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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
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Commission file number: 33-60032
BUCKEYE TECHNOLOGIES INC.
Incorporated pursuant to the Laws of Delaware
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Internal Revenue Service -- Employer Identification No. 62-1518973
1001 Tillman Street, Memphis, TN 38112
901-320-8100
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Securities registered pursuant to Section 12(b) of the Act:
Title of Securities: Common Stock - $.01 par value
Exchanges on which Registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
8-1/2% Senior Subordinated Notes due 2005
9-1/4% Senior Subordinated Notes due 2008
8% Senior Subordinated Notes due 2010
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of September 17, 1998, the aggregate market value of the registrant's voting
shares held by non-affiliates was approximately $437,345,000.
As of September 17, 1998, there were outstanding 35,900,436 Common Shares of
the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Buckeye Technologies Inc.'s 1998 Annual Report are incorporated by
reference into Part I and Part II. Portions of Buckeye Technologies Inc.'s 1998
Annual Proxy Statement are incorporated by reference into Part III.
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INDEX
BUCKEYE TECHNOLOGIES INC.
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ITEM PAGE
<S> <C> <C>
PART I
1. Business............................................................................ 2
2. Properties......................................................................... 6
3. Legal Proceedings.................................................................. 6
4. Submission of Matters to a Vote of Security Holders................................ 6
PART II
5. Market for the Registrant's Common Stock and Related Security Holder Matters....... 7
6. Selected Financial Data............................................................ 7
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 7
7a. Market Risk Disclosure............................................................. 7
8. Financial Statements and Supplementary Data........................................ 7
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................. 7
PART III
10. Directors and Executive Officers of the Registrant................................. 8
11. Executive Compensation............................................................. 9
12. Security Ownership of Certain Beneficial Owners and Management..................... 9
13. Certain Relationships and Related Transactions..................................... 9
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.................... 10
OTHER
Signatures......................................................................... 13
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Buckeye Technologies Inc. (the Company or Buckeye) is a leading
manufacturer and worldwide marketer of value-added cellulose-based specialty
products. The Company utilizes its expertise in polymer chemistry and its
state-of-the-art manufacturing facilities to develop and produce innovative
proprietary products for its customers. The Company sells its products to 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 offering cellulose-based specialty
products made from both wood and cotton and utilizing both wet-laid and air-laid
technologies. As a result, the Company produces a broader range of
cellulose-based specialty products than any of its competitors.
The Company believes that it has leading positions in most of the
high-end niche markets in which it competes. Buckeye's focus on niche specialty
cellulose markets has enabled it to maintain consistently strong sales growth
and stable operating margins, even during downturns in the commodity cellulose
markets.
COMPANY HISTORY
The Company has participated in the cellulose-based specialty market
for over 75 years and has developed new uses for both wood and cotton based
cellulose products. In March 1993, the Company began operations as Buckeye
Cellulose Corporation and Buckeye Florida, Limited Partnership. Additional
information is incorporated herein by reference to the Financial Review on page
6 and Note 1, Accounting Policies, to the Consolidated Financial Statements on
page 14 of the Company's 1998 Annual Report.
During the period May 1996 (fiscal year 1996) through May 1997 (fiscal
year 1997), the Company made three acquisitions. Two of the acquisitions, Peter
Temming AG in May 1996 and Alpha Cellulose Holdings Inc. in September 1996, are
producers of specialty cellulose. The third acquisition, Merfin International
Inc., utilizes specialty cellulose to produce cellulose based air-laid nonwovens
for absorbent applications. Further information on these acquisitions is
incorporated herein by reference to Note 2, Business Combinations, to the
Consolidated Financial Statements, on pages 16 and 17 of the Company's 1998
Annual Report.
The Company is incorporated in Delaware and its executive offices are
located at 1001 Tillman Street, Memphis, Tennessee. Its telephone number is
(901) 320-8100.
PRODUCTS
The Company is the only manufacturer offering cellulose-based specialty
products made from both wood and cotton utilizing both wet-laid and air-laid
technologies. As a result, the Company produces a broader range of
cellulose-based specialty products than any of its competitors.
Additional information is incorporated herein by reference to the
insert titled "A Few Words About What We Do" located between pages 3 and 4 and
Buckeye's Product Categories on page 4 of the Company's 1998 Annual Report.
2
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RAW MATERIALS
Slash pine timber and cotton fiber are the principal raw materials used
in the manufacture of the Company's specialty cellulose and absorbent cellulose
products. They represent the largest components of the Company's variable costs
of production. The region surrounding Buckeye's plant located in Perry, Florida
(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 has entered into various timber purchase
agreements. Additional information is incorporated herein by reference to Note
14, Purchase Commitments, to the Consolidated Financial Statements, which
appears on pages 22-23 of the Company's 1998 Annual Report.
The Company purchases cotton fiber either directly from cotton seed oil
mills or indirectly through agents or brokers. The Memphis Plant is
strategically located in the Mississippi Valley, one of the largest cotton fiber
producing regions in the world. Generally, the Company purchases substantially
all of its requirements of cotton fiber for the Memphis and Lumberton plants
domestically. The Glueckstadt plant purchases cotton fiber principally from
suppliers in the Middle East.
The cost of both slash pine timber and cotton fiber is subject to
market fluctuations caused by supply and demand factors beyond the Company's
control.
SALES AND CUSTOMERS
The Company'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 are distributed to customers in approximately 50 countries
around the world. The Company's fiscal 1998 sales reflect this geographic
diversity, with 31% of sales in the United States, 38% in Europe, 17% in Asia
and 14% in other regions. Geographic segment data and export sales data is
included in Note 12, Geographic Reporting, to the Consolidated Financial
Statements which appears on pages 22-23 of the Company's 1998 Annual Report, and
is incorporated herein by reference.
The high-end, technically demanding specialty niches that Buckeye
serves require a higher level of sales and technical service support than do
commodity cellulose sales. Most of the Company's technically trained sales and
service engineers began their careers in the Company's manufacturing or product
development operations. These professionals work with customers in their plants
to design cellulose 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 31% of the Company's fiscal 1998
gross sales. The Company and Procter & Gamble have entered into a long-term Pulp
Supply Agreement, which requires Procter & Gamble to purchase specified tonnage
of the Company's fluff pulp annually through the year 2002. 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 through calendar year 1998 is based 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 specified provision to cover the Company's manufacturing costs
and profit margin (ii) a provision for escalation based on Consumer Price Index
changes, and (iii) a provision to adjust for all actual changes in the price of
wood, the major raw material
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component of the fluff pulp purchased under the contract. Buckeye's next four
largest customers in the aggregate account for approximately 13% of gross sales.
Over 90% of the Company's worldwide sales are denominated in U.S.
dollars, and such sales are not subject to exchange rate fluctuations. 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 and absorbent products, improving existing products, and
enhancing process technologies to further reduce costs and respond to
environmental needs. The Company has a history of innovation in specialty
cellulose products. The acquisition of Merfin added capability in the research
and development of new air-laid absorbent products. Buckeye has pilot plant
facilities in which to produce experimental cellulose products for qualification
in customers' plants. The Company has announced plans to invest $7.0 million in
a new air-laid nonwovens pilot plant. This proprietary pilot facility will
support Buckeye's development efforts with a number of leading consumer products
companies and speed delivery of these breakthrough absorbent products to the
marketplace.
Research and development costs of $10.7 million, $8.4 million, and $5.4
million were charged to expense as incurred for the years ended June 30, 1998,
1997 and 1996, respectively.
COMPETITION
Buckeye's competitors include the following: Borregaard Industries,
Limited (Norway), Concert Industries (Canada), Duni AB (Sweden), Fort James
(U.S.), Georgia-Pacific Corporation (U.S.), Havix (Japan), Honshu (Japan),
Hosposables (U.S.), International Paper Company (U.S.), Personal Care Group
(U.S.), Rayonier, Inc. (U.S.), Sappi Limited (South Africa), Southern Cellulose
Products Inc. (U.S.), Spontex (U.K.), Tembec Inc. (Canada), UPM-Kymmene
Corporation (Finland), Western Pulp Limited Partnership (Canada), and
Weyerhaeuser Company (U.S.). Competition is based on product performance,
technical service, and, to a lesser extent, price. Southern Cellulose Products
Inc. is owned by Archer Daniels Midland, a subsidiary of which supplies cotton
fibers to the Company.
INTELLECTUAL PROPERTY
The Company currently holds five U. S. patents and three foreign
patents, and has 12 applications pending or in preparation. In addition, the
Company has access to royalty-free licenses for five U.S. patents and two
foreign patents. Buckeye intends to protect its patents, file the applications
in preparation, and file applications for any future inventions that are deemed
to be important to its business operations.
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.
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EMPLOYEES
On June 30, 1998, the Company employed approximately 1,800 individuals
at its facilities in Memphis, Tennessee; Perry, Florida; Lumberton and King,
North Carolina; Savannah, Georgia; Glueckstadt, Germany; Delta, Canada; Cork,
Ireland; and Geneva, Switzerland. Collective bargaining agreements are in place
at the Foley Plant (approximately 600 hourly employees) with the United Paper
Workers International Union, AFL-CIO, Local #1192; and at the Memphis Plant
(approximately 180 hourly employees) with the Local Union 910 Pulp and
Processing Workers and the Retail, Wholesale, and Department Store Union,
AFL-CIO. The agreement for the Foley Plant expires April 1, 2002. The agreement
for the Memphis Plant expires March 18, 2000. A Works Council provides employee
representation for all non-management workers at the Glueckstadt Plant. The
Lumberton, Delta, Cork, and King plants are not unionized.
None of the Company's facilities have had labor disputes or work
stoppages in recent history. The Foley Plant has not experienced any work
stoppages due to labor disputes in over 25 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 REGULATIONS AND LIABILITIES
The Company's 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. The Company expects that, due to the nature of its
operations, it will be subject to increasingly stringent environmental
requirements (including standards applicable to waste water discharges and air
emissions) and will continue to incur substantial costs to comply with such
requirements. 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.
Additional information is incorporated herein by reference to Note 15,
Contingencies, to the Consolidated Financial Statements, on pages 23 and 24 of
the Company's 1998 Annual Report.
SAFE HARBOR PROVISIONS
This document 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
document which are not historical statements are forward-looking statements.
Such forward-looking statements are subject to certain risks and uncertainties,
including among other things, pricing fluctuations and worldwide economic
conditions; the Company's dependence on its largest customer, Procter & Gamble;
fluctuation in the costs of raw materials; competition; inability to predict the
scope of future environmental compliance costs or liabilities; and the ability
of the Company to obtain additional capital, maintain adequate cash flow to
service debt as well as meet operating needs. 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.
5
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ITEM 2. 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, the Cork, Ireland Plant, the Lumberton Plant,
the Delta, Canada Plant and the Glueckstadt, Germany Plant. The Company leases
buildings that house the King, North Carolina Plant, the sales offices in
Geneva, Switzerland and distribution facilities in Savannah, Georgia.
Memphis Plant. The Memphis Plant is located on an approximately 75-acre
site adjacent to the headquarters complex. The Memphis Plant has capacity of
approximately 100,000 annual metric tons of cotton cellulose.
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 has capacity of approximately 460,000 annual metric tons of wood
cellulose.
Glueckstadt Plant. The Glueckstadt Plant is located in close proximity to
the Elbe River near Hamburg, Germany. 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 Glueckstadt Plant has a capacity of approximately 50,000 annual
metric tons and is the largest cotton cellulose plant in Europe.
Lumberton Plant. The Lumberton Plant, which is located in Lumberton, North
Carolina on an approximately 65-acre site, has a capacity of approximately
50,000 annual metric tons of cotton cellulose.
Air-laid Plants. The Delta Plant has a total capacity of approximately
25,000 annual metric tons of air-laid nonwoven fabric from two production lines.
The Cork Plant has a capacity of approximately 15,000 annual metric tons of
air-laid nonwoven fabric from its existing single production line. The King
Plant converts air-laid fabrics and wet-laid paper into wipes, towels and
tissues for industrial and commercial uses.
ITEM 3. LEGAL PROCEEDINGS
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 operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
For Submission of Matters to a Vote of Security Holders, please see the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
On June 11, 1998, the Company issued 8% Senior Subordinated Notes due 2010
in the principal amount of $150,000,000 (the Old Notes) pursuant to Rule 144A
under the Securities Act of 1933, as amended (the Securities Act). Morgan
Stanley & Co. Incorporated, Salomon Brothers Inc., Credit Suisse First Boston
Corporation and TD Securities (USA) Inc. served as placement agents and received
approximately $3.0 million in commissions. On August 25, 1998, the Company
exchanged notes registered pursuant to a Registration Statement under the
Securities Act in an equal amount to the Old Notes, the terms and form of which
were the same as the terms and form of the Old Notes. Additional information on
this item is set forth under the caption "Shareholder Information" on page 28 in
the Company's 1998 Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information on this item is set forth under the caption "Selected Financial
Data" on page 26 in the Company's 1998 Annual Report and is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information on this item is set forth under the caption "Financial Review"
on pages 6-9 in the Company's 1998 Annual Report and is incorporated herein by
reference.
ITEM 7A. MARKET RISK DISCLOSURE
Information on this item is set forth under the caption "Financial
Review" on page 8 in the Company's 1998 Annual Report and is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are set forth on
pages 10-24 in the Company's 1998 Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with its independent
auditors.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions held by the executive officers of the Company
on September 18, 1998 are:
<TABLE>
<CAPTION>
Elected to
Name Age Position Present Position
------------------- --- ---------------------------------------------------- ----------------
<S> <C> <C> <C>
Robert E. Cannon* 68 Chairman of the Board, Chief Executive Officer and March 1993
Director
David B. Ferraro* 60 President, Chief Operating Officer and Director March 1993
Henry P. Doggrell** 50 Sr. Vice President, Corporate Affairs July 1997
George B. Ellis* 58 Sr. Vice President, Manufacturing-Specialty Cellulose July 1997
E. Allen, Eppinger* 60 Sr. Vice President, Manufacturing-Absorbent Products July 1997
Paul N. Horne* 42 Sr. Vice President, Commercial-Specialty Cellulose July 1997
B. Jerry L. Huff* 59 Sr. Vice President, Research & Development July 1997
Kristopher J. Matula** 36 Sr. Vice President, Commercial-Absorbent Products July 1997
David H. Whitcomb* 58 Sr. Vice President, Finance & Accounting July 1997
</TABLE>
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* All of the above Executive Officers have been employed by the Company
since its beginning in March 1993 and had been employees of The Procter
& Gamble Company, C&S Division (the C&S Division), prior to the
purchase of C&S Division assets by Buckeye, except Messrs. Doggrell and
Matula.
** Prior to joining Buckeye in June 1996, Mr. Doggrell was a partner in
the law firm, Baker Donelson Bearman & Caldwell, from 1988 until May
30, 1996, and represented the Company as its primary legal counsel
since March 1993. Prior to joining the Company in March 1994, Mr.
Matula held various strategic planning and finance positions at The
Procter & Gamble Company, from August 1991 until March 1994.
Additional information relating to Directors and Executive Officers is
incorporated herein by reference to pages 2-3 of the Company's 1998 Annual Proxy
Statement.
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ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item is set forth on pages 6-8 of the
Company's 1998 Annual Proxy Statement and is incorporated herein by reference,
but does not include the "Report of the Compensation Committee" on pages 4-5.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item is set forth under the caption "Security
Ownership of Company's Directors and Executive Officers and Certain Other
Beneficial Owners" on pages 9-10 in the Company's 1998 Annual Proxy Statement
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is set forth under the caption
"Transactions with Executive Officers, Directors and Others" on page 10 in the
Company's 1998 Annual Proxy Statement and is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
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(a) (1) Financial Statements
- The following report of independent auditors and financial statements are
incorporated by reference in Part II, Item 8:
- Consolidated Statements of Income -- For the years ended June 30, 1998,
1997 and 1996
- Consolidated Balance Sheets -- June 30, 1998 and 1997
- Consolidated Statements of Stockholders' Equity -- For the years ended June 30, 1998,
1997 and 1996
- Consolidated Statements of Cash Flows -- For the years ended June 30, 1998,
1997 and 1996
- Notes to Consolidated Financial Statements
- Report of Management
- Report of Independent Auditors
(2) Financial Statement Schedule
- Schedule II - Valuation and Qualifying Accounts . See page 12 of this document.
- All other financial statement schedules are omitted as the information is not
required or because the required information is presented in the financial
statements or the notes thereto.
