<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended:
September 29, 1996 Commission File Number: 33-93494
- -------------------------------------------------------------------------------
CROWN PAPER CO.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 54-1752385
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Lakeside Drive, Oakland, CA 94612-3592
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(510) 874-3400
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
</TABLE>
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- -----------
Number of shares of no par value common stock outstanding as of the close of
business on November 12, 1996:
One (1) share which is owned by Crown Vantage Inc.
--------------------------------------------------
<PAGE>
INDEX
CROWN PAPER CO.
PART I: Financial Information
Item 1. Financial Statements
- Condensed Consolidated Balance Sheets - September 29, 1996
and December 31, 1995.
- Condensed Consolidated Statements of Operations - Third
quarter and nine months ended Septmber 29, 1996 and
September 24, 1995.
- Condensed Consolidated Statements of Cash Flows - Nine
months ended September 29, 1996 and September 24, 1995.
- Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
CROWN PAPER CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS September 29, 1996 December 31, 1995
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,203 $ 5,335
Accounts receivable, net 56,789 106,674
Inventories 96,313 100,422
Prepaid expenses and other current
assets 18,918 8,832
Deferred income taxes 14,899 14,899
--------- --------
Total current assets 193,122 236,162
Property, plant and equipment, net 669,387 668,340
Other assets 44,468 39,952
Unamortized debt issue costs 16,388 16,448
Intangibles, net 30,383 31,226
--------- --------
Total Assets $953,748 $992,128
========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 46,087 $ 57,569
Accrued liabilities 77,144 81,616
Current portion of long-term debt 7,308 11,883
--------- ---------
Total current liabilities 130,539 151,068
Long-term debt 445,199 469,901
Accrued postretirement benefits other
than pensions 101,609 100,358
Accrued pension 17,030 14,235
Other long-term liabilities 11,812 11,341
Deferred income taxes 108,562 106,379
--------- ---------
Total Liabilities 814,751 853,282
--------- ---------
Shareholder's Equity:
Preferred Stock, no par value;
Authorized - 5,000 shares;
Issued and outstanding - None
Common Stock, no par value;
Authorized - 5,000 shares;
Issued and outstanding - one (1)
share at September 29, 1996
and December 31, 1995. 127,816 125,537
Minimum pension liability (1,311) (1,311)
Cumulative foreign currency
translation adjustment 61 (1,348)
Retained earnings 12,431 15,968
--------- --------
138,997 138,846
--------- --------
Total Liabilities and
Shareholder's Equity $953,748 $992,128
--------- --------
--------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CROWN PAPER CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Third Quarter (13 weeks) and Nine Months (39 weeks)
Ended September 29, 1996 and September 24, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Third Quarter Nine Months
---------------------- -----------------------
1996 1995 1996 1995
--------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 221,064 $264,779 $704,481 $798,709
Cost of goods sold 210,319 221,016 638,774 689,207
--------- -------- -------- --------
Gross margin 10,745 43,763 65,707 109,502
Selling and administrative
expenses 13,792 15,398 38,132 43,497
--------- -------- -------- --------
Operating Income (Loss) (3,047) 28,365 27,575 66,005
Interest expense (11,952) (5,569) (37,323) (6,554)
Other income, net 798 16 2,171 268
--------- -------- -------- --------
Income (loss) before
income taxes (14,201) 22,812 (7,577) 59,719
Provision (benefit) for
income taxes (6,672) 8,966 (4,040) 23,729
--------- -------- -------- --------
NET INCOME (LOSS) $(7,529) $13,846 $(3,537) $35,990
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CROWN PAPER CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months (39 weeks)
Ended September 29, 1996 and September 24, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months
----------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash Provided by (Used for) Operating Activities:
Net income (loss) $(3,537) $ 35,990
Items not affecting cash:
Depreciation and cost of timber harvested 57,712 59,244
Amortization of goodwill and other intangibles 844 1,046
Other, net 5,394 3,472
Changes in current assets and liabilities:
Accounts receivable (includes $40,000
sold in 1996) 49,885 ( 10,917)
Inventories 4,109 ( 5,729)
Other current assets (10,546) 423
Accounts payable (11,483) 10,316
Other current liabilities (2,424) 4,195
Other, net (277) 4,377
-------- --------
Cash Provided by Operating Activities 89,677 102,417
-------- --------
Cash Used for Investing Activities:
Expenditures for property, plant and equipment (58,907) ( 33,309)
Other, net (371) -
-------- --------
Cash Used for Investing Activities (59,278) ( 33,309)
-------- --------
Cash Provided by (Used for) Financing Activities:
Proceeds from draw down of Revolving Credit 171,000 59,000
Repayments of Revolving Credit (163,000) ( 25,000)
Proceeds from issuance of
Industrial Revenue Bonds
less underwriting costs 12,100 -
Proceeds from issuance of
Term Notes - 190,592
Proceeds from issuance of
Subordinated Notes - 242,500
Repayments of Term Loans and other long-term debt (49,631) ( 720)
James River capital withdrawal - ( 533,126)
-------- --------
Cash Used for Financing Activities (29,531) ( 66,754)
-------- --------
Increase in cash and cash equivalents 868 2,354
Cash and cash equivalents at beginning of period 5,335 12,435
-------- --------
Cash and cash equivalents at end of period $6,203 $ 14,789
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CROWN PAPER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION
Crown Paper Co. and subsidiaries (the "Company") is a wholly owned
subsidiary of Crown Vantage Inc. Crown Vantage Inc. (the "Parent") became an
independent company after the Board of Directors of James River Corporation of
Virginia ("James River") approved the spin-off of assets, liabilities and
operations which comprised a substantial part of James River's Communication
Papers Business and the paper-based part of its Food and Consumer Packaging
Business ("Predecessor Business"). At the close of business on August 25, 1995,
James River distributed to its common shareholders all of the outstanding shares
of the Parent (the "Distribution"). The Distribution was made in the form of a
tax-free dividend on the basis of one share of the Parent's common stock for
every ten shares of James River common stock. A total of 8,446,362 shares of
the Parent's common stock were issued and began trading on NASDAQ on August 28,
1995.
James River transferred to the Company certain assets of the Predecessor
Business and the Company assumed certain related liabilities from James River.
In addition, the Company received $250 million in cash through a public offering
of Senior Subordinated Notes and $253 million from initial borrowings under
credit facilities with certain banks (collectively, the "Financing"). The
proceeds from the Financing after payment of expenses and retention of $1.2
million cash ($485 million) were paid to James River together with $100 million
Senior Pay-in-Kind Notes issued by the Parent, as a return of James River's
capital investment. The Distribution, transfer of assets and liabilities,
Financing and return of capital are collectively referred to as the "Spin-Off."
