and had been allocated to the
Partners at such time pursuant to Section 5.1 hereof. In determining such
Unrealized Gain or Unrealized Loss the aggregate cash amount and fair market
value of all Partnership assets (including cash or cash equivalents) immediately
prior to the issuance of Partnership Interests shall be determined by the
General Partner using such reasonable method of valuation as it may adopt;
provided, however, the General Partner, in arriving at such valuation, must take
fully into account the Limited Partner Equity Value and the General Partner
Equity Value, at such time. The General Partner shall allocate such aggregate
value among the assets of the Partnership (in such manner as it determines in
its sole discretion to be reasonable) to arrive at a fair market value for
individual properties.
(ii) In accordance with Treasury Regulation Section
l.704-l(b)(2)(iv)(f), immediately prior to any
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<PAGE> 27
actual or deemed distribution to a Partner of any Partnership
property (other than a distribution of cash that is not in
redemption or retirement of a Partnership Interest), the
Capital Accounts of all Partners and the Carrying Value of
such Partnership property shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable
to such Partnership property, as if such Unrealized Gain or
Unrealized Loss had been recognized in a sale of each such
property immediately prior to such distribution for an amount
equal to its fair market value, and had been allocated to the
Partners, at such time, pursuant to Section 5.1 hereof. Any
Unrealized Gain or Unrealized Loss attributable to such
property shall be allocated in the same manner as Net
Termination Gain or Net Termination Loss pursuant to Section
5.1(c) hereof; provided, however, that, in making any such
allocation, Net Termination Gain or Net Termination Loss
actually realized shall be allocated first. In determining
such Unrealized Gain or Unrealized Loss the aggregate cash
amount and fair market value of all Partnership assets
(including cash or cash equivalents) immediately prior to a
distribution shall (A) in the case of an actual distribution
which is not made pursuant to Section 14.3 or 14.4 or in the
case of a deemed distribution occurring as a result of a
termination of the Partnership pursuant to Section 708 of the
Code, be determined and allocated in the manner provided in
Section 4.6(d)(i) or (B) in the case of a liquidating
distribution pursuant to Section 14.3 or 14.4, be determined
and allocated by the Liquidator using such reasonable methods
of valuation as it may adopt. Notwithstanding anything to the
contrary provided herein, the preceding provisions of this
subsection 4.6(d)(ii) shall not be applied to distributions of
cash in redemption or retirement of a Partnership Interest
(and no such adjustment shall be made) unless the adjustment
therein described is necessary to maintain the economic
uniformity of the Units within each class of publicly traded
Units, if any.
4.7 Interest. No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
4.8 No Withdrawal. No Partner shall be entitled to withdraw any part of
his Capital Contribution or his Capital Account or to receive any distribution
from the partnership, except as provided in Section 4.2 hereof, and Articles V,
XIII and XIV hereof.
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4.9 Loans from Partners. Loans by a Partner to the Partnership shall
not constitute Capital Contributions. If any Partner shall advance funds to the
Partnership in excess of the amounts required hereunder to be contributed by it
to the capital of the Partnership, the making of such excess advances shall not
result in any increase in the amount of the Capital Account of such Partner. The
amount of any such excess advances shall be a debt obligation of the Partnership
to such Partner and shall be payable or collectible only out of the Partnership
assets in accordance with the terms and conditions upon which such advances are
made.
4.10 No Fractional Units. No fractional Units shall be issued by the
Partnership.
4.11 Splits and Combinations. (a) Subject to Section 4.11(d) hereof,
the General Partner may make a pro rata distribution of Units or Partnership
Securities to all Record Holders or may effect a subdivision or combination of
Units or other Partnership Securities; provided, however, that after any such
distribution, subdivision or combination, each Partner shall have the same
Percentage Interest in the partnership as before such distribution, subdivision
or combination.
(b) Whenever such a distribution, subdivision or combination of Units
or Partnership Securities is declared, the General Partner shall select a Record
Date as of which the distribution, subdivision or combination shall be effective
and shall send notice of the distribution, subdivision or combination at least
20 days prior to such Record Date, to each Record Holder as of the date not less
than 10 days prior to the date of such notice. The General Partner also may
cause a firm of independent public accountants selected by it to calculate the
number of Units to be held by each Record Holder after giving effect to such
distribution, subdivision or combination. The General Partner shall be entitled
to rely on any certificate provided by such firm as conclusive evidence of the
accuracy of such calculation.
(c) Promptly following any such distribution, subdivision or
combination, the General Partner may cause Depositary Receipts to be issued to
the Record Holders of Units as of the applicable Record Date representing the
new number of Units held by such Record Holders, or the General Partner may
adopt such other procedures as it may deem appropriate to reflect such
distribution, subdivision or combination; provided, however, that in the event
any such distribution, subdivision or combination results in a smaller total
number of Units outstanding, the General Partner shall require, as a condition
to the delivery to a Record Holder of such new Depositary Receipt, the surrender
of
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<PAGE> 29
any Depositary Receipt held by such Record Holder immediately prior to such
Record Date.
(d) The Partnership shall not issue fractional Units upon any
distribution, subdivision or combination of Units. If a distribution,
subdivision or combination of Units would result in the issuance of fractional
Units but for the provisions of Section 4.10 and this Section 4.11(d), each
fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit shall
be rounded to the next higher Unit).
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations For Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.6(b) hereof) shall be allocated among the
Partners in each taxable year (or portion thereof) as provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 5.l(d), all items of income, gain, loss and deduction taken
into account in computing Net Income for such taxable period shall be allocated
in the same manner as such Net Income is allocated hereunder:
(i) First, 100% to the General Partner until the aggregate Net
Income allocated to the General Partner pursuant to this
Section 5.1(a)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Losses
allocated to the General Partner pursuant to Section 5.l(b)(v)
for all previous taxable years;
(ii) [Omitted]
(iii) [Omitted]
(iv) Second, 100% to the Limited Partners, in accordance with their
respective Percentage Interests, until the aggregate Net
Income allocated to the Limited Partners pursuant to this
Section 5.1(a)(iv) for the current taxable year and all
previous taxable years is equal to the aggregate Net Losses
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allocated to the Limited Partners pursuant to Section
5.1(b)(ii) for all previous taxable years; and
(v) Third, the balance, if any, 100% to the General Partner and
the Limited Partners in accordance with their respective
Percentage Interests.
(b) Net Losses. After giving effect to the special allocations set
forth in Section 5.1(d), all items of income, gain, loss and deduction taken
into account in computing Net Losses for such taxable period shall be allocated
in the same manner as such Net Losses are allocated hereunder:
(i) First, 100% to the General Partner and the Limited Partners,
in accordance with their respective Percentage Interests,
until the aggregate Net Losses allocated pursuant to this
Section 5.1(b)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Income
allocated to such Partners pursuant to Section 5.1(a)(v) for
all previous taxable years;
(ii) Second, 100% to the Limited Partners, in accordance with their
respective Percentage Interests; provided, that Net Losses
shall not be allocated pursuant to this Section 5.l(b)(ii) to
the extent that such allocation would cause any Limited
Partner to have a deficit balance in its Adjusted Capital
Account at the end of such taxable year (or increase any
existing deficit balance in its Adjusted Capital Account); and
(iii) [Omitted]
(iv) [Omitted]
(v) Third, the balance, if any, 100% to the General Partner.
(c) Net Termination Gains and Losses. After giving effect to the
special allocations set forth in Section 5.1(d), all items of gain and loss
taken into account in computing Net Termination Gain or Net Termination Loss for
such taxable period shall be allocated in the same manner as such Net
Termination Gain or Net Termination Loss is allocated hereunder. All allocations
under this Section 5.1(c) shall be made after Capital Account balances have been
adjusted by all other allocations provided under this Section 5.1 and after all
distributions of Available Cash provided under Section 5.4 have been made with
respect to the taxable period ending on the Liquidation Date.
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(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 4.6(d)) from Termination Capital
Transactions, such Net Termination Gain shall be allocated
between the General Partner and the Limited Partners in the
following manner (and the Capital Accounts of the Partners
shall be increased by the amount so allocated in each of the
following subclauses, In the order listed, before an
allocation is made pursuant to the next succeeding subclause):
(A) First, to each Partner having a
deficit balance in its Capital Account, in the proportion of
such deficit balance to the deficit balances in the Capital
Accounts of all Partners, until each such Partner has been
allocated Net Termination Gain equal to any such deficit
balance in its Capital Account;
(B) Second, 98% to the Limited Partners,
in accordance with their respective Percentage Interests, and
2% to the General Partner until each Limited Partner's Capital
Account (determined on a per Unit basis) in respect of its
Units is equal to the Unrecovered Capital attributable to each
such Unit;
(C) Third, 98% to the Limited Partners,
in accordance with their respective Percentage Interests, and
2% to the General Partner until each Limited Partner's Capital
Account (determined on a per Unit basis) in respect of its
Units is equal to the First Liquidation Target Amount,
determined with respect to each such Unit;
(D) [Omitted]
(E) [Omitted]
(F) Fourth, 88% to the Limited Partners,
in accordance with their respective Percentage Interests, and
12% to the General Partner until each Limited Partner's
Capital Account (determined on a per Unit basis) is equal to
the Second Liquidation Target Amount, determined with respect
to each such Unit;
(G) Fifth, 78% to the Limited Partners,
in accordance with their respective Percentage Interests, and
22% to the General Partner until each Limited Partner's
Capital Account (determined on a per Unit
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basis) is equal to the Third Liquidation Target Amount,
determined with respect to each such Unit;
(H) Sixth, 68% to the Limited Partners,
in accordance with their respective Percentage Interests, and
32% to the General Partner until each Limited Partner's
Capital Account (determined on a per Unit basis) is equal to
the Fourth Liquidation Target Amount, determined with respect
to each such Unit; and
(I) Finally, the balance if any, 63% to
all Limited Partners, in accordance with their respective
Percentage Interests, and 37% to the General Partner.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 4.6.(d)) from Termination Capital
Transactions, such Net Termination Loss shall be allocated to
the Partners in the following manner:
(A) First, 100% to the General Partner
and the Limited Partners in proportion to, and to the extent
of, the positive balances in their respective Capital
Accounts; and
(B) [Omitted]
(C) [Omitted]
(D) Second, the balance, if any, 100% to
the General Partner.
(d) Special Allocations. Notwithstanding any other provision of this
Section 5.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 5.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable
period, each Partner shall be allocated items of Partnership
income and gain for such period (and, if necessary, subsequent
periods) in the manner and amounts provided in Treasury
Regulation Sections 1.704-2(f)(6), l.704-2(g)(2) and 1.704-
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<PAGE> 33
2(j)(2)(i), or any successor provision. For purposes of this
Section 5.1(d), each Partner's Adjusted Capital Account
balance shall be determined, and the allocation of income or
gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section
5.1(d) with respect to such taxable period (other than an
allocation pursuant to Sections 5.1(d)(vi) or 5.1(d)(vii)).
This Section 5.1(d)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith.
(ii) Chargeback of Minimum Gain Attributable to Partner Nonrecourse
Debt Notwithstanding any other provision of this Section 5.1
(other than Section 5.1(d)(i)), except as provided in Treasury
Regulation Section 1.704-2(i)(4), if there is a net decrease m
Partner Nonrecourse Debt Minimum Gain during any Partnership
taxable period, any Partner with a share of Partner
Nonrecourse Debt Minimum Gain at the beginning of such taxable
period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in the
manner and amounts provided in Treasury Regulation Sections
1.704-2(i)(4) and l.704-2(j)(2)(ii), or any successor
provisions. For purposes of this Section 5.1(d), each
Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required
hereunder shall be effected, prior to the application of any
other allocations pursuant to this Section 5.1(d), other than
Section 5.1(d)(i) and other than an allocation pursuant to
Sections 5.1(d)(vi) or 5.1(d)(vii), with respect to such
taxable period. This Section 5.1(d)(ii) is intended to comply
with the chargeback of items of income and gain requirement in
Treasury Regulation Section l.704-2(i)(4) and shall be
interpreted consistently therewith.
(iii) Priority Allocations. All or a portion of the remaining items
of Partnership gross income or gain for the taxable period, if
any, shall be allocated 100% to the General Partner until the
aggregate amount of such items allocated to the General
Partner under this paragraph (iii) for the current taxable
period and all previous taxable periods is equal to the
cumulative amount of cash distributed to the General Partner
as an Incentive Distribution from the date hereof to a date 45
days after the end of the current taxable period.
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<PAGE> 34
(iv) Qualified Income Offset. Except as provided in Sections
5.l(d)(i) and 5.1(d)(ii), in the event any Partner
unexpectedly receives any adjustments, allocations or
distributions described in Treasury Regulation Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
704-1(b)(2)(ii)(d)(6), items of Partnership income and gain
shall be specifically allocated to such Partner in an amount
and manner sufficient to eliminate, to the extent required by
the Treasury regulations, the deficit balance, if any, in its
Adjusted Capital Account created by such adjustments,
allocations or distributions as quickly as possible; provided,
that an allocation pursuant to this Section 5.l(d)(iv) shall
be made only if and to the extent that such Partner would have
a deficit balance in its Adjusted Capital Account after all
other allocations provided in this Section 5.1 have been
tentatively made as if this Section 5.1(d)(iv) was not in the
Agreement.
(v) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any
Partnership taxable period that is in excess of the sum of (A)
the amount such Partner is obligated to restore pursuant to
any provision of this Agreement and (B) the amount such
Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulation Sections
1.704-2(g) and l.704-2(i)(5), such Partner shall be specially
allocated items of Partnership gross income and gain in the
amount of such excess as quickly as possible; provided, that
an allocation pursuant to this Section 5.l(d)(v) shall be made
only if and to the extent that such Partner would have a
deficit Capital Account in excess of such sum after all other
allocations provided for in this Section 5.1 have been
tentatively made as if Section 5.1(d)(iv) hereof and this
Section 5.l(d)(v) were not in the Agreement
(vi) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with
their respective Percentage Interests. If the General Partner
determines in its good faith discretion that the Partnership's
Nonrecourse Deductions must be allocated in a different ratio
to satisfy the safe harbor requirements of the Treasury
regulations promulgated under Section 704(b) of the Code, the
General Partner is authorized, upon notice to the Limited
Partners, to revise the prescribed ratio to the numerically
closest ratio which does satisfy such requirements.
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<PAGE> 35
(vii) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any taxable period shall be allocated 100% to the Partner
that bears the Economic Risk of Loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury
Regulation Section 1.704-2(i). If more than one Partner bears
the Economic Risk of Loss with respect to a Partner
Nonrecourse Debt, such Partner Nonrecourse Deductions
attributable thereto shall be allocated between or among such
Partners in accordance with the ratios in which they share
such Economic Risk of Loss.
(viii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners agree that Nonrecourse
Liabilities of the Partnership in excess of the sum of (A) the
amount of Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the
Partners in accordance with their respective Percentage
Interests.
(ix) Code Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant to
Treasury Regulation Section l.704-1(b)(2)(iv)(m), to be taken
into account in determining Capital Accounts, the amount of
such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and
such item of gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such
Section of the Treasury regulations.
(x) [Omitted]
(xi) Curative Allocation. (A) Notwithstanding any other provision
of this Section 5.1, other than the Required Allocations, the
Required Allocations shall be taken into account in making the
Agreed Allocations so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated
to each Partner pursuant to the Required Allocations and the
Agreed Allocations, together, shall be equal to the net amount
of such items that would have been allocated to each such
Partner under the Agreed Allocations had the Required
Allocations and this Curative Allocation not otherwise been
provided in this Section 5.1. Notwithstanding
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<PAGE> 36
the preceding sentence, Required Allocations relating to (1)
Nonrecourse Deductions shall not be taken into account except
to the extent that there has been a decrease in Partnership
Minimum Gain and (2) Partner Nonrecourse Deductions shall not
be taken into account except to the extent that there has been
a decrease in Minimum Gain Attributable to Partner Nonrecourse
Debts. Allocations pursuant to this Section 5.1(d)(xi)(A)
shall only be made with respect to Required Allocations to the
extent the General Partner reasonably determines that such
allocations will otherwise be inconsistent with the economic
agreement among the Partners. Further, allocations pursuant to
this Section 5.l(d)(xi)(A) shall be deferred with respect to
allocations pursuant to clauses (l) and (2) hereof to the
extent the General Partner reasonably determines that such
allocations are likely to be offset by subsequent Required
Allocations.
(xii) [Omitted]
(A) [Omitted]
(xiii) Notwithstanding the other provisions of this Section 5.1(d)
(other than paragraphs (i) and (ii)) all or a portion of the
remaining items of Partnership gross income or gain for the
taxable period, if any, shall be allocated to each Partner who
has received a deemed distribution of Available Cash pursuant
to Section 9.7 hereof until the aggregate amount of such items
allocated to each such Partner under this paragraph (xii) for
the current taxable period and all previous taxable periods is
equal to the cumulative amount of cash deemed distributed to
such Partner pursuant to Section 9.7 for the current taxable
period and all previous periods.
