UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended December 31, 1996.
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-70476
REPAP WISCONSIN, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1247669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
433 North Main Street
Kimberly, Wisconsin 54136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 788-3511
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
$250,000,000 9 % First Priority Senior Secured Notes Due February 1, 2002
$150,000,000 97/8% Second Priority Senior Secured Notes Due May 1, 2006
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. {X} Yes { } No
Indicated 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. {X}
<PAGE>
PART I
ITEM 1 BUSINESS
General
Repap Wisconsin, Inc. (the Company) is a producer of high quality
grades of recycled coated paper and produces a complete range of coated paper
products. The Company was purchased by Repap Enterprises Inc. (Repap
Enterprises) in 1976 for $12 million. Following the acquisition, the
Company undertook a capital investment program completed in 1989 of $587
million to construct two new coated paper machines and to modernize
one of the existing machines, while shutting down the remaining four.
The objective of these investments was to convert the Company from a small,
low margin operation, producing approximately 135,000 tons per year of
medium quality coated groundwood and freesheet paper, to a leading
producer of high quality grades of coated paper capable of supplying
a full spectrum of product grades and basis weights to the growing
North American coated paper market.
By 1994, the Company had successfully converted all of its coated
paper grades to recycled content without changing the quality of its product
line. The Company believes that its use of recycled fibers in all of its
coated paper grades has become a marketing advantage as the public's
awareness of environmental issues has increased. To enhance its capacity for
producing recycled coated paper grades, the Company acquired a 25,000 ton
per year recycling facility in 1994 that uses office and other waste paper
to produce recycled fiber.
The Company's current operating annual coated paper design capacity
totals approximately 508,000 tons as of December 31, 1996. Among the top ten
producers of coated paper in North America, based on total annual design
capacity as reported by industry sources, the Company's average annual
design capacity per machine of approximately 169,000 tons represents the
highest productive capacity per machine in the United States and the second
highest in North America.
<PAGE>
Coated Paper Markets
The Company's products are used for magazines, catalogues, brochures,
advertising inserts and annual reports. The markets for coated paper
products are highly competitive with a number of major companies competing
in each market. The four largest producers of coated paper in North America
are Champion International Corporation, the S.D. Warren Company, a
subsidiary of Sappi Limited, Consolidated Papers, Inc. and Repap Enterprises
(including the Company and Repap New Brunswick Inc.). Repap has a design
capacity of 1.0 million tons annually (0.5 million tons for the Company).
Based on design capacity, the Company is the ninth largest coated
paper producer in North America and competes with other U.S., Canadian and
European producers in all of its product lines. Competition is primarily
on the basis of quality, breadth of product line and price, as well as
product innovation and sales and distribution support. No. 5 machine coated
paper also competes with uncoated supercalendered paper. In addition, the
market for paper generally competes with non-paper substitutes, such as
electronic media.
The Company's competitive strengths in the coated paper market
include high product quality, a broad product line, excellent sales support
and leadership in recycled grades. The Company has developed a line of
fully recycled paper products across a wide spectrum of weights and
finishes, with the same quality standards as non-recycled coated paper
products, and believes that it is well positioned to meet any shift in
customer demand toward recycled coated paper.
The Company believes that the demand for high quality grades of
recycled coated paper is growing as the general public becomes increasingly
aware of the environmental impact of paper disposal in landfills. In the
United States, manufacturers of recycled coated paper use an average of 50%
recycled content, including 10% post-consumer fiber, in the raw material
mix of their recycled grades. Although recycled fiber can be used in most
papers, several factors determine the recycled content of paper and paper
products, including available technology, economics and product performance
requirements. Due to the lower quality of paper in the newsprint, tissue
and packaging papers industries, producers of these grades can use
substantially greater amounts of post-consumer fiber in their grades versus
coated paper producers.
While seasonal variation in demand is not a major factor in the
Company's business, sales volumes increase in general during the third and
fourth quarters of each year, particularly in September and October, as the
use of paper increases for the holiday season printing of catalogues and
advertising inserts.
<PAGE>
Operating Strategy
Modern Equipment
The Company's modern asset base, along with various ongoing
productivity improvements, allows the Company to maintain its status as a
low cost producer of high quality coated paper.
Product and Fiber Mix Flexibility
The Company has the ability of changing the mix of paper produced on
its W-7 machine between coated freesheet grades in either sheet or roll form.
In addition, the Company's W-5 machine has a "swing design" capability,
allowing it to produce either coated groundwood or freesheet paper. Also,
being only partially fiber integrated facilitates product mix flexibility and
optimization of fiber mix and costs. This flexibility in the production mix
allows the Company to maximize profitability as market conditions change.
Environmental Stewardship
The Company furthered its commitment to recycled coated paper by
converting all of its line of products to include recycled content without
changing the quality of its existing line. Management believes that it is
the only producer of coated paper to have successfully converted its entire
line of coated paper products to include recycled content. In addition, the
Company's recycling facility is expected to provide a significant portion
of its longer term recycled fiber requirements.
Quality
The Company has achieved ISO 9002 certification, an important
benchmark in its strategy of being recognized as a quality leader in the
industry. The International Standards Organization (ISO) 9002 certification
provides a consistent framework for maintaining total quality management
principles at Repap Wisconsin and identifies the Company as a world-class
supplier.
Marketing
The Company's full line of coated paper has enabled it to supply the
complete coated paper needs of many of its customers. In addition, the
Company believes that its use of recycled fibers in all of its coated paper
grades has become a marketing advantage as the public's awareness
of environmental issues has increased.
<PAGE>
The Company sells its products through Repap Sales Corporation
(Repap Sales) on a commission basis, as agent, to end users (such as
printers and magazine publishers), to third-party "merchants" and to
"brokerage" distributors (See Item 13 "Certain Relationships & Related
Transactions"). The Company rarely enters into long-term contracts, which
would fix the list price and discounts at which its products may be sold,
allowing it to take advantage of upturns in market prices while subjecting
it to greater exposure to changes in prices than manufacturers that enter
into such contracts. Sales to WWF Paper Corporation, in which Repap Sales
has an investment in preferred stock, were 18% and 14% of net sales during
1995 and 1996, respectively. Sales to Unisource Worldwide Inc. were 14%
and 15% of net sales during 1995 and 1996, respectively.
With respect to product inventories, the Company generally maintains
inventories at a level required to meet the delivery requirements of its
customers. With respect to order backlogs, at March 24, 1997 the Company
had a total backlog of 48 days in coated groundwood paper and 24 days in
coated freesheet paper as compared to 21 days and 7 days, respectively,
at March 24, 1996. Order backlogs vary on a seasonal basis and are also
impacted by the market demand for paper.
Almost all of the Company's products are sold to customers in North
America, with approximately 40% of product shipments being delivered to
customers within 500 miles of the facility. Substantially all of the
Company's distributions are made from local warehouses. The Company is not
dependent upon a particular mode of transportation in delivering its products.
Approximately 80 percent of its shipments are delivered by truck, and the
remainder are delivered primarily by rail.
Supply Requirements
A basic raw material used by the Company is wood, which is converted
into pulp for use in producing its coated paper products. Although the
Company does not own any timber resources, it operates an on-site hardwood
groundwood pulp mill with an annual design capacity of approximately 45,000
metric tons, which is normally sufficient to meet the Company's groundwood
pulp requirements. Wood used to make the hardwood groundwood pulp is
obtained from approximately 35 independent suppliers in northern Wisconsin
at prevailing market rates and is stored at the facility. From time to
time, hardwood groundwood pulp is purchased from third-party vendors when
the Company's demand exceeds the hardwood groundwood mill's capacity.
The Company's other wood fiber requirements consist of softwood and
hardwood kraft pulp, pre and post consumer recycled fiber and secondary
fiber rolls purchased from third party vendors. The Company's kraft pulp
purchases are made mainly through Repap Enterprises'pulp procurement
department, which negotiates the prices and terms of delivery of the
Company's pulp purchases. The Company's annual requirements of softwood
<PAGE>
kraft are suppliedby Repap Enterprises and its subsidiaries, Repap British
Columbia, Inc. (Repap British Columbia) and Repap New Brunswick Inc.
(Repap New Brunswick), as well as other suppliers that are not affiliated
with the Company, at market prices less a market rate discount. In
addition, the Company purchases hardwood kraft from Repap Enterprises, as
well as on the open market as needed.
Recycled fiber and secondary fiber rolls can be used in place of
kraft pulp in manufacturing coated paper and are acquired by the Company's
purchasing department at market prices. The Company has entered into a
long-term contract with one supplier, terminating in 1998, for approximately
50% of its anticipated usage of post-consumer recycled fiber. The balance of
the post-consumer fiber requirements is provided by the Company's recycling
facility, as well as what is purchased at market prices from three other
suppliers. See Item 2 "Properties".
The majority of the Company's pulp supplies are transported by rail
to the Company's facility. Pulp from Repap British Columbia can also be
delivered by ship to Green Bay, Wisconsin and transported by truck to the
Company's facilities, which are only 30 miles away.
The Company's coating and filler clay requirements are provided by
six suppliers. The Company has a long-term contract, expiring in 1999, with
one of these suppliers and two-year purchase agreements with the remaining
five. In addition, the Company has also entered into supply agreements with
two major calcium carbonate suppliers, which have built manufacturing
plants adjacent to the facility. These suppliers deliver calcium carbonate
fillers to the Company through underground pipelines, providing
cost-effective "just in time" delivery rather than through traditional rail
or trucking shipments. The pricing terms of these supply contracts vary, and
include provisions for annual negotiation of prices and annual price
adjustments in accordance with average market price changes.
Water used for the production of coated paper is drawn from the
Fox River, which runs adjacent to the Company's facility. The Company's
supply of other raw materials-latex, starch, opacifiers and coal is all
under contract with various major suppliers and is delivered to the mill
either by rail or by truck.
The Company believes that it has adequate sources of raw materials
necessary for the manufacture of coated paper for the foreseeable future.
In the event that any of its suppliers is unable to meet the Company's
demands, the Company believes that adequate alternative suppliers or
substitute materials are available.
<PAGE>
Energy Requirements
The Company's energy requirements in 1996 were satisfied through
coal (45% of total requirements), electricity (17%), natural gas (32%),
oil (4%) and wood residue (a by-product of the manufacture of coated paper)
(2%). Coal is supplied by three producers. Of the Company's electricity
requirements, 15% are satisfied through steam turbines owned by the Company,
which operate using steam produced as a by-product of the Company's use of
coal, natural gas, oil and wood residue, and the remainder is purchased from
the power company. Steam is also used in the manufacture of coated paper.
In 1993, the Company entered into an agreement with Wisconsin
Electric Power Company (WEPCO) to construct a cogeneration facility adjacent
to the Company's mill which would have provided steam for its paper making
operations. In late 1993, the Wisconsin Public Service Commission (PSC)
issued an order denying WEPCO's application and chose another cogeneration
project to proceed in lieu of WEPCO's. The Company is contingently liable
for approximately $4.9 million in engineering costs incurred by WEPCO in
the event that the related engineering costs cannot be recovered by WEPCO
through a sale of the equipment or in a comparable project in the future.
Environmental Matters
The Company is subject to increasingly stringent environmental laws,
regulations and standards by federal, state and local authorities, which
impose effluent and emission standards and other requirements on the
Company's operations. These laws and regulations require the Company to
obtain permits and licenses from appropriate governmental authorities with
respect to its mills and to operate its mills in compliance with such permits
and licenses.
Environmental operating expenses amount to approximately 1% of net
sales. The Company's cost of meeting the requirements of applicable
environmental laws and regulations resulted in capital expenditures of
$0.7 million, $0.6 million and $1.3 million in 1994, 1995 and
1996, respectively. The Company estimates that its capital expenditures
necessary to comply with various environmental regulatory requirements in
1997 will be approximately $1.6 million.
CERCLA (Comprehensive Environmental Response Compensation and
Liability Act of 1980) addresses problems by the release of any "hazardous
substance" into the environment. The Company currently uses no extremely
hazardous material in the mill. It is the Company's intention to continue
to remove materials that pose a potential hazard as is practicable. PCB
transformer removal, asbestos removal, mercury containing manometers and
control device removal have all been handled and will continue to be handled
on this basis to eliminate potential liabilities. The Company will continue
to be proactive in this matter.
<PAGE>
In 1989, the EPA commenced the Great Lakes Initiative (the "GLI")
in order to adopt uniform water quality standards in the Great Lakes region.
The proposed regulations have been published and legislation for enactment
is pending. Although it is expected that the GLI will impose more stringent
regulations on all discharges into the Great Lakes and feeding tributaries,
the Company does not believe that the GLI will have a material adverse
effect on its operations or financial condition.
The area in which the Company will be regulated under the EPA
Cluster Rules is conventional pollutants. The Company will be able to
comply with the tighter restrictions with the controls currently in
operation and future capital expenditures will not be necessary.
