<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BUCKEYE CELLULOSE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1518973 2611
(STATE OR OTHER (I.R.S. EMPLOYER (PRIMARY STANDARD
JURISDICTION OF IDENTIFICATION NO.) INDUSTRIAL
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1001 TILLMAN STREET
MEMPHIS, TENNESSEE 38108
TELEPHONE: 901-320-8100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DAVID B. FERRARO
1001 TILLMAN STREET
MEMPHIS, TENNESSEE 38108
TELEPHONE: 901-320-8100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
WILLIAM S. KIRSCH, P.C. GEORGE W. BILICIC, JR.
ALAN G. BERKSHIRE CRAVATH, SWAINE & MOORE
KIRKLAND & ELLIS WORLDWIDE PLAZA
200 EAST RANDOLPH DRIVE 825 EIGHTH AVENUE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10019
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE* PRICE* FEE
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<S> <C> <C> <C> <C>
% Senior Subordinated Notes
due 2008 $100,000,000 100% $100,000,000 $34,483
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</TABLE>
*Estimated solely for purposes of computing the amount of the registration
fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JUNE 4, 1996
PROSPECTUS
LOGO
$100,000,000
BUCKEYE CELLULOSE CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2008
The % Senior Subordinated Notes due 2008 (the "Notes") of Buckeye Cellulose
Corporation (the "Company") are being offered (the "Offering") by the Company.
The Notes will mature on September 15, 2008. Interest on the Notes will be
payable semiannually on March 15 and September 15 of each year, beginning on
March 15, 1997. The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after September 15, 2001 at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. See "Description of Notes--Optional Redemption." Upon a Change
of Control (as defined), holders of the Notes may require the Company to
purchase all or a portion of the Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. See "Description of Notes--Repurchase at the Option of Holders
Upon a Change of Control."
Concurrent with this Offering, the Selling Stockholder (as defined) is offering
2,845,157 shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock") to the public. This Offering is contingent upon the
consummation of such equity offering, the Company Stock Repurchase (as defined)
and the Individuals' Stock Purchase (as defined). See "The Company Stock
Repurchase and Related Transactions."
The Notes will be unsecured senior subordinated obligations of the Company. The
Notes will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined), including indebtedness under the Bank Credit
Facility (as defined) and the Existing Senior Notes (as defined), pari passu
with the Existing Senior Subordinated Notes (as defined) and with any future
senior subordinated indebtedness and senior to any future junior subordinated
indebtedness of the Company. On a pro forma combined basis, after giving effect
to the Offering, the Company Stock Repurchase and the 1996 Acquisitions (as
defined), Senior Indebtedness at March 31, 1996 would have been $102.4 million
and senior subordinated indebtedness would have been $249.5 million. The Notes
will be structurally subordinated to the indebtedness and other liabilities of
the Company's subsidiaries. On a pro forma combined basis, the total
Indebtedness (as defined) of the Company's subsidiaries was $95.5 million at
March 31, 1996.
The Notes will be represented by a Global Security registered in the name of
the nominee of The Depository Trust Company, which will act as the depository
(the "Depositary"). Beneficial interests in the Global Security will be shown
on, and transfers thereof will be effected only through, records maintained by
the Depositary and its participants. Except as described herein, Notes in
definitive form will not be issued. See "Description of Notes--Book Entry
System."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note................................... % % %
Total...................................... $ $ $
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</TABLE>
(1)Plus accrued interest, if any, from , 1996 to the date of
delivery.
(2)Before deducting expenses payable by the Company estimated to be $ .
The Notes are offered subject to receipt and acceptance by the Underwriters (as
defined), to prior sales and to the Underwriters' right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the Notes will be made at the office of Salomon
Brothers Inc, Seven World Trade Center, New York, New York or through the
facilities of The Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INC MERRILL LYNCH & CO.
The date of this Prospectus is , 1996.
<PAGE>
END-USE APPLICATIONS OF BUCKEYE CELLULOSE CORPORATION PRODUCTS
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated by reference herein. The
Company reports on a June 30 fiscal year. Unless otherwise indicated, (i) all
information in this Prospectus assumes the Underwriters' over-allotment option
is not exercised in connection with the Equity Offering (as defined), (ii) all
information in this Prospectus has been adjusted to give effect to the
recapitalization and stock split of the Common Stock (as defined) effected in
connection with the initial public offering of the Common Stock in November
1995, (iii) all references in this Prospectus to the "Company" or "Buckeye"
refer to Buckeye Cellulose Corporation, its direct and indirect subsidiaries
and the Predecessor (as defined) and (iv) all references in this Prospectus to
the "Offering" shall refer to the offering hereby of $100,000,000 principal
amount of % Senior Subordinated Notes due 2008 of the Company.
THE COMPANY
The Company is a leading manufacturer and worldwide marketer of high-quality,
value-added specialty cellulose pulps. The Company focuses on a wide array of
technically demanding niche markets in which its proprietary products and
commitment to customer technical service give it a competitive advantage.
Buckeye is the world's only manufacturer of both wood-based and cotton linter-
based specialty cellulose pulps and, as such, produces the broadest range of
specialty pulps in the industry. The Company believes that it has a leading
position in most of the high-end niche markets in which it competes. Buckeye's
focus on niche specialty pulp markets has enabled it to maintain consistently
strong operating margins, even during downturns in the commodity pulp markets.
From fiscal 1994 to fiscal 1995, net sales increased 10% to $408.6 million,
while operating income increased 42% to $79.2 million and net income increased
67% to $21.7 million. For the nine months ended March 31, 1996, net sales
increased 12% to $338.8 million, while operating income increased 52% to $83.2
million and income before extraordinary loss increased 129% to $33.2 million
over the comparable period of the prior year. In fiscal 1995, on a pro forma
basis, the Company's operating income and net income were approximately $88.0
million and $32.9 million, respectively. For the nine months ended March 31,
1996, on a pro forma basis, operating income and income before extraordinary
loss were approximately $86.3 million and $38.9 million, respectively.
The cellulose pulp market generally can be divided into two categories:
commodity pulps and specialty cellulose pulps. The Company participates
exclusively in the estimated $7 billion annual specialty cellulose pulp market,
which accounts for approximately 3% of the total cellulose pulp market.
Specialty cellulose pulps are used to impart unique chemical or physical
characteristics to a broad and diverse range of specialty end products.
Specialty cellulose pulps generally command higher prices and tend to be less
cyclical than commodity pulps. The more demanding performance requirements for
specialty cellulose pulps limit customers' ability to substitute other
products.
The Company has manufactured specialty cellulose pulps for nearly 75 years.
The Company's specialty pulps can be broadly grouped into three categories:
chemical cellulose pulps, absorbent pulps and customized paper pulps. Chemical
cellulose pulps (41% of fiscal 1995 sales) are used to impart purity, strength,
transparency, and viscosity in the manufacture of diversified products such as
food casings, rayon filament, photographic film, transparent tape, acetate
plastics, and thickeners for food, cosmetics, and pharmaceuticals. Absorbent
pulps (39% of fiscal 1995 sales) are used to increase absorbency and fluid
transport in products such as disposable diapers, feminine hygiene products,
and adult incontinence products. Customized paper pulps (20% of fiscal 1995
sales) are used to provide porosity, color permanence, and tear resistance in
automotive air and oil filters, premium letterhead, currency paper, stock
certificates, and personal stationery.
The Company's commitment to research and development focuses on introducing
new specialty cellulose pulps, improving the performance of its existing
cellulose pulps, and creating new applications for its products.
3
<PAGE>
Buckeye developed one of the earliest commercial processes to purify cotton
linters for conversion into cellulose acetate for use in photographic film.
Buckeye was also the first to develop a new application that enabled fluff pulp
to be used as the absorbent core of disposable diapers. Today, the Company's
research and development scientists are working on the next generation of
specialty cellulose pulps for both new and current applications such as thin
diapers, high-performance automotive filters and cellulose ethers.
The Company manufactures approximately 600,000 metric tons of specialty pulp
annually at its three plants in the United States and Germany. Since 1983,
Buckeye has invested over $400.0 million in its two U.S. plants and believes
that both are state-of-the-art manufacturing facilities. The Company's plant
located near Perry, Florida (the "Foley Plant") has an annual capacity of over
450,000 metric tons. The Company's plant located in Memphis, Tennessee (the
"Memphis Plant") has an annual capacity of approximately 100,000 metric tons.
In addition, in May 1996 the Company acquired the specialty cellulose pulp
business (the "Temming Business") of Peter Temming AG, a German company (the
"Temming Acquisition"), which has an annual capacity of approximately 50,000
metric tons at its plant in Gluckstadt, Germany (the "Gluckstadt Plant").
The Company's customer base is broadly diversified both geographically and by
end-use markets. The Company's fiscal 1995 sales reflect this geographic
diversity, with 30% of sales in the United States, 30% in Europe, 26% in Asia
and 14% in other regions. Buckeye works closely with customers through all
stages of product development and manufacture in order to tailor products to
meet each customer's specific requirements. The Company's commitment to product
quality, dedication to customer technical service, and responsiveness to
changing customer needs have enabled the Company to develop and strengthen
long-term alliances with its customers. Over 70% of fiscal 1995 sales were to
firms who have been customers of Buckeye for over 30 years. The Procter &
Gamble Company and its affiliates ("Procter & Gamble"), the world's largest
diaper manufacturer, purchase virtually all of the Company's current annual
production of absorbent pulps pursuant to a long-term, take-or-pay contract
(the "Pulp Supply Agreement"). Procter & Gamble is the Company's largest
customer, accounting for approximately 39% of the Company's fiscal 1995 net
sales. The Company's other large customers include Akzo Nobel N.V. (rayon
filament and cellulose ethers), A. Ahlstrom Corporation (automotive filter
paper), Hercules Incorporated (cellulose ethers) and Eastman Chemical Company
(cellulose acetate).
The Company's strategy is to continue to strengthen its position as a leading
worldwide supplier of specialty cellulose pulps. The Company believes it can
continue to expand its market share, increase its profitability, and decrease
its exposure to cyclical downturns by pursuing the following key strategic
objectives: (i) focus on technically demanding niche markets; (ii) develop
proprietary product innovations; (iii) strengthen long-term alliances with
customers; and (iv) expand capacity internally and through acquisitions to
support growing demand for its products.
As part of its growth strategy, the Company recently completed the Temming
Acquisition and has entered into a definitive stock purchase agreement, dated
April 26, 1996 (the "Alpha Agreement"), to acquire Alpha Cellulose Holdings,
Inc. (together with its wholly owned subsidiary, Alpha Cellulose Corporation,
"Alpha"). Such acquisition is herein referred to as the "Alpha Acquisition."
The Alpha Acquisition, if consummated, will increase the Company's annual
capacity by approximately 50,000 metric tons, expand the Company's range of
products in the customized paper pulp market and provide synergies in operating
costs, product development and customer service. Subject to the satisfaction of
certain conditions and the expiration or other termination of the applicable
waiting period (including any extensions thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), the consummation of the
Alpha Acquisition is expected to occur in early fiscal 1997. The Alpha
Agreement provides each of the parties thereto with an option to terminate the
agreement if the closing of the Alpha Acquisition has not occurred on or before
July 25, 1996. The Company is also considering other acquisition and joint
venture opportunities to expand its production capacity, although it has not
yet entered into any agreements to do so.
4
<PAGE>
COMPANY HISTORY
In March 1993, an investor group consisting of Madison Dearborn Capital
Partners, L.P. (the "Selling Stockholder" or "MDCP") and members of the
Company's current management organized the Company to acquire from the
Cellulose & Specialties Division (the "C&S Division") of The Procter & Gamble
Cellulose Company ("Procter & Gamble Cellulose"), a wholly owned subsidiary of
Procter & Gamble, substantially all of the assets of the Memphis Plant, as well
as certain other assets of the C&S Division, including the headquarters
building, research and development laboratories, pilot plants and real property
adjacent to the Memphis Plant. At the same time, MDCP and members of current
management also organized Buckeye Florida Corporation to serve as the sole
general partner of Buckeye Florida, Limited Partnership ("Buckeye Florida
Partners"), which simultaneously acquired from Procter & Gamble Cellulose
substantially all of the assets of the Foley Plant. Procter & Gamble Cellulose
retained a 50% interest in this facility as the sole limited partner of Buckeye
Florida Partners and granted Buckeye Florida Corporation an option to purchase
all of Procter & Gamble Cellulose's limited partnership interest in Buckeye
Florida Partners (the "P&G Call Option"). The business operations of Procter &
Gamble Cellulose so acquired are hereinafter referred to collectively as the
"Predecessor," and the acquisitions of such assets are hereinafter referred to
collectively as the "P&G Acquisitions."
In November 1995, the ownership of the Memphis Plant, the Foley Plant and
related assets was combined into a single corporate ownership structure,
Buckeye Florida Corporation became a wholly owned subsidiary of the Company,
and the Company acquired Procter & Gamble Cellulose's remaining equity interest
in Buckeye Florida Partners for approximately $62.1 million pursuant to the P&G
Call Option. Concurrently, the Company and MDCP made an initial public offering
of the Common Stock, and the Company refinanced substantially all of its
outstanding indebtedness (including all indebtedness to Procter & Gamble
Cellulose) through a public offering of $150.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due 2005 (the "Existing Senior
Subordinated Notes") and through the establishment of a new senior bank credit
facility providing for aggregate lending commitments of up to $135.0 million
(as amended, the "Bank Credit Facility"). The Company also completed an offer
to repurchase, and a related amendment to the terms of, a majority of its
outstanding 10 1/4% Senior Notes due 2001 (the "Existing Senior Notes" and,
together with the Existing Senior Subordinated Notes, the "Existing Notes").
Such transactions are collectively referred to herein as the "1995 Business
Combination Transactions."
THE COMPANY STOCK REPURCHASE AND THE RELATED TRANSACTIONS
In early 1996, the Company's management and MDCP began discussions regarding
the possible disposition by MDCP of its remaining equity ownership interest in
the Company. On June 3, 1996, BKI Investment Corp., a newly formed, wholly
owned subsidiary of the Company ("BKI Investment"), agreed to purchase
2,259,887 shares of Common Stock from MDCP for $22.125 per share (the "Company
Stock Repurchase"), subject, among other things, to the approval by each of the
Company's and BKI Investment's board of directors, the completion on or before
August 15, 1996 of the Company Stock Repurchase and related transactions, and
the availability to the Company of debt financing in an amount sufficient to
consummate the Company Stock Repurchase, on terms satisfactory to the Company,
which debt financing is currently anticipated to be provided by this Offering.
The aggregate amount of the purchase price to be paid in the Company Stock
Repurchase is approximately equal to the maximum amount currently permitted to
be used for stock repurchases under the terms of the Existing Notes Indentures
(as defined). Additionally, on June 3, 1996, MDCP agreed to sell, and certain
individuals employed by the Company agreed to purchase in an exempt transaction
under the Securities Act of 1933, as amended (the "Securities Act"), an
aggregate of 1,385,269 shares of Common Stock for $22.125 per share (the
"Individuals' Stock Purchase") concurrently with the Company Stock Repurchase.
The purchase price for the Company Stock Repurchase and the Individuals' Stock
Purchase reflects the prevailing market price when the parties decided to
pursue definitive agreements and seek board approval. On June 3, 1996, the
board of directors of each of the Company and BKI Investment approved the
Company Stock Repurchase.
Each of the Company Stock Repurchase, the Individuals' Stock Purchase and the
public offering by MDCP of 2,845,157 shares of Common Stock, on terms
satisfactory to MDCP (the "Equity Offering" and, together with the Company
Stock Repurchase and the Individuals' Stock Purchase, the "Stock
Transactions"), is subject,
5
<PAGE>
among other things, to the concurrent completion on or before August 15, 1996
of each of the other Stock Transactions and the availability to the Company of
debt financing in an amount sufficient to consummate the Company Stock
Repurchase, which debt financing is currently anticipated to be provided by
this Offering. This Offering is subject to the concurrent completion of the
Stock Transactions. This Offering and the Equity Offering are referred to
herein collectively as the "Offerings." Upon completion of the Stock
Transactions, the Company will have 19,147,336 shares of Common Stock
outstanding, and MDCP's equity ownership interest in the Company will be
reduced to less than 5% of the outstanding Common Stock.
THE OFFERINGS
Securities Offered.......... $100.0 million aggregate principal amount of %
Senior Subordinated Notes due 2008.
Maturity Date............... September 15, 2008.
Interest Payment Dates...... March 15 and September 15 of each year,
commencing March 15, 1997.
Optional Redemption......... On or after September 15, 2001, the Notes will be
redeemable, at the Company's option, in whole or
in part, at the redemption prices set forth
herein, together with accrued and unpaid
interest, if any, to the redemption date. See
"Description of the Notes--Optional Redemption."
Optional Redemption in
Event of One or More
Public Equity Offerings.... At any time on or prior to September 15, 1999,
the Company, at its option, may redeem up to
$30.0 million aggregate principal amount of the
Notes from the net proceeds of one or more Public
Equity Offerings, at a redemption price of % of
the principal amount thereof, together with
accrued and unpaid interest, if any, to the
redemption date; provided that after giving
effect to any such redemption, at least $70.0
million in aggregate principal amount of the
Notes remains outstanding. See "Description of
the Notes--Optional Redemption."
Sinking Fund................ None.
Change in Control........... Upon a Change in Control, each holder of Notes
will have the right to require the Company to
repurchase, in whole or in part, such holder's
Notes at a cash purchase price equal to 101% of
the principal amount thereof, together with
accrued and unpaid interest, if any, to the
repurchase date. See "Description of the Notes--
Certain Covenants--Purchase of Notes Upon a
Change in Control."
Ranking..................... The Notes will be unsecured senior subordinated
indebtedness of the Company and will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Company,
including indebtedness under the Bank Credit
Facility and the Existing Senior Notes, and will
rank pari passu in right of payment with the
Existing Senior Subordinated Notes and all other
future senior subordinated indebtedness of the
Company. The Notes will also be effectively
subordinated to all indebtedness of the Company's
subsidiaries, including guarantees by the
Company's subsidiaries of the Company's
obligations under the Bank Credit Facility. As of
March 31, 1996, on a pro forma basis after giving
effect to the Offering, the Company Stock
Repurchase, the Temming Acquisition and the Alpha
Acquisition (such acquisitions being collectively
referred to as the "1996 Acquisitions"), there
would have been outstanding
6
<PAGE>
approximately $102.4 million of Senior
Indebtedness of the Company (which would have
been guaranteed by domestic subsidiaries of the
Company, which guarantees would effectively rank
senior to the Notes) and $249.5 million of senior
subordinated indebtedness of the Company
consisting of the Notes and the Existing Senior
Subordinated Notes. See "Description of the
Notes--Ranking."
Certain Covenants........... The indenture relating to the Notes (the
"Indenture") will contain certain covenants,
including, but not limited to, covenants with
respect to the following matters: (i) limitation
on indebtedness; (ii) limitation on restricted
payments; (iii) limitation on transactions with
affiliates; (iv) limitation on liens; (v)
limitation on sale of assets; (vi) limitation on
senior subordinated indebtedness; (vii)
limitation on issuance of guarantees of
subordinated and pari passu indebtedness; (viii)
restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x)
limitation on dividends and other payment
restrictions affecting subsidiaries; (xi)
limitation on unrestricted subsidiaries; (xii)
provision of financial statements; and (xiii)
restrictions on consolidations, mergers and sales
of assets. See "Description of the Notes--Certain
Covenants."
Use of Proceeds............. A portion of the net proceeds from the Offering
will be contributed by the Company to BKI
Investment, its wholly owned subsidiary, which
will use such contributions to consummate the
Company Stock Repurchase. The remaining net
proceeds will be used by the Company to finance a
substantial portion of the Alpha Acquisition or,
pending completion of the Alpha Acquisition, to
reduce outstanding borrowings under the Bank
Credit Facility. See "Use of Proceeds."
Absence of a Public Market.. There is currently no public market for the
Notes. The Company has been advised by the
Underwriters that they presently intend to make a
market in the Notes after the consummation of the
Offering, although they are not obligated to do
so and may discontinue any market-making
activities with respect to the Notes at any time
without notice. No assurance can be given as to
the liquidity of the trading market for the Notes
or that an active public market for the Notes
will develop. If an active public market for the
Notes does not develop, the market price and
liquidity of the Notes may be adversely affected.
Equity Offering............. Concurrently with this Offering, the Selling
Stockholder is offering 2,845,157 shares of
Common Stock to the public by means of a separate
prospectus. This Offering is contingent upon the
consummation of the Equity Offering and the other
Stock Transactions. The Equity Offering is
contingent on the consummation of the other Stock
Transactions and upon the availability of debt
financing in an amount sufficient to consummate
the Company Stock Repurchase, which debt
financing is anticipated to be provided by this
Offering.
RISK FACTORS
Prospective purchasers of the Notes offered hereby should consider the
factors set forth in "Risk Factors," as well as the other information set forth
in this Prospectus, before making an investment in the Notes.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary financial data with respect to (a) the
Predecessor for the fiscal years ended June 30, 1991 and 1992 and for the
period July 1, 1992 through March 15, 1993 and (b) the Company for the period
March 16, 1993 through June 30, 1993, for the fiscal years ended June 30, 1994
and 1995 and for the nine months ended March 31, 1995 and 1996. The summary
financial data for the fiscal years ended June 30, 1991 and 1992 are derived
from the unaudited Combined Statement of Net Assets and Combined Statement of
Operating Income of the Predecessor. The summary financial data of the
Predecessor for the period July 1, 1992 through March 15, 1993 are derived from
the unaudited Combined Statement of Net Assets and the audited Combined
Statement of Operating Income of the Predecessor appearing elsewhere in this
Prospectus. The summary financial data for the period March 16, 1993 through
June 30, 1993 and for the fiscal years ended June 30, 1994 and 1995 (except pro
forma amounts) are derived from the audited financial statements of the Company
appearing elsewhere in this Prospectus. The summary financial data for the nine
months ended March 31, 1995 and 1996 are derived from the unaudited financial
statements of the Company appearing elsewhere in this Prospectus. In the
opinion of management such nine month data include all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
information included therein. The results of operations for the nine months
ended March 31, 1996 are not necessarily indicative of the results for the
entire fiscal year or any other interim period. The data set forth in the
following table should be read in conjunction with the Combined Statement of
Operating Income of the Predecessor and notes thereto, and the combined
consolidated financial statements of the Company and notes thereto, appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR (A) COMPANY (B)
----------------------------- -----------------------------------------------------
JULY 1, MARCH 16,
1992 1993 NINE MONTHS ENDED
YEAR ENDED JUNE 30, THROUGH THROUGH YEAR ENDED JUNE 30, MARCH 31,
------------------- MARCH 15, JUNE 30, -------------------- --------------------
1991 1992 1993 1993 1994 1995 1995 1996
--------- --------- --------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $ 390,690 $ 357,493 $233,460 $113,074 $371,526 $ 408,587 $301,318 $ 338,825
Cost of goods sold (a).. 300,331 293,344 189,808 86,047 291,833 305,150 230,247 237,149
--------- --------- -------- -------- -------- ---------- -------- ----------
Gross margin............ 90,359 64,149 43,652 27,027 79,693 103,437 71,071 101,676
Selling, research and
administrative
expenses:
Company................ -- -- -- 5,996 24,004 24,265 16,446 18,497
C&S Division
allocations (a)....... 25,034 21,357 17,522 -- -- -- -- --
Procter & Gamble
corporate
allocations (a)....... 1,614 6,096 4,764 -- -- -- -- --
--------- --------- -------- -------- -------- ---------- -------- ----------
Operating income........ 63,711 36,696 21,366 21,031 55,689 79,172 54,625 83,179
Net interest and
amortization of debt
costs (c).............. -- -- -- (10,209) (26,545) (21,152) (16,510) (12,784)
Other expense........... -- -- -- (184) (632) (615) (462) (372)
Minority interest (d)... -- -- -- (3,083) (8,291) (23,223) (14,881) (16,628)
Secondary offering
costs.................. -- -- -- -- -- -- -- (1,335)
--------- --------- -------- -------- -------- ---------- -------- ----------
Income before income
taxes and extraordinary
item................... 63,711 36,696 21,366 7,555 20,221 34,182 22,772 52,060
Income taxes (e)........ -- -- -- 2,851 7,253 12,470 8,308 18,908
--------- --------- -------- -------- -------- ---------- -------- ----------
Income before
extraordinary loss..... 63,711 36,696 21,366 4,704 12,968 21,712 14,464 33,152
Extraordinary loss, net
of tax benefit......... -- -- -- -- -- -- -- 3,949
--------- --------- -------- -------- -------- ---------- -------- ----------
Net income.............. $ 63,711 $ 36,696 $ 21,366 $ 4,704 $ 12,968 $ 21,712 $ 14,464 $ 29,203
========= ========= ======== ======== ======== ========== ======== ==========
Income per share before
extraordinary loss (f). $ 1.58
Extraordinary loss, net
of tax benefit (g)..... (.19)
----------
Net income per share
(f).................... $ 1.39
==========
Weighted average shares
outstanding............ 21,014,032
PRO FORMA DATA (H):
Income before
extraordinary loss..... $ 32,856 $ 38,939
Income per share before
extraordinary loss..... 1.72 2.03
Weighted average shares
outstanding............ 19,147,336 19,147,336
Ratio of EBITDA to cash
interest expense (i)... 3.44x 4.62x
Ratio of total debt to
EBITDA (j)............. 2.80x N/A
EBITDA (k).............. $ 118,745 $ 109,340
OTHER DATA:
Depreciation and
amortization........... $ 24,993 $ 25,795 $ 19,262 $ 7,436 $ 27,415 $ 26,080 $ 19,566 $ 19,117
Capital expenditures.... 45,960 29,832 17,761 4,898 15,725 24,922 20,713 22,334
EBITDA (k).............. 88,704 62,491 40,628 28,185 81,879 104,088 73,313 102,073
Shipments (thousand
metric tons)........... 493 515 342 161 565 555 423 383
</TABLE>
(continued on following page)
8
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------
PRO
ACTUAL FORMA (H)
-------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $101,027 $132,622
Total assets................................................. 408,365 522,619
Long-term debt less current portion.......................... 197,364 351,848
Equity....................................................... 127,608 76,928
</TABLE>
- --------
(a) The Predecessor was historically operated as two of the four pulp mills
that comprised the C&S Division of Procter & Gamble. The Predecessor was
allocated certain expenses for services provided by the C&S Division and
Procter & Gamble, including sales services, product supply services,
general management services, information system services, research
services, treasury services, financial audit and reporting services, tax
administration services and employee benefits and insurance administration
services. Costs and expenses of the C&S Division were allocated using
formulas, primarily based on estimates of efforts expended and sales.
Procter & Gamble corporate expenses were allocated primarily based on
sales.
(b) On March 16, 1993, the Company acquired from Procter & Gamble Cellulose the
assets of the Predecessor.
(c) The debt obligations of Procter & Gamble were not specifically identifiable
with individual operating units; accordingly, interest charges are not
reflected in the financial data of the Predecessor.
(d) The minority interest represents Procter & Gamble Cellulose's 50% limited
partnership interest in Buckeye Florida Partners, which ceased on November
28, 1995.
(e) The Predecessor's results of operations were historically included in the
consolidated income tax returns of Procter & Gamble. Procter & Gamble had
no tax sharing agreement for allocating income taxes to operating units.
Accordingly, income tax expense or benefit is not reflected in the
financial data of the Predecessor.
(f) Historical net income per share has not been presented as it is not
considered relevant for periods prior to June 30, 1995, due to the P&G
Acqusitions and the 1995 Business Combination Transactions.
(g) An extraordinary loss of $3,949, net of tax benefit, was recognized on the
early retirement of a majority of the Existing Senior Notes in the second
and third quarters of fiscal 1996.
(h) See "Unaudited Pro Forma Consolidated Financial Data."
(i) Cash interest expense is defined as total interest expense less non-cash
items, including amortization of debt discount and deferred financing
costs.
(j) Ratio of total debt to EBITDA is based on estimated indebtedness assuming
consummation of the Company Stock Repurchase and related transactions and
the 1996 Acquisitions on June 30, 1995.
(k) EBITDA represents earnings before secondary offering costs, interest,
taxes, minority interest, extraordinary loss, depreciation, depletion,
amortization and other non-cash charges and is intended to facilitate a
more complete analysis of the Company's ability to meet its debt service
requirements. This data should not be considered in isolation and is not
intended to be a substitute for income statement data as a measure of the
Company's profitability.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors in the Notes offered hereby should carefully consider
the following risk factors before making an investment in the Notes.
INDUSTRY CYCLICALITY
The markets for cellulose pulps are cyclical, being characterized by periods
of supply imbalance and sensitivity to changes in industry capacity. The
general economic conditions of global markets are the primary determinants of
the demand for cellulose pulp, as consumption correlates with economic
activity. The factors affecting such conditions are beyond the Company's
control. The production of cellulose pulp is a capital-intensive process with
relatively long lead times to bring new capacity to the market and significant
exit costs associated with capacity reductions. Prices of cellulose pulps can
fluctuate significantly when supply and demand become imbalanced. The
Company's financial performance is influenced by these pricing fluctuations
and the cyclicality of the cellulose pulp market. There can be no assurance
that current price levels will be maintained, that any additional price
increases will be achieved or that the industry will not add new capacity.
Prices for the Company's products may fluctuate substantially in the future.
Any downturn in such prices could have a material adverse effect on the
Company's business, results of operations and financial condition.
DEPENDENCE ON SIGNIFICANT CUSTOMER
Virtually all of the Company's absorbent pulp sales (approximately 39% of
fiscal 1995 net sales) are made to Procter & Gamble pursuant to the Pulp
Supply Agreement between the Company and Procter & Gamble. The Pulp Supply
Agreement provides that Procter & Gamble will purchase, under a take-or-pay
arrangement, a specified tonnage (currently substantially all of the Company's
output) of absorbent pulp annually at a formula price through calendar year
1998, at the higher of the formula price or market price in 1999 and 2000, and
at market price in 2001 and 2002. During fiscal 1994, the formula price paid
for absorbent pulp pursuant to the Pulp Supply Agreement was significantly in
excess of the market prices for absorbent pulp, while in fiscal 1995 the price
paid was slightly in excess of market price. As a result of such formula
pricing, the Company will be partially protected in periods of lower market
prices; however, it may not realize all of the benefits of increasing market
prices. Currently, the formula price paid by Procter & Gamble pursuant to the
Pulp Supply Agreement exceeds the market price for absorbent pulp. In the
event that Procter & Gamble fails to perform under the Pulp Supply Agreement
for any reason or fails to renew it upon terms favorable to the Company, the
Company's business, results of operations and financial condition could be
materially and adversely affected under certain market conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sales and Customers."
SIGNIFICANT LEVERAGE
The Company has significant debt service obligations. As of March 31, 1996,
on a pro forma basis after giving effect to the Offering, the Company Stock
Repurchase and the 1996 Acquisitions, the Company would have had total
outstanding long-term indebtedness of $351.8 million and equity of $76.9
million. Furthermore, the Company may incur additional indebtedness in the
future, subject to certain limitations contained in the instruments governing
its indebtedness. The degree to which the Company is leveraged could have
important consequences to holders of the Notes, including: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may
be impaired in the future; (ii) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of principal of and
interest on the borrowings under the Bank Credit Facility and interest on the
Existing Notes and the Notes, thereby reducing the funds available to the
Company for its operations and other purposes;
10
<PAGE>
(iii) certain of the Company's borrowings are and will continue to be at
variable rates of interest, which exposes the Company to the risk of increased
interest rates; (iv) the Company may be substantially more leveraged than
certain of its competitors, which may place the Company at a relative
competitive disadvantage; (v) the Bank Credit Facility, the Existing Notes
Indentures and the Indenture will contain financial and restrictive covenants,
the failure to comply with which may result in an event of default, which, if
not cured or waived, could have a material adverse effect on the Company; and
(vi) the Company may be unable to adjust to rapidly changing market conditions
and could be vulnerable in the event of a downturn in general economic
conditions or its business. See "The 1996 Acquisitions," "Capitalization,"
"Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Description
of Certain Indebtedness" and "Description of the Notes."
The Bank Credit Facility will mature on November 27, 2000. Beginning in
1998, the Bank Credit Facility commitment will be reduced by $3.75 million per
quarter through maturity. The Existing Senior Notes will mature on May 15,
2001 and the Existing Senior Subordinated Notes will mature on December 15,
2005. The Company believes that it will generate sufficient cash flow from
operations to be able to make the scheduled interest and principal payments
and meet scheduled commitment reductions under the Bank Credit Facility and
the scheduled interest payments under the Existing Notes and the Notes;
however, the Company may not generate sufficient cash flow from operations to
make the principal payment due at maturity on the Notes and, depending upon
the principal amount then outstanding, the Existing Notes. Accordingly, the
Company may have to either refinance its obligations with respect to the
Existing Notes and the Notes prior to maturity, sell assets or raise equity
capital to repay the principal amount of the Existing Notes and the Notes. The
Company's ability to make scheduled principal payments, to refinance its
obligations with respect to its indebtedness, to sell assets or to raise
equity capital depends on its financial and operating performance, which, in
turn, is subject to prevailing economic conditions and to financial, business
and other factors beyond its control. There can be no assurance that the
Company's operating results will continue to be sufficient or that future
borrowing facilities will be available for the payment or refinancing of the
Company's indebtedness.
RESTRICTIONS IMPOSED BY BANK CREDIT FACILITY
The Bank Credit Facility contains a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness and other liabilities, pay dividends,
voluntarily prepay certain indebtedness, enter into sale and leaseback
transactions, create liens, make capital expenditures and make certain
investments or acquisitions, incur contingent obligations and otherwise
restrict corporate activities. In addition, under the Bank Credit Facility,
the Company is required to satisfy specified financial covenants, including
total debt to cash flow, interest coverage, and consolidated net worth tests.
The ability of the Company to comply with such provisions may be affected by
events beyond the Company's control. The breach of any of the covenants could
result in a default under the Bank Credit Facility. In the event of any such
default, depending upon the actions taken by the lenders under the Bank Credit
Facility (the "Banks"), the Company could be prohibited from making any
payments of principal of, premium, if any, or interest on the Notes. In
addition, the Banks could elect to declare all amounts borrowed under the Bank
Credit Facility, together with accrued interest, to be due and payable. These
restrictions, in combination with the Company's leverage, could limit the
Company's ability to respond to changing market and economic conditions and to
provide for capital expenditures. If the Company is unable to generate
sufficient cash flow from operations, it may be required to refinance its
outstanding debt or to obtain additional financing. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained on terms that would be favorable or acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Description of
Certain Indebtedness" and "Description of the Notes."
11
<PAGE>
SUBORDINATION
The payment of principal of, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes will be subordinated to the prior
payment in full of existing and future Senior Indebtedness of the Company,
which includes all indebtedness under the Bank Credit Facility and the
Existing Senior Notes. Furthermore, the terms of the Bank Credit Facility, the
Existing Notes Indentures and the Indenture will permit the Company to incur
additional indebtedness, including Senior Indebtedness. Therefore, in the
event of the liquidation, dissolution, reorganization, or any similar
proceeding regarding the Company, the assets of the Company will be available
to pay obligations on the Notes only after Senior Indebtedness has been paid
in full and there may not be sufficient assets to pay amounts due on all or
any of the Notes. In addition, the Company may not pay principal of, premium,
if any, interest on or any other amounts owing in respect of the Notes, make
any deposit pursuant to defeasance provisions or purchase, redeem or otherwise
retire the Notes, (i) if any Designated Senior Indebtedness (as defined) is
not paid when due, or (ii) any other default on Designated Senior Indebtedness
occurs and the maturity of such indebtedness is accelerated in accordance with
its terms unless, in either case, such default has been cured or waived, and
with respect to clause (ii) above, such acceleration has been rescinded or
such indebtedness has been repaid in full. In addition, under certain
circumstances, if any non-payment default exists with respect to Designated
Senior Indebtedness, the Company may not make any payment on the Notes for a
specified period of time, unless such default is cured or waived, any
acceleration of such indebtedness has been rescinded or such indebtedness has
been repaid in full. See "Description of Certain Indebtedness--Bank Credit
Facility" and "Description of the Notes--Ranking."
The Notes will also be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries. On the date of the Indenture, the
Notes will not be guaranteed by any of the Company's subsidiaries, and will
receive the benefit of subordinated guarantees from any such subsidiaries in
the future only in certain limited circumstances. See "Description of the
Notes--Certain Covenants--Limitations on Issuance of Guarantees of
Subordinated and Pari Passu Indebtedness." In addition, the Company's
obligations under the Bank Credit Facility are guaranteed on a senior basis by
all the Company's domestic subsidiaries. Furthermore, under certain
circumstances, the Company is required to pledge up to 65% of the stock of
certain foreign subsidiaries acquired by the Company to the lenders under the
Bank Credit Facility.
The Notes are obligations of the Company. As of March 31, 1996, on a pro
forma basis after giving effect to the Offering, the Company Stock Repurchase
and the 1996 Acquisitions, $369.1 million of the tangible assets of the
Company were held by its subsidiaries, and for the year ended June 30, 1995
and the nine months ended March 31, 1996 on a pro forma basis after giving
effect to the Offering, the Company Stock Repurchase, the 1996 Acquisitions
and the 1995 Business Combination Transactions, $70.5 million and $75.5
million, respectively, of the Company's operating income was derived from
operations of the Company's subsidiaries. Therefore, the Company's ability to
make interest and principal payments when due to holders of the Notes and to
the holders of the Company's other indebtedness will be dependent, to some
extent, upon the receipt of dividends or other distributions from its
subsidiaries. The Company's subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to make payments on
the Notes or to make any funds available therefor, whether by dividends, loans
or other payments.
COST OF RAW MATERIALS
Amounts paid by the Company for timber and cotton linters represent the
largest component of the Company's variable costs of pulp production. The cost
of these materials is subject to market fluctuations caused by factors beyond
the Company's control. Significant increases in the cost of timber or cotton
linters, to the extent not reflected in prices for the Company's products,
could materially and adversely affect the Company's business, results of
operations and financial condition. See "Business--Raw Materials."
COMPETITION
The markets for the Company's products are competitive, and the Company
faces competition from a number of sources in most of its product lines. Some
of the Company's competitors have financial and other resources greater than
those of the Company and are also well established as suppliers to the markets
that the
12
<PAGE>
Company serves. Quality, performance, service and price are generally the
prime competitive factors. There can be no assurance that the Company's
markets will not attract additional competitors. See "Business--Competition."
ENVIRONMENTAL REGULATIONS AND LIABILITIES
The Company's facilities and operations are subject to extensive general and
industry-specific federal, state, local and foreign environmental laws and
regulations. The Company devotes significant resources to maintaining
compliance with such requirements and believes that its facilities and
operations are in substantial compliance with all such requirements. The
Company expects that, due to the nature of its operations, it will be subject
to increasingly stringent environmental requirements (including anticipated
standards applicable to waste water discharges and air emissions) and will
continue to incur substantial costs to comply with such requirements. Based
upon its understanding of current and anticipated requirements, the Company
believes that continued compliance with environmental requirements will not
have a material adverse effect on its business, results of operations or
financial condition and will not adversely affect the Company's competitive
position. However, given the uncertainties associated with predicting the
scope of future requirements, there can be no assurance that the Company will
not in the future incur material environmental compliance costs or
liabilities.
The Foley Plant discharges treated waste water into the Fenholloway River.
The Fenholloway River is currently classified under Florida statutes as a
Class 5 (industrial) stream. Under the federal Clean Water Act, the State of
Florida is required to perform an analysis every three years of the
feasibility of reclassifying the river to Class 3 ("fishable/swimmable")
status. Such an analysis recommending reclassification was completed in early
1994 and approved by the Florida Department of Environmental Protection
("DEP") at an administrative hearing in December 1994. At this administrative
hearing, the Company and the State of Florida reached agreement on a plan to
attain Class 3 objectives, which relies primarily on the laying of extensive
pipeline by the Company to relocate the Foley Plant's waste water discharge
point. The plan also includes process changes in the Foley Plant designed to
reduce the coloration of its waste water discharge, provide oxygen enrichment
of the effluent prior to discharge and restore certain wetlands areas. The
reclassification will not become effective until December 1997 (with a final
compliance deadline of December 1999) to allow the Company to obtain all the
necessary permits for implementation of the approved plan and complete
construction of the pipeline and the treatment upgrades. The Company estimates
that implementation of the approved plan will result in approximately $39.0
million of capital expenditures, the majority of which will likely be expended
during fiscal 1998 and fiscal 1999.
In 1993, the U.S. Environmental Protection Agency ("EPA") issued a set of
proposed regulations for the pulp and paper industry addressing the emissions
of "hazardous air pollutants" under the Clean Air Act and waste water
discharges under the Clean Water Act, commonly known as the "cluster rules."
The Company is examining and evaluating the potential impact of the cluster
rules, as proposed, on its operations and capital expenditures over the next
several years. The Company believes that the proposed cluster rules will
likely be amended significantly prior to their promulgation, which is
anticipated to occur in 1997, with compliance to be phased in between 1999 and
2002. Although the Company anticipates that significant capital expenditures
for environmental control equipment and related costs will be required to
comply with the cluster rules when promulgated (which the Company currently
projects will be approximately $14.0 million through fiscal 2000), such
expenditures are not likely to have a material adverse effect on the Company's
business or financial condition.
