CROWN PAPER CO
8-K, 1999-07-16
PAPER MILLS
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<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 8-K

                                CURRENT REPORT


    Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


       Date of Report (Date of earliest event reported)    July 9, 1999
                                                        --------------------


                                CROWN PAPER CO.
                                ---------------
            (Exact name of registrant as specified in its charter)



           Virginia                  33-93494                  54-1752385
- -------------------------------------------------------------------------------
 (State or other jurisdiction      (Commission               (IRS Employer
      of incorporation)            File Number)            Identification No.)



               300 Lakeside Drive, Oakland CA                  94612-3592
- -------------------------------------------------------------------------------
           (Address of principal executive offices)            (Zip Code)


     Registrant's telephone number, including area code    (510) 874-3400
                                                       ---------------------


                                  Not Applicable
- -------------------------------------------------------------------------------
         (Former name or former address, if changed since last report)
<PAGE>

ITEM 2.   DISPOSITION OF ASSETS.

On July 9, 1999 Crown Paper Co. (a wholly-owned subsidiary of
Crown Vantage Inc.) completed the sale of its pulp and paper mills in Berlin and
Gorham, New Hampshire to American Tissue Inc. for $45 million cash and the
assumption of certain liabilities. See Exhibit 99.2 for copy of news release.

ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS.

          (b)  Pro forma financial information

               See Exhibit 99.1 for Unaudited Pro Forma Condensed Financial
               Statements as of March 28, 1999, for the three months ended March
               28, 1999 and for the year ended December 27, 1998.

          (c)  Exhibits



        Exhibit No.                               Description
- ----------------------------    ----------------------------------------------

          99.1                  Unaudited Pro Forma Condensed Financial
                                Statements as of March 28, 1999, for the three
                                months ended March 28, 1999 and for the year
                                ended December 27, 1998.

          99.2                  News release announcing successful completion of
                                sale of the Company's pulp and paper mills in
                                Berlin and Gorham, New Hampshire to American
                                Tissue Inc.


<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 hereunto duly authorized.


                                           CROWN PAPER CO.



July 16, 1999                  /s/ Michael J. Hunter
                               ---------------------------------------------
                                          Michael J. Hunter
                               Senior Vice President, Chief Accounting Officer

<PAGE>

                                                                    EXHIBIT 99.1

                                CROWN PAPER CO.
                   UNAUDITED PRO FORMA FINANCIAL STATEMENTS
                       SALE OF BERLIN-GORHAM FACILITIES

     The following Unaudited Pro Forma Condensed Statements of Income for the
three months ended March 28, 1999 and for the year ended December 27, 1998 and
the Unaudited Pro Forma Condensed Balance Sheet as of March 28, 1999 give effect
to Crown Paper Co.'s (the "Company") sale of its pulp and paper mills in Berlin
and Gorham, New Hampshire ("Berlin-Gorham") to American Tissue Inc. ("American
Tissue"). Proceeds from the sale of Berlin-Gorham to American Tissue totaled $45
million in cash plus the assumption by American Tissue of certain liabilities.
The pro forma information is based on the historical consolidated statements of
the Company after giving effect to the pro forma adjustments described in the
Notes to the Unaudited Pro Forma Condensed Financial Statements. The pro forma
financial data are not necessarily indicative of the results that actually would
have occurred had the sale of Berlin-Gorham to American Tissue been consummated
on the dates indicated or that may be obtained in the future.


                                CROWN PAPER CO.
               UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
                       12 MONTHS ENDED DECEMBER 27, 1998
                              (amounts in 000's)

<TABLE>
<CAPTION>
                                           HISTORICAL              HISTORICAL
                                             CROWN                   BERLIN-                  PRO-FORMA
                                             PAPER                  GORHAM (a)               ADJUSTMENTS               PRO-FORMA
                                          -----------             -------------             -------------            ------------
<S>                                       <C>                     <C>                       <C>                      <C>
Net Sales                                 $   850,994             $    (162,873)            $      19,981   (b)      $    708,102

Cost of Goods Sold                            796,935                  (176,202)                   17,583   (b)
                                                                                                    2,074   (c)           640,390
                                          -----------             -------------             -------------            ------------
     Gross Margin                              54,059                    13,329                       324                  67,712

Asset Impairment and Other Charges            163,834                  (143,632)                                           20,202
Selling and Administrative Expenses            62,360                                              (4,115)  (d)
                                                                                                     (640)  (e)
                                                                                                   (2,300)  (f)            55,305
                                          -----------             -------------             -------------            ------------
     Operating Income (Loss)                 (172,135)                  156,961                     7,379                  (7,795)
Interest Expense                              (49,102)                                              2,479   (g)           (46,623)
Other Income, net                               1,630                       (85)                                            1,545
                                          -----------             -------------             -------------            ------------
     Income (Loss) Before Income
     Taxes and extraordinary item            (219,607)                  156,876                     9,858                 (52,873)