Although some pollution abatement and solid waste disposal
facilities produce improvements in operating efficiency, most increase
product cost without enhancing capacity or operating efficiency. Since
other paper products companies are also subject to environmental laws and
regulations, the Company does not believe that compliance with such laws and
regulations will have a material adverse effect on its competitive position.
The Company, in March 1996, had been issued a Notice of Violation
(NOV) from the United States Environmental Protection Agency (EPA) regarding
opacity readings from the second quarter of 1995 that relate to two of its
stoker coal fired boilers. In September 1996, the EPA issued another NOV on
a stack test with respect to particulate emissions from 1993. In
December 1996, the Department of Justice (DOJ) notified the Company it would
recommend expeditious settlement of the above opacity and particulate NOVs
by stipulation. The Company met with the DOJ in February 1997 and
negotiated an equitable settlement. The Company has adequately accrued
for the negotiated settlement.
Research and Development
The Company's research objectives generally are to develop new and
improved products, such as higher quality recycled paper, and to develop
better methods of processing materials. The Company has developed a line of
recycled paper grades across a wide spectrum of weights and finishes.
During 1994, 1995 and 1996, the Company spent approximately $0.7 million,
$0.9 million and $1.1 million, respectively, on research and development
activities (including service calls to customers) relating to the
development of new or improved products and processes, the majority of
which is paid to Repap Technologies Inc.(Repap Technologies), a wholly-owned
subsidiary of Repap Enterprises.
<PAGE>
Typical projects undertaken by Repap Technologies include the
enhancement of paper machine and coater performance by determining optimal
refining parameters for groundwood and chemical fibers, assessment of
alternative and more economical components of coatings, bleaching strategies
to improve the optical properties of recycled fiber and improving the
efficiency of paper machine and coater operations by investigating the
causes of incidents that limit productivity. In addition, Repap Technologies
undertakes on-going studies of competitors' products in order to enhance
the competitiveness of the Company's products.
Employees and Labor Relations
The Company's work force fluctuates over the year. At
December 31, 1996, the Company had approximately 1,117 employees (195 of
whom were management and administrative employees and 922 of whom were
hourly employees). Of the Company hourly employees, 901 are represented
by the Papermill Workers Union of Kimberly, Wisconsin, which is an
independent union. The Company has never experienced any work stoppages
or strikes. The current six-year collective bargaining contract expires
on November 30, 2000. The Company believes that its relationship with
its employees is good.
Other
On August 9, 1994, the Company reincorporated from Delaware to
Wisconsin and converted each of its classes of preferred and common stock to
no par value classes of stock. Accordingly, the total number of shares
issued and outstanding and the redemption values per share were adjusted
proportionately to reduce the number of issued shares while maintaining
the aggregate redemption values. The capital stock accounts have been
restated to reflect the conversions.
Subsequent Events
In July 1996, Repap Enterprises engaged investment advisors to explore
strategic alternatives available to Repap Enterprises and its subsidiaries
to maximize shareholder value.
On December 17, 1996 (and as amended March 3, 1997), Avenor Inc. (Avenor)
and Repap Enterprises entered into a Pre-Merger Agreement providing for the
amalgamation of Avenor and Repap Enterprises pursuant to an Amalgamation
Agreement whereby common and preferred stock of Repap Enterprises would
have been exchanged for common stock of Avenor. On March 26, 1997,
Avenor shareholders voted to not approve the proposed amalgamation.
The management of Repap Enterprises is considering what steps to take
following the rejection of the proposed amalgamation by the Avenor
shareholders. Management and the Board of Directors of Repap Enterprises
intend to pursue a strategy that is in the best interest of preserving and
creating value for its shareholders. It is uncertain what, if any, impact
that would have on the Company. See Note 13 of Notes to Consolidated
Financial Statements.
<PAGE>
ITEM 2 PROPERTIES
The Company owns and operates a world-class coated paper complex in
Kimberly, Wisconsin, containing three modern coated paper machines with a
total annual design capacity of 508,000 tons, as well as a bleached hardwood
groundwood pulp mill. In addition, the Company purchased a recycling
facility in 1994 located in Appleton, Wisconsin.
The No. 5 machine (W-5) has an annual design capacity of 109,000
tons. The W-5 machine, based on a "swing design," produces both coated
groundwood and coated freesheet papers in basis weights ranging from 45 to
70 lbs. This complex was built in 1955- 1956 and rebuilt in 1985-1986.
The No. 6 machine (W-6) has an annual design capacity of
145,000 tons. The W-6 machine produces coated groundwood papers for use in
the web offset and rotogravure printing markets in basis weights ranging
from 32 to 50 lbs. This complex was newly constructed in 1980 and 1981.
The No. 7 machine (W-7) has an annual design capacity of 254,000
tons. The W-7 machine produces coated freesheet papers in the No. 1 to
No. 3 range for both web and sheetfed offset printing in basis weights
ranging from 45 to 183 lbs. This complex was constructed in 1987-1988 and
commenced operation in late 1988. The W-7 machine is one of
the North American coated paper industry's largest and fastest medium to
heavy weight coated freesheet paper machines. The broad range of basis
weights that the W-7 machine is able to manufacture makes it one of the
most technologically advanced coated freesheet paper machines in North
America.
The Company's hardwood groundwood pulp mill, which is comprised of
eight grinders connected in pairs, uses peroxide in the bleaching of pulp.
The grinders produce approximately 45,000 metric tons of pulp annually.
Pulp from the grinders can be pumped directly to the Company's paper machine
facilities. Six grinders were installed in 1927, and two were added in
1941. Since 1978, the Company has from time to time upgraded and made
modifications to its pulp mill.
The Company's recycling facility, located on 13 acres, uses office
and other waste paper to make recycled fiber. The facility is currently
producing 80 tons per day and is expected to provide a significant portion
of the Company's longer term recycled fiber requirements.
The Company maintains on-site warehousing for approximately 9,000
tons of pulp, 9,000 tons of work-in-process coated paper rolls, 4,000 tons
of finished sheets and 4,000 tons of finished rolls. Warehouses are also
leased locally by the Company as required to meet its additional storage
needs.
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
1996.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
There is no public market for the stock of the Company. The number
of holders of record of the Company's common stock as of
December 31, 1996 was 1.
<PAGE>
<TABLE>
ITEM 6 SELECTED FINANCIAL DATA
(dollars in millions, except operating data)
<CAPTION>
Year Ended December 31,
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net sales $305.0 $364.3 $418.2 $509.5 $404.7
Operating profit 3.5 36.8 39.5 74.9 26.7
Interest expense and amortization of
financing fees 26.2 26.8 41.6 41.1 40.7
Income (loss) before extraordinary items (27.6) 4.8 (0.4) 26.9 (6.6)
Net income (loss) (27.6) (7.4) 0.6 27.3 (6.6)
Balance Sheet Data
Working Capital $27.7 $49.7 $23.9 $87.5 $53.0
Property, plant and equipment (net) 497.0 486.7 481.8 474.4 468.5
Total assets 596.0 596.5 606.7 655.5 646.6
Total debt (including current maturities) 239.0 252.9 400.0 413.2 414.6
Redeemable preferred stock 85.8 107.4 5.8 5.8 6.4
Common and other shareholders' equity 148.2 125.9 100.9 126.6 119.4
Other Financial Data
Capital expenditures $4.7 $7.7 $15.4 $12.8 $15.7
EBITDA (1) 22.3 62.1 66.2 100.7 50.0
Operating Data
Production (thousands of tons) 401 463 484 489 448
Average production per day (tons) 1,137 1,286 1,336 1,359 1,364
Shipments (thousands of tons) 396 454 514 473 443
<FN>
(1)EBITDA=Operating profit plus depreciation and amortization and the non-cash portion of the charge
for post-retirement benefits costs. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA should not be
considered by an investor as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flows as a measure of liquidity.
</TABLE>
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations - 1996 Compared to 1995
Net Sales
Net sales decreased 21% in 1996 to $404.7 million from $509.5 million
in 1995. The decrease was due to lower prices for the Company's coated
paper as well as lower sales volumes.
Lower pricing resulted in decreased net sales revenue of $72.0
million. On a per ton basis, average net sales decreased $163 per ton or
15%, from $1,077 per ton in 1995 to $914 per ton in 1996. Net sales per ton
decreased steadily throughout 1996 but the majority (94%) of the decline
occurred in the first three quarters of the year . Pricing stabilized in the
fourth quarter in the wake of improved sales volumes, decreased inventory
levels and increased order backlogs.
Lower sales volume resulted in decreased net sales revenue of $32.8
million. Shipments decreased 30,438 tons or 6%, from 472,946 tons in 1995 to
442,508 tons in 1996. However, after a difficult first quarter, sales
volumes improved steadily throughout the remainder of 1996. Shipments
increased 55,852 tons or 29%, from 193,328 tons in the first half of 1996
to 249,180 tons in the second half of 1996. The last four months of 1996
accounted for 40% of total shipments for 1996.
Cost of Sales, other than Depreciation and Amortization
Cost of sales, other than depreciation and amortization, amounted
to $333.2 million for 1996, a $54.5 million decrease over 1995. The
decrease in cost of sales resulted from a decrease in production costs,
amounting to $29.6 million, combined with reduced sales volume, amounting
to $24.9 million. On a per ton basis, cost of sales decreased $67 per ton
to $753 per ton for 1996 compared to $820 per ton in 1995. As a percentage
of net sales, cost of sales increased from 76% in 1995 to 82% in 1996,
reflecting the fact that decreases in sell price outpaced decreases in costs.
One factor negatively impacting costs was 36 days of market and maintenance
related downtime taken by the Company in 1996. It is estimated that this
downtime negatively impacted costs by approximately $15 per ton.
The decrease in production cost noted above was due mainly to decreased
fiber cost combined with rigorous cost control. Fiber accounted for
approximately 40% of the Company's total 1996 production cost. After
reaching record highs in the later part of 1995, fiber prices plummeted
during the early part of 1996. The market price for northern softwood
kraft reached a high of $985 per air dry metric ton (ADMT) in October of
1995, after which the price dropped to $520/ADMT by April 1996 before
<PAGE>
rebounding somewhat to $580/ADMT by December 1996. A similar story for
northern hardwood kraft pulp which hit a record price of $860/ADMT in 1995
before dropping to $400/ADMT by April 1996 and then rebounded to
$505/ADMT by December 1996. Due to high inventories of pulp, built up
during the second half of 1995 in anticipation of higher pulp prices, the
Company was unable to take full advantage of lower market pulp prices until
the third quarter of 1996.
Depreciation and Amortization
The Company uses a unit of production method for most of its
machinery and equipment. As a result, depreciation and amortization
fluctuate with the level of production. Depreciation and amortization
totaled $22.6 million in 1996 as compared to $21.6 million in 1995. See
Note 1 of Notes to Consolidated Financial Statements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $3.1 million
to $22.2 million in 1996 from $25.3 million in 1995. The decrease was
primarily caused by decreased selling commissions due to lower net sales
in 1996.
Interest Expense and Amortization of Financing Fees
Interest expense and amortization of financing fees of $40.7 million
in 1996 remained comparable to the $41.1 million reported in 1995. See
Liquidity and Capital Resources and Note 4 of Notes to Consolidated
Financial Statements.
Other Income
Other income was $5.2 million in 1996 compared with $1.2 million in
1995. The increase in 1996 relates primarily to interest income on forward
purchases contracts of pulp to be received in the form of additional pulp on
the forward purchases contracts.
<PAGE>
Income Taxes
The Company recorded an income tax benefit of $2.3 million in 1996,
partially offset by a $0.7 million change in the valuation allowance
relating to prior year's net operating losses. The Company has not assumed
any future income in determining the necessary valuation allowances for the
various carryforwards. See Note 10 of Notes to Consolidated Financial
Statements.
Results of Operations - 1995 Compared to 1994
Net Sales
Net sales increased 22% in 1995 to $509.5 million from $418.2
million in 1994. The increase was due mainly to higher prices for the
Company's coated paper products. Higher pricing resulted in increased net
sales revenue of $124.6 million. On a per ton basis, net sales increased
$263 per ton or 32%, from $814 per ton in 1994 to $1,077 per ton in 1995.
Due to a continuing strong demand for coated paper caused by an advancing
economy and limited additional capacity, coated paper pricing continued
the upward trend started in July of 1994. In addition, general price
discounts on freesheet web and groundwood grades were virtually eliminated
in 1995.
Partially offsetting the increase in net sales caused by higher net
sell prices was a reduced sales volume. Shipments decreased 40,894 tons or
8%, from 513,840 tons in 1994 to 472,946 tons in 1995. This reduced sales
volume resulted in decreased net sales revenue of $33.3 million. Shipments
in 1994 were bolstered by a 30,000 ton inventory reduction
which reduced inventories to normal operating levels by the end of 1994.
Inventories were maintained at normal operating levels throughout most of
1995.