The Foley Plant is on the EPA CERCLIS (as defined) list of potential
hazardous substance release sites prepared pursuant to CERCLA (as defined).
The EPA conducted a site investigation in early 1995. Although the Company
considers it unlikely that the Foley Plant will be listed on the CERCLA
National Priorities List and hence require remedial action, the possibility of
such listing cannot be ruled out. If the site were to be placed on the
National Priorities List, the costs associated with conducting a CERCLA
remedial action could be material.
As of March 31, 1996, the Company had established reserves of $4.2 million
to address certain environmental matters. Because an environmental reserve is
not established until a liability is determined to be
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<PAGE>
probable and reasonably estimable, not all potential future environmental
liabilities are covered by the Company's reserves. Accordingly, there can be
no assurance that the Company's environmental reserves will be sufficient to
meet the Company's obligations, and additional charges to earnings are
possible. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental Matters" and "Business--Environmental
Matters."
FRAUDULENT CONVEYANCE; RISK OF SUBORDINATION OR INVALIDATION OF THE NOTES
The Company has incurred substantial indebtedness and is incurring
additional indebtedness pursuant to the Offering. The Offering and certain
related transactions may be subject to review under relevant federal and state
fraudulent conveyance laws if a bankruptcy, reorganization or rehabilitation
case or a lawsuit (including in circumstances where bankruptcy is not
involved) were ever commenced by or on behalf of unpaid creditors of the
Company at some future date. Under applicable provisions of the federal
bankruptcy code or comparable provisions of state fraudulent transfer or
conveyance laws, if, in a bankruptcy, reorganization, or rehabilitation case,
or similar proceeding or a lawsuit by or on behalf of unpaid creditors of the
Company, a court were to find under relevant federal and state fraudulent
conveyance statutes that the Company, at the time it issued the Notes (a)
incurred such indebtedness with intent to hinder, delay or defraud current or
future creditors, or (b)(i) received less than reasonably equivalent value or
fair consideration for incurring such indebtedness in connection with the
Offering and (ii)(A) was insolvent at the time of the incurrence, (B) was
rendered insolvent by reason of the Offering, (C) was engaged or was about to
engage in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital to carry on its business, (D)
intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they mature (as all such foregoing terms are defined in
or interpreted under the fraudulent conveyance statutes) or (E) was a
defendant in an action for money damages or had a judgment for money damages
docketed against it (if, in either case, after final judgment, the judgment is
unsatisfied), then, in each such case, a court of competent jurisdiction could
avoid, in whole or in part, the Notes or, in the alternative, subordinate the
Notes to existing and future indebtedness of the Company and take other action
detrimental to the holders of the Notes, including, under certain
circumstances, invalidating the Notes and/or ordering the return of payments
previously made thereunder.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law applied in such proceeding. Generally, however, the Company would
be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets on a going concern basis was less
than the amount that would be required to pay the probable liability on its
total existing debts, including contingent liabilities, as they become
absolute and matured.
ABSENCE OF PUBLIC MARKET FOR THE NOTES; LACK OF LIQUIDITY
There is no public market for the Notes and the Company does not intend to
apply for listing of the Notes on any national securities exchange. The
Company has been advised by the Underwriters that they presently intend to
make a market in the Notes after the consummation of the Offering, although
they are not obligated to do so and may discontinue any market-making
activities with respect to the Notes at any time without notice. Accordingly,
no assurance can be given as to the liquidity of the trading market for the
Notes or that an active public market for the Notes will develop. If an active
public market for the Notes does not develop, the market price and liquidity
of the Notes may be adversely affected.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Prospectus contains various forward-looking statements and information
which is based on management's beliefs as well as assumptions made by and
information currently available to management. Statements in this Prospectus
which are not historical statements are forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties,
including those identified above. Should one or more of these risks
materialize, or should underlying assumptions prove incorrect, actual results
may differ materially from those anticipated, estimated or projected.
14
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COMPANY HISTORY
The Company has participated in the specialty cellulose pulp market for
nearly 75 years and has developed uses for both wood-based and cotton linter-
based pulps for many specialty pulp applications. In March 1993, an investor
group consisting of MDCP and members of the Company's current management
organized the Company to acquire from the C&S Division of Procter & Gamble
Cellulose substantially all of the assets of the Memphis Plant, as well as
certain other assets of the C&S Division. At the same time, MDCP and members
of current management also organized Buckeye Florida Corporation to serve as
the sole general partner of Buckeye Florida Partners, which simultaneously
acquired from Procter & Gamble Cellulose substantially all of the assets of
the Foley Plant. Procter & Gamble Cellulose retained a 50% interest in this
facility as the sole limited partner of Buckeye Florida Partners and granted
Buckeye Florida Corporation an option to purchase all of Procter & Gamble
Cellulose's limited partnership interest in Buckeye Florida Partners.
In November 1995, the ownership of the Memphis Plant, the Foley Plant and
related assets was combined into a single corporate ownership structure,
Buckeye Florida Corporation became a wholly owned subsidiary of the Company,
and the Company acquired Procter & Gamble Cellulose's remaining equity
interest in Buckeye Florida Partners for approximately $62.1 million pursuant
to the P&G Call Option. Concurrently, the Company and MDCP made an initial
public offering of the Common Stock, and the Company refinanced substantially
all of its outstanding indebtedness (including all indebtedness to Procter &
Gamble Cellulose) through a public offering of $150.0 million aggregate
principal amount of Existing Senior Subordinated Notes and the establishment
of the Bank Credit Facility. The Company also completed an offer to
repurchase, and a related amendment to the terms of, a majority of its
outstanding Existing Senior Notes. As a result of the 1995 Business
Combination Transactions, Procter & Gamble Cellulose ceased to have any
interest as an equity owner or lender to Buckeye Florida Partners, a single
capital structure for the Company's businesses was established, MDCP's equity
ownership of the Company was reduced to approximately 34% and the Common Stock
was listed for trading on the New York Stock Exchange.
The Company is incorporated in Delaware and its executive offices are
located at 1001 Tillman Street, Memphis, Tennessee 38108. Its telephone number
is (901) 320-8100.
THE 1996 ACQUISITIONS
TEMMING ACQUISITION
On May 1, 1996, pursuant to the terms of the Umbrella Agreement dated
January 18, 1996 by and among Peter Temming AG, Steinbeis Temming Papier GmbH
and Steinbeis Temming Papier GmbH & Co., the Company completed the acquisition
of the Temming Business. The Temming Acquisition increased the Company's
annual specialty pulp capacity by approximately 50,000 metric tons, expanded
the Company's product lines and strengthened its ability to serve specialty
cellulose pulp customers in Europe. See "Unaudited Pro Forma Consolidated
Financial Data."
ALPHA ACQUISITION
On April 26, 1996, the Company entered into the Alpha Agreement. Alpha is a
leading worldwide specialty pulp producer serving the market for high-quality
custom paper applications. Subject to the satisfaction of certain conditions
and the expiration or other termination of the applicable waiting period
(including any extensions thereof) under the HSR Act, the transaction is
scheduled to be consummated in early fiscal 1997. The Alpha Agreement provides
each of the parties thereto with an option to terminate the agreement if the
closing of the Alpha Acquisition has not occurred on or before July 25, 1996.
The purchase price to be paid by the Company will be based on the amounts of
certain of Alpha's assets and liabilities as of the closing of the acquisition
and is currently estimated to be approximately $65.0 million, assuming a
closing during July 1996. The Company
15
<PAGE>
intends to finance a substantial portion of the Alpha Acquisition with a
portion of the proceeds of the Offering or, if such proceeds are applied to
reduce borrowings under the Bank Credit Facility pending completion of the
Alpha Acquisition, with borrowings under the Bank Credit Facility. The Alpha
Acquisition, if consummated, will increase the Company's annual specialty pulp
capacity by approximately 50,000 metric tons through the addition of Alpha's
Lumberton, North Carolina facility. Alpha manufactures and markets customized
paper pulps, which provide attributes such as color permanence and tear
resistance in premium letterhead, currency paper, stock certificates and many
other highly specialized paper applications in the U.S. and abroad. There is no
assurance that the Alpha Acquisition will be consummated or will be consummated
on the currently contemplated terms.
THE COMPANY STOCK REPURCHASE AND THE RELATED TRANSACTIONS
THE COMPANY STOCK REPURCHASE AND THE INDIVIDUALS' STOCK PURCHASE
In early 1996, the Company's management and MDCP began discussions regarding
the possible disposition by MDCP of its remaining equity ownership interest in
the Company. On June 3, 1996, BKI Investment, a newly formed, wholly owned
subsidiary of the Company agreed to purchase 2,259,887 shares of Common Stock
from MDCP for $22.125 per share, subject, among other things, to the approval
by each of the Company's and BKI Investment's board of directors of the
repurchase and the completion on or before August 15, 1996 of the Company Stock
Repurchase and related transactions, and the availability to the Company of
debt financing in an amount sufficient to consummate the Company Stock
Repurchase, on terms satisfactory to the Company, which debt financing is
currently anticipated to be provided by this Offering. The aggregate amount of
the purchase price to be paid in the Company Stock Repurchase is approximately
equal to the maximum amount permitted under the terms of the Existing Notes
Indentures. Additionally, on June 3, 1996, MDCP agreed to sell, and certain
individuals employed by the Company agreed to purchase in an exempt transaction
under the Securities Act, an aggregate of 1,385,269 shares of Common Stock for
$22.125 per share concurrently with the Company Stock Repurchase pursuant to
separate stock purchase agreements with such persons. The purchase price for
the Company Stock Repurchase and the Individuals' Stock Purchase reflects the
prevailing market price when the parties decided to pursue definitive
agreements and seek board approval. On June 3, 1996, the board of directors of
each of the Company and BKI Investment approved the Company Stock Repurchase.
Each of the Stock Transactions is subject, among other things, to the
concurrent completion on or before August 15, 1996 of the other Stock
Transactions and the availability to the Company of debt financing in an amount
sufficient to consummate the Company Stock Repurchase, which debt financing is
anticipated to be provided by this Offering. This Offering is subject to the
concurrent completion of the Stock Transactions. Upon completion of the Stock
Transactions, the Company will have approximately 19,147,336 shares of Common
Stock outstanding, and MDCP's equity ownership interest in the Company will be
reduced to less than 5% of the outstanding Common Stock. The Company believes
that the Company Stock Repurchase is an attractive investment opportunity for
the Company and that the consummation of the Stock Transactions will increase
the depth of the trading market for the Common Stock and will increase earnings
per share. In connection with its consideration of the Company Stock
Repurchase, the Company's board of directors received an opinion from Salomon
Brothers Inc regarding the fairness from a financial point of view of the price
to be paid in the Company Stock Repurchase.
THE EQUITY OFFERING
Concurrently with the closing of the sale of the Notes, the Selling
Stockholder will sell 2,845,157 shares of Common Stock in the Equity Offering.
This Offering is contingent upon the consummation of the Stock Transactions.
The Equity Offering is contingent upon the consummation of the other Stock
Transactions and the availability of debt financing in an amount sufficient to
consummate the Company Stock Repurchase, which is expected to be provided by
the proceeds of this Offering.
16
<PAGE>
EFFECTS OF THE STOCK TRANSACTIONS
Upon completion of the Stock Transactions, MDCP's equity ownership interest
in the Company will be reduced to less than 5% of the outstanding Common Stock
and the officers of the Company will have increased their respective equity
ownership in the Company. See "Principal Stockholders." Concurrently with the
Stock Transactions and the Offering, the Bank Credit Facility will be amended
to permit the transactions contemplated by the Company Stock Repurchase and
the Offering. As a result of the Company Stock Repurchase and the Offering,
the percentage of the Company's total capitalization represented by
indebtedness will increase. See "Capitalization," "Unaudited Pro Forma
Consolidated Financial Data" and "Risk Factors--Significant Leverage."
SOURCES AND USES OF FUNDS
The net proceeds to the Company from this Offering are estimated to be
$ , after payment of estimated fees and expenses (including underwriting
discount). An aggregate of $50.0 million of such proceeds will be contributed
by the Company to BKI Investment to fund the Company Stock Repurchase, and the
remainder will be used to finance a substantial portion of the Alpha
Acquisition or, pending completion of the Alpha Acquisition, to reduce
outstanding borrowings under the Bank Credit Facility. The Company will not
receive any proceeds from the sale of Common Stock by the Selling Stockholder
in the Equity Offering. See "Use of Proceeds" and "The 1996 Acquisitions--
Alpha Acquisition."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes (after deducting
the underwriters' discount and fees and expenses) are estimated to be
approximately $ million. The Company intends to use such net proceeds to
make contributions in the aggregate amount of $50.0 million to BKI Investment,
its wholly owned subsidiary, which will use such contributions to consummate
the Company Stock Repurchase, and to finance a substantial portion of the
Alpha Acquisition or, pending completion of the Alpha Acquisition, to reduce
outstanding borrowings under the Bank Credit Facility by approximately
$ .
The Bank Credit Facility matures on November 27, 2000. Borrowings under the
Bank Credit Facility bear interest at rates based on (i) LIBOR plus a margin
ranging from 0.5% per annum to 1.0% per annum, depending on the Company's debt
coverage ratio (in the case of revolving loan borrowings), (ii) the greater of
the prime rate announced by Fleet Bank of Massachusetts, N.A. or the federal
funds rate plus 0.5% per annum (the "Base Rate") (in the case of money market
line borrowings) and (iii) the Base Rate less 0.5% per annum (in the case of
swingline loans).
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, on a pro forma basis to reflect the Temming Acquisition, and as
adjusted to reflect the Alpha Acquisition, this Offering and the Company Stock
Repurchase. This table should be read in conjunction with the unaudited pro
forma financial data and the combined consolidated financial statements of the
Company and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
PRO FORMA
FOR TEMMING PRO FORMA
ACQUISITION AS ADJUSTED
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
Existing Senior Notes................................ $ 6,913 $ 6,913
Existing Senior Subordinated Notes................... 149,451 149,451
Bank Credit Facility(a).............................. 69,512 95,484
Notes offered hereby................................. -- 100,000
-------- --------
Total long-term debt............................... 225,876 351,848
-------- --------
EQUITY:
Preferred stock, par value $.01 per share, 5,000,000
shares authorized, no shares issued and outstanding. -- --
Common stock, par value $.01 per share; 60,000,000
shares authorized, 21,407,223 shares issued and
outstanding, actual; and 19,147,336 shares issued
and outstanding, as adjusted(b)..................... 214 214
Additional paid-in capital........................... 58,807 58,807
Retained earnings(c)................................. 68,587 67,907
Treasury stock....................................... -- (50,000)
-------- --------
Total equity....................................... 127,608 76,928
-------- --------
Total capitalization............................. $353,484 $428,776
======== ========
</TABLE>
- --------
(a) As adjusted data include (1) a reduction in the outstanding borrowings
under the Bank Credit Facility of $45,750,000 as a result of the
application of a portion of the proceeds of the Offering pending
completion of the Alpha Acquisition and (2) an increase in borrowings
outstanding under the Bank Credit Facility of $71,722,000 assuming the
Alpha Acquisition occurred as of March 31, 1996 (based on the amount of
assets and liabilities on such date). The purchase price to be paid by the
Company will be based on the amounts of certain of Alpha's assets and
liabilities as of the closing of the Alpha Acquisition and is currently
estimated to be approximately $65,000,000, assuming a closing during July
1996.
(b) Does not include an aggregate of up to 2,450,000 shares of Common Stock
reserved for issuance upon exercise of outstanding stock options or
available for grant under the Company's stock option plans.
(c) The reduction in retained earnings reflects an estimated $680,000 in
secondary offering costs to be incurred by the Company in connection with
the Equity Offering.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial statements give
effect to the Company Stock Repurchase, the Offering, the 1995 Business
Combination Transactions, the Temming Acquisition and the Alpha Acquisition.
There is no assurance that the Alpha Acquisition will be consummated or will
be consummated on the currently contemplated terms.
The pro forma consolidated balance sheet as of March 31, 1996 has been
prepared to give effect to the Company Stock Repurchase, the Offering, the
Temming Acquisition and the Alpha Acquisition as if they had occurred on that
date. The effect of the 1995 Business Combination Transactions is included in
the consolidated balance sheet of the Company at March 31, 1996. The pro forma
consolidated statements of income for the year ended June 30, 1995 and the
nine months ended March 31, 1996 have been prepared to give effect to the 1995
Business Combination Transactions, the Company Stock Repurchase, the Offering,
the Temming Acquisition and the Alpha Acquisition as if they had occurred on
July 1, 1994, except that the amortization of goodwill has been based on the
adjustment to goodwill in the pro forma consolidated balance sheet as of March
31, 1996. The extraordinary loss, net of related tax benefit, of $3.9 million
recognized on the retirement of $57.8 million in principal amount of the
Existing Senior Notes in the second and third quarters of fiscal 1996 as well
as $680,000 in estimated secondary offering costs to be incurred by the
Company in connection with the Equity Offering have not been included in the
pro forma consolidated statements of income.
The financial statements of the Temming Business included in these unaudited
pro forma consolidated financial statements of the Company have been derived
from financial statements prepared in accordance with accounting principles
generally accepted in the Federal Republic of Germany and stated in Deutsche
marks. These financial statements have been conformed to comply with
accounting principles generally accepted in the United States and have been
translated to United States dollars. Such translations should not be construed
as a representation that the Deutsche mark amounts represent, or have been, or
could be converted into, United States dollars at that or any other rate.
THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION IS NOT NECESSARILY
INDICATIVE OF THE RESULTS THAT WOULD HAVE BEEN OBTAINED HAD THE COMPANY STOCK
REPURCHASE, THE OFFERING, THE 1995 BUSINESS COMBINATION TRANSACTIONS, THE
TEMMING ACQUISITION AND THE ALPHA ACQUISITION BEEN COMPLETED AS OF THE DATES
PRESENTED OR FOR ANY FUTURE PERIOD. PRO FORMA ADJUSTMENTS ARE BASED UPON
PRELIMINARY ESTIMATES, AVAILABLE INFORMATION AND CERTAIN ASSUMPTIONS THAT
MANAGEMENT DEEMS APPROPRIATE. THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
DATA SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S COMBINED CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------------------------- ------------------------------------------------
BUCKEYE
CELLULOSE ALPHA COMPANY STOCK
CORPORATION TEMMING CELLULOSE TEMMING REPURCHASE ALPHA PRO FORMA
AND AFFILIATES BUSINESS (A) HOLDINGS, INC. ACQUISITION (B) AND OFFERING (C) ACQUISITION (D) CONSOLIDATED
-------------- ------------- -------------- --------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-
term
investments.... $ 2,900 $ 640 $ 111 $ (317) $ -- $ -- $ 3,334
Accounts
receivable--
net............ 48,900 7,891 6,737 (7,891) -- -- 55,637
Inventories..... 90,581 12,889 16,609 (374) -- -- 119,705
Deferred income
taxes.......... 8,466 -- 780 -- -- -- 9,246
Prepaid expenses
and other...... -- 66 443 (66) -- -- 443
-------- ------- ------- -------- ------- ------- --------
Total current
assets.......... 150,847 21,486 24,680 (8,648) -- -- 188,365
Property, plant
and equipment,
net............. 242,589 20,399 27,395 (5,174) -- -- 285,209
Goodwill......... 7,675 -- 3,205 -- -- 21,495 32,375
Deferred debt
costs and other. 7,254 -- 1,009 1,443 3,570 3,394 16,670
-------- ------- ------- -------- ------- ------- --------
Total assets..... $408,365 $41,885 $56,289 $(12,379) $ 3,570 $24,889 $522,619
======== ======= ======= ======== ======= ======= ========
LIABILITIES AND
EQUITY
Current
liabilities:
Accounts
payable........ $ 18,305 $ 2,038 $ 1,160 $ (2,038) $ -- $ -- $ 19,465
Accrued expenses
and other
liabilities.... 31,515 12,665 4,203 (12,205) -- -- 36,278
Current portion
of long-term
debt and notes
payable........ -- 4,513 8,962 (4,513) -- (8,962) --
-------- ------- ------- -------- ------- ------- --------
Total current
liabilities..... 49,820 19,216 14,425 (18,756) -- (8,962) 55,743
Long-term debt:
Existing Notes.. 156,364 -- -- -- -- -- 156,364
Bank Credit
Facility....... 41,000 -- -- 28,512 (45,750) 71,722 95,484
Notes........... -- -- -- -- 100,000 -- 100,000
Other notes..... -- 1,535 27,879 (1,535) -- (27,879) --
-------- ------- ------- -------- ------- ------- --------
Total long-term
debt............ 197,364 1,535 27,879 26,977 54,250 43,843 351,848
Postretirement
benefit
obligation...... 12,802 534 -- -- -- -- 13,336
Deferred income
taxes........... 16,450 -- 3,993 -- -- -- 20,443
Other
liabilities..... 4,321 41 -- (41) -- -- 4,321
Shareholders'
equity.......... 127,608 20,559 9,992 (20,559) (50,680) (9,992) 76,928
-------- ------- ------- -------- ------- ------- --------
Total liabilities
and
shareholders'
equity.......... $408,365 $41,885 $56,289 $(12,379) $ 3,570 $24,889 $522,619
======== ======= ======= ======== ======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
----------------------------------------- ----------------------------------------
1995
BUCKEYE BUSINESS COMPANY
CELLULOSE COMBINATION STOCK
CORPORATION TRANSACTIONS REPURCHASE
AND TEMMING ALPHA CELLULOSE AND TEMMING AND ALPHA PRO FORMA
AFFILIATES BUSINESS(E) HOLDINGS, INC.(F) ACQUISITION OFFERING ACQUISITION CONSOLIDATED
----------- ----------- ----------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $408,587 $55,637 $48,679 $ -- $ -- $ -- $ 512,903
Cost of goods sold....... 305,150 44,414 32,478 (738)(g) -- -- 381,304
-------- ------- ------- ------- ------- ------- -----------
Gross margin............. 103,437 11,223 16,201 738 -- -- 131,599
Selling, research and
administrative expenses. 24,265 11,812 4,784 716 (h) -- 2,000 (h) 43,577
-------- ------- ------- ------- ------- ------- -----------
Operating income (loss).. 79,172 (589) 11,417 22 -- (2,000) 88,022
Other income (expense):
Interest income......... 1,138 4 10 (836)(i) -- -- 316
Interest expense and
amortization of debt
costs.................. (22,290) (106) (3,369) (919)(i) (6,939)(j) (1,206)(k) (34,829)
Other................... (615) -- 126 299 (l) -- (717)(l) (907)
Minority interest....... (23,223) -- -- 23,223 (l) -- -- --
-------- ------- ------- ------- ------- ------- -----------
(44,990) (102) (3,233) 21,767 (6,939) (1,923) (35,420)
-------- ------- ------- ------- ------- ------- -----------
Income (loss) before
income taxes........... 34,182 (691) 8,184 21,789 (6,939) (3,923) 52,602
Income taxes (benefit).. 12,470 -- 3,128 8,003 (m) (2,637)(m) (1,218)(m) 19,746
-------- ------- ------- ------- ------- ------- -----------
Net income (loss)..... $ 21,712 $ (691) $ 5,056 $13,786 $(4,302) $(2,705) $ 32,856
======== ======= ======= ======= ======= ======= ===========
Weighted average shares
outstanding (n)......... 19,147,336
Net income per share (n). $ 1.72
===========
Ratio of earnings to
fixed charges (o)....... 2.49x
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
-------------------------------------------- --------------------------------------
1995
BUSINESS COMPANY
BUCKEYE COMBINATION STOCK
CELLULOSE TRANSACTIONS REPURCHASE
CORPORATION TEMMING ALPHA CELLULOSE AND TEMMING AND ALPHA PRO FORMA
AND AFFILIATES BUSINESS(E) HOLDINGS, INC.(F) ACQUISITION OFFERING ACQUISITION CONSOLIDATED
-------------- ----------- ----------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 338,825 $45,929 $37,480 $ -- $ -- $ -- $ 422,234
Cost of goods sold...... 237,149 40,474 28,765 (945)(g) -- -- 305,443
---------- ------- ------- ------ ------ ------ ----------
Gross margin............ 101,676 5,455 8,715 945 -- -- 116,791
Selling, research and
administrative
expenses............... 18,497 7,030 2,962 539 (h) -- 1,500 (h) 30,528
---------- ------- ------- ------ ------ ------ ----------
Operating income (loss). 83,179 (1,575) 5,753 406 -- (1,500) 86,263
Other income (expense):
Interest income........ 925 -- 5 (418)(i) -- -- 512
Interest expense and
amortization of debt
costs................. (13,709) (167) (2,385) (1,642)(i) (5,246)(j) (870)(k) (24,019)
Secondary offering
costs................. (1,335) -- -- 1,335 (l) -- -- --
Other.................. (372) -- (476) 125 (l) -- (551)(l) (1,274)
Minority interest...... (16,628) -- -- 16,628 (l) -- -- --
---------- ------- ------- ------ ------ ------ ----------
(31,119) (167) (2,856) 16,028 (5,246) (1,421) (24,781)
---------- ------- ------- ------ ------ ------ ----------
Income (loss) before
income taxes and
extraordinary loss.... 52,060 (1,742) 2,897 16,434 (5,246) (2,921) 61,482
Income taxes
(benefit)............. 18,908 -- 994 5,535 (m) (1,993)(m) (901)(m) 22,543
---------- ------- ------- ------ ------ ------ ----------
Income (loss) before
extraordinary loss.. 33,152 (1,742) 1,903 10,899 (3,253) (2,020) 38,939
========== ======= ======= ====== ====== ====== ==========
Weighted average shares
outstanding (n)........ 21,014,032 19,147,336
Income per share before
extraordinary loss (n). $ 1.58 $ 2.03
========== ==========
Ratio of earnings to
fixed
charges (o)............ 5.92x 3.53x
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(a) Reflects the unaudited balances of the Temming Business at December 31,
1995, derived from the financial statements included elsewhere herein and
translated into United States dollars at the December 31, 1995 exchange
rate (DM 1.4312 to $1). The conversion of the balance sheet from German
generally accepted accounting principles to those generally accepted in
the United States resulted in an increase in property, plant and equipment
of $15,456 due to differences in depreciation methods.
(b) Adjustments to reflect the assets and liabilities acquired and assumed in
the Temming Acquisition, borrowings of $28,512 under the Bank Credit
Facility to finance the acquisition, and the estimated allocation of the
purchase price, assuming such acquisition took place at December 31, 1995.
The allocation of the purchase price is based on preliminary estimates of
the respective fair value of assets and liabilities which may differ from
actual fair values.
(c) Adjustments to reflect the issuance of the Notes. Underwriting fees and
other expenses related to the Notes are deferred and amortized over the
term of the Notes. The proceeds of the Notes will be used to finance a
portion of the Alpha Acquisition and the Company Stock Repurchase. If the
Alpha Acquisition is not consummated, the net proceeds of the Notes will
be used to reduce outstanding borrowings under the Bank Credit Facility.
Certain expenses incurred in connection with the offering of Common Stock
by the Selling Stockholder will be paid by the Company and are reflected
as a reduction of equity.
(d) Adjustments to reflect the acquisition of the common stock of Alpha,
refinancing of substantially all of Alpha's existing long-term debt,
borrowings of $71,722 under the Bank Credit Facility, and the estimated
allocation of the purchase price. The allocation of the excess of the
purchase price over the recorded value of net assets is based on
preliminary estimates of the respective fair values of assets and
liabilities which may differ from actual fair values. Goodwill is to be
amortized over 30 years.
(e) Reflects the unaudited statement of operations of the Temming Business for
the twelve months ended June 30, 1995 and the nine months ended December
31, 1995, derived from the historical financial statements and translated
into United States dollars using the average exchange rates for the
periods then ended (DM 1.4802 to $1 for the twelve months ended June 30,
1995 and DM 1.4068 to $1 for the nine months ended December 31, 1995.) The
conversion of the statements of operations from German generally accepted
accounting principles to those generally accepted in the United States
resulted in an increase in depreciation expense of $915 and $830 for the
twelve months ended June 30, 1995 and the nine months ended December 31,
1995, respectively. The operating results of the Temming Business for the
three months ended June 30, 1995 have been included in both the pro forma
statements of income for the twelve months ended June 30, 1995 and the
nine months ended December 31, 1995. Net sales and net loss for the
Temming Business for the three months ended June 30, 1995 were $16,410 and
$573, respectively.
(f) Reflects the historical unaudited statement of operations of Alpha for the
twelve months ended September 30, 1995 and the nine months ended March 31,
1996. The operating results of Alpha for the three months ended September
30, 1995 have been included in both the pro forma statements of income for
the twelve months ended June 30, 1995 and the nine months ended March 31,
1996. Alpha's net sales and net income for the three months ended
September 30, 1995 were $11,903 and $984, respectively.
(g) The purchase price allocation of the 1995 Business Combination
Transactions resulted in an increase in depreciation expense based on the
increase in property, plant and equipment of $10,563 as of the acquisition
date. The estimated purchase price allocation of the Temming Acquisition
results in the reduction of depreciation expense for the decrease in
property, plant and equipment of $5,174 as of the acquisition date.
(h) The estimated purchase price allocation of the Temming Acquisition
includes the additional amortization of a $1,432 non-compete agreement
over a two year period. The estimated purchase price allocation of the
Alpha Acquisition includes the additional amortization of a $4,000 non-
compete agreement over a two year period.
23
<PAGE>
(i) Reflects the 1995 Business Combination Transactions and Temming
Acquisition as if they had occurred on July 1, 1994. A reduction of
interest income reflects the use of approximately $14,000 of cash and
short-term investments to consummate these transactions. Adjustments
reflect the net effects of (1) the decrease in interest expense resulting
from the refinancing of existing indebtedness in the 1995 Business
Combination Transactions, (2) the increase in interest expense related to
borrowings under the Bank Credit Facility to finance the Temming
Acquisition and (3) the net increase in amortization of debt issuance
discount and debt issuance costs relating to the Existing Notes and the
Bank Credit Facility. Borrowings under the Bank Credit Facility are at a
LIBOR based rate, determined as of the date of the respective business
combination. An increase of 1/8% in the LIBOR rate when applied to
outstanding borrowings used for the 1995 Business Combination Transactions
and Temming Acquisition for the year ended June 30, 1995 would decrease
pro forma net income by $94.
(j) Adjustments to reflect the amortization of related debt issuance costs
over the term of the Notes, and the increase in interest expense on
borrowings under the Notes, net of the reduction in interest expense
related to the repayment of borrowings under the Bank Credit Facility.
(k) Adjustments to reflect the increase in interest expense for borrowings to
finance the Alpha Acquisition and to refinance substantially all of
Alpha's existing long-term debt. Borrowings under the Bank Credit Facility
are assumed to bear interest at LIBOR plus 1/2%. An increase of 1/8% in
the LIBOR rate when applied to outstanding borrowings used for the Alpha
Acquisition, including the refinancing of existing long-term indebtedness,
for the year ended June 30, 1995 would decrease pro forma net income by
$56.
(l) Adjustments to reflect the reduction in goodwill amortization, secondary
offering costs and minority interest as a result of the 1995 Business
Combination Transactions, and the increase in amortization of goodwill
resulting from the Alpha Acquisition. The purchase price allocation in the
1995 Business Combination Transactions reduced goodwill by $8,971.
Goodwill is assumed to generate no tax benefit, and is amortized over 30
years. Secondary offering costs represent non-recurring expenses paid by
the Company on behalf of the selling stockholder in the 1995 Business
Combination Transactions.
(m) Adjustment to record the income tax effects at the statutory rate of 38%,
except as to the amortization of goodwill which is assumed to generate no
tax benefit.
(n) For purposes of calculating pro forma net income per share and pro forma
income per share before extraordinary loss, weighted average shares
outstanding are calculated assuming the Company Stock Repurchase and 1995
Business Combination Transactions were consummated on July 1, 1994.
(o) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as income before extraordinary items,
minority interest, accounting changes, and provisions for income taxes and
before fixed charges. Fixed charges consist of pro forma interest expense
on all indebtedness (including amortization of deferred debt issuance
costs) and the interest component of rent expense.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected financial data with respect to (a)
the Predecessor for the fiscal years ended June 30, 1991 and 1992 and for the
period July 1, 1992 through March 15, 1993 and (b) the Company as of June 30,
1993 and for the period March 16, 1993 through June 30, 1993, for the fiscal
years ended June 30, 1994 and 1995 and for the nine months ended March 31,
1995 and 1996. The selected financial data as of and for the fiscal years
ended June 30, 1991 and 1992 are derived from the unaudited Combined Statement
of Net Assets and Combined Statement of Operating Income of the Predecessor.
The selected financial data of the Predecessor for the period July 1, 1992
through March 15, 1993 are derived from the unaudited Combined Statement of
Net Assets and the audited Combined Statement of Operating Income of the
Predecessor appearing elsewhere in this Prospectus. The selected financial
data for the period March 16, 1993 through June 30, 1993 and for the fiscal
years ended June 30, 1994 and 1995, which appear elsewhere in this Prospectus,
are derived from the audited financial statements of the Company. The selected
financial data for the nine months ended March 31, 1995 and 1996 are derived
from the unaudited financial statements of the Company appearing elsewhere in
this Prospectus. In the opinion of management such nine month data include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the information included therein. The results of operations
for the nine months ended March 31, 1996 are not necessarily indicative of the
results for the entire fiscal year or any other interim period. The data set
forth in the following table should be read in conjunction with the Combined
Statement of Operating Income of the Predecessor and notes thereto, and the
combined consolidated financial statements of the Company and notes thereto,
appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR (A) COMPANY (B)
----------------------------- -----------------------------------------------------
JULY 1, MARCH 16,
1992 1993 NINE MONTHS ENDED
YEAR ENDED JUNE 30, THROUGH THROUGH YEAR ENDED JUNE 30, MARCH 31,
------------------- MARCH 15, JUNE 30, -------------------- --------------------
1991 1992 1993 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $ 390,690 $ 357,493 $233,460 $113,074 $ 371,526 $ 408,587 $301,318 $ 338,825
Cost of goods sold (a).. 300,331 293,344 189,808 86,047 291,833 305,150 230,247 237,149
--------- --------- -------- -------- --------- --------- -------- ----------
Gross margin............ 90,359 64,149 43,652 27,027 79,693 103,437 71,071 101,676
Selling, research and
administrative
expenses:
Company............... -- -- -- 5,996 24,004 24,265 16,446 18,497
C&S Division
allocations (a)...... 25,034 21,357 17,522 -- -- -- -- --
Procter & Gamble
corporate
allocations (a)...... 1,614 6,096 4,764 -- -- -- -- --
--------- --------- -------- -------- --------- --------- -------- ----------
Operating income........ 63,711 36,696 21,366 21,031 55,689 79,172 54,625 83,179
Net interest and
amortization of debt
costs (c).............. -- -- -- (10,209) (26,545) (21,152) (16,510) (12,784)
Other expense........... -- -- -- (184) (632) (615) (462) (372)
Minority interest (d)... -- -- -- (3,083) (8,291) (23,223) (14,881) (16,628)
Secondary offering
costs.................. -- -- -- -- -- -- -- (1,335)
--------- --------- -------- -------- --------- --------- -------- ----------
Income before income
taxes and extraordinary
loss................... 63,711 36,696 21,366 7,555 20,221 34,182 22,772 52,060
Income taxes (e)........ -- -- -- 2,851 7,253 12,470 8,308 18,908
--------- --------- -------- -------- --------- --------- -------- ----------
Income before
extraordinary loss..... 63,711 36,696 21,366 4,704 12,968 21,712 14,464 33,152
Extraordinary loss, net
of tax benefit......... -- -- -- -- -- -- -- 3,949
Net income.............. $ 63,711 $ 36,696 $ 21,366 $ 4,704 $ 12,968 $ 21,712 $ 14,464 $ 29,203
========= ========= ======== ======== ========= ========= ======== ==========
Income per share before
extraordinary loss (f). $ 1.58
Extraordinary loss, net
of tax benefit (g)..... (.19)
----------
Net income per share
(f).................... $ 1.39
==========
Weighted average shares
outstanding............ 21,014,032
==========
OTHER DATA:
Depreciation and
amortization........... $ 24,993 $ 25,795 $ 19,262 $ 7,436 $ 27,415 $ 26,080 $ 19,566 $ 19,117
Capital expenditures
(g).................... 45,960 29,832 17,761 4,898 15,725 24,922 20,713 22,334
EBITDA (h).............. 88,704 62,491 40,628 28,185 81,879 104,088 73,313 102,073
Ratio of earnings to
fixed charges (i)...... -- -- -- 1.99x 2.05x 3.54x 3.15x 5.92x
BALANCE SHEET DATA:
Working capital (j)..... $ 132,494 $ 126,043 $144,419 $ 98,182 $ 69,330 $ 77,107 $ 83,410 $ 101,027
Total assets............ 445,633 445,454 446,732 403,542 374,204 379,056 381,139 408,365
Long-term debt less
current portion........ -- -- -- 278,713 203,482 166,202 189,937 197,364
Minority interest (d)... -- -- -- 28,083 33,479 52,104 45,523 --
Equity.................. -- -- -- 43,260 62,828 84,621 77,372 127,608
</TABLE>
(footnotes on following page)
25
<PAGE>
- --------
(a) The Predecessor was historically operated as two of the four pulp mills
that comprised the C&S Division of Procter & Gamble. The Predecessor was
allocated certain expenses for services provided by the C&S Division and
Procter & Gamble, including sales services, product supply services,
general management services, information system services, research
services, treasury services, financial audit and reporting services, tax
administration services and employee benefits and insurance administration
services. Costs and expenses of the C&S Division were allocated using
formulas, primarily based on estimates of efforts expended and sales.
Procter & Gamble corporate expenses were allocated primarily based on
sales.
(b) On March 16, 1993, the Company acquired from Procter & Gamble Cellulose
all of the assets of the Predecessor.
(c) The debt obligations of Procter & Gamble were not specifically
identifiable with individual operating units; accordingly, interest
charges are not reflected in the financial data of the Predecessor.
(d) The minority interest represents Procter & Gamble Cellulose's 50% limited
partnership interest in Buckeye Florida Partners, which ceased on November
28, 1995.
(e) The Predecessor's results of operations were historically included in the
consolidated income tax returns of Procter & Gamble. Procter & Gamble had
no tax sharing agreement for allocating income taxes to operating units.
Accordingly, income tax expense or benefit is not reflected in the
financial data of the Predecessor.
(f) Historical net income per share has not been presented as it is not
considered relevant for periods prior to June 30, 1995, due to the P&G
Acquisitions and the 1995 Business Combination Transactions.
(g) An extraordinary loss of $3,949, net of tax benefit, was recognized on the
early retirement of a portion of the Existing Senior Notes in the second
and third quarters of fiscal 1996.
(h) EBITDA represents earnings before secondary offering costs, interest,
taxes, minority interest, extraordinary loss, depreciation, depletion,
amortization and other non-cash charges and is intended to facilitate a
more complete analysis of the Company's ability to meet its debt service
requirements. This data should not be considered in isolation and is not
intended to be a substitute for income statement data as a measure of the
Company's profitability.
(i) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes and extraordinary loss,
minority interest and fixed charges. Fixed charges consist of interest
expense on all indebtedness (including amortization of deferred debt
issuance costs) and the interest component of rent expense. Historically,
interest expense was not allocated to the Predecessor by Procter & Gamble.
Accordingly, the historical ratios of earnings to fixed charges for the
Predecessor are not meaningful and therefore have not been presented.
(j) During fiscal 1994, inventories were reduced by $17,700 primarily due to
excess finished goods from the Predecessor being sold to improve
operations and generate cash.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for each of the fiscal years ended June
30, 1993, 1994 and 1995 and for the nine months ended March 31, 1996. The
Company completed its second full fiscal year of operations under current
ownership on June 30, 1995. Since the Company was acquired from Procter &
Gamble Cellulose on March 16, 1993, the initial fiscal year after such
acquisition encompassed approximately three and one-half months from March 16,
1993 through June 30, 1993. All comparisons to periods prior to March 16, 1993
will include the results of the Predecessor. In general, fiscal years 1995 and
1994 are not necessarily comparable to fiscal year 1993 because of differences
in results due to operations as a stand-alone company versus operations as
part of the C&S Division prior to March 16, 1993. This section should be read
in conjunction with the combined consolidated financial statements of the
Company and the footnotes thereto included elsewhere in this Prospectus.
The merger of Buckeye Florida Corporation and a subsidiary of the Company in
connection with the 1995 Business Combination Transactions was treated for
accounting purposes as a combination of related companies. The Company
accounted for the merger using the historical costs of its and Buckeye Florida
Corporation's assets in a manner similar to a "pooling of interests." All
historical information of the Company set forth in this Prospectus is
presented on such basis. The purchase of Procter & Gamble Cellulose's 50%
interest in Buckeye Florida Partners was accounted for as a purchase and the
allocation of the purchase price was based on an independent appraisal.