(xiv) Corrective Allocations. In the event of any allocation of
Additional Book Basis Derivative Items or any Book-Down Event,
the following rules shall apply:
(A) in the case of any allocation of
Additional Book Basis Derivative Items (other than an
allocation of Unrealized Gain or Unrealized Loss under Section
4.6(d) hereof) the General Partner shall allocate additional
items of gross income and gain to the Limited Partners or
additional items of deduction and loss to the General Partner
to the extent that the Additional Book Basis
36
<PAGE> 37
Derivative items allocated to the Limited Partners exceeds
their Share of those Additional Book Basis Derivative Items.
For this purpose, the Limited Partners shall be treated as
being allocated Additional Book Basis Derivative Items to the
extent that such Additional Book Basis Derivative Items have
reduced the amount of income that would otherwise have been
allocated to the Limited Partners under the Partnership
Agreement (e.g., Additional Book Basis Derivative Items taken
into account in computing cost of goods sold would reduce the
amount of book income otherwise available for allocation among
the Partners). Any allocation made pursuant to this Section
5.1(d)(xiv)(A) shall be made after all of the other Agreed
Allocations have been made as if this Section 5.l(d)(xiv) were
not in the Partnership Agreement and, to the extent necessary,
shall require the reallocation of items that have been
allocated pursuant to such other Agreed Allocations.
(B) In the case of any negative
adjustment to the Capital Accounts of the Partners resulting
from a Book-Down Event, such negative adjustment (1) shall
first be allocated between the General Partner and the Limited
Partners in proportion to and to the extent of their Remaining
Net Positive Adjustments and (2) any remaining negative
adjustment shall be allocated pursuant to Section 5.1(c)
hereof.
(C) In making the allocations required
under this Section 5.1(d)(xiv), the General Partner, in its
sole discretion, may apply whatever conventions or other
methodology it deems reasonable to satisfy the purposes of
this Section 5.1 (d)(xiv).
(D) For purposes of this Section
5.1(d)(xiv), the following definitions shall apply:
(1) "Additional Book Basis" means the
portion of any remaining Carrying Value of an Adjusted Property that is
attributable to positive adjustments made to such Carrying Value as a
result of Book-Up Events. For purposes of determining the extent to
which Carrying Value constitutes Additional Book Basis:
(i) Any negative adjustment made to the Carrying
Value of an Adjusted Property as a result of
either a Book-Down Event or a Book-Up Event
shall first be deemed to offset or decrease
that portion of the Carrying Value of such
Adjusted Property that is attributable to
any prior
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<PAGE> 38
positive adjustments made thereto pursuant
to a Book-Up or Book-Down Event.
(ii) If Carrying Value that constitutes
Additional Book Basis is reduced as a result
of a Book-Down Event and the Carrying Value
of other property is increased as a result
of such Book-Down Event, an allocable
portion of any such increase in Carrying
Value shall be treated as Additional Book
Basis; provided that the amount treated as
Additional Book Basis pursuant hereto as a
result of such Book-Down Event shall not
exceed the amount by which the Aggregate
Remaining Net Positive Adjustments after
such Book-Down Event exceeds the remaining
Additional Book Basis attributable to all of
the Partnership's Adjusted Property after
such Book-Down Event (determined without
regard to the application of this Section
5.l(d)(xiv)(D)(l)(ii) to such Book-Down
Event).
(2) "Additional Book Basis Derivative Items"
means any Book Basis Derivative Items that are computed with reference
\to Additional Book Basis. To the extent that the Additional Book Basis
attributable to all of the Partnership's Adjusted Property as of the
beginning of any taxable period exceeds the Aggregate Remaining Net
Positive Adjustments as of the beginning of such period (the "Excess
Additional Book Basis"), the Additional Book Basis Derivative Items for
such period shall be reduced by the amount that bears the same ratio to
the amount of Additional Book Basis Derivative Items determined without
regard to this sentence as the Excess Additional Book Basis bears to
the Additional Book Basis as of the beginning of such period.
(3) "Aggregate Remaining Net Positive
Adjustments" means as of the end of any taxable period, the sum of the
Remaining Net Positive Adjustments of all the Partners.
(4) "Book Basis Derivative Items" means any
item of income, deduction, gain, or loss included in the determination
of Net Income or Net Loss that is computed with reference to the
Carrying
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<PAGE> 39
Value of an Adjusted Property (e.g., depreciation depletion, or gain or
loss with respect to an Adjusted Property).
(5) "Book-Down Event" means an event which
triggers a negative adjustment to the Capital Accounts of the Partners
pursuant to Section 4.6(d) hereof.
(6) "Book-Up Event" means an event which
triggers a positive adjustment to the Capital Accounts of the Partners
pursuant to Section 4.6(d) hereof.
(7) "Net Positive Adjustments" means, with
respect to any Partner, the excess, if any, of the total positive
adjustments over the total negative adjustments made to the Capital
Account of such Partner pursuant to Book-Up and Book-Down Events.
(8) "Remaining Net Positive Adjustments"
means as of the end of any taxable period, (i) with respect to the
Limited Partners, as a class, the excess of (a) the Net Positive
Adjustments of the Limited Partners as of the end of such period over
(b) the sum of those Partners' Share of Additional Book Basis
Derivative Items for each prior taxable period ending after January 1,
1990, and (ii) with respect to the General Partner, the excess of (a)
the Net Positive Adjustments of the General Partner as of the end of
such period over (b) the sum of the General Partner's Share of
Additional Book Basis Derivative Items.
(9) "Share of Additional Book Basis
Derivative Items" means in connection with any allocation of Additional
Book Basis Derivative Items for any taxable period, (i) with respect to
the Limited Partners, as a class, the amount that bears the same ratio
to such Additional Book Basis Derivative Items as the Limited Partners'
Remaining Net Positive Adjustments as of the end of such period bears
to the Aggregate Remaining Net Positive Adjustments as of that time,
and (ii) with respect to the General Partner, the amount that bears the
same ratio to such Additional Book Basis Derivative Items as the
General Partner's Remaining Net Positive Adjustments as of the end of
such period bears to the Aggregate Remaining Net Positive Adjustments
as of that time.
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(C) The General Partner shall have
reasonable discretion, with respect to each taxable period, to
(1) apply the provisions of Section 5.1(d)(xi)(A) hereof in
whatever order is most likely to minimize the economic
distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to
Section 5.l(d)(xi)(A) hereof among the Partners in a manner
that is likely to minimize such economic distortions.
5.2 Allocations for Tax Purposes. (a) Except as otherwise provided
herein, for federal income tax purposes, each item of income, gain, loss and
deduction shall be allocated among the Partners in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated pursuant
to Section 5.1 hereof.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, depletion and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in
the manner provided under Section 704(c) of the Code that
takes into account the variation between the Agreed Value of
such property and its adjusted basis at the time of
contribution; and (B) except as otherwise provided in Section
5.2(b)(iv), any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be allocated
among the Partners in the same manner as its correlative item
of "book" gain or loss is allocated pursuant to Section 5.1.
(ii) (A) In the case of an Adjusted Property, such items shall (l)
first, be allocated among the Partners in a manner consistent
with the principles of Section 704(c) of the Code to take into
account the Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to Section
4.6(d)(i) or (ii), and (2) second, in the event such property
was originally a Contributed Property, be allocated among the
Partners in a manner consistent with Section 5.2(b)(i)(A); and
(B) except as otherwise provided in Section 5.2(b)(iv), any
item of Residual Gain or Residual Loss attributable to an
Adjusted Property shall be allocated among the Partners in the
same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 5.1.
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<PAGE> 41
(iii) Except as otherwise provided in Section 5.2(b)(iv), all other
items of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as their correlative
item of "book" gain or loss is allocated pursuant to Section
5.1.
(iv) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B), 5.2(b)(ii)(B) or
5.2(b)(iii) shall be subject to allocation by the General
Partner in a manner designed to eliminate, to the maximum
extent possible, Book-Tax Disparities in a Contributed
Property or Adjusted Property otherwise resulting from the
application of the "ceiling" limitation (under Section 704(c)
of the Code or Section 704(c) principles) to the allocations
provided under Section 5.2(b)(i)(A) or 5.2(b)(ii)(A).
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Units (or any class or classes thereof), the
General Partner shall have sole discretion to (i) adopt such conventions as it
deems appropriate in determining the amount of depreciation, amortization and
cost recovery deductions; (ii) make special allocations for federal income tax
purposes of income (including gross income) or deductions; and (iii) amend the
provisions of this Agreement as appropriate (x) to reflect the proposal or
promulgation of Treasury regulations under Section 704(b) or Section 704(c) of
the Code or (y) otherwise to preserve or achieve uniformity of the Units (or any
class or classes thereof). The General Partner may adopt such conventions, make
such allocations and make such amendments to this Agreement as provided in this
Section 5.2(c) only if such conventions, allocations or amendments would not
have a material adverse effect on the Partners, the holders of any class or
classes of Units issued and outstanding or the Partnership, and if such
allocations are consistent with the principles of Section 704 of the Code.
(d) The General Partner in its sole discretion may determine to
depreciate the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation method and useful life applied to the Partnership's common
basis of such property, despite the inconsistency of such approach with Proposed
Treasury Regulation Section 1.168-2(n) and Treasury Regulation Section
1.167(c)l(a)(6). If the General Partner later determines that such reporting
position cannot reasonably be taken, the General Partner may adopt a
depreciation convention under which all purchasers acquiring Units in the same
month would receive depreciation, based upon the same applicable rate as if they
had purchased a
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<PAGE> 42
direct interest in the Partnership's property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may use any other
reasonable depreciation convention to preserve the uniformity of the intrinsic
tax characteristics of any Units that would not have a material adverse effect
on the Limited Partners or the Record Holders of any class or classes of Units.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 5.2 be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by
the Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction
attributable to a transferred Partnership Interest shall, for federal income tax
purposes, be determined on an annual basis and prorated on a monthly basis and
shall be allocated to the Partners as of the opening of the New York Stock
Exchange on the first Business Day of each month; provided, however, that gain
or loss on a sale or other disposition of any assets of the Partnership other
than in the ordinary course of business shall be allocated to the Partners as of
the opening of the New York Stock Exchange on the first Business Day of the
month in which such gain or loss is recognized for federal income tax purposes.
The General Partner may revise, alter or otherwise modify such methods of
allocation as it determines necessary, to the extent permitted or required by
Section 706 of the Code and the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under
the provisions of this Article V shall instead be made to the beneficial owner
of Units held by a nominee in any case in which the nominee has furnished the
identity of such owner to the Partnership in accordance with Section 6031(c) of
the Code or any other method acceptable to the General Partner in its sole
discretion.
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5.3 Requirement and Characterization of Distributions. Within 60 days
following the end of each calendar quarter an amount equal to 100% of Available
Cash with respect to such quarter (or period) shall be distributed in accordance
with this Article V by the Partnership to the Partners, as of the Record Date
selected by the General Partner in its reasonable discretion. The foregoing
shall not modify in any respect the provisions of Section 4.2 hereof regarding
the distribution of any interest or other profit on the initial Capital
Contributions referred to therein. The General Partner shall have the right to
determine in its sole discretion whether a particular distribution of cash
consists of Available Cash or Cash From Capital Transactions and the amount of
cash in each such category, except to the extent it is established that such
determination is contrary to any of the express provisions in this Agreement.
Except as otherwise provided in Section 5.5(b), the Partnership shall not be
obligated to make distributions of Cash From Capital Transactions and the
General Partner shall have the right to cause the Partnership to use Cash From
Capital Transactions for any purpose the General Partner deems necessary or
desirable, including but not limited to, purchase of Units in the public market,
in privately negotiated transactions or otherwise (and in no event shall the
General Partner be obligated to cause such purchases to be made on a pro rata
basis or to afford every Limited Partner an equal opportunity to participate in
the transactions involved).
5.4 Distributions. Available Cash with respect to any calendar quarter
shall be distributed as follows:
(a) First, 98% to the Limited Partners, in accordance with their
respective Percentage Interests, and 2% to the General Partner until there has
been distributed in respect of each of the outstanding Units an amount equal to
the Minimum Quarterly Amount;
(b) [Omitted]
(c) Second, 98% to the Limited Partners, in accordance with their
respective Percentage Interests, and 2% to the General Partner until there has
been distributed in respect of each of the outstanding Units an amount equal to
the excess of the First Target Amount over the Minimum Quarterly Amount;
(d) [Omitted]
(e) Third, 88% to the Limited Partners, in accordance with their
respective Percentage Interests, and 12% to the General Partner until there has
been distributed in
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respect of each of the outstanding Units an amount equal to the excess of the
Second Target Amount over the First Target Amount;
(f) Fourth, 78% to the Limited Partners, in accordance with their
respective Percentage Interests, and 22% to the General Partner until there has
been distributed in respect of each of the outstanding Units an amount equal to
the excess of the Third Target Amount over the Second Target Amount;
(g) Fifth, 68% to the Limited Partners, in accordance with their
respective Percentage Interests and 32% to the General Partner until there has
been distributed in respect of each of the outstanding Units an amount equal to
the Fourth Target Amount over the Third Target Amount; and
(h) Finally, the balance, if any, 63% to the Limited Partners, in
accordance with their respective Percentage Interests, and 37% to the General
Partner.
5.5 Distributions of Cash from Capital Transactions. (a) Cash from
Capital Transactions which the General Partner determines in accordance with
Section 5.3 to distribute shall be distributed, unless the provisions of Section
5.5(b) hereof require otherwise, 98% to the Limited Partners, in accordance with
their respective Percentage Interests, and 2% to the General Partner until the
Limited Partners have received, since the date hereof through such date,
distributions of Available Cash that are deemed to be Cash from Capital
Transactions in an aggregate amount equal to the amount set forth in Schedule
5.5 hereto. Thereafter, any Cash from Capital Transactions shall be distributed
in accordance with Section 5.4.
(b) If one or more Capital Transactions shall occur in any taxable
year, then (except as otherwise provided below) the General Partner shall be
required to make a distribution of Cash from Capital Transactions on or before
the April 1st next following the end of the taxable year in which such Capital
Transactions occur in accordance with the following procedures:
(i) The General Partner shall determine the net capital gain and
net ordinary income recognized by the Partnership (without
taking account of any Code Section 743 adjustments) for
federal income tax purposes from all Capital Transactions
during such year, and shall then determine the portion of such
net capital gain and net ordinary income allocable to Units
owned by the Limited Partner for federal income tax purposes.
Such portion of any
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<PAGE> 45
net capital gain or net ordinary income shall then be divided
by the number of Units owned by the Limited Partner.
(ii) The General Partner shall then cause the Partnership to
distribute to the Partners, in accordance with their
respective Percentage Interests, cash until an amount has been
distributed pursuant hereto with respect to every Unit
outstanding on the Record Date established by the General
Partner with respect to such distribution equal to 125% of the
federal income tax liability that would be due with respect to
the "net capital gain" and "net ordinary income" attributed to
each outstanding Unit on the Record Date for the distribution
to be made pursuant to the preceding sentence (assuming for
such purpose that the maximum effective federal income tax
rates for individuals, relating to either long-term capital
gain or ordinary income, whichever the case may be, applied to
all holders of Units at the time of such recognition without
regard to any recapture of lower rates or alternative minimum
tax rate).
(iii) No distribution of Cash from Capital Transactions shall be
required by this Section 5.5(b) with respect to any tax year
if the amount otherwise distributable for such taxable year
under this Section 5.5(b) does not exceed $0.10 per Unit, or
if such distribution shall be prohibited by requirements
binding upon the Partnership or any Subsidiary at the time
such distribution would otherwise be required (including but
not limited to any such requirement imposed by any loan
agreement then in effect).
5.6 Adjustment of Minimum Quarterly Amount, Unrecovered Capital and
Target Amounts. (a) The Minimum Quarterly Amount, Unrecovered Capital, First
Target Amount, Second Target Amount, Third Target Amount and Fourth Target
Amount shall be proportionately adjusted in the event of any distribution,
combination or subdivision (whether effected by a distribution payable in Units
or otherwise) of Units or Partnership Securities in accordance with Section 4.11
hereof. In the event of a distribution of Cash from Capital Transactions, the
Minimum Quarterly Amount, First Target Amount, Second Target Amount, Third
Target Amount and Fourth Target Amount shall be adjusted proportionately
downward to equal the product of the otherwise applicable Minimum Quarterly
Amount, First Target Amount, Second Target Amount, Third Target Amount and
Fourth Target Amount, as the case may be, by a fraction, of which the numerator
is the Unrecovered Capital immediately after giving effect to such distribution
and of which the denominator is the Unrecovered Capital immediately prior to
giving effect to such distribution.