(3) Listing of Exhibits
3.1 Second Amended and Restated Certificate of Incorporation *****
3.1 (a) Articles of Amendment to the Second Amended and Restated
Certificate of Incorporation of Registrant ******
3.2 Amended and Restated By-laws of the Registrant. *
4.1 Indenture for 8 1/2% Senior Subordinated Notes due 2005, dated
November 28, 1995 *
4.2 Indenture for 9 1/4% Senior Subordinated Notes due 2008, dated July 2, 1996 **
4.3 Indenture for 8% Senior Subordinated Notes due 2010, dated June 11, 1998 ******
10.1 Amended and Restated 1995 Management Stock Option Plan of the Registrant.
10.2 Amended and Restated 1995 Incentive and Nonqualified Stock Option Plan for
Management Employees of the Registrant. ******
10.3 Form of Management Stock Option Subscription Agreement.
10.4 Form of Stock Option Subscription Agreement.
10.5 Formula Plan for Non-Employee Directors **
10.6 Offer to Purchase for Cash all of the Common Shares of Merfin International Inc.
at a price of Cdn. $6.00 per Common Share by Buckeye Acquisition Inc. dated
March 25, 1997. ***
</TABLE>
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<TABLE>
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10.7 Notice of Variation of the Offer to Purchase for Cash all of the Common Shares of Merfin
International Inc. at a price of Cdn. $6.00 per Common Share by Buckeye Acquisition Inc.
dated April 15, 1997 ***
10.8 Second Notice of Variation of the Offer to Purchase for Cash all of the Common Shares of
Merfin International Inc. at an increased price of Cdn. $6.50 per Common Share by
Buckeye Acquisition Inc. dated April 25, 1997. ***
10.9 Third Notice of Variation of the Offer to Purchase for Cash all of the Common Shares of
Merfin International Inc. at an increased price of $7.00 per Common Share by Buckeye
Acquisition Inc. dated May 5, 1997. ***
10.10 Fourth Notice of Variation of the Offer to Purchase for Cash all of the Common Shares of
Merfin International Inc. at an increased price of $7.50 per Common Share by Buckeye
Acquisition Inc. dated May 15, 1997. ***
10.11 Credit Agreement dated as of May 28, 1997 among the Registrant, Fleet National Bank;
SunTrust Bank, Central Florida, N.A.; Toronto Dominion (Texas), Inc.; and the other
lenders party thereto. ****
13.1 Buckeye Technologies Inc. 1998 Annual Report.
21.1 Subsidiaries of the Registrant.
23.0 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule. (For SEC use only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended June 30, 1998.
* 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-3 File
No. 33-05139, as filed with the Securities and Exchange Commission on June 4, 1996 and as
amended on June 11, 1996 and June 27, 1996.
*** Incorporated by reference to the Registrant's Current Report on Form 8-K dated June 10, 1997.
**** Incorporated by reference to the Registrant's Current Report on Form 10-K dated June 30, 1997.
***** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for quarterly
period ended December 31, 1997.
****** Incorporated by reference to the Registrant's Registration Statement on Form S-4, file
No. 333-59267, as filed with the Securities and Exchange Commission on July 16, 1998.
</TABLE>
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SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Column B Column C Column D Column E
-----------------------------------------------------------------
Additions
-------------------------
Balance Charged to Charged Balance
at to to at
Beginning Costs Other (a) End
of and Accounts Deductions of
Description Period Expenses --Describe --Describe Period
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Deducted from asset accounts:
Allowance for doubtful accounts......... $1,322 $34 $-- $(182) $1,174
====== === === ===== ======
YEAR ENDED JUNE 30, 1997
Deducted from asset accounts: (b)
Allowance for doubtful accounts......... $ 980 $-- $591 $(249) $1,322
====== === ==== ===== ======
YEAR ENDED JUNE 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts......... $1,152 $-- $-- $(172) $ 980
====== === === ===== ======
</TABLE>
- -----------------
(a) Uncollectible accounts written off, net of recoveries.
(b) Acquired allowance for doubtful accounts at the date of acquisition.
12
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Buckeye Technologies Inc.
By: /s/ Robert E. Cannon
-------------------------------------------------------------------------
Robert E. Cannon, Director, Chairman of the Board and Chief Executive Officer
Date: September 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Robert E. Cannon
-------------------------------------------------------------------------
Robert E. Cannon, Director, Chairman of the Board and Chief Executive Officer
Date: September 23, 1998
By: /s/ David B. Ferraro
-------------------------------------------------------------------------
David B. Ferraro, Director, President and Chief Operating Officer
Date: September 23, 1998
By: /s/ Samuel M. Mencoff
-------------------------------------------------------------------------
Samuel M. Mencoff, Director
Date: September 23, 1998
By: /s/ Harry J. Phillips, Sr.
-------------------------------------------------------------------------
Harry J. Phillips, Sr., Director
Date: September 23, 1998
By: /s/ David H. Whitcomb, Sr.
-------------------------------------------------------------------------
David H. Whitcomb, Sr. Vice President
Date: September 23, 1998
13
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EXHIBIT 10.1
AMENDED AND RESTATED
1995 MANAGEMENT STOCK OPTION PLAN
OF BUCKEYE CELLULOSE CORPORATION
BUCKEYE CELLULOSE CORPORATION, a Delaware corporation (the "Company"),
hereby adopts this Management Stock Option Plan for management employees of
Buckeye Cellulose Corporation and Subsidiaries. The purposes of this Plan are as
follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to certain key management employees
of the Company and its Subsidiaries who have been or will be given
responsibility for the management or administration of the Company's business
affairs, by assisting them to become owners of capital stock of the Company and
thus to benefit directly from its growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type
of managerial employees considered essential to the long range success of the
Company by providing and offering them an opportunity to become owners of
capital stock of the Company under Options.
ARTICLE I.
DEFINITIONS
1.1 General. Whenever the following terms are used in this Plan they
shall have the meaning specified below unless the context clearly indicates to
the contrary.
1.2 Board. "Board" shall mean the Board of Directors of the Company.
1.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.4 Committee. "Committee" shall mean the Compensation Committee of
the Board, appointed as provided in Section 6.1.
1.5 Common Stock. "Common Stock" shall mean the common stock, par
value $.01 per share, of the Company.
1.6 Company. "Company" shall mean Buckeye Cellulose Corporation and
those corporations, if any, which are from time to time, its Subsidiaries.
1.7 Director. "Director" shall mean a member of the Board.
<PAGE> 2
1.8 Employee. "Employee" shall mean any employee (as defined in
accordance with the regulations and revenue rulings then applicable under
Section 3401(c) of the Code) of the Company or any of its Subsidiaries whether
such employee is so employed at the time this Plan is adopted or becomes so
employed subsequent to the adoption of this Plan.
1.9 Exercise Price. "Exercise shall have the meaning given in
Section 4.2.
1.10 Fair Market Value. "Fair market value" of any shares of Common
Stock of the Company for purposes of the Plan shall be the last price at which
shares of the Company were traded on the New York Stock Exchange on the day
before the specified date or, if there were no trades on that day, then on the
last day prior to such date during which there were trades.
1.11 Incentive Stock Option. "Incentive Stock Option" shall mean any
portion of an Option which (i) is not specifically designated by the Committee
at the time of the grant as a Nonqualified Stock Option, (ii) can be expected at
the time of grant to satisfy the requirements for treatment as an incentive
stock option under Section 422 of the Code, (iii) continues at all times
thereafter to satisfy the requirements for treatment as an incentive stock
option under Section 422 of the Code, and (iv) is exercised by either a citizen
or resident alien of the United States (as defined in the Code and the
regulations thereunder).
1.12 Nonqualified Stock Option. "Nonqualified Stock Option" shall mean
any portion of the Option which is not an Incentive Stock Option.
1.13 Option. "Option" shall mean an option granted under the Plan to
purchase Common Stock.
1.14 Optionee. "Optionee" shall mean an Employee to whom an Option is
granted under the Plan.
1.15 Plan. "Plan" shall mean the 1995 Management Stock Option Plan for
Management Employees of the Company and Subsidiaries, as amended or restated
from time to time.
1.16 Pronouns. The masculine pronoun shall include the feminine and
neuter and the singular shall include the plural, where the context so
indicates.
1.17 Stock Option Agreement. "Stock Option Agreement" shall mean a
Management Stock Option Subscription Agreement between the Optionee and the
Company.
1.18 Subsidiary. "Subsidiary" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations, or if each group of commonly controlled corporations,
other than the last corporation in an
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unbroken chain then owns stock possessing fifty percent (50%) or more of the
total combined voted power of all classes of stock in one of the other
corporations in such chain.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan. The shares of stock subject to Options
shall be shares of Common Stock of the Company. The aggregate number of shares
of Common Stock which may be issued upon exercise of Options under the Plan
shall not exceed six hundred thousand (600,000) shares, subject to adjustment as
provided in Section 4.6 hereof.
2.2 Unexercised Options. If any Option expires or is canceled without
having been fully exercised, the number of shares subject to such Option but as
to which such Option was not exercised prior to its expiration or cancellation
may again be optioned hereunder, subject to the limitations of Section 2.1.
ARTICLE III.
GRANTING OF OPTIONS
3.1 Eligibility. Any management Employee of the Company shall be
eligible to be granted Options. The determination by the Committee of the status
of an employee as a member of management shall be conclusive.
3.2 Granting of Options. The Committee shall from time to time, in its
absolute discretion:
(i) determine which Employees are key management Employees and
select from such Employees (including those to whom Options have been
previously granted under the Plan) such of them as in its opinion shall
be granted Options; and
(ii) determine the number of shares to be subject to such
Options granted to such selected management Employees; and
(iii) determine the terms and conditions of such Options,
consistent with the Plan; and
(iv) establish such conditions as to the manner of exercise of
such Options as it may deem necessary, including but not limited to
requiring Optionees to enter into agreements regarding transferability
and other restrictions with respect to shares issuable upon exercise of
such Options.
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3.3 Expiration of Time to Make Grants. No Option may be granted under
this Plan after the expiration of ten (10) years from the date the Plan is
adopted by the Board or the date the stockholders of the Company approve this
Plan, if earlier.
ARTICLE IV.
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company, and which shall contain such terms and conditions as the
Committee shall determine, consistent with the Plan.
4.2 Exercise Price. The purchase price under each Option shall be
Fifteen and 19/100 Dollars ($15.19) per share or the Fair Market Value of the
shares of Common Stock of the Company on the date of grant, whichever is less.
4.3 Commencement of Exercisability. Subject to the provisions of
Section 7.2, Options shall become exercisable at such times and in such
installments (which may be cumulative) as the Committee shall provide in the
terms of each individual Stock Option Agreement; provided, however, that by a
resolution adopted after an Option is granted the Committee may, on such terms
and conditions as it may determine to be appropriate and subject to Section 7.2,
accelerate the time at which such Option or any portion thereof may be
exercised.
4.4 Expiration of Options. No Option may be exercised to any extent by
anyone after, and every Option shall expire no later than, the expiration of ten
(10) years from the date the Option was granted. Subject to the provisions of
this Section 4.4, the Committee shall provide, in the terms of each individual
Stock Option Agreement, when the Option expires and becomes unexercisable.
4.5 No Right to Continue in Employment. Nothing in this Plan or in any
Stock Option Agreement hereunder shall confer upon any Optionee any right to
continue in the employ or service of the Company or shall interfere with or
restrict in any way the rights of the Company, which are hereby expressly
reserved, to discharge any Optionee at any time for any reason whatsoever, with
or without good cause.
4.6 Adjustments in Outstanding Options. If the outstanding shares of
Common Stock subject to Options are, from time to time, changed into or
exchanged for a different number or kind of shares of capital stock or other
securities of the Company, or of another corporation, by reason of a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend, combination of shares or otherwise, the Committee
shall make an appropriate adjustment in the aggregate number and kind of shares
which may be issued
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<PAGE> 5
pursuant to Section 2.1 hereof and the number and kind of shares as to which all
outstanding Options, or portions thereof then unexercised, shall be exercisable.
Such adjustment in an outstanding Option shall be made without change in the
total price applicable to the Option or the unexercised portion of the Option
(except for any change in the aggregate price resulting from rounding-off of
share quantities or prices) and with any necessary corresponding adjustment in
Exercise Price per share. No fractional shares shall be issued, and any
fractional shares resulting from computations pursuant to this Section 4.6 shall
be eliminated from the respective Options. Any such adjustment made by the
Committee shall be final and binding upon all Optionees, the Company and all
other interested persons.
ARTICLE V.
EXERCISE OF OPTIONS
5.1 Persons Eligible to Exercise. Except with respect to an Option
which is specifically made transferable pursuant to Section 7.1, (i) during the
lifetime of the Optionee, only the Optionee or the Optionee's guardian or
conservator may exercise an Option granted to such Optionee, or any portion
thereof, and (ii) after the death of the Optionee, any exercisable portion of an
Option may, prior to the time when such portion becomes unexercisable under the
terms of Section 4.4 or the Optionee's Stock Option Agreement, be exercised by
the Optionee's personal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
5.2 Partial Exercise. At any time prior to the time when any
exercisable Option or exercisable portion thereof expires or becomes
unexercisable under the terms of Section 4.4 or the Optionee's Stock Option
Agreement, such Option or portion thereof may be exercised in whole or in part;
provided, however, that the Company shall not be required to issue fractional
shares.
5.3 Manner of Exercise. An exercisable Option, or any exercisable
portion thereof, may be exercised solely by delivery to the Secretary of the
Company or his or her office of all of the following prior to the time when such
Option or such portion becomes unexercisable under the terms of Section 4.4 or
the Optionee's Stock Option Agreement:
(i) Notice in writing signed by the Optionee or other person
then entitled to exercise such Option or portion thereof, stating that
such Option or portion thereof is exercised; and
(ii) Full payment of the Exercise Price (as hereinafter
provided) for the shares with respect to which such Option or portion
thereof is thereby exercised, together with payment or arrangement for
payment of federal income or other tax, if any, required to be withheld
by the Company with respect to such shares; and
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<PAGE> 6
(iii) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than
the Optionee, appropriate proof of the right of such person or persons
to exercise the Option or portion thereof; and
(iv) Such representations and documents as the Committee deems
reasonably necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and
any other federal, state or foreign securities laws or regulations. The
Committee may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance,
including, without limitation, placing legends on share certificates
and issuing stock-transfer orders to transfer agents and registrars.
The Exercise Price shall be payable in cash, by check, by tendering shares of
Common Stock of the Company, or by any combination thereof, as time to time
determined by the Committee. Any shares of Common Stock acceptable to the
Committee in payment of the Exercise Price may be tendered by either actual
delivery of the certificates or by such other procedures as the Committee may
establish from time to time and shall be valued at Fair Market Value as of the
date of exercise.
5.4 Rights as Stockholders. The holders of Options shall not be, nor
have any of the rights or privileges of, stockholders of the Company in respect
of any shares purchasable upon the exercise of any part of an Option, unless and
until certificates representing such shares have been issued by the Company to
such holders. No adjustment shall be made for cash dividends for which the
record date is prior to the date such stock certificate is issued.
ARTICLE VI.
ADMINISTRATION
6.1 Stock Option Committee. The Committee shall consist of at least
three (3) Directors. Appointment of Committee members by the Board shall be
effective upon acceptance of appointment, and Committee members may resign at
any time by delivering written notice to the Board. Vacancies in the Committee
shall be filled by the Board. Committee members shall be appointed by and shall
serve at the pleasure of the Board, and the Board may from time to time remove
members from, or add members to, the Committee and shall fill any vacancy on the
Committee. No person shall be eligible to serve on the Committee unless such
person is then a "non-employee director" within the meaning of paragraph (b) of
Rule 16b-3 which has been adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as such Rule or its equivalent is
then in effect.
6.2 Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall
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<PAGE> 7
have the power to interpret the Plan and the Options and to adopt such rules for
the administration, interpretation, and application of the Plan as are
consistent herewith and to interpret, amend or revoke any such rules. Any such
interpretation and rules shall be consistent with the basic purpose of the Plan
to grant Options. The Board may, in its absolute discretion, at any time and
from time to time, exercise any and all rights and duties of the Committee under
the Plan.
6.3 Majority Rule. The Committee shall act by a majority of its members
in office and the Committee may act either by vote at a telephonic or other
meeting or by a memorandum or other written instrument signed by a majority of
the Committee. The Secretary of the Company shall keep minutes of all meetings
of the Committee. The Committee shall make such rules of procedure for the
conduct of its business as it shall deem advisable.
6.4 Compensation; Professional Assistance; Good Faith Actions. Members
of the Committee shall not receive compensation for their services as members in
addition to the compensation otherwise payable to them as members of the Board,
but all expenses and liabilities they incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and the officers and Directors of the
Company shall be entitled to rely upon the advice, opinions or valuations of any
such persons. No member of the Committee shall be personally liable for any
action, determination or interpretation made in good faith with respect to the
Plan or the Options, and all members of the Committee shall be fully protected
by the Company in respect to any such action, determination or interpretation.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1 Transferability of Options. The Committee may grant Nonqualified
Stock Options which are transferable to the extent expressly provided in the
Stock Option Agreement. Except as expressly provided therein, no Option or
interest or right therein shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means,
whether such disposition be voluntary or involuntary or by operation of law or
by judgment, levy, attachment, garnishment or any other legal or equitable
proceeding (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that nothing in this
Section 7.1 shall prevent transfers by will or by the applicable laws of descent
and distribution to the extent contemplated hereby.
7.2 Amendment, Suspension or Termination of the Plan. The Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Committee. Notwithstanding the foregoing,
without approval of the Company's stockholders given within twelve (12) months
before or after the action by the Committee, no
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<PAGE> 8
action of the Committee or the Board may increase any limit imposed in Section
2.1 on the maximum number of shares which may be issued upon exercise of
Options, reduce the minimum option price requirements in Section 4.2 or extend
the limit imposed in Section 3.3 on the period during which Options may be
granted. Neither the amendment, suspension nor termination of the Plan shall,
without the consent of the holder of the Option, alter or impair any rights or
obligations under any Option theretofore granted. No Option may be granted
during any period of suspension nor after termination of the Plan.