OVERVIEW
The Company manufactures and distributes a broad range of specialty pulps to
a variety of customers who require cellulose fibers with chemical or physical
properties that are specifically tailored to their product applications. The
Company's financial results are generally less variable than the results of a
typical producer of commodity cellulose pulp. There are two primary reasons
for this characteristic: (i) the demanding applications for specialty pulps
make substitution of alternative products difficult and expensive, and (ii)
the Pulp Supply Agreement with Procter & Gamble provides a stable volume
demand and an escalating formula-based price for a substantial portion of the
Company's sales (approximately one-third of the Company's sales in fiscal
1995). Nevertheless, specialty pulp pricing is affected by factors influencing
the broader cellulose pulp industry, including price trends for commodity
pulps. Historically, specialty pulp pricing has been more stable and price
changes have tended to lag (on both the upturn and the downturn) price changes
for commodity pulps.
Pricing for cellulose pulp (particularly for commodity pulps) varies with
general economic conditions in worldwide markets as consumption correlates
with economic activity. This variability can be compounded if substantial
additional production capacity is installed at a time when demand is not
growing rapidly enough to absorb the new production. The early 1990s were such
a period of excess capacity, and pulp industry prices reached a cyclical low
in the fourth calendar quarter of 1993. In early 1994, the market began to
recover from this downturn as global economic expansion increased the demand
for cellulose pulps. This recovery continued until late 1995 before the
combination of increased supply and softening demand once again led to lower
pricing.
The Predecessor's financial results for fiscal years 1991 and 1992 and the
first eight and one-half months of fiscal 1993 reflect the declining market
pulp prices characteristic of the pulp industry during this period. As a
result, operating income declined in each period. Operating income in the
final three months of fiscal 1993 and throughout fiscal 1994 began to increase
as the Company's current owners executed a strategy to reduce costs, liquidate
excess inventory, generate cash and pay down debt. The Company began to supply
its major customer, Procter & Gamble, under the pricing formula in the Pulp
Supply Agreement. Unit sales volume was increased substantially by selling to
new customers and competitively pricing products. Management and employees
focused on improving the operating efficiency and productivity of the
Company's manufacturing facilities. Operating and net income in fiscal 1995
improved significantly as a result of higher unit sales prices beginning in
January 1995. The Company's average net prices for fiscal 1995 were 12% higher
than the prior year's average. For the nine months ending March 31, 1996,
average net prices were 24% higher than average net prices for the same period
of fiscal 1995.
27
<PAGE>
The Pulp Supply Agreement is a long-term, take-or-pay contract that phases
out in calendar years 2001 and 2002 if it is not extended by mutual consent.
Pricing pursuant to the Pulp Supply Agreement through 1998 is based on an
escalating formula. Pricing for 1999 and 2000 will be at the higher of the
contract formula price or market, and pricing for 2001 and 2002 will be at
market. The formula price has three components: (i) a periodic margin
adjustment, (ii) a general escalation component based on changes in the
Consumer Price Index, and (iii) a provision to adjust for all actual changes
in the price of timber, the major raw material component of the pulp purchased
under the contract. The pricing formula therefore provides considerable
protection against escalating costs. For the fiscal years 1993, 1994 and 1995,
the contract price was, on average, above the market price. The current
contract price is above the market price.
The Company's customer base is broadly diversified both geographically and
by end-use markets. Approximately 70% of fiscal 1995 sales were to customers
outside of the United States, principally in Europe and Asia. Currency
fluctuations do not significantly influence the Company's results of
operations because sales are made, and receivables are paid, in U.S. dollars.
The diversity of the Company's geographic and end-use markets helps to
insulate it from periodic economic downturns in particular areas of the world.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, various items as a
percentage of net sales.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ------------------------------------
NINE MONTHS
ENDED
JULY 1, 1992 MARCH 16, YEAR ENDED MARCH
THROUGH THROUGH JUNE 30, 31,(A)
MARCH 15, JUNE 30, ------------ ------------
1993(A) 1993(A) 1994 1995 1995 1996
------------ --------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......... 81.3 76.1 78.5 74.7 76.4 70.0
----- ----- ----- ----- ----- -----
Gross margin................ 18.7 23.9 21.5 25.3 23.6 30.0
Selling, research and
administrative expenses.... (b) 5.3 6.5 5.9 5.5 5.4
----- ----- ----- ----- -----
Operating income............ (b) 18.6 15.0 19.4 18.1 24.6
Net interest and
amortization............... (b) 9.0 7.1 5.2 5.5 3.8
Other expense............... (b) 0.2 0.2 0.1 0.1 0.1
Minority interest........... (b) 2.7 2.2 5.7 4.9 4.9
Secondary offering costs.... (b) -- -- -- -- 0.4
Income taxes................ (b) 2.5 2.0 3.1 2.8 5.6
----- ----- ----- ----- -----
Income before extraordinary
loss....................... (b) 4.2 3.5 5.3 4.8 9.8
Extraordinary loss, net of
tax benefit................ (b) -- -- -- -- 1.2
----- ----- ----- ----- -----
Net income.................. (b) 4.2% 3.5% 5.3% 4.8% 8.6%
===== ===== ===== ===== =====
</TABLE>
- --------
(a) Results for partial year periods are not necessarily indicative of, and
should not be compared to, full year results.
(b) These items are not directly comparable because the Predecessor operated
as two of the four pulp mills that comprised the C&S Division of Procter &
Gamble Cellulose. See "Selected Consolidated Financial Data" and the
footnotes thereto for a more detailed explanation.
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
Net Sales. Net sales for the nine month period ending March 31, 1996 were
$338.8 million compared to $301.3 million for the same period in 1995, an
increase of $37.5 million or 12%, due primarily to higher unit sales prices,
averaging 24% above the prior period, partially offset by a 9% decrease in
unit sales volume. The lower unit sales volume versus the prior year was
primarily due to softer market demand. Although unit sales volume was below
the prior year, it has been stable throughout the current fiscal year.
28
<PAGE>
Gross Margin. Gross margin for the nine month period ending March 31, 1996
was $101.7 million compared to $71.1 million for the same period in 1995, an
increase of $30.6 million or 43%. The increase was entirely due to higher unit
sales prices in all product lines, partially offset by lower sales volume and
higher raw material costs for wood, cotton linters, and process chemicals.
Selling, Research and Administrative Expenses. Selling, research and
administrative expenses for the nine month period ending March 31, 1996 were
$18.5 million compared to $16.4 million for the same period in 1995, an
increase of $2.1 million or 12%, primarily due to increased employment,
computer costs, transition expenses related to the Temming Acquisition and a
non-cash compensation charge of $0.6 million as the result of vesting employee
stock options.
Net Interest and Amortization. Net interest and amortization expenses for
the nine month period ending March 31, 1996 were $12.8 million compared to
$16.5 million for the same period of the prior year, down $3.7 million or 23%,
as a result of (i) prior to the public offering of the Existing Senior
Subordinated Notes and execution of the Bank Credit Facility in November 1995,
lower average debt balances and (ii) following the public offering of the
Existing Senior Subordinated Notes and execution of the Bank Credit Facility,
lower interest rates.
Minority Interest. Minority interest was eliminated as a result of the
purchase of Procter & Gamble Cellulose's 50% limited partnership interest in
Buckeye Florida Partners on November 28, 1995. Minority interest for the nine
month period ending March 31, 1996 was $16.6 million compared to $14.9 million
for the same period of the prior year, an increase of $1.7 million or 12%,
reflecting the higher income of the limited partnership in fiscal 1996 prior
to the purchase of the 50% interest cited above.
Secondary Offering Costs. Secondary offering costs for the nine months
ending March 31, 1996 were $1.3 million and relate to expenses paid on behalf
of the selling stockholders in the November 1995 initial public offering of
Common Stock.
Income Taxes. Income taxes for the nine months ended March 31, 1996 were
$18.9 million compared to $8.3 million for the nine months ended March 31,
1995, an increase of $10.6 million, due to higher earnings. The effective tax
rate for the current period is 36.3%, compared to 36.5% for the prior period.
Extraordinary Loss. The extraordinary loss for the nine months ending March
31, 1996 totaled $3.9 million, net of taxes. These losses resulted from the
retirement of $57.8 million (principal amount) of the Existing Senior Notes
during the nine month period, leaving $6.9 million in principal amount
outstanding as of March 31, 1996.
Net Income. Net income for the nine months ended March 31, 1996 was $29.2
million compared to $14.5 million for the nine months ended March 31, 1995, an
increase of $14.7 million or 101%, primarily as a result of the factors
described above.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994
Net Sales. Net sales for fiscal 1995 were $408.6 million compared to $371.5
million for fiscal 1994, an increase of $37.1 million or 10%. The increase was
due primarily to a 12% average increase in unit selling prices and, to a
lesser extent, by a move to a higher value-added product mix. The sales price
increase reflects strong domestic and international market demand for pulp,
which resulted in sales price increases on the Company's specialty pulps
beginning in January 1995. This increase in unit sales prices was partially
offset by a 2% reduction in unit sales volume. Although the Company operated
at full capacity in both fiscal 1995 and fiscal 1994, inventory reductions in
fiscal 1994 as the Company's new owners reduced surplus inventories built up
by the Predecessor led to a lower sales volume in fiscal 1995.
Gross Margin. Gross margin for fiscal 1995 was $103.4 million compared to
$79.7 million in fiscal 1994, an increase of $23.7 million or 30%. The
increase was entirely attributable to higher unit selling prices in all
product lines, partially offset by higher raw material costs for cotton
linters, timber and process chemicals.
29
<PAGE>
Selling, Research and Administrative Expenses. Selling, research and
administrative expenses for fiscal 1995 were $24.3 million compared to $24.0
million in fiscal 1994, an increase of $0.3 million or 1%.
Net Interest and Amortization. Net interest and amortization of deferred
debt cost for fiscal 1995 was $21.2 million compared to $26.5 million in
fiscal 1994, a decrease of $5.3 million or 20%. The decrease was due to
substantially lower debt levels as cash from operations was used to retire
$51.4 million in long-term debt during fiscal 1995.
Minority Interest. Minority interest for fiscal 1995 was $23.2 million
compared to $8.3 million for fiscal 1994, an increase of $14.9 million. The
increase reflects higher net income of Buckeye Florida Partners, in which
Procter & Gamble Cellulose held a 50% limited partnership interest during the
period.
Income Taxes. Income taxes for fiscal 1995 were $12.5 million compared to
$7.3 million for fiscal 1994, an increase of $5.2 million, due to higher
earnings. The effective tax rate was 36.5% for fiscal 1995 compared to 35.9%
for fiscal 1994.
Net Income. Net income for fiscal 1995 was $21.7 million compared to $13.0
million for fiscal 1994, an increase of $8.7 million or 67%, primarily as a
result of the factors described above.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1994 AND JUNE 30, 1993
Net Sales. Net sales for fiscal 1994 were $371.5 million compared to $346.5
million in fiscal 1993, an increase of $25.0 million or 7%. This increase was
entirely due to a 12% increase in unit sales volume. The volume increase was
the result of prompt action taken by the Company's new owners shortly after
the Acquisitions to reduce excess inventories which had been accumulated by
the Predecessor. This increase in unit sales volume was partially offset by a
4% average decrease in unit sales prices. The unit sales price decreases
reflect a pulp market with an excess of supply over demand, which resulted in
strong price competition.
Gross Margin. Gross margin for fiscal 1994 was $79.7 million compared to
$70.7 million in fiscal 1993, an increase of $9.0 million or 13%. The increase
was primarily the result of higher unit sales volume. Lower raw material
prices and manufacturing costs were largely offset by the decrease in sales
prices.
Selling, Research and Administrative Expenses. Selling, research, and
administrative expenses for fiscal 1994 totalled $24.0 million and are not
directly comparable to the combined expenses of the Company and the
Predecessor for the prior year, as described in the footnotes to "Selected
Consolidated Financial Data."
Net Interest and Amortization. Net interest and amortization of deferred
debt costs for fiscal 1994 were $26.5 million compared to $10.2 million in the
period March 16, 1993 through June 30, 1993. The Predecessor did not assign
interest costs to operating units.
Minority Interest. Minority interest for fiscal 1994 totalled $8.3 million
compared to $3.1 million in the period March 16, 1993 through June 30, 1993.
Income Taxes. Income taxes for fiscal 1994 were $7.3 million compared to
$2.9 million in the period March 16, 1993 through June 30, 1993. The
Predecessor's results of operations do not reflect any income tax expense.
Net Income. Net income for fiscal 1994 was $13.0 million compared to $4.7
million for the period March 16, 1993 through June 30, 1993.
LIQUIDITY AND CAPITAL RESOURCES
Since the P&G Acquisitions, cash required for operating expenses, capital
expenditures and debt service obligations has been provided principally by
cash flows from operating activities, the net proceeds from sales of debt and
equity securities, the proceeds of the loans provided by Proctor & Gamble
Cellulose in connection
30
<PAGE>
with the P&G Acquisitions, and borrowings under bank credit facilities. Total
indebtedness has been reduced significantly, from $361.9 million at March 16,
1993 to $197.4 million at March 31, 1996, a reduction of $164.5 million.
Cash provided by operating activities was $42.2 million for the nine months
ended March 31, 1996. During this period, inventories increased by $28.6
million as a result of higher lint prices and decreased shipments. Cash
provided by operating activities was $77.8 million for fiscal 1995, $86.4
million for fiscal 1994 and $73.3 million for the period March 16, 1993 to
June 30, 1993, for a cumulative total of $279.7 million since the P&G
Acquisitions. These funds from operations, plus proceeds of $13.1 million from
the sale of Common Stock were used for three primary purposes: (i) to reduce
total indebtedness by $164.5 million (ii) for capital expenditures totalling
$67.8 million and (iii) to purchase the minority interest of Procter & Gamble
Cellulose in Buckeye Florida Partners for $62.1 million.
Capital expenditures for maintenance, product improvements and cost saving
projects were $22.3 million for the nine months ended March 31, 1996, $24.9
million and $15.7 million for fiscal 1995 and fiscal 1994, respectively, and
$4.9 million for the period March 16, 1993 to June 30, 1993. The Company used
all of the expenditures to purchase, modernize and upgrade production
equipment and to maintain its facilities. Capital expenditures for fiscal 1996
are expected to be approximately $36.0 million. Additionally, the Company
expects to spend over $175.0 million during fiscal 1997 through fiscal 2000 to
maintain facilities, upgrade products and meet environmental capital spending
needs.
At March 31, 1996, the Company's long-term indebtedness was $197.4 million,
including $149.5 million under the Existing Senior Subordinated Notes, $6.9
million under the Existing Senior Notes and $41.0 million under the Bank
Credit Facility, and shareholders' equity was $127.6 million. At such date,
the Company had $2.9 million in short-term investments and $91.1 million of
unused borrowing capacity.
The net proceeds from the Offering will be used for the Company Stock
Repurchase and to finance a substantial portion of the Alpha Acquisition or,
pending completion of the Alpha Acquisition, to reduce outstanding borrowings
under the Bank Credit Facility. The Company's total debt will be approximately
$ 351.8 million following this Offering and the Alpha Acquisition.
The Company believes that its cash flow from operations, together with
borrowings available under the Bank Credit Facility and the net proceeds from
the Offering, will be sufficient to fund operating expenses, capital
expenditures and debt service requirements for the foreseeable future and to
fund the Company Stock Repurchase and the Alpha Acquisition.
ENVIRONMENTAL MATTERS
The Company has reached an agreement (the "Fenholloway Agreement") with the
Florida Department of Environmental Protection based upon the results of the
recently completed Fenholloway River reclassification analysis. In order to
comply with the Fenholloway Agreement, the Company expects to invest
approximately $39.0 million through fiscal 1999. In addition to capital
spending pursuant to the Fenholloway Agreement, the Company projects that it
will spend approximately $14.0 million in environmental capital expenditure
costs through fiscal 2000, consisting of the estimated costs to comply with
the cluster rule regulations, when promulgated. See "Business--Environmental
Matters."
INFLATION
The Company believes that inflation has not had a material effect on its
results of operations or financial condition during recent periods.
SEASONALITY
The Company's business has generally not been seasonal to any significant
extent.
31
<PAGE>
BUSINESS
GENERAL
The Company is a leading manufacturer and worldwide marketer of high-
quality, value-added specialty cellulose pulps. The Company focuses on a wide
array of technically demanding niche markets in which its proprietary products
and commitment to customer technical service give it a competitive advantage.
Buckeye is the world's only manufacturer of both wood-based and cotton linter-
based specialty cellulose pulps and, as such, produces the broadest range of
specialty pulps in the industry. The Company believes that it has a leading
position in most of the high-end niche markets in which it competes. Buckeye's
focus on niche specialty pulp markets has enabled it to maintain consistently
strong margins, even during downturns in the commodity pulp markets.
The cellulose pulp market generally can be divided into two categories:
commodity pulps and specialty cellulose pulps. The Company participates
exclusively in the estimated $7 billion annual specialty cellulose pulp
market, which accounts for approximately 3% of the total cellulose pulp
market. Specialty cellulose pulps are used to impart unique chemical or
physical characteristics to a broad and diverse range of specialty end
products. Specialty cellulose pulps generally command higher prices and tend
to be less cyclical than commodity pulps. The more demanding performance
requirements for specialty cellulose pulps limit customers' ability to
substitute other products.
The Company has manufactured specialty cellulose pulps for nearly 75 years.
The Company's specialty pulps can be broadly grouped into three categories:
chemical cellulose pulps, absorbent pulps and customized paper pulps. Chemical
cellulose pulps (41% of fiscal 1995 sales) are used to impart purity,
strength, transparency, and viscosity in the manufacture of diversified
products such as food casings, rayon filament, photographic film, transparent
tape, acetate plastics, and thickeners for food, cosmetics, and
pharmaceuticals. Absorbent pulps (39% of fiscal 1995 sales) are used to
increase absorbency and fluid transport in products such as disposable
diapers, feminine hygiene products, and adult incontinence products.
Customized paper pulps (20% of fiscal 1995 sales) are used to provide
porosity, color permanence, and tear resistance in automotive air and oil
filters, premium letterhead, currency paper, stock certificates, and personal
stationery.
The Company's commitment to research and development focuses on introducing
new specialty cellulose pulps, improving the performance of its existing
cellulose pulps, and creating new applications for its products. Buckeye
developed one of the earliest commercial processes to purify cotton linters
for conversion into cellulose acetate for use in photographic film. Buckeye
was also the first to develop a new application that enabled fluff pulp to be
used as the absorbent core of disposable diapers. Today, the Company's
research and development scientists are working on the next generation of
specialty cellulose pulps for both new and current applications such as thin
diapers, high-performance automotive filters and cellulose ethers.
The Company manufactures approximately 600,000 metric tons of specialty pulp
annually at its three plants in the United States and Germany. Since 1983,
Buckeye has invested over $400.0 million in its two U.S. plants and believes
that both are state-of-the-art manufacturing facilities. The Foley Plant has
an annual capacity of approximately 450,000 metric tons. The Memphis Plant has
an annual capacity of approximately 100,000 metric tons. In addition, in May
1996 the Company acquired the Temming Business, which has an annual capacity
of approximately 50,000 metric tons at the Gluckstadt Plant.
The Company's customer base is broadly diversified both geographically and
by end-use markets. The Company's fiscal 1995 sales reflect this geographic
diversity, with 30% of sales in the United States, 30% in Europe, 26% in Asia
and 14% in other regions. Buckeye works closely with customers through all
stages of
32
<PAGE>
product development and manufacture in order to tailor products to meet each
customer's specific requirements. The Company's commitment to product quality,
dedication to customer technical service, and responsiveness to changing
customer needs have enabled the Company to develop and strengthen long-term
alliances with its customers. Over 70% of fiscal 1995 sales were to firms who
have been customers of Buckeye for over 30 years. Procter & Gamble, the
world's largest diaper manufacturer, purchases virtually all of the Company's
current annual production of absorbent pulps pursuant the Pulp Supply
Agreement. Procter & Gamble is the Company's largest customer, accounting for
approximately 39% of the Company's fiscal 1995 net sales. The Company's other
large customers include Akzo Nobel N.V. (rayon filament and cellulose ethers),
A. Ahlstrom Corporation (automotive filter paper), Hercules Incorporated
(cellulose ethers) and Eastman Chemical Company (cellulose acetate).
INDUSTRY OVERVIEW
Cellulose pulp is a raw material derived from trees and other plants that is
used in the manufacture of paper, tissue products, packaging materials, and a
vast number of other end-use products. The Company estimates that worldwide
cellulose pulp production totalled over 200 million metric tons in 1994.
Cellulose pulp can generally be divided into two categories, commodity pulps
and specialty pulps.
Commodity pulps account for approximately 97% of cellulose pulp products and
are used in ordinary printing and writing paper, tissue products, and
packaging material. End users of commodity pulps typically maintain
manufacturing flexibility to utilize a large range of alternative cellulose
pulps, with substitution made primarily on the basis of price.
The Company estimates that the worldwide specialty pulp market generates
annual sales of approximately $7 billion. Specialty cellulose pulps are
distinguished from commodity pulps by the unique chemical or physical
characteristics that they impart to a broad and diverse range of end-use
products. These important raw materials are used in the production of food
casings, rayon filament, acetate fibers, photographic film, acetate plastics,
thickening agents, disposable diapers, feminine hygiene products, adult
incontinence products, automotive filters, premium letterhead, currency paper,
stock certificates and personal stationery. Specialty pulps are generally
priced higher than commodity pulps, and the specialty pulps manufactured from
cotton linters are generally priced at the top of the specialty pulp price
range because they are the purest form of cellulose.
Due to the fact that specialty cellulose pulps are used in technically
demanding niches, a higher level of cellulose quality, uniformity, and
customer technical support is required. It is therefore significantly more
difficult for a customer to shift from one specialty pulp to another. Only a
relatively small number of producers can meet the demands of the specialty
cellulose pulp market, and consequently they are insulated from the degree of
price competition and cyclicality experienced in the commodity pulp markets.
To the Company's knowledge, no expansion of specialty cellulose pulp capacity
has been announced or is under construction in the high-end applications in
which the Company primarily competes. The Company believes that expansion in
the specialty pulp market through the construction of new facilities would
take at least two to three years to be completed.
COMPANY STRATEGY
The Company's strategy is to continue to strengthen its position as a
leading supplier of specialty cellulose pulps. The Company believes that it
can continue to expand its market share, increase its profitability, and
decrease its exposure to cyclical downturns by pursuing the following key
strategic objectives:
Focus on Technically Demanding Niche Markets
The Company concentrates on high-end, technically demanding specialty pulp
niches in which only a limited number of cellulose pulp producers have the
ability to compete effectively. Buckeye's specialty cellulose pulps generally
command higher prices and tend to be less cyclical than commodity pulps.
Competition in these niches is based on product performance, technical
service, and, to a lesser extent, price. The Company continues
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<PAGE>
to increase the portion of its business in the most technically demanding (and
therefore least cyclical) applications, such as filters, ethers and acetate
fibers. Consequently, Buckeye is reducing its participation in the least
technically demanding specialty pulp applications.
Develop Proprietary Product Innovations
The Company focuses on the development of innovative and proprietary
products that are tailored to the specific chemical and physical requirements
of its customers. Buckeye's research and development activities concentrate on
developing new specialty cellulose pulps, enhancing existing pulps, and
creating new applications for its pulps. Company scientists are working on the
next generation of specialty cellulose pulps for both new and current
applications such as thin diapers, high-performance automotive filters, and
cellulose ethers.
The Company has an extensive record of new product development. The Company
developed one of the earliest commercial processes to purify cotton linters
for conversion into cellulose acetate used in making photographic film.
Buckeye was also among the first to employ cold caustic extraction technology
to produce high-purity wood pulps for use in rayon tire cord and food casings.
In addition, the Company was the first to commercialize mercerized southern
softwood pulp as the porosity-building fiber in automotive air and oil filter
applications. It was also the first to develop a new application to enable
fluff pulp to be used as the absorbent core of disposable diapers. Buckeye's
most recent product developments include a higher-purity pulp for food casings
and a high-viscosity ether pulp yielding superior thickening performance.
Strengthen Long-Term Alliances With Customers
The Company builds long-term alliances with customers who are market leaders
in their industries and in the geographic markets that they serve. Buckeye
works closely with customers through all stages of product development and
manufacture in order to tailor products to meet each customer's unique needs,
making substitution of competing products more difficult. The Company's
commitment to product quality, dedication to customer technical service, and
responsiveness to changing customer needs have enabled the Company to develop
and strengthen long-term alliances with its customers. Over 70% of Buckeye's
fiscal 1995 sales were to purchasers who have been customers of Buckeye for
over 30 years.
Expand Capacity To Support Growing Demand
Buckeye plans to expand its capacity and global presence in specialty
cellulose pulp markets through joint ventures with customers who are leaders
in their respective markets and through selective acquisitions. The Company
will also seek to increase capacity at its existing facilities. To further
this goal, the Company acquired the Temming Business in May 1996.
In April 1996, the Company entered into the Alpha Agreement. The addition of
Alpha's Lumberton, North Carolina facility would increase the Company's annual
capacity by approximately 50,000 metric tons. The Alpha Acquisition, if
consummated, will expand the Company's range of products in the customized
paper pulp market, and will provide synergies in operating costs, product
development and customer service. Subject to the satisfaction of certain
conditions and the expiration or other termination of the applicable waiting
period (including any extensions thereof) under the HSR Act, the consummation
of the Alpha Acquisition is expected to occur in early fiscal 1997. The Alpha
Agreement provides each of the parties thereto with an option to terminate the
agreement if the closing of the Alpha Acquisition has not occurred on or
before July 25, 1996. The Company is also considering other acquisition and
joint venture opportunities to expand capacity, although it has not yet
entered into any agreements to do so.
34
<PAGE>
PRODUCTS
The Company believes that it is the only specialty cellulose pulp producer
offering both wood-based and cotton linter-based products and, accordingly,
produces a broader range of specialty pulps than any of its competitors.
Buckeye believes that it has a leading position in most of the high-end niche
markets in which it competes. The Company's specialty pulps can be broadly
grouped into chemical cellulose pulps, absorbent pulps and customized paper
pulps. The following table summarizes the unique product attributes and end-
use applications of Buckeye's specialty cellulose pulps:
<TABLE>
<CAPTION>
PERCENTAGE
OF FISCAL
PRODUCT 1995 GROSS
GROUPS SALES UNIQUE PRODUCT ATTRIBUTES END-USE APPLICATIONS
------- ---------- ------------------------- --------------------
<S> <C> <C> <C>
CHEMICAL
CELLULOSE
PULPS 41%
Food Purity and strength Hot dog and sausage casings
Casings
Rayon Strength and heat stability Coat linings, fashion wear,
Filament and tire, belt, and hose
reinforcement
Ethers High viscosity, purity, and Thickeners for food, cosmetics,
solution clarity pharmaceuticals, and
construction materials
Acetate Permanent transparency High quality plastics,
Fibers, and uniformity transparent tape, photographic
Films, film and fiber
and
Plastics
ABSORBENT 39% Absorbency and fluid transport Disposable diapers, feminine
PULPS hygiene products, and adult
incontinence products
CUSTOMIZED
PAPER
PULPS 20%
Filters High porosity and product life Automotive, laboratory, and
industrial filters
Premium Aesthetics, color permanence, Letterhead, currency, stock
Papers and tear resistance certificates, and personal
stationery
</TABLE>
Chemical Cellulose Pulps
Chemical cellulose pulps, frequently referred to as dissolving pulps, are
dissolved in chemical solutions which modify the molecular properties of the
cellulose before it is regenerated to form an end-use product. Chemical
cellulose pulp, a highly purified material, is the basic ingredient in the
production of food casings, rayon filament, photographic film, transparent
tape, acetate plastics, and thickeners for food, cosmetics, and
pharmaceuticals. Chemical cellulose pulps are selected for these applications
for their chemical and molecular, rather than physical, properties.
The Company is one of the world's largest manufacturers of chemical
cellulose pulp. Buckeye believes that it is well positioned to participate in
the continued steady growth of the chemical cellulose markets in which it
competes.
35
<PAGE>
Absorbent Pulps
Absorbent pulp, frequently referred to as fluff pulp, is used in
applications such as disposable diapers, feminine hygiene products, and adult
incontinence products. Absorbent pulps are selected for these applications for
their special physical properties. The Company believes that the long, thick-
walled slash pine fiber used in the production of the Company's fluff pulp
contributes to its excellent quality in terms of absorbency, fluid transport,
and structural integrity. The performance of Buckeye's fluff pulp allows
reduced quantities to be used in the manufacture of diapers relative to
competitive pulps.
The Company is one of the world's major producers of absorbent pulps. While
the volume of fluff pulp used in disposable diapers is negatively impacted by
a move to thinner diapers, this has been more than offset by the increased use
of disposable diapers in less developed countries, such as China and India, as
well as growth in the use of training pants and adult incontinence products.
The Company's understanding of the technology of absorbent products positions
it to participate in this growth.
Customized Paper Pulps
Customized paper pulps are selected for their special physical properties in
filter and premium paper applications. Automotive air filters require high
porosity so that large volumes of air can flow freely through the filter while
extraneous particles are removed. Cotton linter pulps are used in currency
paper, stock certificates, and wedding invitations, because the papers need to
be long-lived, retain their original color, and resist tearing in use.
Additionally, the Company's customized paper pulps are used in other high-
performance applications, including laboratory and industrial filters, battery
separators, printed circuits, decorative laminates, maps and personal
stationery.
Buckeye is the world's only manufacturer of both wood-based and cotton
linter-based customized paper pulps. The special nature of the Company's
customized paper pulps allows the Company to participate effectively in the
relatively stable markets for these highly technical applications. Customized
paper pulps for automotive air and oil filters demonstrate steady growth
because a large majority of such filters are sold in the after-market and are
therefore less influenced by variations in the market for new cars.
SALES AND CUSTOMERS
The Company continually seeks to enhance its long-term relationships with
customers who are market or technological leaders in their respective
industries in order to further solidify the customer base for the Company's
products. Buckeye's products are marketed and sold through a highly trained
and technically skilled in-house sales force. The Company maintains sales
offices in Memphis, Tennessee and Geneva, Switzerland. The Company's worldwide
sales are diversified by geographic region as well as end-product application.
Buckeye's sales of specialty pulps are distributed to customers worldwide. The
Company's fiscal 1995 sales reflect this geographic diversity, with 30% of
sales in the United States, 30% in Europe, 26% in Asia and 14% in other
regions.
The high-end, technically demanding specialty pulp niches that Buckeye
serves require a higher level of sales and technical service support than do
commodity pulp sales. The Company's technically trained sales and service
engineers have worked for the Company for an average of over 20 years and
typically began their careers in the Company's manufacturing or product
development operations. These professionals work with customers in their
plants to design pulps tailored precisely to their product needs and
manufacturing processes.
Procter & Gamble, the world's largest diaper manufacturer, is the Company's
largest customer, accounting for 39% of the Company's fiscal 1995 net sales.
The Company and Procter & Gamble have entered into a long-term Pulp Supply
Agreement, which requires Procter & Gamble to purchase a specified tonnage
(currently substantially all of the Company's output) of the Company's fluff
pulp through the year 2002, subject to gradual
36
<PAGE>
reduction at either party's option in the final two years of the agreement if
it has not been renewed. Shipments of fluff pulp under the Pulp Supply
Agreement are made to Procter & Gamble affiliates worldwide, as directed by
Procter & Gamble. The price of the fluff pulp sold pursuant to the Pulp Supply
Agreement is based in the first six years of the Pulp Supply Agreement's term
on a formula specified in the Pulp Supply Agreement. Pricing in the years 1999
and 2000 will be at the higher of the contract formula price or market and
pricing in the years 2001 and 2002 will be at market. The formula price has
three components: (i) a periodic margin adjustment, (ii) a general escalation
component based on Consumer Price Index changes, and (iii) a provision to
adjust for all actual changes in the price of timber, the major raw material
component of the pulp purchased under the contract. Buckeye's other large
customers include Akzo Nobel N.V. (rayon filament and cellulose ethers), A.
Ahlstrom Corporation (automotive filter paper), Hercules Incorporated
(cellulose ethers), and Eastman Chemical Company (cellulose acetate).
Substantially all of the Company's worldwide sales are denominated in U.S.
dollars, and such sales are not subject to exchange rate fluctuations. Because
the cost of shipping is borne by the customer, Buckeye's margin on a sale to
any given customer is similar regardless of a customer's location. The
Company's products are shipped by rail, truck and ocean carrier.
RESEARCH AND DEVELOPMENT
The Company's research and development activities focus on developing new
specialty cellulose pulps, improving existing products, and enhancing process
technologies to further reduce costs and respond to environmental needs.
Buckeye has pilot plant facilities in which to produce experimental pulps for
qualification in customers' plants. The Company has a history of innovation in
specialty cellulose pulps. The Company's latest product developments include:
. a higher porosity automotive air filter pulp providing a 50% increase in
air permeability;
. a higher purity pulp for food casings;
. a highly uniform acetate wood pulp;
. a higher viscosity ether pulp yielding superior thickening performance;
and
. a process technology coupled with customized refining providing improved
cotton linter paper pulps.
RAW MATERIALS
Slash pine timber and cotton linters are the principal raw materials used in
the manufacture of the Company's specialty pulps. The region surrounding the
Foley Plant has a high concentration of slash pine timber, which enables
Buckeye to purchase adequate supplies of a species well suited to its products
at an attractive cost. In order to be better assured of a secure source of
wood at reasonable prices, the Company entered into the Timberlands Agreement
and the Timber Purchase Agreement (collectively, the "Timber Supply
Agreements") with Procter & Gamble. Under the terms of the Timberlands
Agreement, the Company agreed to purchase an annual percentage of the slash
pine timber harvest from specified timberlands near the Foley Plant, which
percentage is initially set at 85% and is gradually reduced to 60% by the
final year of the Timberlands Agreement. The purchase price for such timber is
established according to a market-based formula set forth in the Timberlands
Agreement and is annually adjusted to take into account pricing conditions in
the Florida counties in which the covered timberlands are located. In
addition, the Company has a right of first offer on a substantial portion of
slash pine timber located on the timberlands and not initially purchased
pursuant to the Timberlands Agreement. Under the terms of the Timber Purchase
Agreement, Buckeye agreed to purchase from Procter & Gamble Cellulose its
rights to harvest certain third party timber reserves at a purchase price
determined according to a formula provided in the Timber Purchase Agreement.
In fiscal 1995, timber acquired pursuant to the Timber Supply Agreements
accounted for approximately 33% of the Company's total wood purchases. These
Timber Supply Agreements grant easements to both the Company and the
timberland owners with respect to the areas covered by the Timber Supply
Agreements, including the Foley Plant, to access and use the areas as
necessary to conduct the harvesting operations contemplated by the Timber
Supply Agreements. The
37
<PAGE>
Timberlands Agreement has an initial term of ten years and is subject to two
renewals at Buckeye's option for five and three years, respectively, which, if
exercised, would result in the Timberlands Agreement's extension through 2010.
The term of the Timber Purchase Agreement expires on May 29, 2003. As of July
8, 1994, all of Procter & Gamble's interests in the timberlands subject to the
Timber Supply Agreements, together with its rights and obligations with
respect to such Timber Supply Agreements (other than certain expressly
excluded obligations retained by Procter & Gamble), were assigned to Foley
Timberland Company, L.P., a third party unrelated to either Procter & Gamble
or the Company.
The Company purchases cotton linters either directly from cotton seed oil
mills who remove these short, fuzzy linters before processing the seed into
vegetable oil and animal feed or indirectly through agents or brokers. The
Memphis Plant is strategically located in the Mississippi Valley, one of the
largest cotton linter producing regions in the world. Generally, the Company
purchases substantially all of its requirements of cotton linters for the
Memphis Plant domestically. The Gluckstadt Plant purchases cotton linters
principally from suppliers in the Middle East.
COMPETITION
The competitive environment in which the Company operates is concentrated
among a relatively few specialty pulp producers when compared with the much
larger commodity pulp market. Buckeye's competitors include Alfa Celulosa de
Mexico S.A. (Mexico), Borregaard Industries Ltd. (Norway), Georgia-Pacific
Corporation (U.S.), International Paper Company (U.S.), Louisiana-Pacific
Corporation (U.S.), Rayonier Inc. (U.S.), Sappi Limited (South Africa),
Southern Cellulose Products Inc. (U.S.), Tembec Inc. (Canada), Western Pulp
Limited Partnership (Canada), and Weyerhaeuser Company (U.S.). Competition in
specialty cellulose pulp markets is based on product performance, technical
service, and, to a lesser extent, price. Southern Cellulose Products Inc. was
recently acquired by Archer Daniels Midland, a subsidiary of which supplies
cotton linters to the Company.
The Company produces a broader range of specialty pulps than any of its
competitors and is the only specialty cellulose pulp producer offering both
wood-based and cotton linter-based products. Buckeye is the world's largest
cotton linter pulp producer. The Company believes that the number of specialty
pulp producers is unlikely to increase significantly in the foreseeable future
given the substantial investment and technological expertise required to enter
this market.
INTELLECTUAL PROPERTY
The Company currently holds four U.S. patents, three foreign patents and has
one application in preparation. In addition, it has access to royalty-free
licenses for five U.S. patents and two foreign patents. Buckeye intends to
maintain its patents, file the application in preparation, and file
applications for any future inventions which are deemed to be important to its
business operations. The Company has four trademarks, including the name
Buckeye(R).
PROPERTIES
Corporate Headquarters and Sales Offices. The Company's corporate
headquarters, research and development laboratories, and pilot plants are
located in Memphis, Tennessee. The Company owns the corporate headquarters,
the Memphis Plant, the Foley Plant and the Gluckstadt Plant and leases sales
offices in Geneva, Switzerland and distribution facilities in Savannah,
Georgia.
Memphis Plant. The Memphis Plant is located on a 60-acre site adjacent to
the headquarters complex. The Company believes that the Memphis Plant utilizes
a state-of-the-art continuous pulping process. During fiscal 1996, its
capacity was expanded to approximately 100,000 annual metric tons. The Memphis
Plant is ISO 9002 certified.
38
<PAGE>
Foley Plant. The Foley Plant is located at Perry, Florida, on a 2,900 acre
site. The Company also owns 13,000 acres of real property near the plant site.
The Foley Plant is a state-of-the-art facility with two separate production
lines and has been continuously modernized and expanded to a current capacity
of approximately 450,000 annual metric tons. The Foley Plant has operated at
full capacity for over 30 years. In 1994, the Foley Plant was selected by
Plant Engineering Magazine and the American Institute of Plant Engineers as
the sole winner of the annual North American Maintenance Excellence Award. The
Foley Plant is ISO 9002 certified.
Gluckstadt Plant. The Gluckstadt Plant is located in close proximity to the
Elbe River near Hamburg. The site is adjacent to the paper plant of Steinbeis
Temming Papier GmbH. Some utilities, including steam, power, water and waste
treatment, are shared between the plants pursuant to various utility
agreements. The Gluckstadt Plant is the largest specialty pulp plant based on
cotton linters in Europe. The plant is ISO 9002 certified.
EMPLOYEES
The Company's U.S. work force includes multi-skilled work teams at both its
Memphis and Foley plants. These multi-skilled teams are technically proficient
and are characterized by low turnover and a high commitment to the success of
the Company. Each employee has the opportunity to earn an annual bonus
predicated on Buckeye's success in achieving its business goals. The Company's
U.S. employees have an average tenure of 17 years.
On May 1, 1996, the Company employed approximately 1,400 individuals at its
facilities in Memphis, Tennessee; Perry, Florida; Savannah, Georgia;
Gluckstadt, Germany and Geneva, Switzerland. Collective bargaining agreements
are in place at the Foley Plant with the United Paper Workers International
Union, AFL-CIO, Local #1192; and at the Memphis Plant with the Pulp and
Processing Workers of the Retail, Wholesale, and Department Store Union, AFL-
CIO, Local #910. The agreement for the Foley Plant covers the period April 1,
1995 to April 1, 1998. The agreement for the Memphis Plant covers the period
March 18, 1994 to March 18, 1997. Approximately 54% of the Company's employees
are members of these two unions. A Works Council provides employee
representation for all non-management workers at the Gluckstadt Plant.
The Foley Plant has not experienced any work stoppages due to labor disputes
in over 30 years, and the Memphis Plant has not experienced any work stoppages
due to labor disputes in over 45 years. The Company believes its relationship
with its employees is very good.
ENVIRONMENTAL MATTERS
Like its competitors in the pulp and paper industry, the Company's
facilities and operations are subject to extensive general and industry-
specific federal, state, local and foreign environmental laws and regulations.
Buckeye devotes significant resources to maintaining compliance with such
requirements and believes that its facilities and operations are in
substantial compliance with all such requirements. The Company expects that,
due to the nature of its operations, it will be subject to increasingly
stringent environmental requirements (including anticipated standards
applicable to waste water discharges and air emissions) and will continue to
incur substantial costs to comply with such requirements. Based upon its
understanding of current and anticipated requirements, the Company believes
that continued compliance with environmental requirements will not have a
material adverse effect on its business, results of operations or financial
condition and will not adversely affect the Company's competitive position,
because the Company's U.S. competitors are subject to similar requirements. In
addition, the nature of Buckeye's cotton linter pulp process historically has
not given rise to significant environmental compliance or liability issues.