Also in connection with the Spin-Off, the Company entered into a
Contribution Agreement and certain transition agreements with James River. The
Company will rely on such agreements for certain services, and the supply of a
portion of the products used in the Company's manufacturing business, generally
over terms of one to three years, at agreed to prices consistent with market
terms.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements include the
consolidated operations, assets and liabilities of the Company for the three
months and nine months ended September 29, 1996 and the combined historical
operations, assets and liabilities of the Predecessor Business while a part of
James River for the three months and nine months ended September 24, 1995. For
simplicity of presentation, these financial statements are referred to as
consolidated financial statements herein.
The condensed consolidated financial statements for the quarter and nine
months ended September 24, 1995 have been prepared as if the Company had
operated as an independent stand-alone entity, except the Company generally did
not have significant borrowings, and there was no allocation of James River's
consolidated borrowings, and related interest expense, except for interest
capitalized as a component of properties. During the period ended September 24,
1995, the Company engaged in various transactions with James River and its
affiliates that are characteristic of a group of companies under common control.
Throughout this period, the Company participated in James River's centralized
cash management system and, as such, its cash funding requirements were met by
James River. The Company was charged by James River for direct costs and
expenses associated with its operations which have been included in cost of
goods sold or selling and administrative expenses, as appropriate. James
River's administrative costs not directly attributable to the Company, which
historically had not been allocated, have been allocated to the Company for the
quarter
6
<PAGE>
and nine months ended September 24, 1995 based on net sales and are
included in selling and administrative expense.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. The condensed consolidated balance sheet as of December
31, 1995 was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months and nine months ended September 29, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 29, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in Crown Paper Co.'s Form 10-K for
the year ended December 31, 1995.
The Company adopted Statement of Financial Accounting Standards No. 121
("Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of") in the first quarter of 1996. Adoption of Statement of
Financial Accounting Standards No. 121 did not have a material effect on the
Company's financial position or results of operations.
NOTE 3 -- INCOME TAX
The income tax benefits for the quarter and nine months ended September 29,
1996 have been provided at the Company's estimated tax rate of 39.75%. A
substantial portion of the benefit will be realized by recovery of taxes paid in
1995. In addition, the Company recognized a benefit of approximately $1.0
million in the third quarter for reduction of estimated taxes payable for 1995.
Historically, the Company has been included in the consolidated federal and
combined/unitary state income tax returns of James River. Income taxes in the
consolidated financial statements for the quarter and nine months ended
September 24, 1995 represent the Company's share of James River's income tax
provision which is intended to approximate the amount which would have been
recognized had the Company filed separate income tax returns.
NOTE 4 -- LONG TERM DEBT
Consolidated long-term debt consists of the following:
<TABLE>
<CAPTION>
September 29 December 31
1996 1995
------------ -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Bank Credit Facility:
Revolving credit, due 2002 $18,000 $ 10,000
Term Loan A, due 2002 50,953 97,500
Term Loan B, due 2003 99,250 99,750
-------- ---------
168,203 207,250
11% Senior Subordinated Notes, due 2005 250,000 250,000
Industrial Revenue Bonds, payable to 2026 34,304 24,182
10% Note, payable in 1996 - 352
-------- ---------
452,507 481,784
Less current portion 7,308 11,883
-------- ---------
$445,199 $469,901
======== =========
</TABLE>
7
<PAGE>
In June 1996, the Company prepaid $40 million on Term Loan A using proceeds
obtained through the sale of certain accounts receivable (Note 7).
In July 1996, the Company completed an $18 million refinancing of certain
industrial revenue bonds issued by the Business Finance Authority of the State
of New Hampshire (the "Refunding Bonds"). The Refunding Bonds were issued to
refinance certain of the Company's pollution control and solid waste disposal
facilities located in the State of New Hampshire. The bonds are due January 1,
2022 and bear interest at 7.75%.
Also in July 1996, the Company finalized an agreement with the Business
Finance Authority of the State of New Hampshire whereby a total of $12.3 million
of bonds were sold (the "Project Bonds") to finance certain sewage and solid
waste disposal facilities to be used by the Company. The proceeds from the sale
of Project Bonds are to be used to finance eligible project costs. An amount
equivalent to 50% of proceeds are to be prepaid to the Term Loans. Upon sale,
$2.6 million, equivalent to 50% of proceeds, was prepaid on Term Loan A and
an additional $4.0 million was deposited in an interest bearing account with a
trustee to be drawn as needed to finance additional project costs. The Project
Bonds bear interest at 7.875% and are due July 1, 2026.
Maturities of long-term debt (after giving effect to the prepayments of
Term Loan A) for the next five fiscal year ends are: 1997 - $7.9 million; 1998
- - $9.3 million; 1999 - $9.3 million; 2000 - $9.6 million; and 2001 - $22.2
million.
NOTE 5 -- INVENTORIES
<TABLE>
<CAPTION>
September 29, 1996 December 31, 1995
------------------ -----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw material $25,993 $ 37,238
Work in process 5,709 5,856
Finished goods 42,228 40,745
Stores and supplies 34,722 35,141
------- --------
108,652 118,980
Reduction to state inventories at
last-in, first-out cost (12,339) (18,558)
------- --------
$96,313 $100,422
======= ========
</TABLE>
NOTE 6 -- LITIGATION AND ENVIRONMENTAL MATTERS
The Company is a party to various legal proceedings generally incidental to
its business and is subject to a variety of environmental protection statutes
and regulations. As is the case with other companies in similar industries, the
Company faces exposure from actual or potential claims and legal proceedings
involving environmental matters. Although the ultimate disposition of legal
proceedings cannot be predicted with certainty, it is the present opinion of the
Company's management that the outcome of any claim which is pending or
threatened, either individually or on a combined basis, will not have a
materially adverse effect on the consolidated financial position of the Company
but could materially affect consolidated results of operations in a given
period.
In addition, the Company has been identified as a potentially responsible
party, along with others, under the Comprehensive Environmental Response,
Compensation and Liability Act or similar federal and state laws regarding the
past disposal of wastes at approximately 20 sites in the United States. It is
the Company's policy to accrue remediation costs when it is probable that such
costs will be incurred and when
8
<PAGE>
they can be reasonably estimated. Estimates of future response costs are
necessarily imprecise due to, among other things, the
possible identification of presently unknown sites and the allocation of costs
among potentially responsible parties with respect to any such sites. However,
based upon its previous experience with respect to the cleanup of hazardous
substances as well as the regular detailed review of its known hazardous waste
sites and estimated costs to remediate certain sites, the Company has accrued
$10.9 million and $11.0 million at September 29, 1996 and December 31, 1995
respectively. The liabilities can change substantially due to such factors as
the solvency of other potentially responsible parties, additional information on
the nature or extent of contamination, methods of remediation required, and
other actions by governmental agencies or private parties. Although the Company
has accrued cleanup and remediation liabilities currently, expenditures
generally are paid over an extended period of time, in some cases as long as 30
years. While it is not feasible to predict the outcome of all environmental
liabilities, based on the most recent review by management of these matters,
management is of the opinion that its share of the costs of investigation and
remediation of the sites of which it is currently aware will not have a material
adverse effect upon the consolidated financial position of the Company.