7.3 Effect of Plan Upon Other Options and Compensation Plans. The
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company. Nothing in this Plan shall be construed to limit the
right of the Company (a) to establish any other forms of incentives or
compensation for Employees of the Company; or (b) to grant or assume options
otherwise than under the Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association.
7.4 Application of Proceeds. The proceeds received by the Company from
the sale of its shares of Common Stock under the Plan will be used for general
corporate purposes.
7.5 Titles. Titles are provided for convenience only and are not to
serve as a basis for interpretation or construction of the Plan.
7.6 Interpretation. Any Options granted under this Plan as Incentive
Stock Options are intended to satisfy all requirements of Section 422 of the
Code insofar as possible, and the provisions of this Plan and all Stock Option
Agreements shall be construed in accordance with that intention. If any
provision of this Plan or any Stock Option Agreement shall be inconsistent or in
conflict with any applicable requirement for an Incentive Stock Option, then
such requirement shall be deemed to override and supersede the inconsistent or
conflicting provision; provided, however, the foregoing provision shall not
limit the Company from establishing the Option Price in accordance with Section
4.2 or from granting to any Optionee Options which are in excess of the amount
which may be treated as Incentive Stock Options, and any Options so granted in
excess of the limitations in Section 422(d) of the Code shall be treated as
Nonqualified Stock Options, provided further, however, if the normal date of
exercise of the Option is accelerated because of a sale of the Company or other
similar event as provided in any Stock Option Agreement or because of the
exercise of the Committee's discretion under Section 4.3, such acceleration
shall nevertheless occur even if it shall cause all or a part of the Option to
no longer be an Incentive Stock Option. Any required provision for an Incentive
Stock Option that is omitted from this Plan or the Stock Option Agreement shall
be incorporated herein by reference and shall apply retroactively, if necessary,
and shall be deemed a part of this Plan and any Stock Option Agreement entered
into under this Plan to the same extent as though expressly set forth herein.
The Committee may amend this Plan or
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<PAGE> 9
amend the terms of any Stock Option Agreement in any manner that may be required
in order for the Options granted under this Plan to comply with the applicable
requirements for Incentive Stock Options, and, if necessary, any such amendments
shall apply retroactively to the adoption of this Plan.
7.7 Effective Date. This Plan first became effective on October 27,
1995, the date of its adoption by the Board, and was approved on November 17,
1995 by the vote of the holders of a majority of the outstanding shares of the
Company's Common Stock. This Plan as amended and restated shall become effective
with respect to Options granted on or after July 1, 1997. Pursuant to Section
7.2, the amendment and restatement does not require approval by the shareholders
of the Company.
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<PAGE> 1
EXHIBIT 10.3
MANAGEMENT STOCK OPTION SUBSCRIPTION AGREEMENT
This Management Stock Option Subscription Agreement (this "Agreement"),
dated as of this ___ day of ____, ____, is made by and between BUCKEYE
TECHNOLOGIES INC. (the "Company"), a Delaware corporation, and the management
Employee of the Company whose name appears on the signature page hereof
(hereinafter referred to as the "Optionee").
WHEREAS, pursuant to the Amended and Restated 1995 Management Stock
Option Plan of Buckeye Cellulose Corporation (the "Plan"), (the terms of which
are hereby incorporated by reference), the Company intends to provide incentives
to certain key management Employees of the Company by providing them with
opportunities for ownership of shares of Common Stock; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (hereinafter referred to as the "Committee") appointed to administer the
Plan has determined that it would be to the advantage and best interest of the
Company and its stockholders to grant the Option provided for herein to the
Optionee under the Plan and has advised the Company thereof and instructed the
undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
1.1 -- Cause. "Cause" used in connection with the termination of
employment of the Optionee shall mean a termination of employment of the
Optionee by the Company or any of its Subsidiaries due to (i) the commission by
the Optionee of a felony or other crime involving moral turpitude; (ii)
intentional misconduct of Optionee as an employee of the Company which is likely
to result in any significant injury to the Company; or (iii) the commission by
the Optionee of any other act which amounts to gross negligence or reckless
misconduct in the performance of Optionee's duties to the Company as such duties
are determined, from time to time, in good faith by the Board.
1.2 -- Change in Control. "Change in Control shall have the meaning
given in Section 3.3.
<PAGE> 2
1.3 -- Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.4 -- Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and all rules and regulations promulgated thereunder.
1.5 -- Exercise Price. "Exercise Price" shall mean the price per
Option Share as set forth on the signature page hereof.
1.6 -- Grant Date. "Grant Date" shall mean the date on which the
Option provided for in this Agreement was granted.
1.7 -- Management Shareholder. "Management Shareholder" shall mean (i)
a Person who was both an employee and an officer of the Company on the date of
the adoption of the Amended and Restated Plan on August 12, 1997, and (ii) the
Permitted Transferees of such Persons.
1.8 -- Option. "Option" shall mean any incentive or nonqualified stock
option to purchase Common Stock of the Company granted under this Agreement.
This Option is not intended to be an "incentive stock option" under Section 422
of the Code.
1.9 -- Option Shares. "Option Shares" shall mean the number of shares
of Common Stock for which this Option is granted as set forth upon the signature
page hereof.
1.10 -- Permanent Disability. "Permanent Disability" of the Optionee
shall mean the inability of the Optionee to perform substantially all of his or
her duties and responsibilities to the Company by reason of a physical or mental
disability or infirmity (i) for a continuous period of more than six (6) months
or (ii) at such earlier time as the Optionee submits satisfactory medical
evidence that he or she has a permanent physical or mental disability or
infirmity which will likely prevent him or her from returning to the performance
of his or her work duties for more than six (6) months. The date of such
Permanent Disability shall be on the last day of such six-month period or the
day on which the Optionee submits such satisfactory medical evidence, as the
case may be.
1.11 -- Permitted Transferee. "Permitted Transferee" shall have the
meaning given in Section 5.2(b).
1.12 -- Person. "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust or unincorporated organization.
1.13 -- Plan. "Plan" shall mean the Amended and Restated 1995
Management Stock Option Plan of Buckeye Technologies Inc.
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1.14 -- Retirement. "Retirement" shall mean any voluntary termination
of employment by the Optionee after having reached the age of sixty-two (62)
years and after having completed at least five (5) years of continuous
employment with the Company.
ARTICLE II
GRANT OF OPTION
2.1 -- Grant of Option. For good and valuable consideration, on and as
of the date hereof, the Company irrevocably grants to the Optionee the Option to
purchase any part or all of an aggregate of the number of Option Shares set
forth on the signature page hereof upon the terms and conditions set forth in
this Agreement.
2.2 -- Consideration to the Company. In consideration of the granting
of this Option by the Company, the Optionee agrees to render faithful and
efficient services to the Company with such duties and responsibilities as the
Company shall from time to time prescribe. Nothing in this Agreement or in the
Plan shall confer upon the Optionee any right to continue in the employ or
service of the Company or shall interfere with or restrict in any way the rights
of the Company, which are hereby expressly reserved, to discharge the Optionee
at any time for any reason whatsoever, with or without Cause.
2.3 -- Adjustments in Option. Subject to Section 4.6 of the Plan, in
the event that the outstanding shares of the Common Stock subject to the Option
are changed into or exchanged for a different number or kind of shares of
capital stock or other securities of the Company, or of another corporation, by
reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares or
otherwise, the Committee shall make an appropriate adjustment in the number and
kind of shares of Option Shares. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of shares, quantities or prices) and with any necessary corresponding adjustment
in the Exercise Price. No fractional shares shall be issued, and any fractional
shares resulting from computations pursuant to Section 4.6 of the Plan shall be
eliminated from the respective Options. Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
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2.4 -- Tax Treatment. The Option hereby granted is intended to be a
Nonqualified Stock Option.
ARTICLE III
PERIOD OF EXERCISABILITY
3.1 -- General Rule. The Option will become exercisable as to the
following percentages of the Option Shares on the following anniversaries of the
Grant Date provided that the Optionee is then employed by the Company on such
anniversary:
First anniversary 20%
Second anniversary 40%
Third anniversary 60%
Fourth anniversary 80%
Fifth anniversary 100%
3.2 -- Death or Disability. Notwithstanding Section 3.1, the Option
will become exercisable in full upon the death or Permanent Disability of the
Optionee.
3.3 -- Change in Control. Notwithstanding Section 3.1, unless the
Optionee is terminated for Cause, the Option will become exercisable in full in
the event of any voluntary or involuntary termination of the Optionee's
employment occurring simultaneously with or at any time after any of the
following events (a "Change in Control"):
(a) the sale of more than fifty percent (50%) all of the assets of
the Company (by value);
(b) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than the Management Shareholders, 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 securities that such Person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than fifty percent (50%) of the total voting stock of the
Company;
(c) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which any voting stock of the Company is reclassified or changed
into or exchanged for cash, securities or other property, other than any such
transaction where (i) any voting stock of the Company is reclassified or changed
into or
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<PAGE> 5
exchanged for nonredeemable voting stock of the surviving or transferee
corporation and (ii) immediately after such transaction no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than the Management Shareholders, is 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 securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than fifty percent (50%) of the total
voting stock of the surviving or transferee corporation; or
(d) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose 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 the Board of Directors of the Company then in office.
3.4 -- Optional Vesting and Accelerated Exercise. In the event a Change
in Control appears likely to occur, the Committee may, in its sole and absolute
discretion, send written notice to the Optionee at least ten (10) days prior to
the contemplated date of any Change in Control specifying (a) that the Option
will become exercisable in full on the date of the Change in Control, (b) that
any portion or all of the Option which thereby becomes exercisable and any
portion or all of the Option which was already exercisable will immediately
thereafter expire on the same date and (c) that to prevent the lapse of the
Option, the Optionee must exercise the Option no later than such date. Except as
may otherwise be expressly provided in such written notice, any acceleration of
the exercisability of the Option and any attempted exercise of the Option by the
Optionee shall be null and void if the Change in Control does not occur within
thirty (30) days of the date contemplated in the notice.
3.5 -- Expiration of Option. Any portion of the Option which has become
exercisable will nevertheless expire and will no longer be exercisable to any
extent by anyone on the earliest to occur of the following events:
(a) The tenth anniversary of the Grant Date;
(b) three (3) months after termination of employment, unless such
termination is for Cause or results from Retirement, death or Permanent
Disability;
(c) two (2) years after termination of employment because of death or
Permanent Disability;
(d) five (5) years after the date of the Retirement of the Optionee;
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(e) at the close of business on the date of the termination of the
Optionee's employment by the Company for Cause; and
(f) if the Committee so determines and gives written notice as provided
in Section 3.4, upon the effective date of any Change in Control.
ARTICLE IV
EXERCISE OF OPTION
4.1 -- Person Eligible to Exercise. Unless the Option is transferred
pursuant to Section 5.2, then during the lifetime of the Optionee, only the
Optionee or the Optionee's guardian or conservator may exercise the Option or
any portion thereof, and after the death of the Optionee, any portion of the
Option may, prior to the time when the Option becomes unexercisable under
Section 3.5, be exercised by the Optionee's personal representative or by any
person empowered to do so under the Optionee's will or under the then applicable
laws of descent and distribution. Any portion of the Option which is transferred
pursuant to Section 5.2 may be exercised only by the transferee.
4.2 -- Partial Exercise. Any exercisable portion of the Option or the
entire Option, if then wholly exercisable, may be exercised in whole or in part
at any time prior to the time when the Option or portion thereof becomes
unexercisable under Section 3.5; provided, however, that any partial exercise
shall be for whole shares only.
4.3 -- Manner of Exercise. The Option, or any exercisable portion
thereof, may be exercised solely by delivery to the Secretary of the Company or
his or her office all of the following prior to the time when the Option or such
portion becomes unexercisable under Section 3.5:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion thereof, stating that the Option or
portion thereof is thereby exercised, such notice complying with all applicable
rules established by the Committee; and
(b) Full payment of the Exercise Price (as provided in Section 4.4) for
the shares with respect to which such Option or portion thereof is exercised;
and
(c) Such representations and documents as the Committee deems
reasonably necessary or advisable to effect compliance with all applicable
provisions of the Securities Act of 1933, as amended, and any other federal,
state or foreign securities laws or regulations; and
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<PAGE> 7
(d) Full payment to the Company (as provided in Section 4.4) of all
amounts, if any, which, under federal, state or local law, it is required to
withhold upon exercise of the Option; and
(e) If the Option or portion thereof shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Notwithstanding the foregoing, the Optionee may give notice exercising the
Option subject to the condition or conditions that any then contemplated Change
in Control will actually occur and that the Option will become exercisable
because of the Change in Control with respect to the Option Shares for which
notice of exercise is given. In such an event, full payment of the Exercise
Price with respect to all Option Shares need not be made until the date of the
Change in Control.
4.4 -- Payment. The Exercise Price and any tax withholding shall be
payable in cash, by check, or by any combination thereof. Except as otherwise
provided by the Committee before the Option is exercised: (i) all or a portion
of the Exercise Price or any tax withholding may be paid by delivery of shares
of Common Stock acceptable to the Committee and having an aggregate Fair Market
Value (valued as of the date of exercise) that is equal to the amount of cash
that would otherwise be required; and (ii) the Exercise Price or any tax
withholding may be paid by authorizing a third party to sell shares of Common
Stock (or a sufficient portion of the shares) to be acquired upon the exercise
of the Option and remit to the Company a sufficient portion of the sale proceeds
to pay the entire Exercise Price and any tax withholding resulting from such
exercise.
4.5 -- Conditions to Issuance of Stock Certificates. The shares of
Common Stock deliverable upon the exercise of the Option, or any portion
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company. Such shares shall be
fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of Common Stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges, if
any, on which such class of Common Stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the SEC
or of any other governmental regulatory body, which the Committee shall, in its
absolute discretion deem necessary or advisable;
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<PAGE> 8
(c) The obtaining of approval or other clearance from any state or
federal governmental agency which the Committee shall determine to be necessary
or advisable; and
(d) The payment to the Company of all amounts, if any, which, under
federal, state or local law, it is required to withhold upon exercise of the
Option.
4.6 -- Rights as Stockholder. The holder of the Option shall not be,
nor have any of the rights or privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of the Option or any portion
thereof unless and until certificates representing such shares shall have been
issued by the Company in the name of such holder. No adjustment shall be made
for cash dividends for which the record date is prior to the date such stock
certificate is issued.
4.7 -- Issuance of Certificate; Legend. The stock certificate or
certificates deliverable to the Optionee upon the exercise of the Option may, at
the request of the Optionee at the time of exercise, be issued in his name alone
or in his name and the name of another person as joint tenants with right of
survivorship. The Committee may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect compliance with all applicable
provisions of the Securities Act of 1933, as amended, and any other federal,
state or foreign securities laws or regulations, including, without limitation,
placing legends on share certificates and issuing stock-transfer orders to
transfer agents and registrars.
ARTICLE V
MISCELLANEOUS
5.1 -- Administration. The Committee shall have the power to interpret
the Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option. The Board of Directors of the
Company in its absolute discretion may at any time and from time to time
exercise any and all rights and duties of the Committee under the Plan and this
Agreement.
5.2 -- Transferability Option. (a) Except as provided in Section
5.2(b), neither the Option nor any interest or right therein or part thereof
shall be subject to disposition by transfer, alienation, anticipation,
encumbrance or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
however, that this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
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<PAGE> 9
(b) The Committee may, in its discretion, establish forms and
procedures for the transfer of all or any portion of the Option by the Optionee
to (i) Immediate Family Members (as defined hereinafter), (ii) a trust or trusts
for the exclusive benefit of the Optionee and such Immediate Family Members, or
(iii) a partnership or limited liability company in which the Optionee and such
Immediate Family Members are the only partners or members (collectively such
Optionee's "Permitted Transferees"), provided that subsequent transfers shall be
prohibited except in accordance with the laws of descent and distribution, or by
will. Notification and approval of all such transfers shall be in the form
specified by the Committee. Following transfer, any such Option shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of Articles IV and V hereof (other
than this Section 5.2), the term "Optionee" shall be deemed to refer to the
Permitted Transferee. Notwithstanding the foregoing, the Committee and the
Company shall have no obligation to inform any Permitted Transferee of any
expiration, termination, lapse or acceleration of any such Option and may give,
notices required hereunder, if any, to the Optionee. The events of termination
of employment of Article III hereof shall continue to be applied with respect to
the original Optionee, following which the Option shall be exercisable by the
Permitted Transferee only to the extent, and for the periods specified at
Article III hereof. As used in this Section 5.2(b) "Immediate Family Member"
shall mean, with respect to the Optionee, his or her spouse, child, stepchild,
grandchildren or other descendants, and shall include relationships arising from
legal adoption.
5.3 -- Shares of Common Stock to be Reserved. The Company shall at all
times during the term of the Option reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of this
Agreement.