Cost of Sales, other than Depreciation and Amortization
Cost of sales, other than depreciation and amortization,
amounted to $387.7 million for 1995, a $53.2 million increase over 1994.
The increase in cost of sales, other than depreciation and amortization,
resulted from an increase in production costs which amounted to $79.8
million, partially offset by reduced sales volume which lowered total cost
of sales by $26.6 million. The increase in production cost was due mainly
to an increase in fiber cost (fiber accounted for 40-50% of the Company's
total 1995 production cost). On a per ton basis, cost of sales, other than
depreciation and amortization, increased $169 per ton to $820 per ton for
1995 compared to $651 per ton in 1994. As a percentage of net sales, cost
of sales, other than depreciation and amortization, decreased from 80% in
1994 to 76% in 1995, reflecting the fact that sell price increases
outpaced increases in costs.
<PAGE>
Continued strong demand and the lack of additional supply drove
fiber prices to record highs in 1995. Market prices for northern softwood
kraft pulp increased from $700/ADMT in December 1994 to $985/ADMT in
October 1995 (41% increase) before declining to $935/ADMT in December 1995.
A similar story for northern hardwood kraft pulp which increased from
$640/ADMT in December 1994 to $860/ADMT in June 1995 (34% increase) before
declining to $840/ADMT in November and declining further to $820/ADMT in
December 1995. Recycled fiber prices peaked in May, 32% higher than
December 1994, and then steadily declined through December 1995,
finishing the year 15% higher than year-end 1994. Broke prices also
peaked in May, 34% higher than December 1994, and then steadily dropped
through December 1995, finishing the year 15% lower than year-end 1994.
Depreciation and Amortization
The Company uses a unit of production method for most of its
machinery and equipment. As a result, depreciation and amortization
fluctuate with the level of production. As a result, depreciation and
amortization fluctuate with the level of production. Depreciation and
amortization totaled $21.6 million in 1995 as compared to $22.8 million
in 1994. See Note 1 of Notes to Consolidated Financial Statements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.8 million
to $25.3 million in 1995 from $21.5 million in 1994. The increase was
primarily caused by increased selling commissions due to higher net sales
and, to a lessor extent, compensation adjustments due to the increased
profitability in 1995.
Interest Expense and Amortization of Financing Fees
Interest expense and amortization of financing fees of $41.1 million
in 1995 remained comparable to the $41.6 million reported in 1994. See
Liquidity and Capital Resources and Note 4 of Notes to Consolidated
Financial Statements.
Other Income
Other income was $1.2 million in 1995 compared with $0.4 million in
1994. The increase in 1995 relates primarily to interest received on a
forward purchase contract of pulp.
<PAGE>
Income Taxes
The Company recorded an income tax provision of $7.9 million in 1995,
including an income tax benefit of $4.5 million due to the effect of the
change in the valuation allowance from recognition of prior years' net
operating losses. The Company has not assumed any future income in
determining the necessary valuation allowances for the various carryforwards.
See Note 10 of Notes to Consolidated Financial Statements.
Extraordinary Items
In 1995, the Company repurchased $8.0 million of the Second Priority
Notes for $7.4 million. The purchase resulted in an extraordinary gain of
$0.4 million, net of income taxes of $0.2 million. The extraordinary gain
of $1.1 million in 1994 related to the Company's repurchase of $15.0 million
of the Second Priority Notes for $13.2 million, net of income taxes of $0.7
million.
Liquidity and Capital Resources
The Company's primary sources of liquidity are net cash provided by
operating activities and the funds available under its revolving credit
facility. During 1996, capital additions of $15.7 million were funded
principally by cash provided by operating activities of $15.4 million and
net borrowings under the revolving credit facility of $0.3 million. In
comparison, 1995 capital additions of $12.8 million, debt repayments of
$7.5 million and dividend payments on the Class I and Class II Preferred
Stock of $0.5 million and $1.1 million, respectively, were funded
principally by net borrowings under the revolving credit facility of
$20.5 milllion and cash provided by operating activities of $1.4 million.
On February 8, 1994, the Company completed a public note offering
of $250 million, 9 % First Priority Senior Secured Notes (First Priority
Notes) and $150 million 9 7/8% Second Priority Secured Notes (Second
Priority Notes). The First Priority Notes mature on February 1, 2002,
and the Second Priority Notes mature on May 1, 2006. The Company used
the proceeds from the offering of $388 million (net of offering costs of
$12.0 million) to repay the First Mortgage Bonds (including premium, fees
and accrued interest), to purchase 75,000 shares of the Class I Preferred
Stock (including accrued dividends), to repay the noncurrent liabilities
to affiliates, to make a cash distribution to Repap USA Inc. (Repap USA)
and to reduce the amount outstanding under the revolving credit facility.
The refinancing resulted in a simplified capital structure, extended debt
maturities, and provided the Company with improved liquidity to meet its
ongoing funding requirements, which principally consist of amounts required
for working capital and capital expenditures.
<PAGE>
Net cash provided by operating activities was $15.4 million in 1996,
$1.4 million in 1995 and $48.7 million in 1994. Cash provided by operating
activities before changes in operating assets and liabilities was $11.2
million, $61.6 million and $26.5 million in 1996, 1995 and 1994,
respectively. The $50.4 million decrease in 1996 was due primarily to
lower operating profits, reflecting decreased coated paper prices and
six percent lower shipments. The $35.1 million increase in 1995 was due
primarily to improved operating profits as a result of higher coated
paper prices, partially offset by an eight percent decrease in shipments.
In 1996, working capital decreased by $34.5 million, from
$87.5 million at December 31, 1995 to $53.0 million at December 31, 1996.
The decrease was primarily the result of a $35.2 million reclassification
from other current assets to other noncurrent assets in which forward
purchase contracts for the future delivery of pulp, originally scheduled
to be delivered in 1996, were re-negotiated with delivery to be completed
through 1998. See Note 2 of Notes to Consolidated Financial Statements.
The decrease in inventories of $7.0 million primarily reflects a decrease
in finished goods as a result of paper machine related downtime and a 27
percent increase in fourth quarter shipments to customers, compared with
the fourth quarter of 1995. The changes in the other working capital items
principally reflect the timing of payments.
At December 31, 1995 working capital amounted to $87.5 million, up
$63.6 million over the same period of 1994. This increase was primarily a
result of an increase in inventories of $39.4 million together with an
increase in forward purchase contracts of pulp of $24.5 million, partially
offset by a decrease in accounts receivable of $5.9 million. The increase
in inventories primarily reflects a build in fiber inventory, assuring the
Company of an adequate supply, and an increase in freesheet paper inventory.
The increase in freesheet paper inventory and the decrease in accounts
receivable was primarily due to reduced sales in the fourth quarter of
1995, compared with the fourth quarter of 1994. At December 31, 1995,
the balance outstanding under the forward purchase pulp contracts was
$36.0 million.
In 1994 and 1995, the Company repurchased $15.0 million and
$8.0 million of the Second Priority Notes for $13.2 million and $7.4
million, respectively. The purchases resulted in extraordinary gains
of $1.1 million in 1994 and $0.4 million in 1995, net of income taxes
of $0.7 million and $0.2 million, respectively.
In March 1996, the revolving credit facility lenders of the Company
agreed to increase the maximum available credit under this facility by $10
million to $70 million, and to extend its maturity to March 1998.
Accordingly, borrowings under the revolving credit facility have been
classified as long-term debt. The Company will pay interest under this
facility at prime plus .75% or LIBOR plus 2% and will be charged a
commitment fee of .375% per year on the unused portion. Under the
expiring facility, the Company was paying interest at the rate of prime plus
2%. At December 31, 1996 the Company had $32.4 million in available
capacity under the existing revolving credit facility.
<PAGE>
At the end of 1996, authorized but uncompleted capital commitments
totaled $1.4 million. For 1997, a capital budget has been approved for new
projects in the amount of $7.7 million. This will result in planned capital
spending of $9.1 million in 1997 and compares with expenditures of $15.7
million in 1996. The 1997 budget includes expenditures primarily related
to improvements to the Company's papermaking and converting equipment.
Additionally, the Company from time to time enters into operating lease
agreements for various papermaking and other equipment necessary for
mill operations. The Company does not anticipate entering into
any new material operating lease agreements in 1997, compared with
$0.9 million entered into in 1996. See Note 4 of Notes to Consolidated
Financial Statements for disclosure of future minimum lease payments.
Current financial resources and anticipated funds from operations
are expected to be adequate to meet cash requirements in the year ahead.
The Company's principal use of funds for the next several years will be
for the repayment of indebtedness under the revolving credit
facility, capital expenditures, the payment of dividends to the extent
they become allowable under the Indentures to the Company's Notes,
support of the Company's working capital requirements and to repurchase
in the open market, from time to time when market conditions are favorable,
the Company's First and Second Priority Notes.
The First and Second Priority Notes and the revolving credit
facility impose certain limitations on the Company's ability to incur
additional indebtedness and make restricted payments. Refer to Note 4 of
Notes to Consolidated Financial Statements for a description of
other covenants under the terms of the Company's debt agreements.
Refer to Note 10 of Notes to Consolidated Financial Statements for a
description of certain matters related to income taxes.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are listed in Part
IV Item 14 of this Form 10-K.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
<TABLE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to
the persons who are members of the Board of Directors or executive officers
of the Company.
<CAPTION>
<S> <C> <C>
Name Age Position(s) Held
George S. Petty 63 Chairman and Director
Ronald H. Sumner 64 Executive Vice-President and Director
Gary B. Fenton 56 Senior Vice-President, Coated Paper Operations
Terry W. McBride 54 Secretary
Timothy J. Morgan 47 Senior Vice-President and Controller
Coated Paper Operations
Gaynor L. Nash 45 Vice-President and General Manager
John W. Unkefer 52 Vice-President and Controller
</TABLE>
The business experience of each of the Directors and executive
officers of the Company during at least the past five years is as follows:
Mr. Petty has served as Chairman and Director since May 1976. Mr.
Petty also serves as Director and Chairman and Chief Executive Officer of
Repap Enterprises and is a Director and Chief Executive Officer of Repap
British Columbia, positions he has held since September 1986. In addition,
he has served as Chief Executive Officer and Director of
Repap New Brunswick since October 1974.
Mr. Sumner has served as Executive Vice President and Director
since September 1982. Mr. Sumner also serves as Director and Executive
Vice-President, Finance of Repap Enterprises and Repap British Columbia,
positions he has held since September 1986. Furthermore, he has served
at Repap New Brunswick as Executive Vice-President, Finance
since February 1982 and as Director since April 1986.
<PAGE>
Mr. Fenton has served as Senior Vice-President, Coated Paper
Operations, since October 1992. Prior to that date, Mr. Fenton served as
Vice-President and General Manager of the Company, positions he held since
November 1987. Mr. Fenton also serves as Senior Vice-President, Coated
Paper Operations, of Repap Enterprises and Repap New Brunswick,
positions he has held since October 1992.
Mr. McBride has served as Secretary since February 1989. Mr.
McBride also serves as Vice-President, General Counsel and Secretary of
Repap Enterprises, positions he has held since February 1989.
Mr. Morgan has served as Senior Vice-President and Controller,
Coated Paper Operations, at the Company and Repap New Brunswick,
since October 1993. Mr. Morgan joined the Company as Vice-President and
Controller in July 1989.
Mr. Nash has served as Vice-President and General Manager since
December 1993 and as Vice-President and Mill Manager since October 1992.
Mr. Nash joined the Company as manager of the W-7 machine facilities in
June 1988 and was appointed Mill Manager in 1989.
Mr. Unkefer has served as Vice-President and Controller since
November 1993. Prior to that date, Mr. Unkefer served as Assistant
Controller since April 1990.
The Directors and Officers are elected annually to serve until the
next annual meeting of stockholders and until their successors have been
elected and duly qualified.
There are presently no arrangements pursuant to which Directors
of the Company are compensated for their services as Directors of the
Company. See Item 11; "Executive Compensation."
Conflicts of Interest of Directors and Executive Officers of the Company
All of the directors and executive officers of the Company, other
than Mr. Nash and Mr. Unkefer, also serve as directors or executive officers
of Repap Enterprises and/or other affiliates of the Company. See
"Relationship with the Repap Enterprises Group."
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
Pursuant to a management agreement, the Company is charged a monthly
fee of $0.4 million for management services provided by Repap Enterprises.
See "Relationship with the Repap Enterprises Group." None of the Company's
officers, other than Mr. Fenton, Mr. Morgan, Mr. Nash and Mr. Unkefer,
is compensated by the Company. Mr. Petty and three of the four most
highly compensated officers of the Company for the year ended December 31,
1996 (the "named executive officers") are officers of Repap Enterprises,
from which they receive compensation, and are also officers of other
subsidiaries of Repap Enterprises. Executive officer compensation is
determined by the Board of Directors of Repap Enterprises, including
certain of the named executive officers. Repap Enterprises does not
allocate the amount of compensation that each such named executive officer
receives for such officer's services to the Company. Under the Company's
employee-wide profit-sharing plan, only Mr. Fenton, Mr. Morgan, Mr. Nash and
Mr. Unkefer received compensation in fiscal 1996.