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(b) The Minimum Quarterly Amount, First Target Amount, Second Target
Amount, Third Target Amount and Fourth Target Amount shall also be subject to
adjustment pursuant to Section 9.6 hereof.
5.7 [Omitted]
ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS
6.1 Management. (a) The General Partner shall conduct, direct and
exercise full control over all activities of the Partnership. Except as
otherwise expressly provided in this Agreement, all management powers over the
business and affairs of the Partnership shall be exclusively vested in the
General Partner, and no Limited Partner shall have any right of control or
management power over the business and affairs of the Partnership. In addition
to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner, subject to
Section 6.3 hereof, shall have full power and authority to do all things deemed
necessary or desirable by it to conduct the business of the Partnership, to
exercise all powers set forth in Section 3.2 hereof and to effectuate the
purposes set forth in Section 3.1 hereof including, without limitation, (i) the
making of any expenditures, the borrowing of money, the guaranteeing of
indebtedness and other liabilities, the issuance of evidences of indebtedness
and the incurring of any obligations it deems necessary for the conduct of the
activities of the Partnership; (ii) the making of tax, regulatory and other
filings, or rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation
or exchange of any assets of the Partnership or the merger or other combination
of the Partnership with or into another entity (all of the foregoing subject to
any prior approval which may be required by Section 6.3 hereof); (iv) the use of
the assets of the Partnership (including, without limitation, cash on hand) for
any purpose consistent with the terms of this Agreement and on any terms it sees
fit, including, without limitation, the financing of the conduct of the
operations of the Partnership or any Subsidiary, the lending of funds to other
persons (including any Subsidiary) and the repayment of obligations of the
Partnership and any Subsidiary and the making of capital contributions to any
Subsidiary; (v) the negotiation and execution on any terms deemed desirable in
its sole discretion and the performance of any contracts, conveyances or other
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instruments that it considers useful or necessary to the conduct of the
Partnership operations or the implementation of its powers under this Agreement;
(vi) the distribution of Partnership cash; (vii) the selection and dismissal of
employees and agents (including, without limitation, employees having titles
such as "president," "vice president," "secretary" and "treasurer") and agents,
outside attorneys, accountants, consultants and contractors and the
determination of their compensation and other terms of employment or hiring;
(viii) the maintenance of such insurance for the benefit of the Partnership and
the Partners as it deems necessary or appropriate; (ix) the formation of, or
acquisition of an interest in, and the contribution of property to, any further
limited or general partnerships, joint ventures or other relationships that it
deems desirable (including, without limitation, the acquisition of interests in,
and the contributions of property to any Subsidiary from time to time); (x) the
control of any matters affecting the rights and obligations of the Partnership,
including the conduct of litigation and the incurring of legal expense and the
settlement of claims and litigation; (xi) the lending or borrowing of money, the
assumption or guarantee of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of indebtedness and the securing of same
by mortgage, deed of trust or other lien or encumbrance, the bringing and
defending of actions at law or in equity and the indemnification of any Person
against liabilities and contingencies to the extent permitted by law; (xii) the
entering into listing agreements with the New York Stock Exchange and any other
securities exchange and delisting some or all of the Units from, or requesting
that trading be suspended on, any such exchange (subject to any prior approval
which may be required under Section 1.6 hereof); (xiii) the undertaking of any
action in connection with the Partnership's investment in any Subsidiary
(including, without limitation, the contribution or loan by the Partnership to
any Subsidiary of funds); and (xiv) the undertaking of any action in connection
with the Partnership's direct or indirect investment in any Subsidiary.
(b) Each of the Partners and each other Person who may acquire an
interest in Units hereby approves, ratifies and confirms the execution, delivery
and performance by the parties thereto of the Deposit Agreement. None of the
execution, delivery or performance by the General Partner, the Partnership or
any Affiliate of any of them of any agreement authorized or permitted under this
Agreement shall constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
6.2 Certificate of Limited Partnership. The General Partner has filed
the Certificate of Limited Partnership with the Secretary of State of the State
of Delaware as required by the Delaware Act and shall use all reasonable efforts
to cause to be filed such
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other certificates or documents as may be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware or any other state in which the Partnership
may elect to do business or own property. To the extent that such action is
determined by the General Partner to be reasonable and necessary or appropriate,
the General Partner shall file amendments to and restatements of the Certificate
of Limited Partnership and do all the things to maintain the Partnership as a
limited partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware or any other state in which
the Partnership may elect to do business or own property. Subject to the terms
of Section 7.5(a) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate of Limited
Partnership or any amendment thereto to any Limited Partner.
6.3 Restrictions on General Partner's Authority. (a) The General
Partner may not, without the written approval of the specific act by all of the
Limited Partners or by other written instrument executed and delivered by all of
the Limited Partners subsequent to the date of this Agreement, take any action
in contravention of this Agreement, including, without limitation, (i) take any
act that would make it impossible to carry on the ordinary business of the
Partnership, except as otherwise provided in this Agreement; (ii) possess
Partnership property, or assign any rights in specific Partnership property, for
other than a Partnership purpose; (iii) admit a person as a Partner, except as
otherwise provided in this Agreement; (iv) amend this Agreement in any manner,
except as otherwise provided in this Agreement; or (v) transfer its interest as
General Partner of the Partnership, except as otherwise provided in this
Agreement.
(b) Except as provided in Article XIV hereof, the General Partner may
not sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination with any other
Person) or approve on behalf of the Partnership the sale, exchange or other
disposition of all or substantially all of the assets of the Facilities
Subsidiary, without the approval of at least a majority of the outstanding Units
(excluding any Units owned by the General Partner and its Affiliates); provided,
however, that this provision shall not preclude or limit the mortgage, pledge,
hypothecation or grant of a security interest in all or substantially all of the
Partnership's assets and shall not apply to any forced sale of any or all of the
Partnership's assets pursuant to the foreclosure of, or other realization upon,
any such encumbrance.
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(c) Unless approved by the affirmative vote of the holders of at least
66 2/3% of each class of outstanding Units and the affirmative vote of the
holders of at least a majority of outstanding Units excluding for purposes of
such determination any Units owned by the General Partner and its Affiliates,
the General Partner shall not take any action or refuse to take any reasonable
action the effect of which, if taken or not taken, as the case may be, would be
to cause the Partnership to be treated for federal income tax purposes as an
association taxable as a corporation.
(d) At all times while serving as the general partner of the
Partnership, the General Partner will not make any dividend or distribution on,
or repurchase any stock or take any other action if the effect of such dividend
or distribution, repurchase or other action would be to reduce its net worth
below an amount necessary to receive an Opinion of Counsel that the Partnership
will be treated as a partnership for federal income tax purposes.
6.4 Reimbursement of the General Partner. (a) Except as provided in
this Section 6.4 and elsewhere in this Agreement, the General Partner shall not
be compensated for its services as general partner of the Partnership.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole discretion, for (i)
all direct and indirect expenses it incurs or payments it makes on behalf of the
Partnership (including amounts paid to any Person to perform services to or for
the Partnership) and (ii) that portion of the General Partner's or its
Affiliates' legal, accounting, investor communications, utilities, telephone,
secretarial, travel, entertainment, bookkeeping, reporting, data processing,
office rent and other office expenses (including overhead charges), salaries,
fees and other compensation and benefit expenses of employees, officers and
directors, other administrative or overhead expenses and all other expenses, in
each such case, necessary or appropriate to the conduct of the Partnership's
business and allocable to the Partnership or otherwise incurred by the General
Partner in connection with operating the Partnership's business (including,
without limitation, expenses allocated to the General Partner by its
Affiliates). The General Partner shall determine the fees and expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Such reimbursements shall be in addition to any
reimbursement to the General Partner as a result of indemnification pursuant to
Section 6.7 hereof.
(c) Subject to Section 4.4(c) hereof, the General Partner in its sole
discretion and without the approval of the Limited Partners may propose and
adopt on behalf of the Partnership, employee benefit plans (including, without
limitation, plans involving the
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issuance of Units), for the benefit of employees of the General Partner, the
Partnership, any Subsidiary or any Affiliate of any of them in respect of
services performed, directly or indirectly, for the benefit of the Partnership
or any Subsidiary.
6.5 Outside Activities. (a) The General Partner shall not, for so long
as it is the general partner of the Partnership, enter into or conduct any
business nor incur any debts or liabilities except in connection with or
incidental to (i) its performance of the activities required or authorized by
this Agreement and (ii) the acquisition, ownership or disposition of the
partnership interest in the Partnership or its equity interest in any
Subsidiary.
(b) Except as provided in Section 6.5(a) hereof, no Indemnitee shall be
expressly or implicitly restricted or proscribed pursuant to this Agreement or
the partnership relationship established hereby from engaging in other
activities for profit, whether in the businesses engaged in by the Partnership
or anticipated to be engaged in by the Partnership or otherwise. Neither the
Partnership, any Limited Partner nor any other Person shall have any rights by
virtue of this Agreement or the partnership relationship established hereby or
thereby in any business ventures of any Indemnitee, and such Indemnities shall
have no obligation to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person. The General Partner
and any other Persons affiliated with the General Partner may acquire Units or
Partnership Securities and shall be entitled to exercise all rights of an
Assignee or Limited Partner, as applicable, relating to such Units or
Partnership Securities, as the case may be.
6.6 Contracts with Affiliates. (a) The Partnership may lend or
contribute to any Subsidiary, and any other Subsidiary may borrow funds, on
terms and conditions established in the sole discretion of the General Partner.
The foregoing authority shall be exercised by the General Partner in its
reasonable discretion and shall not create any right or benefit in favor of any
Subsidiary or any other Person. The Partnership may not lend funds to the
General Partner or any of its Affiliates.
(b) The General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to the Partnership. Any services
rendered to the Partnership by the General Partner or any of its Affiliates
shall be on terms that are fair and reasonable to the Partnership. The
provisions of Section 6.4 hereof shall apply to the rendering of services
described in this Section 6.6(b).
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant
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upon such terms and subject to such conditions consistent with this Agreement
and applicable law.
(d) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership.
6.7 Indemnification. (a) To the fullest extent permitted by law but
subject to the limitations expressly provided in this Agreement, each Indemnitee
shall be indemnified and held harmless by the Partnership from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees and expenses), judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as (x) the General Partner, a Departing Partner or any of their
Affiliates, (y) an employee, partner, agent or trustee of the General Partner,
any Departing Partner or any of their Affiliates or (z) a Person serving at the
request of the Partnership in another entity in a similar capacity, provided
that in each case the Indemnitee acted in good faith and in the manner which
such Indemnitee believed to be in, or not opposed to, the best interests of the
Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
the Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to this Section 6.7 shall be made only out of the
assets of the Partnership.
(b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee in defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the
Partnership prior to the final disposition of such claim, demand, action, suit
or proceeding upon receipt by the Partnership of an undertaking by or on behalf
of the Indemnitee to repay such amount if it shall be determined that the
Indemnitee is not entitled to be indemnified as authorized in this Section 6.7.
(c) The indemnification provided by this Section 6.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to
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any vote of the Partners, as a matter of law or otherwise, and shall continue as
to an Indemnitee who has ceased to serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the General Partner and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expense that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 6.7(a); and action taken
or omitted by it with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligation of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 6.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part,
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prior to such amendment, modification or repeal regardless of when such claims
may arise or be asserted.
6.8 Liability of Indemnitees. (a) Notwithstanding anything to the
contrary set forth in this Agreement, no Indemnitee shall be liable for monetary
damages to the Partnership, Limited Partners or to any Persons who have acquired
interests in the Units for losses sustained or liabilities incurred as a result
of any act or omission if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth
in Section 6.1(a) hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents and the General Partner
shall not be responsible for any misconduct or negligence on the part of any
such agent appointed by it in good faith.
(c) Any amendment, modification or repeal of this Section 6.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations or the liability to the Partnership and the Limited Partners of the
General Partner, its directors, officers, partners and employees under this
Section 6.8 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
6.9 Resolution of Conflicts of Interest. (a) Unless otherwise expressly
provided in this Agreement, whenever a potential conflict of interest exists or
arises between the General Partner or any of its Affiliates, on the one hand,
and the Partnership or any Partner, on the other hand, any resolution or course
of action in respect of such conflict of interest shall be permitted and deemed
approved by all Partners, and shall not constitute a breach of this Agreement,
of any agreement contemplated herein, or of any duty stated or implied by law or
equity, if the resolution or course of action is or, by operation of this
Agreement, is deemed to be fair and reasonable to the Partnership. Any such
resolution or course of action in respect of any conflict of interest shall not
constitute a breach of this Agreement, of any other agreement contemplated
herein, or of any duty stated or implied by law or equity, if such resolution or
course of action is fair and reasonable to the Partnership. The General Partner
shall be authorized in connection with its resolution of any conflict of
interest to consider (i) the relative interests of any party to such conflict,
agreement, transaction or situation and the benefits and burdens relating to
such interest; (ii) any customary or accepted industry practices; (iii) any
applicable generally accepted accounting practices or principles; and (iv) such
additional factors as
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the General Partner determines in its sole discretion to be relevant, reasonable
or appropriate under the circumstances. Nothing contained in this Agreement,
however, is intended to nor shall it be construed to require the General Partner
to consider the interests of any Person other than the Partnership. In the
absence of bad faith by the General Partner, the resolution, action or terms so
made, taken or provided by the General Partner with respect to such matter shall
not constitute a breach of this Agreement or any other agreement contemplated
herein or a breach of any standard of care or duty imposed herein or therein or
under the Delaware Act or any other law, rule or regulation
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "discretion" or under a grant of similar
authority or latitude, the General Partner or such Affiliate shall be entitled
to consider only such interests and factors as it desires and shall have no duty
or obligation to give any consideration to any interest of, or factors
affecting, the Partnership or any Limited Partner, or (ii) in "good faith" or
under another express standard, the General Partner or such Affiliate shall act
under such express standard and shall not be subject to any other or different
standards imposed by this Agreement or any other agreement contemplated hereby.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
6.10 Other Matters Concerning the General Partner. (a) The General
Partner may rely and shall be protected in acting or refraining from acting upon
any resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
which such General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
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(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
6.11 Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
6.12 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies which may
be available against such Person to contest, negate or disaffirm any action of
the General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering such certificate,
document or instrument was duly
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authorized and empowered to do so for and on behalf of the Partnership and (c)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement or
the Delaware Act.
7.2 Management of Business. No Limited Partner or Assignee (other than
the General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner or any of its Affiliates, in
its capacity as such) shall take part in the operation, management or control
(within the meaning of the Delaware Act) of the Partnership's business, transact
any business in the Partnership's name or have the power to sign documents for
or otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner or any of its Affiliates, in
its capacity as such, shall not affect, impair or eliminated the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
7.3 Outside Activities. Subject to the provisions of Section 6.5
hereof, which shall continue to be applicable to the Persons referred to
therein, regardless of whether such Persons shall also be Limited Partners or
Assignees, any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities in direct competition
with the Partnership. Neither the Partnership nor any Partners shall have any
rights by virtue of this Agreement in any business ventures of any Limited
Partner or Assignee.
7.4 Return of Capital. No Limited Partner shall be entitled to the
withdrawal or return of his Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided by Article V
hereof or as otherwise expressly provided in this Agreement, no Limited Partner
or Assignee shall have priority over any other Limited Partner or Assignee
either as to the return of Capital Contributions or as to profits, losses or
distributions.
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7.5 Rights of Limited Partners Relating to the Partnership. (a) In
addition to other rights provided by this Agreement or by applicable law, and
except as limited by Section 7.5(b) hereof, each Limited Partner shall have the
right, for a purpose reasonably related to such Limited Partner's interest as a
limited partner in the Partnership, upon reasonable demand and at such Limited
Partner's own expense:
(i) to obtain true and full information regarding the status of
the business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for
each year;
(iii) to have furnished to him, upon notification to the General
Partner, a current list of the name and last known business,
residence or mailing address of each Partner;
(iv) to have furnished to him, upon notification to the General
Partner, a copy of this Agreement and the Certificate of
Limited Partnership and all amendments thereto, together with
executed copies of all powers of attorney pursuant to which
this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of
cash and a description and statement of the Agreed Value of
any other Capital Contribution by each Partner and which each
Partner has agreed to contribute in the future, and the date
on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) Notwithstanding any other provision of this Section 7.5, the
General Partner may keep confidential from the Limited Partners for such period
of time as the General Partner determines in its sole discretion to be
reasonable, any information that the General Partner reasonably believes to be
in the nature of trade secrets or other information the disclosure of which the
General Partner in good faith believes is not in the best interests of the
Partnership or which the Partnership is required by law or by agreements with
unaffiliated third parties to maintain confidentiality.