5.4 -- Notices. Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Optionee shall be addressed to him
or her at the address given beneath his or her signature hereto. By a notice
given pursuant to this Section 5.4, either party may hereafter designate a
different address for notices to be given to him or her. Any notice which is
required to be given to the Optionee shall, if the Optionee is then deceased, be
given to the Optionee's personal representative if such representative has
previously informed the Company of his or her status and address by written
notice under this Section 5.4. Any notice shall have been deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service or when delivered by
hand (whether by overnight courier or otherwise).
5.5 -- Titles. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of this Agreement.
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<PAGE> 10
5.6 -- Amendment. This Agreement may be amended only by a writing
executed by the parties hereto which specifically states that it is amending
this Agreement.
5.7 -- Governing Law. The laws of the State of Delaware shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of
laws.
5.8 -- Jurisdiction. Any suit, action or proceeding against the
Optionee with respect to this Agreement, or any judgment entered by any court in
respect of any thereof, may be brought in any court of competent jurisdiction in
the State of Tennessee, and the Optionee hereby submits to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action, proceeding
or judgment. Nothing herein shall in any way be deemed to limit the ability of
the Company to serve any such writs, process or summonses in any other manner
permitted by applicable law or to obtain jurisdiction over the Optionee, in such
other jurisdictions, and in such manner, as may be permitted by applicable law.
The Optionee hereby irrevocably waives any objections which he or she may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any court of competent
jurisdiction in the State of Tennessee, and hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum. No suit, action or proceeding against
the Company with respect to this Agreement may be brought in any court, domestic
or foreign, or before any similar domestic or foreign authority other than in a
court of competent jurisdiction in the State of Tennessee, and the Optionee
hereby irrevocably waives any right which he or she may otherwise have had to
bring such an action in any other court, domestic or foreign, or before any
similar domestic or foreign authority. The Company hereby submits to the
jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
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<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
BUCKEYE TECHNOLOGIES INC.
By:
----------------------------------------
Title:
-------------------------------------
No. of Option Shares:
----------------------
Exercise Price: $
--------------------------
-------------------------------------------
, Optionee
----------------------
Address:
-----------------------------------
-------------------------------------------
Optionee's Taxpayer Identification Number:
-------------------------------------------
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<PAGE> 1
EXHIBIT 10.4
STOCK OPTION SUBSCRIPTION AGREEMENT
This Stock Option Subscription Agreement (this "Agreement"), dated as
of the ___ day of _____, ___, is made by and between BUCKEYE TECHNOLOGIES INC.
(the "Company"), a Delaware corporation, and the management Employee of the
Company whose name appears on the signature page hereof (hereinafter referred to
as the "Optionee").
WHEREAS, pursuant to the Amended and Restated 1995 Incentive and
Nonqualified Stock Option Plan for Management Employees of Buckeye Technologies
Inc. (the "Plan"), (the terms of which are hereby incorporated by reference),
the Company intends to provide incentives to certain key management Employees of
the Company by providing them with opportunities for ownership of shares of
Common Stock; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (hereinafter referred to as the "Committee") appointed to administer the
Plan has determined that it would be to the advantage and best interest of the
Company and its stockholders to grant the Option provided for herein to the
Optionee under the Plan and has advised the Company thereof and instructed the
undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
1.1 -- Cause. "Cause" used in connection with the termination of
employment of the Optionee shall mean a termination of employment of the
Optionee by the Company or any of its Subsidiaries due to (i) the commission by
the Optionee of a felony or other crime involving moral turpitude; (ii)
intentional misconduct of Optionee as an employee of the Company which is likely
to result in any significant injury to the Company; or (iii) the commission by
the Optionee of any other act which amounts to gross negligence or reckless
misconduct in the performance of Optionee's duties to the Company as such duties
are determined, from time to time, in good faith by the Board.
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<PAGE> 2
1.2 -- Change in Control. "Change in Control" shall have the meaning
given in Section 3.3.
1.3 -- Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.4 -- Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and all rules and regulations promulgated thereunder.
1.5 -- Exercise Price. "Exercise Price" shall mean the price per Option
Share as set forth on the signature page hereof.
1.6 -- Grant Date. "Grant Date" shall mean the date on which the
Option provided for in this Agreement was granted.
1.7 -- Management Shareholder. "Management Shareholder" shall mean (i)
a Person who was both an employee and an officer of the Company on the date of
the adoption of the Amended and Restated Plan on August 12, 1997 and (ii) the
Permitted Transferees of such Persons.
1.8 -- Option. "Option" shall mean any stock option to purchase Common
Stock of the Company granted under this Agreement.
1.9 -- Option Shares. "Option Shares" shall mean the number of shares
of Common Stock for which this Option is granted as set forth upon the signature
page hereof.
1.10 -- Permanent Disability. "Permanent Disability" of the Optionee
shall mean the inability of the Optionee to perform substantially all of his or
her duties and responsibilities to the Company by reason of a physical or mental
disability or infirmity (i) for a continuous period of more than six (6) months
or (ii) at such earlier time as the Optionee submits satisfactory medical
evidence that he or she has a permanent physical or mental disability or
infirmity which will likely prevent him or her from returning to the performance
of his or her work duties for more than six (6) months. The date of such
Permanent Disability shall be on the last day of such six-month period or the
day on which the Optionee submits such satisfactory medical evidence, as the
case may be.
1.11 -- Permitted Transferee. "Permitted Transferee" shall have the
meaning given in Section 5.2(b).
1.12 -- Person. "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust or unincorporated organization.
1.13 -- Plan. "Plan" shall mean the Amended and Restated 1995 Incentive
and Nonqualified Stock Option Plan for Management Employees of Buckeye
Technologies Inc.
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<PAGE> 3
1.14 -- Retirement. "Retirement" shall mean any voluntary termination
of employment by the Optionee after having reached the age of sixty-two (62)
years and after having completed at least five (5) years of continuous
employment with the Company.
ARTICLE II
GRANT OF OPTION
2.1 -- Grant of Option. For good and valuable consideration, on and as
of the date hereof, the Company irrevocably grants to the Optionee the Option to
purchase any part or all of an aggregate of the number of Option Shares set
forth on the signature page hereof upon the terms and conditions set forth in
this Agreement.
2.2 -- Consideration to the Company. In consideration of the granting
of this Option by the Company, the Optionee agrees to render faithful and
efficient services to the Company with such duties and responsibilities as the
Company shall from time to time prescribe. Nothing in this Agreement or in the
Plan shall confer upon the Optionee any right to continue in the employ or
service of the Company or shall interfere with or restrict in any way the rights
of the Company, which are hereby expressly reserved, to discharge the Optionee
at any time for any reason whatsoever, with or without Cause.
2.3 -- Adjustments in Option. Subject to Section 4.6 of the Plan, in
the event that the outstanding shares of the Common Stock subject to the Option
are changed into or exchanged for a different number or kind of shares of
capital stock or other securities of the Company, or of another corporation, by
reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares or
otherwise, the Committee shall make an appropriate adjustment in the number and
kind of shares of Option Shares. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of shares, quantities or prices) and with any necessary corresponding adjustment
in the Exercise Price. No fractional shares shall be issued, and any fractional
shares resulting from computations pursuant to Section 4.6 of the Plan shall be
eliminated from the respective Options. Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
2.4 -- Tax Treatment. The Option hereby granted is intended to be
either an Incentive Stock Option as described in Section 422 of the Code or a
Nonqualified Stock Option, in each case as provided on Schedule "A" attached to
this Agreement.
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<PAGE> 4
ARTICLE III
PERIOD OF EXERCISABILITY
3.1 -- General Rule. The Option will become exercisable as to the
following percentages of the Option Shares on the following anniversaries of the
Grant Date provided that the Optionee is then employed by the Company on such
anniversary:
First anniversary 20%
Second anniversary 40%
Third anniversary 60%
Fourth anniversary 80%
Fifth anniversary 100%
3.2 -- Death or Disability. Notwithstanding Section 3.1, the Option
will become exercisable in full upon the death or Permanent Disability of the
Optionee.
3.3 -- Change in Control. Notwithstanding Section 3.1, unless the
Optionee is terminated for Cause, the Option will become exercisable in full in
the event of any voluntary or involuntary termination of the Optionee's
employment occurring simultaneously with or at any time after any of the
following events (a "Change in Control"):
(a) the sale of substantially all of the assets of the Company; or
(b) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than the Management Shareholders, 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 securities that such Person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than fifty percent (50%) of the total voting stock of the
Company;
(c) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which any voting stock of the Company is reclassified or changed
into or exchanged for cash, securities or other property, other than any such
transaction where (i) any voting stock of the Company is reclassified or changed
into or exchanged for nonredeemable voting stock of the surviving or transferee
corporation and (ii) immediately after such transaction no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than the Management Shareholders, is 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
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<PAGE> 5
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than fifty percent (50%) of the total
voting stock of the surviving or transferee corporation; or
(d) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose 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 the Board of Directors of the Company then in office.
3.4 -- Optional Vesting and Accelerated Exercise. In the event a Change
in Control appears likely to occur, the Committee may, in its sole and absolute
discretion, send written notice to the Optionee at least ten (10) days prior to
the contemplated date of any Change in Control specifying (a) that the Option
will become exercisable in full on the date of the Change in Control, (b) that
any portion or all of the Option which thereby becomes exercisable and any
portion or all of the Option which was already exercisable will immediately
thereafter expire on the same date and (c) that to prevent the lapse of the
Option, the Optionee must exercise the Option no later than such date. Except as
may otherwise be expressly provided in such written notice, any acceleration of
the exercisability of the Option and any attempted exercise of the Option by the
Optionee shall be null and void if the Change in Control does not occur within
thirty (30) days of the date contemplated in the notice.
3.5 -- Expiration of Option. Any portion of the Option which has
become exercisable will nevertheless expire and will no longer be exercisable to
any extent by anyone on the earliest to occur of the following events:
(a) The tenth anniversary of the Grant Date;
(b) three (3) months after termination of employment (specifically
including a termination of employment after a Change in Control), unless such
termination is for Cause or results from Retirement, death or Permanent
Disability;
(c) two (2) years after termination of employment because of death or
Permanent Disability;
(d) five (5) years after the date of the Retirement of the Optionee;
(e) at the close of business on the date of the termination of the
Optionee's employment by the Company for Cause; and
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<PAGE> 6
(f) if the Committee so determines and gives written notice as provided
in Section 3.4, upon the effective date of any Change in Control.
ARTICLE IV
EXERCISE OF OPTION
4.1 -- Person Eligible to Exercise. With respect to any Incentive Stock
Options granted hereunder, during the lifetime of the Optionee, only the
Optionee or the Optionee's guardian or conservator may exercise such Option or
any portion thereof, and after the death of the Optionee, any portion of such
Option may, prior to the time when the Option becomes unexercisable under
Section 3.5, be exercised by the Optionee's personal representative or by any
person empowered to do so under the Optionee's will or under the then applicable
laws of descent and distribution. With respect to any Nonqualified Stock Options
granted hereunder, such Option may be exercised as above provided or by any
transferee of such Option pursuant to Section 5.2.
4.2 -- Partial Exercise. Any exercisable portion of the Option or the
entire Option, if then wholly exercisable, may be exercised in whole or in part
at any time prior to the time when the Option or portion thereof becomes
unexercisable under Section 3.5; provided, however, that any partial exercise
shall be for whole shares only.
4.3 -- Manner of Exercise. The Option, or any exercisable portion
thereof, may be exercised solely by delivery to the Secretary of the Company or
his or her office all of the following prior to the time when the Option or such
portion becomes unexercisable under Section 3.5:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion thereof, stating that the Option or
portion thereof is thereby exercised, such notice complying with all applicable
rules established by the Committee; and
(b) Full payment of the Exercise Price (as provided in Section 4.4),
for the shares with respect to which such Option or portion thereof is
exercised; and
(c) Such representations and documents as the Committee deems
reasonably necessary or advisable to effect compliance with all applicable
provisions of the Securities Act of 1933, as amended, and any other federal,
state or foreign securities laws or regulations; and
(d) Full payment to the Company (as provided in Section 4.4) of all
amounts, if any, which, under federal, state or local law, it is required to
withhold upon exercise of the Option; and
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<PAGE> 7
(e) If the Option or portion thereof shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Notwithstanding the foregoing, the Optionee may give notice exercising the
Option subject to the condition or conditions that any then contemplated Change
in Control will actually occur and that the Option will become exercisable
because of the Change in Control with respect to the Option Shares for which
notice of exercise is given. In such an event, full payment of the Exercise
Price with respect to all Option Shares need not be made until the date of the
Change in Control.
4.4 -- Payment. The Exercise Price and any tax withholding shall be
payable in cash, by check, or by any combination thereof. Except as otherwise
provided by the Committee before the Option is exercised: (i) all or a portion
of the Exercise Price or any tax withholding may be paid by delivery of shares
of Common Stock acceptable to the Committee and having an aggregate Fair Market
Value (valued as of the date of exercise) that is equal to the amount of cash
that would otherwise be required; and (ii) the Exercise Price or any tax
withholding may be paid by authorizing a third party to sell shares of Common
Stock (or a sufficient portion of the shares) to be acquired upon the exercise
of the Option and remit to the Company a sufficient portion of the sale proceeds
to pay the entire Exercise Price and any tax withholding resulting from such
exercise.
4.5 -- Conditions to Issuance of Stock Certificates. The shares of
Common Stock deliverable upon the exercise of the Option, or any portion
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company. Such shares shall be
fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of Common Stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges, if
any, on which such class of Common Stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the SEC
or of any other governmental regulatory body, which the Committee shall, in its
absolute discretion deem necessary or advisable;
(c) The obtaining of approval or other clearance from any state or
federal governmental agency which the Committee shall determine to be necessary
or advisable; and
(d) The payment to the Company of all amounts, if any, which, under
federal, state or local law, it is required to withhold upon exercise of the
Option.
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<PAGE> 8
4.6 -- Notice of Sale. As a condition of exercise, the Optionee agrees
to give written notice to the Company in the event that within one (1) year of
exercise or within two (2) years of the Grant Date, the Optionee sells or
otherwise disposes of any shares of Common Stock received through the exercise
of any portion of the Option which at the time of exercise is an Incentive Stock
Option. The Optionee further agrees to pay to the Company all amounts, if any,
which, under federal, state or local law, it is required to withhold because of
the disposition of such shares prior to the end of the period specified in
Section 422(a)(1) of the Code.
4.7 -- Rights as Stockholder. The holder of the Option shall not be,
nor have any of the rights or privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of the Option or any portion
thereof unless and until certificates representing such shares shall have been
issued by the Company in the name of such holder. No adjustment shall be made
for cash dividends for which the record date is prior to the date such stock
certificate is issued.
4.8 -- Issuance of Certificate; Legend. The stock certificate or
certificates deliverable to the Optionee upon the exercise of the Option may, at
the request of the Optionee at the time of exercise, be issued in his or her
name alone or in his or her name and the name of another person as joint tenants
with right of survivorship. The Committee may, in its absolute discretion, also
take whatever additional actions it deems appropriate to effect compliance with
either (a) all applicable provisions of the Securities Act of 1933, as amended,
and any other federal, state or foreign securities laws or regulations, or (b)
the Optionee's obligations under Section 4.6 of this Agreement, in either case
including, without limitation, placing legends on share certificates and issuing
stock-transfer orders to transfer agents and registrars.
ARTICLE V
MISCELLANEOUS
5.1 -- Administration. The Committee shall have the power to interpret
the Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option. The Board of Directors of the
Company in its absolute discretion may at any time and from time to time
exercise any and all rights and duties of the Committee under the Plan and this
Agreement.
5.2 -- Transferability of Option. (a) With respect to any Incentive
Stock Options granted hereunder, neither the Option nor any interest or right
therein or part thereof shall be subject to disposition by transfer, alienation,
anticipation, encumbrance or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
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<PAGE> 9
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 5.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
(b) With respect to any Nonqualified Stock Options granted hereunder,
the Committee may, in its discretion, establish forms and procedures for the
transfer of all or any portion of such Option by the Optionee to (i) Immediate
Family Members (as defined hereinafter), (ii) a trust or trusts for the
exclusive benefit of the Optionee and such Immediate Family Members, or (iii) a
partnership or limited liability company in which the Optionee and such
Immediate Family Members are the only partners or members (collectively such
Optionee's "Permitted Transferees"), provided that subsequent transfers shall be
prohibited except in accordance with the laws of descent and distribution, or by
will. Notification and approval of all such transfers shall be in the form
specified by the Committee. Following transfer, any such Option shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of Articles IV and V hereof (other
than this Section 5.2), the term "Optionee" shall be deemed to refer to the
Permitted Transferee. Notwithstanding the foregoing, the Committee and the
Company shall have no obligation to inform any Permitted Transferee of any
expiration, termination, lapse or acceleration of any such Option and may give
notices required hereunder, if any, to the Optionee. The events of termination
of employment of Article III hereof shall continue to be applied with respect to
the original Optionee, following which the Option shall be exercisable by the
Permitted Transferee only to the extent, and for the periods specified at
Article III hereof. As used in this Section 5.2(b) "Immediate Family Member"
shall mean, with respect to the Optionee, his or her spouse, child, stepchild,
grandchildren or other descendants, and shall include relationships arising from
legal adoption.