However, because of uncertainties associated with remediation activities,
regulations, technologies, and the allocation of costs among various other
parties, actual costs to be incurred at identified sites may vary from
estimates. Therefore, management is unable to determine if the ultimate
disposition of all known environmental liabilities will have a material adverse
effect on the Company's consolidated results of operations in a given year. The
accruals recorded by the Company are periodically reviewed for their adequacy,
and the Company will continue to review the status of all significant existing
or potential environmental issues and adjust its accruals as necessary. The
accruals do not reflect any possible future insurance recoveries. In addition,
as is the case with most manufacturing and many other entities, there can be no
assurance that the Company will not be named as a potentially responsible party
at additional sites in the future or that the costs associated with such
additional sites would not be material.
In December 1993, the EPA published draft rules which contain proposed
regulations affecting pulp and paper industry discharges of wastewater and
gaseous emissions ("Cluster Rules"). The final Cluster Rules were scheduled to
be issued in late 1995; however, their issuance is now anticipated to occur no
earlier than the fourth quarter of 1996 with compliance required three years
later. These Cluster Rules may require significant changes in the pulping,
bleaching and/or wastewater treatment processes presently used in some U.S. pulp
and paper mills, including some of the Company's mills. Although it is
reasonably possible that the implementation of the Cluster Rules could
materially impact the Company's expenditures between 1997 and 2000, it is not
currently possible to estimate such amounts.
NOTE 7 -- SALE OF ACCOUNTS RECEIVABLE
In June 1996, the Company entered into a five year agreement which provides
for the sale of an undivided interest in a $40 million revolving pool of trade
accounts receivable. As collections reduce accounts receivable included in the
pool, the Company sells undivided interests in new receivables in order to bring
the amount sold up to $40 million. The agreement provides for a maximum
allowable amount of accounts receivable that can be sold of $60 million.
Proceeds from the sale, which are reported as operating cash flows in the
condensed consolidated statement of cash flows, were used to prepay $40 million
of long-term debt. The proceeds from the initial and subsequent sales are less
than the face amount of the undivided interests in accounts receivable sold.
The discount from the face amount, which totaled $923,000 through September
1996, is included in selling and administrative expenses in the condensed
consolidated statement of operations.
9
<PAGE>
NOTE 8 -- NEW ACCOUNTING PRONOUNCEMENT
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 ("Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities"). Statement of
Financial Accounting Standards No. 125 ("SFAS No. 125") provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No.125 is effective for transactions
occurring after December 31, 1996. The Company does not believe that adoption
of SFAS No. 125 will have a material adverse effect on its financial position
or results of operations.
NOTE 9 -- SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED STATEMENT
OF OPERATIONS
The following supplemental unaudited pro forma condensed statements of
operations are presented for informational purposes to present the results of
operations assuming that the Spin-Off of the Predecessor Business had occurred
as of December 26, 1994 and that the issuance of debt discussed in Note 1 had
occurred as of December 26, 1994. This information may not necessarily be
indicative of the future results of operations of the Company or what the
results of operations would have been had the Company operated as a separate
independent Company during the entire periods presented.
<TABLE>
<CAPTION>
Nine Months Ended
September 24, 1995
----------------------------------------------
Pro forma
Historical Adjustments Pro forma
---------- ----------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net sales $798,709 $ (750)(a) $797,959
Less:
Cost of goods sold 689,207 1,393 (b) 690,600
-------- ------- --------
Gross margin 109,502 (2,143) 107,359
Selling and administrative
expenses 43,497 43,497
-------- ------- --------
Operating Income 66,005 (2,143) 63,862
Interest expense (6,554) (32,351)(c) (38,905)
Other income 268 268
------- ------- --------
Income before income taxes 59,719 (34,494) 25,225
Provision for income taxes 23,729 13,418)(d) 10,311
-------- ------- --------
NET INCOME $35,990 $(21,076) $14,914
======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
September 24, 1995
-------------------------------------------
Pro forma
Historical Adjustments Pro forma
---------- ----------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net sales $264,779 $(250)(a) $264,529
Less:
Cost of goods sold 221,016 464 (b) 221,480
--------- ----------- ----------
Gross margin 43,763 (714) 43,049
Selling and administrative
expenses 15,398 15,398
--------- ----------- ----------
Operating Income 28,365 (714) 27,651
Interest expense (5,569) (7,855)(c) (13,424)
Other income 16 16
--------- ----------- ----------
Income before income taxes 22,812 (8,569) 14,243
Provision for income taxes 8,966 3,333 (d) 5,633
--------- ----------- ----------
NET INCOME $13,846 $(5,236) $8,610
========= =========== ===========
</TABLE>
(a) Historically, the Company has produced approximately 38,000 tons of creped
paper for converting to toweling for sale to James River's Consumer
Products Business at the Company's cost to produce. In connection with the
Spin-Off, the Company has entered into a product supply agreement whereby
the Company will supply to James River creped paper for converting to
toweling amounting to up to 20,000 tons annually at an agreed upon price.
The financial effect of this agreement would have decreased each of net
sales and income before income taxes by approximately $750,000 for the nine
months of 1995 and $250,000 for the three months of 1995. The Company
will utilize the remaining 18,000 tons of capacity as it deems appropriate.
No adjustment has been made in the pro forma statements with respect to the
Company's utilization of this remaining capacity.
(b) Historically, when the Company has purchased pulp from facilities within
James River, the purchase price of the pulp was reflected at existing
published prices less a discount ranging from 0% to 9% based upon a
combination of prevailing market prices and volumes purchased. Beginning
August 28, 1995, based upon a three year Pulp Purchase Agreement entered
into by the Company and James River, the price of such pulp purchases will
be at existing published prices less a discount ranging from 0% to 6%
based upon a combination of prevailing market prices and volumes purchased.
The effect of this agreement, if it was consummated at the beginning of the
period presented, would have increased cost of goods sold by approximately
$1,393,000 for the nine months of 1995 and $464,000 for the three months of
1995.
(c) Reflects pro forma increases in the Company's interest expense assuming
that amounts outstanding in 1996 with respect to the Senior Subordinated
Notes and borrowings under the Bank Credit Facility were outstanding during
the corresponding period in 1995. Pro forma interest expense also includes
line of credit fees, guaranty fees for IRB's and commitment fees on the
unused portion of the Revolver for the periods presented. Included in pro
forma interest expense is the amortization of the pro rata portion of debt
issue costs related to the Financings which will be amortized over the
lives of the related indebtedness. Variable rate debt of the Company is
subject to ongoing interest rate fluctuations. The effect of a 1% increase
in the interest rate on these borrowings would have the impact of
increasing interest expense by approximately $1.3 million for the nine
months of 1995 and $.7 million for the three months of 1995.