The following table sets forth certain information with respect to
the annual compensation of the Company's Chairman and each of the Company's
four other most highly compensated executive officers for fiscal 1996.
<PAGE>
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------- -------------
Name and Principal Stock Options All Other
Position Year Salary ($) Bonus ($) (3) Granted Compensation ($) (1) (4)
<S> <C> <C> <C> <C> <C>
George S. Petty (2) 1996 600,000 CDN 435,349 408,000 CDN
Chairman and Chief 1995 643,107 CDN 800,000 CDN 1,000,000 204,000 CDN
Executive Officer 1994 641,475 CDN 304,000 CDN
Ronald H. Sumner 1996 400,000 CDN 46,175 CDN (5)
Executive Vice President 1995 400,000 CDN 875,000 CDN 4,000 CDN
Finance 1994 350,000 CDN 297,000 CDN 100,000 4,000 CDN
Gary B. Fenton (2) 1996 225,000 56,862 8,164 (5)
Senior Vice President 1995 214,585 230,000
Coated Paper Operations 1994 200,000 100,000
1996 260,000 CDN 9,396 CDN (5)
Terry W. McBride 1995 260,000 CDN 258,000 CDN 48,000
Secretary 1994 245,000 CDN 70,000 CDN
Gaynor L. Nash 1996 168,000 2,938 (5)
Vice President and 1995 164,080 184,400 42,462 1,524
General Manager 1994 158,592 60,000
<FN>
1. Amounts in this column represent directors fees except for amounts paid
to Mr. Fenton and Mr. Nash as profit sharing and except for the amount
of $300,000 paid in 1994 to George S. Petty Management Ltd. (formerly
Trenholme Park Capital Corporation (TPCC), a corporation controlled
by Mr. Petty, representing a guarantee fee with respect to a guarantee
of a subsidiary's indebtedness in favour of that subsidiary's
bankers; and the amounts of $200,000 and $401,000 were paid to George
S. Petty Management Ltd. in 1995 and 1996, respectively, for
services rendered to Repap including the use of George S. Petty
Management Ltd.'s properties for company functions.
2. As part of the Corporation?s long term incentive plan 1995 bonus,
435,349 options earned in 1995 were granted in April, 1996 to George S.
Petty at an exercise price of $5.375 CDN and 56,862 options granted
to Gary B. Fenton at an exercise price of $6.50 CDN . Mr. Petty has
elected to take the entire long term plan 1995 bonus in stock options.
3. Amounts in this column include amounts of $800,000 CDN, $180,000,
$258,000 CDN and $134,400 to be paid over two years to
Mr. Sumner, Mr. Fenton, Mr. McBride and Mr. Nash, respectively, for
bonuses earned in 1995 pursuant to the Corporation's long term
incentive plan.
4. Perquisities and other personal benefits do not exceed the lesser of
$50,000 and 10% of the total of the annual salary and bonus of the
named executive officers.
5. Includes amounts of $39,175 CDN, $8,164, $9,396 CDN and $2,938
representing interest on unpaid bonuses paid to Mr. Sumner,
Mr. Fenton, Mr. McBride and Mr. Nash, respectively.
</TABLE>
The following table sets forth individual grants of stock options during the
fiscal year ended December 31, 1996. Mr. Petty and Mr. Fenton were the only
officers to receive such options in 1996.
<PAGE>
<TABLE>
Option Grants During The Most Recently Completed Fiscal Year
<CAPTION>
% of Total Options
Securities Under Granted To Exercise Market Value of
Options/SAR's Employees In Price Underlying Options on the Expiration
Name Granted (#) Fiscal Year ($) Date of Grant ($/Security) Date
<S> <C> <C> <C> <C> <C>
George S. Petty(1) 435,349 20.98% 5.375 CDN 5.375 CDN April, 2006
Gary B. Fenton(1) 56,862 2.66% 6.500 CDN 6.500 CDN Dec, 2005
<FN>
1. As part of the Corporation's long term Incentive plan 1995 bonus, 435,349 options were granted to George S. Petty and
56,862 options granted to Gary B. Fenton in April 1996 at an exercise price of $5.375 CDN and $6.50 CDN, respectively,
but were earned in 1995.
</TABLE>
The following table sets forth details of all exercises of stock options by
each of the named executive officers of the Corporation during the fiscal
year ended December 31, 1996 and the fiscal year end value of unexercised
options on an aggregated basis.
<TABLE>
Aggregated Option/SAR
Exercises in Fiscal 1996
and 1996 Fiscal Year-End Option/SAR Values
<CAPTION>
Value of Unexercised
Unexercised in-the-money
Options/SARs at Options/SARs at
FY-End(#) FY-End(1) ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
George S. Petty 0 0 1,435,349/0 0/0
Gary B. Fenton 0 0 256,862/0 0/0
Ronald H. Sumner 0 0 300,000/0 0/0
Terry B.McBride 0 0 223,000/0 0/0
Gaynor L. Nash 0 0 142,462/0 0/0
<FN>
1. Based on the closing price on the Toronto Stock Exchange of the Common Shares ($3.87 CDN) on
December 31, 1996.
</TABLE>
<PAGE>
Long-Term Incentive Plan - Effective for the year ending December 31, 1995,
a long-term incentive paln, based on return on common shareholder equity,
has been established to reward executive team efforts that benefit the
Corporation's shareholders. The long-term incentive plan has both a cash
and a stock option component.
The first component establishes bonuses for participating executives based
upon salary levels, responsibility and return on equity ("ROE").
The Corporation must achieve a level of 8% ROE before any bonuses under the
long-term incentive plan can be earned. At 8% ROE, bonuses range from 2%
of base salary (at the lowest eligible executive position) up to 6% of
salary. For each one percentage increase of ROE up to and including 22%
ROE, the bonuses increase form 2% to 6% of salary. Thereafter for
each percentage increase of ROE, bonuses only increase by 1.25% to
3.75% of salary. For 1995 only, the ROE bonuses have been capped at 30% ROE.
The second component provides the executive with the opportunity to
participate in the equity of the Corporation. Executives are awarded
options under the Corporation's 1987 Stock Option Plan to acquire Common
Shares having a value equal to 150% of the long-term incentive cash bonus.
Outstanding options previously granted to executives are not taken into
account in determining the number of new options to be
granted. Executives over 55 are entitled to receive all of the option
portion of their long-term incentive plan benefit in stock options under
the Corporation's 1991 Stock Option Plan. Options under the 1987 Stock
Option Plan vest over a period of five years and are exercisable over ten
years. Options under the 1991 Stock Option Plan vest immediately and are
exercisable over five years. The exercise price payable for each Common
Share covered by an option will be 100% of the market price of a
Common Share on the last trading day prior to the effective date of the
grant of each option.
Pension Benefits
Prior to 1996, Repap Enterprises did not have a pension plan for its head
office executives and employees except for Mr. R.H. Sumner. Effective
with the year 1996, a pension plan has been established pursuant to which
head office employees at Repap Enterprises, including executives, will
be entitled at time of retirement (age 65), based on years of service
(with past service recognized) to receive a pension of up to 60% of
their average best three years base salary, excluding bonuses. The pension
will be partially funded up to the maximum tax deductible limit
allowable by Revenue Canada. Any excess will be provided by an unfunded
supplementary plan. The estimated credited years for each of the four
named executive officers are: George S. Petty, 16 years - Terry W. McBride,
8 years - Gary B. Fenton, 16 years - Ronald H. Sumner, 16 years.
<PAGE>
Other
In February 1991, Ronald H. Sumner received a personal demand loan from
Repap Enterprises bearing interest at the rate of 8.5% per annum.
In April 1994, Mr. Sumner received an additional loan of $140,000 which
was repaid in December 1994. During 1996, the largest aggregate amount
of debt outstanding was $697,107 including interest. For 1996 the
interest charged was established at the rate of 5% per
annum. As at December 31, 1996 the amount outstanding, including
interest, was $657,933.
Employment, Change-In-Control and Service Agreements
Repap Enterprises has entered into change-in-control agreements dated as of
June 17, 1996 with George S. Petty, Chairman and Chief Executive Officer,
Ronald H. Sumner, Executive Vice-President, Finance, Gary B. Fenton,
Senior Vice-President, Coated Paper Operations and Terry W. McBride,
Secretary. These agreements replace similar agreements entered into in
1992. These agreements provide that in the event of an
involuntary termination of employment within two years following a change
in control of Repap Enterprises, the executives will be entitled to
receive 30 days written notice (other than George S. Petty) and
compensation (the "Termination Payment") equal to 3 times the annual salary
of the executive. Mr. Petty will also be entitled to the
Termination Payment if he voluntarily terminates his employment with Repap
Enterprises at any time within 30 days following a period of six months
after the change in control of Repap Enterprises. For the purpose of
determining such payments, it shall be the highest of his annual salary
in the three years preceding the date of the change in control of Repap
Enterprises.
The agreements also provide that the executive will be entitled to terminate
his employment within a two-year period and receive the Termination Payment
in the event of either a reduction in authority or duties, a change of the
city of employment or a reduction in compensation of benefits. Each of the
named executives is entitled upon termination to benefits continuation
together with credit for service under Repap Enterprises pension plans
for additional numbers of years ranging up to five years
depending on the executive officer. All Repap Enterprises Stock Options
held by such executives have become immediately vested and exercisable.
<PAGE>
Repap Enterprises has also entered into agreements with certain other
executives and key employees. These agreements provide that in the event of
an involuntary termination or employment within two years following a change
in control of Repap Enterprises, the employees will be entitled to receive
30 days' written notice and Termination Payments equal to, depending on the
employee, the product of a number of years varying between one and three
and the employee's highest salary in the one to three years preceding the
change of control of Repap Enterprises. Each person is entitled upon
such termination to benefits continuation. All Repap Enterprises Stock
Options held by each such employee have become immediately vested and
exercisable on September 25, 1996.
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning the
beneficial ownership of the Company's voting securities.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class (1) Beneficial Owner Ownership of Class
<S> <C> <C> <C>
Common Stock Repap Enterprises, Inc. 105 100%
of the Company 1250 Rene Levesque Blvd
no par value Montreal, Quebec, Canada
H3B 4W8
Common Stock Repap USA, Inc. 105 100%
of the Company 433 North Main Street
no par value Kimberly, WI 54136
<FN>
(1) Repap Enterprises owns 100% of the Common Stock, no par value, of
Repap USA, which owns 100% of the Company's voting stock.
</TABLE>
<PAGE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH THE REPAP ENTERPRISES GROUP
The Company is an indirect wholly-owned subsidiary of Repap
Enterprises Inc., an integrated North American forest products company and
one of North America's largest manufacturers of coated paper based on
design capacity in place at December 31, 1996.
The following chart shows Repap Enterprises' principal subsidiaries,
all of the common stock of which is directly or indirectly wholly-owned by
Repap Enterprises as of December 31, 1996.
<TABLE>
<CAPTION>
Repap
Enterprises
Inc.
<S> <C> <C> <C> <C> <C>
I I I I I I
Repap USA Repap Repap Repap Repap Alcell
Inc. New Brunswick British Manitoba Technologies Technologies
Inc. Columbia Inc. Inc. Inc.
Inc.
/ \
Repap Repap
Wisconsin Sales
Inc. Corporation
<CAPTION>
</TABLE>
As described below, the Company has historically engaged in
transactions with certain of its affiliates in the ordinary course of
its operations. The Company has marketed all of its coated paper products
through Repap Sales (which also markets paper products for Repap New
Brunswick) and, in connection with its marketing efforts,
Repap Sales has warehoused certain of these products. A significant
amount of the Company's pulp requirements have been supplied by Repap
Enterprises, Repap British Columbia and Repap New Brunswick. In addition,
much of the Company's research and development activities have been
conducted through Repap Technologies, which also has assisted in service
calls to customers.
<PAGE>
Pulp and Paper Purchases
The Company purchases pulp at market prices (less volume discounts)
directly from Repap Enterprises, Repap British Columbia and Repap New
Brunswick, as well as from various non-affiliates. These purchases have
varied from month to month, depending on the Company's raw material
inventories and production requirements. During 1996, the Company's pulp
purchases from Repap Enterprises, Repap British Columbia and Repap New
Brunswick, including deliveries under forward purchase contracts, were
$6.8 million, $25.7 million and $18.4 million, respectively. In addition,
the Company purchased $0.2 million of coated paper from Repap New
Brunswick to facilitate roll rewinding and returns of coated paper from
customers.
In 1995, the Company entered into forward purchase contracts with
Repap British Columbia and Repap Enterprises for the future delivery of pulp.