5.3 -- Shares of Common Stock to be Reserved. The Company shall at all
times during the term of the Option reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of this
Agreement.
5.4 -- Notices. Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Optionee shall be addressed to him
or her at the address given beneath his or her signature hereto. By a notice
given pursuant to this Section 5.4, either party may hereafter designate a
different address for notices to be given to him or her. Any notice which is
required to be given to the Optionee shall, if the Optionee is then deceased, be
given to the Optionee's personal representative if such representative has
previously informed the Company of his or her status and address by written
notice under this Section 5.4. Any notice shall have been deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service or when delivered by
hand (whether by overnight courier or otherwise).
9
<PAGE> 10
5.5 -- Titles. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of this Agreement.
5.6 -- Amendment. This Agreement may be amended only by a writing
executed by the parties hereto which specifically states that it is amending
this Agreement.
5.7 -- Governing Law. The laws of the State of Delaware shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of
laws.
5.8 -- Jurisdiction. Any suit, action or proceeding against the
Optionee with respect to this Agreement, or any judgment entered by any court in
respect of any thereof, may be brought in any court of competent jurisdiction in
the State of Tennessee, and the Optionee hereby submits to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action, proceeding
or judgment. Nothing herein shall in any way be deemed to limit the ability of
the Company to serve any such writs, process or summonses in any other manner
permitted by applicable law or to obtain jurisdiction over the Optionee, in such
other jurisdictions, and in such manner, as may be permitted by applicable law.
The Optionee hereby irrevocably waives any objections which he or she may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any court of competent
jurisdiction in the State of Tennessee, and hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum. No suit, action or proceeding against
the Company with respect to this Agreement may be brought in any court, domestic
or foreign, or before any similar domestic or foreign authority other than in a
court of competent jurisdiction in the State of Tennessee, and the Optionee
hereby irrevocably waives any right which he or she may otherwise have had to
bring such an action in any other court, domestic
10
<PAGE> 11
or foreign, or before any similar domestic or foreign authority. The Company
hereby submits to the jurisdiction of such courts for the purpose of any such
suit, action or proceeding.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
BUCKEYE TECHNOLOGIES INC.
By:
---------------------------------------
Title:
------------------------------------
No. of Option Shares:
---------------------
Exercise Price: $
-------------------------
------------------------------------------
, Optionee
------------------------
Address:
----------------------------------
------------------------------------------
Optionee's Taxpayer Identification Number:
------------------------------------------
- 11 -
<PAGE> 12
SCHEDULE A
Stock Option Subscription Agreement
Optionee:
------------------------------------
Total No. of Option Shares:
------------------
<TABLE>
<CAPTION>
Years Option becomes Incentive Stock Nonqualified
exercisable under Section 3.1 Option Shares Stock Option Shares
- ----------------------------- ------------- -------------------
<S> <C> <C>
1998
1999
2000
2001
2002
------------ ------------
TOTALS
</TABLE>
NOTE: Option Shares listed above as Incentive Stock Option shares are the
maximum number of Option Shares which can qualify for Incentive Stock Option
treatment. The Optionee must also satisfy all requirements of Section 422 of the
Code with respect to such Option Shares, including requirements as to time of
exercise after any termination of employment and requirements as to minimum
holding period for the Option Shares after exercise. Each Optionee should
consult his or her or her own tax adviser with respect to such requirements.
Schedule A-1
<PAGE> 1
A FEW WORDS ABOUT WHAT WE DO...
We start with the natural cellulose molecule, one of the most abundant organic
materials on earth. Our cellulose comes from cotton and wood, both renewable
resources. We have developed sophisticated manufacturing processes to create
innovative products that meet the technologically demanding requirements of our
customers around the world.
Cellulose, the primary structural material in essentially all plant life, was
used as early as 3500 B.C. to create one of the first consumer products--papyrus
writing scrolls. The scrolls were made by using stones to compress and smooth
cross-layered stalks of wet, crushed papyrus. Modern processing of cellulose has
become technologically sophisticated, and the uses for cellulose have become
numerous and exceptionally diverse.
Today, one of the world's leading producers of advanced cellulosic materials is
Buckeye Technologies, a global developer, manufacturer, and marketer of chemical
cellulose, customized paper cellulose and absorbent products.
Chemical cellulose is used in food casings for hot dogs, sausages and other
meats; rayon filament for garment linings, fashion apparel and automotive tire
reinforcement; thickeners for low-fat dairy products, cosmetics, pharmaceutical
products and construction materials; and acetate for exceptionally clear
plastics, photographic film and fibers.
Customized paper cellulose is used in automotive, laboratory, and industrial
filters and in high quality papers, including personal stationery, premium
letterhead and currency paper. It is also used in printed circuits, battery
separators and decorative laminates.
Absorbent cellulose and air-laid nonwovens are used in disposable diapers,
feminine hygiene and adult incontinence products, plus a variety of other
disposables, including towelettes and baby wipes.
At Buckeye, we transform natural molecules into materials that are key to our
customers' manufacture of innovative products that make everyday living better.
We focus on providing value-added products to specialty niche markets that have
technologically demanding process and product performance requirements.
We want our products to be the best available anywhere. Our research and
development focuses on creating innovative new products, enhancing existing
products and developing new end-use applications for our products. We strive to
develop and pioneer proprietary and technologically unique products tailored to
meet our customers' needs.
Customer satisfaction is Buckeye's highest priority. We view our processes and
those of our customers as a continuum leading to the manufacture of a superior
end product. Consequently, we seek to establish close, collaborative
technological alliances with our customers, and we view these relationships as a
long-term commitment. These customer alliances promote the exchange of
information and assist in mutually streamlining operations and implementing
product development programs. The result is better cost control and improved
end-product quality.
Our customer technical service representatives work with our customers through
all the stages of product development and manufacturing to evaluate the
performance of our products and thus ensure that they meet customer
specifications. This enables us to determine if redesigning our product will
make it function more effectively and efficiently in each customer's production
process.
In working with our customers, we also strive to understand their businesses
thoroughly so that we can anticipate customer needs and provide proactive
technical support. Knowledge of our customers' businesses leads to product
innovations that benefit our customers and, in turn, their customers.
Buckeye combines unmatched technological skill and superior manufacturing
expertise to deliver added value to our customers.
<PAGE> 2
(PICTURE OF LEAF)
WE SAFEGUARD
Buckeye is committed to safeguarding the environment and protecting
the health of our employees, neighbors and those who use our products. We work
proactively with government agencies and other organizations to achieve high
levels of environmental performance. We continually assess our programs and
monitor our progress toward achieving environmental harmony.
Buckeye's customized paper cellulose gives currency better tear resistance,
improved color permanence and enhanced printability.
WE CIRCULATE
WE FRAME
Acetate plastics made from Buckeye's chemical cellulose have exceptional
purity, uniformity and clarity-- qualities required by our customers and
ultimately by consumers.
(PICTURE OF SUNGLASSES)
(PHOTO OF CAPSULES)
WE DISSOLVE
We produce cellulosic materials that aid in the time-release of medications for
more effective absorption and treatment.
(PHOTO OF FEMALE MODEL)
Our high quality cellulose is used to produce rayon and acetate textile
filaments that give apparel fabrics their desirable silk-like properties and
high fashion appeal.
WE CLOTHE
WE FRESHEN
Baby wipes and towelettes derive their superior softness, texture and strength
from Buckeye's high quality absorbent cellulose and air-laid non-wovens process.
(PHOTO OF TOWLETTES)
<PAGE> 3
(PHOTO OF CHILDREN)
WE CARE
Buckeye is dedicated to actively contributing to the enhancement of the quality
of life in the areas where we live and work. As a responsible and concerned
corporate citizen, we support a wide variety of organizations and activities
focusing on the education of our youth, the enjoyment of the arts and the needs
of all those in our communities.
<PAGE> 4
(PHOTO)
Food casings made from Buckeye's chemical cellulose provide the consistent
purity and strength required by meat processors worldwide.
WE SHAPE
(PHOTO OF HOTDOG)
(PHOTO OF AUTOMOBILES)
WE STRENGTHEN
High performance automotive tires rely on the superior heat resistance and
exceptional strength of rayon tire cord made from our specialty chemical
cellulose.
<PAGE> 5
Research at Buckeye has led to the development of new cellulose materials for
reliable feminine hygiene products made of ultrathin layers that provide
superior fluid acquisition, distribution and storage to enhance comfort,
dryness and protection.
WE PROTECT
(PHOTO OF FEMININE HYGENE PRODUCTS)
WE ABSORB
(PHOTO OF BABY IN DIAPER)
Dependability and comfort are the hallmarks of our absorbent products,
which provide rapid fluid absorbency, effective transport and superior leakage
protection in today's thin, form-fitting designs.
WE FILTER
(PHOTO OF AUTOMOTIVE FILTERS)
Buckeye's specialty cellulose provides greater operating efficiency and extended
life in automotive, laboratory and industrial filters.
<PAGE> 6
A wide variety of familiar consumer products, such as shampoo, toothpaste,
shower gel, and even fat-free dairy products, owe their texture to thickeners
made from Buckeye's chemical cellulose.
WE THICKEN
(PHOTO OF LIQUID SPILLING FROM BOTTLE)
<PAGE> 7
BUCKEYE'S PRODUCT CATEGORIES AND
CUSTOMERS' END-USE APPLICATIONS
<TABLE>
<S> <C>
CHEMICAL CELLULOSE
FOOD CASINGS RAYON FILAMENT
Hot dogs Garment linings
Sausages Fashion apparel
Other meats Tire reinforcement
ETHERS (THICKENERS) ACETATE
Foods Plastics
Cosmetics Photographic film
Pharmaceuticals Fibers
Construction materials
CUSTOMIZED PAPER CELLULOSE
FILTERS PREMIUM PAPERS
Automotive Currency
Laboratory Personal stationery
Industrial Premium letterhead
ABSORBENT PRODUCTS
DISPOSABLES
Baby diapers
Feminine hygiene
Adult incontinence
Baby wipes
Towelettes
</TABLE>
<TABLE>
<CAPTION>
------------------------------
SALES BY REGION
------------------------------
<S> <C>
United States 31%
Europe 38%
Asia 17%
Other 14%
------------------------------
SALES BY PRODUCT
------------------------------
Chemical Cellulose 39%
Customized Paper 22%
Absorbent Products 39%
</TABLE>
<PAGE> 8
FINANCIAL REVIEW
INTRODUCTION
Buckeye Technologies Inc., formerly Buckeye Cellulose Corporation (BCC), and its
subsidiaries (the Company) manufacture value-added cellulose-based specialty
products in the United States, Canada, and Europe, and sell these products in
worldwide markets. Results of operations for the period July 1, 1995 through
November 27, 1995 include the combined results of BCC and Buckeye Florida
Corporation (BFC), which were commonly owned. On November 28, 1995, shareholders
of BFC, the sole general partner of Buckeye Florida, Limited Partnership (BFLP),
exchanged all of their outstanding common stock for common stock of BCC, and BFC
became a wholly-owned subsidiary of BCC. Concurrently, the Company
acquired/redeemed the limited partnership interest in BFLP; completed an initial
primary and secondary public offering of common stock; and refinanced
substantially all of its outstanding indebtedness.
In May 1996, the Company acquired the specialty cellulose facilities of Peter
Temming AG (Temming), located in Glueckstadt, Germany. In September 1996, the
Company acquired Alpha Cellulose Holdings, Inc. (Alpha) with its specialty
cellulose producing facility located in Lumberton, North Carolina. In May 1997,
the Company completed its tender offer for Merfin International Inc. (Merfin),
with absorbent products facilities located in Delta (near Vancouver), Canada;
Cork, Ireland; and King, North Carolina.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Net sales for 1998 were $630.2 million, compared to $558.9 million in 1997, an
increase of $71.3 million or 13%. The increase was primarily due to higher sales
volume resulting from the acquisition of Merfin and Alpha.
In 1998, operating income was $122.4 million, compared to $109.4 million for
1997, an increase of $13.0 million or 12%. The 1998 operating income as a
percentage of sales was 19.4%, virtually the same as 1997. Increased investment
in product development and the start-up of a new facility were offset by lower
overall raw material costs.
Net interest and amortization of debt costs for 1998 were $36.3 million,
compared to $27.9 million for 1997, an increase of $8.4 million. This increase
was due to higher average debt balances, resulting from the acquisition of
Merfin and Alpha.
The Company's net income for 1998 was $55.3 million, or $1.45 per share on a
diluted basis, compared to 1997 net income of $53.3 million, or $1.38 per share
on a diluted basis.
Comparison of Fiscal Years Ended June 30, 1997 and June 30, 1996
Net sales for 1997 were $558.9 million, compared to $471.0 million for 1996, an
increase of $87.9 million or 19%. The increase was primarily due to an 18%
increase in unit sales volume and a move to a higher value-added product mix.
The unit sales volume increase consisted of a 5% increase from comparable
businesses plus the new volume contributed by acquisitions.
In 1997, operating income was $109.4 million, compared to $108.6 million in
1996. Operating income as a percentage of sales declined to 19.6%, a decrease of
3.5 percentage points from 1996, due to a reduction in the average unit sales
price (excluding product mix changes), higher raw material costs for cotton
linters and wood, and higher selling, research and administrative expenses.
Selling, research and administrative expenses in 1997 were $10.8 million higher
than in 1996, and increased as a percentage of sales by 1.0 percentage point,
primarily due to added product development spending and noncompete agreements
related to the acquisitions.
Net interest and amortization of debt costs for 1997 were $27.9 million,
compared to $17.0 million for 1996, an increase of $10.9 million. The increase
was due to substantially higher debt levels, primarily associated with the
acquisitions and a $50.0 million stock repurchase.
There was no minority interest in 1997, compared to $16.6 million for the
five-month period July through November 1995.
6
<PAGE> 9
The effective income tax rate was 33.6% for 1997, compared to 35.2% for 1996,
primarily as the result of a full year's effect of the foreign sales corporation
established in November 1995.
The Company's net income for 1997 was $53.3 million, or $1.38 per share on a
diluted basis, compared to $43.1 million, or $1.01 per share on a diluted basis,
for 1996, an increase of $10.2 million or 24%. The 1996 fiscal year reflected a
$3.9 million extraordinary charge for the early retirement of debt.
FINANCIAL CONDITION
STOCK SPLIT
On January 21, 1998, the Board of Directors of the Company declared a
two-for-one stock split for stockholders of record as of February 10, 1998. The
stock split was paid in the form of a stock dividend of one share of common
stock for each issued share of common stock on February 17, 1998. All share data
and related amounts in this discussion have been restated to reflect the stock
split.
CASH FLOW
Cash provided by operating activities totaled $94.0 million in 1998, $117.4
million in 1997, and $60.1 million in 1996. Cash generated in 1998 was below
1997 because 1998 did not benefit from the unusual reductions in working capital
that favorably impacted 1997. In 1997, a decrease in inventories of $10.3
million, in addition to higher net income, contributed to the increase in cash
flow. In 1996, an increase of $22.7 million in accounts receivable and $27.6
million in inventories negatively affected cash flow.
Capital expenditures for property, plant and equipment were $66.7 million in
1998, $42.8 million in 1997, and $34.8 million in 1996. The Company made these
expenditures to purchase, modernize, and upgrade production equipment and to
maintain and acquire facilities. Capital expenditures (including environmental
expenditures) for 1999 are expected to be approximately $75 million.
On February 4, 1998, the Board of Directors authorized the repurchase of an
additional 2.0 million shares of common stock. Repurchased shares will be held
as treasury stock and will be available for general corporate purposes,
including the funding of employee benefit and stock-related plans. Pursuant to
this repurchase authorization, and the Company's original 2.0 million share
repurchase plan in effect since August 1996, 911,200 shares were repurchased
during 1998 for $18.4 million, bringing the total number of shares repurchased
to 2,090,200 through June 30, 1998.
LEVERAGE/CAPITALIZATION
On April 7, 1998, the stockholders of the Company approved an increase in the
Company's authorized shares of common and preferred stock to 100 million shares
and 10 million shares, respectively.
In 1997, the Company used $50 million of the proceeds from a debt offering to
fund a stock repurchase of 4,519,774 shares of common stock. The favorable
impact on diluted earnings per share resulting from the stock repurchase was
$0.08.
In June 1998, the Company completed a private placement of $150 million
principal amount of 8% unsecured Senior Subordinated Notes. The proceeds were
used to reduce outstanding borrowings under the bank credit facility. Subsequent
to June 30, 1998, the Company exchanged all of these notes for public notes with
the same terms. Total debt decreased to $457.7 million at June 30, 1998 from
$478.1 million at June 30, 1997, a decrease of $20.4 million.
The total debt to capital ratio was 74.6% at June 30, 1998, compared to 78.9% at
June 30, 1997 and 60.9% in 1996. The interest coverage ratio was 4.6x in 1998,
5.1x in 1997 and 7.9x in 1996.