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ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting. The General Partner shall keep or cause to
be kept at the principal office of the Partnership appropriate books and records
with respect to the Partnership's business including, without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Section 7.5(a)
hereof. Any records maintained by or on behalf of the Partnership in the regular
course of its business, including the record of the Record Holders and Assignees
of Units, Depositary Units or Partnership Securities, books of account and
records of Partnership proceedings, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles.
8.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
8.3 Reports. (a) As soon as practicable, but in no event later than 120
days after the close of each Partnership Year, the General Partner shall cause
to be mailed to each Record Holder of a Unit as of a date selected by the
General Partner in its sole discretion, an annual report containing financial
statements of the Partnership for such Partnership Year, presented in accordance
with generally accepted accounting principles, including a balance sheet and
statements of operations, Partners' equity and statement of cash flows, such
statements to be audited by a firm of independent public accountants selected by
the General Partner.
(b) As soon as practicable, but in no event later than 45 days after
the close of each calendar quarter except the last calendar quarter of each
year, the General Partner shall cause to be mailed to each Record Holder of a
Unit, as of a date selected by the General Partner in its sole discretion, a
report containing unaudited financial statements of the Partnership and such
other information as may be required by applicable law, regulation or rule of
any National Securities Exchange on which the Units are listed for trading, or
as the General Partner determines to be appropriate.
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ARTICLE IX
TAX MATTERS
9.1 Preparation of Tax Returns. The General Partner shall arrange for
the preparation and timely filing of all returns of Partnership income, gains,
deductions, losses and other items required of the Partnership for federal and
state income tax purposes and shall use all reasonable efforts to furnish,
within 90 days of the close of each taxable year, the tax information reasonably
required by Unitholders for federal and state income tax reporting purposes. The
classification, realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of accounting for
federal income tax purposes. The taxable year of the Partnership shall be the
calendar year.
9.2 Tax Elections. Except as otherwise provided herein, the General
Partner shall, in its sole discretion, determine whether to make any available
election pursuant to the Code; provided, however, that the General Partner shall
make the election under Section 754 of the Code in accordance with applicable
regulations thereunder. The General Partner shall have the right to seek to
revoke any such election (including, without limitation, the election under
Section 754 of the Code) upon the General Partner's determination in its sole
discretion that such revocation is in the best interests of the Limited Partners
and Assignees. For purposes of computing the adjustments under Section 743(b) of
the Code, the General Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of Units will be deemed to be
the lowest quoted trading price of the Units on any National Securities Exchange
on which such Units are traded during the calendar month in which such transfer
is deemed to occur pursuant to Section 5.2(g) hereof without regard to the
actual price paid by such transferee.
9.3 Tax Controversies. Subject to the provisions hereof, the General
Partner is designated the Tax Matters Partner (as defined in Section 6231 of the
Code), and is authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of the Partnership's
affairs by tax authorities, including resulting administrative and judicial
proceedings, and to expend Partnership funds for professional services and costs
associated therewith. Each Partner or Assignee agrees to cooperate with the
General Partner and to do or refrain from doing any or all things reasonably
required by the General Partner to conduct such proceedings.
9.4 Organizational Expenses. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a
60-month period as provided in Section 709 of the Code.
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9.5 Withholding. Notwithstanding any other provision of this Agreement,
the General Partner is authorized to take any action that it determines in its
sole discretion to be necessary or appropriate to cause the Partnership to
comply with any withholding requirements established under the Code or any other
federal, state or local law including, without limitation, pursuant to Sections
1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is
required to withhold and pay over to any taxing authority any amount resulting
from the allocation or distribution of income to any Partner or Assignee
(including by reason of Section 1446 of the Code), the amount withheld shall be
treated as a distribution of cash pursuant to Section 5.3 hereof in the amount
of such withholding from such Partner.
9.6 Entity-Level Taxation. If legislation is enacted which causes the
Partnership to become treated as an association taxable as a corporation for
federal income tax purposes, then with respect to any calendar quarter, the
Minimum Quarterly Amount, the First Target Amount, Second Target Amount, Third
Target Amount or Fourth Target Amount, as the case may be, shall be equal to the
product of (i) the amount of such distribution multiplied by (ii) l minus the
sum of (x) the highest marginal federal corporate income tax rate for the
Partnership Year in which such quarter occurs (expressed as a percentage) plus
(y) the effective overall state and local income tax rate (expressed as a
percentage) applicable to the Partnership for the calendar year next preceding
the calendar year in which such quarter occurs (after taking into account the
benefit of any deduction allowable for federal income tax purposes with respect
to the payment of state and local income taxes). Such effective overall state
and local income tax rate shall be determined for the calendar year next
preceding the first calendar year during which the Partnership is taxable for
federal income tax purposes as a corporation or as an association taxable as a
corporation by determining such rate as if the Partnership had been subject to
such state and local taxes during such preceding calendar year.
9.7 Entity-Level Deficiency Collections. If the Partnership is required
by applicable law to pay any federal, state or local income tax on behalf of any
Partner or Assignee or any former Partner or Assignee (i) the General Partner
shall pay such tax on behalf of such Partner or Assignee or former Partner or
Assignee from the funds of the Partnership; (ii) any amount so paid on behalf of
any Partner or Assignee shall constitute a distribution of Available Cash to
such Partner or Assignee pursuant to Section 5.3 hereof; and (iii) to the extent
any such Partner or Assignee (but not a former Partner or Assignee) is not then
entitled to such distribution under this Agreement, the General Partner shall be
authorized, without the approval of any Partner or Assignee, to amend this
Agreement insofar as is necessary to maintain the uniformity of intrinsic tax
charac-
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teristics as to all Units and to make subsequent adjustments to distributions in
a manner which, in the reasonable judgment of the General Partner, will make as
little alteration in the priority and amount of distributions otherwise
applicable under this Agreement, and will not otherwise alter the distributions
to which Partners and Assignees are entitled under this Agreement. If the
Partnership is permitted (but not required) by applicable law to pay any such
tax on behalf of any Partner or Assignee or former Partner or Assignee, the
General Partner shall be authorized (but not required) to pay such tax from the
funds of the Partnership and to take any action consistent with this Section
9.7. The General Partner shall be authorized (but not required) to take all
necessary or appropriate actions to collect all or any portion of a deficiency
in the payment of any such tax which relates to prior periods which is
attributable to Persons who were Limited Partners or Assignees when such
deficiencies arose, from such Persons.
9.8 Opinions of Counsel. Notwithstanding any other provision of this
Agreement, if the Partnership is taxable for federal income tax purposes as a
corporation or an association taxable as a corporation at any time and, pursuant
to the provisions hereof, an Opinion of Counsel would otherwise be required at
that time to the effect that an action will not cause the Partnership to become
so taxable as a corporation or to be treated as an association taxable as a
corporation, such requirement for an Opinion of Counsel shall be deemed
automatically waived.
ARTICLE X
CERTIFICATES AND DEPOSITARY RECEIPTS
10.1 Certificates and Depositary Receipts. (a) Upon the issuance of
Units by the Partnership to the Limited Partners or any other Person, the
Partnership shall issue one or more Certificates in the name of the Limited
Partners or such Person evidencing the number of such Units being so issued.
Certificates shall be executed on behalf of the Partnership by the General
Partner.
(b) The General Partner (i) may cause the deposit of some or all of the
Certificates in the Deposit Account pursuant to the Deposit Agreement; (ii) with
respect to those Certificates deposited in the Deposit Account, shall receive
from the Depositary Receipts registered in the name of the Person(s) to whom
such Units have been issued, evidencing the same number of Depositary Units, as
the case may be, as the number of Units represented by the Certificates so
deposited; and (iii) shall cause the distribution of such Depositary Receipts to
such Person(s).
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10.2 Registration of Transfer and Exchange. (a) The General Partner
shall cause to be kept on behalf of the Partnership a register (the "Unit
Register") in which, subject to such reasonable regulations as it may prescribe
and subject to the provisions of Section 10.2(b) hereof, the General Partner
will provide for the registration of Units and the transfer of such Units. The
Depositary is hereby appointed Transfer Agent and registrar for the purpose of
registering Units and transfers of such Units as herein provided. The
Partnership shall not recognize transfers of Certificates representing Units
which have been deposited pursuant to Section 10.1(a) hereof and not withdrawn
or interests therein except by transfers of Depositary Units in the manner
described in this Section 10.2 and in the Deposit Agreement. Upon surrender for
registration of transfer of any Depositary Units evidenced by a Depositary
Receipt and, subject to the provisions of Section 10.2(b) hereof, the General
Partner on behalf of the Partnership will execute, and the Transfer Agent will
countersign and deliver, in the name of the holder or the designated transferee
or transferees, as required pursuant to the holder's instructions, one or more
new Depositary Receipts evidencing the same aggregate number of Depositary Units
as was evidenced by the Depositary Receipt so surrendered.
(b) The Partnership shall not recognize any transfer of Depositary
Units until the Depositary Receipts evidencing such Depositary Units are
surrendered for registration of transfer and such Depositary Receipts are
accompanied by a Transfer Application duly executed by the transferee (or the
transferee's attorney-in-fact duly authorized in writing). No charge shall be
imposed by the Partnership for such transfer, provided that, as a condition to
the issuance of any new Depositary Receipt under this Section 10.2, the General
Partner may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed with respect thereto.
10.3 Mutilated, Destroyed, Lost or Stolen Depositary Receipts. (a) If
any mutilated Depositary is surrendered to the Transfer Agent, the depositary
shall execute, and the Transfer Agent shall countersign and deliver in exchange
therefor, a new Depositary Receipt evidencing the same number of Depositary
Units, as the case may be, as the Depositary Receipt so surrendered.
(b) If there shall be delivered to the General Partner and the Transfer
Agent (i) evidence (including, without limitation, proof by affidavit if
requested by the General Partner in form and substance satisfactory to the
General Partner) to their satisfaction of the destruction, loss or theft of any
Depositary Receipt and (ii) such security or indemnity as may be required by
them to indemnify and hold each of them and any of their agents harmless, then,
in the absence of notice to the General Partner or the Transfer Agent that
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such Depositary Receipt has been acquired by a bona fide purchaser, the General
Partner on behalf of the Partnership shall execute and, upon its request, the
Transfer Agent shall countersign and deliver, in exchange for and in lieu of any
such destroyed, lost or stolen Depositary Receipt, a new Depositary Receipt
evidencing the same number of Depositary Units, as the Depositary Receipt so
destroyed, lost or stolen.
(c) As a condition to the issuance of any new Depositary Receipt under
this Section 10.3, the General Partner may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Transfer Agent) connected therewith.
10.4 Registered Owner. In accordance with Section 10.2(b) hereof, the
Partnership shall be entitled to recognize the Record Holder as the Limited
Partner or Assignee with respect to any Units and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such Units on
the part of any other Person, whether or not the Partnership shall have actual
or other notice thereof, except as otherwise provided by law or any applicable
rule, regulation, guideline or requirement of any National Securities Exchange
on which the Units are listed for trading. Without limiting the foregoing, when
a Person (such as a broker, dealer, bank, trust company or clearing corporation
or an agent of any of the foregoing) is acting as nominee, agent or in some
other representative capacity for another Person in acquiring and/or holding
Units, as between the Partnership on the one hand and such other Persons on the
other hand, such representative Person (a) shall be the Limited Partner or
Assignee (as the case may be) of record and beneficially, (b) must execute and
deliver a Transfer Application and (c) shall be bound by this Agreement and
shall have the rights and obligations of a Limited Partner or Assignee (as the
case may be) hereunder and as provided for herein.
10.5 Withdrawal of Units from and Redeposit of Units in Depositary
Account. Any Units may be withdrawn from the Depositary Account by surrender of
the Depositary Receipts evidencing the corresponding Depositary Units duly
executed by the Record Holder thereof (or his attorney-m-fact duly authorized in
writing), provided that such Record Holder is then reflected on the books and
records of the Partnership as the Limited Partner in respect of the Units for
which such withdrawals requested. Upon any such withdrawal, the General Partner
shall cause the Partnership to issue a Certificate evidencing such Units. Any
such withdrawn Units, or Units which have not previously been so deposited, may
be redeposited or deposited (as the case may be) in the Deposit Account by the
surrender of the Certificate evidencing such withdrawn Units or non-deposited
Units to the Depositary and payment to the Depositary of such fee and upon
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such terms as may be required therefor pursuant to the Deposit Agreement. Upon
any such redeposit or deposit, the Depositary shall issue a Depositary Receipt
evidencing the same number of Units as was evidenced by the Certificate so
redeposited or deposited.
10.6 Amendment of Deposit Agreement. Subject to its fiduciary
obligations, the General Partner may amend or modify any provision of the
Deposit Agreement in any respect it reasonably determines to be necessary or
appropriate, provided, however, that the General Partner shall not amend or
modify the Deposit Agreement if the effect of any such amendment or modification
would be to impair the right of Limited Partners to withdraw their Units from
deposit thereunder.
ARTICLE XI
TRANSFER OF INTERESTS
11.1 Transfer. (a) The term "transfer," when used in this Article XI
with respect to a Partnership Interest, shall be deemed to refer to an
appropriate transaction by which the General Partner assigns its Partnership
Interest as General Partner to another Person or by which the holder of a Unit
assigns such Unit to another Person who is or becomes an Assignee and includes a
sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange
or any other disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article XI.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article XI shall be null and void.
11.2 Transfer of General Partner's Partnership Interest. The General
Partner may transfer all, but not less than all, of its Partnership Interest as
the General Partner to a single transferee if, but only if, (i) the holders of
at least 66 2/3% of the outstanding Units (excluding for purposes of such
determination any Units owned by the General Partner and its Affiliates)
approves of such transfer and of the admission of such transferee as General
Partner, (ii) the transferee agrees to assume and be bound by the provisions of
this Agreement and (iii) the Partnership receives an Opinion of Counsel that
such transfer would not result in the loss of limited liability of any Limited
Partner or the taxation of the Partnership as a corporation or as an association
taxable as a corporation for federal income tax purposes.
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(b) Neither Section 11.2(a) hereof nor any other provision of this
Agreement shall be construed to prevent (and all Partners do hereby consent to)
the transfer by the General Partner of all of its Partnership Interest upon its
merger, consolidation or other combination into any other entity or the transfer
by it of all or substantially all of its assets to another entity (provided that
such entity assumes all of the rights and duties of the General Partner), to the
transferee or successor entity; provided that, such entity furnishes to the
Partnership an Opinion of Counsel that such merger, consolidation, combination,
transfer or assumption will not result in a loss of limited liability of any
Limited Partner or result in the Partnership being treated as an association
taxable as a corporation for federal income tax purposes. In the case of a
transfer pursuant to this Section 11.2(b), the transferee or successor (as the
case may be) shall be admitted to the Partnership as the General Partner
immediately prior to the transfer of the Partnership Interest, and the business
of the Partnership shall continue without dissolution.
11.3 Transfer of Units. (a) Any Units which have been deposited in the
Deposit Account may be transferred, but only in the manner described in Section
10.2 hereof. Units with respect to which no such deposit has been made or which
have been withdrawn from the Deposit Account and not redeposited are not
transferable except upon death or by operation of law, by transfer to the
General Partner for the account of the Partnership or otherwise in accordance
with this Agreement. The transfer of any Units and the admission of any new
Partner shall not constitute an amendment to this Agreement.
(b) Until admitted as a Substituted Limited Partner pursuant to Article
XII, the Record Holder of a Depositary Unit shall constitute an Assignee in
respect of such Unit.
(c) Each distribution in respect of Units shall be paid by the
Partnership, directly or through the Transfer Agent or through any other Person
or agent, only to the Record Holders thereof as of the Record Date set for the
distribution. Such payment shall constitute full payment and satisfaction of the
Partnership's liability in respect of such payment, regardless of any claim of
any Person who may have an interest in such payment by reason of an assignment
or otherwise.
11.4 Restrictions on Transfers. Notwithstanding the other provisions of
this Article XI, no transfer of any Unit or interest therein of any Limited
Partner in the Partnership shall be made if such transfer (i) would violate the
then applicable federal or state securities laws or rules and regulations of the
Securities and Exchange Commission, any state securities commission or any other
governmental authorities with jurisdiction over such transfer, (ii) would result
in the taxation of the Partnership as a corporation or
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as an association taxable as a corporation for federal income tax purposes or
(iii) would affect the Partnership's existence or qualification as a limited
partnership under the Delaware Act.