(d) Reflects the effects of the pro forma adjustments on income tax expense
using an estimated marginal tax rate of 38.9% for the periods presented.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Crown Paper Co. and subsidiaries (the "Company") together with its Parent,
Crown Vantage Inc., were organized to effect the Spin-off of certain assets of
James River Corporation of Virginia ("James River") to its shareholders. Prior
to the Spin-off, the Company and its Parent had never operated as separate,
stand-alone companies.
The following management's discussion and analysis of certain significant
factors affecting the Company's results of operations during the periods
included in the accompanying condensed consolidated statements of operations and
changes in the Company's financial condition since December 31, 1995 is made on
a historical basis. Historical results of Crown Paper Co. include the actual
operations of the Company for the three months and nine months ended September
29, 1996, and the combined historical operations of the Predecessor Business
while a part of James River for the three months and nine months ended September
24, 1995. James River provided certain corporate general and administrative
services to the Company prior to the Spin-Off. These overhead costs for the
quarter and nine months ended September 24, 1995 have been allocated to the
Company based upon net sales and are included in selling and administrative
expenses.
The Company is a major producer of value-added paper products for a diverse
array of end-uses. The Company's two business sectors and corresponding
principal product categories are (i) printing and publishing papers, for
applications such as special interest magazines, books, custom business forms
and corporate communications and promotions (e.g., annual reports and
stationery); and (ii) specialty papers, principally for food and retail
packaging applications and conversion into such items as coffee filters, cups
and plates.
The Company operates 11 facilities using 33 diverse paper machines. The
Company's two largest facilities are integrated operations located in St.
Francisville, Louisiana and Berlin and Gorham, New Hampshire. St. Francisville
produces coated groundwood papers for magazines and catalogs and uncoated
specialty converting papers. Berlin-Gorham primarily produces uncoated printing
and publishing papers as well as market pulp. The Company also produces
uncoated printing and publishing papers at its non-integrated facilities in
Adams, Massachusetts; Newark, Delaware; Ypsilanti, Michigan; and Dalmore and
Guardbridge, Scotland. The Company's food and retail packaging papers are
produced primarily at non-integrated facilities in Port Huron and Parchment,
Michigan and Milford, New Jersey. In addition to its primary paper-making
operations, the Company operates a cast-coating facility in Richmond, Virginia.
12
<PAGE>
RESULTS OF OPERATIONS
The Company's net sales for each business sector as well as pulp and
miscellaneous, are as follows:
<TABLE>
<CAPTION>
Net Sales and Tonnage by Sector
for the Nine Months Ended
September 29, 1996 September 24, 1995
----------------------- -----------------------
Tons Sales Tons Sales
----------- ---------- ----------- ----------
(thousands) (millions) (thousands) (millions)
<S> <C> <C> <C> <C>
Printing and Publishing Papers
Coated groundwood 193.4 $ 170.6 208.7 $ 185.6
Uncoated 181.9 181.1 180.1 202.0
Specialty Papers
Food and retail packaging 176.9 229.7 189.2 264.6
Converting 125.3 112.5 122.4 116.7
Pulp and Miscellaneous 28.7 10.6 34.9 29.8
----------- ---------- ----------- ---------
706.2 $ 704.5 735.3 $ 798.7
=========== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Net Sales and Tonnage by Sector
for the Quarter Ended
September 29, 1996 September 24, 1995
---------------------- ----------------------
Tons Sales Tons Sales
----------- --------- ----------- ----------
(thousands) (millions) (thousands) (millions)
<S> <C> <C> <C> <C>
Printing and Publishing Papers
Coated groundwood 69.4 $ 53.2 69.7 $ 68.1
Uncoated 60.1 56.6 57.7 65.7
Specialty Papers
Food and retail packaging 57.7 69.7 57.9 84.1
Converting 44.6 37.4 36.3 37.3
Pulp and Miscellaneous 11.6 4.2 12.2 9.6
---------- ---------- ----------- ----------
243.4 $221.1 233.8 $264.8
========== ========== =========== ==========
</TABLE>
13
<PAGE>
NET SALES
The Company's net sales decreased 11.8% to $704.5 million for the nine
months ended September 29, 1996 as compared to $798.7 million for the same
period in 1995. Net sales decreased 16.5% to $221.1 million for the three
months ended September 29, 1996 as compared to $ 264.8 million for the same
period in 1995. The decrease for the nine month period of 1996 resulted
primarily from a 8.2% decline in average selling price per ton for the nine
months in 1996 as compared to 1995. The decrease in sales for the quarter ended
September 29, 1996 as compared to the quarter ended September 24, 1995 was also
attributable to a decline in average selling price per ton which totalled
19.8%, partially offset by a 4.1% increase in sales volume.
Net sales of coated groundwood paper (which is used principally in the
production of magazines and catalogs) for the nine month period ended September
29, 1996 were $170.6 million, a 8.1% decline as compared to the same period in
1995. Sales volume decreased 15,300 tons for the first nine months of 1996
compared to 1995, while the average price per ton decreased only slightly from
$889 in 1995 to $882 in 1996. Net sales of coated groundwood papers decreased
$15.0 million in the third quarter of 1996 as compared to the third quarter of
1995, a 21.9% decline. While demand remained strong in the third quarter of
1996, the average price per ton decreased by 21.5% to $767 as compared to the
third quarter of 1995 average price per ton of $977. A continued overhang of
coated groundwood paper inventory at the customer level suppressed prices in the
third quarter of 1996 despite improvements in demand from earlier in the year.
Net sales of uncoated printing and publishing papers decreased from $202.0
million for the first nine months of 1995 to $181.1 million for the first nine
months of 1996, a 10.4% decline. Average selling price per ton for the first
nine months of 1996 declined by $126 or 11.2% as compared to the same period in
1995, while 1996 sales volume was slightly improved over 1995. Net sales of
uncoated printing and publishing papers in the third quarter of 1996 were $56.6
million, down $9.1 million from the third quarter of 1995. The decrease in net
sales is primarily due to a 17.2% decline in average selling price per ton in
the third quarter of 1996 as compared to the third quarter of 1995, partially
offset by a 4.1% increase in tons sold.
Food and retail packaging paper net sales totaled $229.7 million during the
first nine months of 1996, a $34.9 million decline from the same period in 1995.
The 13.2% decrease in net sales is the result of a l2,300 ton decrease in sales
volume, coupled with a $99 per ton (7.1%) decline in average selling price per
ton during the nine month period ended September 29, 1996 compared to the same
period in 1995. For the third quarter of 1996, net sales were $69.7 million,
down $14.4 million from third quarter 1995. Average selling price per ton in
the third quarter of 1996 was $1,207, down 16.9% from the average selling price
per ton of $1,453 in the third quarter of 1995. Demand for food and retail
packaging papers was virtually unchanged quarter to quarter with sales volume
of 57,700 tons in the third quarter of 1996 as compared to 57,900 tons in the
third quarter of 1995.