However, given the uncertainties associated with predicting the scope of
future requirements and the retroactive nature of certain environmental
liabilities, there can be no assurance that the Company will not in the future
incur material environmental compliance costs or liabilities.
The Foley Plant discharges treated waste water into the Fenholloway River.
The Fenholloway River is currently classified under Florida statutes as a
Class 5 (industrial) stream. Under the federal Clean Water Act, the State of
Florida is required to perform an analysis every three years of the
feasibility of reclassifying the
39
<PAGE>
river to Class 3 ("fishable/swimmable") status. Such an analysis recommending
reclassification was completed in early 1994 and approved by the Florida
Department of Environmental Protection at an administrative hearing in
December 1994. At this administrative hearing, the Company and the State of
Florida reached agreement on a plan to attain Class 3 objectives, which relies
primarily on the laying of extensive pipeline by the Company to relocate the
Foley Plant's waste water discharge point. The plan also includes process
changes in the Foley Plant designed to reduce the coloration of its waste
water discharge, provide oxygen enrichment of the effluent prior to discharge
and restore certain wetlands areas. The reclassification will not become
effective until December 1997 (with a final compliance deadline of December
1999) to allow Buckeye to obtain all the necessary permits for implementation
of the approved plan and to complete construction of the pipeline and the
treatment upgrades. The Company estimates that implementation of the approved
plan will result in capital expenditures of approximately $39.0 million, the
majority of which will likely be expended during fiscal 1998 and fiscal 1999.
Prior to 1992, the Foley Plant discharged waste water to the Fenholloway
River under a federal permit issued in 1987. In June 1992, the EPA issued a
renewal permit imposing more stringent requirements, including the testing for
chronic toxicity and dioxin. Each of the Company and certain environmental
advocacy groups requested an evidentiary hearing before the EPA to contest
portions of the renewal permit. Certain aspects of all such requests were
granted in June 1994, although no date for the hearings has yet been set. The
provisions contested by the Company have been temporarily stayed pending the
hearings, and the Company continues to operate under the 1987 permit and the
uncontested provisions of the 1992 permit. The Company currently expects to
obtain a new permit through DEP's newly delegated NPDES permit program by the
end of 1996 and that issuance of this state permit will render moot the above-
described EPA permit renewal proceeding. The Company does not currently
anticipate any material capital expenditures associated with wastewater
discharge compliance other than those described above with respect to the
Fenholloway River reclassification.
In 1993, the EPA issued a set of proposed regulations for the pulp and paper
industry addressing the emissions of "hazardous air pollutants" under the
Clean Air Act and waste water discharges under the Clean Water Act, commonly
known as the "cluster rules." The Company is examining and evaluating the
potential impact of the cluster rules, as proposed, on its operations and
capital expenditures over the next several years. The Company believes that
the proposed cluster rules will likely be amended significantly prior to their
promulgation, which is currently anticipated to occur in 1997, with compliance
to be phased in between 1999 and 2002. Although the Company anticipates that
significant capital expenditures for environmental control equipment and
related costs will be required to comply with the cluster rules when
promulgated (which the Company currently projects will be approximately $14.0
million through fiscal 2000), such expenditures are not likely to have a
material adverse effect on the Company's business, results of operations or
financial condition.
The Company projects that it will spend approximately $53.0 million in
environmental capital expenditure costs through fiscal 2000, which
expenditures include the costs to implement its river reclassification plan
(the $39.0 million expenditure mentioned above) and estimated costs to comply
with the cluster rule regulations, when promulgated.
The Foley Plant is on the EPA Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS") list of potential
hazardous substance release sites prepared pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"). The EPA
conducted a site investigation in early 1995. Although the Company considers
it unlikely that the Foley Plant will be listed on the CERCLA National
Priorities List and hence require remedial action, the possibility of such
listing cannot be ruled out. If the site were to be placed on the National
Priorities List, the costs associated with conducting a CERCLA remedial action
could be material.
The Foley Plant has also been the subject of certain additional
environmental and public health assessments, including a study being conducted
by the federal Agency for Toxic Substance and Disease Registry ("ATSDR").
ATSDR advised the Company in early 1993 of its interest in conducting a public
health assessment
40
<PAGE>
at the Foley Plant. In the spring of 1994, ATSDR orally informed the Company
that its investigation had not identified any significant concerns related to
the Foley Plant or groundwater conditions. To date ATSDR has not issued any
reports.
The Company is aware that Procter & Gamble Cellulose has been named a
potentially responsible party ("PRP") pursuant to CERCLA with respect to
certain disposal sites associated with its operations of the Foley Plant and
the Memphis Plant prior to the P&G Acquisitions. With respect to all such
sites, Procter & Gamble Cellulose has retained all liability and has agreed to
indemnify the Company. Buckeye has received no notices of potential liability
with respect to any site since the P&G Acquisitions.
Four lawsuits are currently pending in U.S. District Court in Tallahassee,
Florida alleging that hazardous substance releases associated with the Foley
Plant have adversely affected groundwater and property values. Previously, the
court had denied a motion seeking class certification for Foley-related
lawsuits and had dismissed a number of similar lawsuits against the Company
for failure to meet a $50,000 damage threshold for federal jurisdiction. The
Company believes that the remaining four lawsuits are without merit and is
defending against them vigorously. There can be no assurance, however, that
adverse judgments will not be rendered in these matters or that the damages
associated with such judgments would not be material.
In connection with the acquisition of the Foley Plant from the C&S Division,
Procter & Gamble Cellulose agreed to provide certain limited environmental
indemnification rights to the Company, which rights apply, among other things,
to all pre-acquisition offsite disposal of waste from the Foley Plant. In
connection with the Company's acquisition of the Memphis Plant, Procter &
Gamble Cellulose agreed to provide a comprehensive environmental
indemnification to Buckeye with respect to environmental liabilities
(including any "Superfund" liabilities for offsite disposal of waste) arising
from the operation of the Memphis Plant prior to such acquisition.
As of March 31, 1996, the Company had established reserves of $4.2 million
to address certain environmental matters. Because an environmental reserve is
not established until a liability is determined to be probable and reasonably
estimable, not all potential future environmental liabilities are covered by
the Company's reserves. Accordingly, there can be no assurance that the
Company's environmental reserves will be sufficient to meet the Company's
obligations, and additional earnings charges are possible.
LEGAL PROCEEDINGS
The Company is a party to various claims, complaints and other legal actions
that have arisen in the normal course of business from time to time. Other
than the lawsuits relating to the Foley Plant discussed in "Environmental
Matters," the Company is not currently involved in any legal proceedings,
which, in the aggregate, could be expected to have a material adverse effect
on its business, results of operations or financial position.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers as of May 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert E. Cannon 66 Chairman of the Board, Chief Executive Officer,
and Director
David B. Ferraro 58 President, Chief Operating Officer and Director
Herman P. van Eck 64 Vice President, Sales
George B. Ellis 55 Vice President, Manufacturing
Samuel M. Mencoff 39 Director
Justin S. Huscher 42 Director
Red Cavaney 53 Director
Henry F. Frigon 61 Director
Harry J. Phillips, 66 Director
Sr.
</TABLE>
The Board currently consists of seven directors, who are divided into three
classes, as nearly equal in number as possible. At each annual meeting of
stockholders, successors to the class of directors whose term expires at such
meeting will be elected to serve for three-year terms or until their
successors are duly elected and qualified. The Board has the power to appoint
the officers of the Company. Each officer will hold office for such term as
may be prescribed by the Board and until such person's successor is chosen and
qualified or until such person's death, resignation or removal. There are two
committees of the Board: the Compensation Committee and the Audit Committee.
Robert E. Cannon has served as Chairman and Chief Executive Officer of the
Company since the P&G Acquisitions in March 1993. Prior to the P&G
Acquisitions, Mr. Cannon served as Dean of the College of Management, Policy
and International Affairs at Georgia Tech from 1991 through 1992. Mr. Cannon
retired from Procter & Gamble in 1991 as a Senior Vice President of Procter &
Gamble, a position he had occupied since 1989. From 1981 through 1989, Mr.
Cannon served as Group Vice President of Procter & Gamble Industrial Products,
a division which included the operations of the Predecessor. Mr. Cannon also
served as President of the C&S Division from 1971 through 1981 and joined
Procter & Gamble in 1954.
David B. Ferraro has served as President and Chief Operating Officer of the
Company since the P&G Acquisitions in March 1993. Prior to the P&G
Acquisitions, Mr. Ferraro served as Manager of Strategic Planning of Procter &
Gamble from 1991 through 1992. Mr. Ferraro served as the C&S Division's
President from 1989 through 1991, as its Executive Vice President and Manager
of Commercial Operations from 1987 through 1989 and as its Comptroller
beginning in 1973. Mr. Ferraro joined Procter & Gamble in 1964 and held
various management positions.
Herman P. van Eck has served as Vice President, Sales of the Company since
the P&G Acquisitions in March 1993. Mr. van Eck served as Manager of European
Sales of the C&S Division from 1988 until the P&G Acquisitions. Mr. van Eck
joined Procter & Gamble in 1957 and held various sales management positions.
George B. Ellis has served as Vice President, Manufacturing of the Company
since the P&G Acquisitions in March 1993. Prior thereto, Mr. Ellis had served
as Vice President, Product Supply of the C&S Division since 1988. Mr. Ellis
joined Procter & Gamble in 1962 and held various engineering, operations and
manufacturing management positions in the C&S Division.
42
<PAGE>
Samuel M. Mencoff has served as a Director of the Company since the P&G
Acquisitions in March 1993. Mr. Mencoff has been principally employed as a
Vice President of Madison Dearborn Partners, Inc. ("MDP Inc."), the general
partner of Madison Dearborn Partners, L.P. ("MDP"), the general partner of
MDCP, since January 1993. From November 1987 until January 1993, Mr. Mencoff
served as Vice President of First Chicago Venture Capital. Mr. Mencoff is a
member of the operating committees of the general partners of Huntway
Partners, L.P. and Golden Oak Mining Company, L.P., respectively, and a member
of the board of directors of Bay State Paper Holding Company and Riverwood
International Corporation.
Justin S. Huscher has served as a Director of the Company since the P&G
Acquisitions in March 1993. Mr. Huscher has been principally employed as a
Vice President of MDP Inc. since January 1993. From April 1990 until January
1993, Mr. Huscher served as Senior Investment Manager of First Chicago Venture
Capital. Mr. Huscher is a member of the operating committees of the general
partners of Huntway Partners, L.P. and Golden Oak Mining Company, L.P.,
respectively, and a member of the board of directors of Bay State Paper
Holding Company and HomeSide, Inc.
Red Cavaney has served as a Director of the Company since May 1996. Mr.
Cavaney currently acts as President, Chief Executive Officer and a director of
the American Plastics Council, positions he has held since October 1994. Prior
to that time, he served as President of the American Forest & Paper
Association ("AF&PA") since its formation in January 1993 and in a variety of
positions, including as President, of the AF&PA's predecessor, the American
Paper Institute, since March 1983. Mr. Cavaney is also a member of the board
of directors of the U.S. Chamber of Commerce, The National Plastics Center &
Museum, the American Society of Association Executives and the Institute for
Research on the Economics of Taxation.
Henry F. Frigon has served as a Director of the Company since May 1996. Mr.
Frigon served as Executive Vice President--Corporate Development and Strategy
and as Chief Financial Officer of Hallmark Cards, Inc., from 1991 to 1995.
Prior to that time, he served as President and Chief Executive Officer of
BATUS Inc. beginning in 1983. Mr. Frigon is also a member of the board of
directors of Hallmark Cards, Inc., Crown Media, Inc., H&R Block Inc., Dimon
Inc., Group Technologies Corp. and The Circle K Corp.
Harry J. Phillips, Sr. has served as a Director of the Company since May
1996. Mr. Phillips currently acts as Chairman of the Executive Committee of
the board of directors of Browning-Ferris Industries, Inc. ("Browning-
Ferris"), a position he has held since 1988. Prior to that time, he served as
Chairman and Chief Executive Officer of Browning-Ferris. Mr. Phillips is also
a member of the board of directors of National Commerce Bancorporation,
National Bank of Commerce and RFS Hotel Investors, Inc.
There are no familial relationships between any of the foregoing persons.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company or its subsidiaries are not
entitled to receive any fees for serving as directors. Non-employee directors
of the Company are currently not entitled to receive any fees for serving as
directors. All directors are reimbursed for out-of-pocket expenses related to
their service as directors. Non-employee directors will be entitled to
participate in a formula stock option plan for non-employee directors covering
an aggregate of 200,000 shares of Common Stock (the "Formula Plan").
Under the Formula Plan, an option to purchase 25,000 shares will be
automatically granted to each non-employee director when he or she is elected
or appointed to the Board. The director's right to exercise 5,000 shares will
vest immediately upon grant. Thereafter, the right to exercise an additional
5,000 shares will vest at each of the four succeeding anniversaries of the
grant to such director. The option price per share of Common Stock under the
Formula Plan will be 100% of the fair market value of the Common Stock at the
date of grant. Each option granted under the Formula Plan will be exercisable
for ten years after the date of grant.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock immediately prior to and immediately following
the Stock Transactions by (i) each person or entity who is known to the
Company to be the beneficial owner of five percent or more of the Common
Stock, (ii) each director of the Company, (iii) the chief executive officer of
the Company and the three other executive officers of the Company, (iv) all
directors and executive officers of the Company as a group and (v) the Selling
Stockholder. To the knowledge of the Company, each of such stockholders has
sole voting and investment power as to the shares shown unless otherwise
noted. Unless otherwise noted, the address of each holder of five percent or
more of the Company's stock is the Company's corporate address.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO STOCK SHARES BENEFICIALLY OWNED
TRANSACTIONS(A) SHARES BEING AFTER STOCK TRANSACTIONS(B)
----------------------------- OFFERED IN -----------------------------
NUMBER OF PERCENT OF THE EQUITY NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL OFFERING SHARES TOTAL
---------------- --------- ------------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Madison Dearborn Capital
Partners, L.P.(c)...... 7,290,313 34.1 2,845,157 800,000 4.2
Samuel M. Mencoff(d).... 7,290,313 34.1 2,845,157 800,000 4.2
Justin S. Huscher(d).... 7,290,313 34.1 2,845,157 800,000 4.2
Robert E. Cannon(e)..... 3,970,771 18.5 -- 4,987,000 26.0
David B. Ferraro(f)..... 1,097,315 5.1 -- 1,232,909 6.4
Herman P. van Eck(g).... 255,864 1.2 -- 257,864 1.3
George B. Ellis(h)...... 312,958 1.5 -- 362,958 1.9
Red Cavaney(i).......... 5,600 * -- 5,600 *
Henry F. Frigon(i)...... 7,000 * -- 7,000 *
Harry J. Phillips,
Sr.(i)................. 19,500 * -- 19,500 *
All directors and
executive officers as a
group
(9 persons)(j)(k)...... 12,703,457 59.3 2,845,157 7,672,831 40.1
</TABLE>
- --------
*Less than one percent.
(a) Based on 21,407,223 shares of Common Stock outstanding prior to the Stock
Transactions. Options to purchase 15,000 shares of Common Stock will be
exercisable within 60 days of the consummation of the Stock Transactions.
(b) Based on 19,147,336 shares of Common Stock outstanding after the Stock
Transactions.
(c) All of such shares are held of record by MDCP. MDCP is a limited
partnership. MDP is the general partner of MDCP. Investment and voting
control over securities owned by MDCP is shared by a committee of the
limited partners of MDP (the "L.P. Committee"). MDP Inc. is the general
partner of MDP and exercises voting control over securities owned directly
or indirectly by MDP. Each of Messrs. Mencoff and Huscher expressly
disclaims beneficial ownership of such shares of Common Stock. The address
of MDCP is Three First National Plaza, Suite 1330, Chicago, Illinois
60602.
(d) All of such shares are held of record by MDCP. Messrs. Mencoff and Huscher
are members of the L.P. Committee. Messrs. Mencoff and Huscher may
therefore be deemed to share investment and voting control with respect to
the shares of Common Stock owned by MDCP and may therefore be deemed to
have beneficial ownership of shares of Common Stock owned by MDCP. The
business address of such person is c/o MDP Inc., Three First National
Plaza, Suite 1330, Chicago, Illinois 60602.
(e) Includes 1,873,292 shares held by the Robert E. Cannon Grantor Retained
Annuity Trust, Robert Howard Cannon, Trustee, and 1,873,447 shares held by
the Kathryn Gracey Cannon Grantor Retained Annuity Trust, Robert Howard
Cannon, Trustee. Kathryn Gracey Cannon is the wife of, and Robert Howard
Cannon is the son of, Robert E. Cannon. The address of each such trust is
432 East Racquet Club Place, Memphis, Tennessee 38117. Mr. Cannon and such
trusts will purchase an aggregate of 1,016,229 shares of Common Stock in
the Individuals' Stock Purchase and may purchase additional shares in the
Equity Offering.
(f) Includes 442,085 shares held by the David B. Ferraro Grantor Retained
Annuity Trust, Barbara A. Ferraro, Trustee. Barbara A. Ferraro is the wife
of David B. Ferraro. Mr. Ferraro and such trust will purchase an aggregate
of 135,594 shares of Common Stock in the Individuals' Stock Purchase and
may purchase additional shares in the Equity Offering.
(g) Mr. van Eck will purchase 2,000 shares of Common Stock in the Individuals'
Stock Purchase and may purchase additional shares in the Equity Offering.
(h) Mr. Ellis will purchase 50,000 shares of Common Stock in the Individuals'
Stock Purchase and may purchase additional shares in the Equity Offering.
(i) Includes 5,000 shares issuable upon exercise of options granted under the
Formula Plan.
(j) Includes 15,000 shares issuable upon exercise of options granted under the
Formula Plan.
(k) Does not include shares beneficially controlled by other officers of the
Company which represent an aggregate of approximately 7.3% of the Common
Stock after giving effect to the Individuals' Stock Purchase.
44
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the P&G Acquisitions, the Company and MDP entered into a
professional services agreement pursuant to which the Company paid to MDP a
$1.0 million fee as compensation for MDP's commitment to provide financing to
repay certain indebtedness of the Company in the event alternative financing
was not available by a certain date.
The Company was party to a Corporate Services Agreement with Buckeye Florida
Partners from the time of the P&G Acquisitions until the 1995 Business
Combination Transactions pursuant to which the Company provided Buckeye
Florida Partners with certain sales and administrative services. Under this
agreement, the Company performed all of the sales functions for Buckeye
Florida Partners' products and received a sales commission on certain of such
products. During fiscal 1995, commission income recorded by the Company on
Buckeye Florida Partners' sales was approximately $7.5 million. The Company
also provided to Buckeye Florida Partners corporate management, research,
administrative and other services substantially similar to those historically
provided to the Foley Plant by the C&S Division. Buckeye Florida Partners paid
to the Company an allocated cost of such services based upon the tonnage of
pulp shipped by the Foley Plant. During fiscal 1995, costs allocated to
Buckeye Florida Partners for such services were approximately $12.5 million.
All intercompany transactions have been eliminated from the Company's
financial statements.
Messrs. Cannon and Ferraro have each been issued Master Promissory Notes by
Union Planters National Bank (the "Bank"), both dated March 21, 1994, in the
amounts of approximately $2.3 million and $600,000, respectively, or such
lesser amounts as may be periodically requested by each of the respective
noteholders. Each of the notes is secured, pursuant to two security agreements
between the Bank and Buckeye Florida Partners dated the same date as the
notes, by Bank certificates of deposit in the name of Buckeye Florida Partners
in the amounts of approximately $2.3 million and $600,000, respectively. Both
of the notes, which mature on July 1, 1998, bear interest at a per annum rate
equal to 200 basis points in excess of the respective amounts paid by the Bank
on the certificates of deposit used as collateral for the notes. Such rates
are automatically adjusted every six months to correspond with the adjustments
made at such time to the rates payable on the certificates of deposit. As
security for Buckeye Florida Partners' having provided these certificates of
deposit as collateral for the notes issued to Messrs. Cannon and Ferraro,
Buckeye Florida Partners has entered into Pledge and Security Agreements with
each of Messrs. Cannon and Ferraro, both dated March 22, 1994, pursuant to
which such individuals have pledged specified numbers of shares of Common
Stock, together with subsequently acquired shares, dividend and other rights
with respect thereto, to Buckeye Florida Partners. Subsequent to the 1995
Business Combination Transactions, Messrs. Cannon and Ferraro have been
required to maintain only such shares of Common Stock as are necessary to
provide a collateral amount of at least 115% of the amount of the certificates
of deposit securing their respective note obligations. The pledge and security
agreements will terminate upon payment in full of all amounts payable in
connection with the notes.
In connection with the formation of Buckeye Florida Corporation, MDCP
purchased a $4.0 million promissory note dated March 16, 1993. On March 22,
1994, Buckeye Florida Corporation repaid to MDCP approximately $4.0 million of
principal and accrued interest on such note and issued to MDCP a replacement
promissory note of approximately $482,000. This note, together with accrued
interest thereon was repaid in connection with the 1995 Business Combination
Transactions.
In connection with the Stock Transactions, the Company and MDCP have entered
into an agreement under which BKI Investment will repurchase 2,259,887 shares
of Common Stock held by MDCP pursuant to the Company Stock Repurchase. See
"The Company Stock Repurchase and Related Transactions."
45
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK CREDIT FACILITY
General. The Company has entered into the Bank Credit Facility with a group
of lenders (the "Lenders"). The following is a summary of the terms governing
the Bank Credit Facility, certain provisions of which will change upon the
execution of proposed amendments to the Bank Credit Facility presently being
negotiated by the Company. The Bank Credit Facility provides for revolving
credit loans to the Company in an aggregate amount not to exceed $135.0
million minus the principal amount of Existing Senior Notes outstanding in
excess of $5.0 million. Upon completion of the Alpha Acquisition, such amount
will be increased to $155.0 million. Up to $45.0 million of the Bank Credit
Facility is available for the issuance of letters of credit on behalf of the
Company. In addition, up to $10.0 million of the Bank Credit Facility is
available for swing line loans. The amount available to the Company under the
Bank Credit Facility will be reduced, and any outstanding loans will be
required to be prepaid, to the extent that the Company receives net asset sale
proceeds in excess of both $3.0 million in any year and $15.0 million in the
aggregate (over and above the permitted $3.0 million per year) and occurring
after November 28, 1995, unless such net proceeds are used to acquire other
assets within 270 days after the date of the transaction giving rise to such
net asset sale proceeds. The Company may repay the Bank Credit Facility in
whole or in part at any time without premium or penalty.
Security. The Bank Credit Facility is unsecured; however, it is guaranteed
by each of the Company's domestic subsidiaries and, under certain
circumstances, the Company is required to pledge up to 65% of the stock of
certain foreign subsidiaries acquired by the Company.
Maturity; Reduction of Commitments. The Bank Credit Facility will mature on
November 27, 2000 of the closing thereunder. Beginning January 1, 1998, the
Bank Credit Facility commitment will be reduced by $3.75 million per quarter
through maturity.
Interest. The interest rate applicable to borrowings (other than swing line
loans) under the Bank Credit Facility is the agent's prime rate minus 1/2% or
LIBOR plus, in the case of LIBOR loans, a margin determined on the basis of
the ratio of the Company's total funded indebtedness to its EBITDA. The margin
applicable to LIBOR loans will range from 1/2% to 1.0%. The interest rate
applicable to swing line loans is the greater of the agent's (a) prime rate
minus 1/2% or (b) the federal funds rate (as defined in the agreement relating
to the Bank Credit Facility) plus 1/2%. During the continuance of an event of
default, the applicable interest rate will be 2.0% above the interest rate
otherwise in effect. Interest will be computed based on actual days elapsed in
a 360-day year, payable quarterly in arrears in the case of prime rate loans
and on the last day of each interest period in the case of LIBOR loans.
Covenants. The Bank Credit Facility contains covenants customary for
financings of this type, including, without limitation, minimum consolidated
net worth, maximum ratio of consolidated total debt to consolidated EBITDA,
minimum consolidated EBITDA and limitations on capital expenditures,
incurrence of indebtedness, liens, contingent obligations, assets sales,
dividends and distributions to the Company's stockholders, payments to
affiliates, issuance of stock and distributions by subsidiaries, investments,
guarantees, voluntary prepayment of other indebtedness, loans and advances,
leases, acquisitions, mergers and consolidations and leasing transactions.
Events of Default. The Bank Credit Facility contains events of default
customary for financings of this type, including, without limitation, with
respect to failure to pay principal or interest, materially false
representations or warranties, failure to observe covenants and other terms of
the Bank Credit Facility, cross-default to other indebtedness, bankruptcy,
insolvency, ERISA violation, the incurrence of material judgments, change in
control and environmental issues.
46
<PAGE>
EXISTING SENIOR SUBORDINATED NOTES
In November 1995, the Company issued and sold $150.0 million principal
amount of the Existing Senior Subordinated Notes pursuant to an indenture
dated as of November 28, 1995 (the "Existing Senior Subordinated Notes
Indenture") between the Company and Union Planters National Bank, as trustee
(the "Existing Senior Subordinated Notes Trustee"), a copy of which is filed
as an exhibit to the Registration Statement. The following summary of the
material provisions of the Existing Senior Subordinated Notes Indenture as
currently in effect does not purport to be complete, and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Existing Senior Subordinated Notes Indenture.
General. The Existing Senior Subordinated Notes will mature on December 15,
2005, are limited to $150.0 million aggregate principal amount and are
unsecured obligations of the Company. At March 31, 1996, $150.0 million
principal amount of the Existing Senior Subordinated Notes were outstanding.
Sinking Fund. The Existing Senior Subordinated Notes Indenture does not
provide for a sinking fund.
Optional Redemption. The Existing Senior Subordinated Notes are subject to
redemption at any time on or after December 15, 2000, at the option of the
Company, in whole or in part, on not less than 30 nor more than 60 days' prior
notice in amounts of $1,000 or an integral multiple thereof at declining
redemption prices set forth in the Existing Senior Subordinated Notes
Indenture, together with accrued and unpaid interest to the redemption date.
In addition, up to $50.0 million aggregate principal amount of the Existing
Senior Subordinated Notes are redeemable on or prior to December 15, 1998, at
the option of the Company, from the net proceeds of issuances in one or more
Public Equity Offerings (as defined in the Existing Senior Subordinated Notes
Indenture) of Common Stock by the Company after the date the Existing Senior
Subordinated Notes were issued, within 60 days thereof at a redemption price
to be set forth in the Existing Senior Subordinated Notes Indenture, together
with accrued and unpaid interest, if any, to the redemption date; provided
that, after giving effect to any such redemption, at least $90.0 million
aggregate principal amount of the Existing Senior Subordinated Notes remain
outstanding.
Change in Control Put. If a Change in Control (as defined in the Existing
Senior Subordinated Notes Indenture) shall occur at any time, then each holder
of the Existing Senior Subordinated Notes shall have the right to require that
the Company purchase such holder's Existing Senior Subordinated Notes in whole
or in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount of such Existing Senior
Subordinated Notes, plus accrued and unpaid interest, if any, to the date of
the purchase.
Subordination. The indebtedness represented by the Existing Senior
Subordinated Notes is subordinated in right of payment to the prior payment in
full of all Senior Indebtedness (as defined in the Existing Senior
Subordinated Notes Indenture) of the Company, including the indebtedness under
the Bank Credit Facility and the outstanding Existing Senior Notes. The
Existing Senior Subordinated Notes are senior subordinated indebtedness of the
Company ranking pari passu with all other existing and future senior
subordinated indebtedness of the Company, including the Notes, and senior to
all existing and future Subordinated Indebtedness (as defined in the Existing
Senior Subordinated Notes Indenture) of the Company. The Existing Senior
Subordinated Notes are also effectively subordinated to all indebtedness of
the Company's subsidiaries.
Certain Covenants. The Existing Senior Subordinated Notes Indenture contains
a number of covenants restricting the operations of the Company and its
subsidiaries, including covenants with respect to the following matters: (i)
limitation on Indebtedness (as defined in the Existing Senior Subordinated
Notes Indenture); (ii) limitation on restricted payments (in the form of the
declaration or payment of certain dividends or distribution, the purchase,
redemption or other acquisition of any capital stock of the Company (or any
affiliate thereof), the voluntary prepayment of subordinated Indebtedness, the
incurrence of any guarantee of Indebtedness of any affiliate of the Company or
an investment in any other person); (iii) limitation on transactions with
affiliates; (iv)
47
<PAGE>
limitation on liens; (v) limitation on sale of assets; (vi) limitation on
senior subordinated indebtedness; (vii) limitation on issuances of certain
guarantees of subordinated and pari passu indebtedness; (viii) requirement to
repurchase the Existing Senior Subordinated Notes, at the option of the
holders of the Existing Senior Subordinated Notes, upon a Change in Control;
(ix) limitation on capital stock issuances, sales and transfers by
subsidiaries; (x) limitation on dividends and other payment restrictions
affecting subsidiaries; (xi) limitation on investments by the Company and its
subsidiaries in Unrestricted Subsidiaries (as defined in the Existing Senior
Subordinated Notes Indenture); and (xii) limitations on consolidations,
mergers and sale of substantially all assets.
Events of Default. The events of default ("Existing Senior Subordinated
Notes Events of Default") under the Existing Senior Subordinated Notes
Indenture include provisions that are typical of senior subordinated debt.
Upon occurrence of an Existing Senior Subordinated Notes Event of Default, the
Existing Senior Subordinated Notes Trustee and holders of not less than 25% in
aggregate principal amount of outstanding Existing Senior Subordinated Notes
may, and the Existing Senior Subordinated Notes Trustee at the request of such
holders shall, declare all unpaid principal of, premium, if any, and accrued
interest on all Existing Senior Subordinated Notes to be due and payable as
provided in the Existing Senior Subordinated Notes Indenture.
EXISTING SENIOR NOTES
In May 1993, the Company issued and sold $70.0 million principal amount of
the Existing Senior Notes. Prior to November 1995, the Company repurchased
$5.3 million principal amount of Existing Senior Notes in open market
transactions. In November 1995, the Company repurchased $45.6 million
aggregate principal amount of Existing Senior Notes pursuant to a tender offer
and amended certain covenants of the Existing Senior Notes Indenture to
conform generally with similar covenants contained in the Existing Senior
Subordinated Notes Indenture. In January 1996, the Company repurchased $12.2
million aggregate principal amount of Existing Senior Notes with the net
proceeds from the Company's sale of Common Stock in its November 1995 initial
public stock offering. At March 31, 1996, $6.9 million principal amount of the
Existing Senior Notes was outstanding. A copy of the indenture pursuant to
which the Existing Senior Notes were issued, as amended to date (the "Existing
Senior Notes Indenture" and, together with the Existing Senior Subordinated
Notes Indenture, the "Existing Notes Indentures") is filed as an exhibit to
the Registration Statement.
The Existing Senior Notes mature on May 15, 2001 and are unsecured
obligations of the Company. The Existing Senior Notes are not subordinated in
right of payment to any other indebtedness of the Company. The Existing Senior
Notes Indenture contains a number of covenants restricting the operations of
the Company and its subsidiaries which are generally similar to the covenants
contained in the Existing Senior Subordinated Notes Indenture. The Existing
Senior Notes Indenture also provides for a sinking fund, a change of control
put, the optional redemption of the Existing Senior Notes by the Company at
any time on or after May 15, 1998, and events of default provisions that are
typical of senior debt financings.
48
<PAGE>
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an Indenture to be dated as of
, 1996 (the "Indenture") between the Company and Union Planters
National Bank, as trustee (the "Trustee"). References to "(Section )" mean
the applicable Section of the Indenture.
A copy of the form of Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part and will be made available to
prospective purchasers of the Notes upon request. The Indenture is subject to
and governed by the Trust Indenture Act. The following summaries of the
material provisions of the Indenture do not purport to be complete, and where
reference is made to particular provisions of the Indenture, such provisions,
including the definitions of certain terms, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a
part of the Indenture by the Trust Indenture Act. For definitions of certain
capitalized terms used in the following summary, see "--Certain Definitions."
GENERAL
The Notes will mature on September 15, 2008, will be limited to $100,000,000
aggregate principal amount, and will be unsecured senior subordinated
obligations of the Company. Each Note will bear interest at the rate set forth
on the cover page hereof from , 1996 or from the most recent
interest payment date to which interest has been paid, payable semiannually on
March 15 and September 15 in each year, commencing March 15, 1997, to the
Person in whose name the Note (or any predecessor Note) is registered at the
close of business on the March 1 or September 1 next preceding such interest
payment date. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. (Sections 202, 301, 307 and 310)
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency
of the Company in The City of New York maintained for such purposes (which
initially will be the corporate trust office of the Trustee); provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
(Sections 301, 305 and 1002) The Notes will be issued only in fully registered
form without coupons, in denominations of $1,000 and any integral multiple
thereof. (Section 302) No service charge will be made for any registration of
transfer, exchange or redemption of Notes, except in certain circumstances for
any tax or other governmental charge that may be imposed in connection
therewith. (Section 305)
OPTIONAL REDEMPTION
(a) The Notes will be subject to redemption at any time on or after
September 15, 2001, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days prior notice in amounts of $1,000 or an
integral multiple thereof at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning September 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.......................... %
2002.......................... %
2003.......................... %
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due
on an interest payment date).
49
<PAGE>
(b) In addition, up to $30 million aggregate principal amount of the Notes
will be redeemable at any time on or prior to September 15, 1999 at the option
of the Company within 60 days after the consummation of one or more Public
Equity Offerings by the Company from the net proceeds to the Company of such
Public Equity Offerings, upon not less than 20 nor more than 60 days' prior
notice, in amounts of $1,000 or an integral multiple thereof, at a redemption
price equal to % of the principal amount, together with accrued and unpaid
interest, if any, to the redemption date (subject to the rights of holders of
record on applicable record dates to receive interest due on an interest
payment date); provided that, after giving effect to any such redemption, at
least $70 million aggregate principal amount of the Notes remains outstanding.
(c) If less than all of the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed pro rata, by lot or by any
other method the Trustee shall deem fair and reasonable. (Sections 203, 1101,
1105 and 1107)
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
RANKING
The payment of the principal of, premium, if any, and interest on, the Notes
will be subordinated, as set forth in the Indenture, in right of payment to
the prior payment in full of all Senior Indebtedness (including the
Indebtedness under the Bank Credit Facility and the Existing Senior Notes).
The Notes will be senior subordinated indebtedness of the Company ranking pari
passu with the Existing Senior Subordinated Notes and all other existing and
future senior subordinated indebtedness of the Company and senior to all
existing and future Subordinated Indebtedness of the Company. The Notes will
also be effectively subordinated to all indebtedness of the Company's
Subsidiaries. (Sections 1201 and 1202)
Upon the occurrence of any default in the payment of any Designated Senior
Indebtedness beyond any applicable grace period and after the receipt by the
Trustee from a representative of holders of such Designated Senior
Indebtedness (the "Senior Representative") of written notice of such default,
no payment (other than payments previously made pursuant to the provisions
described under "--Defeasance or Covenant Defeasance of Indenture") or
distribution of any assets of the Company of any kind or character (excluding
certain permitted equity interests or subordinated securities) may be made on
account of the principal of, premium, if any, or interest on the Notes or on
account of the purchase, redemption, defeasance or other acquisition of, or in
respect of, the Notes, unless and until such default shall have been cured or
waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full after which the Company shall
resume making any and all required payments in respect of the Notes, including
any missed payments.
Upon the occurrence and during the continuance of any non-payment default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may then be accelerated (a "Non-payment Default") and after
the receipt by the Trustee and the Company from a Senior Representative of
written notice of such Non-Payment Default, no payment (other than payments
previously made pursuant to the provisions described under "--Defeasance or
Covenant Defeasance of Indenture") or distribution of any assets of the
Company of any kind or character (excluding certain permitted equity interests
or subordinated securities) may be made on account of the principal of,
premium, if any, or interest on the Notes or on account of the purchase,
redemption, defeasance or other acquisition of, or in respect of, the Notes
for the period specified below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of the
Non-payment Default by the Trustee and the Company from a Senior
Representative and shall end on the earliest of (i) the 179th
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day after such commencement, (ii) the date on which such Non-payment Default
(and all Non-payment Defaults as to which notice is given after such Payment
Blockage Period is initiated) is cured, waived or ceases to exist or on which
such Designated Senior Indebtedness is discharged or paid in full or (iii) the
date on which such Payment Blockage Period (and all Non-payment Defaults as to
which notice is given after such Payment Blockage Period is initiated) shall
have been terminated by written notice to the Company or the Trustee from the
Senior Representative initiating such Payment Blockage Period, after which, in
the case of each of clauses (i), (ii) and (iii), the Company will promptly
resume making any and all required payments in respect of the Notes, including
any missed payments. In no event will a Payment Blockage Period extend beyond
179 days from the date of the receipt by the Company or the Trustee of the
notice initiating such Payment Blockage Period (such 179-day period referred
to as the "Initial Period"). Any number of notices of Non-payment Defaults may
be given during the Initial Period; provided that during any period of 365
consecutive days only one Payment Blockage Period, during which payment of
principal of, premium, if any, or interest on the Notes may not be made, may
commence and the duration of such period may not exceed 179 days. No Non-
payment Default with respect to any Designated Senior Indebtedness that
existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period unless such default has been cured or waived
for a period of not less than 90 consecutive days. (Section 1203)
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Notes to
accelerate the maturity thereof. See "--Events of Default."
The Indenture will provide that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Company or
its assets, or any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary, or whether or not involving
insolvency or bankruptcy, or any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of the Company, all Senior
Indebtedness must be paid in full before any payment or distribution
(excluding distributions of certain permitted equity interests or subordinated
securities) is made on account of the principal of, premium, if any, or
interest on the Notes or on account of the purchase, redemption, defeasance or
other acquisition of, or in respect of, the Notes (other than payments
previously made pursuant to the provisions described under "--Defeasance or
Covenant Defeasance of Indenture").
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
the Senior Indebtedness to the extent necessary to pay the Senior Indebtedness
in full, such that the Company may be unable to meet its obligations with
respect to the Notes.
"Senior Indebtedness" under the Indenture means the principal of, premium,
if any, and interest (including interest accruing after the filing of a
petition initiating any proceeding under any state, federal or foreign
bankruptcy law whether or not allowable as a claim in such proceeding) on any
Indebtedness of the Company (other than as otherwise provided in this
definition), whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, and whether at any time owing, actually or
contingent, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Without limiting the generality of the foregoing,
"Senior Indebtedness" shall include the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign bankruptcy laws
whether or not allowable as a claim in such proceeding) on all monetary
obligations of every kind and nature of the Company from time to time owed to
the lenders under the Bank Credit Facility; provided, however, that any
Indebtedness under any refinancing, refunding, or replacement of the Bank
Credit Facility shall not constitute Senior Indebtedness to the extent that
the
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Indebtedness thereunder is by its express terms stated to be subordinate in
right of payment to any other Indebtedness of the Company. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (i) Indebtedness evidenced
by the Notes, (ii) Indebtedness evidenced by the Existing Senior Subordinated
Notes, (iii) Indebtedness that is by its terms subordinate or junior in right
of payment to any Indebtedness of the Company, (iv) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11
United States Code, is without recourse to the Company, (v) Indebtedness which
is represented by Redeemable Capital Stock, (vi) any liability for foreign,
federal, state, local or other taxes owed or owing by the Company to the
extent such liability constitutes Indebtedness, (vii) Indebtedness of the
Company to a Subsidiary of the Company or any other Affiliate of the Company
or any of such Affiliate's Subsidiaries and (viii) that portion of any
Indebtedness which at the time of issuance is issued in violation of the
Indenture.
"Designated Senior Indebtedness" under the Indenture means (i) all Senior
Indebtedness under the Bank Credit Facility and (ii) any other Senior
Indebtedness which is incurred pursuant to an agreement (or series of related
agreements) providing for Indebtedness of at least $25 million and is
specifically designated in the instrument evidencing such Senior Indebtedness
or the agreement under which such Senior Indebtedness arises as "Designated
Senior Indebtedness" by the Company.
As of March 31, 1996, on a pro forma basis after giving effect to the
Offering, the Company Stock Repurchase and the 1996 Acquisitions, there would
have been outstanding approximately $102.4 million of Senior Indebtedness of
the Company consisting of Indebtedness under the Bank Credit Facility and the
Existing Senior Notes, and $249.5 million of senior subordinated indebtedness
of the Company consisting of the Existing Senior Subordinated Notes and the
Notes, and Subsidiaries of the Company would have had $95.5 million in
Indebtedness (consisting of, among other things, guarantees of the Company's
Indebtedness under the Bank Credit Facility given by the Company's domestic
Subsidiaries).
The Indenture will limit, but not prohibit, the incurrence by the Company of
additional Indebtedness and the Indenture will prohibit the incurrence by the
Company of Indebtedness that is subordinated by its express terms in right of
payment to any Senior Indebtedness of the Company and senior in right of
payment to the Notes.
See "Risk Factors--Significant Leverage", "Risk Factors--Subordination" and
"Capitalization."