Income Tax Provision (Benefit)                (73,534)                                             75,525   (h)             1,991
                                          -----------             -------------             -------------            ------------
     Net Income (Loss) before
     extraordinary item                   $  (146,073)            $     156,876             $     (65,667)           $    (54,864)
                                          ===========             =============             =============            ============
</TABLE>
<PAGE>

                                CROWN PAPER CO.
               UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
                         3 MONTHS ENDED MARCH 28, 1999
                              (amounts in 000's)

<TABLE>
<CAPTION>
                                              HISTORICAL         HISTORICAL
                                                CROWN             BERLIN-            PRO-FORMA
                                                PAPER            GORHAM (a)         ADJUSTMENTS              PRO-FORMA
                                             -------------      ------------       ------------            ------------
<S>                                          <C>                <C>                <C>                     <C>
Net Sales                                    $     201,165      $    (40,125)      $      5,037   (b)      $    166,077

Cost of Goods Sold                                 193,043           (38,293)             4,432   (b)
                                                                                            468   (c)           159,650
                                             -------------      ------------       ------------            ------------
     Gross Margin                                    8,122            (1,832)               137                   6,427

Asset Impairment and Other Charges                  16,175           (16,175)
Property Tax Accrual Reversal                       (8,957)            8,957
Selling and Administrative Expenses                 15,424                                 (981)  (d)
                                                                                           (160)  (e)
                                                                                           (575)  (f)            13,708
                                             -------------      ------------       ------------            ------------
     Operating Income (Loss)                       (14,520)            5,386              1,853                  (7,281)

Interest Expense                                   (12,426)                                 620   (g)           (11,806)
Other Income, net                                      375               (21)                                       354
                                             -------------      ------------       ------------            ------------
     Income (Loss) Before Income Taxes             (26,571)            5,365              2,473                 (18,733)
Income Tax Provision                                   432                                  (42)  (h)               390
                                             -------------      ------------       ------------            ------------
     Net Income (Loss)                       $     (27,003)     $      5,365       $      2,515            $    (19,123)
                                             =============      ============       ============            ============
</TABLE>
<PAGE>

                                CROWN PAPER CO.
                  UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
                                MARCH 28, 1999
                              (amounts in 000's)


<TABLE>
<CAPTION>
                                            HISTORICAL
                                               CROWN         PRO FORMA
                                               PAPER        ADJUSTMENTS          PRO FORMA
                                            ----------     ------------        ------------
<S>                                         <C>            <C>                 <C>
ASSETS
Current Assets
     Cash                                   $   11,230                          $   11,230
     Inventory                                  72,775                              72,775
     Assets held for sale                       45,000      $  (45,000) (a)
     Other current assets                       56,531                              56,531
                                            ----------      ----------          ----------
          Total current assets                 185,536         (45,000)            140,536

     PP&E, net                                 378,664                             378,664
     Other assets                               91,218                              91,218
                                            ----------      ----------          ----------
          Total assets                      $  655,418      $  (45,000)         $  610,418
                                            ==========      ==========          ==========

LIABILITIES

     Current liabilities                    $   97,520      $  (17,000) (g)     $   80,520

Long-Term liabilities
     Long-term debt                            483,006         (28,000) (g)        455,006
     Post retirement benefits                   85,084                              85,084
     Other long-term liabilities                44,352                              44,352
                                            ----------      ----------          ----------
          Total liabilities                    709,962         (45,000)            664,962

Shareholder's Equity (Deficit)
     Common stock and other                    136,667                             136,667
     Retained deficit                         (191,211)                           (191,211)
                                            ----------      ----------          ----------

          Total liabilities and deficit     $  655,418      $  (45,000)         $  610,418
                                            ==========      ==========          ==========
</TABLE>
<PAGE>

                                CROWN PAPER CO.
          NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

(a)  Elimination of Berlin-Gorham's historical income statement and net assets
     held for sale on the balance sheet. The Unaudited Pro Forma Condensed
     Income Statements are presented assuming the sale occurred at the beginning
     of the periods presented. The Unaudited Pro Forma Condensed Balance Sheet
     is presented assuming the sale occurred on the balance sheet date.