Net sales of specialty converting papers during the first nine months of
1996 were $112.5 million, a 3.6% decrease compared to the first nine
months of 1995. The decrease is the result of a 5.8% decrease in average
selling price per ton, partially offset by a 2.4% increase in tons sold . Net
sales of specialty converting papers in the third quarter of 1996 totaled $37.4
million, as compared to net sales of $37.3 million in the third quarter of 1995.
Tons sold in the third quarter of 1996 were 44,600, a 22.9% increase over the
same period in 1995. However, average selling price per ton in the third
quarter of 1996 declined $189 to $838 as compared to $1,027 in the third quarter
of 1995.
14
<PAGE>
Net sales of pulp and miscellaneous products decreased to $10.6 million for
the nine months ended September 29, 1996 as compared to $29.8 million in the
same period in 1995. Tons sold in the nine month period of 1996 decreased to
28,700 tons compared to 34,900 tons in the same period of 1995. This decrease
was due primarily to the increased internal use of pulp produced by the Company.
The average sales price per ton in the first nine months of 1996 was $368, a
57.0% decrease from the same period in 1995. In the third quarter, net sales of
pulp and miscellaneous products decreased from $9.6 million in 1995 to $4.2
million in 1996. Tons sold decreased to 11,600 in the third quarter of 1996
from 12,200 in the third quarter of 1995. During the third quarter of 1996,
the average sales price per ton decreased 54.5% to $357 as compared to $783 in
the third quarter of 1995.
OPERATING INCOME
<TABLE>
<CAPTION>
Operating Income by Sector Operating Income by Sector
for the Quarter Ended for the Nine Months Ended
------------------------------ -------------------------------
Sept. 29, 1996 Sept. 24, 1995 Sept. 29, 1996 Sept. 24, 1995
-------------- -------------- -------------- ---------------
(Millions) (Millions)
<S> <C> <C> <C> <C>
Printing and
Publishing
Papers $ (1.5) $ 22.5 $ 20.6 $ 48.6
Food and
retail
packaging (1.3) (5.9) 3.9 (8.7)
Converting 1.2 6.6 10.7 15.3
Pulp and
Miscellaneous (1.4) 5.2 (7.6) 10.8
------- ------- ------- --------
$ (3.0) $ 28.4 $ 27.6 $ 66.0
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
The Company had operating income of $27.6 million for the nine month period
in 1996 compared to operating income of $66.0 million for the same period in
1995. In the third quarter of 1996, the Company had an operating loss of $3.0
million, as compared to operating income of $28.4 million in the third quarter
of 1995.
Operating income for printing and publishing papers decreased to $20.6
million in the nine months of 1996 compared to $48.6 million for 1995. The
decrease in operating income resulted primarily from the 11.2% decrease in
uncoated paper prices discussed above as well as the 15,300 ton decrease in
coated groundwood sales during the first nine months of 1996 as compared to
1995. The operating loss for printing and publishing papers was $1.5 million
in the third quarter of 1996 as compared to $22.5 million of operating income in
the third quarter of 1995. The decrease in operating income was primarily
because of the 21.5% decline in average selling price per ton for coated
groundwood papers discussed above.
Food and retail packaging operating income increased from a loss of $8.7
million for the first nine months of 1995 to a profit of $ 3.9 million in the
first nine months of 1996. The increase in operating profits is attributable to
a 30% decrease in pulp costs and cost reduction initiatives implemented in
1996. The Company's packaging mills are non-integrated and, as a result,
operating results generally improve during periods of declining pulp costs.
Operating results improved from a loss of $ 5.9 million in the third quarter of
1995 to a loss of $1.3 million in the third quarter of 1996. Third quarter 1996
operating results improved as a result of the lower pulp costs and cost
reduction initiatives.
15
<PAGE>
Operating income for converting papers decreased to $10.7 million in the
nine months of 1996 as compared to $15.3 million in the first nine months of
1995. The decrease in operating profits is attributable to a 1l.7% decrease in
average selling price per ton at the Company's specialty converting facility.
This decrease was partially offset by a 6,400 ton increase in tons sold at the
Company's cast coating facility which generally produces higher margin products.
Operating profits for the third quarter of 1996 were $1.2 million, as compared
to operating profits of $6.6 million in the third quarter of 1995. The decrease
in average selling price per ton discussed above resulted in the $5.4 million
decrease in operating profits.
Selling and administrative expenses decreased $5.4 million for the nine
month period of 1996 compared to the same period in 1995 as a result of certain
cost reduction initiatives underway. For the third quarter, selling and
administrative expenses were down $1.6 million in 1996 compared to 1995 for the
same reasons.
INTEREST EXPENSE
Interest expense increased $30.8 million and $6.4 million for the nine
month and three month periods of 1996, compared to the same periods in 1995 as a
result of the borrowings incurred in connection with the Spin-Off (see
Liquidity and Sources of Capital).
LIQUIDITY AND SOURCES OF CAPITAL
Prior to the Spin-Off, the assets of the Company comprised a substantial
part of the Communications Paper Business and the paper-based part of the Food
and Consumer Packaging Business of James River. For the period presented for
1995, the Company participated in James River's centralized cash management
system and, as such, its cash funding requirements, if any, were met by James
River. Since consummation of the Spin-Off, the Company no longer has any such
financial arrangements with James River and now relies on internally generated
funds and its ability to access funds from the equity and debt markets.
In connection with the Spin-Off, the Company obtained $250 million in
financing through a public offering of Senior Subordinated Notes and $253
million initial borrowing under a $350 million credit facility from a group of
banks (collectively, the "Financing"). The net proceeds from the Financing were
paid to James River together with $100 million Senior Pay-in-Kind Notes, issued
by the Company's Parent, as a return of James River's capital investment.
Under the bank credit facility the revolving credit available is in the
aggregate amount of $150 million with a $75 million sublimit for letters of
credit (of which $42 million has been used at September 29, 1996) and can be
used for general corporate purposes, working capital needs, letters of credit
and permitted investments. At September 29, 1996, $18.0 million of the
revolving credit was outstanding and $90 million was available if needed.
16
<PAGE>
Principal amounts on the Term Loan A and Term Loan B are due in quarterly
installments together with accrued interest. In addition to scheduled
repayments, the Company is obligated to make prepayments upon the occurrence of
certain events. During June 1996, the Company prepaid $40 million on Term Loan A
using proceeds from the sale of certain trade accounts receivable. Term Loan A
was further prepaid $2.6 million, an amount equivalent to 50% of proceeds from
the issuance of bonds (see below). The Company anticipates that cash flows
provided by operating activities will be sufficient to pay its operating
expenses and satisfy its debt repayments for the remainder of 1996.