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not permit any of
its Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in
any manner become directly or indirectly liable for the payment of or
otherwise incur (collectively, "incur"), any Indebtedness (including any
Acquired Indebtedness) other than Permitted Indebtedness which may be incurred
at any time, except for (a) Indebtedness of the Company and (b) Permitted
Subsidiary Indebtedness; provided, that, in each case, the Company's
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters for
which financial results are available immediately preceding the incurrence of
such Indebtedness taken as one period (and after giving pro forma effect to
(i) the incurrence of such Indebtedness and (if applicable) the application of
the net proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was incurred, and the application of such proceeds occurred,
on the first day of such applicable period; (ii) the incurrence, repayment or
retirement of any other Indebtedness by the Company and its Subsidiaries since
the first day of such applicable period as if such Indebtedness was incurred,
repaid or retired at the beginning of such applicable period (except that, in
making such computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of such
Indebtedness during such applicable period); (iii) in the case of Acquired
Indebtedness or any acquisition occurring at the time of the incurrence of
such Indebtedness, the related acquisition, assuming such acquisition had been
consummated on the first day of such applicable period; and (iv) any
acquisition or disposition by the Company and its Subsidiaries of any company
or any business or any assets out of the ordinary course of business, whether
by merger, stock purchase or sale or asset purchase or sale, or any related
repayment of Indebtedness, in each case since the first day of such applicable
period, assuming such acquisition or disposition had been consummated on the
first day of such applicable period) is at least equal to or greater than
2.0:1.0x. (Section 1008)
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Limitation on Restricted Payments. (a) The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in its shares of Qualified Capital Stock or in
options, warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, the Company's Capital Stock or any Capital Stock of any
Affiliate of the Company (other than Capital Stock of any Wholly Owned
Subsidiary) or options, warrants or other rights to acquire such Capital
Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Subsidiary of the Company to any Person (other than (a) to the Company
or any Wholly Owned Subsidiary or (b) to all holders of Capital Stock of
such Subsidiary on a pro rata basis);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than (a) guarantees of Indebtedness of a
Wholly Owned Subsidiary given by the Company or (b) guarantees of
Indebtedness of the Company given by any Subsidiary of the Company, in each
case in accordance with the terms of the Indenture); or
(vi) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (vi), other
than any such action that is a Permitted Payment (as defined below),
collectively, "Restricted Payments") (the amount of any such Restricted
Payment, if other than cash, as determined by the board of directors of the
Company, whose determination shall be conclusive and evidenced by a board
resolution), unless (1) immediately before and immediately after giving effect
to such Restricted Payment on a pro forma basis, no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment
shall not be an event which is, or after notice or lapse of time or both,
would be, an "event of default" under the terms of any Indebtedness of the
Company or its Subsidiaries; (2) immediately before and immediately after
giving effect to such Restricted Payment on a pro forma basis, the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions described under "--Limitation on
Indebtedness"; and (3) after giving effect to the proposed Restricted Payment,
the aggregate amount of all such Restricted Payments declared or made after
the date of the Indenture, does not exceed the sum of:
(A) $25 million;
(B) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on July
1, 1996 and ending on the last day of the Company's last fiscal quarter
ending prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss);
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Subsidiaries) of Qualified Capital Stock of the Company or any options,
warrants or rights to purchase such Qualified Capital Stock of the Company
(except, in each case, to the extent such proceeds are used to purchase,
redeem or otherwise retire Capital Stock or Subordinated Indebtedness as
set forth below in clause (ii) or (iii) of paragraph (b) below);
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified Capital
Stock of the Company;
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(E) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its Subsidiaries
into or for Qualified Capital Stock of the Company plus, to the extent such
converted debt securities or Redeemable Capital Stock were issued after the
date of the Indenture, the aggregate Net Cash Proceeds from their original
issuance; and
(F) to the extent not otherwise included in the Company's Consolidated
Net Income, the aggregate payments in cash of interest on Indebtedness or
dividends or other distributions received by the Company or any of its
Subsidiaries after the date of the Indenture from any Unrestricted
Subsidiary (or from redesignation of an Unrestricted Subsidiary as a
Subsidiary of the Company), except to the extent any such payments are in
respect of taxes to be paid by the Company with respect to the operations
of such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vii) below, so long as there is no Default or Event of Default continuing,
the foregoing provisions shall not prohibit the following actions (each of
clauses (i) through (iv) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this Section and such
payment shall have been deemed to have been paid on such date of
declaration and shall not have been deemed a "Permitted Payment" for
purposes of the calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege in connection with which cash is paid in lieu of the issuance
of fractional shares or scrip), or out of the Net Cash Proceeds of a
substantially concurrent issue and sale for cash (other than to a
Subsidiary of the Company) of, other shares of Qualified Capital Stock of
the Company; provided that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are, to the extent so used, excluded from
clause (3)(C) of paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness in
exchange for, or in an amount not in excess of the net proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Subsidiary of the Company) of any Qualified Capital Stock of the Company,
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are, to the extent so used, excluded from clause
(3)(C) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new Subordinated
Indebtedness (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, then such lesser amount
as of the date of determination), plus the lesser of (I) the stated amount
of any premium or other payment required to be paid in connection with such
a refinancing pursuant to the terms of the Subordinated Indebtedness being
refinanced or (II) the amount of premium or other payment actually paid at
such time to refinance the Subordinated Indebtedness, plus, in either case,
the amount of expenses of the Company incurred in connection with such
refinancing; (2) has an Average Life to Stated Maturity greater than the
remaining Average Life to Stated Maturity of the Notes; (3) has a Stated
Maturity for its final scheduled principal payment later than the Stated
Maturity for the final scheduled principal payment of the Notes; and (4) is
expressly subordinated in right of payment to the Notes at least to the
same extent as the Subordinated Indebtedness to be refinanced;
(v) the repurchase of any Subordinated Indebtedness of the Company at a
purchase price not greater than 101% of the principal amount of such
Subordinated Indebtedness in the event of a Change in Control (as defined
below) pursuant to a provision similar to "--Purchase of Notes upon Change
in
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Control"; provided that prior to or simultaneously with such repurchase,
the Company has made the Change in Control Offer as provided in such
covenant and has repurchased all Notes validly tendered for payment in
connection with such Change in Control Offer;
(vi) the repurchase of any Subordinated Indebtedness of the Company, at a
purchase price not greater than 100% of the principal amount of such
Indebtedness in the event of an Asset Sale pursuant to a provision similar
to "--Limitation on Sale of Assets"; provided that prior to such repurchase
the Company has made an Offer to purchase the Notes as provided in such
covenant and has repurchased all Notes validly tendered for payment in
connection with such Offer; and
(vii) the repurchase of shares of Capital Stock of the Company from
employees of the Company upon termination of employment, death or
retirement pursuant to the terms of an employee benefit plan or employment
agreement; provided that the aggregate amount of all such repurchases in
any 12-month period may not exceed $2 million plus the aggregate amount by
which repurchases in prior years was less than $2 million. (Section 1009)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with
any Affiliate of the Company (other than the Company or a Wholly Owned
Subsidiary) unless (a) such transaction or series of related transactions is
in writing and on terms that are no less favorable to the Company or such
Subsidiary, as the case may be, than those that would be available in a
comparable transaction in arm's-length dealings with an unrelated third party,
(b) with respect to any transaction or series of related transactions
involving an aggregate value in excess of $1 million, the Company delivers an
officers' certificate to the Trustee certifying that such transaction or
series of related transactions complies with clause (a) above and (c) with
respect to any transaction or series of related transactions involving an
aggregate value in excess of $5 million, either (i) such transaction or series
of related transactions has been approved by a majority of the Disinterested
Directors of the Company, or in the event there is only one Disinterested
Director, by such Disinterested Director, or (ii) the Company delivers to the
Trustee a written opinion of an investment banking firm of national standing
or other recognized independent expert with experience appraising the terms
and conditions of the type of transaction or series of related transactions
for which an opinion is required stating that the transactions or series of
related transactions is fair to the Company or such Subsidiary from a
financial point of view; provided, however, that this provision shall not
apply to any transaction with an officer or director of the Company or any of
its Subsidiaries entered into in the ordinary course of business (including
compensation and employee benefit arrangements with any officer, director or
employee of the Company or any of its Subsidiaries, including under any stock
option or stock incentive plans). (Section 1010)
Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur or affirm any Lien of
any kind (other than Permitted Liens) securing any Pari Passu Indebtedness or
Subordinated Indebtedness (including any assumption, guarantee or other
liability with respect thereto by any Subsidiary of the Company) upon any
property or assets (including any intercompany notes) of the Company or any of
its Subsidiaries owned on the date of the Indenture or acquired after the date
of the Indenture, or any income or profits therefrom, unless the Notes are
directly secured equally and ratably with (or, in the case of Subordinated
Indebtedness, prior or senior thereto, with the same relative priority as the
Notes shall have with respect to such Subordinated Indebtedness) the
obligation or liability secured by such Lien, and except for any Lien securing
Acquired Indebtedness created prior to (and not created in connection with, or
in contemplation of) the incurrence of such Pari Passu Indebtedness or
Subordinated Indebtedness by the Company or any of its Subsidiaries which
Indebtedness is permitted under the provisions of "--Limitation on
Indebtedness"; provided that any such Lien extends only to the assets that
were subject to such Lien securing such Acquired Indebtedness prior to the
related acquisition by the Company or its Subsidiaries. (Section 1011)
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) at least 75% of the consideration from such Asset
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Sale is received in cash and (ii) the Company or such Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets subject to such Asset Sale (as determined by the board of
directors of the Company and evidenced in a board resolution); provided that
the amount of any Senior Indebtedness of the Company that is assumed by the
transferee of any asset in connection with any Asset Sale shall be deemed to
be cash for all purposes of this clause (a).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness then
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent prepayment of such Senior
Indebtedness, or if no such Senior Indebtedness is then outstanding, then the
Company or any of its Subsidiaries may, within 18 months of the Asset Sale,
invest (or enter into a legally binding commitment to invest) the Net Cash
Proceeds in properties and other assets that (as determined by the board of
directors of the Company) replace the properties and assets that were the
subject of the Asset Sale or in properties and other assets that will be used
in the businesses of the Company or its Subsidiaries existing on the date of
the Indenture or in businesses reasonably related thereto. If any such legally
binding commitment to invest such Net Cash Proceeds is terminated, then the
Company may, within 90 days of such termination or within 18 months of such
Asset Sale, whichever is later, invest such Net Cash Proceeds as provided
above. The amount of such Net Cash Proceeds not used or invested as set forth
in this paragraph constitutes "Excess Proceeds."
(c) The Indenture will provide that, when the aggregate amount of Excess
Proceeds exceeds $15 million, the Company will apply the Excess Proceeds to
the repayment of the Notes and any other Pari Passu Indebtedness outstanding
with similar provisions requiring the Company to make an offer to purchase
such Indebtedness with the proceeds from any Asset Sale as follows: (A) the
Company will make an offer to purchase (an "Offer") from all holders of the
Notes in accordance with the procedures set forth in the Indenture in the
maximum principal amount (expressed as a multiple of $1,000) of Notes that may
be purchased out of an amount (the "Note Amount") equal to the product of such
Excess Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Notes, and the denominator of which is the
sum of the outstanding principal amount of the Notes and such Pari Passu
Indebtedness (subject to proration in the event such amount is less than the
aggregate Offered Price (as defined herein) of all Notes tendered) and (B) to
the extent required by such Pari Passu Indebtedness to reduce permanently the
principal amount of such Pari Passu Indebtedness, the Company will make an
offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a
"Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the
excess of the Excess Proceeds over the Note Amount; provided that in no event
will the Company be required to make a Pari Passu Offer in a Pari Passu Debt
Amount exceeding the principal amount of such Pari Passu Indebtedness plus the
amount of any premium required to be paid to repurchase such Pari Passu
Indebtedness. The offer price for the Notes will be payable in cash in an
amount equal to 100% of the principal amount of the Notes plus accrued and
unpaid interest, if any, to the date (the "Offer Date") such Offer is
consummated (the "Offered Price"), in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate Offered Price of the Notes
tendered pursuant to the Offer is less than the Note Amount relating thereto
or the aggregate amount of Pari Passu Indebtedness that is purchased in a Pari
Passu Offer is less than the Pari Passu Debt Amount, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes and Pari Passu Indebtedness surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Upon the completion of the purchase
of all the Notes tendered pursuant to an Offer and the completion of a Pari
Passu Offer, the amount of Excess Proceeds, if any, shall be reset at zero.
(d) The Indenture will provide that, when the aggregate amount of Excess
Proceeds exceeds $15 million, such Excess Proceeds will, prior to any purchase
of Notes described in paragraph (c) above, be set aside by the Company in a
separate account pending (i) deposit with the depository or a paying agent of
the amount required to purchase the Notes tendered in an Offer or Pari Passu
Indebtedness tendered in a Pari Passu Offer, (ii) delivery by the Company of
the Offered Price to the holders of the Notes tendered in an Offer or Pari
Passu Indebtedness tendered in a Pari Passu Offer and (iii) application, as
set forth above, of Excess Proceeds in the business of the
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Company and its Subsidiaries for general corporate purposes. Such Excess
Proceeds may be invested in Cash Equivalents, provided that the maturity date
of any such investment made after the amount of Excess Proceeds exceeds $15
million shall not be later than the Offer Date. The Company shall be entitled
to any interest or dividends accrued, earned or paid on such Cash Equivalents;
provided that the Company shall not withdraw such interest from the separate
account if an Event of Default has occurred and is continuing.
(e) The Indenture will provide that, if the Company becomes obligated to
make an Offer pursuant to clause (c) above, the Notes and the Pari Passu
Indebtedness shall be purchased by the Company, at the option of the holders
thereof, in whole or in part in integral multiples of $1,000, on a date that
is not earlier than 45 days and not later than 60 days from the date the
notice of the Offer is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act.
(f) The Indenture will provide that the Company will comply with the
applicable tender offer rules, including Rule 14e-1 under the Exchange Act,
and any other applicable securities laws or regulations in connection with an
Offer.
(g) The Indenture will provide that the Company will not, and will not
permit any of its Subsidiaries to, create or permit to exist or become
effective any restriction (other than restrictions existing under (A) Pari
Passu Indebtedness or Subordinated Indebtedness as in effect on the date of
the Indenture and listed on schedules thereto as such Indebtedness may be
refinanced from time to time or (B) any Senior Indebtedness existing on the
date of the Indenture or thereafter; provided that such restrictions are no
less favorable to the holders of Notes than those existing on the date of the
Indenture) that would materially impair the ability of the Company to make an
Offer to purchase the Notes or, if such Offer is made, to pay for the Notes
tendered for purchase. (Section 1012)
Limitation on Senior Subordinated Indebtedness. The Company will not,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
in any manner become directly or indirectly liable for or with respect to or
otherwise permit to exist any Indebtedness that is subordinate by its express
terms in right of payment to any Indebtedness of the Company, unless such
Indebtedness is also pari passu with the Notes or subordinate in right of
payment to the Notes at least to the same extent as the Notes are subordinate
in right of payment to Senior Indebtedness as set forth in the Indenture.
(Section 1013)
Limitation on Issuances of Guarantees of Subordinated and Pari Passu
Indebtedness. (a) The Company will not permit any of its Subsidiaries,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Subordinated Indebtedness and Pari Passu
Indebtedness of the Company unless such Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Guarantee
of the Notes, on the same terms as the guarantee of such Indebtedness except
that (A) if any such guarantee, assumption or liability is subordinated to a
guarantee of Senior Indebtedness, the Guarantee under the supplemental
indenture shall be subordinated to such guarantee of Senior Indebtedness to
the same extent as the Notes are subordinated to Senior Indebtedness under the
Indenture and (B) if such Indebtedness constitutes Subordinated Indebtedness
any such guarantee, assumption or other liability of such Subsidiary with
respect to such Subordinated Indebtedness shall be subordinated to such
Subsidiary's Guarantee of the Notes at least to the same extent as such
Subordinated Indebtedness is subordinated to the Notes.
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of the
Company of the Notes shall provide by its terms that it shall be automatically
and unconditionally released and discharged upon any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's Capital Stock in, or all or substantially all of the assets of, such
Subsidiary; provided that such transaction is in compliance with the terms of
the Indenture and such Subsidiary is released from its guarantees of all other
Subordinated Indebtedness and Pari Passu Indebtedness of the Company. (Section
1014)
Restriction on Transfer of Assets. The Company will not sell, convey,
transfer or otherwise dispose of its assets or property to any Subsidiary of
the Company, except for sales, conveyances, transfers or other
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dispositions (a) made in the ordinary course of business or (b) to any
Subsidiary of the Company if such Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Guarantee
by such Subsidiary of the Notes on a senior subordinated basis to the same
extent as the Notes are subordinated to Senior Indebtedness. (Section 1015)
Purchase of Notes Upon a Change in Control. If a Change in Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes in whole or in
part in integral multiples of $1,000, at a purchase price (the "Change in
Control Purchase Price") in cash in an amount equal to 101% of the principal
amount of such Notes, plus accrued and unpaid interest, if any, to the date of
purchase (the "Change in Control Purchase Date"), pursuant to the offer
described below (the "Change in Control Offer") and in accordance with the
other procedures set forth in the Indenture.
Within 30 days following any Change in Control, the Company shall notify the
Trustee thereof and give written notice of such Change in Control to each
holder of Notes, by first-class mail, postage prepaid, at his address
appearing in the security register, stating, among other things: the Change in
Control Purchase Price and the Change in Control Purchase Date which shall be
fixed by the Company and shall be a business day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, or such later date as
is necessary to comply with requirements under the Exchange Act; that any Note
not tendered will continue to accrue interest; that, unless the Company
defaults in the payment of the purchase price, any Notes accepted for payment
pursuant to the Change in Control Offer shall cease to accrue interest after
the Change in Control Purchase Date; and certain other procedures that a
holder of Notes must follow to accept a Change in Control Offer or to withdraw
such acceptance.
If a Change in Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change in Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change in Control Offer. See "--Ranking." The
failure of the Company to make or consummate the Change in Control Offer or
pay the Change in Control Purchase Price when due will give the Trustee and
the holders of the Notes the rights described under "Events of Default."
The term "all or substantially all" as used in the definition of "Change in
Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance as to how a court interpreting New York law would
interpret the phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change in Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change in Control.
In addition to the obligations of the Company under the Indenture with
respect to the Notes in the event of a "Change in Control," the Company will
be obligated under the Existing Notes Indentures to purchase the Existing
Notes upon a "Change of Control" as defined in such indentures. In addition,
the Bank Credit Facility contains an event of default upon a "Change in
Control" as defined therein which obligates the Company to repay amounts
outstanding under the Bank Credit Facility upon an acceleration of the
indebtedness issued thereunder. Under the Bank Credit Facility, the Company
may be restricted from repurchasing the Notes or the Existing Notes upon a
Change in Control. See "Description of Other Indebtedness."
The provisions of the Indenture will not afford holders of Notes the right
to require the Company to repurchase the Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its Affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of the
Company by management or its Affiliates) involving the Company that may
adversely affect holders of the Notes, if such transaction is not a
transaction defined as a Change in
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Control. A transaction involving the Company's management, or a transaction
involving a recapitalization of the Company, will result in a Change in
Control if it is the type of transaction specified by such definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change in Control Offer.
The Company will not, and will not permit any of its Subsidiaries to, create
or permit to exist or become effective any restriction (other than
restrictions existing under the Bank Credit Facility (or any guarantee
thereof) or under Indebtedness as in effect on the date of the Indenture and
any extensions, refinancings, renewals or replacements of any of the
foregoing) that would materially impair the ability of the Company to make a
Change in Control Offer to purchase the Notes or, if such Change in Control
Offer is made, to pay for the Notes tendered for purchase; provided that the
restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the holders of the Notes than
those under the Indebtedness being extended, refinanced, renewed or replaced.
(Section 1016)
Limitation on Subsidiary Capital Stock. The Company will not permit (a) any
Subsidiary of the Company to issue, sell or transfer any Capital Stock, except
for (i) Capital Stock issued or sold to, held by or transferred to the Company
or a Wholly Owned Subsidiary, (ii) the ownership by directors of directors'
qualifying shares or the ownership by foreign nationals of Capital Stock of
any Subsidiary of the Company, to the extent required by applicable law and
(iii) Capital Stock issued by a Person prior to the time (A) such Person
becomes a Subsidiary of the Company, (B) such Person merges with or into a
Subsidiary of the Company or (C) a Subsidiary of the Company merges with or
into such Person; provided that such Capital Stock was not issued or incurred
by such Person in anticipation of the type of transaction contemplated by
subclause (A), (B) or (C) or (b) any Person (other than the Company or a
Wholly Owned Subsidiary) to acquire Capital Stock of any Subsidiary of the
Company from the Company or any Wholly Owned Subsidiary except, in the case of
clause (a) or (b), upon the acquisition of all the outstanding Capital Stock
of such Subsidiary which is not in violation with any other terms of the
Indenture. (Section 1017)
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any of its Subsidiaries to (i) pay dividends or make any other
distribution on its Capital Stock, (ii) pay any Indebtedness owed to the
Company or any other of its Subsidiaries, (iii) make any Investment in the
Company or any other Subsidiary or (iv) transfer any of its properties or
assets to the Company or any other of its Subsidiaries, except for: (a) any
agreement in effect on the date of the Indenture; (b) any encumbrance or
restriction, with respect to a Subsidiary of the Company that is not a
Subsidiary of the Company on the date of the Indenture, in existence at the
time such Person becomes a Subsidiary of the Company and not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary of
the Company; (c) any encumbrance or restriction existing by reason of
applicable law; (d) any encumbrance or restriction existing under any
customary non-assignment provisions of any lease governing a leasehold
interest of the Company or any Subsidiary of the Company; (e) any encumbrance
or restriction contained in any working capital facility of a foreign
Subsidiary of the Company; and (f) any encumbrance or restriction existing
under any agreement that extends, renews, refinances or replaces the
agreements containing the encumbrances or restrictions in the foregoing
clauses (a) and (b), or in this clause (f), provided that the terms and
conditions of any such encumbrances or restrictions are no more restrictive in
any material respect than those under or pursuant to the agreement evidencing
the Indebtedness so extended, renewed, refinanced or replaced. (Section 1018)
Limitation on Unrestricted Subsidiaries. The Company will not make, and will
not permit its Subsidiaries to make, any Investment in an Unrestricted
Subsidiary if, at the time thereof, the amount of such Investment would exceed
the amount of Restricted Payments then permitted to be made pursuant to the
"--Limitation on Restricted Payments" covenant plus the amount of Permitted
Investments described in clauses (ix) and (x) of the definition thereof then
permitted to be made. Any Investment in an Unrestricted Subsidiary permitted
to be
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made pursuant to this covenant (i) will be treated as a Restricted Payment
(unless such Investment was a Permitted Investment) in calculating the amount
of Restricted Payments made by the Company and (ii) may be made in cash or
property. (Section 1019)
Provision of Financial Statements. The Indenture provides that, whether or
not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the
Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) if the Company were so
subject, such documents to be filed with the Commission on or prior to the
date (the "Required Filing Date") by which the Company would have been
required so to file such documents if the Company were so subject. The Company
will also in any event (x) within 15 days of each Required Filing Date (i)
transmit by mail to all holders, as their names and addresses appear in the
security register, without cost to such holders and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act if the Company were subject to
either of such Sections and (y) if filing such documents by the Company with
the Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective holder at the Company's cost.
(Section 1020)
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; and (vii) maintenance of insurance.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of affiliated Persons,
or permit any of its Subsidiaries to enter into any such transaction or series
of related transactions if such transaction or series of related transactions,
in the aggregate, would result in a sale, assignment, conveyance, transfer,
lease or disposition of all or substantially all of the properties and assets
of the Company and its Subsidiaries on a Consolidated basis to any other
Person or group of affiliated Persons, unless at the time and after giving
effect thereto (i) either (a) the Company will be the continuing corporation
or (b) the Person (if other than the Company) formed by such consolidation or
into which the Company is merged or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition of all or substantially
all of the properties and assets of the Company and its Subsidiaries on a
Consolidated basis (the "Surviving Entity") will be a corporation duly
organized and validly existing under the laws of the United States of America,
any state thereof or the District of Columbia and such Person expressly
assumes, by a supplemental indenture, in a form satisfactory to the Trustee,
all the obligations of the Company under the Notes and the Indenture, as the
case may be, and the Notes and the Indenture will remain in full force and
effect as so supplemented; (ii) immediately before and immediately after
giving effect to such transaction on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or any of its
Subsidiaries which becomes the obligation of the Company or any of its
Subsidiaries as a result of such transaction as having been incurred at the
time of such transaction), no Default or Event of Default will have occurred
and be continuing; (iii) immediately before and immediately after giving
effect to such transaction on a pro forma basis (on the assumption that the
transaction occurred on the first day of the four-quarter period immediately
prior to the consummation of such transaction with the appropriate adjustments
with respect to the transaction being included in such pro forma calculation),
the Company (or the Surviving Entity if the Company is not the continuing
obligor under the Indenture) could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the provisions of "--Certain
Covenants--Limitation on Indebtedness"; and (iv) at the time of the
transaction the Company or the Surviving Entity will have delivered, or caused
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the
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Trustee, an officers' certificate and an opinion of counsel, each to the
effect that such consolidation, merger, transfer, sale, assignment,
conveyance, transfer, lease or other transaction and the supplemental
indenture in respect thereof comply with the Indenture and that all conditions
precedent therein provided for relating to such transaction have been complied
with. (Section 801)
In the event of any transaction described in and complying with the
conditions listed in the two immediately preceding paragraphs in which the
Company is not the continuing corporation, the successor Person formed or
remaining shall succeed to, and be substituted for, and may exercise every
right and power of, the Company, and the Company (except in the case of a
lease) would be discharged from all obligations and covenants under the
Indenture and the Notes. (Section 802)
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, if any, required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under the Indenture (other than a
default in the performance, or breach, of a covenant or agreement which is
specifically dealt with in clause (i) or (ii) or in clause (b), (c) or (d)
of this clause (iii)) and such default or breach shall continue for a
period of 30 days after written notice has been given, by certified mail,
(x) to the Company by the Trustee or (y) to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding Notes; (b) there shall be a default in the performance or
breach of the provisions described in "--Consolidation, Merger, Sale of
Assets"; (c) the Company shall have failed to make or consummate an Offer
in accordance with the provisions of "--Certain Covenants--Limitation on
Sale of Assets"; or (d) the Company shall have failed to make or consummate
a Change in Control Offer in accordance with the provisions of "--Certain
Covenants--Purchase of Notes Upon a Change in Control";
(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company or any of its
Subsidiaries then has outstanding Indebtedness in excess of $10 million in
the aggregate and, if such Indebtedness has not already matured at its
final maturity in accordance with its terms, such Indebtedness shall have
been accelerated;
(v) one or more judgments, orders or decrees for the payment of money in
excess of $5 million, either individually or in the aggregate, shall be
rendered against the Company or any of its Subsidiaries or any of their
respective properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (b) there shall have been a period of 60 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of an appeal or otherwise, shall not be in effect;
(vi) any holder or holders of at least $10 million in aggregate principal
amount of Indebtedness of the Company or any of its Subsidiaries after a
default under such Indebtedness shall notify the Trustee of the intended
sale or disposition of any assets of the Company or any of its Subsidiaries
that have been pledged to or for the benefit of such holder or holders to
secure such Indebtedness or shall commence proceedings, or take any action
(including by way of set-off), to retain in satisfaction of such
Indebtedness or to collect on, seize, dispose of or apply in satisfaction
of Indebtedness, assets of the Company or any of its Subsidiaries
(including funds on deposit or held pursuant to lock-box and other similar
arrangements);
(vii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any of its Subsidiaries in an involuntary case or proceeding under any
applicable Bankruptcy Law or (b) a decree or order adjudging the Company or
any of its Subsidiaries
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bankrupt or insolvent, or seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company or any of its Subsidiaries
under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any of its Subsidiaries or of any substantial
part of their respective properties, or ordering the winding up or
liquidation of their respective affairs, and any such decree or order for
relief shall continue to be in effect, or any such other decree or order
shall be unstayed and in effect, for a period of 60 consecutive days; or
(viii) (a) the Company or any of its Subsidiaries commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any
of its Subsidiaries consents to the entry of a decree or order for relief
in respect of the Company or any such Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, (c) the Company
or any of its Subsidiaries files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (d) the
Company or any of its Subsidiaries (I) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official
of the Company or any such Subsidiary or of any substantial part of their
respective properties, (II) makes an assignment for the benefit of
creditors or (III) admits in writing its inability to pay its debts
generally as they become due or (e) the Company or any of its Subsidiaries
takes any corporate action in furtherance of any such actions in this
paragraph (viii). (Section 501)
If an Event of Default (other than as specified in clauses (vii) and (viii)
of the prior paragraph) shall occur and be continuing with respect to the
Indenture, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on all Notes to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by the holders
of the Notes) and upon any such declaration, such principal, premium, if any,
and interest shall become due and payable immediately. If an Event of Default
specified in clause (vii) or (viii) of the prior paragraph occurs and is
continuing, then all the Notes shall ipso facto become and be due and payable
immediately in an amount equal to the principal amount of the Notes, together
with accrued and unpaid interest, if any, to the date the Notes become due and
payable, without any declaration or other act on the part of the Trustee or
any holder. Thereupon, the Trustee may, at its discretion, proceed to protect
and enforce the rights of the holders of Notes by appropriate judicial
proceedings.
After a declaration of acceleration but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (ii) all overdue interest on
all Notes then outstanding, (iii) the principal of and premium, if any, on any
Notes then outstanding which have become due otherwise than by such
declaration of acceleration and interest thereon at a rate borne by the Notes
and (iv) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; and (b) all Events of
Default, other than the non-payment of principal of, premium, if any, and
interest on the Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in the Indenture. (Section
502)
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all outstanding Notes waive
any past default under the Indenture and its consequences, except a default in
the payment of the principal of, premium, if any, or interest on any Note or
in respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Note affected by
such modification or amendment. (Section 513)
The Company is also required to notify the Trustee within 10 business days
of the occurrence of any Default. The Company is required to deliver to the
Trustee not more than 120 days after the end of each fiscal
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year, a written statement as to compliance with the Indenture, including
whether or not any Default has occurred. (Section 1021) The Trustee is under
no obligation to exercise any of the rights or powers vested in it by the
Indenture at the request or direction of any of the holders of the Notes
unless such holders offer to the Trustee security or indemnity satisfactory to
the Trustee against the costs, expenses and liabilities which might be
incurred thereby. (Section 603)
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage
in other transactions, provided that if it acquires any conflicting interest
it must eliminate such conflict upon the occurrence of an Event of Default or
else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and any other obligor upon the Notes discharged
with respect to the outstanding Notes ("defeasance"). Such defeasance means
that the Company and any other obligor under the Indenture shall be deemed to
have paid and discharged the entire Indebtedness represented by the
outstanding Notes, except for (i) the rights of holders of such outstanding
Notes to receive payments in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes, and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee and (iv) the defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of
the Company released with respect to certain covenants that are described in
the Indenture ("covenant defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or an Event of Default
with respect to the Notes. In the event covenant defeasance occurs, certain
events (not including non-payment, bankruptcy and insolvency events) described
under "Events of Default" will no longer constitute a Default or an Event of
Default with respect to the Notes. (Sections 401, 402 and 403)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity (or on any date after
September 15, 2001 (such date being referred to as the "Defeasance Redemption
Date"), if at or prior to electing either defeasance or covenant defeasance,
the Company has delivered to the Trustee an irrevocable notice to redeem all
of the outstanding Notes on the Defeasance Redemption Date); (ii) in the case
of defeasance, the Company shall have delivered to the Trustee an opinion of
independent counsel in the United States stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of independent counsel in the United States shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred; (iii) in the case of covenant defeasance, the Company shall
have delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such covenant defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as clauses (vii) or (viii) under the first paragraph under "--Events
of Default" are concerned, at any time during the period
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ending on the 91st day after the date of deposit; (v) such defeasance or
covenant defeasance shall not cause the Trustee to have a conflicting interest
as defined in the Indenture and for purposes of the Trust Indenture Act with
respect to any securities of the Company; (vi) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
Default under, the Indenture or any other material agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it is
bound; (vii) such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(viii) the Company will have delivered to the Trustee an opinion of
independent counsel in the United States to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (ix) the Company shall have delivered
to the Trustee an officers' certificate stating that the deposit was not made
by the Company with the intent of preferring the holders of the Notes over the
other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; (x) no event or
condition shall exist that would prevent the Company from making payments of
the principal of, premium, if any, and interest on the Notes on the date of
such deposit or at any time ending on the 91st day after the date of such
deposit; and (xi) the Company will have delivered to the Trustee an officers'
certificate and an opinion of independent counsel, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with. (Section
404)
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all outstanding Notes
under the Indenture when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid or Notes whose payment has been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year, or (z) are to be called for redemption within one year under
arrangements satisfactory to the applicable Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company;
and the Company has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust an amount in United States dollars sufficient
to pay and discharge the entire indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, including principal of, premium, if
any, and accrued interest at such Maturity, Stated Maturity or redemption
date; (b) the Company has paid or caused to be paid all other sums payable
under the Indenture by the Company; and (c) the Company has delivered to the
Trustee an officers' certificate and an opinion of independent counsel each
stating that (i) all conditions precedent under the Indenture relating to the
satisfaction and discharge of such Indenture have been complied with and (ii)
such satisfaction and discharge will not result in a breach or violation of,
or constitute a default under, the Indenture or any other material agreement
or instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound. (Section 1301)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of at least a majority of
aggregate principal amount of the Notes then outstanding; provided, however,
that no such modification or amendment may, without the consent of the holder
of each
outstanding Note affected thereby: (i) change the Stated Maturity of the
principal of, or any installment of interest on, or waive a default in the
payment of the principal or interest on any such Note or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal of
any such Note or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after the
Stated Maturity thereof (or, in the case of redemption, on or after the
redemption date); (ii) amend, change or modify the obligation of the Company
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to make and consummate an Offer with respect to any Asset Sale or Asset Sales
in accordance with "--Certain Covenants--Limitation on Sale of Assets" or the
obligation of the Company to make and consummate a Change in Control Offer in
the event of a Change in Control in accordance with "--Certain Covenants--
Purchase of Notes Upon a Change in Control," including, in each case,
amending, changing or modifying any definitions relating thereto; (iii) reduce
the percentage in principal amount of such outstanding Notes, the consent of
whose holders is required for any such supplemental indenture, or the consent
of whose holders is required for any waiver or compliance with certain
provisions of the Indenture; (iv) modify any of the provisions relating to
supplemental indentures requiring the consent of holders or relating to the
waiver of past defaults or relating to the waiver of certain covenants, except
to increase the percentage of such outstanding Notes required for such actions
or to provide that certain other provisions of the Indenture cannot be
modified or waived without the consent of the holder of each such Note
affected thereby; (v) except as otherwise permitted under "--Consolidation,
Merger, Sale of Assets," consent to the assignment or transfer by the Company
of any of its rights and obligations under the Indenture; or (vi) amend or
modify any of the provisions of the Indenture relating to the subordination of
the Notes in any manner adverse to the holders of the Notes. (Section 902)
Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company and the Trustee may modify or amend the Indenture: (a) to
evidence the succession of another Person to the Company, and the assumption
by any such successor of the covenants of the Company in the Indenture and in
the Notes in accordance with "--Consolidation, Merger, Sale of Assets"; (b) to
add to the covenants of the Company or any other obligor upon the Notes for
the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company or any other obligor upon the Notes, as applicable,
in the Indenture or in the Notes; (c) to cure any ambiguity, or to correct or
supplement any provision in the Indenture or the Notes which may be defective
or inconsistent with any other provision in the Indenture or the Notes or make
any other provisions with respect to matters or questions arising under the
Indenture or the Notes; provided that, in each case, such provisions shall not
adversely affect the interest of the holders of the Notes; (d) to comply with
the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; (e) to add a
Guarantor under the Indenture; (f) to evidence and provide the acceptance of
the appointment of a successor Trustee under the Indenture; or (g) to
mortgage, pledge, hypothecate or grant a security interest in favor of the
Trustee for the benefit of the holders of the Notes as additional security for
the payment and performance of the Company's obligations under the Indenture,
in any property, or assets, including any of which are required to be
mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to the Indenture or otherwise.
(Section 901)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1022)
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary of the Company or (ii) assumed in
connection with the acquisition of assets from such Person, in each case,
other than Indebtedness incurred in connection with, or in contemplation of,
such Person becoming a Subsidiary of the Company or such acquisition, as the
case may be. Acquired Indebtedness shall be deemed to be incurred on the date
of the related acquisition of assets from any Person or the date the acquired
Person becomes a Subsidiary of the Company, as the case may be.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or
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director of any such specified Person or other Person or, with respect to any
natural Person, any person having a relationship with such Person by blood,
marriage or adoption not more remote than first cousin; or (iii) any other
Person 5% or more of the Voting Stock of which is beneficially owned or held
directly or indirectly by such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Subsidiary of the Company; (ii) all or substantially all of the
properties and assets of any division or line of business of the Company or
any of its Subsidiaries; or (iii) any other properties or assets of the
Company or any Subsidiary of the Company other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any transfer of properties and assets (A) that is governed by the
provisions described under "--Consolidation, Merger, Sale of Assets," (B) that
is by any Subsidiary of the Company to the Company or any Wholly Owned
Subsidiary in accordance with the terms of the Indenture, (C) that is of
inventory in the ordinary course of business, (D) that is of obsolete
equipment in the ordinary course of business or (E) the Fair Market Value of
which in the aggregate during any 12 month period, for all such transfers,
does not exceed $5 million.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of (a) the number of years from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Bank Credit Facility" means the Bank Credit Agreement, dated as of November
28, 1995, among the Company, the Banks, and Fleet Bank of Massachusetts, N.A.,
as such agreement, in whole or in part, may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time (including, without limitation, any successive
renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing
regardless of the amount of borrowings permitted thereunder, which borrowings
were incurred in accordance with the Indenture).
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Banks" means the lenders under the Bank Credit Facility.
"Capital Lease Obligation" of any Person means any obligation of such Person
and its Subsidiaries on a Consolidated basis under any capital lease of real
or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable
for or convertible into such capital stock, whether now outstanding or issued
after the date of the Indenture.
"Cash Equivalents" means (i) any evidence of Indebtedness, maturing not more
than one year after the date of acquisition, issued by the United States of
America, or an instrumentality or agency thereof, and guaranteed fully as to
principal, premium, if any, and interest by the United States of America, (ii)
any money market deposit account, demand deposit account, time deposit or
certificate of deposit, maturing not more than one year after the date of
acquisition, of a commercial banking institution organized under the laws of
the United
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States of America, any State thereof, the District of Columbia, or any foreign
country recognized by the United States of America and which institution has
combined capital and surplus and undivided profits of not less than $200
million, (iii) any time deposit or certificate of deposit, maturing more than
one year after the date of acquisition, of a commercial banking institution
organized under the laws of the United States of America, any State thereof,
the District of Columbia, or any foreign country recognized by the United
States of America and which institution has combined capital and surplus and
undivided profits of not less than $200 million and whose debt has a rating,
at the time as of which any investment therein is made, of "P-1" (or higher)
according to Moody's Investors Service, Inc. ("Moody's") or any successor
rating agency or "A-1" (or higher) according to Standard & Poor's Corporation
("S&P") or any successor rating agency, (iv) commercial paper, maturing not
more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of the Company) organized and existing
under the laws of the United States of America with a rating, at the time as
of which any investment therein is made, of "P-1" (or higher) according to
Moody's or "A-1" (or higher) according to S&P and (v) any money market deposit
account, demand deposit account, time deposit or certificate of deposit of
Union Planters National Bank; provided that Union Planters National Bank has
combined capital and surplus and undivided profits of not less than $100
million.
"Change in Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders (including any Permitted
Holders that are part of a "group"), is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have beneficial ownership of all shares that such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly (including, without
limitation, through direct or indirect purchase or beneficial ownership of
Capital Stock of an entity referred to in clause (ii) of the definition of
"Permitted Holders"), of more than 50% of the total voting power of all
outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of the Company (together with any new directors whose
election to such board or whose nomination for election by the stockholders of
the Company was approved by a vote of 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), cease for any
reason to constitute a majority of such board of directors then in office;
(iii) the Company consolidates with or merges with or into any Person or
conveys, transfers or leases all or substantially all of its assets to any
Person, or any corporation consolidates with or merges into or with the
Company in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is changed into or exchanged for cash, securities
or other property, other than any such transaction where the outstanding
Voting Stock of the Company is not affected or is not changed or exchanged at
all (except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company or the formation of a holding company for the
Company as described in clause (ii) of the definition of "Permitted Holders"
or where (A) the outstanding Voting Stock of the Company is changed into or
exchanged for (x) Voting Stock of the surviving corporation which is not
Redeemable Capital Stock or (y) cash, securities and other property (other
than Capital Stock of the surviving corporation) in an amount which could be
paid by the Company as a Restricted Payment as described under "--Certain
Covenants--Limitation on Restricted Payments" (and such amount shall be
treated as a Restricted Payment subject to the provisions in the Indenture
described under "--Certain Covenants--Limitation on Restricted Payments"), and
(B) no "person" or "group", other than Permitted Holders (including any
Permitted Holders as part of a "group"), "beneficially owns" immediately after
such transaction, directly or indirectly (including, without limitation,
through direct or indirect purchase or beneficial ownership of Capital Stock
of an entity referred to in clause (ii) of the definition of "Permitted
Holders"), more than 50% of the total voting power of all outstanding Voting
Stock of the surviving corporation); or (iv) the Company is liquidated or
dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under "--
Consolidation, Merger, Sale of Assets."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing
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and performing the duties now assigned to it under the Trust Indenture Act then
the body performing such duties at such time.