At December 31,1996 the balances remaining under these contracts with Repap
British Columbia and Repap Enterprises were $24.7 million and $10.5 million,
respectively. At December 31, 1996, the forward purchase contracts were
re-negotiated and the remaining balances are scheduled to be delivered
through 1998. See Note 2 of Notes to Consolidated
Financial Statements.
Repap Sales
Repap Sales is the principal sales agent for the Company for which
it receives a commission of 2 1/2% of the sales price of coated paper sold
by Repap Sales. These commissions cover expenses relating to the general
marketing, sale and distribution of coated paper products and were $10.1
million in 1996. In addition, during 1996 the Company reimbursed Repap
Sales for specific marketing related costs in the amount of
$2.4 million.
The Company made coated paper sales to Repap Sales in the amount of
$23.2 million in 1996 for the purpose of serving several customers through
strategically located distribution centers. In addition, during the year
the Company charged $1.3 million to Repap Sales for costs incurred with
data processing and accounting assistance.
Repap Technologies
Repap Technologies allocates to the Company research and
development expenses incurred in connection with the development and
testing of new products, raw materials and production processes on the
Company's behalf. Repap Technologies also assists in service calls to the
Company's customers. For these services, the Company was charged $1.1
million in 1996.
<PAGE>
Repap Enterprises
Repap Enterprises' provides services to the Company, including
but not limited to, advice and assistance concerning the strategy,
planning, operations and financing of the Company. For these services,
the Company was charged $5.0 million in 1996. In addition, Repap Wisconsin
was allocated a portion of the actual cost of the Repap
Enterprises' corporate aircraft, which totaled $0.5 million in 1996.
Repap USA
Repap USA, a holding company, was advanced $4.5 million by the
Company in 1993 bearing market rate interest and payable on demand.
The interest charged to Repap USA on this advance in 1996 totaled
$0.4 million.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Consolidated Financial Statements of
Repap Wisconsin Inc.
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Common and Other F-4
Shareholders' Equity
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts S-1
The following schedules are omitted as not applicable
or not required under rules of Regulation S-X: I, III,
IV, and V
3. Exhibits
The exhibits to this report are listed in the exhibit
index elsewhere herein.
(b) Reports on Form 8-K
No reports on Form 8-K were file by the Company during
the last quarter of 1996.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Repap Wisconsin, Inc.
We have audited the accompanying consolidated balance sheets of Repap
Wisconsin, Inc. (the Company) as of December, 31 1995 and 1996, and the
related consolidated statements of operations, common and other shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. Our audits also included the financial statement schedule
listed in the index at Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 the Company
at December 31, 1995 and 1996 and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Milwaukee, Wisconsin ERNST & YOUNG LLP
January 14, 1997, except for
Note 13, as to which the
date is March 26, 1997
<PAGE>
REPAP WISCONSIN INC.
CONSOLIDATED BALANCE SHEETS
December 31
1995 1996
(In Thousands,
Except Number of
Shares)
Assets (Note 4)
Current assets:
Cash $ 11 $ 42
Accounts receivable, less allowances of
$1,668 and $1,706, respectively (Note 9) 35,571 32,102
Accounts receivable from affiliates (Note 56 9,449
7)
Advances to affiliates (Notes 7 and 12) 4,500 4,500
Inventories (Note 2) 84,589 77,545
Other current assets (Note 2) 36,684 1,155
Total current assets 161,411 124,793
Net property, plant and equipment (Note 3) 474,378 468,518
Deferred charges and other assets (Note 2) 19,723 53,266
$655,512 $646,577
Liabilities and shareholders_ equity
Current liabilities:
Current maturities of long-term debt $ 26 $ _
(Notes 4 and 12)
Accounts payable 37,850 37,271
Accrued liabilities (Note 2) 24,459 21,417
Accounts payable to affiliates (Note 7) 11,547 13,065
Total current liabilities 73,882 71,753
Long-term debt (Notes 4 and 12) 413,189 414,609
Deferred income taxes (Note 10) 24,301 21,889
Accrued postretirement benefit liability 11,757 12,509
(Note 8)
Commitments and contingency (Notes 4 and
11)
Class I Preferred Stock (Notes 5 and 12) 5,828 6,405
Common and other shareholders' equity
(Notes 4 and 6):
Class II Preferred Stock, no par value,
200 shares authorized; 103.65 shares
issued and outstanding ($11,766 10,365 10,365
redemption value)
<PAGE>
Class III Preferred Stock, no par value,
800 shares authorized; 539.94 shares
issued and outstanding ($53,994 53,994 53,994
redemption value)
Class IV Preferred Stock, no par value,
700 shares authorized; 483.25 shares
issued and outstanding ($48,325 48,325 48,325
redemption value)
Common Stock, no par value, 300 shares
authorized; 105 shares issued and 33,126 33,126
outstanding
Accumulated deficit (19,255) (26,398)
Total common and other shareholders' 126,555 119,412
equity
$655,512 $646,577
<PAGE>
REPAP WISCONSIN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
1994 1995 1996
(In Thousands)
Net sales (Notes 7 and 9) $418,163 $509,475 $404,657
Cost of sales excluding
depreciation and amortization 334,473 387,655 333,163
(Notes 7 and 8)
Depreciation and amortization 22,778 21,645 22,582
Selling, general and
administrative expenses (Note 21,453 25,319 22,211
7)
Operating profit 39,459 74,856 26,701
Interest expense 40,052 39,449 39,035
Amortization of deferred 1,515 1,686 1,692
financing costs
Other income (Note 2) (371) (1,155) (5,197)
Income (loss) before income
taxes and extraordinary items (1,737) 34,876 (8,829)
Income tax provision (benefit) (1,291) 7,937 (2,263)
(Note 10)
Income (loss) before (446) 26,939 (6,566)
extraordinary items
Extraordinary items, net of tax 1,062 363 _
(Note 4)
Net income (loss) $ 616 $27,302 $ (6,566)
<PAGE>
<TABLE>
Repap Wisconsin, Inc.
Consolidated Statements of Common and Other Shareholders' Equity
<CAPTION>
Class Class Class IV Additional
II III
Pref. Pref. Pref. Common Paid-In Accumulated
Stock Stock Stock Stock Capital Deficit Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 1 $ 5 $ 5 $ 11 $164,780 $(38,914) $125,888
Dividends on Class I Preferred - - - - - (1,801) (1,801)
Stock
Dividends on Class II Preferred - - - - - (4,794) (4,794)
Stock
Distribution to common - - - - (18,992) - (18,992)
stockholder
Exchange of shares in connection
with reincorporation 10,364 53,989 48,320 33,115 (145,788) - -
Net income - - - - - 616 616
Balance, December 31, 1994 10,365 53,994 48,325 33,126 - (44,893) 100,917
Dividends on Class I Preferred - - - - - (576) (576)
Stock
Dividends on Class II Preferred - - - - - (1,088) (1,088)
Stock
Net income - - - - - 27,302 27,302
Balance, December 31, 1995 10,365 53,994 48,325 33,126 - (19,255) 126,555
Dividends on Class I Preferred - - - - - (577) (577)
Stock
Net loss - - - - - (6,566) (6,566)
Balance, December 31, 1996 $10,365 $53,994 $48,325 $33,126 $ - $(26,398) $119,412
<FN>
See Accompanying Notes
F-4
</TABLE>
<PAGE>
REPAP WISCONSIN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
1994 1995 1996
(In Thousands)
Operating activities
Net income (loss) $ 616 $ 27,302 $(6,566)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 24,293 23,331 24,274
Non-cash portion of postretirement 3,981 4,200 752
benefit expense
Deferred income taxes (596) 7,314 (2,412)
Extraordinary items, gross (1,770) (575) _
Interest received in form of forward _ _ (4,886)
purchase contract
Changes in operating assets and
liabilities:
Accounts receivable (2,392) 5,853 (5,924)
Inventories 8,289 (39,403) 7,044
Inventory deposits (11,500) (24,500) 5,669
Other current assets 311 (466) (471)
Accounts payable and accrued 27,462 (1,634) (2,103)
liabilities
Net cash provided by operating 48,694 1,422 15,377
activities
Investing activities
Additions to property, plant and (15,355) (12,778) (15,718)
equipment
Other (981) (826) (1,022)
Net cash used in investing activities (16,336) (13,604) (16,740)
Financing activities
Net borrowings (repayments) under
revolving credit facilities (29,944) 21,289 1,420
Repayment of noncurrent liabilities (41,130) - _
to affiliates
Issuance of long-term debt 400,000 - _
Payments of long-term debt (221,169) (7,527) (26)
Deferred financing costs (13,194) - _
Dividends paid on Class I Preferred (24,230) (506) _
Stock
Redemption of Class I Preferred Stock (79,242) - _
Dividends paid on Class II Preferred (4,794) (1,088) _
Stock
Distribution to common stockholder (18,992) - _
Net cash provided by (used in) (32,695) 12,168 1,394
financing activities
Net increase (decrease) in cash (337) (14) 31
Cash at beginning of year 362 25 11
Cash at end of year $ 25 $ 11 $ 42
<PAGE>
REPAP WISCONSIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Amounts)
December 31, 1996
1. Significant Accounting Policies
Description of Business
Repap Wisconsin, Inc. (the Company) is a producer of high
quality grades of recycled coated paper and a complete range
of coated paper products. The Company_s products are used
for magazines, catalogs, brochures, advertising inserts and
annual reports. The Company competes with other U.S.,
Canadian and European producers in all of its product lines.
The Company sells its products through Repap Sales
Corporation (Repap Sales), an affiliate, on a commission
basis, as agent, to end users, third-party merchants and
brokerage distributors. Almost all of the Company's products
are sold to customers in North America. The Company's annual
requirements of softwood and hardwood kraft pulp are
supplied by three affiliates, Repap British Columbia, Inc.
(Repap British Columbia), Repap New Brunswick, Inc. (Repap
New Brunswick) and Repap Enterprises, Inc. (Repap
Enterprises) and by other suppliers that are not affiliated
with the Company. In the event that any of its suppliers is
unable to meet the Company's demands, the Company believes
that adequate alternative suppliers or substitute materials
are available.
Basis of Presentation
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. The
Company is a wholly owned subsidiary of Repap U.S.A. Inc.
(Repap USA), which is a subsidiary of Repap Enterprises.
Repap New Brunswick and Repap British Columbia are also
subsidiaries of Repap Enterprises.
During 1994, the Company reincorporated from Delaware to
Wisconsin and reduced the number of authorized and issued
shares for each class of common and preferred stock. The
reincorporation was effected through exchanges of shares at
the following exchange rates: Common Stock, 10,000 shares
for 1 share; Class I Cumulative Redeemable Preferred Stock
(Class I Preferred Stock), 10 shares for 1 share; Class II
Cumulative Redeemable Preferred Stock (Class II Preferred
Stock), 1,000 shares for 1 share; Class III Noncumulative
Redeemable Preferred Stock (Class III Preferred Stock),
1,000 shares for 1 share; and Class IV Noncumulative
Redeemable Preferred Stock (Class IV Preferred Stock), 1,000
shares for 1 share. All share and per share amounts have
been restated to reflect the exchanges.
<PAGE>
1. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the accompanying consolidated financial
statements and notes. Actual results could differ from those
estimates.
Inventories
Inventories are valued at the lower of cost or market with
cost determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, including
interest and start-up costs related to major assets during
construction. Interest and start-up costs are capitalized
until the asset is ready for its intended use. Property,
plant and equipment are depreciated using straight-line and
unit-of-production methods for financial reporting purposes
over their estimated useful lives as follows:
Years
Plant and buildings 12 - 42
Machinery and equipment 10 - 36
Accelerated methods and prescribed lives are used for
reporting depreciation for income tax purposes.
Deferred Charges
Costs incurred in connection with the procurement of
financing are deferred and amortized using the straight-line
method over the term of the related financing.
<PAGE>
1. Significant Accounting Policies (continued)
Income Taxes
The Company's results of operations are included in the
consolidated federal income tax return of Repap USA. For
financial reporting purposes, the Company has provided for
federal income taxes as if it filed a separate income tax
return.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and income
tax purposes.
Supplemental Cash Flows Information
Interest payments were $33,286, $39,676 and $40,007 in 1994,
1995 and 1996, respectively. Income tax payments were $835
and $149 in 1995 and 1996, respectively. There were no
income tax payments in 1994.
2. Additional Balance Sheet Information
December 31
1995 1996
Inventories:
Finished goods $38,954 $34,826
Work in process 8,138 5,416
Raw materials and supplies 37,497 37,303
$84,589 $77,545
Accrued liabilities:
Payroll and payroll related costs $ 8,868 $ 5,372
Interest 12,112 11,868
Other 3,479 4,177
$24,459 $21,417
<PAGE>
2. Additional Balance Sheet Information (continued)
During 1994 and 1995, the Company entered into forward
purchase contracts with Repap British Columbia and Repap
Enterprises for the future delivery of pulp, a raw material.