Cash flows provided by operating activities were $89.7 million for the nine
months ended September 29, 1996 compared to $102.4 million in the first nine
months of 1995. Operating cash flows were increased by $40 million as a result
of the sale of certain trade accounts receivable in June 1996 (see Note 7).
Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$88.3 million for the first nine months of 1996, as compared to $126.6 million
in 1995.
The Company's capital expenditures for the nine months ended September 29,
1996 were $58.9 million compared to $33.3 million in the same period in 1995.
A fully-integrated pulp and paper mill generally consists of an extensive
network of buildings, machines and equipment, which require continual upgrade,
replacement, modernization and improvement to remain competitive and meet
changing customer preferences and regulatory requirements. The Company's
strategic capital plans involve aggregate capital expenditure for the remainder
of 1996 of approximately $24 million. These capital expenditures will be
financed primarily by cash flows from operations.
In July 1996, the Company completed an $18 million refinancing of certain
industrial revenue bonds issued by the Business Finance Authority of the State
of New Hampshire (the "Refunding Bonds"). The Refunding Bonds were issued to
refinance certain of the Company's pollution control and solid waste disposal
facilities located in the State of New Hampshire. The bonds are due January 1,
2022 and bear interest at 7.75%.
Also in July 1996, the Company finalized an agreement with the Business
Finance Authority of the State of New Hampshire whereby a total of $12.3 million
of bonds were sold (the "Project Bonds") to finance certain sewage and solid
waste disposal facilities to be used by the Company. The proceeds from the sale
of Project Bonds are to be used to finance eligible project costs. An amount
equivalent to 50% of proceeds are to be prepaid to the Term Loans. Upon sale,
$2.6 million, an amount equivalent to 50% of proceeds, was prepaid on Term
Loan A and an additional $4.0 million was deposited in an interest bearing
account with a trustee to be drawn as needed to finance additional project
costs. The Project Bonds bear interest at 7.875% and are due July 1, 2026.
17
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Ex. 3(ii) Restated Bylaws of Crown Paper Co. (as amended July 31, 1996)
(Electronic Filing Only)
Ex. 27. Financial Data Schedule (Electronic Filing Only)
(b) Reports on Form 8-K
None--
18
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
CROWN PAPER CO.
(Registrant)
/s/ Charles H. Shreve
- ------------------------------
Charles H. Shreve
Senior Vice President,
Chief Accounting Officer
(Duly Authorized Officer and
Chief Accounting Officer)
November 12, 1996
19
<PAGE>
EXHIBIT 3(ii)
RESTATED BYLAWS OF
CROWN PAPER CO.
(July 31, 1996)
ARTICLE I - MEETING OF STOCKHOLDERS
1.1 PLACE AND TIME OF MEETINGS. Meetings of stockholders shall be
held at such place, either within or without the Commonwealth of Virginia,
and at such time, as may be provided in the notice of the meeting.
1.2 ORGANIZATION AND ORDER OF BUSINESS. The Chairman, President
and Chief Executive Officer (the "Chairman"), or, in his absence a Vice
President, shall serve as chairman at all meetings of the stockholders. The
Secretary of the Corporation, or, in his absence, an Assistant Secretary,
shall act as secretary at all meetings of the stockholders. In the event that
neither the Secretary nor any Assistant Secretary is present, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
The Chairman shall have the authority to make such rules and
regulations, to establish such procedures and to take such steps as he may
deem necessary or desirable for the proper conduct of each meeting of the
stockholders, including, without limitation, the authority to make the agenda
and to establish procedures for (i) dismissing of business not properly
presented, (ii) maintaining of order and safety, (iii) placing limitations on
the time allotted to questions or comments on the affairs of the Corporation,
(iv) placing restrictions on attendance at a meeting by persons or classes of
persons who are not stockholders or their proxies, (v) restricting entry to
a meeting after the time prescribed for the commencement thereof and (vi)
commencing, conducting and closing voting on any matter.
1.3 ANNUAL MEETING. The annual meeting of stockholders shall be held
on the second Thursday in April of each year, if not a legal holiday, and if
a legal holiday, then on the next succeeding business day.
1.4 SUBSTITUTE ANNUAL MEETING. If an annual meeting of stockholders
is not held on the day designated in these Bylaws, a substitute annual
meeting shall be called as promptly as is practicable by the Chairman or the
Board of Directors. Any meeting so called shall be designated and treated for
all purposes as the annual meeting.
1.5 SPECIAL MEETINGS. Special meetings of the stockholders may be
called only by the Chairman or the Board of Directors. Only business within
the purpose or purposes described in the notice for a special meeting of
stockholders may be conducted at the meeting.
<PAGE>
1.6 RECORD DATES. The record date for determining stockholders
entitled to demand a special meeting of stockholders is the date the first
stockholder signs the demand that the meeting be held.
Except as is provided in the preceding paragraph, the Board of Directors
may fix, in advance, a record date to make a determination of stockholders
entitled to notice of, or to vote at, any meeting of stockholders, to receive
any dividend or for any purpose, such date to be not more than 70 days before
the meeting or action requiring a determination of stockholders. If no such
record date is set the record date shall be the close of business on the day
before the date on which the first notice is given.
1.7 NOTICE OF MEETINGS. Written notice stating the place, day and
hour of each meeting of stockholders and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be given not
less than ten nor more than 60 days before the date of the meeting (except
when a different time is required in these Bylaws or by law) either
personally or by mail, telephone, telegraph, teletype, telecopy or other form
of wire or wireless communication, or by private courier, to each stockholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be effective when deposited in first class United States mail with
postage thereon prepaid, addressed to the stockholder at his address as it
appears on the share transfer books of the Corporation. If given in any other
manner, such notice shall be deemed effective when (i) given personally or by
telephone, (ii) sent by telegraph, teletype, telecopy or other form of wire
or wireless communication or (iii) given to a private courier to be delivered.
Notice of a stockholder's meeting to act on (i) an amendment of the
Articles of Incorporation; (ii) a plan of merger or share exchange; (iii) the
sale, lease, exchange or other disposition of all or substantially all the
property of the Corporation otherwise than in the usual and regular course of
business, or (iv) the dissolution of the Corporation, shall be given, in the
manner provided above, not less than 25 nor more than 60 days before the date
of the meeting. Any notice given pursuant to this section shall state that
the purpose, or one of the purposes, of the meeting is to consider such
action and shall be accompanied by (x) a copy of the proposed amendment, (y)
a copy of the proposed plan of merger or share exchange, or (z) a summary of
the agreement pursuant to which the proposed transaction will be effected. If
only a summary of the agreement is sent to the stockholders, the Corporation
shall also send a copy of the agreement to any stockholder who requests it.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is
2
<PAGE>
announced at the meeting before adjournment. However, if a new record date
for an adjournment meeting is fixed, notice of the adjourned meeting shall be
given to stockholders as of the new record date, unless a court provides
otherwise.