(b)  Effective with the sale of Berlin-Gorham, the Company entered into a three
     year Strategic Alliance Agreement ("SAA") with American Tissue that
     provides that the Company retains the rights to certain grades of paper
     critical to its uncoated printing and publishing papers strategy. Berlin-
     Gorham will continue to manufacture these papers on behalf of the Company.
     The Company will market these grades (a minimum of 20,000 tons per year)
     and collect a commission based on the net sales price of these grades. The
     pro forma adjustment was calculated by applying the contractual commission
     to actual net sales of these grades during the periods presented.

(c)  Effective with the sale of Berlin-Gorham, the Company entered into a three
     year Pulp Purchase Agreement ("PPA") that provides for the purchase of
     40,000 tons of pulp from Berlin-Gorham at a discount off of quoted market
     prices. The pro forma adjustment reflects the estimated cost difference
     between the historical transfer costs of pulp from Berlin-Gorham to the
     Company's other mills and the estimated costs under the PPA.

(d)  Effective with the sale of Berlin-Gorham, the Company entered into a three
     year Paper Brokerage Agreement ("PBA") that provides for the Company to
     continue marketing and selling certain uncoated freesheet papers
     manufactured by Berlin-Gorham not covered under the SAA (estimated at
     130,000 tons annually). The Company will collect a commission on these
     sales based on the net sales price. The pro forma adjustment was calculated
     by applying the contractual commission to actual net sales of these grades
     during the periods presented.

(e)  As a result of the sale, management estimates that average accounts
     receivable eligible for sale under its securitization facility would have
     been reduced by approximately $8 million for the periods presented. The
     estimated reduction is approximately the same for all periods presented.
     This will result in a corresponding decrease in selling and administrative
     expenses associated with this facility.

(f)  The Company has agreed to provide certain transition services for Berlin-
     Gorham. The transition services agreement provides for reimbursement to the
     Company for certain general and administrative costs. The reimbursement is
     contractually set at a rate per month based on the estimated costs to the
     Company to perform these services.
<PAGE>

(g)  Reduction in interest expense reflects the pay down of term and revolver
     debt based on the estimated net proceeds from the sale. Net proceeds
     available for debt reduction is estimated to be $28 million with a minimum
     prepayment of $10 million to Term Loan B and the remainder to the Revolving
     Credit Facility. The amount of net cash proceeds available for debt
     reduction would not have materially varied for the periods presented. Cash
     proceeds of $45 million from the sale are reduced by transaction costs and
     certain current liabilities of Berlin-Gorham retained by the Company. Net
     proceeds available for debt reduction are calculated as follows (amounts in
     millions):

<TABLE>
<S>                                              <C>
     Cash proceeds                               $45.0
     Transaction fees                              1.8
     Accounts payable and accrued liabilities     15.2
                                                 -----
     Total                                       $28.0
                                                 =====
</TABLE>

(h)  The pro forma adjustment gives income statement effect to a valuation
     allowance against deferred tax benefits recognized for the period ended
     December 27, 1998. The adjustment also eliminates state and value-added
     taxes pertaining to Berlin-Gorham.

<PAGE>

                                                                    Exhibit 99.2

              Crown Vantage Completes Sale of New Hampshire Mills
                   To American Tissue Corp. for $45 Million

                       Highlights of the Transaction:

                         .  Reduces debt
                         .  Improves liquidity and cash flow
                         .  Eliminates Berlin-Gorham's historical losses
                         .  Focuses management and capital on specialized papers

     OAKLAND, Calif., July 9, 1999 - Crown Vantage Inc. (OTCBB:CVAN) said today
it has completed the sale of its pulp and paper mills in Berlin and Gorham,
N.H., to a subsidiary of American Tissue Corp. for approximately $45 million.
Crown Vantage will continue to outsource from ATC the production of its branded
printing papers made at the mills under a strategic marketing alliance announced
previously.

     "In evaluating our business opportunities, we determined that the Berlin
and Gorham operations were not consistent with our current strategic
direction," said Crown Vantage President and Chief Executive Officer Robert A.
Olah. "We are now focusing our efforts more intensively on specialized, value-
added papers used in printing, publishing and packaging, where we expect our
strongest growth, and have exited the market pulp and commodity white papers
markets.

     "This divestiture is in keeping with our strategy to reduce debt and
improve cash flow and liquidity. It also allows us to more fully concentrate on
the success of our remaining nine mills and to better focus our capital and
human resources on continuing the shift from a manufacturing-oriented business
to a marketing-driven organization. With the completion of this transaction, we
are now reviewing various recapitalization options to further strengthen our
financial position," Olah said.