11.5 Citizenship Certification; Non-citizen Assignees. (a) In the event
that, because of the nationality (or any other status) of a Limited Partner or
Assignee, the Partnership is or becomes subject to federal, state or local laws
or regulations the effect of which would, in the reasonable determination of the
General Partner, cause cancellation or forfeiture of any property in which the
Partnership has an interest, the General Partner may request any such Limited
Partner or Assignee to furnish to the General Partner or, with respect to
Depositary Units, to the Depositary within 30 days after receipt of such request
an executed Citizenship Certification or such other information concerning his
nationality, citizenship or other status (or, if the Limited Partner or Assignee
is a nominee holding for the account of another Person, the nationality,
citizenship or other status of such Person) as the General Partner may request.
If a Limited Partner or Assignee fails to furnish such Citizenship Certification
or other information as may be requested, or if upon receipt of such Citizenship
Certification or other information the General Partner determines, with the
advice of counsel, that a Limited Partner or an Assignee is not an Eligible
Citizen, the Units owned by such Limited Partner or Assignee shall be subject to
redemption in accordance with the provisions of Section 11.6 hereof. In addition
to becoming subject to redemption, the General Partner may require that the
status of any such Limited Partner or Assignee be changed to that of a
Non-citizen Assignee, and, thereupon, the General Partner shall be substituted
for such Non-citizen Assignee as the Limited Partner in respect of his Units.
(b) The General Partner shall, in exercising voting rights in respect
of Units held by it on behalf of Non-citizen Assignees, distribute the votes in
the same ratios as the votes of Limited Partners in respect of Units other than
those of Non-citizen Assignees are cast, either for, against or abstaining as to
the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall
have no right to receive a distribution in kind pursuant to Section 14.4 hereof
but shall be entitled to the cash equivalent thereof, and the General Partner
shall provide cash in exchange for an assignment of the Non-citizen Assignee's
share of the distribution in kind. Such payment and assignment shall be treated
for Partnership purposes as a purchase by the General Partner from the
Non-citizen Assignee of his Partnership Interest (representing his right to
receive his share of such distribution in kind).
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(d) At any time after he can and does certify that he has become an
Eligible Citizen, a Non-citizen Assignee may, upon application to the General
Partner, request admission as a Substituted Limited Partner with respect to any
Partnership Interest of such Non-citizen Assignee not redeemed pursuant to
Section 11.6 hereof, and upon his admission pursuant to Section 12.2 hereof the
General Partner shall cease to be deemed to be the Limited Partner in respect of
the Non-citizen Assignee's Units.
11.6 Redemption of Interests. (a) If at any time a Limited Partner or
Assignee fails to furnish a Citizenship Certification or other information
requested within the 30- day period specified in Section 11.5(a) hereof, or if
upon receipt of such Citizenship Certification or other information the General
Partner determines, with the advice of counsel, that a Limited Partner or
Assignee is not an Eligible Citizen, the Partnership may, unless the Limited
Partner or Assignee establishes to the satisfaction of the General Partner that
such Limited Partner or Assignee is an Eligible Citizen or has transferred his
Units to a person who furnishes a Citizenship Certification to the General
Partner prior to the date fixed for redemption as provided below, redeem the
Partnership Interest of such Limited Partner or Assignee as follows:
(i) The General Partner shall, not later than the 30th day before
the date fixed for redemption, give notice of redemption to
the Limited Partner or Assignee, at his last address
designated on the records of the Partnership or the
Depositary, by registered or certified mail, postage prepaid.
The notice shall be deemed to have been given when so mailed.
The notice shall specify the Redeemable Units, the date fixed
for redemption, the place of payment, that payment of the
redemption price will be made upon surrender of the Depositary
Receipt or the Certificate evidencing the Redeemable Units and
that on and after the date fixed for redemption no further
allocations or distributions to which the Limited Partner or
Assignee would otherwise be entitled in respect of the
Redeemable Units will accrue or be made.
(ii) The aggregate redemption price for Redeemable Units shall be
an amount equal to the Current Market Price (as defined in
Section 17.1) (the date of determination of which shall be the
date fixed for redemption) of Units of the class to be so
redeemed multiplied by the number of Units of each such class
included among the Redeemable Units. The redemption price
shall be paid, in the sole discretion of the General Partner,
in cash or by delivery of a promissory note of the Partnership
in the principal amount of the redemption price, bearing
interest at the rate of 10% annually and
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payable in three equal annual installments of principal,
together with accrued interest, commencing one year after the
redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner or
Assignee, at the place specified in the notice of redemption,
of the Depositary Receipt or the Certificate evidencing the
Redeemable Units, duly endorsed in blank or accompanied by an
assignment duly executed in blank, the Limited Partner or
Assignee or his duly authorized representative shall be
entitled to receive the payment therefor.
(iv) After the redemption date, Redeemable Units shall no longer
constitute issued and outstanding Units.
(b) The provisions of this Section 11.6 shall be applicable to Units
held by a Limited Partner or Assignee as nominee of a Person determined to be
other than an Eligible Citizen.
(c) Nothing in this Section 11.6 shall prevent the recipient of a
notice of redemption from transferring his Units before the redemption date if
such transfer is otherwise permitted under this Agreement. Upon receipt of
notice of such a transfer, the General Partner shall withdraw the notice of
redemption; provided, the transferee of such Units or Depositary Units certifies
in the Transfer Application that he is an Eligible Citizen. If the transferee
fails to make such certification, such redemption shall be effected from the
transferee on the original redemption date.
(d) If the Partnership or the General Partner determines that because
of the nationality (or other status) of the General Partner, whether or not in
its capacity as such, the Partnership is or becomes subject to federal, state or
local regulations the effect of which would, in the reasonable determination of
the General Partner, cause cancellation or forfeiture of any property in which
the Partnership has an interest, the Partnership may, unless the General Partner
has furnished a Citizenship Certification or transferred his Partnership
Interest or Units to a Person who furnishes a Citizenship Certification prior to
the date fixed for redemption, redeem the Partnership Interest or Interests of
the General Partner in the Partnership as provided in Section 11.6(a) hereof.
The redemption price shall be paid in cash.
11.7 [Omitted]
11.8 [Omitted]
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ARTICLE XII
ADMISSION OF PARTNERS
12.1 Admission of Limited Partners. Upon the issuance of Units by the
Partnership to the Limited Partners (as described in Section 4.3 hereof), the
General Partner shall admit to the Partnership the Limited Partner as a Limited
Partner in respect of the Units.
12.2 Admission of Substituted Limited Partners. By transfer of a
Depositary Unit in accordance with Article XI hereof, the transferor shall be
deemed to have given the transferee the right to seek admission as a Substituted
Limited Partner subject to the conditions of, and in the manner permitted under,
this Agreement. A transferor of a Depositary Receipt shall, however, only have
the authority to convey to a purchaser or other transferee who does not execute
and deliver a Transfer Application (i) the right to negotiate such Depositary
Receipt to a purchaser or other transferee and (ii) the right to transfer the
right to request admission as a Substituted Limited Partner to such purchaser or
other transferee in respect of the transferred Depositary Units. Each transferee
of a Depositary Unit (including any nominee holder or an agent acquiring such
Depositary Unit for the account of another Person) who executes a Transfer
Application shall be an Assignee and shall be deemed to have applied to become a
Substituted Limited Partner with respect to the Depositary Units so transferred
to such Person by virtue of executing and delivering such Transfer Application
Such Assignee shall become a Substituted Limited Partner at such time as the
General Partner consents thereto, which consent may be given or withheld in the
General Partner's sole discretion, and when any such admission is shown on the
books and records of the Partnership. If such consent is withheld, such
transferee shall be an Assignee. An Assignee shall have an interest in the
Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions, including liquidating distributions, of the Partnership. With
respect to voting rights attributable to Units that are held by Assignees, the
General Partner shall be deemed to be the Limited Partner with respect thereto
and shall, in exercising the voting rights in respect of such Units on any
matter, vote such Units at the written direction of the Assignee who is the
Record Holder of such Units. If no such written direction is received, such
Units will not be voted. An Assignee shall have no other rights of a Limited
Partner.
12.3 Admission of Successor General Partner. A successor General
Partner approved pursuant to Section 13.1 hereof or the transferee of or
successor to all of the
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General Partner's Partnership Interest pursuant to Section 11.2 hereof who is
proposed to be admitted as a successor General Partner shall be admitted to the
Partnership as the General Partner, effective immediately prior to the
withdrawal or removal of the General Partner pursuant to Section 13.1 hereof or
the transfer pursuant to Section 11.2; provided, however, that no such successor
shall be admitted to the Partnership until the terms of Section 11.2 hereof have
been complied with. Any such successor shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject to
the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
12.4 Admission of Additional Limited Partners. (a) A Person who makes a
Capital Contribution to the Partnership in accordance with this Agreement shall
be admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance in form
satisfactory to the General Partner of all of the terms and conditions of this
Agreement, including, without limitation, the power of attorney granted in
Section 1.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 12.4, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent of
the General Partner to such admission.
12.5 Amendment of Agreement and Certificate of Limited Partnership. For
the admission to the Partnership of any Partner, the General Partner shall take
all steps necessary and appropriate under the Delaware Act to amend the records
of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate of Limited Partnership and may for this purpose
exercise the power of attorney granted pursuant to Section 1.4 hereof.
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ARTICLE XIII
WITHDRAWAL OR REMOVAL OF PARTNERS
13.1 Withdrawal of the General Partner. (a) The General Partner shall
be deemed to have withdrawn from the Partnership upon the occurrence of any one
of the following events (each such event herein referred to as an "Event of
Withdrawal"):
(i) the General Partner voluntarily withdraws from the Partnership
by giving written notice to the other Partners;
(ii) the General Partner transfers all of its rights as General
Partner pursuant to Section 11.2 hereof;
(iii) the General Partner is removed pursuant to Section 13.2
hereof;
(iv) the General Partner
(A) makes a general assignment for the
benefit of creditors;
(B) files a voluntary bankruptcy
petition;
(C) files a petition or answer seeking
for itself a reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under
any law;
(D) files an answer or other pleading
admitting or failing to contest the material allegations of a
petition filed against the General Partner in a proceeding of
the type described in paragraphs (A)-(C) of this subsection;
or
(E) seeks, consents to or acquiesces in
the appointment of a trustee, receiver or liquidator of the
General Partner or of all or any substantial part of its
properties;
(v) a final and non-appealable judgment is entered by a court with
appropriate jurisdiction ruling that the General Partner is
bankrupt or insolvent, or a final and non-appealable order for
relief is entered by a court with appropriate jurisdiction
against the General Partner, in each case under any federal or
state bankruptcy or insolvency laws as now or hereafter in
effect; or
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(vi) a certificate of dissolution or its equivalent is filed for
the General Partner, or 90 days expire after the date of
notice to the General Partner of revocation of its charter
without a reinstatement of its charter, under the laws of its
state of incorporation. If an Event of Withdrawal specified in
paragraphs (iv), (v) or (vi) occurs, the withdrawing General
Partner shall give written notice to the Limited Partners
within 30 days after such occurrence. The Partners hereby
agree that only the Events of Withdrawal described in this
Section 13.1 shall result in withdrawal of the General Partner
from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal will not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
ending on December 31, 1999, the General Partner voluntarily withdraws by giving
at least 90 days' advance written notice of its intention to withdraw to the
Limited Partners, provided that, prior to the effective date of such withdrawal,
the Limited Partners approve such withdrawal by the vote of at least 66 2/3% of
the outstanding Units (excluding for purposes of such determination any Units
owned by the General Partner and its Affiliates); (ii) at any time after
December 31, 1999, the General Partner voluntarily withdraws by giving at least
90 days' advance written notice to the Limited Partners, such withdrawal to take
effect on the date specified in such notice; (iii) at any time that the General
Partner ceases to be a General Partner pursuant to Section 13.1 (a)(ii) hereof
or is removed pursuant to Section 13.1 (a)(iii) hereof; or (iv) notwithstanding
clause (i) above, at any time that the General Partner voluntarily withdraws by
giving at least 90 days' advance written notice of its intention to withdraw to
the Limited Partners, such withdrawal to take effect on the date specified in
the notice, if at the time such notice is given more than 50% of the outstanding
Units held by Persons other than by the General Partner and its Affiliates are
owned beneficially or of record or controlled at any time by one Person or its
Affiliates. If the General Partner gives a notice of withdrawal pursuant to
Section 13.1(a)(i) hereof or if the General Partner is removed pursuant to
Section 13.2 hereof, holders of at least a majority of the outstanding Units
(excluding for purposes of such determination Units owned by the General Partner
and its Affiliates) may, prior to the effective date of such withdrawal, elect a
successor General Partner. If, prior to the effective date of the General
Partner's withdrawal, a successor is not selected by the Limited Partners as
provided herein or the Partnership does not receive an Opinion of Counsel that
such withdrawal (following the selection of the successor General Partner) would
not result in the loss of the limited liability of the holders of Units or cause
the Partnership to be taxable as a corporation or to be treated as an
association taxable as a corporation for
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federal income tax purposes, the Partnership shall be dissolved in accordance
with Section 14.l hereof. If a successor General Partner is elected and the
Opinion of Counsel rendered as provided herein, such successor shall be admitted
(subject to Section 12.3 hereof) immediately prior to the effective time of the
withdrawal of the Departing Partner and shall continue the business of the
Partnership without dissolution.
13.2 Removal of the General Partner. The General Partner may be removed
only if such removal is approved by the written consent or affirmative vote of
Limited Partners owning at least 66 2/3% of the outstanding Units (excluding for
purposes of such determination any Units owned by the General Partner and its
Affiliates). Any such action by the Limited Partners for removal of the General
Partner must also provide for the election and succession of a new General
Partner. Such removal shall be effective immediately following the admission of
the successor General Partner pursuant to Article XII. The right of the Limited
Partners to remove the General Partner shall not exist or be exercised unless
the Partnership has received an Opinion of Counsel that the removal of the
General Partner and the selection of a successor General Partner will not result
in (i) the loss of limited liability of the Partnership or any Limited Partner
in the Partnership or (ii) the taxation of the Partnership as a corporation or
the treatment of the Partnership as an association taxable as a corporation for
federal income tax purposes.
13.3 Interest of Departing Partner and Successor General Partner. (a)
In the event of (i) withdrawal of the General Partner under circumstances where
such withdrawal does not violate this Agreement or (ii) removal of the General
Partner by the Limited Partners under circumstances where "cause" does not
exist, the Departing Partner shall, at its option exercisable prior to the
effective date of the departure of such Departing Partner, promptly receive from
its successor in exchange for its Partnership Interest as General Partner an
amount in cash equal to the fair market value of the Departing Partner's
Partnership Interest as General Partner, such amount to be determined and
payable as of the effective date of its departure. If the General Partner is
removed by the Limited Partners under circumstances where "cause" exists or if
the General Partner withdraws under circumstances where such withdrawal violates
this Agreement, its successor shall have the option described in the immediately
preceding sentence, and the Departing Partner shall not have such option. In
either event, the Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 6.4, including any
employee-related liabilities, including severance liabilities, incurred in
connection with the termination of any employees employed by the Departing
Partner for the benefit of the Partnership. Subject to Section 13.3(b) hereof,
the Departing Partner shall, as of the effective date of its departure, cease to
share in any allocations or distributions with respect to its Partnership
Interest as the General Partner and Partnership
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income, gain, loss, deduction and credit will be prorated and allocated as set
forth in Section 5.1(d) hereof. For purposes of this Section 13.3, "cause" means
that a court of competent jurisdiction has entered a final non-appealable
judgment finding the General Partner liable for actual fraud, gross negligence
or wilful or wanton misconduct in its capacity as General Partner of the
Partnership.
For purposes of this Section 13.3(a), the fair market value of the
Departing Partner's Partnership Interest as the General Partner herein shall be
determined by agreement between the Departing Partner and its successor or,
failing agreement within 30 days after the effective date of such Departing
Partner's departure, by an independent investment banking firm or other
independent expert selected by the Departing Partner and its successor, which,
in turn, may rely on other experts and the determination of which shall be
conclusive as to such matter. If such parties cannot agree upon one independent
investment banking firm or other independent expert within 45 days after the
effective date of such departure, then such firm shall be designated by the
independent investment banking firm or other independent expert selected by each
of the Departing Partner and its successor. In making its determination, such
independent investment banking firm or other independent expert shall consider
the then current trading price of Units on any National Securities Exchange on
which Units are then listed, the value of the Partnership's assets, the rights
and obligations of the General Partner and other factors it may deem relevant.
(b) If the Partnership Interest is not acquired in the manner set forth
in Section 13.3(a) hereof, the Departing Partner shall become a Limited Partner
and its Partnership Interest shall be converted into Units pursuant to a
valuation made by an investment banking firm or other independent expert
selected pursuant to Section 13.3(a) hereof, without reduction in such
Partnership Interest (but subject to proportionate dilution by reason of the
admission of its successor). Any successor General Partner shall indemnify the
Departing Partner as to all debts and liabilities of the Partnership arising on
or after the date on which the Departing Partner becomes a Limited Partner. For
purposes of this Agreement, the General Partner's conversion of its Partnership
Interest to Units will be characterized as if the General Partner contributed
its Partnership Interest to the Partnership in exchange for the newly-issued
Units.