Activity with regard to the contracts during 1994, 1995 and
1996 and the remaining balances at December 31 are as
follows:
Balance, January 1, 1994 $ -
Deposits 20,104
Deliveries 8,604
Balance, December 31, 1994 11,500
Deposits 36,000
Deliveries 11,500
Balance, December 31, 1995 36,000
Interest income received in form of 4,886
additional deposits
Deliveries 5,669
Balance, December 31, 1996 $35,217
The forward purchase contracts will be settled at the market
price at the time of delivery (less volume discounts and
interest based on the delivery dates). At December 31, 1995,
the balances under the contracts were scheduled to be
delivered during 1996 and were included in other current
assets in the accompanying consolidated balance sheet.
Because the forward purchase contracts were not settled in
1996, the contracts specify that the Company receives
interest income in the form of additional future deliveries.
At December 31, 1996, the forward purchase contracts were
renegotiated and the remaining balances are scheduled to be
delivered through 1998. The Company does not anticipate any
deliveries of pulp under the contracts in 1997 and,
accordingly, the balance is included in other noncurrent
assets in the accompanying consolidated balance sheet at
December 31, 1996. See Notes_7 and 13 for additional
information regarding pulp purchases from Repap British
Columbia, Repap New Brunswick and Repap Enterprises and
realization of the forward purchase contracts.
<PAGE>
3. Property, Plant and Equipment
Property, plant and equipment at December 31 consist of the
following:
1995 1996
Land, Plant, and Buildings $ 27,445 $ 21,274
Machinery and equipment 619,420 630,270
646,865 651,544
Less accumulated depreciation 176,426 196,804
470,439 454,740
Construction in progress 3,939 13,778
$474,378 $468,518
4. Long-Term Debt and Lease Commitments
Long-term debt at December 31 consists of the following:
1995 1996
9 1/4% First Priority Senior Secured $250,000 $250,000
Notes
9 7/8% Second Priority Senior Secured 127,000 127,000
Notes
Revolving credit facility bearing
interest at prime plus _% or LIBOR 36,189 37,609
plus 2%
Other 26 _
413,215 414,609
Less current maturities 26 _
$413,189 $414,609
The 9 1/2% First Priority Senior Secured Notes (First
Priority Notes) mature on February 1, 2002, and the 9 7/8%
Second Priority Senior Secured Notes (Second Priority Notes)
mature on May 1, 2006.
In 1994 and 1995, the Company repurchased $15,000 and $8,000
of the Second Priority Notes for $13,230 and $7,425,
respectively. The purchases resulted in extraordinary gains
of $1,062, net of income taxes of $708, in 1994 and $363,
net of income taxes of $212, in 1995.
The revolving credit facility provides up to $70,000 of
availability, matures in March 1998 and requires a
commitment fee of .375% per year on the unused portion.
Accordingly, borrowings under the revolving credit facility
have been classified as long-term debt in the accompanying
consolidated balance sheets.
<PAGE>
4. Long-Term Debt and Lease Commitments (continued)
Substantially all assets of the Company are pledged as
security under the First and Second Priority Notes and the
revolving credit facility. The indentures for the First and
Second Priority Notes include certain covenants that limit
additional debt; restrict certain payments, including stock
redemptions, dividends and other distributions; and limit
transactions with affiliates. At December 31, 1996, no
amounts were available for restricted payments.
Future minimum payments under noncancelable operating leases
total $27,449 and are due as follows: 1997-$5,380; 1998-
$5,179; 1999-$4,882; 2000-$3,878; 2001-$3,819; thereafter-
$4,311. Rent expense, including payments under operating
leases, was $655, $1,692 and $4,308 in 1994, 1995 and 1996,
respectively.
5. Class I Preferred Stock
The Company has authorized 7,000 shares of Class I Preferred
Stock. The shares are entitled to receive cumulative annual
dividends of $100 per share payable quarterly. In February
1994, the Company redeemed 75,000 shares of Class_I
Preferred Stock for $75,000 and $23,266 of accrued dividends
from the proceeds of the First and Second Priority Notes.
Subsequently, the Company redeemed an additional 4,241.8
shares of Class I Preferred Stock for $4,242 and $195 of
accrued dividends. Subject to the restrictions of certain
debt covenants, the Company is required to redeem, at $1,000
per share plus accrued dividends, 50% of the outstanding
shares of Class I Preferred Stock on July 15, 1997 and 100%
of the then outstanding shares on July 15, 1998. At December
31, 1996, there are accrued dividends of $647. The aggregate
changes in Class I Preferred Stock are as follows:
Shares Amount
Balance, January 1, 1994 85,000.0 $107,429
Accrued dividends - 1,801
Redemption of preferred shares (79,241.8) (79,242)
Dividends paid - (24,230)
Balance, December 31, 1994 5,758.2 5,758
Accrued dividends - 576
Dividends paid - (506)
Balance, December 31, 1995 5,758.2 5,828
Accrued dividends _ 577
Balance, December 31, 1996 5,758.2 $ 6,405
<PAGE>
6. Shareholders' Equity
The Company has issued 103.65 shares of Class_II Preferred
Stock to Repap USA with cumulative annual dividends of
$10,000 per share payable annually, as and when declared by
the Board of Directors, subject to restrictions of debt
covenants. The Company may redeem these shares at $100,000
per share plus accrued dividends, subject to the
restrictions of certain debt covenants and provided there
are no shares of Class_I Preferred Stock outstanding. The
Company paid cumulative dividends of $4,794 and $1,088 on
the Class II Preferred Stock in 1994 and 1995, respectively.
As of December 31, 1996, $1,401 of cumulative dividends are
in arrears.
The 539.94 shares of Class_III Preferred Stock are entitled
to noncumulative annual dividends of $10,000 per share, as
and when declared by the Board of Directors, subject to
restrictions of certain debt covenants. The Company may
redeem the shares at $100,000 per share plus accrued
dividends, subject to the restrictions of certain debt
covenants and provided there are no shares of Class_I
Preferred Stock or Class_II Preferred Stock outstanding.
The 483.25 shares of Class_IV Preferred Stock are entitled
to noncumulative annual dividends of $10,000 per share, as
and when declared by the Board of Directors, subject to
restrictions of certain debt covenants. The Company may
redeem the shares at $100,000 per share plus accrued
dividends, subject to the restrictions of certain debt
covenants and provided there are no shares of Class_I
Preferred Stock or Class_II Preferred Stock outstanding.
7. Related-Party Transactions
The following summarizes related-party transactions, in
addition to those summarized in previous notes:
1994 1995 1996
Sales to affiliates $15,758 $14,684 $23,249
Purchases of raw materials
and paper from affiliates 32,206 50,728 51,060
Selling, general and
administrative expenses 19,662 21,777 19,017
incurred with affiliates
Interest expense on balances 87 - _
with Repap USA
Interest income on advance to 365 365 366
Repap USA
The sales to affiliates principally consist of sales to
Repap Sales (a subsidiary of Repap USA) in order for it to
provide certain customers with just-in-time deliveries.
<PAGE>
7. Related-Party Transactions (continued)
Purchases of raw materials principally consist of purchases
of pulp from Repap British Columbia, Repap New Brunswick and
Repap Enterprises. The deliveries under the forward purchase
contracts discussed in Note 2 are included in these
purchases. Purchases from affiliates also include small
amounts of coated paper from Repap New Brunswick primarily
to facilitate roll rewinding and returns of coated paper
from customers.
The selling, general and administrative expenses incurred
with affiliates include charges for services and allocated
costs from Repap Enterprises, Repap USA and Repap Sales.
Repap Enterprises charges the Company a management fee for
services including advice and assistance concerning the
strategy, planning, operations and financing of the Company.
The management fees were $5,000 in each of the years 1994,
1995 and 1996.
Repap Enterprises also incurs various costs and expenses,
such as research and development expenses and aircraft
expenses, which it allocates to its subsidiaries, including
the Company, based on management's assessment of the
relative benefits received by the respective subsidiaries
for which the expenses were incurred. Management believes
that this method of allocation is reasonable. Total
allocated costs charged to the Company by Repap Enterprises
were $1,689, $1,780 and $1,626 in 1994, 1995 and 1996,
respectively.
The Company allocates to Repap Sales its portion of the
actual costs the Company incurs for data processing and
accounting assistance. The amounts allocated to Repap Sales
were $1,268, $1,324 and $1,302 in 1994, 1995 and 1996,
respectively.
Repap Sales, as the principal sales agent for the Company,
receives a commission of 21/2% of the sales price of coated
paper sold by Repap Sales. These commissions cover expenses
relating to the marketing, sale and distribution of coated
paper products and were $10,453, $12,736 and $10,120 in
1994, 1995 and 1996, respectively. In addition, the Company
has reimbursed Repap Sales for marketing-related costs
totaling $2,520, $2,520 and $2,359 in 1994, 1995 and 1996,
respectively.
The Company has an advance of $4,500 to Repap USA which
bears the market rate of interest and is payable on demand.
See Note 13 for information regarding realization of net
assets related to affiliates.
<PAGE>
8. Postretirement Benefits Other Than Pensions
The Company has three defined benefit postretirement plans
that provide benefits to full-time employees who have worked
at least five years and attained age 57 while in service
with the Company. One plan provides medical benefits,
another provides dental benefits and the third provides life
insurance benefits. The medical plan benefits are provided
under a traditional indemnity arrangement or under an HMO
arrangement, at the participant's option. The medical
benefit indemnity arrangement and the dental plan contain
cost-sharing features such as deductibles and coinsurance.
The life insurance plan is contributory.
The accumulated postretirement benefit obligation at
December 31 is as follows:
December 31
1995 1996
Retirees $ 16,480 $ 18,295
Fully eligible active 5,961 4,671
participants
Other active participants 2,760 2,892
25,201 25,858
Unrecognized transition (22,600) (21,271)
obligation
Unrecognized net gain 9,156 7,922
Accrued postretirement benefit $ 11,757 $ 12,509
liability
The net periodic postretirement benefit cost includes the
following:
1994 1995 1996
Service cost for benefits $1,106 $ 864 $ 914
earned during the year
Interest cost on accumulated
postretirement benefit 2,110 2,233 1,844
obligation
Amortization of net gain - (226) (1,010)
Amortization of transition 1,356 1,329 1,329
obligation
$4,572 $4,200 $ 3,077
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 benefit indemnity arrangement
are assumed to decrease gradually to 2006 and then remain at
that level thereafter. The ranges of cost trend rates for
1996 are 8.6% to 5.25% (9.1% to 5.25% for 1995) for the
<PAGE>
8. Postretirement Benefits Other Than Pensions (continued)
medical benefit indemnity arrangement. The cost trend rate
for the dental plan for 1996 is an annual increase of 5.25%
per year (5% for 1995). The cost trend rate for the medical
benefit HMO arrangement for 1996 is an annual increase of 5%
per year (same for 1995).
The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the
assumed health care cost trend rate by one percentage point
in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1996, by $3,025, and
the aggregate of the service and the interest cost
components of net periodic postretirement benefit cost for
1996 by $334.
The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at December 31,
1995 and 1996. The discount rate used for determining the
net periodic postretirement benefit cost was 7.75%, 8.5% and
7.5% for 1994, 1995 and 1996, respectively.
9. Major Customers
Sales to one customer, in which Repap Sales has an
investment in preferred stock, were 16%, 18% and 14% of net
sales during 1994, 1995 and 1996, respectively. Accounts
receivable from this customer were $5,592 and $5,324 at
December 31, 1995 and 1996, respectively. Sales to one other
customer were 16%, 14% and 15% of net sales during 1994,
1995 and 1996, respectively. Accounts receivable from this
customer were $4,369 and $3,803 at December 31, 1995 and
1996, respectively.
10. Income Taxes
The income tax provision (benefit) on income (loss) before
extraordinary items is comprised of the following:
1994 1995 1996
Current federal income tax $ - $ 835 $ _
expense
Deferred income tax expense
(credit), excluding 96 11,591 (2,966)
components listed below
Benefits of operating loss (1,215) - _
carryforwards
Effect of change in valuation (172) (4,489) 703
allowance
Income tax provision (benefit) $(1,291) $7,937 $(2,263)
<PAGE>
10. Income Taxes (continued)
The income tax provision (benefit) differs from the amount
computed by applying the federal statutory rate of 34% to
income (loss) before income taxes and extraordinary items as
follows:
1994 1995 1996
Income tax provision
(benefit) at federal $ (591) $11,858 $(3,002)
statutory rate
State income taxes, net of (320) 588 (161)
federal benefit
Effect of change in valuation (172) (4,489) 703
allowance
Other (208) (20) 197
Income tax provision $(1,291) $ 7,937 $(2,263)
(benefit)
Significant components of the Company's deferred income tax
liabilities and assets as of December 31 are as follows:
1995 1996
Deferred income tax liabilities:
Property, plant and equipment $50,724 $54,659
Other 2,231 1,972
52,955 56,631
Deferred income tax assets:
Accrued liabilities and other items
not currently deductible 7,731 8,416
State net operating loss 549 709
carryforwards
State tax credit carryforwards 8,564 8,879
Federal net operating loss 17,261 21,842
carryforwards
Federal general business credit 7,501 6,669
carryforwards
Federal alternative minimum tax 1,646 1,289
credit carryforwards
43,252 47,804
Valuation allowance for deferred tax 14,598 13,062
assets
28,654 34,742
Net deferred income tax liabilities $24,301 $21,889
Because of the recent cumulative losses, future income has
not been assumed in determining the necessary valuation
allowances for the various carryforwards.