"Commodity Price Protection Agreement" means any forward contract, commodity
swap, commodity option or other similar financial agreement or arrangement
relating to, or the value of which is dependent upon, fluctuations in commodity
prices.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company.
"Company" means Buckeye Cellulose Corporation, a corporation incorporated
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of the Indenture, and thereafter
"Company" shall mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss),
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-cash Charges deducted in computing Consolidated Net Income (Loss) in each
case, for such period, of such Person and its Subsidiaries on a Consolidated
basis, all determined in accordance with GAAP to (b) the Consolidated Interest
Expense for such period; provided that (i) in making such computation, the
Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a pro forma basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of such Person, a fixed or floating rate of interest, shall be computed
by applying at the option of such Person either the fixed or floating rate and
(ii) in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated Subsidiaries for such period as determined in accordance with
GAAP.
"Consolidated Interest Expense" of any Person means, without duplication, for
any period, the sum of (a) the interest expense of such Person and its
Subsidiaries for such period, on a Consolidated basis, including, without
limitation, (i) amortization of debt discount, (ii) the net costs associated
with Interest Rate Agreements, Currency Hedging Agreements and Commodity Price
Protection Agreements (including amortization of discounts), (iii) the interest
portion of any deferred payment obligation and (iv) accrued interest, plus (b)
(i) the interest component of the Capital Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its Subsidiaries
during such period and (ii) all capitalized interest of such Person and its
Subsidiaries plus (c) the interest expense under any Guaranteed Debt of such
Person and its Subsidiaries to the extent not included under clause (a)(iv)
above, plus (d) the aggregate amount during such period of cash or non-cash
dividends paid on any Redeemable Capital Stock or Preferred Stock of the
Company and its Subsidiaries, in each case as determined on a Consolidated
basis in accordance with GAAP.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its Subsidiaries for such
period on a Consolidated basis as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income (or loss), by excluding,
without duplication, (i) all extraordinary gains or losses (less all fees and
expenses relating thereto), (ii) the portion of net income (or loss) of such
Person and its Subsidiaries on a Consolidated basis allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined
with such Person or any of its Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains (or losses) (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary course
of business, (vi) the net income of any Subsidiary of such Person to the extent
that the declaration of dividends or similar distributions by that Subsidiary
of that income is not at the time
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permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders,
(vii) any restoration to income of any contingency reserve, except to the
extent provision for such reserve was made out of income accrued at any time
following the date of the Indenture, or (viii) any gain arising from the
acquisition of any securities, or the extinguishment, under GAAP, of any
Indebtedness of such Person.
"Consolidated Net Worth" of any Person, as of a date, means the Consolidated
stockholders' equity (excluding Redeemable Capital Stock and treasury stock) of
such Person and its Subsidiaries, as of such date, as determined in accordance
with GAAP.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Subsidiaries on a Consolidated basis for such period, as determined in
accordance with GAAP (excluding any non-cash charge which requires an accrual
or reserve for cash charges for any future period).
"Consolidated Tangible Assets" of any Person means (a) all amounts that would
be shown as assets on a consolidated balance sheet of such Person and its
Subsidiaries prepared in accordance with GAAP less (b) the amount thereof
constituting goodwill and other intangible assets as calculated in accordance
with GAAP.
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its Subsidiaries (other than Unrestricted
Subsidiaries) if and to the extent the accounts of such Person and each of its
Subsidiaries (other than Unrestricted Subsidiaries) would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Currency Hedging Arrangements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: foreign
exchange contracts, currency swap agreements or other similar agreements or
arrangements designed to protect against the fluctuations in currency values.
"Default" means any event which is, or after notice or passage of any time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the board of directors of the Company who
does not have any material direct or indirect financial interest (other than
solely as a result of equity ownership in the Company) in or with respect to
such transaction or series of related transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute.
"Existing Senior Notes" means the 10 1/4% Senior Notes Due 2001 of the
Company.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally accepted
accounting principles in the United States, consistently applied, which are in
effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Company's Indenture
Obligations.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness below
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to
pay or purchase such Indebtedness or to advance or supply funds for the payment
or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or
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services without requiring that such property be received or such services be
rendered), (iv) to maintain working capital or equity capital of the debtor,
or otherwise to maintain the net worth, solvency or other financial condition
of the debtor or (v) otherwise to assure a creditor against loss; provided
that the term "guarantee" shall not include endorsements for collection or
deposit, in either case, in the ordinary course of business.
"Guarantor" means any Subsidiary of the Company which becomes a guarantor of
the Notes after the date of the Indenture by executing a Guarantee pursuant to
the terms of the Indenture until a successor replaces such party pursuant to
the applicable provisions of the Indenture and, thereafter, shall mean such
successor.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person in connection with any letters of credit issued under letter of
credit facilities, acceptance facilities or other similar facilities and in
connection with any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, now or hereafter outstanding,
(ii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade payables arising
in the ordinary course of business, (iv) all obligations under Interest Rate
Agreements, Currency Hedging Agreements or Commodity Price Protection
Agreements of such Person, (v) all Capital Lease Obligations of such Person,
(vi) all Indebtedness referred to in clauses (i) through (v) above of other
Persons and all dividends of other Persons, the payment of which is secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien, upon or with respect to
property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness, (vii) all Guaranteed Debt of such Person,
(viii) all Redeemable Capital Stock issued by such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends, and (ix) any amendment, supplement,
modification, deferral, renewal, extension, refunding or refinancing of any
liability of the types referred to in clauses (i) through (viii) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the Fair Market Value of such Redeemable
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer of such Redeemable Capital Stock.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes, including any Guarantor, to
pay principal of, premium, if any, and interest when due and payable, and all
other amounts due or to become due under or in connection with the Indenture,
the Notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the Notes, according to the respective terms
thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest
rate protection agreements (including, without limitation, interest rate
swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase, acquisition or ownership by such Person of any Capital Stock,
bonds, notes, debentures or other securities issued or owned by any other
Person and all other items that would be classified as investments on a
balance sheet prepared in accordance with GAAP.
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<PAGE>
"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), security interest, assignment, deposit, arrangement, easement,
hypothecation, claim, preference, priority or other encumbrance upon or with
respect to any property of any kind (including any conditional sale, capital
lease or other title retention agreement, any leases in the nature thereof,
and any agreement to give any security interest), real or personal, movable or
immovable, now owned or hereafter acquired.
"Maturity" means, when used with respect to the Notes, the date on which the
principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect
of Excess Proceeds, Change in Control Offer in respect of a Change in Control,
call for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof (without duplication in respect of all Asset Sales) in
the form of cash including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when disposed of for,
cash (except to the extent that such obligations are financed or sold with
recourse to the Company or any of its Subsidiaries) net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii)
payments made to retire Indebtedness where payment of such Indebtedness is
secured by the assets or properties the subject of such Asset Sale, (iv)
amounts required to be paid to any Person (other than the Company or any
Subsidiary of the Company) owning a beneficial interest in the assets subject
to the Asset Sale, (v) appropriate amounts to be provided by the Company or
any Subsidiary of the Company, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and
retained by the Company or any Subsidiary of the Company, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters
and liabilities under any indemnification obligations associated with such
Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee and (vi) any amounts required to be placed by the Company or any
Subsidiary of the Company in a restricted escrow or reserve account by the
terms of the agreements pursuant to which the Asset Sale is made, provided
that any such amounts shall be deemed to be Net Cash Proceeds of an Asset Sale
upon the release of such amounts to the Company or any Subsidiary and (b) with
respect to any issuance or sale of Capital Stock or options, warrants or
rights to purchase Capital Stock, or debt securities or Capital Stock that
have been converted into or exchanged for Capital Stock as referred to under
"--Certain Covenants--Limitation on Restricted Payments," the proceeds of such
issuance or sale in the form of cash including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets
when disposed of for, cash (except to the extent that such obligations are
financed or sold with recourse to the Company or any of its Subsidiaries), net
of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is pari
passu in right of payment to the Notes.
"Permitted Holders" means (i) the individuals and related entities listed on
a schedule to the Indenture and (ii) any corporation (or other entity) which
owns all of the outstanding Capital Stock of the Company if such entity
acquires such ownership in a transaction in which the former owners of all of
the Capital Stock of the Company acquire proportionate ownership of all of the
Capital Stock (or similar equity ownership interest) of such entity (or any
parent organization which owns all of the outstanding Capital Stock (or
similar equity ownership interest) of such entity).
"Permitted Indebtedness" means:
(i) Indebtedness of the Company under the Bank Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed the
greater of (a) $155 million and (b) 85% of accounts receivable and 50% of
inventory of the Company and its Subsidiaries under a borrowing-based
facility based on accounts receivable and inventory (each as determined in
accordance with GAAP);
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(ii) Indebtedness of the Company pursuant to the Notes;
(iii) guarantees of any of the Company's Subsidiaries of Indebtedness of
the Company; provided such Indebtedness and guarantees are incurred in
accordance with the terms of the Indenture;
(iv) Indebtedness of the Company or any of its Subsidiaries outstanding
on the date of the Indenture and listed on a schedule thereto;
(v) Indebtedness of the Company owing to any of its Subsidiaries;
provided that any Indebtedness of the Company owing to a Subsidiary of the
Company is made pursuant to an intercompany note in the form attached to
the Indenture and is subordinated in right of payment from and after such
time as the Notes shall become due and payable (whether at Stated Maturity,
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Notes; provided, further, that any disposition,
pledge or transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to a Subsidiary of the Company) shall be
deemed to be an incurrence of such Indebtedness by the Company not
permitted by this clause (v);
(vi) Indebtedness of a Wholly Owned Subsidiary owing to the Company or
another Wholly Owned Subsidiary; provided that any such Indebtedness is
made pursuant to an intercompany note in the form attached to the
Indenture; provided, further, that (a) any disposition, pledge or transfer
of any such Indebtedness to a Person (other than the Company or a Wholly
Owned Subsidiary) shall be deemed to be an incurrence of such Indebtedness
by the obligor not permitted by this clause (vi), and (b) any transaction
pursuant to which any Wholly Owned Subsidiary, which has Indebtedness owing
to the Company or any other Wholly Owned Subsidiary, ceases to be a Wholly
Owned Subsidiary shall be deemed to be the incurrence of Indebtedness by
such Wholly Owned Subsidiary that is not permitted by this clause (vi);
(vii) obligations of the Company entered into in the ordinary course of
business (a) pursuant to Interest Rate Agreements designed to protect the
Company or any of its Subsidiaries against fluctuations in interest rates
in respect of Indebtedness of the Company or any of its Subsidiaries as
long as such obligations do not exceed the aggregate principal amount of
such Indebtedness then outstanding, (b) under any Currency Hedging
Arrangements, which if related to Indebtedness do not increase the amount
of such Indebtedness other than as a result of foreign exchange
fluctuations, or (c) under any Commodity Price Protection Agreements, which
if related to Indebtedness do not increase the amount of such Indebtedness
other than as a result of foreign exchange fluctuations;
(viii) Indebtedness of the Company or any of its Subsidiaries incurred to
finance construction of a pipeline and other environmental expenditures,
pursuant to an agreement reached between the Florida Department of
Environmental Protection and the Company, not to exceed $40 million
outstanding at any one time in the aggregate;
(ix) Indebtedness of the Company or any of its Subsidiaries evidenced by
Purchase Money Obligations and Capital Lease Obligations not to exceed $5
million outstanding at any one time in the aggregate;
(x) Indebtedness of the Company or any of its Subsidiaries incurred after
the date of the Indenture relating to letters of credit supporting workers
compensation obligations not to exceed $6 million outstanding at any one
time in the aggregate;
(xi) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness described
in clauses (ii) and (iv) of this definition of "Permitted Indebtedness,"
including any successive refinancings so long as the aggregate principal
amount of Indebtedness represented thereby is not increased by such
refinancing plus the lesser of (I) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (II) the
amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing and (A) in the case of
any refinancing of Indebtedness that is Subordinated Indebtedness, such new
Indebtedness is made subordinated to the Notes at least to the same extent
as the Indebtedness being refinanced and (B) in the case of Pari Passu
Indebtedness or Subordinated
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Indebtedness, as the case may be, such refinancing does not reduce the
Average Life to Stated Maturity or the Stated Maturity of such
Indebtedness; and
(xii) Indebtedness of the Company in addition to that described in
clauses (i) through (xi) above, and any renewals, extensions,
substitutions, refinancings or replacements of such Indebtedness, so long
as the aggregate principal amount of all such Indebtedness shall not exceed
$25 million outstanding at any one time in the aggregate.
"Permitted Investment" means (i) Investments in any Wholly Owned Subsidiary
or any Person which, as a result of such Investment, (a) becomes a Wholly
Owned Subsidiary or (b) is merged or consolidated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into, the
Company or any Wholly Owned Subsidiary; (ii) Indebtedness of the Company or a
Subsidiary of the Company described under clauses (v), (vi) and (vii) of the
definition of "Permitted Indebtedness"; (iii) Cash Equivalents; (iv)
Investments acquired by the Company or any Subsidiary of the Company in
connection with an Asset Sale permitted under "--Certain Covenants--Limitation
on Sale of Assets" to the extent such Investments are non-cash proceeds as
permitted under such covenant; (v) Investments in existence on the date of the
Indenture; (vi) loans or advances to employees made in the ordinary course of
business and consistent with past practices of the Company and its
Subsidiaries not to exceed $2 million outstanding at any one time in the
aggregate; (vii) loans made to employees (including guarantees of loans by
third parties to employees) from time to time in an aggregate principal amount
at any one time outstanding not to exceed $1 million, the proceeds of which
are used to purchase Capital Stock of the Company; (viii) sales of goods on
trade credit terms, consistent with the past practices of the Company or any
Subsidiary of the Company or as otherwise consistent with trade credit terms
in common use in the industry; (ix) Investments valued at Fair Market Value at
the time made in Unrestricted Subsidiaries not to exceed $10 million
outstanding at any one time in the aggregate; and (x) in addition to
Investments described in clauses (i) through (ix) of this definition of
"Permitted Investments," Investments valued at Fair Market Value at the time
made not to exceed $15 million outstanding at any one time in the aggregate.
"Permitted Lien" means any Lien arising by reason of taxes not yet
delinquent or which are being contested in good faith.
"Permitted Subsidiary Indebtedness" means (i) Acquired Indebtedness of any
Subsidiary of the Company and (ii) Indebtedness of any Subsidiary of the
Company, provided that the aggregate outstanding principal amount of
Indebtedness of all of the Company's Subsidiaries incurred pursuant to this
clause (ii) shall not at any given time exceed 10% of the Company's
Consolidated Tangible Assets as of the date of determination.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten offer and sale of Common
Stock by the Company to the public pursuant to a registration statement (other
than Form S-8 or any successor form or forms or a registration statement
relating to securities issuable by or in connection with any benefit plan of
such Person) that has been declared effective by the Commission pursuant to
the Securities Act.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or any of its Subsidiaries and
any additions and accession thereto, which are purchased by the Company or any
of its Subsidiaries at any time after the Notes are issued; provided that (i)
the security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets is created (collectively a "Purchase
Money Security Agreement") shall be entered into within 90 days after the
purchase,
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<PAGE>
acquisition or substantial completion of the construction of such assets and
shall at all times be confined solely to the assets so purchased, acquired or
constructed, any additions and accessions thereto and any proceeds therefrom,
(ii) at no time shall the aggregate principal amount of the outstanding
Indebtedness secured thereby be increased, except in connection with the
purchase of additions and accessions thereto and except in respect of fees and
other obligations in respect of such Indebtedness and (iii) (A) the aggregate
outstanding principal amount of Indebtedness secured thereby (determined on a
per asset basis in the case of any additions and accessions) shall not at the
time such Purchase Money Security Agreement is entered into exceed 100% of the
purchase price to the Company or its Subsidiaries of the assets subject
thereto or (B) the Indebtedness secured thereby shall be with recourse solely
to the assets so purchased or acquired, any additions and accessions thereto
and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable
or otherwise, is or upon the happening of an event or passage of time would
be, required to be redeemed prior to any Stated Maturity of the principal of
the Notes or is redeemable at the option of the holder thereof at any time
prior to any such Stated Maturity, or is convertible into or exchangeable for
debt securities at any time prior to any such Stated Maturity at the option of
the holder thereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Senior Note Indenture" means the indenture dated as of May 27, 1993 between
the Company and Bankers Trust Company, as trustee, relating to the Existing
Senior Notes.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as
the fixed date on which the principal of such Indebtedness or such installment
of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company subordinated
in right of payment to the Notes.
"Subsidiary" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by another
Person or by one or more of such other Person's other Subsidiaries, or by such
other Person and one or more of such other Person's other Subsidiaries;
provided that any Unrestricted Subsidiary shall not be deemed a Subsidiary of
the Company under the Notes.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any successor statute.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary if all of the following conditions apply: (a) neither the Company
nor any of its Subsidiaries provides credit support for Indebtedness of such
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness), (b) such Unrestricted Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness, (c) any Investment in such Unrestricted
Subsidiary made as a result of designating such Subsidiary an Unrestricted
Subsidiary shall not violate the provisions of "--Certain Covenants--
Limitation on Unrestricted Subsidiaries" and such Unrestricted Subsidiary is
not party to any agreement, contract, arrangement or understanding at such
time with the Company or any other Subsidiary of the Company unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to the Company or such other Subsidiary than those
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<PAGE>
that might be obtained at the time from Persons who are not Affiliates of the
Company or, in the event such condition is not satisfied, the value of such
agreement, contract, arrangement or understanding to such Unrestricted
Subsidiary shall be deemed a Restricted Payment; and (d) such Unrestricted
Subsidiary does not own any Capital Stock in any Subsidiary of the Company
which is not simultaneously being designated an Unrestricted Subsidiary. Any
such designation by the Board of Directors of the Company shall be evidenced
to the Trustee by filing with the Trustee a board resolution giving effect to
such designation and an officers' certificate certifying that such designation
complies with the foregoing conditions and shall be deemed a Restricted
Payment on the date of designation in an amount equal to the greater of (1)
the net book value of such Investment or (2) the Fair Market Value of such
Investment as determined in good faith by the Company's Board of Directors.
The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Subsidiary of the Company; provided that either (x) the
Unrestricted Subsidiary to be designated a Subsidiary of the Company has total
assets of $1,000 or less at the time of its designation or (y) (i) immediately
after giving effect to such designation, the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
restrictions under "--Certain Covenants--Limitation on Indebtedness" and (ii)
all Indebtedness of such Unrestricted Subsidiary shall be deemed to be
incurred on the date such Unrestricted Subsidiary is designated a Subsidiary
of the Company.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither the
Company nor any of its Subsidiaries is directly or indirectly liable (by
virtue of the Company or any such Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such Indebtedness),
except Guaranteed Debt of the Company or any of its Subsidiaries to any
Affiliate, in which case (unless the incurrence of such Guaranteed Debt
resulted in a Restricted Payment at the time of incurrence) the Company shall
be deemed to have made a Restricted Payment equal to the principal amount of
any such Indebtedness to the extent guaranteed at the time such Affiliate is
designated an Unrestricted Subsidiary and (ii) which, upon the occurrence of a
default with respect thereto, does not result in, or permit any holder of any
Indebtedness of the Company or any of its Subsidiaries to declare, a default
on such Indebtedness of the Company or any of its Subsidiaries or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time Capital Stock of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary of the Company all the Capital
Stock of which is owned by the Company or another Wholly Owned Subsidiary. For
purposes of this definition any directors' qualifying shares or investments by
foreign nationals mandated by applicable law shall be disregarded in
determining the ownership of a Subsidiary of the Company.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company and Salomon Brothers Inc and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (collectively, the
"Underwriters"), the Company has agreed to issue and sell to the Underwriters,
and each of the Underwriters severally has agreed to purchase from the
Company, the Notes in the respective principal amounts of such Notes set forth
opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Salomon Brothers Inc.................................... $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
------------
Total............................................... $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions set forth therein. The Underwriters will be
obligated to purchase all the Notes offered hereby if any Notes are purchased.
The Underwriters have advised the Company that the Underwriters propose
initially to offer the Notes to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Notes. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of % of such principal amount. After the Offering, the public
offering price and such concessions may be changed.
The Company does not intend to list the Notes on any national securities
exchange. The Underwriters have indicated that they intend to make a market in
the Notes, subject to applicable laws and regulations. However, the
Underwriters are not obligated to do so and any such market-making may be
discontinued at any time at the sole discretion of the Underwriters without
notice. Accordingly, no assurance can be given that any market for the Notes
will develop, or, if any such market develops, as to the liquidity of such
market. See "Risk Factors--Absence of Public Market for the Notes; Lack of
Liquidity."
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, or contribute to payments the Underwriters may be
required to make in respect thereof.
The Company has agreed, during a period of 90 days after the date of this
Prospectus, not to offer, issue, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, or register for sale by others, any debt
securities with terms and provisions that are substantially the same as those
of the Notes, other than the initial sale of the Notes without the prior
written consent of Salomon Brothers Inc.
The Underwriters have rendered financial advisory and investment banking
services to the Company and its affiliates from time to time, for which they
have received customary fees, and the Underwriters may similarly do so in the
future. Salomon Brothers Inc is providing financial advisory services to the
Company in connection with the Company Stock Repurchase and has provided the
Company's board of directors with an opinion regarding the fairness from a
financial point of view of the price to be paid in connection therewith. In
addition, the Underwriters are acting as underwriters in connection with the
Equity Offering.
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LEGAL MATTERS
The validity of the Notes being offered hereby and certain other legal
matters relating to the Offering will be passed upon for the Company by
Kirkland & Ellis, Chicago, Illinois. Certain legal matters will be passed upon
for the Underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The combined consolidated financial statements of Buckeye Cellulose
Corporation and Affiliates as of and for the years ended June 30, 1994 and
1995 and for the period March 16, 1993 through June 30, 1993 and the combined
statement of operating income of the Predecessor for the period July 1, 1992
through March 15, 1993 included in this Prospectus and in the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Buckeye Cellulose Corporation as of
and for the years ended June 30, 1994 and 1995 and for the period March 16,
1993 through June 30, 1993 and the combined statement of operating income of
the Memphis Mill Operations of the Procter & Gamble Cellulose Company for the
period July 1, 1992 through March 15, 1993 incorporated by reference in this
Prospectus and in this Registration Statement from the Annual Report on Form
10-K have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing therein, and are included in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of the Temming Business as of and for the year
ended December 31, 1995 included in this Prospectus have been audited by
Dipl.-Ing. Wolf Gadecke, Wirtschaftsprufer, independent auditors, as set forth
in his report thereon appearing herein and in the Registration Statement, and
are included in reliance upon such report given upon his authority as an
expert in accounting and auditing.
The consolidated financial statements of Alpha Cellulose Holdings, Inc. and
Subsidiaries at December 31, 1995 and for the year then ended included in this
Prospectus and the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon
appearing herein and elsewhere in the Registration Statement, and have been so
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can
be inspected, and copies may be obtained, at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, as well as at the following Regional Offices of the Commission: Seven
World Trade Center, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Reports, proxy
statements and other information concerning the Company can also be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005, where the Common Stock of the Company is listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 (as amended, including exhibits, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"),
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covering the Notes offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference.
1. Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended September
30, 1995, December 31, 1995 and March 31, 1996.
3. Current Report on Form 8-K dated May 2, 1996, as amended on Form 8-K/A
dated May 10, 1996.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering made hereunder shall be deemed to
be incorporated by reference in this Prospectus and to be part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which 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 Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or
oral request of such person, a copy of any or all of the documents which have
been or may be incorporated by reference in this Prospectus, other than
exhibits to such documents not specifically described above. Requests for such
documents should be directed to the Company.
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BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
Report of Independent Auditors........................................... F-2
Combined Consolidated Balance Sheets--June 30, 1994 and 1995 and March
31, 1996 (unaudited).................................................... F-3
Combined Consolidated Statements of Income--For the period March 16, 1993
through June 30, 1993, for years ended June 30, 1994 and June 30, 1995
and for the nine months ended March 31, 1995 (unaudited) and 1996
(unaudited)............................................................. F-4
Combined Consolidated Statements of Equity--For the period March 16, 1993
through June 30, 1993, for the years ended June 30, 1994 and June 30,
1995.................................................................... F-5
Combined Consolidated Statements of Cash Flows--For the period March 16,
1993 through June 30, 1993, for the years ended June 30, 1994 and June
30, 1995 and for the nine months ended March 31, 1995 (unaudited) and
1996 (unaudited)........................................................ F-6
Notes to Combined Consolidated Financial Statements...................... F-7
THE PROCTER & GAMBLE CELLULOSE COMPANY--MEMPHIS PLANT AND FOLEY PLANT
OPERATIONS
Report of Independent Auditors........................................... F-19
Combined Statement of Operating Income--For the period July 1, 1992
through March 15, 1993.................................................. F-20
Notes to Combined Statement of Operating Income--For the period July 1,
1992 through March 15, 1993............................................. F-21
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
Report of Independent Auditors........................................... F-24
Balance Sheet--December 31, 1995......................................... F-25
Income Statement--For the year ended December 31, 1995................... F-27
Notes to Financial Statements............................................ F-28
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Auditors........................................... F-32
Consolidated Balance Sheets--December 31, 1995 and March 31, 1996
(unaudited)............................................................. F-33
Consolidated Statement of Income--for the year ended December 31, 1995
and for the three months ended March 31, 1995 (unaudited) and 1996
(unaudited)............................................................. F-34
Consolidated Statements of Stockholder' Equity--for the year ended
December 31, 1995....................................................... F-35
Consolidated Statements of Cash Flows--for the year ended December 31,
1995 and for the three months ended March 31, 1995 (unaudited) and 1996
(unaudited)............................................................. F-36
Notes to Consolidated Financial Statements............................... F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Buckeye Cellulose Corporation and Affiliated Companies
We have audited the accompanying combined consolidated balance sheets as of
June 30, 1994 and 1995, of Buckeye Cellulose Corporation and affiliates, and
the related combined consolidated statements of income, equity, and cash flows
for the period March 16, 1993 through June 30, 1993 and for the years ended
June 30, 1994 and 1995. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined consolidated financial statements referred to
above present fairly, in all material respects, the combined consolidated
financial position at June 30, 1994 and 1995, of Buckeye Cellulose Corporation
and affiliates, and the combined consolidated results of their operations and
their cash flows for the period March 16, 1993 through June 30, 1993 and for
the years ended June 30, 1994 and 1995 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Memphis, Tennessee
July 28, 1995
F-2
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
COMBINED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
----------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 7,101 $ 11,789 $ --
Short-term investments......................... 10,775 9,706 2,900
Accounts receivable--trade, net of allowance
for doubtful accounts of $2,494, $1,152 and
$1,028 at June 30, 1994 and 1995 and March 31,
1996, respectively............................ 38,631 43,519 48,427
Accounts receivable--other..................... 727 548 473
Inventories.................................... 65,046 61,947 90,581
Deferred income taxes.......................... 1,206 541 2,666
Prepaid expenses and other..................... 1,222 2,530 5,800
-------- -------- --------
Total current assets......................... 124,708 130,580 150,847
Property, plant and equipment:
Land and land improvements..................... 3,972 3,980 3,990
Buildings...................................... 35,881 36,842 37,687
Machinery and equipment........................ 212,627 232,653 234,068
Construction in progress....................... 6,264 8,696 17,226
-------- -------- --------
258,744 282,171 292,971
Less allowances for depreciation............... 30,853 54,072 50,382
-------- -------- --------
227,891 228,099 242,589
Goodwill......................................... 17,613 16,998 7,675
Other............................................ 3,992 3,379 7,254
-------- -------- --------
Total assets................................. $374,204 $379,056 $408,365
======== ======== ========
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable......................... $ 9,565 $ 14,908 $ 18,305
Accounts payable--Procter & Gamble............. 3,148 688 --
Accrued expenses............................... 28,411 27,937 30,222
Income taxes payable........................... -- 1,230 1,222
Notes payable.................................. -- 8,500 --
Current portion of long-term debt.............. 14,108 -- --
Other liabilities.............................. 146 210 71
-------- -------- --------
Total current liabilities.................... 55,378 53,473 49,820
Long-term debt................................... 203,482 166,202 197,364
Accrued postretirement benefit obligation........ 12,024 12,400 12,802
Deferred income taxes............................ 2,334 5,848 16,450
Other liabilities................................ 4,679 4,408 4,321
Minority interest................................ 33,479 52,104 --
Equity:
Common stock: Buckeye Cellulose Corporation.... 2 2 214
Common stock: Buckeye Florida Corporation...... 2 2 --
Additional paid-in capital..................... 45,152 45,233 58,807
Retained earnings.............................. 17,672 39,384 68,587
-------- -------- --------
Total equity................................. 62,828 84,621 127,608
-------- -------- --------
Total liabilities and equity................. $374,204 $379,056 $408,365
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 16, 1993 YEAR ENDED JUNE 30, MARCH 31,
THROUGH -------------------- --------------------
JUNE 30, 1993 1994 1995 1995 1996
-------------- --------- --------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $113,074 $ 371,526 $ 408,587 $301,318 $ 338,825
Cost of goods sold...... 86,047 291,833 305,150 230,247 237,149
-------- --------- --------- -------- ----------
Gross margin............ 27,027 79,693 103,437 71,071 101,676
Selling, research and
administrative
expenses............... 5,996 24,004 24,265 16,446 18,497
-------- --------- --------- -------- ----------
Operating income........ 21,031 55,689 79,172 54,625 83,179
Other income (expense):
Interest income......... 351 314 1,138 704 925
Interest expense and
amortization of debt
costs.................. (10,560) (26,859) (22,290) (17,214) (13,709)
Other................... (184) (632) (615) (462) (372)
Minority interest....... (3,083) (8,291) (23,223) (14,881) (16,628)
Secondary offering
costs.................. -- -- -- -- (1,335)
-------- --------- --------- -------- ----------
(13,476) (35,468) (44,990) (31,853) (31,119)
-------- --------- --------- -------- ----------
Income before income
taxes and extraordinary
loss................... 7,555 20,221 34,182 22,772 52,060
Income taxes............ 2,851 7,253 12,470 8,308 18,908
-------- --------- --------- -------- ----------
Income before
extraordinary loss..... 4,704 12,968 21,712 14,464 33,152
Extraordinary loss, net
of tax benefit......... (3,949)
-------- --------- --------- -------- ----------
Net income.............. $ 4,704 $ 12,968 $ 21,712 $ 14,464 $ 29,203
======== ========= ========= ======== ==========
Earnings per share:
Income before extraor-
dinary loss.......... $ 1.58
Extraordinary loss,
net of tax benefit... (0.19)
----------
Net income per share.... $ 1.39
==========
Weighted average shares
outstanding............ 21,014,032
==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
COMBINED CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON
STOCK
----------- ADDITIONAL
CLASS CLASS PAID-IN RETAINED
A B CAPITAL EARNINGS TOTAL
----- ----- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at March 16, 1993.............. $ $ $ $ $
Issuance of 100,000 Class A and
100,000 Class B shares of BCC common
stock............................... 1 1 17,554 -- 17,556
Issuance of 100,000 Class A and
100,000 Class B shares of BFC common
stock............................... 1 1 20,998 -- 21,000
Net income........................... -- -- -- 4,704 4,704
--- --- ------- ------- -------
Balance at June 30, 1993............... 2 2 38,552 4,704 43,260
Issuance of 12,500 Class A and 43,125
Class B shares of BCC common stock.. -- -- 2,552 -- 2,552
Issuance of 12,500 Class A and 43,125
Class B shares of BFC common stock.. -- -- 3,048 -- 3,048
Partners' capital contribution....... -- -- 1,000 -- 1,000
Net income........................... -- -- -- 12,968 12,968
--- --- ------- ------- -------
Balance at June 30, 1994............... 2 2 45,152 17,672 62,828
Issuance of 3,377 Class B shares of
BCC common stock.................... -- -- 38 -- 38
Issuance of 4,287 Class B shares of
BFC common stock.................... -- -- 43 -- 43
Net income........................... -- -- -- 21,712 21,712
--- --- ------- ------- -------
Balance at June 30, 1995............... $ 2 $ 2 $45,233 $39,384 $84,621
=== === ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE NINE MONTHS
MARCH 16, 1993 30, ENDED MARCH 31,
THROUGH ---------------- -----------------
JUNE 30, 1993 1994 1995 1995 1996
-------------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................ $ 4,704 $12,968 $21,712 $14,464 $ 29,203
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Extraordinary loss, net
of tax benefit......... -- -- -- -- 3,949
Minority interest....... 3,083 8,291 23,223 14,881 16,628
Depreciation............ 6,541 24,613 23,784 17,874 18,127
Amortization of debt
costs and other........ 629 2,009 2,113 1,876 1,625
Interest on Class B
senior secured notes... 210 770 592 592 --
Provision for
postretirement
benefits............... 434 1,611 376 282 402
Deferred income taxes... 287 2,743 4,179 2,828 3,329
Loss on disposal of
equipment.............. 86 202 947 830 241
Changes in operating
assets and liabilities:
Accounts receivable... 27,452 4,702 (4,709) (5,551) (4,833)
Inventories........... 5,974 17,683 3,099 9,542 (28,634)
Prepaid expenses and
other assets......... (1,357) 1,463 (1,124) (1,706) (3,479)
Accounts payable and
other current
liabilities.......... 25,213 9,333 3,595 5,576 5,634
--------- ------- ------- ------- --------
Net cash provided by
operating activities..... 73,256 86,388 77,787 61,488 42,192
INVESTING ACTIVITIES
Purchase of Memphis and
Foley Plants, net of cash
acquired................. (20,676) -- -- -- --
Purchase of minority
interest in Buckeye
Florida Partners......... -- -- -- -- (62,078)
Purchases of property,
plant and equipment...... (4,898) (15,725) (24,922) (20,713) (22,334)
Purchases of short-term
investments.............. -- (14,743) (13,616) (10,186) (2,920)
Proceeds from sales of
short-term investments... -- 3,968 14,685 10,803 9,726
Other..................... (722) 704 (1,074) (1,120) (686)
--------- ------- ------- ------- --------
Net cash used in investing
activities............... (26,296) (25,796) (24,927) (21,216) (78,292)
FINANCING ACTIVITIES
Proceeds from sale of
equity interests......... 38,556 6,600 81 81 13,149
Proceeds from revolving
line of credit and long-
term debt................ 90,444 6,000 8,500 -- 207,439
Payments for debt issuance
costs.................... (3,773) -- -- -- (5,506)
Partners' capital
distributions............ -- (2,895) (4,598) (2,838) (1,590)
Principal payments on
revolving line of credit,
long-term debt and other. (161,000) (74,383) (52,155) (28,245) (189,181)
--------- ------- ------- ------- --------
Net cash (used in)
provided by financing
activities............... (35,773) (64,678) (48,172) (31,002) 24,311
--------- ------- ------- ------- --------
Increase (decrease) in
cash and cash
equivalents.............. 11,187 (4,086) 4,688 9,270 (11,789)
Cash and cash equivalents
at beginning of period... -- 11,187 7,101 7,101 11,789
--------- ------- ------- ------- --------
Cash and cash equivalents
at end of period......... $ 11,187 $ 7,101 $11,789 $16,371 $ --
========= ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Business Description and Basis of Presentation
The combined consolidated financial statements of Buckeye Cellulose
Corporation and affiliates (the "Company") include Buckeye Cellulose
Corporation ("BCC") and subsidiary, Buckeye Florida Corporation ("BFC") and
subsidiary and Buckeye Partners. These entities are under the common ownership
of Madison Dearborn Capital Partners ("MDCP") and management.
Under an agreement dated March 16, 1993, the assets comprising the cotton
linter pulp business and certain assets of the headquarters of the Cellulose
and Specialties Division of The Procter & Gamble Cellulose Company ("Procter &
Gamble Cellulose") were acquired for cash of $19,322,256, the issuance of an
$89,000,000 bridge note (the "Bridge Note"), and other acquisition costs of
approximately $1,583,000 by BCC, a newly incorporated company formed by MDCP.
Under an agreement dated March 16, 1993, BFC, then a wholly-owned subsidiary
of MDCP, and Procter & Gamble Cellulose formed Buckeye Florida, Limited
Partnership ("Buckeye Florida Partners"). BFC contributed cash of $25,000,000
for a 50% general partnership interest in Buckeye Florida Partners, and
Procter & Gamble Cellulose contributed accounts receivable of $25,000,000 for
a 50% limited partnership interest in Buckeye Florida Partners.
Simultaneously, Buckeye Florida Partners acquired all of the assets of the
wood pulp business located in Foley, Florida from Procter & Gamble Cellulose
for cash of $25,000,000, the issuance of notes payable of $266,503,419 and
other acquisition costs of approximately $4,426,000.
The wood pulp assets and cotton linter pulp assets so acquired are
hereinafter referred to collectively as the "Predecessor" and the acquisitions
of such assets are hereinafter referred to collectively as the "Acquisitions."
The Acquisitions were accounted for using the purchase method of accounting.
The Company manufactures and distributes a broad variety of wood and cotton
linter based specialty pulp used in numerous applications including disposable
diapers, engine air and oil filters, food casings, rayon textile filament,
tapes, thickeners, and papers.
Change in Inventory Valuation Method
Buckeye Florida Partners changed its method of allocating manufacturing
overhead costs to inventory to base the allocation upon the proportionate
percentage of total tonnage produced by each respective plant line. The new
method results in a more appropriate cost allocation to products produced on
each plant line. The change was retroactively applied to all periods
presented.
Principles of Consolidation
The consolidated financial statements of BCC include the accounts of its
wholly-owned subsidiary, Buckeye Cellulose S.A. The consolidated financial
statements of BFC include the accounts of Buckeye Florida Partners, in which
BFC has a 50% general partnership interest. BFC has a controlling financial
interest in Buckeye Florida Partners because it has sole voting control. The
limited partner's interest in Buckeye Florida Partners is included in the
combined consolidated financial statements as a minority interest. All
significant intercompany accounts and transactions have been eliminated in
combination and consolidation.
Cash and Cash Equivalents
The Company considers cash equivalents to be temporary cash investments with
a maturity of three months or less when purchased.
F-7
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Short-term Investments
Short-term investments consist primarily of government backed securities and
commercial paper of an investment grade.
Inventories
Pulpwood, raw cotton lint inventories, the lint component of finished linter
pulp, chemicals and storeroom supplies are stated at lower of cost (determined
on the average cost method) or market. The remaining components of finished
pulp, including other raw materials, labor, and overhead are stated at lower
of cost (determined on a first-in, first-out basis) or market.
Property, Plant and Equipment
Property, plant and equipment purchased in the Acquisitions was restated to
its fair market value at the date of the Acquisitions. All property, plant and
equipment purchased since the Acquisitions, is stated at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets. The cost of maintenance, repairs, and minor renewals and betterments
are expensed as incurred. The cost of major renewals and betterments are
capitalized.
Intangible Assets
Goodwill is amortized by the straight-line method over thirty years.
Deferred debt costs are amortized by the interest method over the life of the
related debt. Goodwill is net of accumulated amortization of $815,438 and
$1,429,561 and deferred debt costs are net of accumulated amortization of
$683,095 and $1,190,706 at June 30, 1994 and 1995, respectively. During the
year ended June 30, 1994, the Company recorded a non-current deferred tax
asset of $511,687 and reduced goodwill by the same amount due to a state tax
credit generated by the purchase of certain assets in connection with the
Acquisitions.
Income Taxes
The Company has provided for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Accordingly, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Credit Risk
The Company generally obtains credit insurance or requires the customer to
provide a letter of credit for export sales. Credit limits have been
established for each domestic customer and those foreign customers where
credit insurance is not available. Credit limits are monitored routinely. It
is not the Company's policy to require collateral or other security for
domestic or foreign sales.
Environmental Costs
Liabilities are recorded when environmental assessments are probable, and
the cost can be reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or the
Company's commitment to a plan of action based on the then known facts.
Revenue Recognition
Revenues from domestic and export sales are recognized at the time products
are shipped. Net sales is comprised of sales reduced by sales allowances and
distribution costs.
F-8
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Historical Earnings Per Share
Earnings per share has not been presented for periods prior to June 30,
1995, as it is not considered relevant to the historical combined consolidated
financial statements.
Unaudited Interim Financial Statements
The unaudited combined consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1996.
2. INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................... $ 7,513 $ 9,317 $13,867
Finished goods................................... 41,824 36,887 62,244
Storeroom and other supplies..................... 15,709 15,743 14,470
------- ------- -------
$65,046 $61,947 $90,581
======= ======= =======
</TABLE>
3. ACCRUED EXPENSES
The components of accrued expenses are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1994 1995
------- -------
<S> <C> <C>
Retirement plans.......................................... $ 9,824 $12,731
Vacation pay.............................................. 3,326 3,003
Shutdown accrual.......................................... 6,720 3,527
Rebate accrual............................................ 1,749 3,154
Other..................................................... 6,792 5,522
------- -------
$28,411 $27,937
======= =======
</TABLE>
4. DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1994 1995
-------- --------
<S> <C> <C>
10 1/4% Senior Notes due May 15, 2001........................ $ 70,000 $ 64,720
10% Class A Senior Secured Notes due March 16, 2000.......... 58,000 26,000
Non-interest Bearing Class B Senior Secured Notes due March
16, 1995 effective interest rate of 9%...................... 8,108 --
12% Subordinated Secured Notes due March 16, 2003............ 75,000 75,000
10% Class D Senior Secured Note (Revolving Line of Credit)... 6,000 --
5.29% Promissory Note due March 22, 1999..................... 482 482
-------- --------
$217,590 $166,202
Less current portion......................................... 14,108 --
-------- --------
$203,482 $166,202
======== ========
</TABLE>
F-9
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The unsecured notes consist of senior notes issued by BCC on May 27, 1993 in
a public offering of debt securities totaling $70,000,000 bearing interest at
10 1/4% with a maturity date of May 15, 2001 (the "Existing Notes"). These
Existing Notes are unsecured senior obligations and are equal (pari passu) in
the right of payment with all existing and future indebtedness of BCC which is
not subordinated indebtedness. During the year ended June 30, 1995, BCC
purchased and retired $5,280,000 of its debt securities.
The Existing Notes are redeemable at the option of BCC, in whole or in part,
at any time on or after May 15, 1998, at the redemption prices (expressed as
percentages of principal amount) set forth below, if redeemed during the 12
month period beginning May 15 of the years indicated below in each case
together with accrued and unpaid interest to the date of redemption.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1998.................... 103.875%
1999.................... 101.937
2000 and thereafter..... 100.000
</TABLE>
In addition, up to $14,000,000 aggregate principal amount of the Existing
Notes will be redeemable prior to May 20, 1996, at the option of BCC within
180 days of the consummation of any public offering at 106% of the principal
amount together with accrued and unpaid interest to the date of redemption.
As a mandatory sinking fund for the redemption of the Existing Notes, BCC
will deposit with a trustee on each of May 15, 1999 and May 15, 2000, 33% of
the original aggregate principal plus accrued interest to the redemption date.
If less than all of the Existing Notes are to be redeemed, the trustee shall
select the Existing Notes or portions thereof to be redeemed by lot or by any
other method the trustee shall deem fair and reasonable. BCC may, at its
option, receive a credit against sinking fund obligations equal to 100% of the
aggregate principal amount of Existing Notes acquired by BCC and surrendered
to the trustee for cancellation and of Existing Notes redeemed or called for
redemption otherwise than through operation of the sinking fund that have not
previously been so credited for such purpose by the trustee.
The secured notes issued by Buckeye Florida Partners are secured by land,
buildings, machinery and equipment of the Company and are held by Procter &
Gamble Cellulose under a financing agreement (the "Financing Agreement"). The
Financing Agreement requires Buckeye Florida Partners to maintain certain
financial ratios and limits the amount of annual capital expenditures. In
addition, these notes are subject to mandatory prepayment based on available
cash flow at the end of each fiscal year as defined by the Financing
Agreement. All prepayments made will be applied to the Class A Senior Secured
Notes until the principal amount has been reduced to zero and then to the
Subordinated Secured Notes.
Buckeye Florida Partners has an available line of credit under the Class D
Senior Secured Note agreement which allows for borrowings up to $30,000,000,
provided by Procter & Gamble Cellulose expiring on March 16, 2003. Amounts
outstanding under the revolving credit facility bear interest at a rate of
10%. At June 30, 1995, there were no outstanding borrowings under the line of
credit.
The Financing Agreement restricts partner distributions to those necessary
for the partners to make income tax payments on the partnership's taxable
income.
BCC has a $15,000,000 credit facility which provides for a revolving line of
credit, with interest, at BCC's option, at either the bank's prime rate plus
1.25%, or at the 30-day LIBOR rate plus 2.50%, and letters of credit. BCC is
required, among other things, to pay a commitment fee of 1/2% per annum on the
average unused portion of the revolving credit facility and a letter of credit
fee of 1% per annum of the average daily face amount of outstanding letters of
credit. At June 30, 1994 and 1995, there was no outstanding balance on the
credit facility.
F-10
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1995, there are three letters of credit totaling $1,007,000 for
workers' compensation claims outstanding, which expire in 1996. The unused
portion of the credit facility is $13,993,000 at June 30, 1995. Obligations
under the credit facility, which expires May 27, 1998, are secured by a lien
upon all of BCC's securities and a negative pledge with respect to BCC's other
assets. Pursuant to the terms of the credit facility, BCC is required to
maintain certain financial ratios, is limited in the amount of capital
expenditures, and is prohibited from paying dividends.
Buckeye Florida Partners has a line of credit available for borrowings up to
$10,000,000 with a financial institution expiring on June 30, 1996. Amounts
outstanding under the line of credit bear interest at the bank's floating
prime rate less 1.5% (7.5% at June 30, 1995). Buckeye Florida Partners has the
right to fix any portion of the commitment for periods of 30, 60 or 90 days at
a rate of LIBOR plus 1% (7.125% at June 30, 1995). The line of credit is
secured by a standby letter of credit issued by The Procter & Gamble Company
("Procter & Gamble"). At June 30, 1995, $1,500,000 was available for
additional borrowings under the line of credit.
Total interest paid by the Company for the period March 16, 1993 through
June 30, 1993 and for the years ended June 30, 1994 and 1995 was $8,937,000,
$25,866,000, and $21,755,000, respectively.
5. EQUITY
BCC
BCC has authorized and outstanding Class A and Class B Common Stock, both
with a $.01 par value. Authorized shares of Class A Common Stock are 200,000,
and issued and outstanding shares of Class A Common Stock are 112,500 shares
at June 30, 1994 and 1995. Authorized shares of Class B Common Stock are
300,000, and issued and outstanding are 143,125 shares and 146,502 shares at
June 30, 1994 and 1995, respectively.
During the year ended June 30, 1994, BCC finalized the "1994 Incentive Stock
Option Plan for Management Employees of BCC". Under the provisions of the
plan, options to purchase 25,000 shares of Class B Common Stock at a purchase
price of $11.20 per share were granted. The options are exercisable over three
to five year periods based on achieving certain performance targets. During
the years ended June 30, 1994 and 1995, 5,625 and 3,377 options were
exercised, respectively. At June 30, 1995, 15,998 options were outstanding of
which 5,197 were exercisable.
Holders of Class A Common Stock are entitled to a priority distribution.
Distributions by BCC to holders of Class A and Class B Common Stock shall be
made in the following priority: (1) the aggregate unpaid yield on Class A
Common Stock at 12% per annum calculated quarterly on the sum of the
unreturned yield base of $155.56 and the amount of unpaid yield for all prior
quarters ($5,157,000 at June 30, 1995); (2) the unreturned yield base on Class
A Common Stock; (3) distributions in excess of priority distributions on Class
A Common Stock will be made to holders of Class A and Class B Common Stock
ratably based upon the number of common shares held by each such holder as of
the time of such distribution.
BFC
BFC has authorized and outstanding Class A and Class B Common Stock, both
with a $.01 par value. Authorized shares of Class A Common Stock are 200,000,
and issued and outstanding shares of Class A Common Stock are 112,500 shares
at June 30, 1994 and 1995. Authorized shares of Class B Common Stock are
300,000, and issued and outstanding are 143,125 shares and 147,412 shares at
June 30, 1994 and 1995, respectively.
F-11
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the year ended June 30, 1994, BFC finalized the "1994 Incentive Stock
Option Plan for Management Employees of BFC". Under the provisions of the
plan, options to purchase 25,000 shares of Class B Common Stock at a purchase
price of $10.00 per share were granted. The options are exercisable over three
to five year periods based on achieving certain performance targets. During
the years ended June 30, 1994 and 1995, 5,625 and 4,287 options were
exercised, respectively. At June 30, 1995, 15,088 options were outstanding, of
which 4,287 were exercisable.
Holders of BFC Class A Common Stock are entitled to a priority distribution.
Distributions by BFC to holders of Class A and Class B Common Stock shall be
made in the following priority: (1) the aggregate unpaid yield on Class A
Common Stock at 13% per annum calculated quarterly on the sum of the
unreturned yield base of $200.00 and the amount of unpaid yield for all prior
quarters ($7,257,000 at June 30, 1995); (2) the unreturned yield base on Class
A Common Stock; (3) distributions in excess of priority distributions on Class
A Common Stock will be made to holders of Class A and Class B Common Stock
ratably based upon the number of common shares held by each such holder as of
the time of such distribution.
At March 16, 1993, BFC and Procter & Gamble Cellulose entered into a Call
Option Agreement (the P&G Call Option) whereby BFC has the irrevocable and
unconditional option to purchase Procter & Gamble Cellulose's limited
partnership interest in Buckeye Florida Partners at any time prior to March
16, 2000. The P&G Call Option may only be exercised if Procter & Gamble
Cellulose and all Procter & Gamble affiliates cease to hold Class A Senior
Secured Notes, Subordinated Secured Notes and Class D Senior Secured Notes
issued by Buckeye Florida Partners on March 16, 1993. If BFC exercises the P&G
Call Option on or before March 16, 1998, the call price will be the sum of
$35,000,000 plus interest thereon at the rate of 23.4% per annum, compounded
annually, calculated from March 16, 1993 until the date the P&G Call Option is
exercised. If BFC exercises the P&G Call Option subsequent to March 16, 1998
and on or before March 16, 2000, the call price shall be the sum of
$100,148,360 plus interest of $41,096 per day for each day from the first day
of the period commencing March 16, 1998 to the date that the P&G Call Option
is exercised.
At March 16, 1993, BFC and Procter & Gamble Cellulose entered into a Put
Agreement (the "Put") whereby BFC has the irrevocable and unconditional option
to require Procter & Gamble Cellulose to purchase BFC's general partnership
interest in Buckeye Florida Partners during the period beginning March 16,
1998 and ending June 16, 1998. The Put may also be exercised in certain
circumstances in which the P&G Loans are accelerated. If the Put is exercised
on or after March 16, 1998, the exercise price will be $25,000,000. If the Put
is exercised prior to March 16, 1998, the exercise price will be $25,000,000,
discounted at a rate of 6% per annum.
Buckeye Partners
Buckeye Partners has outstanding the following partnership units at June 30,
1994 and 1995:
<TABLE>
<CAPTION>
UNITS AMOUNT
------- ----------
<S> <C> <C>
Class A Common Units................................... 112,500 $ 985,000
Class B Common Units................................... 137,500 13,750
Class C Common Units................................... 12,500 625
Class D Common Units................................... 12,500 625
------- ----------
Partners' Capital...................................... 275,000 $1,000,000
======= ==========
</TABLE>
Class A Common Units have a priority distribution equivalent to the amount
outstanding at June 30, 1995. Partners' contributions have been included in
additional paid-in capital.
F-12
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 16, 1993 JUNE 30,
THROUGH --------------
JUNE 30, 1993 1994 1995
-------------- ------ -------
<S> <C> <C> <C>
Current:
Federal................................... $2,202 $4,366 $ 7,256
State and other........................... 362 144 1,035
------ ------ -------
$2,564 $4,510 $ 8,291
Deferred:
Federal................................... 283 2,499 3,652
State..................................... 4 244 527
------ ------ -------
287 2,743 4,179
------ ------ -------
Total................................... $2,851 $7,253 $12,470
====== ====== =======
</TABLE>
Significant components of the Company's deferred tax assets (liabilities)
are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
1994 1995
------------------- ------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............. $ -- $(3,490) $-- $(5,934)
Book income in excess of tax income
from partnership (Buckeye Florida
Partners)............................. -- (3,364) -- (7,454)
Other.................................. (176) (11) (205) (251)
Deferred tax assets:
Postretirement benefit plan obligation. -- 1,353 -- 1,399
Inventory costs capitalized for tax in
excess of book costs.................. 683 -- 359 --
State tax credit carryforward.......... -- 401 -- 452
Alternative minimum tax credit
carryforward.......................... -- 2,777 -- 4,984
Nondeductible reserves................. 466 -- 332 --
Other.................................. 233 -- 55 956
------ ------- ---- -------
Net deferred tax assets
(liabilities)....................... $1,206 $(2,334) $541 $(5,848)
====== ======= ==== =======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate of 35% due to the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 16, 1993 YEAR ENDED JUNE 30,
THROUGH ---------------------
JUNE 30, 1993 1994 1995
-------------- --------- ----------
<S> <C> <C> <C>
Federal tax expense at statutory
rate.............................. $ 2,644 $ 7,077 $ 11,932
State taxes, net of federal tax
benefit........................... 238 426 693
Other, net......................... (31) (250) (155)
------- --------- ----------
$ 2,851 $ 7,253 $ 12,470
======= ========= ==========
</TABLE>
The Company paid income taxes of $7,040,000 and $6,884,000 during the fiscal
years ended June 30, 1994 and 1995, respectively.
The Company has a state tax credit carryforward of approximately $452,000
which expires in 2010 and alternative minimum tax carryforwards of
approximately $4,984,000 which have no expiration date.
F-13
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
Effective July 1, 1993 the Company has a defined contribution retirement
plan covering substantially all employees. The Company contributes 1% of the
employee's base compensation plus 1/2% for each year of service up to a
maximum of 11% of the employee's base compensation. The plan also provides for
additional contributions by the Company contingent upon the Company's results
of operations. Expense for the years ended June 30, 1994 and 1995 was
$6,336,000 and $7,125,000, respectively.
Effective July 1, 1993, the Company also adopted a profit sharing plan
covering substantially all employees. Under the plan, the Company provides
contributions contingent upon the Company's results of operations and
employees may contribute up to 10% of gross salary. During the period March
16, 1993 through June 30, 1993, contributions were made in accordance with the
Procter & Gamble profit sharing plan. Profit sharing expense under these plans
was $2,017,000, $3,668,000, and $5,625,000, for the period March 16, 1993
through June 30, 1993 and for the years ended June 30, 1994 and 1995,
respectively.
Also, the Company provides medical, dental, and life insurance
postretirement plans covering employees who meet specified age and service
requirements. Certain employees who met specified age and retirement
eligibility requirements on March 15, 1993 are covered by the Procter & Gamble
plans and are not covered by these plans. Service considered for participants
in the Company's plan includes former service with the Predecessor company.
The Company has accounted for its obligation related to these plans in
accordance with Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions.
The Company's current policy is to fund the cost of these benefits as
payments to participants are required. The accrued post retirement benefit
obligation consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------
1994 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active plan participants............... $ 11 $ 115
Retirees.............................................. 17 56
Other active plan participants........................ 12,731 6,476
------- -------
12,759 6,647
Unrecognized prior service cost......................... -- 6,556
Unrecognized net loss................................... (735) (803)
------- -------
Accrued postretirement benefit obligation............... $12,024 $12,400
======= =======
</TABLE>
Net periodic postretirement benefit cost includes the following components
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 16, 1993 JUNE 30,
THROUGH -----------
JUNE 30, 1993 1994 1995
-------------- ------ ----
<S> <C> <C> <C>
Service cost................................. $200 $ 720 $539
Interest cost................................ 234 891 487
Amortization of unrecognized prior service
cost........................................ -- -- (650)
---- ------ ----
Net periodic postretirement benefit cost..... $434 $1,611 $376
==== ====== ====
</TABLE>
The Company amended its postretirement plans effective July 1, 1994. The
amendments changed the plans' eligibility requirements and benefit schedules,
created required retiree contributions, and implemented limits on the
Company's postretirement benefit costs. The effect of the amendments was to
reduce the accumulated postretirement benefit obligation by approximately
$7,206,000 to $5,553,000 at July 1, 1994. The reduction in the accumulated
postretirement benefit obligation is being recognized as a reduction to net
periodic
F-14
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
postretirement benefit cost over approximately eleven years, the average
remaining service of active participants not yet eligible for benefits.
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) for the medical plans
is 11% for 1996 and is assumed to decrease gradually to 6% in 2004 and remain
at that level thereafter. Due to the benefit costs limitations in the plan,
the health care cost trend rate assumption does not have a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rate by one percentage point would increase the accumulated
postretirement benefit obligation for the medical plans as of June 30, 1995 by
$34,405 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended June 30, 1995 by
$6,412.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% at June 30, 1994 and 1995.
8. RELATED PARTY TRANSACTIONS
In connection with the Acquisitions, the Company and Procter & Gamble
entered into a transition agreement pursuant to which Procter & Gamble
provides to the Company, for a period of up to 18 months following the closing
of the Acquisitions, certain of the administration and support services which
were historically provided to the Predecessor by Procter & Gamble and which
are necessary for the operation of the Company's business, including services
relating to communications, payments and collections, human resources, caustic
purchases, technical support and advice and accounting support. The Company
paid for such services at prices equal to those historically charged by
Procter & Gamble to the Predecessor or, with respect to certain services,
either the prices Procter & Gamble charges to its affiliates or the cost to
Procter & Gamble of providing such services. The amount charged to expense for
such services was approximately $417,000 for the period March 16, 1993 through
June 30, 1993 and approximately $374,000 for the year ended June 30, 1994. No
costs were incurred for the year ended June 30, 1995.
The Company and Madison Dearborn Partners, L.P. ("MDP"), the general partner
of MDCP, have entered into a professional services agreement pursuant to which
the Company paid to MDP a $1.0 million fee as compensation for MDP's
commitment to provide financing to repay the Bridge Note in the event
alternative financing was not available prior to June 30, 1993.
Buckeye Florida Partners has entered into an agreement with Procter & Gamble
whereby Procter & Gamble will purchase a specified tonnage (currently
substantially all of the Company's output) of fluff pulp from Buckeye Florida
Partners per year. The agreement expires on December 31, 2002. Shipments of
fluff pulp under the agreement are made to Procter & Gamble affiliates
worldwide, as directed by Procter & Gamble. In accordance with the terms of
the agreement, Procter & Gamble will reimburse Buckeye Florida Partners for
distribution costs related to shipments to Procter & Gamble affiliates. At
June 30, 1994 and 1995, Buckeye Florida Partners has recorded $740,547 and
$1,763,394, respectively, of prepaid expenses representing delivery costs
which will be reimbursed by Procter & Gamble. During the period March 16, 1993
through June 30, 1993 and the years ended June 30, 1994 and 1995, Procter &
Gamble reimbursed Buckeye Florida Partners $7,172,435, $23,567,512 and
$21,669,075, respectively, for distribution costs on shipments to Procter &
Gamble affiliates. Net sales to Procter & Gamble for the period March 16, 1993
through June 30, 1993 and for the years ended June 30, 1994 and 1995 were
$50,801,397, $148,195,746 and $157,901,186, respectively.
On March 16, 1993, Buckeye Florida Partners entered into two agreements with
Procter & Gamble Cellulose relating to the purchase of timber. Under these
agreements, Buckeye Florida Partners was required to purchase certain of the
timber from specified tracts of land available to harvest. Buckeye Florida
Partners purchased $5,123,182 and $18,644,404 of timber from Procter & Gamble
Cellulose during the period March 16, 1993 through
F-15
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
June 30, 1993 and the year ended June 30, 1994, respectively. In July 1994,
Procter & Gamble Cellulose sold the tracts of land and timber rights specified
in these agreements to a non-affiliated company, and Buckeye Florida Partners'
commitment under these agreements was assigned to the acquiror (See note 11).
Included in short-term investments is a $2.9 million certificate of deposit
which Buckeye Florida Partners has pledged as collateral to secure loans
obtained by certain officers of the Company.
9. EXPORT SALES
Gross export sales by geographic areas as a percent of total gross sales are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 16, 1993 JUNE 30,
THROUGH -------------
JUNE 30, 1993 1994 1995
-------------- ----- -----
<S> <C> <C> <C>
Europe..................................... 38% 35% 30%
Asia....................................... 12 22 26
South America.............................. 2 2 4
Other...................................... 13 11 10
--- ----- -----
65% 70% 70%
=== ===== =====
</TABLE>
10. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses of $916,000, $2,960,000 and $3,044,000,
were charged to expense as incurred in the period March 16, 1993 through June
30, 1993 and for the years ended June 30, 1994 and 1995, respectively.
11. PURCHASE COMMITMENTS
BCC has entered into purchase contracts with several vendors for the
purchase of cotton lint. At June 30, 1995, these commitments, which total
approximately $12,460,000, are expected to be fulfilled by October 1995.
At June 30, 1995, under three separate agreements expiring at various dates
through December 31, 2002, Buckeye Florida Partners is required to purchase
certain of the timber from specified tracts of land that is available for
harvest. At the option of Buckeye Florida Partners, certain of these timber
purchase commitments may be extended through December 31, 2010. The contract
price under terms of these agreements is either at the then current market
price or at fixed prices as stated in the contract. The fixed and determinable
purchase obligations related to these contracts, based on contract prices as
of June 30, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
TIMBER PURCHASE
COMMITMENTS
---------------
<S> <C>
1996..................... $15,674
1997..................... 16,549
1998..................... 13,997
1999..................... 12,740
2000..................... 11,720
Thereafter............... 24,552
-------
Total.................. $95,232
=======
</TABLE>
Purchases under these agreements for the year ended June 30, 1995 were
$21,818,603.
On July 24, 1995, Buckeye Florida Partners entered into an agreement to
purchase certain timber from specified tracts of land that is available for
harvest through fiscal year 2002 at a fixed contract price. Future purchase
commitments under this agreement are $19,200,000 and are estimated to be
spread equally over the contract term.
F-16
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. CONTINGENCIES
Procter & Gamble has been named as a defendant in 21 lawsuits involving
approximately 188 individual plaintiffs claiming unspecified compensatory and
punitive damages, costs and legal fees for alleged diminished property value
and fear of illness asserting that the Foley Plant discharged toxic pollutants
into the nearby Fenholloway River and into treatment ponds from which the
pollutants entered and allegedly contaminated the underground water. Buckeye
Florida Partners assumed the obligation for any costs related to this matter
on the date of the acquisition of the Foley Plant on March 16, 1993. Buckeye
Florida Partners intends to vigorously defend these suits and contends that
the discharge from the Foley Plant is in compliance with federal and state
permits.
Additionally, the Company is subject to various state and federal
environmental laws and regulations. Buckeye Florida Partners has reached an
agreement (the "Fenholloway Agreement") with the Florida Department of
Environmental Regulation based upon the results of an environmental study of
Buckeye Florida Partners' operations. Compliance with the Fenholloway
Agreement will require Buckeye Florida Partners to invest up to $39,000,000
through 1999 to modify its facilities. In addition to the cost of compliance
with the Fenholloway Agreement, the cost of future compliance with other
environmental regulations will depend on environmental regulations which are
subject to change and the subsequent definition of the necessary technology to
meet the changing regulations. Therefore, it is difficult to determine the
total amount of expenditures that may be required in the future. However,
Buckeye Florida Partners estimates that capital spending for environmental
compliance based on certain regulations expected to be promulgated in addition
to compliance with the Fenholloway Agreement could be up to $14,000,000
through the year 2000.
As of June 30, 1995, the Company has established reserves of $4,300,000 to
address certain environmental matters. Based on current information and
requirements, the Company believes that such reserves are adequate. Because an
environmental reserve is not established until a liability is determined to be
probable and reasonably estimable, not all potential future environmental
liabilities are covered by the Company's reserves. Accordingly, there can be
no assurance that the Company's environmental reserves will be sufficient to
meet the Company's obligations, and additional earnings charges are possible.
The Foley Plant is on the EPA CERCLIS list of potential hazardous substance
release sites prepared pursuant to CERCLA. The EPA conducted a site
investigation in early 1995. Although the Company considers it unlikely that
the Foley Plant will be listed on the CERCLA National Priorities List and
hence require remedial action, the possibility of such listing cannot be ruled
out. If the site were to be placed on the National Priorities List, the costs
associated with conducting a CERCLA remedial action could be material.
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect on the
Company's financial position or results of operations.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable, accounts payable,
other accrued liabilities and notes payable, the carrying amounts approximate
fair value due to their short maturities. The fair value of BCC's long-term
debt is based on an average of the $101 bid and $102 offer price on June 30,
1995. The fair value of Buckeye Florida Partners' long-term debt is estimated
using discounted cash flow analyses, based on Buckeye Florida Partners'
current incremental borrowing rate. The carrying value and fair value of long-
term debt at June 30, 1995, is $169,102,000 and $178,976,000, respectively.
14. SUBSEQUENT EVENTS (UNAUDITED)
Effective May 1, 1996, Buckeye Cellulose GmbH, a wholly owned subsidiary of
the Company, purchased the property, plant, equipment and inventories of the
specialty pulp business of Peter Temming AG for approximately $29 million. The
acquisition will be accounted for as a purchase.
F-17
<PAGE>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On April 30, 1996, the Company entered into a definitive agreement to
purchase all of the common stock of Alpha Cellulose Holdings, Inc. ("Alpha")
of Lumberton, North Carolina. Subject to the fulfillment of certain conditions
and regulatory approval, the acquisition is expected to be completed in early
fiscal 1997.
In November 1995, shareholders of Buckeye Florida Corporation exchanged all
of their outstanding common stock for common stock of Buckeye Cellulose
Corporation and Buckeye Florida Corporation became a wholly-owned subsidiary
of Buckeye Cellulose Corporation. All prior interim periods presented have
been restated to reflect this combination of equity interests. Concurrently,
the Company exercised an option to acquire Procter & Gamble Cellulose's 50%
limited partnership interest in Buckeye Florida Partners, of which Buckeye
Florida Corporation is the general partner, for $62.1 million in cash, plus
assumed liabilities. This acquisition has been recorded using the purchase
method of accounting. The allocation of the purchase price is based on the
respective fair value of assets and liabilities at the date of acquisition
based on an independent appraisal and resulted in an increase to property,
plant and equipment of $10.6 million and a reduction in goodwill of $9.0
million. The purchase included at fair value current assets of $45.6 million,
property, plant and equipment of $93.8 million, and the assumption of current
liabilities of $17.3 million, non-current liabilities of $6.5 million and
long-term debt of $46.9 million. The operations of Buckeye Florida Partners
are consolidated in the accompanying financial statements and the 50% limited
partnership interest is recorded as minority interest prior to the date of
acquisition. The charge to minority interest was discontinued at the date of
acquisition of the Procter & Gamble Cellulose 50% limited partnership
interest.
The following pro forma results of operations assume the acquisition of the
Procter & Gamble Cellulose limited partnership interest in Buckeye Florida
Partners and the combination of equity interests of Buckeye Florida
Corporation with the Company occurred as of the beginning of the periods
presented and excludes the impact on interest expense and certain other costs,
which in the aggregate is not material:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------
1995 1996
-------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales.............................................. $301,318 $338,825
Operating income....................................... 54,625 83,179
Income before extraordinary loss....................... 23,917 43,741
Net income............................................. 23,917 39,792
Earnings per common share:
Income before extraordinary loss..................... -- 2.08
Net income........................................... -- 1.89
</TABLE>
The pro forma information is presented for information purposes only and is
not necessarily indicative of the operating results that would have occurred
had the acquisition and combination been consummated as of the above dates,
nor is it necessarily indicative of future operating results.
During November 1995, the Company completed a public offering of $150
million principal amount of 8 1/2% Senior Subordinated Notes due December 15,
2005, which were sold for 99.626% of their principal amount, and 747,500
shares of common stock were sold through an underwriten public offering. The
Company also entered into a new credit facility providing for borrowings of up
to $135 million of which $56 million was borrowed at closing of the
transactions described above. The new credit facility matures November 28,
2000, and beginning in 1998 availability reduces by $3.75 million per quarter.
Borrowings under the new credit facility bear interest at the lender's prime,
LIBOR plus a spread, or a money market based rate, at the option of the
Company. Under the terms of both the notes and new credit facility, the
Company is required to comply with certain covenants including minimum net
worth, interest coverage ratio and limitations on levels of indebtedness.
The proceeds from the notes and bank credit facility were used to repay $90
million of outstanding loans from Procter & Gamble, purchase Procter & Gamble
Cellulose's interest in Buckeye Florida Partners, finance a tender offer for
the Company's outstanding 10 1/4% Senior Notes due 2001, repay $482,000 of
Madison Dearborn Capital Partners debt and pay fees and expenses incurred in
connection with these transactions. In the quarter ended March 31, 1996, an
additional $12.2 million of 10 1/4% Senior Notes were retired using the
proceeds to the Company from its initial public stock offering.
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Boards of Directors
Buckeye Cellulose Corporation and Affiliated Companies
We have audited the accompanying combined statement of operating income of
the Memphis operations and the Foley operations (the "Plants") of The Procter
& Gamble Cellulose Company ("Procter & Gamble Cellulose"), a subsidiary of The
Procter & Gamble Company ("Procter & Gamble") for the period July 1, 1992
through March 15, 1993. This combined statement of operating income is the
responsibility of the management of the Memphis Plant and Foley Plant. Our
responsibility is to express an opinion on this combined statement of
operating income based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statement of operating
income is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
statement of operating income. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined statement of operating income presentation. We
believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, the accompanying combined statement of operating
income includes the revenues and expenses which are specifically identifiable
with the Plants, as well as certain allocated expenses. This combined
statement of operating income may not necessarily reflect the results of
operations of the Plants had they been operated as stand-alone entities. Under
agreements dated March 16, 1993, the Memphis Plant was purchased from Procter
& Gamble Cellulose by Buckeye Cellulose Corporation ("BCC") and the Foley
Plant was purchased from Procter & Gamble Cellulose by Buckeye Florida,
Limited Partnership ("Buckeye Florida Partners").
In our opinion, the combined statement of operating income referred to above
presents fairly, in all material respects, the combined results of operations
of the Plants for the period July 1, 1992 through March 15, 1993, as described
in Note 1, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Memphis, Tennessee
July 28, 1995
F-19
<PAGE>
MEMPHIS PLANT AND FOLEY PLANT OPERATIONS
COMBINED STATEMENT OF OPERATING INCOME
(IN THOUSANDS)
JULY 1, 1992 THROUGH MARCH 15, 1993
<TABLE>
<S> <C>
Net sales............................................................. $233,460
Cost of goods sold.................................................... 189,808
--------
Gross margin.......................................................... 43,652
Selling, research, and administrative expenses:
Procter & Gamble Cellulose division allocations..................... 17,522
Procter & Gamble corporate allocations.............................. 4,764
--------
22,286
--------
Operating income...................................................... $ 21,366
========
</TABLE>
See accompanying notes.
F-20
<PAGE>
MEMPHIS PLANT AND FOLEY PLANT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
FOR THE PERIOD JULY 1, 1992 THROUGH MARCH 15, 1993
1. ACCOUNTING POLICIES
Business Description and Basis of Presentation
The Memphis Plant and Foley Plant (the "Plants") of Procter & Gamble
Cellulose produce cotton linter pulp and wood pulp, respectively. The Plants
have historically operated as two of several pulp mills comprising the
Cellulose & Specialties Division (the "C&S Division") of Procter & Gamble
Cellulose. Under an agreement dated March 16, 1993, the assets and business
comprising the Memphis Plant and certain
C&S Division headquarters assets were purchased from Procter & Gamble
Cellulose by BCC, a newly-formed company.
Also, under a separate agreement dated March 16, 1993, Buckeye Florida
Partners was formed by Buckeye Florida Corporation and Procter & Gamble
Cellulose. Simultaneously, Buckeye Florida Partners acquired substantially all
of the assets and liabilities of the wood pulp plant located in Foley,
Florida.
BCC and Buckeye Florida Partners are commonly owned by Madison Dearborn
Capital Partners, L.P. ("MDCP") and certain management members of BCC and
Buckeye Florida Partners. The combined statement of operating income (the
"Statement") does not reflect the effects of the purchase transactions.
The accompanying Statement includes the revenues and expenses which are
specifically identifiable with the Plants as well as certain allocated
expenses for services provided by the C&S Division and by Procter & Gamble.
The C&S Division costs are allocated using formulas including estimates of
effort expended and sales. Procter & Gamble corporate expenses are allocated
based primarily on sales. The Statement may not necessarily reflect the
results of operations of the Plants had they been operated as stand-alone
entities.
Procter & Gamble provides a centralized cash management function. Many of
the Plants' disbursements and collections are settled through intercompany
accounts; therefore, no statement of cash flows is presented.
The Plants' results of operations have historically been included in the
consolidated income tax returns of Procter & Gamble. There is no tax sharing
agreement for allocating income taxes to operating units. Accordingly, the
Statement does not reflect any income tax expense or benefit.
The debt obligations of Procter & Gamble are not specifically identifiable
with individual operating units; accordingly, interest charges are not
reflected in the results of operations of the Plants.
Inventories
Raw cotton lint inventories, the lint component of finished pulp, and
storeroom supplies of the Memphis Plant are stated at lower of cost
(determined on the average cost method) or market. The remaining components of
finished pulp costs including other raw materials, labor and overhead are
stated at lower of cost (determined on a first-in, first-out basis) or market.
Inventories of the Foley Plant, other than storeroom supplies and chemicals,
are valued at the lower of cost (first-in, first-out method) or market.
Storeroom supplies and chemicals are stated at lower of cost (determined on
the average cost method) or market.
Revenue Recognition
Revenue is generally recognized at the time products are shipped. Net sales
is comprised of sales reduced by sales allowances and distribution costs.
F-21
<PAGE>
MEMPHIS PLANT AND FOLEY PLANT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets.
Environmental Costs
Liabilities are recorded when environmental assessments are probable, and
the cost can be reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or the Plants'
commitment to a plan of action based on the then known facts.
2. RELATED PARTY TRANSACTIONS
As discussed in Note 1, certain expenses reflected in the Statement include
allocations of expenses from the C&S Division and from Procter & Gamble. C&S
Division allocations include product supply services of $222 which is included
in the cost of goods sold. C&S Division selling, research and administrative
allocations include administrative costs of general management, information
systems management, costs of operations and maintenance of a C&S Division
airplane, and other miscellaneous services. Selling costs include allocated
costs of domestic and foreign sales offices. Research and development costs
allocated by the C&S Division were $3,923 for the period July 1, 1992 through
March 15, 1993. Allocations related to the C&S Division airplane were $614 for
the period July 1, 1992 through March 15, 1993.
Procter & Gamble corporate allocations include product supply services of
$131 which are included in cost of goods sold. Procter & Gamble corporate
allocations also include costs of general management, treasury, franchise
taxes and tax administration, financial audit, financial reporting, benefits
administration, insurance, public affairs, information systems management, and
other miscellaneous services.
Net sales to Procter & Gamble for the period July 1, 1992 through March 15,
1993 were $101,969, which represents 44% of total net sales for the period.
3. EXPORT SALES
Gross export sales by geographic area as a percent of total gross sales for
the period are as follows:
<TABLE>
<S> <C>
Europe............................... 41%
Asia................................. 11
South America........................ 3
Other................................ 10
---
65%
===
</TABLE>
4. RETIREMENT PLANS
Profit Sharing Plan
Substantially all Plant employees are covered by The Procter & Gamble Profit
Sharing Trust and Employee Stock Ownership Plan, an employer-funded, defined
contribution profit sharing plan which provides retirement benefits. Annual
credits to participants' accounts are based on individual base salary and
years of service.
Profit sharing expense allocable to the Plants were $4,980 for the period
July 1, 1992 through March 15, 1993.
F-22
<PAGE>
MEMPHIS PLANT AND FOLEY PLANT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Other Retiree Benefits
Certain health care and life insurance benefits are provided for retired
employees. The net cost of these benefits is charged to individual operating
units in the year the claims and premiums are paid. The net costs related to
the Plants were $941 for the period July 1, 1992 through March 15, 1993. Under
the terms of the purchase agreements discussed in Note 1, Procter & Gamble
will retain all future costs related to current retirees.
Statement of Financial Accounting Standards No. 106, Accounting for
Postretirement Benefits Other than Pensions, had not been adopted by the
Plants as of March 15, 1993. This statement requires the use of an accrual
basis of accounting to recognize the related expense over the period of active
employment.
5. DEPRECIATION, AMORTIZATION AND CAPITAL EXPENDITURES
Depreciation, amortization, and capital expenditures for the period were as
follows:
<TABLE>
<S> <C>
Depreciation..................... $18,713
Amortization..................... 549
Capital expenditures............. 17,761
</TABLE>
6. CONTINGENCIES
Procter & Gamble has been named as a defendant in 21 lawsuits involving
approximately 188 individual plaintiffs claiming unspecified compensatory and
punitive damages, costs and legal fees for alleged diminished property value
and fear of illness asserting that the Foley Plant discharged toxic pollutants
into the nearby Fenholloway River and into treatment ponds from which the
pollutants entered and allegedly contaminated the underground water. Buckeye
Florida Partners assumed the obligation for any costs at the acquisition (see
Note 1). Buckeye Florida Partners intends to vigorously defend these suits and
contends that the discharge from the Foley Plant is in compliance with federal
and state permits.
The Plants are involved in certain other legal actions and claims arising in
the ordinary course of business. Additionally, the Plants are subject to
various state and federal laws and regulations concerning the protection of
the environment.
7. SUBSEQUENT EVENT
In December 1994, Buckeye Florida Partners reached an agreement in principle
with the State of Florida Department of Environmental Regulation based upon an
environmental study of Buckeye Florida Partners' operations. Compliance with
the agreement (the "Fenholloway Agreement") will require Buckeye Florida
Partners to invest up to $39 million through 1999 to modify its facilities. In
addition to the cost of compliance with the Fenholloway Agreement, the cost of
future compliance with other environmental regulations will depend on
environmental regulations which are subject to change and the subsequent
definition of the necessary technology to meet the changing regulations.
Therefore, it is difficult to determine the total amount of expenditures that
may be required in the future. However, Buckeye Florida Partners estimates
that capital spending for environmental compliance in addition to compliance
with the Fenholloway Agreement could be up to $14 million through the year
2000.
F-23
<PAGE>
REPORT OF DIPL.-ING. WOLF GADECKE, WIRTSCHAFTSPRUFER, INDEPENDENT AUDITOR
Board of Directors
Buckeye Cellulose Corporation
I have audited the accompanying balance sheet of the cotton linter pulp
division of Peter Temming AG (the "Specialty Pulp Business") as of December
31, 1995, and the related statement of income for the year then ended. These
financial statements are the responsibility of the Specialty Pulp Business
management. My responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audit in accordance with generally accepted auditing
standards in the Federal Republic of Germany, which in my opinion do not
differ significantly from generally accepted auditing standards in the United
States of America. Those standards require that I plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
As described in the Accounting and Valuation Method's footnote to the
financial statements, the accompanying financial statements include the
revenues and expenses which are specifically identifiable with the Specialty
Pulp Business, as well as certain allocated expenses. The financial statements
may not necessarily reflect the results of operations of the Specialty Pulp
Business had it been operated as a stand-alone entity.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Specialty Pulp Business
at December 31, 1995 and the results of its operations for the year then ended
in conformity with generally accepted accounting principles of the Federal
Republic of Germany.