(c) If the option described in Section 13.3(a) hereof is not exercised
by the party entitled to do so, the successor General Partner shall, at the
effective date of its admission to the Partnership, contribute to the capital of
the Partnership cash in an amount such that its Capital Account, after giving
effect to such contribution and any adjustments made to the Capital Accounts of
all Partners pursuant to Section 4.6(d)(i),
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shall be equal to that percentage of the Capital Accounts of all Partners that
is equal to its Percentage Interest as the General Partner. In such event, each
successor General Partner shall, subject to the following sentence, be entitled
to such Percentage Interest of all Partnership allocations and distributions and
any other allocations and distributions to which the Departing Partner was
entitled. In addition, such successor General Partner shall cause this Agreement
to be amended to reflect that, from and after the date of such successor General
Partner's admission, the successor General Partner's interest in all Partnership
distributions and allocations shall be 2%, and that of the Unitholders shall be
98%.
13.4 [Omitted]
13.5 Withdrawal of Limited Partners. Except as provided in Section
13.4, no Limited Partner shall have any right to withdraw from the Partnership;
provided, however, that when a transferee of a Limited Partner's Units becomes a
Record Holder, such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Units so transferred.
ARTICLE XIV
DISSOLUTION AND LIQUIDATION
14.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the removal or withdrawal of the General Partner any
successor General Partner shall continue the business of the Partnership. The
Partnership shall dissolve, and its affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 1.5 hereof;
(b) an Event of Withdrawal of the General Partner as provided in
Section 13.1(a) hereof, unless a successor is named as provided in Section
13.1(b) hereof;
(c) an election to dissolve the Partnership by the General Partner that
is approved by the affirmative vote of the holders of at least 66 2/3% of
outstanding Units, excluding for purposes of such determination Units owned by
the General Partner and its
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Affiliates, (and all Limited Partners hereby expressly consent that such
approval may be effected upon written consent of the holders of at least 66 2/3%
of outstanding Units);
(d) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and properties
of the Partnership.
14.2 Continuation of the Business of the Partnership after Dissolution.
Upon (i) dissolution of the Partnership caused by the withdrawal or removal of
the General Partner and following a failure of all Partners, within 90 days
after the withdrawal or removal of the General Partner, to agree to continue the
business of the Partnership and appoint a successor General Partner, then within
an additional 90 days or (ii) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 13.l(a)(iv) hereof,
then within 180 days thereafter, at least 66 2/3% of the outstanding Units may
elect to reconstitute the Partnership and continue its business on the same
terms and conditions set forth in this Agreement by forming a new limited
partnership on terms identical to those set forth in this Agreement and having
as a general partner a Person approved by the holders of at least 66 2/3% of the
outstanding Units. Upon any such election by the holders of at least 66 2/3% of
the outstanding Units, all Partners shall be bound thereby and shall be deemed
to have approved thereof. Unless such an election is made within the applicable
time period as set forth above, the Partnership shall conduct only activities
necessary to wind up its affairs. If such an election is so made, then:
(a) the reconstituted Partnership shall continue until the end of the
term set forth in Section 1.5 hereof unless earlier dissolved in accordance with
this Article XIV;
(b) if the successor General Partner is not the former General Partner,
then the interest of the former General Partner shall be treated thenceforth as
the interests of a Limited Partner and converted into Units in the manner
provided in Section 13.3(b) hereof; and
(c) all necessary steps shall be taken to cancel this Agreement and the
Certificate of Limited Partnership and to enter into and, as necessary, to file
a new partnership agreement and certificate of limited partnership, and the
successor general partner may for this purpose exercise the powers of attorney
granted the General Partner pursuant to Section 1.4 hereof; provided, that the
right of the holders of at least 66 2/3%
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of outstanding Units to approve a successor general partner and to reconstitute
and to continue the business of the Partnership shall not exist and may not be
exercised unless the Partnership has received an Opinion of Counsel that (x) the
exercise of the right would not result in the loss of limited liability of any
Limited Partner and (y) neither the Partnership nor the reconstituted limited
partnership would become taxable as a corporation or treated as an association
taxable as a corporation for federal income tax purposes upon the exercise of
such right to continue.
14.3 Liquidation Upon dissolution of the Partnership. Unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 14.2 hereof, the General Partner, or in the
event the General Partner has been dissolved or removed, become bankrupt as set
forth in Section 13.1 or withdrawn from the Partnership, a liquidator or
liquidating committee approved by the holders of at least 66 2/3% of the
outstanding Units, shall be the Liquidator. The Liquidator (if other than the
General Partner) shall be entitled to receive such compensation for its services
as may be approved by the holders of at least 66 2/3% of the outstanding Units.
The Liquidator shall agree not to resign at any time without 15 days' prior
written notice and (if other than the General Partner) may be removed at any
time, with or without cause by notice of removal approved by at least 662/3% of
the outstanding Units. Upon dissolution, removal or resignation of the
Liquidator, a successor and substitute Liquidator (who shall have and succeed to
all rights, powers and duties of the original Liquidator) shall within 30 days
thereafter be approved by the holders of at least 66 2/3% of the outstanding
Units. The right to approve a successor or substitute Liquidator in the manner
provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XIV, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
General Partner under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such
powers, other than the limitation on sale set forth in Section 6.3(b) hereof) to
the extent necessary or desirable in the good faith judgment of the Liquidator
to carry out the duties and functions of the Liquidator hereunder for and during
such period of time as shall be reasonably required in the good faith judgment
of the Liquidator to complete the winding-up and liquidation of the Partnership
as provided for herein. The Liquidator shall liquidate the assets of the
Partnership, and apply and distribute the proceeds of such liquidation in the
following order of priority, unless otherwise required by mandatory provisions
of applicable law:
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(a) the payment to creditors of the Partnership, including Partners who
are creditors, in order of priority provided by law; and the creation of a
reserve of cash or other assets of the Partnership for contingent liabilities in
an amount, if any, determined by the Liquidator to be appropriate for such
purposes; and
(b) to all Partners in accordance with the positive balances in their
respective Capital Accounts after taking into account adjustments to such
Capital Accounts pursuant to Section 5.1(c) hereof.
14.4 Distributions in Kind. Notwithstanding the provisions of Section
14.3 hereof, which require the liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its absolute discretion,
defer for a reasonable time the liquidation of any assets except those necessary
to satisfy liabilities of the Partnership (including those to Partners as
creditors) and/or distribute to the Partners or to specific classes of Partners,
in lieu of cash, as tenants in common and in accordance with the provisions of
Section 14.3 hereof, undivided interests in such Partnership assets as the
Liquidator deems not suitable for liquidation. Any such distributions in kind
shall be made only if, in the good faith judgment of the Liquidator, such
distributions in kind are in the best interest of the Limited Partners, and
shall be subject to such conditions relating to the disposition and management
of such properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operation of such properties at such time. The
Liquidator shall determine the fair market value of any property distributed in
kind using such reasonable method of valuation as it may adopt.
14.5 Cancellation of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership cash and property as provided in
Sections 14.3 and 14.4 hereof, the Partnership shall be terminated and the
Certificate of Limited Partnership and all qualifications of the Partnership as
a foreign limited partnership in jurisdictions other than the State of Delaware
shall be cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.
14.6 Reasonable Time for Winding-Up. A reasonable time shall be allowed
for the orderly winding-up of the business and affairs of the Partnership and
the liquidation of its assets pursuant to Section 14.3 hereof, in order to
minimize any losses otherwise attendant upon such winding-up and the provisions
of this Agreement shall remain in effect between the Partners during the period
of liquidation.
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14.7 Return of Capital. The General Partner shall not be personally
liable for the return of the Capital Contributions of the Limited Partners, or
any portion thereof, it being expressly understood that any such return shall be
made solely from Partnership assets.
14.8 No Capital Account Restoration. No Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership.
14.9 Waiver of Partition. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE XV
AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
15.1 Amendment to be Adopted Solely by General Partner. Each Limited
Partner agrees that the General Partner (pursuant to its powers of attorney from
the Limited Partners and Assignees), without the approval of any Limited Partner
or Assignee, may amend any provision of this Agreement, and execute, swear to,
acknowledge, deliver, file and record whatever documents may be required in
connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent or the
registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
reasonable and necessary or appropriate to qualify or continue the qualification
of the Partnership as a limited partnership or a partnership in which the
limited partners have limited liability under the laws of any state or will not
be taxable as a corporation or treated as an association taxable as a
corporation for federal income tax purposes;
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(d) a change (i) that, in the sole discretion of the General Partner,
does not adversely affect the Limited Partners in any material respect, (ii)
that is necessary or desirable to satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or regulation of
any federal or state agency or judicial authority or contained in any federal or
state statute (including, without limitation, the Delaware Act) or that is
necessary or desirable to facilitate the trading of the Depositary Units
(including, without limitation, the division of outstanding Units into different
classes in order to facilitate uniformity of tax consequences within such
classes of Units) or comply with any rule, regulation, guideline or requirement
of any National Securities Exchange on which the Depositary Units are or will be
listed for trading, compliance with any of which the General Partner determines
in its sole discretion to be in the best interests of the Partnership and the
Limited Partners or (iii) that is required to effect the intent of the
provisions of this Agreement or is otherwise contemplated by this Agreement;
(e) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or the General Partner or its directors or officers from
in any manner being subjected to the provisions of the Investment Company Act of
1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan
asset" regulations adopted under the Employee Retirement Income Security Act of
1974, as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor;
(f) subject to the terms of Section 4.4 hereof, an amendment that the
General Partner determines in its sole discretion to be necessary or desirable
in connection with the authorization for issuance of any class or series of
Units pursuant to Section 4.4 hereof;
(g) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(h) [Omitted]
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 16.3 hereof; or
(j) any other amendments similar to the foregoing.
15.2 Amendment Procedures. Except as provided in Sections 15.1 and 15.3
hereof, all amendments to this Agreement shall be made in accordance with the
following
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requirements: If an amendment is proposed, the General Partner shall seek the
written approval of the requisite Percentage Interests or call a meeting of the
Limited Partners to consider and vote on such proposed amendment. Each such
proposal to the Limited Partners shall contain the text of the proposed
amendment. A proposed amendment shall be effective upon its approval by at least
66 2/3% of the outstanding Units unless a greater or different percentage is
required under this Agreement. The General Partner shall notify all Record
Holders upon final adoption of any proposed amendment.
15.3 Amendment Requirements. (a) Amendments to this Agreement may be
proposed solely by the General Partner. Notwithstanding the provisions of
Sections 15.1 and 15.2 hereof, no provision of this Agreement which establishes
a Percentage Interest required to take any action shall be amended, altered,
changed, repealed or rescinded in any respect which would have the effect of
reducing such voting requirement unless such amendment is approved by the
written consent or the affirmative vote of Partners whose aggregate Percentage
Interests constitute not less than the voting requirement sought to be reduced.
(b) Notwithstanding the provisions of Sections 15.1 and 15.2 hereof, no
amendment to this Agreement may (i) enlarge the obligations of any Limited
Partner, (ii) modify the compensation payable to the General Partner or any of
its Affiliates by the Partnership, (iii) change Section 14.1(a) or (c) hereof,
(iv) restrict in any way any action by or rights of the General Partner as set
forth in this Agreement or (v) except as set forth in Section 14.1(c) hereof,
give any person the right to dissolve the Partnership.
(c) Except as otherwise provided, the General Partner may amend the
Partnership Agreement without the approval of the Limited Partners, except that
any amendment that would have a material adverse effect on the holders of any
class of outstanding Units must be approved by the holders of not less than 66
2/3% of the outstanding Units of such class.
(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Sections 6.3 or 15.1 hereof, no amendment shall become
effective without the approval of the Record Holders of all Units unless the
Partnership obtains an Opinion of Counsel to the effect that (i) such amendment
will not cause the Partnership to become taxable as a corporation or treated as
an association taxable as a corporation for federal income tax purposes and (ii)
such amendment will not affect the limited liability of any Limited Partner in
the Partnership under applicable law.
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(e) This Section 15.3 shall only be amended with the approval by
written consent or affirmative vote of the holders of not less than 95% of the
outstanding Units.
15.4 Meetings. All acts of Limited Partners to be taken hereunder shall
be taken in the manner provided in this Article XV. Meetings of the Limited
Partners may be called by the General Partner or by Limited Partners owning 20%
or more of the outstanding Units of the class for which a meeting is proposed.
Limited Partners shall call a meeting by delivering to the General Partner one
or more requests in writing stating that the signing Limited Partners wish to
call a meeting and indicating the general or specific purposes for which the
meeting is to be called. Within 60 days after receipt of such a call from
Limited Partners or within such greater time as may be reasonably necessary for
the Partnership to comply with any statutes, rules, regulations, listing
agreements or similar requirements governing the holding of a meeting or the
solicitation of proxies for use at such a meeting, the General Partner shall
send a notice of the meeting to the Limited Partners either directly or
indirectly through the Transfer Agent. A meeting shall be held at a time and
place determined by the General Partner on a date not more than 60 days after
the mailing of notice of the meeting. Limited Partners shall not vote on matters
that would cause the Limited Partners to be deemed to be taking part in the
management and control of the business and affairs of the Partnership so as to
jeopardize the Limited Partners' limited liability under the Delaware Act or the
law of any other state in which the Partnership is qualified to do business.
15.5 Notice of a Meeting. Notice of a meeting called pursuant to
Section 15.4 hereof shall be given to the Record Holders in writing by mail or
other means of written communication in accordance with Section 17.1 hereof. The
notice shall be deemed to have been given at the time when deposited in the mail
or sent by other means of written communication.
15.6 Record Date. For purposes of determining the Limited Partners
entitled to notice of or to vote at a meeting of the Limited Partners or to give
approvals without a meeting as provided in Section 15.11 hereof, the General
Partner may set a Record Date, which shall not be less than 10 nor more than 60
days before (a) the date of the meeting (unless such requirement conflicts with
any rule, regulation, guideline or requirement of any National Securities
Exchange on which the Units are listed for trading, in which case the rule,
regulation, guideline or requirement of such exchange shall govern) or (b) in
the event that approvals are sought without a meeting, the date on which Limited
Partners are requested in writing by the General Partner to give such approvals.
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15.7 Adjournment. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting and a new Record Date need not
be fixed, if the time and place thereof are announced at the meeting at which
the adjournment is taken, unless such adjournment shall be for more than 45
days. At the adjourned meeting, the Partnership may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 45 days or if a new Record Date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given in accordance with this Article
XV.
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes. The
transactions of any meeting of Limited Partners, however called and noticed, and
whenever held, shall be as valid as if had at a meeting duly held after regular
call and notice, if a quorum is present either in person or by proxy, and if,
either before or after the meeting, each of the Limited Partners entitled to
vote, present in person or by proxy, signs a written waiver of notice or an
approval of the holding of the meeting or an approval of the minutes thereof.
All waivers and approvals shall be filed with the Partnership records or made a
part of the minutes of the meeting. Attendance of a Limited Partner at a meeting
shall constitute a waiver of notice of the meeting, except when the Limited
Partner does not approve, at the beginning of the meeting, of the transaction of
any business because the meeting is not lawfully called or convened; and except
that attendance at a meeting is not a waiver of any right to disapprove the
consideration of matters required to be included in the notice of the meeting,
but not so included, if the disapproval is expressly made at the meeting.
15.9 Quorum. 66 2/3% of the outstanding Units of the class for which a
meeting has been called represented in person or by proxy shall constitute a
quorum at a meeting of Limited Partners of such class unless any such action by
the Limited Partners requires approval by holders of a majority in interest of
the Units, in which case, the quorum shall be a majority. At any meeting of the
Limited Partners duly called and held in accordance with this Agreement at which
a quorum is present, the act of Limited Partners whose Percentage Interests
represent at least 66 2/3% of the Percentage Interests entitled to vote and be
present in person or by proxy at such meeting shall be deemed to constitute the
act of all Limited Partners, unless a different percentage is required with
respect to such action under the provisions of this Agreement, in which case the
act of the Limited Partners owning such different percentage shall be required.
The Limited Partners present at a duly called or held meeting at which a quorum
is present may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Limited Partners to leave less than a quorum, if any
action taken (other than adjournment) is approved by the required Percentage
Interests of the Limited Partners
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specified in this Agreement. In the absence of a quorum, any meeting of Limited
Partners may be adjourned from time to time by the affirmative vote of a
majority of the Percentage Interests represented either in person or by proxy,
but no other business may be transacted, except as provided in Section 15.7
hereof.