<PAGE>
10. Income Taxes (continued)
At December 31, 1996, the Company has the following
carryforwards for operating losses, general business credits
and state tax credits available to reduce future income
taxes:
Federal General
Net Operating Business State
Losses Tax
Federal State Credits Credits
Year
expires:
1997 $ - $ - $ 495 $ 585
1998 - - 2,242 735
1999 3,170 - 1,683 717
2000 - - 171 827
2001 2,912 - 283 868
2002 8,332 - - 682
2003 1,493 - 41 788
2004 - - 929 1,049
2005 - - 822 1,006
2006 - - 2 973
2007 12,082 - 1 939
2008 - - - 1,025
2009 29,666 6,493 - 1,019
2010 - - - 998
2011 6,575 6,970 - 993
2012 12 136 _ 249
$64,242 $13,599 $6,669 $13,453
The Company also has alternative minimum tax credit
carryforwards of $1,289 that are available to reduce future
regular federal income taxes.
11. Commitments and Contingency
In 1993, the Company entered into an agreement with
Wisconsin Electric Power Company (WEPCO) to construct a
cogeneration facility adjacent to the Company's mill which
would have provided steam for its paper making operations.
In late 1993, the Wisconsin Public Service Commission issued
an order denying WEPCO's application to construct the
cogeneration facility. The Company is contingently liable
for approximately $4.9 million in engineering costs incurred
by WEPCO in the event that the related engineering costs
cannot be recovered by WEPCO through a sale of the equipment
owned by WEPCO or in a comparable project in the future.
<PAGE>
12. Fair Value of Financial Instruments
The following table presents the carrying amounts and
estimated fair values of the Company's financial instruments
at December 31:
1995 1996
Carrying Carrying
Fair Fair
Amount Value Amount Value
Financial assets -
Advance to affiliate $ $ $ $
4,500 (1) 4,500 (1)
Financial
liabilities:
Long-term debt (2) 413,215 395,215 414,609 424,293
Class I Preferred 5,828 (1) 6,405 (1)
Stock
(1) The fair values for the advance to affiliates and
the Class I Preferred Stock held by affiliates are not
practicable to estimate because of the lack of quoted
market prices.
(2) The carrying amount of the borrowings under the
revolving credit facility approximates their fair value.
The fair values of the First and Second Priority Notes
are based on quoted market prices.
13. Subsequent Events
In July 1996, Repap Enterprises engaged investment advisors
to explore strategic alternatives available to Repap
Enterprises and its subsidiaries to maximize shareholder
value.
On December 17, 1996 (and as amended March 3, 1997), Avenor
Inc. (Avenor) and Repap Enterprises entered into a Pre-
Merger Agreement providing for the amalgamation of Avenor
and Repap Enterprises pursuant to an Amalgamation Agreement
whereby common and preferred stock of Repap Enterprises
would have been exchanged for common stock of Avenor. On
March 26, 1997, Avenor shareholders voted to not approve the
proposed amalgamation.
The management of Repap Enterprises is considering what
steps to take following the rejection of the proposed
amalgamation by the Avenor shareholders. Management and the
Board of Directors of Repap Enterprises intend to pursue a
strategy that is in the best interest of preserving and
creating value for its shareholders. It is uncertain what,
if any, impact this will have on the Company.
<PAGE>
13. Subsequent Events (continued)
As discussed in Notes 2 and 7, the Company's consolidated
balance sheet at December 31, 1996 includes forward purchase
contracts with affiliates, an investment in Repap
Enterprises preferred stock, advances to affiliates and
amounts due from/to affiliates. Such amounts aggregate to
net assets of $39,035, of which $24,722 and $10,495
represent forward purchase contracts with Repap British
Columbia and Repap Enterprises, respectively. On March 3,
1997, Repap Enterprises entered into a Restructuring and
Settlement Agreement with certain banks whereby such banks
acquired control of Repap British Columbia. The
Restructuring and Settlement Agreement provides for the
forward purchase contract with Repap British Columbia to
continue on the same terms. Repap Enterprises has indicated
its intention to honor the commitment under its forward
purchase contract. Management believes that the remainder of
the net assets due from affiliates of $3,818 will be
realized. However, realization of such amounts is uncertain
pending the future actions of Repap Enterprises and the
financial condition of Repap British Columbia.
<PAGE>
Schedule II
Repap Wisconsin, Inc.
Valuation and Qualifying Accounts
S-1
Additions
Balance Charged Charged Balance
at to Cost to
Description Beg. and Other Deductions at End
of Expense Accts. (1) of
Year Year
(In Thousands)
Year ended December 31,
1994:
Deducted from asset
accounts -
Allowance for doubtful
accounts and reserve
for returns and $1,630 $1,947 $ - $2,096 $1,481
allowances
Year ended December 31,
1995:
Deducted from asset
accounts -
Allowance for doubtful
accounts and reserve
for returns and $1,481 $2,400 $ - $2,213 $1,668
allowances
Year ended December 31,
1996:
Deducted from asset
accounts -
Allowance for doubtful
accounts and reserve
for returns and $1,668 $2,376 $ - $2,338 $1,706
allowances
(1)Represents uncollectible accounts written off, net of recoveries,
and net losses on paper returns and allowances.
<PAGE>
SIGNATURES
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, on
March 31 , 1997.
REPAP WISCONSIN, INC.
/s/ Timothy J. Morgan
Timothy J. Morgan
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.
Signature Title Date
/s/ George S. Petty Director and Chairman March 31, 1997
George S. Petty (Principal Executive Officer)
/s/ Ronald H. Sumner Director and Executive Vice- March 31, 1997
Ronald H. Sumner President
/s/ Timothy J. Morgan Senior Vice-President and Controller, March 31, 1997
Timothy J. Morgan Coated Paper Operations (Principal
Financial and Accounting Officer)
<PAGE>
3. Exhibits
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company dated July
18, 1994. (Incorporated by reference to Exhibit 3.1 as filed with
the Company's Form 10-K for the year ended December 31,
1994).
3.2 Restated By-laws of the Company dated July 18, 1994.
(Incorporated by reference to Exhibit 3.2 as filed with the
Company's Form 10-K for the year ended December 31, 1994).
4.1 Form of First Priority Note Indenture, dated as of February 1,
1994, between the Company and the Bank of New York, as
trustee. (Incorporated by reference to Exhibit 4.1 as filed with
the Company's Form S-1 on January 31, 1994).
4.2 Form of First Priority Note (included in the form of First Priority
Note Indenture filed as Exhibit 4.1). (Incorporated by reference
to Exhibit 4.2 as filed with the Company's Form S-1 on January
31, 1994).
4.3 Form of Second Priority Note Indenture, dated as of February 1,
1994, between the Company and Bankers Trust Company, as
trustee. (Incorporated by reference to Exhibit 4.3 as filed with
the Company's Form S-1 on January 31,1994).
4.4 Form of Second Priority Note (included in the form of Second
Priority Note Indenture filed as Exhibit 4.3). (Incorporated by
reference to Exhibit 4.4 as filed with the Company's Form S-1 on
January 31, 1994).
4.5 Form of Collateral Agency Agreement, dated as of February 1,
1994, among the Company, the Trustees and the Collateral
Agent. (Incorporated by reference to Exhibit 4.7 as filed with the
Company's Form S-1 on January 31, 1994).
4.6 Form of Mortgage. (Incorporated by reference to Exhibit 4.8 as
filed with the Company's Form S-1 on January 31, 1994).
<PAGE>
Exhibit
Number Description
4.7 First Supplemental Indenture, dated as of August 9, 1994,
between the Company and The Bank of New York, as trustee.
(Incorporated by reference to Exhibit 4.7 as filed with the
Company's Form 10-K for the year ended December 31, 1994).
4.8 First Supplemental Indenture, dated as of August 9, 1994,
between the Company and Bankers Trust Company, as trustee.
(Incorporated by reference to Exhibit 4.8 as filed with the
Company's Form 10-K for the year ended December 31, 1994).
4.9 Second Supplemental Indenture, dated as of January 10, 1996,
between the Company and the Bank of New York, as trustee.
(Incorporated by reference to Exhibit 4.9 as filed with the
Company's Form 10-K for the year ended December 31, 1995).
4.10 Second Supplemental Indenture, dated as of January 10, 1996,
between the Company and Bankers Trust Company, as trustee.
(Incorporated by reference to Exhibit 4.10 as filed with the
Company's Form 10-K for the year ended December 31, 1995).
4.11 Second Amended and Restated Credit Agreement, dated as of
November 8, 1994, by and between the Company and Heller
Financial, Inc. (Incorporated by reference to Exhibit 10.1 as
filed with the Company's Form 10-K for the year ended
December 31, 1994).
4.12 First Amendment to Second Amended and Restated Credit
Agreement, dated as of December 27, 1995, by and between
the Company and Heller Financial, Inc. (Incorporated by
reference to Exhibit 4.12 as filed with the Company's Form 10-K
for the year ended December 31, 1995).
4.13 Second Amendment to Second Amended and Restated Credit
Agreement, dated as of February 14, 1996, by and between the
Company and Heller Financial, Inc. (Incorporated by reference
to Exhibit 4.13 as filed with the Company's Form 10-K for the
year ended December 31, 1995).
4.14 Third Amendment to Second Amended and Restated Credit
Agreement, dated as of March 8, 1996, by and between the
Company and Heller Financial, Inc. (Incorporated by reference
to Exhibit 4.14 as filed with the Company's Form 10-K for the
year ended December 31, 1995).
<PAGE>
4.15 Fourth Amendment to Second Amended and Restated Credit
Agreement, dated as of March 24, 1997, by and between the
Company and Heller Financial, Inc.
10.1 PCC Production and Sale Agreement, dated as of October 23,
1990, between the Company (formerly known as Midtec Paper
Corporation) and Pfizer Specialty Minerals Inc. (Incorporated by
reference to Exhibit 10.5 as filed with the Company's Form S-1
on January 31, 1994).
10.2. Supply/Purchase Agreement, dated March 2, 1992, by and
between the Company and Repap Midtec Limited Partnership, on
the one hand, and ECC America, Inc., on the hand.
(Incorporated by reference to Exhibit 10.6 as filed with the
Company's Form S-1 on January 31, 1994).
10.3 Lease/Construction Agreement, dated March 2, 1992, by and
between Repap USA Inc. and ECC America, Inc. (Incorporated
by reference to Exhibit 10.7 as filed with the Company's Form
S-1 on January 31, 1994).
10.4 Electric Service Agreement, dated February 22, 1988, by and
between the Company (formerly known as Midtec Paper
Company) and Repap Midtec Limited Partnership, on the one
hand, and Wisconsin Electric Power Company, on the other
hand. (Incorporated by reference to Exhibit 10.8 as filed with the
Company's Form S-1 on January 31, 1994).
10.5 Supply Agreement, dated as of February 28, 1991, by and
between the Company (formerly known as Midtec Paper
Corporation) and Fox River Fiber Company. (Incorporated
by reference to Exhibit 10.9 as filed with the Company's Form
S-1 on January 31, 1994).
10.6 Letter Agreement, dated August 14, 1989, between the Company
(formerly known as Midtec Paper Corporation) and Engelhard
Corporation. (Incorporated by reference to Exhibit 10.10 as filed
with the Company's Form S-1 on January 31, 1994).
<PAGE>
Exhibit
Number Description
10.7 Sales/Purchase Contract, dated October 12, 1991, between the
Company (formerly known as Midtec Paper Corporation) and
ECC International. (Incorporated by reference to Exhibit 10.12
as filed with the Company's Form S-1 on January 31, 1994).
10.8 Form of Management Services and Cost Allocation Agreement
between Repap Enterprises and the Company. (Incorporated by
reference to Exhibit 10.14 as filed with the Company's Form S-1
on January 31, 1994).
10.9 Form of Woodpulp Contract between Repap British Colombia
Inc. (formerly known as Skeena) and the Company.
(Incorporated by reference to Exhibit 10.15 as filed with the
Company's Form S-1 on January 31, 1994).
10.10 Midtec Paper Corporation/Repap Sales Corporation Sales
Agency Agreement, dated as of January 1, 1990, between the
Company (formerly known as Midtec Paper Corporation) and
Repap Sales. (Incorporated by reference to Exhibit 10.17 as
filed with the Company's Form S-1 on January 31, 1994).