1.8 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A stockholder may waive
any notice required by law, the Articles of Incorporation or these Bylaws
before or after the date and time of the meeting that is the subject of such
notice. The waiver shall be in writing, be signed by the stockholder entitled
to the notice, and be delivered to the Secretary of the Corporation for
inclusion in the minutes or filing with the corporate records.
A stockholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting, unless the stockholder at the
beginning of the meeting objects to holding the meeting or transacting
business at the meeting, and (ii) waives objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the stockholder objects to
considering the matter when it is presented.
1.9 QUORUM AND VOTING REQUIREMENTS. Unless otherwise required by law,
a majority of the votes entitled to be cast on a matter constitutes a quorum
for action on that matter. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is
or shall be set for that adjourned meeting. If a quorum exists, action on a
matter, other than the election of directors, is approved if the votes cast
favoring the action exceed the votes cast opposing the action, unless a
greater number of affirmative votes is required by law. Directors shall be
elected by a plurality of the votes cast by the shares entitled to vote in
the election at a meeting at which a quorum is present. Less than a quorum
may adjourn a meeting.
1.10 ACTION WITHOUT MEETING. Action required or permitted to be taken
at a meeting of stockholders may be taken without a meeting and without
action by the Board of Directors if the action is taken by all the
stockholders entitled to vote on the action. The action shall be evidenced by
one or more written consents describing the action taken, signed by all the
stockholders entitled to vote on the action, and delivered to the Secretary of
the Corporation for inclusion in the minutes or filing with the corporate
records. Action taken by unanimous written consent shall be effective
according to its terms when all consents are in the possession of the
Corporation, unless the consent specifies a different effective date, in
which event specified therein, provided the consent states the date of
execution by each stockholder. A stockholder may withdraw a consent only by
3
<PAGE>
delivering a written notice of withdrawal to the Corporation prior to the
time that all consents are in the possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.6 the
record date for determining stockholders entitled to take action without a
meeting is the date the first stockholder signs the consent described in the
preceding paragraph.
ARTICLE II - DIRECTORS
2.1 GENERAL POWERS. The Corporation shall have a Board of Directors.
All corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 NUMBER AND TERM. The number of directors of the Corporation shall
be eight. This number may be changed from time to time by amendment to these
Bylaws to increase or decrease by 30 percent or less the number of directors
last elected by the stockholders, but only the stockholders may increase or
decrease the number by more than 30 percent. No decrease in number shall have
the effect of shortening the term of any incumbent director. Each director
shall hold office until his death, resignation or removal or until his
successor is elected.
2.3 ELECTION. Except as provided in Section 2.4, the directors (other
than initial directors) shall be elected by the holders of the Common shares
at each annual meeting of stockholders and those persons who receive the
greatest number of votes shall be deemed elected even though they do not
receive a majority of the votes cast. No individual shall be name or elected
as a director without his prior consent.
2.4 REMOVAL; VACANCIES. The stockholders may remove one or more
directors with or without cause. If a director is elected by a voting group,
only the stockholders of that voting group may elect to remove him. Unless
the Articles of Incorporation require a greater vote, a director may be
removed if the number of votes cast to remove him constitutes a majority of
the votes entitled to be cast at an election of directors of the voting group
or voting groups by which such director was elected. A director may be
removed by the stockholders only at a meeting called for the purpose of
removing him and the meeting notice must state that the purpose, or one of
the purposes of the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from
the removal of a director or an increase in the number of directors, may be
filled by (i) the stockholders, (ii)
4
<PAGE>
the Board of Directors or (iii) the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors, and
may, in the case of a resignation that will become effective at a specified
later date, be filled before the vacancy occurs but the new director may not
take office until the vacancy occurs.
2.5 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of stockholders, for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular
meetings shall be held at such times and at such places, within or without
the Commonwealth of Virginia, as the Chairman or the Board of Directors shall
designated from time to time. If no place is designated, regular meetings
shall be held at the principal office of the Corporation.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman or a majority of the Directors of the Corporation,
and shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the person or persons calling the meetings shall
designate. If no such place is designed in the notice of a meeting, it shall
be held at the principal office of the Corporation.
2.7 NOTICE OF MEETINGS. No notice need be given of regular meetings
of the Board of Directors.
Notices of special meetings of the Board of Directors shall be given to
each director in person or delivered to this residence or business address
(or such other place as he may have directed in writing) not less than
twenty-four (24) hours before the meeting by mail, messenger, telecopy,
telegraph, or other means of written communication or by telephoning such
notice to him. Any such notice shall set forth the time and place of the
meeting and state the purpose for which it is called.
2.8 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A director may waive any
notice required by law, the Articles of Incorporation, or these Bylaws before
or after the date and time stated in the notice, and such waiver shall be
equivalent to the giving of such notice. Except as provided in the next
paragraph of this section, the waiver shall be in writing, signed by the
director entitled to the notice and filed with the minutes or corporate
records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director at the beginning of
the meeting promptly upon his arrival objects to holding the meeting or
transacting business at
5
<PAGE>
the meeting and does not thereafter vote for assent to action taken at the
meeting.
2.9 QUORUM; VOTING. A majority of the number of directors fixed in
these Bylaws shall constitute a quorum for the transaction of business at a
meeting of the Board of Directors. If a quorum is present when a vote is
taken, the affirmative vote of a majority of the directors present is the act
of the Board of Directors. A director who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (i) he
objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or transacting specified business at the meeting; or (ii) he votes
against, or abstains from, the action taken.
2.10 TELEPHONE MEETINGS. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct
the meeting through the use of, any means of communication by which all
directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.
2.11 ACTION WITHOUT MEETING. Action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting if the
action is taken by all members or the Board. The action shall be evidenced by
one or more written consents stating the action taken, signed by each
director either before or after the action taken, and included in the minutes
or filed with the corporate records reflecting the action taken. Action taken
under this section shall be effective when the last director signs the
consent unless the consent specifies a different effective date in which
event the action taken is effective as of the date specified therein provided
the consent states the date of execution by each director.
ARTICLE III - COMMITTEES OF DIRECTORS
3.1 COMMITTEES. The Board of Directors may create one or more
committees and appoint members of the Board of Directors to serve on them.
Unless otherwise provided in these Bylaws, each committee shall have two or
more members who serve at the pleasure of the Board of Directors. The
creation of a committee and appointment of members to it shall be approved by
a majority of all of the directors in office when the action is taken.