LIQUIDITY
The Company believes that its cash flow from operations, together with the
borrowings available under its credit facility, will be sufficient to fund
capital expenditures (including environmental expenditures), meet operating
expenses, fund authorized common stock repurchases, and service all debt
requirements for the foreseeable future. Consistent with the Company's stated
policy, there are no plans to pay dividends in the foreseeable future. At June
30, 1998, the Company had unused borrowing capacity of $177.5 million on the
bank credit facility.
7
<PAGE> 10
FINANCIAL REVIEW (CONTINUED)
MARKET RISK
The Company is exposed to market risk from changes in foreign exchange, interest
rates and raw material costs. To reduce such risks, the Company selectively uses
financial instruments. All hedging transactions are authorized and executed
pursuant to clearly defined policies and procedures. Further, the Company does
not enter into financial instruments for trading purposes.
A discussion of the Company's accounting policies for risk management is
included in the Accounting Policies in the Notes to the Consolidated Financial
Statements.
INTEREST RATES
At June 30, 1998, the fair value of the Company's total long-term debt is
estimated at $467.3 million, using quoted market prices and yields obtained for
similar types of borrowing arrangements, taking into consideration the
underlying terms of the debt. Such fair value exceeds the carrying value of
long-term debt at June 30, 1998 by $10.5 million. Market risk is estimated as
the potential change in fair value resulting from a hypothetical 10% decrease in
interest rates and amounts to $11.3 million at June 30, 1998.
The Company had $46.9 million of variable rate long-term debt outstanding at
June 30, 1998. At this borrowing level, a hypothetical 10% adverse change in
interest rates would have a $0.3 million unfavorable impact on the Company's
pretax earnings and cash flows. The primary interest rate exposures on floating
rate debt are with respect to U.S. prime rates and European interbank rates.
FOREIGN CURRENCY EXCHANGE RATES
Foreign currency exposures arising from transactions include firm commitments
and anticipated transactions denominated in a currency other than an entity's
functional currency. The Company and its subsidiaries generally enter into
transactions denominated in their respective functional currencies. Therefore
foreign currency exposures arising from transactions are not material to the
Company. The Company's primary foreign currency exposure arises from
foreign-denominated revenues and profits and their translation into U.S.
dollars. The primary currencies to which the Company is exposed include the
Canadian dollar, the German mark and the Irish punt.
The Company generally views as long-term its investments in foreign subsidiaries
with a functional currency other than the U.S. dollar. As a result, the Company
does not generally hedge these net investments. However, the Company uses
capital structuring techniques to manage its net investment in foreign
currencies as considered necessary. The net investment in foreign subsidiaries
translated into dollars using the year-end exchange rates is $204.7 million at
June 30, 1998. The potential loss in value of the Company's net investment in
foreign subsidiaries resulting from a hypothetical 10% adverse change in quoted
foreign currency exchange rates at June 30, 1998 amounts to $19.2 million. This
change would be reflected in the equity section of the Company's balance sheet.
COST OF RAW MATERIALS
Amounts paid by the Company for wood and cotton fiber represent the largest
component of the Company's variable costs of production. The cost of these
materials is subject to market fluctuations caused by factors beyond the
Company's control, including weather conditions. Significant increases in the
cost of wood or cotton fiber, 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.
FORWARD-LOOKING INFORMATION
The above risk management discussion and the estimated amounts generated from
the sensitivity analyses are forward-looking statements of market risk, assuming
that certain adverse market conditions occur. Actual results in the future may
differ materially from those projected results due to actual developments in the
global financial markets. The analysis methods used by the Company to assess and
mitigate risks discussed above should not be considered projections of future
events or losses.
ENVIRONMENTAL MATTERS
The Company's 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. The Company expects that, due to the nature of its operations, it
will be subject to
8
<PAGE> 11
increasingly stringent environmental requirements (including standards
applicable to wastewater discharges and air emissions) and will continue to
incur substantial costs to comply with such requirements. 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. For additional information on
environmental matters, see Note 15 to the Consolidated Financial Statements.
YEAR 2000 COMPLIANCE
The Company is dependent upon computerized information systems for all phases of
its operations, including production, distribution and accounting. During the
last three years, the Company has replaced substantially all of its
mission-critical information technology (IT) systems, giving the Company the
benefit of new technology and functionality while becoming year 2000 compliant.
The Company's suppliers, distributors and customers may have year 2000 problems,
which could adversely affect the Company.
The Company has developed a plan and timetable to determine the impact of the
year 2000 on its operations and to achieve year 2000 compliance. The Company has
separated its compliance analysis into four categories. These categories are
mission-critical IT systems, other IT systems, non-IT systems and major customer
and supplier IT systems. The Company has also identified five major steps,
within each of these areas, that need to be completed in order to become year
2000 compliant. These steps are: (1) identifying compliance owners, (2) making
an inventory of all systems to determine compliance or noncompliance, (3)
establishing a plan to implement any required changes, (4) testing the
implementation plan, and (5) completing the plan and verifying that compliance
has been achieved.
For mission-critical IT systems and other IT systems, the Company has completed
the first four steps and is scheduled to complete the fifth step by July 1,
1999. For non-IT systems and major customer and supplier IT systems, the Company
has set the target completion dates as follows: finishing the inventory by
December 1, 1998; establishing the implementation plan by January 1, 1999 and
completing the plan testing by February 1, 1999. The total plan will be
completed and compliance verification will be achieved by July 1, 1999 for all
systems.
The Company believes at present that the cost to achieve compliance will not
have a material effect on its financial position, liquidity, or results of
operations. The Company's contingency plan for all systems is established as
part of the implementation plan and is modified as required.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed in
this annual report are forward-looking statements that involve risks and
uncertainties, including, but not limited to, economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, and other factors. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
9
<PAGE> 12
CONSOLIDATED STATEMENTS OF INCOME
(In $ thousands, except per share data)
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
NET SALES $630,210 $558,933 $470,979
Cost of goods sold 461,757 411,751 335,377
--------------------------------------
Gross margin 168,453 147,182 135,602
Selling, research and administrative expenses 46,042 37,790 27,035
--------------------------------------
OPERATING INCOME 122,411 109,392 108,567
Other income (expense):
Interest income 539 765 1,060
Interest expense and amortization of debt costs (36,808) (28,691) (18,061)
Other (2,285) (1,213) (451)
Minority interest -- -- (16,628)
Secondary offering costs -- -- (1,945)
--------------------------------------
(38,554) (29,139) (36,025)
--------------------------------------
Income before income taxes and extraordinary loss 83,857 80,253 72,542
Income taxes 28,597 26,979 25,532
--------------------------------------
Income before extraordinary loss 55,260 53,274 47,010
Extraordinary loss, net of tax benefit -- -- (3,949)
--------------------------------------
NET INCOME $ 55,260 $ 53,274 $ 43,061
=================================================================================================
Earnings per share--basic:
Income before extraordinary loss $ 1.49 $ 1.40 $ 1.11
Extraordinary loss, net of tax benefit -- -- (.09)
--------------------------------------
NET INCOME $ 1.49 $ 1.40 $ 1.02
=================================================================================================
Earnings per share--assuming dilution:
Income before extraordinary loss $ 1.45 $ 1.38 $ 1.10
Extraordinary loss, net of tax benefit -- -- (.09)
--------------------------------------
NET INCOME $ 1.45 $ 1.38 $ 1.01
=================================================================================================
</TABLE>
See accompanying notes.
10
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
(In $ thousands, except share data)
<TABLE>
<CAPTION>
June 30
1998 1997
-----------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,472 $ 5,164
Short-term investments 2,900 2,900
Accounts receivable--trade, net of allowance for doubtful accounts of $1,174 and
$1,322 at June 30, 1998 and 1997, respectively 85,354 76,527
Accounts receivable--other 3,367 3,176
Inventories 100,372 107,390
Deferred income taxes 4,531 3,479
Prepaid expenses and other 5,510 2,487
-----------------------
TOTAL CURRENT ASSETS 203,506 201,123
Property, plant and equipment, net 401,947 382,677
Goodwill, net 132,488 140,845
Deferred debt costs and other, net 13,595 12,819
-----------------------
TOTAL ASSETS $751,536 $737,464
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 25,142 $ 29,761
Accrued expenses 49,547 49,830
Notes payable 829 3,440
Current portion of long-term debt 511 --
-----------------------
TOTAL CURRENT LIABILITIES 76,029 83,031
Long-term debt 456,332 474,631
Accrued postretirement benefits 15,159 14,208
Deferred income taxes 34,609 29,846
Other liabilities 13,728 7,558
Commitments and contingencies (Notes 6, 14, and 15)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 and 5,000,000 shares authorized
in 1998 and 1997, respectively; none issued or outstanding -- --
Common stock, $.01 par value; 100,000,000 and 50,000,000 shares authorized
in 1998 and 1997, respectively; 43,142,770 shares issued; and 36,753,546
and 37,449,196 shares outstanding at June 30, 1998 and 1997, respectively 431 431
Additional paid-in capital 65,799 65,928
Deferred stock compensation (2,405) (2,200)
Cumulative translation adjustment (17,060) (4,673)
Retained earnings 190,979 135,719
Treasury shares, 6,389,224 shares and 5,693,574 shares at
June 30, 1998 and 1997, respectively (82,065) (67,015)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 155,679 128,190
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $751,536 $737,464
===================================================================================================================
</TABLE>
See accompanying notes.
11
<PAGE> 14
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In $ thousands, except share data)
<TABLE>
<CAPTION>
Additional Deferred Cumulative
Common paid-in stock translation Retained Treasury
stock capital compensation adjustment earnings shares Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1995 $394 $44,843 $ -- $ -- $ 39,384 $ -- $ 84,621
Issuance of 3,451,530 shares
of common stock 34 13,115 -- -- -- -- 13,149
Compensation charge for stock
options -- 635 -- -- -- -- 635
Deferred stock compensation -- 2,478 (2,478) -- -- -- --
Amortization of deferred stock
compensation -- -- 105 -- -- -- 105
Translation adjustment -- -- -- (683) -- -- (683)
Net income -- -- -- -- 43,061 -- 43,061
------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 428 61,071 (2,373) (683) 82,445 -- 140,888
Purchase of 5,698,774 shares -- -- -- -- -- (67,063) (67,063)
Issuance of 333,524 shares
of common stock 3 4,248 -- -- -- 48 4,299
Deferred stock compensation -- 609 (609) -- -- -- --
Amortization of deferred
stock compensation -- -- 782 -- -- -- 782
Translation adjustment -- -- -- (3,990) -- -- (3,990)
Net income -- -- -- -- 53,274 -- 53,274
------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 431 65,928 (2,200) (4,673) 135,719 (67,015) 128,190
Purchase of 911,200 shares -- -- -- -- -- (18,445) (18,445)
Issuance of 215,550 shares
of common stock -- (1,209) -- -- -- 3,395 2,186
Compensation charge
for stock options -- 70 -- -- -- -- 70
Deferred stock compensation -- 1,010 (1,010) -- -- -- --
Amortization of deferred
stock compensation -- -- 805 -- -- -- 805
Translation adjustment -- -- -- (12,387) -- -- (12,387)
Net income -- -- -- -- 55,260 -- 55,260
------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $431 $65,799 $(2,405) $(17,060) $190,979 $(82,065) $155,679
===================================================================================================================
</TABLE>
See accompanying notes.
12
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $ thousands)
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 55,260 $ 53,274 $ 43,061
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary loss, net of tax benefit -- -- 3,949
Minority interest -- -- 16,628
Depreciation 36,562 30,287 25,212
Amortization 7,460 5,800 1,481
Deferred income taxes 3,768 8,769 8,797
Other 2,500 4,198 1,523
Changes in operating assets and liabilities:
Accounts receivable (8,609) (4) (22,700)
Inventories 5,103 10,347 (27,609)
Prepaid expenses and other assets (3,459) 3,998 (3,325)
Accounts payable and other current liabilities (4,544) 736 13,043
-------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 94,041 117,405 60,060
INVESTING ACTIVITIES
Acquisitions of businesses (3,869) (172,670) (89,192)
Purchases of property, plant and equipment (66,720) (42,757) (34,807)
Other (58) (440) 5,852
-------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (70,647) (215,867) (118,147)
FINANCING ACTIVITIES
Proceeds from sale of equity interests 1,757 48 13,149
Purchase of treasury shares (18,445) (67,063) --
Net borrowings (payments) under revolving line of credit (125,557) 110,612 54,620
Proceeds from long-term debt 160,480 99,449 149,439
Payments for debt issuance costs (4,000) (4,677) (5,506)
Minority interest distribution -- -- (1,590)
Principal payments on long-term debt and other (41,163) (34,992) (163,687)
-------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (26,928) 103,377 46,425
EFFECT OF FOREIGN CURRENCY RATE FLUCTUATIONS ON CASH (158) 249 (127)
-------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,692) 5,164 (11,789)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,164 -- 11,789
-------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,472 $ 5,164 $ --
===================================================================================================================
</TABLE>
See accompanying notes.
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In $ thousands, except share data)
1. ACCOUNTING POLICIES
BUSINESS DESCRIPTION AND BASIS OF
PRESENTATION
The financial statements are consolidated financial statements of Buckeye
Technologies Inc., formerly Buckeye Cellulose Corporation (BCC), and its
subsidiaries (the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation. Results of operations for
the period July 1, 1995 through November 27, 1995 include the combined results
of BCC and Buckeye Florida Corporation (BFC), which were commonly owned. On
November 28, 1995, shareholders of BFC, the sole general partner of Buckeye
Florida, Limited Partnership (BFLP), exchanged all of their outstanding common
stock for common stock of BCC, and BFC became a wholly-owned subsidiary of BCC.
Concurrently, the Company and its subsidiaries redeemed and/or acquired the
limited partnership interest in BFLP for $62,078 in cash.
The Company manufactures and distributes value-added, cellulose-based
specialty products used in numerous applications including disposable diapers,
personal hygiene products, engine air and oil filters, food casings, rayon
filament, acetate fibers and plastics, thickeners, and papers.
CASH AND CASH EQUIVALENTS
The Company considers cash equivalents to be temporary cash investments with a
maturity of three months or less when purchased.
SHORT-TERM INVESTMENTS
Short-term investments consist of a $2,900 certificate of deposit, which the
Company has pledged as collateral to secure loans obtained by certain officers
of the Company. In July 1998, these loans were repaid in full.
INVENTORIES
Inventories are stated at the lower of cost (determined on the average cost
method or on a first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. The cost of major renewals and
improvements is capitalized. Depreciation is computed by the straight-line
method over the following estimated useful lives: buildings--30 to 40 years;
machinery and equipment--5 to 16 years.
INTANGIBLE ASSETS
Goodwill is amortized by the straight-line method over 30 to 40 years. The
Company periodically reviews the value of its goodwill to determine if
impairment has occurred. Potential impairment of recorded goodwill is measured
by the undiscounted value of expected future operating cash flows in relation to
its net capital investment in the subsidiary. Approximately 95% of the Company's
goodwill is attributable to the Company's 1997 acquisitions (see Note 2).
Goodwill is net of accumulated amortization of $6,758 and $3,035 at June 30,
1998 and 1997, respectively. Deferred debt costs are amortized by the interest
method over the life of the related debt and are net of accumulated amortization
of $2,038 and $1,236 at June 30, 1998 and 1997, respectively. Noncompete
agreements, which are included in deferred debt costs and other on the
consolidated balance sheets, are amortized over the agreement term using the
straight-line method, and are net of accumulated amortization of $3,667 and
$2,756 at June 30, 1998 and 1997, respectively.
INCOME TAXES
The Company has provided for income taxes under the liability method.
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. No provision is
made for U.S. income taxes applicable to undistributed earnings of foreign
subsidiaries that are indefinitely reinvested in foreign operations.
RISK MANAGEMENT
The Company selectively uses interest rate swap contracts and foreign currency
forward and option contracts to offset the effects of interest and exchange rate
risk. The differentials to be received or paid under interest rate contracts are
recognized in income over the life of the contracts as adjustments to interest
expense. Gains or losses on termination of interest rate contracts are
recognized as other income or expense when terminated in conjunction with the
retirement of associated debt. The foreign currency forward and option contracts
that are designated as effective hedges are deferred and included in income as
part of the underlying transactions.
14
<PAGE> 17
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 all domestic and foreign customers and are monitored routinely.
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.
REVENUE RECOGNITION
Revenues are recognized when title to the goods passes to the customer. Net
sales are composed of sales reduced by sales allowances and distribution costs.
FOREIGN CURRENCY TRANSLATION
Company management has determined that the local currency of its German,
Canadian and Irish subsidiaries is the functional currency, and accordingly
Deutsche mark, Canadian dollar, and Irish punt-denominated balance sheet
accounts are translated into United States dollars at the rate of exchange in
effect at fiscal year end. Income and expense activity for the period is
translated at the weighted average exchange rate during the period. Translation
adjustments are included as a separate component of stockholders' equity.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from the
estimates and assumptions used.
EARNINGS PER SHARE
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128), which
specifies the computation, presentation and disclosure requirements for earnings
per share (EPS). On January 21, 1998, the Board of Directors of the Company
declared a two-for-one stock split for stockholders of record as of February 10,
1998. The stock split was paid on February 17, 1998 in the form of a stock
dividend of one share of common stock for each issued share of common stock. All
share data and related amounts have been restated to reflect the stock split.