Dipl.-Ing. Wolf Gadecke
Wirtschaftsprufer
Hamburg, Germany
April 29, 1996
F-24
<PAGE>
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
BALANCE SHEET AS PER DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
DM DM
------------- -------------
<S> <C> <C>
A. FIXED ASSETS
I.Intangible Assets
Industrial and similar rights, software....... 96.00
II.Tangible Assets
1. Land, land rights and buildings including
buildings on third party land.................. 3,743,152.00
2. Technical equipment and machines............. 2,691,700.00
3. Other equipment, factory and office
equipment...................................... 639,818.00
4. Payments on account and assets under
construction................................... 0.00 7,074,670.00
-------------
III.Financial Assets
Other loans................................... 0.00
B. CURRENT ASSETS
I.Inventories
1. Raw materials and supplies................... 13,518,705.00
2. Work in process.............................. 7,960.00
3. Finished goods............................... 4,920,800.00 18,447,465.00
-------------
II.Receivables and other assets
1. Trade receivables............................ 11,292,865.95
2. Other assets................................. 94,503.00 11,387,368.95
-------------
III.Cash-in-hand, postal giro balances, bank
balances......................................... 916,425.00
-------------
37,826,024.95
=============
</TABLE>
F-25
<PAGE>
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
BALANCE SHEET AS PER DECEMBER 31, 1995
EQUITY AND LIABILITIES
<TABLE>
<CAPTION>
DM DM
------------- -------------
<S> <C> <C>
A.EQUITY AND LIABILITIES
I. Subscribed capital........................... 7,000,000.00
II. Results from ordinary activities............ 303,320.36 7,303,320.36
-------------
B.SPECIAL RESERVES FOR TAX PURPOSES............... 58,701.00
C.ACCRUALS
1. Accruals for pensions and similar
obligations.................................... 610,291.00
2. Other accruals............................... 2,447,197.00 3,057,488.00
-------------
D.LIABILITIES
1. Liabilities to banks......................... 8,655,788.00
2. Trade payables............................... 2,916,838.06
3. Payables to pension fund..................... 154,663.00
4. Other liabilities............................ 15,679,226.53
of which taxes: DM 348,345.60
of which relating to social security
and similar obligations: DM 401,117.00
of which affiliated companies: DM 14,434,359.35 27,406,515.59
------------- -------------
37,826,024.95
=============
</TABLE>
F-26
<PAGE>
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DM DM
------------- --------------
<S> <C> <C>
1.Sales........................................ 87,015,212.18
2.Increase in finished goods inventories and
work in process............................. 1,926,199.00
3.Production for own plant equipment
capitalized................................. 37,298.00
4.Other operating income....................... 950,599.59
5.Material cost
Cost of raw materials, consumables and
supplies and of purchased merchandise........ (53,445,177.00)
--------------
6.Gross result................................. 36,484,131.77
7.Personnel expenses
a)Wages and salaries.......................... 14,619,679.00
b)Social security and other pension cost, of
which in respect of old age pensions: DM
95,587.00................................. 2,966,859.00 (17,586,538.00)
-------------
8.Depreciation on intangible fixed assets and
tangible assets............................. (1,924,734.00)
9.Other operating expenses..................... (16,388,790.41)
--------------
10.Operational result........................... 584,069.36
11.Income from other investments and long term
loans....................................... 80.00
12.Other interest and similar income............ 13,328.00
13.Interest and similar expenses (mainly for
liabilities to banks)....................... (294,157.00)
-------------
14.Financial result............................. (280,749.00)
--------------
15.Results from ordinary activities............. 303,320.36
==============
</TABLE>
F-27
<PAGE>
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)
GENERAL MATTERS
The cotton linter pulp division of Peter Temming Aktiengesellschaft
(hereinafter Peter Temming AG) (the "Specialty Pulp Business") has
historically been operated as one segment of several segments comprising Peter
Temming AG. Under a letter of intention signed in January 1996, the assets and
business comprising the Specialty Pulp Business, including the production
plant in Gluckstadt, Germany, are to be purchased from Peter Temming AG by
Buckeye Cellulose Corporation, Memphis, Tennessee, USA, respectively, by
Buckeye Cellulose GmbH, Kappeln, Germany.
The accompanying financial statements of the Specialty Pulp Business have
been derived from the audited year end financial statements of Peter Temming
AG, with the Specialty Pulp Business to be transferred being treated as a
dependent permanent establishment. The financial statements include the
assets, liabilities, revenues and expenses which are specifically identifiable
with the Specialty Pulp Business as well as certain allocated expenses for
shared services, including cash management activities. The expenses are
allocated using formulas including estimates of effort expended and sales. The
financial statements may not necessarily reflect the results of operations of
the Specialty Pulp Business had it been operated as a standalone entity.
No allocation or calculation of income and asset taxes have been undertaken.
As a result, the income statement ends with the results from ordinary
activities.
ACCOUNTING AND VALUATION METHODS
The annual financial statements of the Specialty Pulp Business were prepared
according to accounting and valuation regulations specified in the Commercial
Code and the Aktiengesetz ("AktG") in the Federal Republic of Germany.
Peter Temming AG provides a centralized cash management function. Many of
the Specialty Pulp Business's disbursements and collections are settled
through intercompany accounts; therefore, no statement of cash flows is
presented.
Intangible assets are capitalized at their acquisition cost reduced by
ordinary amortization.
Tangible fixed assets are recorded at acquisition cost reduced by ordinary
depreciation. For personal computers and accessories a fixed value is
established. The difference between depreciation permissible under the
Commercial Code and under tax law regulations was recorded as special reserves
for tax purposes.
Declining depreciation rates are used for buildings in agreement with German
tax regulations (par. 7 Abs. 5 EStG). The useful life of buildings generally
ranges from 10 to 30 years; 40 years are applied for older buildings.
The declining balance depreciation method is generally used for additions to
technical equipment and machines as well as to other equipment, factory and
office equipment, up to the year in which the straight line method results in
higher depreciation charges.
Depreciation of subsequent acquisition cost is applied using the adequate
useful life.
Movable, low value assets are expensed according to tax law regulations.
Raw materials and supplies are capitalized at the lower of acquisition cost
or current market prices valid at the balance sheet date. The acquisition cost
for raw lint includes also the internal discharging fee.
Work in process is valued at proportional manufacturing cost.
F-28
<PAGE>
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)
Finished goods, sorted by product, are valued at the lower of actual
manufacturing cost or net realizable value at the balance sheet date.
Manufacturing costs include direct costs as well as appropriate manufacturing
overhead and administrative expenses in relation to the manufacturing process.
Receivables and other assets are recorded at their nominal value. All
foreseeable valuation risk of trade accounts receivables and other assets are
provided for via adequate specific allowances. The general credit risk is
provided for via a general allowance taking specific conditions of different
countries into account.
The special reserve for tax purposes exclusively includes the difference
between depreciation permissible under the Commercial Code and under tax
regulations and will be released over the useful life of the assets concerned.
The special reserve for tax purposes represents an allowance of fixed assets.
Accruals take into account all recognizable risks. Direct pension payments
are accrued for according to actuarial science principles based on an interest
rate of 6%.
Liabilities are recorded at the repayment value.
Receivables and liabilities in a foreign country (i.e. other than Deutsch
mark) are valued at the exchange rate at year end. Losses resulting from
fluctuations in exchange rates as of the transaction date and as of the
balance sheet date are included in income.
EXPLANATION WITH RESPECT TO THE BALANCE SHEET
Fixed Assets
Intangible assets cover purchased software.
Additions to tangible assets of (000) DM 1,557 reflect generally building
cost for the expansion of the shipment stock, an out-building and other
remodelings at the machine-house, of (000) DM 817 for a Yokogawa control-
system, reconstruction to a scroll-cutter and other technical equipment and
machines and of (000) DM 546 for other factory and office equipment.
Current Assets
Trade accounts receivables have been reduced by allowances of (000) DM 234.
Other assets mainly represent receivables from tax authorities and receivables
from an energy entity.
Subscribed Capital
The capital of the Specialty Pulp Business, derived from Peter Temming AG
balance sheet, amounts to (000) DM 7,000.
Profit on Ordinary Activities
The 1995 profit on ordinary activities for the Specialty Pulp Business as a
dependent permanent establishment amounts to (000) DM 303. Although the item
is allocated as equity (retained earnings), it was assumed that the profits
are to be distributed in full.
Special Reserve for Tax Purposes
The special reserve for tax purposes exclusively reflects depreciation in
accordance with par. 6b EStG (Income tax law) which is in excess of
depreciation under regulations of the Commercial Code.
The release of the reserve will result in income taxes at a rate of 50% as
far as profits will occur.
F-29
<PAGE>
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)
Accruals
The accrual for pension includes amounts as high as possible under tax
regulations. A portion of pension obligations are due from a separate pension
entity. Pension obligations are totally funded by assets of the pension entity
and pension accruals.
Other accruals primarily include waste water charges--(000) DM 1,090;
obligations to employees--(000) DM 890; repair and maintenance--(000) DM 141;
and open invoices of (000) DM 306.
Liabilities
Liabilities are made up as follows:
<TABLE>
<CAPTION>
FALLING DUE
-----------------------------
TOTAL AMOUNT LESS THAN 1 1-5 MORE THAN 5
(000) DM YEAR YEARS YEARS
------------ ----------- ----- -----------
<S> <C> <C> <C> <C>
Liabilities to banks............. 8,656 6,459 2,197 --
Trade payable.................... 2,917 2,917 -- --
Payables to pensions fund........ 154 -- -- 154
Other liabilities................ 15,679 15,679 -- --
------ ------ ----- ---
27,406 25,055 2,197 154
====== ====== ===== ===
</TABLE>
Liabilities to banks are secured by mortgages of (000) DM 2,656 on company
real estate.
EXPLANATIONS TO THE INCOME STATEMENT
The income statement was classified applying the total cost method.
Sales
Sales are recorded without VAT. They include Specialty Pulp Business sales
only.
Total sales according to regions are as follows:
<TABLE>
<CAPTION>
FOREIGN COUNTRIES FEDERAL REPUBLIC
(DM) OF GERMANY (DM) TOTAL DM
----------------- ---------------- -------------
<S> <C> <C> <C>
Specialty Pulp Business. 60,345,336.28 26,669,875.90 87,015,212.18
</TABLE>
Other operating income
Other operating income primarily contains income from the reversal of other
accruals of (000) DM 419, the release of the general allowance of (000) DM 200
and the profit on foreign exchange (000) DM 157.
The position includes income amounting to (000) DM 748 relating to another
business year.
Depreciation
Depreciation contains ordinary depreciation on intangible and tangible
assets.
Other operating expenses
Other operating expenses mainly reflect expenses from sideline business
repair and maintenance expenses, waste and waste water charges, administration
and operating expenses as well as rent and lease expenses, other
administrative cost, travel expenses, provisions, freight and insurance
expenses.
F-30
<PAGE>
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)
Other Remarks
Average number of employees working for the company during the business year:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Hourly employees................................................ 109 108
Salaried employees.............................................. 49 48
--- ---
158 156
=== ===
</TABLE>
BOARD OF DIRECTORS:
Michael Steinbeis (chairman)
Franz Stimmel
Gerhard Wanko
Gluckstadt, April 18, 1996
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Alpha Cellulose Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Alpha
Cellulose Holdings, Inc. and subsidiaries (the "Company") as of December 31,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Alpha Cellulose Holdings, Inc. and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
February 29, 1996
F-32
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 186,386 $ 110,891
Receivables:
Trade............................................. 5,675,744 6,660,999
Related parties (Note 8).......................... 60,000 61,000
Other............................................. 6,749 15,429
Inventory (Note 3).................................. 14,910,692 16,608,688
Prepaid expenses and other assets................... 163,500 442,597
Deferred income tax (Note 6)........................ 594,000 780,000
----------- -----------
Total current assets............................ 21,597,071 24,679,604
----------- -----------
Property, plant and equipment, net (Note 4)........... 27,391,460 27,395,557
Intangible assets, net (Note 5)....................... 4,528,386 4,214,100
----------- -----------
Total assets.................................... $53,516,917 $56,289,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations (Note 7)... $ 7,122,053 $ 9,236,579
Accounts payable.................................... 1,951,302 1,160,131
Accrued expenses.................................... 2,935,802 3,239,912
Income tax payable.................................. 146,327 562,827
----------- -----------
Total current liabilities....................... 12,155,484 14,199,449
----------- -----------
Long-term obligations (Notes 7 and 8)................. 28,089,544 28,104,556
Deferred income tax (Note 6).......................... 4,135,000 3,993,000
Commitments (Note 9)
Stockholders' equity:
Common stock, $.01 par value, 1,000,000 shares
authorized and outstanding......................... 10,000 10,000
Preferred stock, $.01 par value, 50,000 shares
authorized and outstanding......................... 500 500
Paid-in capital..................................... 3,989,500 3,993,475
Retained earnings................................... 5,136,889 5,988,281
----------- -----------
Total stockholders' equity...................... 9,136,889 9,992,256
----------- -----------
Total liabilities and stockholders' equity...... $53,516,917 $56,289,261
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER ------------------------
31, 1995 1995 1996
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales.................................... $54,850,902 $14,077,753 $14,726,579
Less allowances........................ (4,516,483) (1,176,311) (1,534,007)
----------- ----------- -----------
Net sales............................ 50,334,419 12,901,442 13,192,572
Cost of sales............................ 35,477,777 7,988,781 10,348,757
----------- ----------- -----------
Gross profit......................... 14,856,642 4,912,661 2,843,815
Selling and administrative expenses...... 4,084,565 1,420,703 847,868
----------- ----------- -----------
Operating income..................... 10,772,077 3,491,958 1,995,947
----------- ----------- -----------
Other income (expense):
Interest income (Note 8)............... 7,077 2,435 1,293
Interest expense (Note 8).............. (3,265,474) (807,535) (780,564)
Trucking income, net................... 31,465 16,469 (15,697)
Miscellaneous, net..................... (445,651) 438 (25,605)
----------- ----------- -----------
Total other expense.................. (3,672,583) (788,193) (820,573)
----------- ----------- -----------
Income before income taxes............... 7,099,494 2,703,765 1,175,324
Provision for income taxes (Note 6)...... 2,682,000 1,022,000 323,982
----------- ----------- -----------
Net income............................... $ 4,417,494 $ 1,681,765 $ 851,392
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON PREFERRED PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995.. $ 9,700 $500 $3,929,800 $ 961,437 $4,901,437
Common stock, 30,000
shares issued.......... 300 59,700 60,000
Dividends............... (242,042) (242,042)
Net income.............. 4,417,494 4,417,494
------- ---- ---------- ---------- ----------
Balance, December 31,
1995..................... $10,000 $500 $3,989,500 $5,136,889 $9,136,889
Net income (unaudited).. 851,392 851,392
Other capital
transactions
(unaudited)............ 3,975 3,975
------- ---- ---------- ---------- ----------
Balance, March 31, 1996
(unaudited).............. $10,000 $500 $3,993,475 $5,988,281 $9,992,256
======= ==== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------------
1995 1995 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................. $ 4,417,494 $1,531,266 $851,392
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization........ 2,961,534 722,180 889,611
Deferred income tax.................. 146,000 36,830 (328,000)
Net loss on disposal of assets....... 445,850 -- --
Provision for bad debts.............. 75,000 -- --
Changes in operating assets and
liabilities:
Receivables........................ (970,274) (1,404,853) (994,935)
Inventory.......................... (6,514,711) (930,644) (1,697,996)
Prepaid expenses and other assets.. 174,304 1,556 (279,097)
Accounts payable................... (582,958) (1,389,606) (791,171)
Accrued expenses and income tax
payable........................... 163,238 1,116,010 720,610
----------- ---------- ----------
Net cash provided by (used in)
operating activities.................. 315,477 (317,261) (1,629,586)
----------- ---------- ----------
INVESTING ACTIVITIES:
Proceeds from sale of equipment........ 119,747 -- --
Receipts/Payments related to
acquisition of Alpha Cellulose, Inc... 636,084 (16,800) --
Purchases of equipment................. (2,082,335) (208,354) (579,422)
----------- ---------- ----------
Net cash used in investing activities.. (1,326,504) (225,154) (579,422)
----------- ---------- ----------
FINANCING ACTIVITIES:
Borrowings on line of credit, net...... 2,097,487 -- 2,490,321
Proceeds from issuance of stock........ 60,000 -- --
Principal payments on long-term
obligations........................... (1,449,198) (101,661) (360,783)
Dividends paid to shareholders......... (242,042) -- --
Other capital transactions............. -- -- 3,975
----------- ---------- ----------
Net cash provided by financing
activities............................ 466,247 (101,661) 2,133,513
----------- ---------- ----------
Net decrease in cash and cash
equivalents........................... (544,780) (644,076) (75,495)
Cash and cash equivalents, beginning of
period................................ 731,166 731,166 186,386
----------- ---------- ----------
Cash and cash equivalents, end of
period................................ $ 186,386 $ 87,090 $ 110,891
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized). $ 3,736,792
-----------
Income taxes......................... $ 2,401,917
===========
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
1. BASIS OF PRESENTATION
Alpha Cellulose Holdings, Inc. ("Holdings") was incorporated in the State of
Delaware on July 11, 1994 through the issuance of 50,000 shares of preferred
stock and 970,000 shares of common stock for $2,970,000 in cash, note
receivable of $60,000 and property with a fair value of $910,000.
On August 7, 1994, Holdings acquired all of the outstanding capital stock of
Alpha Cellulose, Inc. ("Alpha") in a business combination for an aggregate
purchase price of $42,352,105 (the "Acquisition"). The Acquisition was funded
as follows:
<TABLE>
<S> <C>
Exchange of stock............................................ $ 3,940,000
Borrowings on revolving line of credit....................... 5,366,940
Borrowings on term loan...................................... 23,000,000
Borrowings on subordinated notes............................. 9,000,000
Noncompete agreement......................................... 1,045,165
-----------
$42,352,105
===========
</TABLE>
The Acquisition has been accounted for in accordance with the purchase
method of accounting and the accompanying consolidated financial statements of
the Company reflect the purchase price allocated to assets acquired and
liabilities assumed based on their fair values as of the acquisition date. The
fair values of assets and liabilities were based on independent appraisals and
estimates by management. The following is a summary of the purchase price
allocation as of the date of acquisition:
<TABLE>
<S> <C>
Current assets............................................... $17,093,737
Property, plant and equipment................................ 28,336,547
Intangible assets............................................ 6,001,005
Liabilities assumed.......................................... (9,079,184)
-----------
Total purchase price..................................... $42,352,105
===========
</TABLE>
All goodwill resulting from the purchase is being amortized over 40 years.
The noncompete asset is being amortized over the three year life of the
agreement.
In 1995, $636,084 was received in settlement of certain contingent
obligations existing at the acquisition date. Accordingly, goodwill has been
reduced by $636,084 to reflect this settlement.
Operations--Alpha is the leading worldwide manufacturer of cotton pulp used
by specialty papermills in the production of a variety of fine writing and
other specialty papers.
2. SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation--The consolidated financial statements
include the accounts of Alpha Cellulose Holdings, Inc. and its wholly-owned
subsidiaries Alpha and Alpha Cellulose Exports, Inc. All intercompany balances
and transactions have been eliminated.
b. Unaudited Financial Statements--In the opinion of management, the
Consolidated Statements of Income and the Consolidated Statements of Cash
Flows for the three months ended March 31, 1995 and 1996 and the Consolidated
Balance Sheet as of March 31, 1996 include all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position and Results of Operations and Cash Flows for the period then ended in
accordance with generally accepted accounting principles.
c. Statement of Cash Flows--For the purposes of reporting cash flows, cash
and cash equivalents include cash on hand and amounts due from banks and
investments in money market accounts.
d. Inventory--Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Obsolete and possible
excess quantities are reduced to estimated net realizable value.
F-37
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
e. Property, Plant and Equipment--Additions and improvements are capitalized
at cost. Maintenance and repairs are charged to expense as incurred.
Depreciation is provided on both straight-line and accelerated methods for
financial statement and income tax purposes over the following useful lives:
<TABLE>
<S> <C>
Land improvements........................................... 10-30 years
Leasehold improvements...................................... 5-10 years
Buildings................................................... 10-31.5 years
Machinery and equipment..................................... 3-20 years
</TABLE>
f. Intangible Assets--Intangible assets consist primarily of goodwill
resulting from the purchase of Alpha Cellulose, Inc. and a noncompete
agreement with a former officer of the Company. The goodwill is being
amortized over 40 years and the noncompete agreement over the three year term
of the agreement.
g. Deferred Income Taxes--Deferred income taxes are accounted for in
accordance with Statement of Financial Standards ("SFAS") No. 109, accounting
for income taxes. Deferred income taxes (benefits) are provided on temporary
differences between the financial statement carrying values and the tax bases
of assets and liabilities.
h. Environmental Remediation and Compliance--Environmental remediation costs
are accrued based on estimates of known environmental remediation exposures.
Environmental compliance costs include maintenance and operating costs with
respect to pollution control facilities, costs of ongoing monitoring programs
and similar costs. Such costs are expensed as incurred.
i. Employee Benefit Costs--Alpha has a cash option thrift plan [401(k)]
which covers substantially all employees. The Company matches employee
contributions to the plan up to 5% of the employee's gross compensation.
Thrift plan costs charged to operations were $229,764 for 1995.
j. Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the recorded amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Supplies......................................... $ 623,055 $ 694,228
Raw materials.................................... 10,823,700 11,563,768
Finished goods................................... 3,463,937 4,350,692
----------- -----------
Total inventory.............................. $14,910,692 $16,608,688
=========== ===========
</TABLE>
F-38
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of the following at December
31, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Land and improvements........................................ $ 1,298,652
Leasehold improvements....................................... 72,641
Buildings.................................................... 6,058,911
Machinery and equipment...................................... 22,313,951
Construction in progress..................................... 848,282
-----------
30,592,437
Less accumulated depreciation and amortization............... (3,200,977)
-----------
Property, plant and equipment, net........................... $27,391,460
===========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1995 and are
related to the purchase of Alpha by Holdings on August 7, 1994 (see Note 1).
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Goodwill...................................................... $3,361,117
Noncompete agreement.......................................... 1,045,165
Deferred financing fees....................................... 936,514
Other......................................................... 22,125
----------
5,364,921
Less accumulated amortization................................. (836,535)
----------
Intangible assets, net........................................ $4,528,386
==========
</TABLE>
Amounts are being amortized using straight-line and effective interest
methods over lives ranging from 3 to 40 years.
6. INCOME TAXES
The components of the income tax provision for the year ended December 31,
1995 are as follows:
<TABLE>
<S> <C>
Current:
Federal..................................................... $2,022,000
State....................................................... 514,000
----------
Total current............................................. 2,536,000
----------
Deferred:
Federal..................................................... 116,000
State....................................................... 30,000
----------
Total deferred............................................ 146,000
----------
Total provision for income taxes.......................... $2,682,200
==========
</TABLE>
F-39
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The approximate tax effect on each of the temporary differences that gave
rise to the Company's net deferred income tax liability at December 31, 1995
under SFAS 109 are as follows:
<TABLE>
<S> <C>
Current deferred income tax (assets) liabilities:
Deferred compensation....................................... $ (262,000)
Inventory capitalization.................................... (119,000)
Accrued liabilities......................................... (213,000)
----------
Current deferred income tax asset............................. $ (594,000)
==========
Noncurrent deferred income tax (assets) liabilities:
Depreciation................................................ $ 694,000
Property, plant and equipment purchase price adjustments.... 3,532,000
Amortization of noncompete agreement........................ (136,000)
Other....................................................... 45,000
----------
Noncurrent deferred income tax liability...................... $4,135,000
==========
</TABLE>
A reconciliation between anticipated income taxes, computed at the statutory
federal income tax rate applied to pretax accounting income, and the provision
for income taxes included in the consolidated statements of income for the
year ended December 31, 1995 is as follows:
<TABLE>
<S> <C>
Anticipated income taxes at the statutory federal rate........ $2,414,000
State income taxes, net of federal tax benefit................ 375,000
Amortization of goodwill...................................... 37,000
Meals and entertainment....................................... 8,000
Foreign sales corporation income tax benefit.................. (168,000)
Other, net.................................................... 16,000
----------
Provision for income taxes.................................... $2,682,000
==========
</TABLE>
F-40
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Term loan; the term loan is with a commercial bank and bears
interest at a variable rate of the greater of the prime
rate (8.5% at December 31, 1995), base CD rate (5.68% at
December 31, 1995) plus 1%, or the federal funds effective
rate (5.38% at December 31, 1995) plus 1.25%. The Company
has the option to convert any term loan exclusive of the
revolving line of credit to a eurodollar loan for three to
six month periods. The interest rate for the applicable
period is the LIBOR plus 2.75%. All eurodollar loans are to
be made net of regularly scheduled debt service payments
that fall within the eurodollar loan period. Payments are
due quarterly in amounts ranging from $250,000 to $375,000
in 1996, plus accrued interest. The loan is secured by all
assets of the Company...................................... $21,970,867
Subordinated notes; the subordinated notes are with
shareholders of the Company and bear interest at 9.25% with
interest payable semi-annually on May 25 and November 25 of
each year. Principal amounts are due in two equal
installments of $4,500,000 on November 25, 2003 and 2004... 9,000,000
Revolving line of credit; the revolving line of credit is
with a commercial bank and allows borrowings of up to
$7,000,000 but not to exceed 80% of eligible receivables
plus 50% of eligible inventory. Borrowings bear interest at
a variable rate based on the greater of the prime rate
(8.5% at December 31, 1995), base CD rate (5.68% at
December 31, 1995) plus 1%, or the federal funds effective
rate (5.38% at December 31, 1995) plus 1.25%. Interest is
payable on the first business day of January, April, July
and October of each year. During 1995, the line of credit
was modified to reflect monthly net cash receipts
(disbursements) as reductions from (additions to) the
outstanding balance. The line of credit expires August 8,
1997....................................................... 3,347,484
Noncompete agreement; the noncompete agreement is with a
former officer of the Company. The agreement requires the
Company to make monthly payments of $33,333 (includes
interest) through January 1998. Interest was imputed at a
rate of 9.2% on the outstanding balance.................... 587,278
Note payable; the note payable was established for the
purchase of a warehouse. The note bears interest at a rate
of 6.5% and is payable in monthly installments of $9,000
through February 1998...................................... 215,968
Note payable--related party; the note payable--related party
was established to revalue certain property and equipment
to its fair value at the acquisition date. The note bears
interest at a rate of 8% and is payable in August 2001..... 90,000
-----------
Total obligation........................................ 35,211,597
Less current portion.................................... 7,122,053
-----------
Total long-term obligations............................. $28,089,544
===========
</TABLE>
F-41
<PAGE>
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The term loan and the revolving line of credit are subject to terms and
conditions of a credit agreement, which provides for certain covenants. At
December 31, 1995, the Company was in compliance with, or had obtained waivers
from, all covenants. In addition, the credit agreement provides for a
mandatory prepayment of the loans (including accrued interest) to be made
within 90 days after year-end, contingent upon the results of certain
financial ratios. At December 31, 1995, $1,941,000 was included in the current
portion of long-term obligations relating to such mandatory prepayment.
Principal payments on long-term obligations, excluding deferred compensation
amounts, are due as follows:
<TABLE>
<S> <C>
1996......................... $ 7,122,053
1997......................... 2,579,635
1998......................... 3,265,857
1999......................... 4,250,000
2000......................... 4,500,000
Thereafter................... 13,494,052
-----------
$35,211,597
===========
</TABLE>
8. RELATED-PARTY TRANSACTIONS
At December 31, 1995, there were outstanding notes receivable from a
director and an employee of the Company for $60,000. Interest earned from
these notes receivable during the year ended December 31, 1995 totaled
approximately $5,000.
At December 31, 1995, there was an outstanding note payable to an officer of
the Company for $90,000. Interest expense related to the note payable for the
year ended December 31, 1995 totaled approximately $7,500.
The Company paid management fees to an owner of the Company of approximately
$203,000 for the year ended December 31, 1995.
9. COMMITMENTS
At December 31, 1995, the Company had outstanding purchase commitments of
$8,200,000 to purchase cotton linters and other raw materials.
* * * * * * * * * *
F-42
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Company History........................................................... 15
The 1996 Acquisitions..................................................... 15
The Company Stock Repurchase and The Related Transactions................. 16
Use of Proceeds........................................................... 17
Capitalization............................................................ 18
Unaudited Pro Forma Consolidated Financial Data........................... 19
Selected Consolidated Financial Data...................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 32
Management................................................................ 42
Principal Stockholders.................................................... 44
Certain Relationships and Related Transactions............................ 45
Description of Certain Indebtedness....................................... 46
Description of the Notes.................................................. 49
Underwriting.............................................................. 76
Legal Matters............................................................. 77
Experts................................................................... 77
Available Information..................................................... 77
Incorporation of Certain Documents by Reference........................... 78
Index to Financial Statements............................................. F-1
</TABLE>
$100,000,000
BUCKEYE CELLULOSE CORPORATION
% SENIOR SUBORDINATED
NOTES DUE 2008
LOGO
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
PROSPECTUS
DATED , 1996
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of the expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation, all of which are estimates with the exception of the Securities
and Exchange Commission fee and the National Association of Securities
Dealers, Inc. fee and all of which will be paid by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 34,483
National Association of Securities Dealers, Inc. fee.......... 10,500
Blue sky fees and expenses (including attorneys' fees and
expenses).................................................... *
Printing and engraving expenses............................... *
Trustee's fees and expenses................................... *
Accounting fees and expenses.................................. *
Legal fees and expenses....................................... *
Miscellaneous expenses........................................ *
----------
Total........................................................ $
==========
</TABLE>
- --------
*To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any person who is, 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 action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any person who is, 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 by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Amended and Restated Certificate of Incorporation provides for
the indemnification of directors and officers of the Company to the fullest
extent permitted by Section 145.
In that regard, the Amended and Restated Certificate of Incorporation
provides that the Company 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 action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of such
corporation, or is or was serving at the request of such corporation as a
director, officer or member of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such
II-1
<PAGE>
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of such corporation to
procure a judgment in its favor is limited to payment of settlement of such an
action or suit except that no such indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
indemnifying corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
In the Underwriting Agreement, the proposed form of which is filed as
Exhibit 1.1 hereto, the Underwriters will agree to indemnify, under certain
conditions, the Company, its directors, certain of its officers and persons
who control the Company within the meaning of the Securities Act of 1933, as
amended, against certain liabilities.
II-2
<PAGE>
ITEM 16. EXHIBITS.
(a) EXHIBITS:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as amended through November 20, 1995**
3.2 Amended and Restated By-laws of the Registrant**
4.1 Form of Indenture*
4.2 Specimen Note**
5.1 Opinion and consent of Kirkland & Ellis*
10.1 Asset Purchase Agreement dated as of March 16, 1993 by and between
the Registrant and The Procter & Gamble Cellulose Company.***
10.2 Management Stock Subscription Agreement and the Addendum thereto
dated March 22, 1994 by and between the Registrant and Robert E.
Cannon.****
10.3 Management Stock Subscription Agreement and the Addendum thereto
dated March 22, 1994 by and between the Registrant and David B.
Ferraro.****
10.4 Management Stock Subscription Agreement and the Addendum thereto
dated March 22, 1994 by and between the Registrant and Herman P. van
Eck.****
10.5 Management Stock Subscription Agreement and the Addendum thereto
dated March 22, 1994 by and between the Registrant and George B.
Ellis.****
10.6 1994 Incentive Stock Option Plan for Management Employees of The
Buckeye Cellulose Corporation dated March 22, 1994.****
10.7 Incentive Stock Option Subscription Agreement dated March 22, 1994
by and between the Registrant and Robert E. Cannon.****
10.8 Incentive Stock Option Subscription Agreement dated March 22, 1994
by and between the Registrant and David B. Ferraro.****
10.9 Incentive Stock Option Subscription Agreement dated March 22, 1994
by and between the Registrant and Herman P. van Eck.****
10.10 Incentive Stock Option Subscription Agreement dated March 22, 1994
by and between the Registrant and George B. Ellis.****
10.11 Stockholder Agreement dated March 22, 1994 by and between the
Registrant, Madison Dearborn Capital Partners L.P. and each of the
named "Executives."****
10.12 Registration Agreement and the Addendum thereto, dated March 22,
1994 by and between the Registrant, Madison Dearborn Capital
Partners L.P. and the named "Executives."****
10.13 Pulp Supply Agreement dated as of March 16, 1993 by and between
Buckeye Florida, Limited Partnership and The Procter & Gamble Paper
Company. Certain portions of the Agreement have been omitted and
filed separately with the Commission pursuant to an Application for
Confidential Treatment dated October 30, 1995, as supplemented on
November 14, 1995 and November 21, 1995.**
10.14 Timberlands Agreement dated as of March 16, 1993 by and between
Buckeye Florida, Limited Partnership and The Procter & Gamble
Company. Certain portions of the Agreement have been omitted and
filed separately with the Commission pursuant to an Application for
Confidential Treatment dated October 30, 1995, as supplemented on
November 14, 1995 and November 21, 1995.**
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.15 Timber Purchase Agreement dated as of March 16, 1993 by and between
Buckeye Florida, Limited Partnership and The Procter & Gamble
Company. Certain portions of the Agreement have been omitted and
filed separately with the Commission pursuant to an Application for
Confidential Treatment dated October 30, 1995, as supplemented on
November 14, 1995 and November 21, 1995.**
10.16 1994 Incentive Stock Option Plan for Management Employees of Buckeye
Florida Corporation.**
10.17 Amended and Restated Registration Agreement by and among the
Registrant, Madison Dearborn Capital Partners, L.P. and the named
"Executives."**
10.18 Umbrella Agreement dated January 18, 1996 by and among Peter Temming
AG--Specialty Pulp Business, Peter Temming AG, Steinbeis Temming
Papier GmbH and Steinbeis Temming Papier GmbH & Co.*****
10.19 Asset Purchase Agreement dated as of March 16, 1993 between Buckeye
Florida, Limited Partnership and The Procter & Gamble Cellulose
Company. The Registrant agrees to furnish supplementally to the
Commission a copy of any omitted schedule or exhibit to the
Agreement upon request by the Commission.**
10.20 Agreement of Limited Partnership of Buckeye Florida, Limited
Partnership dated as of March 16, 1993 between Buckeye Acquisition
Corporation and The Procter & Gamble Cellulose Company.**
10.21 1995 Management Stock Option Plan of the Registrant.**
10.22 1995 Incentive and Nonqualified Stock Option Plan for Management
Employees of the Registrant.**
10.23 Form of Management Stock Option Subscription Agreement.**
10.24 Form of Stock Option Subscription Agreement.**
10.25 Indenture dated as of May 27, 1993 between the Registrant and
Bankers Trust Company.***
10.26 First Supplemental Indenture, dated as of November 21, 1995 between
the Registrant and Bankers Trust Company to Indenture dated as of
May 27, 1993.******
10.27 Indenture dated as of November 28, 1995 between the Registrant and
Union Planters National Bank.*
10.28 Credit Agreement dated as of November 28, 1995 among the Registrant,
certain subsidiaries of the Registrant, Fleet Bank of Massachusetts,
N.A., SunTrust Bank, Central Florida N.A. and the other lenders
party thereto.******
10.29 Stock Purchase Agreement dated April 26, 1996 among the Registrant,
Stonebridge Partners Equity Fund, L.P., Alpha Cellulose Associates
I, L.P., Alpha Cellulose Associates II, L.P., Stonebridge Partners
Management, L.P., as nominee for P&C Venture Corp. and Dawkes
Corporation, John P. Flanagan, Michael M. Brown, Janice S. Valenta,
John F. Manning, Ken L. Wilcox, Albert A. Bounds, Jr., Ralph Bolin,
Charles P. Oxendine and James R. Israelson.******
10.30 The Formula Plan for Non-Employee Directors.******
10.31 Amendment No. 1 to Credit Agreement dated as of April 25, 1996 among
the Registrant, certain subsidiaries of the Registrant, Fleet Bank
of Massachusetts, N.A., SunTrust Bank, Central Florida N.A. and the
other lenders party thereto.******
10.32 Company Stock Repurchase Agreement dated as of June 3, 1996 between
BKI Investment Corp. and Madison Dearborn Capital Partners,
L.P.******
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant******
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
23.1 Consent of Ernst & Young LLP
23.2 Consent of Dipl.-Ing. Wolf Gadecke, Wirtschaftsprufer
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Kirkland & Ellis (included in opinion filed as Exhibit
5.1)*
24.1 Powers of attorney (included in signature page)
25.1 Statement of Eligibility of Trustee (separately bound)*
</TABLE>
- --------
*To be filed by amendment.
**Incorporated by reference to the Registrant's Registration Statement on
Form S-1, File No. 33-97836, as filed with the Securities and Exchange
Commission on October 6, 1995 and as amended on October 30, 1995 and
November 21, 1995.
***Incorporated by reference to the Registrant's Registration Statement on
Form S-1, File No. 33-60032, as filed with the Securities and Exchange
Commission on March 25, 1993 and as amended on April 7, 1993, May 4, 1993
and May 17, 1993.
****Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1994.
*****Incorporated by reference to the Registrant's Current Report on Form 8-K
dated May 2, 1996.
******Incorporated by reference to the Registrant's Registration Statement on
Form S-3, File No. 333- , as filed with the Securities and Exchange
Commission on June 4, 1996.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF MEMPHIS, STATE OF TENNESSEE, ON JUNE 4, 1996.
Buckeye Cellulose Corporation
/s/ Robert E. Cannon
By: _________________________________
Robert E. Cannon
Chief Executive Officer, Chairman
of the Board and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS ROBERT E. CANNON, DAVID B. FERRARO, SAMUEL M.
MENCOFF AND JUSTIN S. HUSCHER AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-
IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR
HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY
OR ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT AND ANY SUBSEQUENT REGISTRATION STATEMENT FILED BY THE COMPANY
PURSUANT TO RULE 462(B) OF THE SECURITIES ACT OF 1933, AS AMENDED, 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 MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS 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 ON JUNE 4, 1996, BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED WITH RESPECT TO BUCKEYE CELLULOSE
CORPORATION:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Robert E. Cannon Chief Executive Officer, Chairman of the
___________________________________________ Board and Director (Principal Executive
Robert E. Cannon Officer)
/s/ David B. Ferraro President, Chief Operating Officer and
___________________________________________ Director (Principal Financial Officer)
David B. Ferraro
/s/ David H. Whitcomb Comptroller (Principal Accounting Officer)
___________________________________________
David H. Whitcomb
/s/ Samuel M. Mencoff Director
___________________________________________
Samuel M. Mencoff
/s/ Justin S. Huscher Director
___________________________________________
Justin S. Huscher
/s/ Red Cavaney Director
___________________________________________
Red Cavaney
/s/ Henry Frigon Director
___________________________________________
Henry Frigon
/s/ Harry Phillips Director
___________________________________________
Harry Phillips
</TABLE>
II-6
<PAGE>
GRAPHIC APPENDIX
The inside front cover page of the Prospectus contains a series of multi-
colored pictures of certain end-use applications of specialty cellulose pulps
produced by the Company. The pictures depict: (i) a baby wearing a disposable
diaper which contains a core comprised of absorbent cellulose pulps; (ii) an
automotive air filter manufactured from customized paper pulps; (iii) motion
picture and photographic film manufactured from chemical cellulose pulps; (iv)
an individual writing on stationery produced from customized paper pulps; (v) a
dessert cup of ice cream which contains thickening ethers produced from chemical
cellulose pulps; and (vi) a child eating a hot dog with casing purified and
strengthened by chemical cellulose pulps. Across the top of the inside front
cover page are the words "END-USE APPLICATIONS OF BUCKEYE CELLULOSE CORPORATION
PRODUCTS."
The inside back cover page of the Prospectus contains a series of multi-
colored pictures of the Company's Memphis, Tennessee headquarters building, its
Perry, Florida manufacturing facility and its Memphis, Tennessee manufacturing
facility. First, a ground-level view of the headquarters building is depicted,
with the words "MEMPHIS HEADQUARTERS" beneath. Second, an aerial view of the
Perry manufacturing facility is depicted, with the words "FOLEY PLANT" beneath.
Third, an aerial view of the Memphis manufacturing facility is depicted, with
the words "MEMPHIS PLANT" beneath.
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
MARCH 16, 1993 --------------------------- ------------------
THROUGH PRO FORMA PRO FORMA
JUNE 30, 1993 1994 1995 1995 1996 1996
-------------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Combined consolidated
income before income
taxes.................. $ 7,555 $20,221 $34,182 $52,602 $52,060 $61,482
Minority interest....... 3,083 8,291 23,223 -- 16,628 --
Interest expense........ 10,462 26,266 21,741 33,816 13,231 23,269
Amortization of debt
costs.................. 98 593 549 1,013 478 750
Interest portion of
rental expense......... 198 284 342 417 248 292
------- ------- ------- ------- ------- -------
Earnings.............. $21,396 $55,655 $80,037 $87,848 $82,645 $85,793
======= ======= ======= ======= ======= =======
Interest expense........ $10,462 $26,266 $21,741 $33,816 $13,231 $23,269
Amortization of debt
costs.................. 98 593 549 1,013 478 750
Interest portion of
rental expense......... 198 284 342 417 248 292
------- ------- ------- ------- ------- -------
Fixed Charges......... $10,758 $27,143 $22,632 $35,246 $13,957 $24,311
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges........ 1.99x 2.05x 3.54x 2.49x 5.92x 3.53x
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 23.1
AUDITOR'S CONSENT
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 28, 1995, with respect to the combined
consolidated financial statements of Buckeye Cellulose Corporation and
Affiliates and the combined statement of operating income of the Predecessor,
in the Registration Statement (Form S-3) and related Prospectus of Buckeye
Cellulose Corporation for the registration of $100,000,000 of principal amount
of its Senior Subordinated Notes due 2008, and to the incorporation by
reference therein of our reports dated July 28, 1995 with respect to the
consolidated financial statements and schedule of Buckeye Cellulose
Corporation, and dated September 1, 1993 with respect to the statement of
operating income and related schedule of the Memphis Mill Operations of the
Procter & Gamble Cellulose Company included in Buckeye Cellulose Corporation's
Annual Report on Form 10-K for the year ended June 30, 1995, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Memphis, Tennessee
June 3, 1996
<PAGE>
EXHIBIT 23.2
AUDITOR'S CONSENT
I consent to the reference to my firm under the caption "Experts" and to the
use of my report dated April 29, 1996 in the Registration Statement (Form S-3)
and related Prospectus of Buckeye Cellulose Corporation for the registration
of $100,000,000 in Senior Subordinated Notes.
Dipl.-Ing Wolf Gadecke
Wirtschaftsprufer
Hamburg, Germany
May 31, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Buckeye Cellulose
Corporation on Form S-3 of our report on Alpha Cellulose Holdings, Inc. dated
February 29, 1996, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
June 3, 1996
Raleigh, North Carolina