3.2 AUTHORITY OF COMMITTEES. To the extent specified by the Board
of Directors, each committee may exercise the authority of the Board of
Directors, except that a committee may not (i) approve or recommend to
stockholders action that is required by law to be
6
<PAGE>
approved by stockholders; (ii) fill vacancies on the Board of Directors or on
any of its committees; (iii) amend the Articles of Incorporation; (iv) adopt,
amend, or repeal these Bylaws; (v) approve a plan of merger not requiring
stockholder approval; (vi) authorize or approve a distribution, except
according to a general formula or method prescribed by the Board of
Directors; or (vii) authorize or approve the issuance or sale or contract for
sale, of stock or determine the designation and relative rights,
preferences, and limitations of a class or series of stock, except that the
Board of Directors may authorize a committee, or a senior executive officer
of the Corporation, to do so within limits specifically prescribed by the
Board of Directors.
3.3 EXECUTIVE COMMITTEE. The Board of Directors shall appoint an
Executive Committee consisting of two or more directors, which committee
shall have all of the authority of the Board of Directors except to the
extent such authority is limited by the provisions of Section 3.2.
3.4 COMMITTEE MEETINGS; MISCELLANEOUS. The provisions of these Bylaws
which govern meetings, action without meetings, notice and waiver of notice,
and quorum and voting requirements of the Board of Directors shall apply to
committees of directors and their members as well.
ARTICLE IV - OFFICERS
4.1 OFFICERS. The officers of the Corporation shall be a Chairman,
President and Chief Executive Officer; a Secretary; a Chief Financial
Officer; and such additional officers, including Vice Presidents and other
officers, as the Board of Directors may deem necessary or advisable to
conduct the business of the Corporation. The Chairman shall be a member of
the Board of Directors. The Board of Directors shall also designate those
officers who are deemed to be "Executive Officers." Any two offices may be
combined except the offices of President and Secretary.
4.2 ELECTION; TERM. Officers shall be elected at each annual meeting
of the Board of Directors and shall hold office, unless removed, until the
next annual meeting of the Board of Directors or until their successors are
elected. Any officer may resign at any time upon written notice to the Board
of Directors.
4.3 REMOVAL OF OFFICERS. Officer may be removed, with or without
cause, at any time by the Board of Directors.
4.4 DUTIES OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER.
The Chairman shall have general charge of, and be charged with, the duty of
supervision of the business of the Corporation.
7
<PAGE>
In addition, he or she shall perform such duties, from time to time, as may
be assigned to him or her by the Board of Directors.
Unless he or she declines to serve, the Chairman shall preside at all
meetings of the stockholders and the Board of Directors and perform such
duties, from time to time, as may be assigned to him or her by the Board of
Directors.
4.5 DUTIES OF THE SECRETARY. The Secretary shall have the duty to see
that a record of the proceedings of each meeting of the stockholders and the
Board of Directors, and any committee of the Board of Directors, is properly
recorded and that notices of all such meetings are duly given in accordance
with the provisions of these Bylaws or as required by law; he or she may
affix the corporate seal to any document the execution of which is duly
authorized, and when so affixed may attest the same; and, in general, he or
she shall perform all duties incident to the office of secretary of a
corporation, and such other duties as, from time to time, may be assigned to
him or her by the Chairman or the Board of Directors, or as may be required
by law.
4.6 DUTIES OF THE CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall have charge of and be responsible for all securities, funds,
receipts and disbursements of the Corporation, and shall deposit or cause to
be deposited, in the name of the Corporation, all monies or valuable effects
in such banks, trust companies or other depositories as shall, from time to
time, be selected by or under authority granted by the Board of Directors; he
or she shall be custodian of the financial records of the Corporation; he or
she shall keep or cause to be kept full and accurate records of all receipts
and disbursements of the Corporation and shall render to the Chairman and the
Board of Directors, whenever requested, an account of the financial condition
of the Corporation; and shall perform such duties as may be assigned to him
or her by the Chief Executive Officer or the Board of Directors.
4.7 DUTIES OF OTHER OFFICERS. The other officers of the Corporation
shall have such authority and perform such duties as shall be prescribed by
the Board of Directors or by officers authorized to appoint them to their
respective offices. To the extent that such duties are not so stated, such
officers shall have such authority and perform the duties which generally
pertain to their respective offices, subject to the control of the Chief
Executive Officer or the Board of Directors.
4.8 VOTING SECURITIES OF OTHER CORPORATIONS. Any one of the Chairman
or Chief Financial Officer shall have the power to act for and vote on behalf
of the Corporation at all meetings of the stockholders of any corporation in
which this Corporation holds stock, or in connection with any consent of
stockholders in lieu of any such meeting.
8
<PAGE>
4.9 BONDS. The Board of Directors may require that any or all
officers, employees and agents of the Corporation give bond to the
Corporation, with sufficient sureties, conditioned upon the faithful
performance of the duties of their respective offices or positions.
ARTICLE V - STOCK CERTIFICATES
5.1 FORM. Stock of the Corporation shall, when fully paid, be
evidenced by certificates containing such information as is required by law
and approved by the Board of Directors. Certificates shall be signed by the
President and the Secretary and may (but need not) be sealed with the seal of
the Corporation. The seal of the Corporation and any or all of the signatures
on such certificate may be facsimile. If any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to
be such officer before such certificate is issued it may be issued by the
Corporation with the same effect as if he were such officer on the date of
issue.
5.2 TRANSFER. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing
the stock of the Corporation. Transfers of stock and of the certificates
representing such stock shall be made upon the books of the Corporation by
surrender of the certificates representing such stock accompanied by written
assignments given by the owners or their attorneys-in-fact.
5.3 RESTRICTIONS ON TRANSFER. A lawful restriction on the transfer or
registration of transfer of stock is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the
requirements of law and its existence is noted conspicuously on the front or
back of the certificate representing the stock. Unless so noted a restriction
is not enforceable against a person without knowledge of the restriction.
5.4 LOST OR DESTROYED STOCK CERTIFICATES. The Corporation may issue a
new stock certificate in the place of any certificate theretofore issued
which is alleged to have been lost or destroyed and may require the owner of
such certificate, or his legal representative, to give the Corporation a
bond, with or without surety, or such other agreement, undertaking or
security as the Board of Directors shall determine is appropriate, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction or the issuance of any such new
certificate.
9
<PAGE>
ARTICLE VI - MISCELLANEOUS PROVISIONS
6.1 CORPORATE SEAL. The corporate seal of the Corporation shall be
circular and shall have inscribed thereon, within and around the
circumference "CROWN PAPER CO." In the center shall be the word "SEAL".
6.2 FISCAL YEAR. The fiscal year of the Corporation shall be
determined in the discretion of the Board of Directors, but in the absence of
any such determination it shall be the fiscal year ending on the last Sunday
in December each year.
6.3 AMENDMENTS. These Bylaws may be amended or repealed, and new
Bylaws may be made, at any regular or special meeting of the Board of
Directors. Bylaws made by the Board of Directors may be repealed or changed
and new Bylaws may be made by the stockholders, and the stockholders may
prescribe that any Bylaw made by them shall not be altered, amended or
repealed by the Board of Directors.
10
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