All prior period EPS data has been restated to conform with the provisions of
SFAS 128.
STOCK-BASED COMPENSATION
The Company applies the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations to
account for its stock option plans.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income. This statement establishes requirements for
disclosure of comprehensive income and will become effective for the Company's
1999 fiscal year, with reclassification of earlier financial statements for
comparative purposes. Comprehensive income generally includes changes in
stockholders' equity, such as foreign currency translation gains and losses. The
Company is evaluating alternative formats for presenting this information.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131). This statement established standards for disclosure about operating
segments in annual financial statements and selected information in interim
financial reports. It also established standards for related disclosures about
products and services, geographic areas and major customers. This statement
supersedes Statement of Financial Accounting Standards No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS 131 will become effective
for the Company's 1999 fiscal year and may require that comparative information
from earlier years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the effects, if any,
on the Company's current reporting and disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). This statement requires companies to record derivatives on the
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 will become effective for the Company's 2000 fiscal year.
Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of SFAS 133 will have a significant effect on
earnings or the financial position of the Company.
2. BUSINESS COMBINATIONS
The November 1995 acquisition of the limited partnership interest in BFLP has
been recorded using the purchase method of accounting. The allocation of the
purchase price was based on the respective fair value of assets and liabilities,
and resulted in an increase to property, plant and equipment of $4,098 and a
reduction in goodwill of $9,951. The operations of BFLP are consolidated in the
accompanying financial statements, and the limited partnership interest is
recorded as a minority interest prior to the date of acquisition/redemption.
Effective May 1, 1996, Buckeye Cellulose GmbH, a wholly-owned subsidiary of
the Company, purchased the property, plant, equipment and inventories of the
specialty cellulose business of Peter Temming AG (the Temming Business) in
Glueckstadt, Germany for $27,114 in cash plus assumed liabilities of $2,994. The
acquisition was accounted for 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.
Temming purchase price allocation
<TABLE>
<S> <C>
Inventory $11,721
Property, plant and equipment 16,870
Noncompete agreement 1,517
-------
$30,108
=======
</TABLE>
On September 1, 1996, the Company acquired all of the issued and
outstanding stock of Alpha Cellulose Holdings, Inc. (Alpha) for $25,921 in cash,
328,324 shares of Company common stock valued at $4,244, and the assumption of
long-term debt of $34,276. Alpha is located in Lumberton, North Carolina, and
its primary business is the manufacture of specialty cellulose. The acquisition
was accounted for 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. The excess of the purchase price over the fair value
of the net assets has been recorded as goodwill, and is being amortized by the
straight-line method over 30 years.
Alpha purchase price allocation
<TABLE>
<S> <C>
Working capital, net of cash $13,950
Property, plant and equipment 27,538
Other assets 390
Noncompete agreement 4,000
Goodwill 25,021
Other liabilities (6,458)
-------
$64,441
=======
</TABLE>
On May 28, 1997, the Company's wholly-owned subsidiary, Buckeye Acquisition
Inc. (BAI), acquired 97.5% of the common shares of Merfin International Inc.
(Merfin) for $146,749 in cash. On July 30, 1997, BAI acquired the remaining
outstanding common shares of Merfin for $3,869 in cash. The total purchase price
includes $150,618 in cash and the assumption of debt of $49,208. Merfin is one
of the leading manufacturers of air-laid nonwovens, which are used as ultrathin
absorbent cores in feminine hygiene and adult incontinence products, with
facilities located in Canada, Ireland, and the United States. The acquisition
was accounted for 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. The excess of the purchase price over the fair value
of the net assets has been recorded as goodwill, and is being amortized by the
straight-line method over 40 years.
Merfin purchase price allocation
<TABLE>
<S> <C>
Working capital, net of cash $ 2,709
Property, plant and equipment 87,009
Goodwill 112,681
Other liabilities (2,573)
---------
$ 199,826
=========
</TABLE>
The consolidated operating results of the Temming Business, Alpha and
Merfin have been included in the consolidated statements of income from the
respective dates of acquisition. The following unaudited pro forma results of
operations assume that the acquisitions of the limited
16
<PAGE> 19
partnership interest in BFLP, the Temming Business, Alpha and Merfin, the
Company Stock Repurchase (see Note 7), and related financing transactions
occurred at the beginning of the periods presented.
Pro forma results of operations
<TABLE>
<CAPTION>
Year ended June 30
1997 1996
--------------------
<S> <C> <C>
Net sales $618,686 $630,456
Income before extraordinary loss 41,255 47,522
Net income 41,255 43,533
Earnings per share--basic:
Income before extraordinary loss $ 1.08 $ 1.25
Net income 1.08 1.15
Earnings per share--assuming dilution:
Income before extraordinary loss $ 1.06 $ 1.24
Net income 1.06 1.13
====================
</TABLE>
The pro forma financial information is presented for information purposes
only and is not necessarily indicative of the operating results that would have
occurred had the business combinations and related transactions been consummated
as of the above dates, nor is it necessarily indicative of future operating
results. The pro forma results of operations for the year ended June 30, 1997
include certain nonrecurring charges, including acquisition-related costs
incurred by Alpha and Merfin prior to the date of acquisition. These charges
reduced pro forma net income and net income per share--assuming dilution by
$4,360 and $.11, respectively, for the year ended June 30, 1997.
3. INVENTORIES
Components of inventories
<TABLE>
<CAPTION>
June 30
1998 1997
-------------------
<S> <C> <C>
Raw materials $ 26,421 $ 25,409
Finished goods 55,939 63,932
Storeroom and other supplies 18,012 18,049
-------------------
$100,372 $107,390
===================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment
<TABLE>
<CAPTION>
June 30
1998 1997
------------------------
<S> <C> <C>
Land and land improvements $ 10,120 $ 7,270
Buildings 76,815 49,727
Machinery and equipment 410,770 348,834
Construction in progress 25,803 63,798
523,508 469,629
Accumulated depreciation (121,561) (86,952)
------------------------
$ 401,947 $ 382,677
========================
</TABLE>
5. ACCRUED EXPENSES
Components of accrued expenses
<TABLE>
<CAPTION>
June 30
1998 1997
------------------
<S> <C> <C>
Retirement plans $11,873 $12,042
Vacation pay 4,262 3,998
Maintenance accrual 9,861 6,901
Sales program accrual 6,229 5,728
Interest 4,301 5,171
Employee compensation 3,650 3,076
Other 9,371 12,914
------------------
$49,547 $49,830
==================
</TABLE>
6. DEBT
Components of long-term debt
<TABLE>
<CAPTION>
June 30
1998 1997
-------------------
<S> <C> <C>
Senior Subordinated Notes:
due 2005 $149,542 $149,499
due 2008 99,502 99,475
due 2010 149,155 --
Credit Facility 46,919 170,000
Other 11,725 55,657
-------------------
456,843 474,631
Less current portion 511 --
-------------------
$456,332 $474,631
===================
</TABLE>
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company completed a public offering of $150,000 principal amount of
8 1/2% unsecured Senior Subordinated Notes due December 15, 2005 (the 2005
Notes) during November 1995. A portion of the proceeds from the 2005 Notes was
used to retire $45,594 of debt, resulting in an extraordinary loss of $3,228,
net of tax benefit. The 2005 Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after December 15, 2000, at redemption
prices varying from 104.25% of principal amount to 100.00% of principal amount
on or after December 15, 2003, in each case together with accrued and unpaid
interest to the date of redemption.
The Company completed a public offering of $100,000 principal amount of 9
1/4% unsecured Senior Subordinated Notes due September 15, 2008 (the 2008 Notes)
on July 2, 1996. The 2008 Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after September 15, 2001, at redemption
prices varying from 104.625% of principal amount to 100.00% of principal amount
on or after September 15, 2004, in each case together with accrued and unpaid
interest to the date of redemption.
The Company completed a private placement of $150,000 principal amount of
8% unsecured Senior Subordinated Notes due October 15, 2010 (the 2010 Notes) on
June 11, 1998. Subsequent to June 30, 1998, the Company exchanged all
outstanding 2010 Notes for public notes with the same terms. The 2010 Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after October 15, 2003, at redemption prices varying from 104.00% of principal
amount to 100.00% of principal amount on or after October 15, 2006, in each case
together with accrued and unpaid interest to the date of redemption.
The Senior Subordinated Notes are subordinate to the Credit Facility.
The Company has a credit facility (the Credit Facility), providing for
borrowings up to $225,000. The Credit Facility matures May 28, 2002, and on May
28, 2001, borrowing availability reduces to $150,000. The interest rate
applicable to borrowings under the Credit Facility is the agent's prime rate or
a LIBOR-based rate ranging from LIBOR plus 0.450% to 1.125%. Borrowings at June
30, 1998 were at an average rate of 6.35%. Letters of credit issued through the
Credit Facility of $623 are outstanding at June 30, 1998. The amount available
for borrowing under the Credit Facility is $177,458 at June 30, 1998.
The Company has a term facility, which provides for borrowing up to $15,000
and matures on May 28, 2002. The outstanding balance under this facility was
$10,894 at June 30, 1998, at an interest rate of 7.1%.
Aggregate maturities of long-term debt are as follows: 1999--$511;
2002--$58,133; and 2004 and thereafter--$398,199. Terms of long-term debt
agreements require compliance with certain covenants, including minimum net
worth, interest coverage ratios, and limitations on restricted payments and
levels of indebtedness. At June 30, 1998, the amount available for the payment
of dividends and/or the acquisition of treasury stock was approximately $9,514
under the most restrictive of these agreements.
The Company has a revolving credit line of approximately $7,500 with a
financial institution at a rate of interest of 4.8% at June 30, 1998. The
outstanding balance under this revolving line of credit was $829 at June 30,
1998 and is classified as notes payable in the consolidated balance sheet.
Letters of credit issued through the revolving line of credit of $1,618 are
outstanding at June 30, 1998. The revolving line of credit expires April 30,
1999.
Total interest paid by the Company for the years ended June 30, 1998, 1997,
and 1996 was $37,143, $24,311, and $17,460, respectively.
7. STOCKHOLDERS' EQUITY
In November 1995, proceeds from the initial public offering of the Company's
Common Stock were used to retire debt, resulting in an extraordinary loss of
$721, net of tax benefit.
On July 2, 1996, BKI Investment Corporation, a newly formed, wholly-owned
subsidiary of the Company, purchased 4,519,774 shares of Common Stock from
Madison Dearborn Capital Partners, L.P. (MDCP) for $11.06 per share (the Company
Stock Repurchase) for an aggregate purchase price of $50,000. Concurrently with
the Company Stock Repurchase, the Company issued and sold $100,000 principal
amount of Senior Subordinated Notes, the net proceeds of which were used to fund
the Company Stock Repurchase and, together with borrowings under the Company's
Credit Facility, to acquire the stock of Alpha.
On April 7, 1998, the stockholders of the Company approved an increase in
the Company's authorized shares
18
<PAGE> 21
of common and preferred stock to 100,000,000 shares and 10,000,000 shares,
respectively.
On February 4, 1998, the Board of Directors authorized the repurchase of an
additional 2,000,000 shares of common stock. Repurchased shares will be held as
treasury stock and will be available for general corporate purposes, including
the funding of employee benefit and stock-related plans. Pursuant to this
repurchase authorization and the Company's original 2,000,000 shares repurchase
plan in effect since August 1996, 911,200 shares were repurchased during the
year ended June 30, 1998, and a total of 2,090,200 shares have been repurchased
through June 30, 1998.
The Company's stock option plans provide for the granting of either
incentive or nonqualified stock options to employees and nonemployee directors.
Options are subject to terms and conditions determined by the Compensation
Committee of the Board of Directors, and generally are exercisable in increments
of 20% per year beginning one year from date of grant, and expire 10 years from
date of grant.
Option plan activity
<TABLE>
<CAPTION>
Average Average
Exercise Fair
Options Price Value
-----------------------------------
<S> <C> <C> <C>
Outstanding at
June 30, 1996 2,140,000 $8.78
Granted at market 50,000 13.19 $6.18
Granted below market 100,000 7.60 9.15
Exercised (5,200) 9.25
-----------------------------------
Outstanding at
June 30,1997 2,284,800 8.83
Granted at market 1,598,792 18.25 8.77
Granted below market 100,000 7.60 13.16
Granted above market 11,208 19.63 8.17
Exercised (199,600) 8.80
Terminated (159,600) 10.78
-----------------------------------
Outstanding at
June 30, 1998 3,635,600 12.88
Exercisable at
June 30, 1998 884,600 9.16
-----------------------------------
</TABLE>
There were 1,059,600 and 2,610,000 shares reserved for grants of options at
June 30, 1998 and 1997, respectively. The following summary provides information
about stock options outstanding and exercisable at June 30, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
- ------------------------------------------------------------------------------
Average Average Average
Exercise Remaining Exercise
Exercise Price Options Price Life (Years) Options Price
- ------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 7.50-$10.50 1,825,600 $ 8.28 7.7 748,600 $ 8.47
$12.50-$18.00 1,638,792 17.06 8.0 136,000 12.98
$19.50-$23.00 171,208 22.06 9.6 -- --
- ------------------------------------------------------------------------------
Total 3,635,600 $12.88 7.9 884,600 $ 9.16
- ------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As allowed under the Financial Accounting Standards Board Statement No.
123, Accounting for Stock Based Compensation (SFAS 123), the Company applies the
provisions of Accounting Principles Board Opinion No. 25 and related
interpretations. The following pro forma information has been prepared as if the
Company had accounted for its employee stock options using the fair value-based
method of accounting established by SFAS 123:
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Net income:
As reported $55,260 $53,274 $43,061
Pro forma 51,482 51,866 42,373
Earnings per share--
basic:
As reported $ 1.49 $ 1.40 $ 1.02
Pro forma 1.39 1.36 1.00
Earnings per share--
assuming dilution:
As reported $ 1.45 $ 1.38 $ 1.01
Pro forma 1.37 1.34 .99
</TABLE>
The Company has estimated the fair value of each option grant using the
Black-Scholes option pricing model. The fair value was estimated with the
following weighted average assumptions: expected life of the stock options of
eight years; volatility of the expected market price of common stock of .29 for
1998 and .27 for 1997 and 1996; a risk-free interest rate range of 5.5% to 6.2%
for 1998 and 6% for 1997 and 1996; and no dividends. Option pricing models, such
as the Black-Scholes model, require the input of highly subjective assumptions,
including the expected stock price volatility, that are subject to change from
time to time. Pro forma amounts for 1998 reflect total compensation expense from
the awards made in 1996, 1997 and 1998. Since compensation expense from stock
options is recognized over the future years' vesting period, and additional
awards generally are made each year, pro forma amounts for 1998 may not be
representative of future years' amounts.
On August 12, 1997, the Board of Directors authorized a restricted stock
plan and set aside 800,000 of the Company's treasury shares to fund this plan.
At June 30, 1998, 15,950 restricted shares had been awarded.
8. INCOME TAXES Provision for income taxes
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
------------------------------
Current:
<S> <C> <C> <C>
Federal $23,740 $17,472 $15,701
State and other 1,089 738 1,034
------------------------------
24,829 18,210 16,735
Deferred:
Federal 4,250 8,242 8,414
State and other (482) 527 383
------------------------------
3,768 8,769 8,797
------------------------------
$28,597 $26,979 $25,532
=======================================================
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate of 35% to income before income taxes and
extraordinary loss due to the following:
Rate analysis
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Expected tax expense $29,350 $28,089 $25,390
State taxes 644 850 857
Foreign sales
corporation (3,244) (3,030) (2,112)
Effect of foreign
operations 1,988 765 --
Nondeductible items 547 339 681
Other (688) (34) 716
------------------------------
$28,597 $26,979 $25,532
==============================
</TABLE>
20
<PAGE> 23
Significant components of the Company's deferred tax assets (liabilities)
are as follows:
Deferred tax assets (liabilities)
<TABLE>
<CAPTION>
June 30
1998 1997
-------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $(45,836) $(39,339)
Other (2,699) (4,167)
-------------------
(48,535) (43,506)
Deferred tax assets:
Postretirement benefits 5,438 5,113
Inventory costs 1,217 1,102
Net operating loss 5,133 3,942
Nondeductible reserves 4,909 3,720
Other 1,760 3,262
-------------------
18,457 17,139
-------------------
$(30,078) $(26,367)
===================
</TABLE>
The Company paid income taxes of $26,455, $16,965 and $16,832 during the
years ended June 30, 1998, 1997 and 1996, respectively.
For the year ended June 30, 1998, income before income taxes consisted of
$90,243 of domestic income and $6,386 of foreign losses. At June 30, 1998, the
Company has foreign net operating loss carryforwards of approximately $20,243,
which have no expiration date, and $2,414, which expire in 2003.
The Company's extraordinary loss of $3,949 for the year ended June 30, 1996
is net of an income tax benefit of $2,383.
9. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators used to
calculate earnings per share in the consolidated statements of income:
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Numerator:
Income before extraordinary loss $ 55,260 $ 53,274 $ 47,010
Extraordinary loss, net of tax benefit -- -- (3,949)
---------------------------------------------
Net income $ 55,260 $ 53,274 $ 43,061
=============================================
Denominator:
Weighted average shares outstanding--used for basic earnings per share 37,109,057 38,127,212 42,223,586
Effect of dilutive options 1,124,906 593,560 387,561
---------------------------------------------
Denominator for earnings per share--assuming dilution 38,233,963 38,720,772 42,611,147
=============================================
Earnings per share--basic:
Income before extraordinary loss $ 1.49 $ 1.40 $ 1.11
Extraordinary loss, net of tax benefit -- -- (.09)
---------------------------------------------
Net income $ 1.49 $ 1.40 $ 1.02
=============================================
Earnings per share--assuming dilution:
Income before extraordinary loss $ 1.45 $ 1.38 $ 1.10
Extraordinary loss, net of tax benefit -- -- (.09)
---------------------------------------------
Net income $ 1.45 $ 1.38 $ 1.01
=============================================
</TABLE>
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS
The Company has defined contribution retirement plans covering U.S. employees.
The Company contributes 1% of the employee's gross compensation plus 1/2% for
each year of service up to a maximum of 11% of the employee's gross
compensation. Also, the Company may make additional contributions contingent
upon the results of operations. Contribution expense for the retirement plans
for the years ended June 30, 1998, 1997, and 1996 was $8,096, $7,528 and $7,424,
respectively.
The Company also provides medical, dental, and life insurance
postretirement plans covering certain U.S. employees who meet specified age and
service requirements. Certain employees who met specified age and service
requirements on March 15, 1993 are covered by their previous employer and are
not covered by these plans. The Company's current policy is to fund the cost of
these benefits as payments to participants are required. Expense for
postretirement benefits for the years ended June 30, 1998, 1997, and 1996 was
$931, $721 and $536, respectively.
Accrued postretirement benefits
<TABLE>
<CAPTION>
June 30
1998 1997
-----------------------
<S> <C> <C>
Accumulated postretirement benefits:
Eligible active plan participants $ 173 $ 108
Retirees 1,115 154
Other active plan participants 9,848 9,226
-----------------------
11,136 9,488
Unrecognized gain from
plan amendments 4,605 5,256
Unrecognized net loss (1,138) (1,066)
Other 556 530
-----------------------
$ 15,159 $ 14,208
=======================
</TABLE>
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
8.5% for 1999, and is assumed to decrease gradually to 5.0% in 2006 and remain
at that level thereafter. Due to the benefit cost limitations in the plan, the
health care cost trend rate assumption does not have a significant effect on the
amounts reported.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% and 7.75% at June 30, 1998 and 1997,
respectively.
11. SIGNIFICANT CUSTOMER
Gross sales to Procter & Gamble Company and its affiliates (P&G) for the years
ended June 30, 1998, 1997, and 1996 were 31%, 32% and 35%, respectively, of
total gross sales.
The Company and P&G are parties to the Pulp Supply Agreement (the Supply
Agreement) which provides that P&G will purchase, under a take-or-pay
arrangement, a specified tonnage (currently, substantially all of the Company's
output) of fluff pulp annually at a formula price through calendar year 1998, at
the higher of the formula price or market price in calendar years 1999 and 2000,
and at market price in calendar years 2001 and 2002. As a result of such formula
pricing, the Company will be partially protected through calendar year 2000 in
periods of lower market prices; however, it may not realize all of the benefits
if market prices increase during the remainder of calendar year 1998. Currently,
the formula price paid by P&G pursuant to the Supply Agreement exceeds the
market price for fluff pulp. In the event that P&G fails to perform under the
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.
12. GEOGRAPHIC REPORTING
GEOGRAPHIC SEGMENTS
The Company has manufacturing operations in the United States, Canada, Germany,
and Ireland. Net sales based upon point of origin and identifiable assets
(including goodwill) by geographic area are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Net sales:
United States $539,132 $501,124 $460,321
Other 91,078 57,809 10,658
------------------------------------
Total net sales $630,210 $558,933 $470,979
====================================
Identifiable assets:
United States $521,174 $498,690 $413,022
Canada 136,752 139,908 --
Other 93,610 98,866 39,777
------------------------------------
Total identifiable assets $751,536 $737,464 $452,799
====================================
</TABLE>
22
<PAGE> 25
EXPORT SALES
Gross export sales by U.S. operations by geographic area and as a percent of
consolidated total gross sales are as follows:
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Europe 30% 32% 32%
Asia 15 18 23
Other 12 10 14
---------------------------
57% 60% 69%
===========================
</TABLE>
13. RESEARCH AND DEVELOPMENT
EXPENSES
Research and development costs of $10,732, $8,423 and $5,365 were charged to
expense as incurred for the years ended June 30, 1998, 1997, and 1996,
respectively.
14. PURCHASE COMMITMENTS
At June 30, 1998, under four separate agreements expiring at various dates
through December 31, 2002, the Company is required to purchase certain timber
from specified tracts of land that is available for harvest. At the option of
the Company, certain of these timber purchase commitments may be extended
through December 31, 2010. The contract price under the terms of these
agreements is either at the then current market price or at fixed prices as
stated in the contract. At June 30, 1998, estimated annual purchase obligations
were as follows: 1999--$23,000; 2000--$18,000; 2001--$16,000; 2002--$12,000; and
2003--$6,000.
Purchases under these agreements for the years ended June 30, 1998, 1997,
and 1996 were $16,522, $23,441, and $25,443, respectively.
15. CONTINGENCIES
The Company's 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. The Company expects that, due to the nature of its operations, it
will be subject to increasingly stringent environmental requirements (including
standards applicable to wastewater discharges and air emissions) and will
continue to incur substantial costs to comply with such requirements. 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 wastewater into the Fenholloway River.
Pursuant to an agreement with the Florida Department of Environmental Protection
(FDEP), approved by the U.S. Environmental Protection Agency (EPA) in 1995, the
Company agreed to a comprehensive plan to attain Class III (fishable/swimmable)
status for the Fenholloway River under applicable Florida law (the Fenholloway
Agreement). The Fenholloway Agreement requires the Company, among other things,
to (i) make process changes within the Foley Plant to reduce the coloration of
its wastewater discharge, (ii) restore certain wetlands areas, (iii) relocate
the wastewater discharge point into the Fenholloway River at a point closer to
the mouth of the River and (iv) provide oxygen enrichment to the treated
wastewater prior to discharge. The Company has already made significant
expenditures to make certain in-plant process changes required by the
Fenholloway Agreement, and the Company estimates it will incur additional
capital expenditures of approximately $40 million through fiscal 2001 to comply
with the remaining obligations under the Fenholloway Agreement.
Recently, in reviewing the renewal application of the Foley Plant's
National Pollutant Discharge Elimination System permit, the EPA has requested
additional environmental studies to identify possible alternatives to the
relocation of the wastewater discharge point and to determine the most
cost-effective technologies available to address both Class III water quality
standards for the Fenholloway River and anticipated EPA cluster rules applicable
to wastewater discharges from dissolving kraft pulp mills, like the Foley Plant.
As a result, the Company and the FDEP verbally agreed that the Company will
finalize the process changes contemplated by the Fenholloway Agreement, but
defer relocation of the discharge point. Consequently, a portion of the
estimated $40 million in capital expenditures may be delayed beyond the period
stated above, and the total capital expenditures for the Foley Plant may
increase as a result of price escalations or the implementation of other
technologies mandated by the cluster rules.
While the wastewater standards under the cluster rules applicable to
dissolving kraft pulp mills like the Foley Plant have not yet been proposed, the
EPA has issued air emission standards applicable to the Foley Plant. The Company
is
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reviewing these air emission standards and presently believes that such
expenditures are not likely to have a material adverse effect on the Company's
business, results of operations or financial condition.
The Foley Plant is on the EPA Comprehensive Environmental Response,
Compensation and Liability Information System list of potentially 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 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 materially adverse effects on the
Company's financial position or results of operation.
16. 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 and
notes payable, the carrying amounts approximate fair value due to their short
maturities. The fair value of the Company's long-term debt is based on quoted
market prices and yields obtained for similar types of borrowing arrangements,
taking into consideration the underlying terms of the debt. The carrying value
and fair value of long-term debt at June 30, 1998 were $456,843 and $467,270,
respectively, and at June 30, 1997 were $474,631 and $476,995, respectively.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Net sales $153,313 $153,610 $162,474 $160,813
Gross margin 42,141 40,356 42,597 43,359
Operating income 30,769 30,220 30,263 31,159
Net income 13,161 13,338 14,204 14,557
Earnings per share:
Basic 0.35 0.36 0.38 0.40
Assuming dilution 0.34 0.35 0.37 0.38
--------------------------------------------------
YEAR ENDED JUNE 30, 1997
Net sales $126,514 $142,992 $139,499 $149,928
Gross margin 32,318 35,914 36,414 42,536
Operating income 24,543 26,828 27,083 30,938
Net income 11,942 12,757 13,963 14,612
Earnings per share:
Basic 0.31 0.33 0.37 0.39
Assuming dilution 0.31 0.33 0.36 0.38
--------------------------------------------------
</TABLE>
24
<PAGE> 27
REPORT OF MANAGEMENT
The preparation and integrity of the financial statements of Buckeye
Technologies Inc. are the responsibility of its management. These statements,
which include amounts based on management's best estimates and judgments, have
been prepared in conformity with generally accepted accounting principles, and
in the opinion of management, fairly present the Company's financial position,
results of operations and cash flows.
The Company maintains accounting and internal control systems, which it
believes are adequate to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition and that the
financial records are reliable for preparing financial statements. The selection
and training of qualified personnel, plus the establishment and communication of
accounting and administrative policies and procedures, are important elements of
these control systems.
The report of Ernst & Young LLP on their audits of the accompanying
financial statements follows. This report states that the audits were made in
accordance with generally accepted auditing standards. These standards include a
study and evaluation of internal controls for the purpose of establishing a
basis for reliance thereon relative to the scope of their audits of the
financial statements.
The Board of Directors, through its Audit Committee consisting solely of
outside directors, meets periodically with management and the independent
auditors to discuss audit and financial reporting matters. To assure
independence, Ernst & Young LLP has direct access to the Audit Committee.
/S/ Robert E. Cannon
Robert E. Cannon
Chairman of the Board and Chief Executive Officer
/S/ David B. Ferraro
David B. Ferraro
President and Chief Operating Officer
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Buckeye Technologies Inc.
We have audited the accompanying consolidated balance sheets of Buckeye
Technologies Inc. as of June 30, 1998 and 1997 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Buckeye
Technologies Inc. at June 30, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
Memphis, Tennessee
August 3, 1998
25
<PAGE> 28
SELECTED FINANCIAL DATA
(In $ thousands, except per share data)
<TABLE>
<CAPTION>
Year ended June 30
1998 1997(a) 1996(b) 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating data:
Net sales $630,210 $558,933 $470,979 $408,587 $371,526
Operating income 122,411 109,392 108,567 79,172 55,689
Income before extraordinary loss 55,260 53,274 47,010 21,712 12,968
Net income 55,260 53,274 43,061 21,712 12,968
Earnings per share:(c)
Income before extraordinary loss 1.49 1.40 1.11
Net income 1.49 1.40 1.02
Earnings per share--assuming dilution:(c)
Income before extraordinary loss 1.45 1.38 1.10
Net Income 1.45 1.38 1.01
Balance sheet data:
Total assets 751,536 737,464 452,799 379,056 374,204
Long-term debt less current portion 456,332 474,631 217,873 166,202 203,482
Other data:
EBITDA(d) 162,397 143,024 134,670 104,088 81,879
----------------------------------------------------------------
</TABLE>
(a) Includes the operations of Alpha from September 1, 1996 and Merfin from May
28, 1997, their respective dates of acquisition.
(b) In fiscal 1996, an extraordinary loss of $3,949, net of tax benefit, was
recognized on the early retirement of a portion of the Senior Notes. The
minority interest charge representing the limited partnership interest in
BFLP ceased on November 28, 1995, and includes the operations of the
Temming Business from May 1, 1996, the date of acquisition.
(c) Historical net income per share has not been presented as it is not
considered relevant for periods prior to June 30, 1996.
(d) EBITDA represents earnings before interest, taxes, depreciation,
amortization, depletion, minority interest, extraordinary loss, secondary
offering costs and other non-cash charges. This data should not be
considered in isolation and is not intended to be a substitute for income
statement or cash flow statement data as a measure of the Company's
profitability (see Consolidated Financial Statements).
26
<PAGE> 29
SHAREHOLDER INFORMATION
- -----------------------
COMMON STOCK PRICE RANGE
<TABLE>
<CAPTION>
Year ended June 30
1998 1997
High Low High Low
---------------------------------------------
<S> <C> <C> <C> <C>
First quarter (ended September 30) $21 3/8 $16 9/16 $13 13/16 $11
Second quarter (ended December 31) 23 3/8 19 1/8 14 1/16 12 11/16
Third quarter (ended March 31) 23 15/16 19 5/16 16 1/8 12 7/8
Fourth quarter (ended June 30) 24 11/16 20 5/8 18 1/2 14 15/16
- ---------------------------------------------------------------------------------------
</TABLE>
The Company has no plans to pay dividends in the foreseeable future.
<TABLE>
<S> <C>
CORPORATE HEADQUARTERS ANNUAL MEETING
Buckeye Technologies Inc. The Buckeye Technologies Inc. annual meeting of
1001 Tillman Street shareholders will be held on Thursday, November 5, 1998
P.O. Box 80407 at 5:00 p.m. (CST) at the Memphis Brooks Museum of Art,
Memphis, TN 38108-0407 1934 Poplar Avenue, Memphis, Tennessee.
Telephone: 901-320-8100
Fax: 901-320-8216 SUPPLEMENTAL INFORMATION
Website: www.bkitech.com For copies of the Form 10-K report filed with the
Securities and Exchange Commission, or for additional
TRANSFER AGENT & REGISTRAR information about Buckeye, please access the Company's
Union Planters Bank, N.A. website at www.bkitech.com, or contact: Sondra A.
Corporate Trust Department Dowdell, Manager, Corporate Communications,
P.O. Box 387 Buckeye Technologies Inc., 1001 Tillman Street,
Memphis, TN 38147 P.O. Box 80407, Memphis, Tennessee 38108-0407,
Telephone: 901-320-8244, Fax: 901-320-8216,
AUDITORS E-mail: [email protected].
Ernst & Young LLP
1400 One Commerce Square
Memphis, TN 38103
STOCK LISTING AND SHAREHOLDERS
Buckeye Technologies Inc. is traded on the New York Stock
Exchange under the symbol BKI. There were approximately
5,500 shareholders on September 1, 1998, based on the
number of record holders of the Company's common stock
and an estimate of the number of individual participants
represented by security position listings.
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY JURISDICTION OF INCORPORATION
- ---------- -----------------------------
Buckeye Florida Corporation Delaware
Buckeye Foley Corporation Delaware
Buckeye Florida, Limited Partnership Delaware
Buckeye S.A. Switzerland
Buckeye (Barbados) Ltd. Barbados
Buckeye Technologies Gmbh Germany
BKI Management Company Tennessee
BKI Holding Corporation Delaware
BKI Finance Corporation Tennessee
BKI Asset Management Corporation Delaware
BKI Limited Corporation Delaware
Buckeye Lumberton Inc. North Carolina
Buckeye Canada Inc. Canada
Buckeye Technologies Ireland Ltd. Ireland
Merfin Systems Inc. Delaware
<PAGE> 1
Exhibit 23.0
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Buckeye Technologies Inc. of our report dated August 3, 1998, included
in the 1998 Annual Report to Shareholders of Buckeye Technologies Inc.
Our audit also included the financial statement schedule of Buckeye
Technologies Inc. listed in Item 14(a)(2). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8, Numbers 33-80865, 33-80867, 33-33621, 33-61373, and
33-61371) pertaining to the Buckeye Retirement Plus Savings Plan, the Buckeye
Retirement Plan, the Alpha Cellulose Cash Option Thrift Plan, the Restricted
Stock Plan, and the Merfin Systems 401(K) Profit Sharing Plan, of our report
dated August 3, 1998, with respect to the consolidated financial statements and
schedule of Buckeye Technologies Inc. included or incorporated by reference in
this Annual Report (Form 10-K) for the year ended June 30, 1998.
Memphis, Tennessee
September 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BUCKEYE TECHNOLOGIES INC. FOR THE 12 MONTHS ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,472
<SECURITIES> 2,900
<RECEIVABLES> 89,895
<ALLOWANCES> 1,174
<INVENTORY> 100,372
<CURRENT-ASSETS> 203,506
<PP&E> 523,508
<DEPRECIATION> 121,561
<TOTAL-ASSETS> 751,536
<CURRENT-LIABILITIES> 76,029
<BONDS> 456,332
0
0
<COMMON> 431
<OTHER-SE> 155,248
<TOTAL-LIABILITY-AND-EQUITY> 751,536
<SALES> 630,210
<TOTAL-REVENUES> 630,210
<CGS> 461,757
<TOTAL-COSTS> 507,799
<OTHER-EXPENSES> 2,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,269
<INCOME-PRETAX> 83,857
<INCOME-TAX> 28,597
<INCOME-CONTINUING> 55,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,260
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.45
</TABLE>