10.11 Pulp Purchase Agreement, dated September 26, 1994, between
Repap British Columbia Inc. (formerly known as Skeena) and the
Company. (Incorporated by reference to Exhibit 10.13 as filed
with the Company's Form 10-K for the year ended December 31,
1994).
10.12 Pulp Purchase Agreement dated December 22, 1994, between
Repap New Brunswick (formerly known as Miramichi Pulp and
Paper) and the Company. (Incorporated by reference to Exhibit
10.14 as filed with the Company's Form 10-K for the year ended
December 31, 1994).
10.13 Pulp Purchase Agreement #7, dated as of July 12, 1995,
between Repap British Columbia Inc. (formerly known as
Skeena) and the Company. (Incorporated by reference to Exhibit
10.13 as filed with the Company's Form 10-K for the year ended
December 31, 1995).
<PAGE>
Exhibit
Number Description
10.14 Pulp Purchase Agreement #8, dated as October 19, 1995
between Repap British Columbia Inc. (formerly known as
Skeena) and the Company. (Incorporated by reference to
Exhibit 10.14 as filed with the Company's Form 10-K for the year
ended December 31,1995).
10.15 Amendments to Pulp Purchase Agreements #7 and #8, dated as
of November 21, 1996, between Repap British Columbia Inc.
(formerly known as Skeena) and the Company.
10.16 Pulp Purchase Agreement, dated as of September 1, 1995,
between Repap Enterprises and the Company. (Incorporated
by reference to Exhibit 10.15 as filed with the Company's Form
10-K for the year ended December 31, 1995).
10.17 Labor Agreement, dated as of January 19, 1995, between the
Company and the Paper Mill Workers Union of Kimberly,
Wisconsin. (Incorporated by reference to Exhibit 10.16 Form
10-K for the year ended December 31, 1995).
21.1 Subsidiaries of the Registrant. The Registrant has one inactive
wholly owned subsidiary.
<PAGE>
FOURTH AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDMENT TO THE SECOND AMENDED AND RESTATED
CREDIT AGREEMENT, dated as of March 24, 1997 (this "Amendment"), is by and
among REPAP WISCONSIN, INC., a Wisconsin corporation ("Borrower"), HELLER
FINANCIAL, INC., a Delaware corporation ("Heller"), individually as a Lender
and as Agent for all Lenders, and LASALLE NATIONAL BANK, a national banking
association, as a Lender ("LaSalle").
RECITALS
WHEREAS, Borrower and Heller, as Agent and Lender, are parties to
that certain Second Amended and Restated Credit Agreement dated as of
November 8, 1994 (as amended as of December 27, 1995, February 14, 1996 and
March 8, 1996 and as thereafter amended, restated, supplemented or otherwise
modified from time to time, the "Credit Agreement"; capitalized terms used
but not otherwise defined herein having the definitions provided therefor
in the Credit Agreement); and
WHEREAS, Repap Enterprises Inc., is party to the Pre-merger
Agreement, dated as of December 17, 1996 (the "Pre-Merger Agreement"),
among Avenor Inc., Repap Enterprises Inc., 1211421 Ontario Inc., 1211423
Ontario Inc., the George S. Petty Management Ltd. Defined Benefit Pension
Plan and Trust, George S. Petty Management Ltd. and George S. Petty; and
WHEREAS, it has been determined that the definition of Change of
Control contained in Section 1.1 of the Credit Agreement shall be modified
in connection with and in furtherance of the transactions contemplated by
the Pre-merger Agreement, including without limitation the condition
specified in Section 9.1(i) thereof requiring the consent of the lenders
under the Credit Agreement to waive the Event of Default
contained in section 8.1(S) of the Credit Agreement; and
WHEREAS, the execution and delivery of this instrument has been duly
authorized and all conditions and requirements necessary to make this
instrument a valid and binding agreement have been duly performed and
complied with;
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendment of Change of Control Definition. The definition of
Change of Control contained in the Credit Agreement is amended to read as
follows:
""Change of Control" has the meaning assigned to that term in the
Senior Indentures as amended by the Third Supplemental Indenture to be
dated as of April 1, 1997 Governing the 9-1/4% First Priority Senior Secured
Notes due 2002 between the Borrower and The Bank of New York (in form
substantially identical to Annex A hereto) and as amended by the Third
Supplemental Indenture to be dated as of April 1, 1997 governing the
9-7/8% Second Priority Senior Secured Notes due 2006 between the Borrower
and Bankers Trust Company (in form substantially identical to Annex B
hereto)."
2. Renewal Term. Notwithstanding the notice provisions of Section 2.5
of the Credit Agreement, the parties hereto each agree to extend the term of
the Credit Agreement pursuant to a Renewal Term from March 15, 1998 through
March 15, 1999.
3. Representations and Warranties. Borrower represents and warrants to
Heller and LaSalle that:
(a) The execution, delivery and performance by Borrower of this Amendment
are within its corporate powers, have been duly authorized by all necessary
corporate action (including, without limitation, any necessary shareholder
approval), have received all necessary governmental approval (if any shall
be required), and do not contravene or conflict with any provision of law
applicable to Borrower, the Certificate of Incorporation or Bylaws of
Borrower, or any order, judgment or decree of any court or
other agency of government or any contractual obligation binding upon
Borrower; and the Credit Agreement as amended hereby, is the legal, valid
and binding obligation of Borrower enforceable against Borrower in
accordance with its terms.
(b) The warranties and representations of Borrower contained in this
Amendment, the Credit agreement, as amended hereby, including without
limitation subsection 4.17 thereof, and the other Loan Documents, shall be
true and correct as of the date hereof, with the same effect as though made
on such date, except to the extent that such warranties and representations
expressly relate to an earlier date, in which case such warranties and
representations shall have been true and correct as of such earlier
date.
<PAGE>
4. Miscellaneous
a) Captions. Section captions used in this Amendment are for convenience
only, and shall not affect the construction of this Amendment.
b) Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER
AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES. Whenever possible, each provision of this
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Amendment shall be
prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Amendment.
c) Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
d) Successors and Assigns. This Amendment shall be binding upon Borrower,
Agent and Lenders and their respective successors and assigns, and shall
inure to the sole benefit of Borrower, Agent and Lenders and their
respective successors and assigns, provided that Borrower may not assign
its rights or obligations under this Amendment without the written consent
of all Lenders.
e) References. Any reference to the Credit Agreement contained in
any notice, request, certificate, or other document executed concurrently
with or after the execution and delivery of this Amendment shall be deemed
to include this Amendment unless the context shall otherwise require.
f) Continued Effectiveness. Notwithstanding anything contained herein,
the terms of this Amendment are not intended to and do not serve to effect a
novation as to the Credit Agreement. The parties hereto expressly do not
intend to extinguish the Credit Agreement. Instead, it is the express
intention of the parties hereto to reaffirm the indebtedness created under
the Credit Agreement which is evidenced by the Revolving
Notes and secured by the Collateral. The Credit Agreement as amended hereby
and each of the other Loan Documents remain in full force and effect.
<PAGE>
g) Costs, Expenses and Taxes. Borrower affirms and acknowledges that
subsection 10.1 of the Credit Agreement applies to this Amendment and the
transactions and agreements and documents contemplated hereunder.
IN WITNESS WHEREOF, this Fourth Amendment to the Second Amended and
Restated Credit Agreement has been duly executed as of the day and year
first above written.
REPAP WISCONSIN, INC.
__________________________
__________________________
HELLER FINANCIAL, INC.,
as Agent and Lender
__________________________
__________________________
LASALLE NATIONAL BANK,
as Lender
__________________________
__________________________
November 21, 1996
Repap Wisconsin Inc.
433 North Main Street
Kimberly, Wisconsin
54136
Attention: Senior VP & Controller, Coated Paper Operations
Subject: Pulp Purchase Agreement #7 dated July 12, 1995 and
Pulp Purchase Agreement #8 dated October 19, 1995, between
Repap British Columbia ("RBC", formerly known as Skeena
Cellulose Inc. and Repap Wisconsin Inc. ("RWI")
Dear Mr. Morgan,
As we have discussed with you, the delivery schedule under the above
contracts would pose financial and marketing problems for RBC. For this
reason, we would suggest amending Pulp Purchase Agreement # 7 and Pulp
Purchase Agreement #8 in the following fashion:
Amendments to Pulp Purchase Agreements
1. Pulp delivered pursuant to Pulp Purchase Agreements #7 and #8 over the 2
year period ending December 31, 1998, shall be deemed to be delivered
pursuant to the Woodpulp Contract dated January 1, 1994 (the "Woodpulp
Contract").
2. A fidelity discount will be applied to all tonnes delivered pursuant to
the Woodpulp Contract as follows;
<PAGE>
i) for pulp delivered with a market price up to and including $U.S. 650 per
tonne, 4%; or
ii) for pulp delivered with a market price greater than $U.S. 650 per tonne,
$U.S. 60 per tonne (As described in Table 1 below).
3. Commencing January 1, 1997, interest on the amount prepaid for pulp to be
delivered pursuant to Pulp Purchase Agreements #7 and #8, will be paid
monthly via a further discount (the "Interest Discount") on the pulp
delivered calculated at the rate of US Prime plus 1 %. Interest during
any month when no shipments occur, will accrue and be paid via an increase
in the discount in the following month.
4. An allowance of $US 75 per tonne for freight (the "Freight Allowance")
shall be deducted from payments for pulp delivered pursuant to the Woodpulp
Contract. Such amount will be adjusted from time to time to reflect changes
in the actual freight cost.
5. When the market pulp price is greater than $U.S. 710 per tonne, the
price payable on the pulp delivered pursuant to the Woodpulp Contract, will
be paid or allocated as follows;
i) The difference between the market pulp price and U.S. $710 per tonne will
be applied against the outstanding amount prepaid for pulp to be delivered
pursuant to Pulp Purchase Agreements #7 and #8; and
ii) the balance of the purchase price after deducting the fidelity discount,
the Interest Discount and the Freight Allowance, shall be paid in cash in
accordance with the terms of the Woodpulp Contract.
6. RWI will also have the option, when market pulp prices are greater than
U.S. $800 per tonne, to request up to an additional 2000 tonnes per month to
be delivered by RBC. Such a request will be made 60 days prior to the
required delivery date. These tonnes, if requested, will be applied against
the outstanding amount prepaid for pulp to be delivered pursuant to Pulp
Purchase Agreements #7 and #8, in the following fashion:
i) The number of tonnes delivered multiplied by the market price per tonne of
pulp less $U.S. 60 per tonne and less the Freight Allowance. This
calculation will be done at the end of each month for which any such
additional tonnes are delivered.
<PAGE>
7. Any outstanding amount prepaid for pulp to be delivered pursuant to Pulp
Purchase Agreements #7 and #8, plus accrued interest, at the end of the term
will be due and payable.
8. Pulp Purchase Agreements #7 and #8 as hereby amended, may at the option
of Avenor Inc. be further amended upon the completion of the proposed
amalgamation of Avenor Inc. and Repap Enterprises Inc.
<TABLE>
PULP PURCHASE AGREEMENT
<CAPTION>
U.S. $/Tonne
Market Interest(1) Fid(2) Appl to Freight Funds
Price Discount Disc $60 Disc Deal Allow to RBC
<S> <C> <C> <C> <C> <C> <C>
600 31 24 0 0 75 470
650 31 26 0 0 75 518
675 31 0 60 0 75 509
710 31 0 60 0 75 544
750 31 0 60 40 75 544
800 31 0 60 90 75 544
<FN>
(1)$24,721,868 (including accrued interest to December 31, 1996) @ 8.25% + 1%
on 6000 tonnes/month. This Interest Discount will reduce as the outstanding
amount prepaid for pulp to be delivered pursuant to Pulp Purchase
Agreements #7 and #8 reduces.
(2)4%
</TABLE>
Please signify your agreement to these amendments by signing the duplicate
of this letter and returning it to my attention.
Yours truly,
Repap British Columbia Inc.
____________________
H.R. Papushka
Executive Vice President
<PAGE>
Agreed:
Repap Wisconsin Inc.
____________________
T. Morgan
Senior V.P. & Controller
Coated Paper Operations
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 46051
<ALLOWANCES> 0
<INVENTORY> 77545
<CURRENT-ASSETS> 124793
<PP&E> 468518
<DEPRECIATION> 0
<TOTAL-ASSETS> 646577
<CURRENT-LIABILITIES> 71753
<BONDS> 414609
<COMMON> 33126
6405
112684
<OTHER-SE> (26398)
<TOTAL-LIABILITY-AND-EQUITY> 646577
<SALES> 404657
<TOTAL-REVENUES> 404657
<CGS> 333163
<TOTAL-COSTS> 333163
<OTHER-EXPENSES> (5197)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40727
<INCOME-PRETAX> (8829)
<INCOME-TAX> (2263)
<INCOME-CONTINUING> (6566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6566)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