     The company will apply net proceeds from the sale to pay down debt stemming
from its origin as a spin-off company from the former James River Corporation
in 1995. Crown Vantage said it will apply a minimum of $10 million as a
permanent reduction to its senior secured term loan with the balance funding
reduction in its

                                  -- more --
<PAGE>

     Page 2 -- Crown Vantage Mill Sale

revolving loan and certain retained liabilities related to the Berlin-Gorham
facilities. The revolving commitment from Crown Vantage lenders has not been
reduced, resulting in improved liquidity. A $5 million (net) letter of credit
will be terminated as part of the transaction and thus available as part of the
revolving commitment.

Company Anticipates Improved Financial Performance

     The company said it believes that operating results going forward will be
stronger without the New Hampshire operations, based on 1998 pro forma data. The
combined operations at Berlin and Gorham accounted for nearly 20 percent of
Crown Vantage net sales of $851 million in 1998. However, on a pro forma basis
Crown Vantage gross margins without the two mills would have been about 25
percent higher. The company's operating profit for 1998 before special charges
would have been about $11.5 million, compared to an operating loss of $8.3
million on an actual basis. Additional pro forma information will be filed on a
Form 8-K within 15 days as required by the Securities and Exchange Commission.

     "In addition to eliminating the historical losses experienced by these
facilities, we will avoid major capital expenditures that would have been
required, particularly in the environmental area," Olah said. "We now can
refocus management and capital on those operations and market niches that have
strategic importance for us.  All in all, we believe this is a major step
toward regaining profitability for Crown Vantage."

     The company continues to own and operate nine papermaking facilities in the
United States and Scotland with 26 paper machines and a variety of coating,
waxing, embossing, calendering and sheeting equipment dedicated to producing
high value-added specialty papers. Annual manufacturing capacity continues to
exceed 750,000 tons of paper. Additionally, Crown Vantage will continue to
market and sell about 150,000 tons a year of printing and publishing papers made
at the Gorham paper mill for a period of at least three years. To facilitate
execution of the ongoing marketing and outsourcing agreement, Crown Vantage will
retain a manager on site at Berlin-Gorham.

Breaking New Ground With Strategic Marketing Alliance

  "We're breaking new ground for our industry as we launch our marketing and

                                  -- more --
<PAGE>

Page 3 -- Crown Vantage Mill Sale

outsourcing alliance with ATC," Olah said. "That opens the possibility for us to
produce and commercialize our brands with even greater flexibility, enhancing
our ability to match capacity to the changing needs of the marketplace."

  Crown Vantage is pursuing an ongoing strategy to increase sales and target-
market share by focusing its business in value-added areas. These include its
high quality premium printing paper brands such as Graphika(R), King James(R)
Cast Coat, Squire(R) lightweight opaque papers, and the Curtis(R) Collection of
text, cover and writing papers. They also include coated groundwood publishing
papers for magazines, catalogs and commercial printing, and customized specialty
packaging and converting papers that are developed and produced for specific
customer end-use products such as coated label papers, disposable medical
garments, paper plates, sandwich wrappings, coffee filters and others.

  Separately, the company said it expects to report improved operating results
due to stronger sales volume and improving market conditions when it releases
its second quarter results during the fourth week of July. More information
about Crown Vantage is available on the Internet at www.crownvantage.com.

Forward-Looking Statements as Required by the Private Securities Litigation
Reform Act of 1995.

  This news release contains certain forward-looking statements concerning Crown
Vantage's positioning for the future. As required by the Private Securities
Litigation Reform Act of 1995, the company advises that forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those stated or inferred. These could include
the failure of Crown Vantage to improve financial results despite the sale of
the New Hampshire mills or to maintain liquidity following application of
proceeds to its debt and revolving loan. The company may determine that
recapitalization of its assets should not be pursued. There is also a risk that
the company may not succeed in executing its value-added marketing strategy.

                                     # # #
<PAGE>

Crown Vantage Profile After Sale Of New Hampshire Facilities


Businesses:
Printing and Publishing Papers
Specialty Papers

Manufacturing Sites:
Adams, Mass.
Parchment, Port Huron and Ypsilanti, Mich.
St. Francisville, La.
Milford, N.J.
Richmond, Va.
St. Andrews and Penicuik, Scotland

Paper Manufacturing Capacity: 750,000 tons per year

Pulp Manufacturing Capacity: A groundwood pulp mill and a kraft pulp mill at St.
Francisville, La., combine to manufacture 350,000 tons per year, used internally
for full integration of the St. Francisville paper mill.

Strategy: To increase sales and target-market share by focusing its businesses
in markets and niches for value-added printing, publishing and specialty papers
while continuing to reduce debt and improve liquidity of the corporation.


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