15.10 Conduct of Meeting. The General Partner shall have full power and
authority concerning the manner of conducting any meeting of the Limited
Partners or solicitation of approvals in writing, including, without limitation,
the determination of Persons entitled to vote, the existence of a quorum, the
satisfaction of the requirements of Section 15.4 hereof, the conduct of voting,
the validity and effect of any proxies and the determination of any
controversies, votes or challenges arising in connection with or during the
meeting or voting. The General Partner shall designate a Person to serve as
chairman of any meeting and shall further designate a Person to take the minutes
of any meeting, in either case including, without limitation, a Partner or a
director or officer of the General Partner. All minutes shall be kept with the
records of the Partnership maintained by the General Partner. The General
Partner may make such other regulations consistent with applicable law and this
Agreement as it may deem advisable concerning the conduct of any meeting of the
Limited Partners or solicitation of approvals in writing, including regulations
in regard to the appointment of proxies, the appointment and duties of
inspectors of votes and approvals, the submission and examination of proxies and
other evidence of the right to vote, and the revocation of approvals in writing.
15.11 Action Without a Meeting. Any action that may be taken at a
meeting of the Limited Partners may be taken without a meeting if an approval in
writing setting forth the action so taken is signed by Limited Partners owning
not less than the minimum Percentage Interests that would be necessary to
authorize or take such action at a meeting at which all the Limited Partners
were present and voted. Prompt notice of the taking of action without a meeting
shall be given to the Limited Partners who have not approved in writing. The
General Partner may specify that any written ballot submitted to Limited
Partners for the purpose of taking any action without a meeting shall be
returned to the Partnership within the time period, which shall be not less than
20 days, specified by the General Partner. If a ballot returned to the
Partnership does not vote all of the Units held by the Limited Partner, the
Partnership shall be deemed to have failed to receive a ballot for the Units
which were not voted. If approval of the taking of any action by the Limited
Partners is solicited by any Person other than by or on behalf of the General
Partner, the written approvals shall have no force and effect unless and until
(a) they are deposited with the Partnership in care of the General Partner, (b)
approvals sufficient to take the action proposed are dated as of a date not more
than 90 days prior to the date sufficient approvals are deposited with the
Partnership and (c) an Opinion of Counsel is delivered to
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the General Partner to the effect that the exercise of such right and the action
proposed to be taken with respect to any particular matter (i) will not cause
the Limited Partners to be deemed to be taking part in the management and
control of the business and affairs of the Partnership so as to jeopardize the
Limited Partners' limited liability, (ii) will not jeopardize the status of the
Partnership as a partnership under applicable tax laws and regulations and (iii)
is otherwise permissible under the state statutes then governing the rights,
duties and liabilities of the Partnership and the Partners.
15.12 Voting and Other Rights. (a) Only those Record Holders of Units
on the Record Date set pursuant to Section 15.6 hereof shall be entitled to
notice of, and to vote at, a meeting of Limited Partners or to act with respect
to matters as to which approvals are solicited.
(b) With respect to Units that are held for a Person's account by
another Person (such as a broker, dealer, bank, trust company or clearing
corporation, or an agent of any of the foregoing), in whose name such Units are
registered, such broker, dealer or other agent shall, in exercising the voting
rights in respect of such Units on any matter, and unless the arrangement
between such Persons provides otherwise, vote such Units in favor of, and at the
direction of, the Person who is the beneficial owner, and the Partnership shall
be entitled to assume it is so acting without further inquiry. The provisions of
this Section 15.12(b) (as well as all other provisions of this Agreement) are
subject to the provisions of Section 10.4 hereof.
ARTICLE XVI
MERGER
16.1 Authority. The Partnership may merge or consolidate with one or
more corporations, business trust or associations, real estate investment
trusts, common law trusts or unincorporated businesses, including, without
limitation, a general partnership or limited partnership, formed under the laws
of the State of Delaware or any other state of the United States of America
pursuant to a written agreement of merger or consolidation ("Merger Agreement")
in accordance with this Article.
16.2 Procedure for Merger or Consolidation. Merger or consolidation of
the Partnership pursuant to this Article requires the prior approval of the
General Partner. If the General Partner shall determine, in the exercise of its
sole discretion, to consent to the
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merger or consolidation, the General Partner shall approve the Merger Agreement,
which shall set forth:
(a) The names and jurisdictions of formation or organization of each of
the business entities proposing to merge or consolidate;
(b) The name and jurisdictions of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(hereafter designated as the "Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partnership interests, rights, securities or obligations of
the Surviving Business Entity; and (i) if any general or limited partnership
interests, securities or rights of any constituent business entity are not to be
exchanged or converted solely for, or into, cash, property or general or limited
partnership interests, rights, securities or obligations of the Surviving
Business Entity, the cash, property or general or limited partnership interests,
rights, securities or obligations of any limited partnership, corporation, trust
or other entity (other than the Surviving Business Entity) which the holders of
such general or limited partnership interests are to receive in exchange for, or
upon conversion of, their securities or rights, and (ii) in the case of
securities represented by certificates, upon the surrender of such certificates,
which cash, property or general or limited partnership interests, rights,
securities or obligations of the Surviving Business Entity or any limited
partnership, corporation, trust or other entity (other than the Surviving
Business Entity), or evidences thereof are to be delivered;
(e) A statement of any changes in the constituent documents (the
articles or certificate of incorporation, articles of trust, declaration of
trust, certificate or agreement of limited partnership or other similar charter
or governing document) of the Surviving Business Entity to be effected by such
merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 16.4 hereof or a later
date specified in or determinable in accordance with the Merger Agreement
(provided that if the effective time of the merger is to be later than the date
of the filing of the certificate of merger, it shall be fixed no later than the
time of the filing of the certificate of merger and stated therein); and
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(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.
16.3 Approval by Limited Partners of Merger or Consolidation.
(a) The General Partner of the Partnership, upon its approval of
the Merger Agreement, shall direct that the Merger Agreement be submitted to a
vote of Limited Partners whether at a meeting or by written consent, in either
case in accordance with the requirements of Article XV hereof. A copy or a
summary of the Merger Agreement shall be included in or enclosed with the notice
of a meeting or the written consent.
(b) The Merger Agreement shall be approved upon receiving the
affirmative vote or consent of the holders of at least 66 2/3% of the
outstanding Units of each class unless the Merger Agreement contains any
provision which, if contained in an amendment to the Agreement, the provisions
of this Agreement or the Delaware Act would require the vote or consent of a
greater percentage of the Percentage Interests of the Limited Partners or of any
class of Limited Partners, in which case such greater percentage vote or consent
shall be required for approval of the Merger Agreement.
(c) After such approval by vote or consent of the Limited Partners,
and at any time prior to the filing of the certificate of merger pursuant to
Section 16.4 hereof, the merger or consolidation may be abandoned pursuant to
provisions therefor, if any, set forth in the Merger Agreement.
16.4 Certificate of Merger. Upon the required approval by the General
Partner and Limited Partners of a Merger Agreement, a certificate of merger
shall be executed and filed with the Secretary of State of the State of Delaware
in conformity with the requirements of the Delaware Act.
16.5 Effect of Merger. (a) Upon the effective date of the certificate
of merger:
(i) all of the rights, privileges and powers of each of the
business entities that has merged or consolidated, and all
property, real, personal and mixed, and all debts due to any
of those business entities and all other things and causes of
action belonging to each of those business entities shall be
vested in the Surviving Business Entity and after the merger
or consolidation shall be the property of the Surviving
Business Entity to the extent they were of each constituent
business entity;
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(ii) the title to any real property vested by deed or otherwise in
any of those constituent business entities shall not revert
and is not in any way impaired because of the merger or
consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities
shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business
Entity, and may be enforced against it to the same extent as
if the debts, liabilities and duties had been incurred or
contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another having occurred.
ARTICLE XVII
RIGHT TO ACQUIRE UNITS
17.1 Right to Acquire Units. (a) Notwithstanding the provisions of
Section 13.1(a) hereof or any other provision of this Agreement (i) in the event
that at any time less than 10% of the total Units outstanding are held by
Persons other than the General Partner and its Affiliates, the General Partner
shall then have the right, which right it may assign and transfer to the
Partnership or any Affiliate of the General Partner, exercisable in its sole
discretion, to purchase all, but not less than all, of the Units outstanding
held by Persons other than the General Partner and its Affiliates, at the
greater of (x) the Current Market Price as of the date the notice described in
Section 17.1 (b) hereof is mailed, or (y) the highest cash price paid by the
General Partner for any Unit purchased during the 90-day period preceding the
date that the notice described in Section 17.1(b) hereof is mailed. As used
herein, (i) "Current Market Price" of any class of Units listed or admitted to
trading on any National Securities Exchange means the average of the daily
Closing Prices (as hereinafter defined) per Unit of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such date
and (ii) "Trading Day" means a day on which the principal National Securities
Exchange on which the Units of any class are listed or admitted to trading is
open for the transaction of business
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or, if Units of a class are not listed or admitted to trading on any National
Securities Exchange, a day on which banking institutions in New York City
generally are open.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise either right to purchase Units granted pursuant
to Section 17.1(a) hereof, the General Partner shall deliver to the Transfer
Agent written notice of such election to purchase (hereinafter in this Section
17.1 called the "Notice of Election to Purchase") and shall cause the Transfer
Agent to mail a copy of such Notice of Election to Purchase to the Record
Holders of Units (as of a Record Date selected by the General Partner) at least
10, but not more than 60, days prior to the Purchase Date. Such Notice of
Election to Purchase shall also be published in daily newspapers of general
circulation printed in the English language and published in the Borough of
Manhattan, New York. The Notice of Election to Purchase shall specify the
Purchase Date and the price (determined in accordance with Section 17.1(a)
hereof) at which Units will be purchased and state that the General Partner, its
Affiliate or the Partnership, as the case may be, elects to purchase such Units,
upon surrender Depositary Receipts of with respect to such Units in exchange for
payment, at such office or offices of the Transfer Agent as the Transfer Agent
may specify, or as may be required by any National Securities Exchange on which
the Units are listed or admitted to trading. Any such Notice of Election to
Purchase mailed to a Record Holder of Units at his address as reflected in the
records of the Transfer Agent shall be conclusively presumed to have been given
whether or not the owner receives such notice. On or prior to the Purchase Date,
the General Partner, its Affiliate or the Partnership, as the case may be, shall
deposit with the Transfer Agent cash in an amount sufficient to pay the
aggregate purchase price of all of the Units to be purchased in accordance with
this Section 17.1. If the Notice of Election to Purchase shall have been duly
given as aforesaid at least 10 days prior to the Purchase Date, and if on or
prior to the Purchase Date the deposit described in the preceding sentence has
been made for the benefit of the holders of Units subject to purchase as
provided herein, then from and after the Purchase Date, notwithstanding that any
Depositary Receipt shall not have been surrendered for purchase, all rights of
the holders of such Units (including, without limitation, any rights pursuant to
Articles IV, V and XIV hereof) shall thereupon cease, except the right to
receive the purchase price (determined in accordance with Section 17.1(a)
hereof) for Units therefor, without interest, upon surrender to the Transfer
Agent of the Depositary Receipts representing such Units, and such Units shall
thereupon be deemed to be transferred to the General Partner, its Affiliate or
the Partnership, as the case may be, on the record books of the Transfer Agent
and the Partnership, and the General Partner or any Affiliate of the General
Partner, or the Partnership, as the case may be, shall be deemed to be the owner
of all such Units from and after the Purchase
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Date and shall have all rights as the owner of such Units (including, without
limitation, all rights as owner of such Units pursuant to Articles IV, V and XIV
hereof).
(c) At any time from and after the Purchase Date, a holder of an
outstanding Unit subject to purchase as provided in this Section 17.1 may
surrender his Depositary Receipt or Certificate, as the case may be, evidencing
such Unit to the Transfer Agent in exchange for payment of the amount described
in Section 17.1(a) therefor without interest thereon.
ARTICLE XVIII
GENERAL PROVISIONS
18.1 Addresses and Notices. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first-class United States mail or by other means of
written communication to the Partner or Assignee at the address described below.
Any notice, payment or report to be given or made to a Partner or Assignee
hereunder shall be deemed conclusively to have been given or made, and the
obligation to give such notice or report or to make such payment shall be deemed
conclusively to have been fully satisfied, upon sending of such notice, payment
or report to the Record Holder of such Unit at his address as shown on the
records of the Transfer Agent or as otherwise shown on the records of the
Partnership, regardless of any claim of any Person who may have an interest in
such Unit or the Partnership Interest of a General Partner by reason of an
assignment or otherwise. An affidavit or certificate of making of any notice,
payment or report in accordance with the provisions of this Section 18.1
executed by the General Partner, the Transfer Agent or the mailing organization
shall be prima facie evidence of the giving or making of such notice, payment or
report. If any notice, payment or report addressed to a Record Holder at the
address of such Record Holder appearing on the books and records of the Transfer
Agent or the Partnership is returned by the United States Post Office marked to
indicate that the United States Postal Service is unable to deliver it, such
notice, payment or report and any subsequent notices, payments and reports shall
be deemed to have been duly given or made without further mailing (until such
time as such Record Holder or another Person notifies the Transfer Agent or the
Partnership of a change in his address) if they are available for the Partner or
Assignee at the principal office of the Partnership for a period of one year
from the date of the giving or making of such notice, payment or report to the
other Partners and Assignees. Any notice to the Partnership shall be deemed
given if
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received by the General Partner at the principal office of the Partnership
designated pursuant to Section 1.3 hereof. The Partnership and the General
Partner may rely and shall be protected in relying on any notice or other
document from a Partner or other Person if believed by them to be genuine.
18.2 Titles and Captions. All article or section titles or captions in
this Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.
18.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
18.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
18.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
18.6 Integration. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
18.7 Creditors. None of the provisions of this Agreement shall be for
the benefit of, or shall be enforceable by, any creditor of the Partnership.
18.8 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
remedy consequent upon a breach thereof shall constitute waiver of any such
breach or any other covenant, duty, agreement or condition.
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IN WITNESS WHEREOF, this Agreement is executed by the parties
hereto as of the date first above written.
PLUM CREEK TIMBER COMPANY, INC.
By: /s/ James A. Kraft
----------------------------------
Name: James A. Kraft
Title: Vice President, General
Counsel and Secretary
PLUM CREEK TIMBER I, L.L.C.
By: Plum Creek Timber Company, Inc.
its Managing Member
By: /s/ James A. Kraft
----------------------------------
Name: James A. Kraft
Title: Vice President, General
Counsel and Secretary
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EXHIBIT 10.3
FORM OF
SECURED PROMISSORY NOTE
$___________
Seattle, Washington
[DATE]
FOR VALUE RECEIVED, _________ (the "Borrower"), hereby promises to pay
to the order of Plum Creek Acquisition Partners, L.P., a Delaware limited
partnership (the "Lender"), the principal sum of ________________
($___________), in lawful money of the United States of America, on [10 years
from the date of this agreement] or when demanded pursuant to Section 6 hereof
(the "Repayment Date"), together with accrued and unpaid interest thereon from
the date hereof.
1. Interest Rate. The outstanding principal amount of this Note,
together with all accrued and unpaid interest thereon, shall bear interest at a
rate per annum equal to 7.5%.
2. Interest Payments. Interest payments on the Note shall be payable
annually on _____________ of each year through the Repayment Date. Interest
shall be calculated on the basis of a year comprised of twelve (12) thirty (30)
day months. Each payment on this Note shall be credited first to interest on
past due interest, then to past due interest, then to accrued interest and then
to principal.
3. Method of Payment. All payments hereunder shall be made to Plum Creek
Acquisition Partners, L.P., 999 Third Avenue, Suite 2300, Seattle, Washington
98104-4096, or at such other place, or by such other means, as the Lender shall
designate to the Borrower in writing. If any payment of principal or interest on
this Note is due on a day which is not a Business Day, such payment shall be due
on the next succeeding Business Day, and such extension of time shall be taken
into account in calculating the amount of interest payable under this Note.
"Business Day" means any day other than a Saturday, Sunday or legal holiday in
the State of Washington.
4. Prepayment. The Borrower shall have the right to prepay the principal
amount hereof in full or in part, together with all accrued interest on the
amount prepaid to the date of such prepayment, at any time without penalty.
5. Security. Pursuant to the Security and Pledge Agreement, dated as of
the date hereof (the "Security Agreement"), by and between the Lender and the
Borrower, the obligations of the Borrower hereunder are secured by the
Collateral (as defined in the Security Agreement), and the holder of this Note
is entitled to the Proceeds (as defined in the Security Agreement), but not the
voting rights, of the Collateral.
<PAGE> 2
6. Events of Default.
(a) Each of the following shall constitute an event of default
("Event of Default") hereunder: (i) the Borrower's failure to pay, within 15
days after the date when such payment is due, any payment of principal or
interest on the Note; (ii) the Borrower's failure to observe or perform any
covenant or agreement contained in the Note; and (iii) the Borrower's violation
of any of the transfer restrictions contained in the Certificate of
Incorporation of [INSERT NAME OF CORPORATE SUBSIDIARY OR, ALTERNATIVELY, NAME OF
HOLDING COMPANY FOR THE CORPORATE SUBSIDIARY].
(b) Upon the occurrence of any Event of Default, the holder of
this Note may, by notice in writing to the Borrower, declare this Note and the
principal of and accrued interest on this Note and all other charges owing to
the Lender to be, and the same shall upon such notice forthwith become, due and
payable. Upon the occurrence of an Event of Default, the holder of this Note,
may, in addition to all rights and remedies available to it at law, exercise any
or all of its rights under the Security Agreement.
7. Recourse. In addition to recourse against the Collateral as provided
in the Security Agreement, the Lender shall be entitled to recourse against the
Borrower for the payment of any principal of or interest on the Note or for any
claim based hereon (including costs of collection).
8. Payable Upon Demand. The holder of this Note shall have the right, at
its option, by notice in writing to the Borrower, to declare the entire unpaid
principal balance of this Note, irrespective of the maturity date of this Note,
together with accrued interest on this Note and any other charges owing to the
Lender, and the same shall upon such notice forthwith become, due and payable.
9. Costs of Collection. Upon the failure of the Borrower to pay any
amount due hereunder as and when due (taking into account the additional 15 days
provided in section 5 of the Security Agreement), the Borrower shall pay on
demand any reasonable costs and expenses incurred by the holder hereof in
connection with the collection of any outstanding principal balance and interest
accrued hereunder, and in connection with the enforcement of any rights or
remedies provided for pursuant to this Note and the Security Agreement. If not
paid on demand, all such costs and expenses automatically shall be added to the
remaining principal balance hereunder as of the date immediately following the
date of such demand.
10. Waiver. The Borrower hereby waives any right it might otherwise have
to require notice or acceptance by any other person of its obligations or
liabilities under this Note which are unconditional and absolute and waives
diligence, presentment, demand of payment, protest and notice with respect to
all of the obligations of the Borrower under this Note and with respect to any
action under this Note and all other notices and demands whatsoever, except as
specifically provided
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for in this Note. This Note may be amended, and the observance of any term of
this Note may be waived, with (and only with) the written consent of the Lender.
11. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Washington.
12. Assignment or Pledge of Note. The Lender shall promptly notify the
Borrower of any endorsement, assignment, pledge or hypothecation of this Note to
a person not affiliated with the Lender.
13. Loss, Mutilation, Etc. Upon notice from the holder of this Note to
the Borrower of the loss, theft, destruction or mutilation of this Note, and
upon receipt of an indemnity reasonably satisfactory to the Borrower from the
holder of this Note or, in the case of mutilation hereof, upon surrender of the
mutilated Note, the Borrower will make and deliver a new note of like tenor in
lieu of this Note.
14. Notices. All notices and other communications required or permitted
under this Note shall be in writing and shall be personally delivered or sent by
certified first class United States mail, postage prepaid, return receipt
requested, and if mailed, shall be deemed to have been received on the third
business day after deposit in the mail, addressed to the Lender, Plum Creek
Acquisition Partners, L.P., 999 Third Avenue, Suite 2300, Seattle, Washington
98104-4096, Attention: Chief Financial Officer, or to the Borrower at the
address set forth below the Borrower's signature. Notice of any change of either
party's address shall be given by written notice in the manner set forth in this
paragraph.
3
<PAGE> 4
IN WITNESS WHEREOF, the Borrower has executed this Note on the date
first above written.
BORROWER:
-----------------------------------------
(Signature of Borrower)
-----------------------------------------
(Print or Type Name)
-----------------------------------------
(Address)
-----------------------------------------
(City, State, Zip Code)
-----------------------------------------
(Telephone Number)
<PAGE> 1
EXHIBIT 10.4
FORM OF
SECURITY AND PLEDGE AGREEMENT
SECURITY AND PLEDGE AGREEMENT, dated as of _____________ (the
"Agreement"), by and between _________ (the "Pledgor"), and Plum Creek
Acquisition Partners, L.P., a Delaware limited partnership (the "Pledgee").
WHEREAS, in consideration for the Pledgee's loan of $_________ to the
Pledgor, the Pledgor is delivering to the Pledgee a duly executed promissory
note, dated the date hereof (such note as it may be amended, modified or
supplemented from time to time together with any replacement thereof, the
"Note"), in the principal amount of $_________ in favor of the Pledgee; and
WHEREAS, the Pledgor has agreed to pledge the Pledged Shares (as defined
below) and the Proceeds (as defined below) to the Pledgee to secure the
Pledgor's obligations under the Note.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Security Interest in Collateral. The Pledgor hereby grants
to the Pledgee, as security for all present and future obligations and
liabilities of all kinds of the Pledgor to the Pledgee under the Note and this
Agreement (collectively referred to as the "Obligations"), a first priority
security interest in the following described property (collectively referred to
as the "Collateral"):
(a) __________ shares of [INSERT NAME OF CORPORATE SUBSIDIARY
OR, ALTERNATIVELY, NAME OF HOLDING COMPANY FOR THE CORPORATE SUBSIDIARY] voting
common stock, par value $.01 per share (the "Pledged Shares"), as more fully
described in Schedule 1 hereto, and the certificates representing the Pledged
Shares and all of the Pledgor's rights and privileges with respect thereto,
together with stock powers executed in blank, each of which has been delivered
to the Pledgee concurrently with the execution hereof; and
(b) the proceeds and accessions of the Pledged Shares (the
"Proceeds").
<PAGE> 2
2. Pledgor's Covenants.
(a) The Pledgor agrees hereafter not to encumber or grant a
security interest in or a lien or other encumbrance on the Collateral.
(b) The Pledgor agrees not to dispose of any of the Collateral
except in accordance with the terms of this Agreement.
(c) The Pledgor agrees: (i) at any time and from time to time,
upon request of the Pledgee, to give, execute, file and/or record any notice,
financing statement, continuation statement, instrument, document or agreement
that the Pledgee shall consider reasonably necessary or desirable to create,
preserve, continue, perfect or validate any security interest granted hereunder
or which the Pledgee may consider reasonably necessary or desirable to exercise
or enforce its rights hereunder with respect to such security interest; (ii) to
give the Pledgee notice of any litigation filed or claim asserted against the
Pledgor relating to or potentially affecting the Collateral; (iii) if requested
by the Pledgee (and without affecting the validity or enforceability of any
other provisions hereof, including Section 3 herein), to receive and collect the
Proceeds, in trust and as the property of the Pledgee, and to immediately
endorse as appropriate and deliver such Proceeds to the Pledgee when requested
by the Pledgee in the exact form in which they are received; (iv) not to
commingle the Proceeds or collections thereunder with other property; (v) to
keep complete and accurate records regarding all of the Proceeds; (vi) to
provide any service and do other acts or things necessary to keep the Collateral
and the Proceeds free and clear of all defenses, rights of offset and
counterclaim; and (vii) to use any Proceeds to pay principal and interest on the
Note, with payments to be credited first to interest on past due interest, then
to past due interest, then to accrued interest and then to principal.
(d) The Pledgor agrees to: (i) pay promptly the Obligations
secured hereby when due; (ii) indemnify the Pledgee against all loss, claims,
demands and liabilities of every kind arising from the Collateral and the
transactions and other agreements and undertakings contemplated hereby; and
(iii) pay all expenses, including reasonable attorneys' fees, incurred by the
Pledgee in the preservation, realization, enforcement and exercise of its
rights, powers and remedies hereunder.
3. Payment of Taxes, Charges, Liens and Assessments. The Pledgor agrees
to pay, prior to delinquency, all taxes, charges, liens and assessments
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<PAGE> 3
against the Collateral and the Proceeds, and upon the failure of the Pledgor to
do so, the Pledgee, at its option, may pay any of them. Any such payments made
by the Pledgee shall be obligations of the Pledgor to the Pledgee, due and
payable immediately without demand and shall be secured by the Collateral and
the Proceeds, subject to all of the terms and conditions of this Agreement.
4. Powers of Pledgee. The Pledgor appoints the Pledgee his true attorney
in fact to perform any of the following powers, which are coupled with an
interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by the Pledgee's officers and employees, or any of
them, whether or not the Pledgor is in default: (a) to perform any obligations
of the Pledgor hereunder in the Pledgor's name or otherwise; (b) to give notice
of Pledgee's right under the Collateral to enforce the same; (c) to release
security; (d) to resort to security; (e) to prepare, execute, file, record or
deliver notes, assignments, schedules, designation statements, financing
statements, continuation statements, termination statements, statements of
assignment, applications for registration or like papers to perfect, preserve or
release the Pledgee's interest in the Collateral; (f) to verify facts concerning
the Collateral by inquiry of obligors thereon, or otherwise, in its own name or
fictitious name; (g) after an Event of Default, to endorse, collect, deliver and
receive payment under instruments for the payment of money constituting or
relating to the Collateral; (h) after an Event of Default, to preserve or
release the interest evidenced by chattel paper to which the Pledgee is entitled
hereunder and to endorse and deliver evidences of title incidental thereto; (i)
after an Event of Default, to exercise all rights, powers and remedies which the
Pledgor would have, but for this Agreement, under all Collateral subject to this
Agreement; and (j) to do all acts and things and execute all documents in the
name of the Pledgor otherwise, deemed by the Pledgee as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder.
5. Events of Default; Remedies.
(a) Each of the following shall constitute an event of default
("Event of Default") hereunder: (i) the Pledgor's failure to pay, within 15 days
after the date when such payment is due, any payment of principal or interest on
the Note; or (ii) the Pledgor's failure to observe or perform any covenant or
agreement contained in the Note; and (iii) the Pledgor's violation of any of
the transfer restrictions contained in the Certificate of Incorporation of
[INSERT NAME OF CORPORATE SUBSIDIARY OR, ALTERNATIVELY, NAME OF HOLDING COMPANY
FOR THE CORPORATE SUBSIDIARY].
3
<PAGE> 4
(b) In case an Event of Default shall have occurred and be
continuing, the Pledgee shall be entitled to exercise all of the rights, powers
and remedies (whether vested in it by this Agreement, the Note or by law and
including, without limitation, all rights and remedies of a secured party of a
debtor in default under the Uniform Commercial Code as in force in the State of
Washington) for the protection and enforcement of its rights in respect of the
Collateral. In addition to recourse against the Collateral as provided in this
Agreement, the Pledgee shall be entitled to recourse against the Pledgor for the
payment of any principal of or interest on the Note or for any claim based
thereon (including costs of collection).
6. No Waiver. The failure of the Pledgee to exercise any right or remedy
under this Agreement or the Note, or delay by the Pledgee in exercising same,
will not operate as a waiver thereof. No waiver by the Pledgee will be effective
unless and until it is in writing and signed by the Pledgee. No waiver of any
condition or performance will operate as a waiver of any subsequent condition or
obligation. The Pledgee shall have no obligation to resort to the Collateral or
any other security which is or may become available to it.
7. Miscellaneous.
(a) This Agreement, any amendments or replacement hereof, and
the legality, validity and performance of the terms hereof, shall be governed by
and enforced and construed in accordance with the laws of the State of
Washington without regard to conflicts of laws and principles thereof.
(b) This Agreement and the rights, powers and duties set forth
herein shall be binding upon the Pledgor, its agents, representatives and
successors and shall inure to the benefit of the Pledgee and its successors and
assigns and, in the event of any transfer or assignment of rights by the
Pledgee, the rights and privileges herein conferred upon the Pledgee shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This Agreement and the rights and
privileges herein conferred upon the Pledgee may be assigned by the Pledgee
without the consent of the Pledgor. This Agreement may not be transferred or
assigned by the Pledgor without the written consent of the Pledgee.
(c) In the event that any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be
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<PAGE> 5
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any applicable law shall not effect the
validity or enforceability of any other provisions hereof.
(d) Notices required or permitted to be given under this
Agreement shall be in writing and may be delivered personally or sent to a party
by airmail or first class mail, postage prepaid and addressed to such party, as
follows, or to such other address furnished by notice given in accordance with
this paragraph:
If to the Pledgor:
[NAME]
c/o Plum Creek Timber Company, Inc.
999 Third Avenue, Suite 2300
Seattle, Washington 98104-4096
If to the Pledgee:
Plum Creek Acquisition Partners, L.P.
999 Third Avenue, Suite 2300
Seattle, Washington 98104-4096
Attention: Chief Financial Officer
Any such notice shall be deemed to have been given, (i) if sent by mail, five
days after the date mailed, and (ii) if delivered personally, on the date of
delivery.
(e) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall together
constitute one and the same document.
(f) This Agreement and the security interest and pledge
hereunder shall terminate upon the full and final performance of all Obligations
of the Pledgor and payment of all indebtedness secured hereby. At such time, the
Pledgee shall promptly reassign to the Pledgor all of the Collateral hereunder
which has not been sold, disposed of, retained or applied by the Pledgee in
accordance with the terms hereof.
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<PAGE> 6
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
PLEDGOR:
-----------------------------------------
(Signature of Pledgor)
PLEDGEE:
PLUM CREEK ACQUISITION
PARTNERS, L.P.
By:
--------------------------------------
Name:
Title:
6
<PAGE> 7
SCHEDULE 1
Description of Pledged Shares
<TABLE>
<CAPTION>
Certificate Number Number of Shares
------------------ ----------------
<S> <C>
</TABLE>
7
<PAGE> 1
EXHIBIT 12.1
PLUM CREEK TIMBER COMPANY, INC.
COMPUTATION OF EARNINGS TO FIXED CHARGES
(dollars in thousands, except for ratio data)
<TABLE>
<CAPTION>
For the Nine Months
For the Year Ended December 31, Ended September 30,
--------------------------------------------------------------------- -------------------
Pro Forma Pro Forma
1993(1) 1994(1) 1995(1) 1996(1) 1997(1) 1997(2) 1998(1) 1998(2)
-------- -------- -------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(A) Earnings:
Income (loss) before
income taxes $ 91,549 $113,136 $111,303 $224,990 $111,776 $108,031 $53,974 $ 59,017
Add:
Fixed
Charges per
Item (B) below 36,737 47,410 46,836 50,141 60,384 60,789 45,080 45,266
Less:
Capitalized interest 0 0 0 0 0 0 (645) (645)
-------- -------- -------- -------- -------- -------- ------- --------
$128,286 $160,546 $158,139 $275,131 $172,140 $168,820 $98,409 $103,638
======== ======== ======== ======== ======== ======== ======= ========
(B) Fixed Charges:
Interest on
indebtedness, the
portion of rentals
considered to be
interest and
amortization of
deferred financing
and bank fees 36,737 47,410 46,836 50,141 60,364 60,789 45,080 45,266
-------- -------- -------- -------- -------- -------- ------- --------
$ 36,737 $ 47,410 $ 48,836 $ 50,141 $ 60,364 $ 60,789 $45,080 $ 45,266
======== ======== ======== ======== ======== ======== ======= ========
Ratio of earnings to
fixed charges 3.49 3.39 3.38 5.49 2.85 2.78 2.18 2.29
======== ======== ======== ======== ======== ======== ======= ========
</TABLE>
(1) Historical ratios are calculated based on balances of Plum Creek Timber
Company, L.P.
(2) Included in the computation of the pro formas' fixed charges is the
interest expense of the Corporate Subsidiaries.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 of our report dated January 20, 1998, on our audits of the combined
balance sheet as of December 31, 1997 and 1996 and the combined statements of
income and cash flows for each of the three years in the period ended December
31, 1997 of Plum Creek Timber Company, L.P. We also consent to the inclusion in
this registration statement on Form S-4 of our report dated September 29, 1998,
on our audit of the balance sheet as of December 31, 1997 of Plum Creek
Management Company, L.P. We also consent to the incorporation by reference in
this registration statement on Form S-4 of our report dated December 16, 1998,
on our audits of the balance sheet as of November 30, 1998 and June 5, 1998 of
Plum Creek Timber Company, Inc. We also consent to the reference to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
January 25, 1999
<PAGE> 1
EXHIBIT 99.1
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, John G. McDonald, hereby consent to be named as a person about to
become a director of Plum Creek Timber Company, Inc. in the Registration
Statement on Form S-4 of Plum Creek Timber Company, Inc. dated January 28, 1999.
Dated: January 28, 1999 /s/ JOHN G. MCDONALD
-------------------------------
John G. McDonald
